IAS 1

Presentation of
financial
statements
 Outcome for this unit

Understand the objective and scope

Understand and apply the general features in IAS 1
Understand the current and non-current principles of assets and
liabilities
Correctly prepare and present a statement of profit and loss and
other comprehensive income for an entity in accordance with the
minimum disclosure requirements of the Companies Act and
International Financial Reporting Standards (IFRSs)
Correctly prepare and present a statement of financial position for an
entity in accordance with the minimum disclosure requirements of the
Companies Act and International Financial Reporting Standards
(IFRSs)
Correctly prepare and present a statement of changes in equity for an
entity in accordance with the minimum disclosure requirements of the
Companies Act and International Financial Reporting Standards
(IFRSs)
Objective of IAS 1
Prescribe the basis for presentation of general
purpose financial statements in order to improve
comparability both with:
•the enterprise’s own financial statements
of previous periods and
•with the financial statements of other
enterprises
Identification of financial
statements
The following information shall be displayed
prominently and repeated when necessary for a
proper understanding of the information presented:
•name of reporting entity (or other means of
identification) and any change in that information
from the preceding reporting date
•FS of an individual entity or group
•Reporting date or period covered
• presentation currency, and R$€¥£

• level of rounding used in presentation of amounts

(e.g. thousands or millions) R ’000
 Financial statements

•A complete set of financial statements:

Statement of financial position
Statement of profit and loss and other
comprehensive income
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
General features

1. Fair presentation and compliance with IFRSs

2. Going concern
3. Accrual basis
4. Materiality and aggregation
5. Offsetting
6. Frequency of reporting
7. Comparative information
8. Consistency of presentation
1. Fair presentation

• Financial statements shall be a fair

presentation of the
•financial position,
•financial performance and
•cash flows of an entity.
• An explicit and unreserved statement of
compliance with IFRS shall be made, if
the financial statements comply with all
the requirements of IFRS.
1. Fair presentation
Only in extremely rare circumstances where compliance with a IFRS
would lead to conflict with the objective of FS shall such departure be
made.
The following shall be disclosed:
•Management has concluded that the FS present fairly the entity’s
financial position, financial performance and cash flows
•It has complied with IFRS, except that it has departed from a
particular requirement to achieve fair presentation
•Title of Statement departed from,
•nature of departure,
•reason why treatment would be so misleading as to conflict with
objective of FS,
•treatment adopted, and for each period presented,
•the financial impact of the departure on each item that would have
been reported if entity had complied.
(Such a departure in previous period which affects amounts in current
period requires similar disclosure as stated here.)
2. Going concern
Management must assess entity’s ability to continue as a going
concern

What does it mean going concern?

A going concern is a business that functions without the

threat of liquidation for the foreseeable future, usually
regarded as at least within 12 months. The entity has
neither the intention nor the need to liquidate or curtail
materially the scale of its operations.
2. Going concern

Prepare FS on going concern basis, unless

• management intends to liquidate entity or
• cease trading, or
• has no realistic alternative but to do so.
Material uncertainties that cast doubt on entity’s ability to
continue as going concern shall be disclosed.
If FS are not prepared on a going concern basis, disclose:
• the fact,
• the basis used and
• the reason why the entity is not regarded as a going concern
3. Accrual basis
Entity shall prepare financial statements, except for cash
flow information, on accrual basis.

What is accrual basis?

Items are recognised when they satisfy definitions and

recognition criteria.

Transactions are recognised when they occur and not as

cash or its equivalents is received or paid.
4. Materiality and aggregation

Each material class of similar items

is presented separately as a line
item.

Items of dissimilar nature or function

are presented separately, unless
they are immaterial.
4. Materiality

When is an item material?

If the decisions of the users could be

influenced if they were misstated or
omitted, individually or collectively
It depends on the size/nature/both
4. Materiality

What do we do with immaterial

items?

Aggregate with other items

If items is immaterial, even if IFRS requires certain disclosure, it
may be ignored.
 Accounting process
2 Source
document
3

Transaction/
Journal
Event

Financial Ledger
statements

6
Trial
balance 5
5. Offsetting

What is offsetting?

Subtracting an expense from an income

Or
Subtracting a liability from an asset

And showing the net amount

5. Offsetting
Assets and liabilities, and income and expenses
are not offset unless required or permitted by
IFRS.
Exceptions:
•Measuring assets net of valuation allowances is not
offsetting (provision for obsolete stock, bad debt, etc..)
•Netting of related expenses against income is allowed
as it reflects the substance of the transactions
(profit/loss on disposal of PPE)
•Gains and losses on a group of similar transactions are
reported on a net basis, unless material (foreign
exchange gains/losses, fair value adjustments of
financial assets)
6. Frequency of reporting

•Annually
•Change in year end resulting 12 months:
oReason for using longer or shorter period
oThe fact that the amounts presented in the FS
are not entirely comparable
 7. Comparative information

Disclose comparative information i.r.o. previous period except where IFRS

requires otherwise for:
•all amounts reported in FS
•narrative and descriptive information – when it is relevant to an
understanding of the current period’s financial statements.
When presentation/classification of items is amended, reclassify comparative
amounts, unless impracticable. When reclassified, disclose:
•nature of reclassification
•amount of each item/class of items reclassified, and
•reason for reclassification
When it is impracticable to reclassify, disclose:
•reason for not reclassifying, and
•nature of adjustments that would have been made if reclassified
7. Comparative information

Voluntary comparative information:

• Extra comparative prior years can be given if we wish
(e.g. 2 prior periods instead of just a minimum of 1)
• We can give extra comparatives for:
- just one statement if we wish
- But notes supporting this statement must
include all prior periods
- All prior periods must comply with IFRS
7. Comparative information
Compulsory comparative information:
•Extra comparative prior must be given if a
material
retrospective adjustment is made (IAS 8)
•This extra comparative year refers to the opening
balances of the prior year (for example 2012 opening
balance = 2011 closing balance)
•Extra comparative year ONLY applies to the SOFP and
NOT the notes
8. Consistency of presentation
Retain classification and presentation of items in
financial statements unless:
another presentation or classification is more
appropriate after
•a significant change in nature of activities or
•review of financial statements, i.e.
IFRS requires a change in presentation.

Comparative information is reclassified when an

entity changes its presentation of its FS.
Statement of Financial Position

Present separately:
• Current assets
• Non-current assets CF explained that
• Current liability the entity’s
• Non-current liabilities financial position
• Equity (A – L) is reflected by its:
*Economic
resources
(Assets)and the
* Claims against
the resources
(Liabilities)
 Current vs Non-current ASSETS
An asset shall be classified as CURRENT when it
satisfies any of the following criteria:
 it is expected to be realised in, or is intended for
sale or consumption in, the entity’s normal
operating cycle;
 it is held primarily for the purposes of being
traded;
 it is expected to be realised within 12 months
after the reporting date; or
• it is cash or a cash equivalent
All other assets = non-current
Current vs Non-current LIABILITIES
A liability shall be classified as CURRENT when it
satisfies any of the following criteria:
•it is expected to be settled in the entity’s normal
operating cycle;
•it is held primarily for the purpose of being traded;
•it is due to be settled within 12 months after the
reporting date; or
•the entity does not have an unconditional right to
defer settlement of the liability for at least 12 months
after the reporting date.

All other liabilities = non-current.

 Statement of Financial Position

Order of assets is from less liquid

to most liquid
Inventory

Trade and other receivables

Cash and cash equivalents

 Presentation: SOFP
STATEMENT OF FINANCIAL POSITION AS AT....................
ASSETS
NON-CURRENT ASSETS CARRYIN
XXXX
Property, plant and equipment (IAS 16) G xxxx
AMOUNT
Investment properties (IAS 40)
Intangible Assets (IAS 38)
(Cost less accumulated amortisation) xxxx
Long-term investments (IFRS 9) (e.g.
shares not held for trading) Deferred xxxx
tax assets (IAS 12) xxxx
Presentation: SOFP
CURRENT ASSETS XXXX
Inventories xxxx
(balance at year end less any provisions
for loss of or damage to stock)
Trade and other receivables xxxx
(Accounts receivable less provision for
credit losses. Includes: Accrued Income,
Prepaid Expenses, All Deposits e.g. rent,
electricity and water)
Cash and Cash Equivalents xxxx
(Current accounts, deposit bank account,
petty cash)

TOTAL ASSETS XXXX

Presentation: SOFP

EQUITY AND LIABILITIES

CAPITAL AND RESERVES XXXX
Issued Share Capital xxxx
(ordinary share capital,
non-redeemable preference shares,
share premium)
Retained Earnings Revaluation xxxx
surplus Other reserves xxxx
xxxx
Presentation: SOFP
NON-CURRENT LIABILITIES XXXX
Redeemable Preference Share Capital xxxx
Debentures xxxx
Long term liability xxxx
(Loans payable > 12 months, Finance
Lease liability) Deferred tax liability xxxx
Presentation: SOFP
CURRENT LIABILITIES XXXX
Trade and other payables xxxx
(Accounts payable, accrued expenses
e.g. salaries, interest payable, VAT
payable)
Provisions Dividends Payable xxxx
Taxation Payable xxxx
Current Portion of Long term Loan xxxx
Bank overdraft xxxx
TOTAL EQUITY AND LIABILITIES xxxx
XXXX
Statement of Financial
Position

Tips for presentation questions:

•Show all your calculations in brackets on the face of the
statement of financial position
•Show what each value comprises in brackets (if there is
more than one value in a total)
 Statement of profit and loss and other
comprehensive income
• Statement of profit and loss and other comprehensive
income has sections for:
 profit or loss and
 other comprehensive income
 Statement of profit and loss and other
comprehensive income
Alternative presentation:
 2 separate

Page 25 - 26!!
Statement Statement
of profit and loss of other
comprehens
OR ive income
 1 Statement of profit and
loss and other
comprehensive income
 Statement of profit and loss and other
comprehensive income
1 Statement of profit and loss and other
comprehensive income

P/L section OCI section

3 Totals:
1. P/L
2. OCI
3. TCI
 Statement of profit and loss and other
comprehensive income
Profit or loss:
Income and expense excluding other comprehensive income

Other comprehensive income:

Items of income and expense that are not recognised in profit or loss
Eg’s: effective portion of cash flow hedge / changes in revaluation
surplus / gains or losses on remeasuring available-for-sale financial
assets / gains or losses on translation of a foreign operation/ Actuarial
gains (losses) on defined benefit pension plans / Share of other
comprehensive income of associates

Total comprehensive income:

Total of profit or loss and other comprehensive income
 Other comprehensive income

Other comprehensive income:

Items that will not be reclassified to profit and loss
Share of other comprehensive income of associates Group statement x
Gains/(losses) on financial assets @ OCI Financial instruments x
Credit risk component on designated financial liabilities Financial instruments x
Gains on property revaluation PPE x
Actuarial gains (losses) on defined benefit pension plans Employee benefits x
Income tax relating to components of other comprehensive income (x)
Items that may be reclassified to profit and loss

Exchange differences on translating foreign operations Group statement x

Cash flow hedges Financial instruments x
Income tax relating to components of other comprehensive income (x)

Other comprehensive income for the year, net of tax xx

Statement of profit and loss and other
comprehensive income

•Additional disclosure for allocation of total

comprehensive income between non-
controlling interest and owners of the
parent
•NCI share of profit is not an expense but
an allocation of profits

Group statement
 Statement of profit and loss and other
comprehensive income
•Components of other comprehensive
income can be shown:
 Net of related tax effects, or
 Before tax effects, with a single amount for
the aggregate tax effect
Each amount reported after tax

Net of related tax effects

Before tax, with a single amount for tax

Single amount
Before tax for tax
Note to OCI

To calculate the tax effect to each component of other

comprehensive income
Total tax effect then carry over to the face of OCI:
“Income tax relating to components of other
comprehensive income”
 Analysis of expenses
Presented on face or in notes

2 Types of analysis:
Function method
Nature method
Analysis of expenses

How do I know when to use Nature

or function method?

Depends on which one will provide more reliable and relevant

information

Function method preferred

I will tell you in test which one I want, if not,

Function!
Analysis of expenses

What is the difference between the

nature or function method?
Nature method Ex
2.8

XXX Ltd
Statement of profit and loss and other
comprehensive income for the year ended xxxx
Revenue Other income xxx
Add/(Less) Changes in inventories of xxx
FG/WIP
Raw material and consumables used (xxx)
Employee benefit costs (xxx)
Depreciation Other expenses Total (xxx)
expenses Finance cost (xxx)
(xxx)
(xxx)
(xxx)
 Ex
Function method 2.9

XXX Ltd
Statement of profit and loss and other
comprehensive income for the year ended xxxx
Revenue Other xxx
income Cost of xxx
sales (xxx)
Distribution costs (xxx)
Administration costs (xxx)
Other expenses (xxx)
Finance cost (xxx)
Profit before tax xxxx

Preferred method!!!!
 Statement of changes in equity

• Total comprehensive income analyzed between the different

components in equity to reconcile opening and closing carrying
values
This analysis splits between non-controlling interest and owners
of the parent portions
Interesting point to note: no detailed disclosure of non-controlling
interest in each component of other comprehensive income 
makes it difficult to reconcile to figures in statement of changes in
equity
Dividends recognised and DPS now presented in statement of
changes in equity or in the notes  No longer below the
statement of profit and loss and other comprehensive income
 Statement of Cash flow
IAS 7
We will get back to this 2nd semester!!
Notes to the AFS

Disclose information required by IFRS that is not

presented on the face of the FS
Provide additional information that is not presented on the
face of the FS but is relevant to an understanding of any
of them, and
Present notes in a systematic manner
Each item on the face of the FS shall be cross-referenced
to any related information in the notes.
An entity shall disclose in the summary of the significant
accounting policies:
•the measurement basis (or bases) used in preparing FS
and
•the other accounting policies used that are relevant to
an understanding of the FS.
Notes to the AFS

An entity shall disclose, in the summary of significant

accounting policies or other notes, the judgements, apart
from those involving estimations, management has made
in the process of applying the entity’s accounting policies
that have the most significant effect on the amounts
recognised in the financial statements.
 Notes to the annual financial statements

An entity shall disclose in the notes information about the key

assumptions concerning the future, and other key sources of
estimation uncertainty at the reporting date, that have a
significant risk of causing a material adjustment to the carrying
amount of assets and liabilities within the next financial year. In
respect of those assets and liabilities, the notes shall include
details of:
•their nature and
•their carrying amount as at the reporting date.

It is not necessary to include budgeted figures

Other disclosure

An entity shall disclose the following if not disclosed

elsewhere in information published with the FS:
•Domicile
•legal form
•country of incorporation
•address of registered office
•description of nature of operations and principal
activities
•name of parent and ultimate parent of the group
•Limited life entity = length of life
Dividends
YE

Declare dividend
obligation @ YE
liability
However…… Past practise
constructive
obligation

Disclosure!
In notes to AFS
Total dividend +
DPS
Distributions to owners

Other information disclosed in notes:

the amount of dividends proposed or declared before the
FS were authorised for issue, but not recognised as a
distribution to equity holders during the period, and the
related amount per share; and
the amount of any cumulative preference dividend not
recognised.
Distribution of
non-cash assets
Will be dealt with when we do IFRS 5
 IAS 1 and the impact
on all journal entries
References in journal entries
Previously referenced as: Now referenced as:

(I/S) (P/L)

(B/S) (F/P)

For equity transactions not with

owners:
(equity) (OCI)
For equity transactions with owners
(including the realisation of
revaluation surplus to retained
earnings)
(SCE)
(equity)
Illustrative examples

Accounting Standards
Page 12– 16
 How will IAS 1 be tested?

Presentation of SOFP, SOCI and SCE

Disclosure of notes (as we get to all the other IFRS’e)
QUESTIONS ????
 Activities
IAS 1.1-1.8 = Self study IAS 1.9, = Class work

IAS 1.10 -1.12, 1.17 - 1.18 = DPS

(will do when we do IAS 33)

IAS 1.13 = Don’t do

IAS 1.14 – 1.15 = Self study IAS1.19 = Don’t do

HOMEWORK
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HOMEWORK