CHAPTER 1

1. Development of Accounting Principles and Professional

Practice
 The environment of financial accounting
 Financial reporting requirements in Ethiopia
 The IASB and its governance structure
 List of IASB pronouncements
 The IASB’s conceptual framework for financial reporting
• Qualitative Objectives of financial reporting
• Characteristics of financial reports
• Elements of financial statements
• Recognition, measurement, and disclosure concepts
 IFRS-based Financial Statements (IAS 1)

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 The environment of financial accounting

 GLOBAL MARKETS
 World markets are becoming increasingly intertwined.
 Global Companies searching high sale wide finance
 Significant number of foreign companies are found on national
exchanges.
 Capital markets are increasingly integrated and companies have
greater flexibility in deciding where to raise capital.
 Technological advances and less onerous regulatory requirements
 Different Information needed for decision making
Economic Entity
 Financial Information
 Financial Statements
 Additional Information

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 GLOBAL MARKETS
 Economic Entity
 Financial Information- Accounting?- Identify, Measure
and Communicate
 Financial Statements
 Statement of Financial Position
 Income Statement or Statement of Comprehensive Income
 Statement of Cash Flows
 Statement of Changes in Equity
 Note Disclosures

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 GLOBAL MARKETS
 Additional Information
 President’s letter
 Prospectuses
 Reports filed with governmental agencies
 News releases
 Forecasts
 Environmental impact statements, Etc.

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 GLOBAL MARKETS

 Accounting and Capital Allocation- Resources are limited.

 Efficient use of resources often determines whether a
business thrives.
 Financial Reporting
 The financial information a company provides to help
users with capital allocation decisions about the company.
 Users (present and potential)
 Investors and creditors use financial reports to make their
capital allocation decisions.
 Capital Allocation
 The process of determining how and at what cost money
is allocated among competing interests.

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 GLOBAL MARKETS
High Quality Standards
Globalization demands a single set of high-quality international accounting standards. Some
elements:
1. Single set of high-quality accounting standards established by a single standard-
setting body.
2. Consistency in application and interpretation.
3. Common disclosures.
4. Common high-quality auditing standards and practices.
5. Common approach to regulatory review and enforcement.
6. Education and training of market participants.
7. Common delivery systems
8. Common approach to corporate governance and legal frameworks around the world.

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 Financial reporting requirements in Ethiopia

 Sound governance and effective institutions are essential to

achieve shared prosperity and sustained reductions in poverty.
 Public accountability and proper governance contribute to better
delivery of public services, support competition and growth,
including through cooperation with private sector.
 Quality information helps the government properly analyse risks
and play their essential roles in resolving the complex and
interconnected challenges in variety of sectors, including in health,
social protection and education.

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 Financial reporting requirements in Ethiopia

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 Financial reporting requirements in Ethiopia

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 OBJECTIVE OF FINANCIAL ACCOUNTING

Objective: Provide financial information about the reporting

entity that is useful to
► present and potential equity investors,

► lenders, and

► other creditors in making decisions about providing

resources to the entity.

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 OBJECTIVE OF FINANCIAL ACCOUNTING

General-Purpose Financial Statements

► Provide financial reporting information to a wide variety
of users.
► Provide the most useful information possible at the
least cost.

Equity Investors and Creditors

► Investors and creditors are the primary user group.

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 OBJECTIVE OF FINANCIAL ACCOUNTING

Entity Perspective
► Companies viewed as separate and distinct from their
owners (shareholders).

Decision-Usefulness
► Investors are interested in assessing
1. the company’s ability to generate net cash inflows and
2. management’s ability to protect and enhance the capital
providers’ investments.

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 STANDARD-SETTING ORGANIZATIONS

Main international standard-setting organization:

► International Accounting Standards Board (IASB)

● Issues International Financial Reporting Standards

(IFRS).

● Standards used on most foreign exchanges.

● IFRS used in over 115 countries.

● Organizations that have a role in international standard-

setting are the International Organization of Securities
Commissions (IOSCO) and the IASB.

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 STANDARD-SETTING ORGANIZATIONS

International Organization of Securities

Commissions (IOSCO)
► Does not set accounting standards.

► Dedicated to ensuring that global

markets can operate in an efficient
and effective basis.
http://www.iosco.org/
► Supports the use of IFRS as the
single set of international
standards in cross-border offerings
and listings.
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 STANDARD-SETTING ORGANIZATIONS

International Accounting Standards Board (IASB)

Composed of four organizations—

► IFRS Foundation

► International Accounting Standards Board (IASB)

► IFRS Advisory Council

► IFRS Interpretations Committee

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 International Accounting Standards Board

International Standard-Setting Structure

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 International Accounting Standards Board

Due Process
The IASB due process has the following elements:

1. Independent standard-setting board;

2. Thorough and systematic process for developing
standards;
3. Engagement with investors, regulators, business leaders,
and the global accountancy profession at every stage of
the process; and
4. Collaborative efforts with the worldwide standard-setting
community.
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 International Accounting Standards Board

International
Standard-Setting
Structure

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 International Accounting Standards Board

Types of Pronouncements
► International Financial Reporting Standards.

► Conceptual Framework for Financial Reporting.

► International Financial Reporting Standards Interpretations.

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 STANDARD-SETTING ORGANIZATIONS

Hierarchy of IFRS
Companies first look to:
1. International Financial Reporting Standards; International
Financial Reporting Standards, International Accounting
Standards (issued by the predecessor to the IASB), and IFRS
interpretations originated by the IFRS Interpretations
Committee (and its predecessor, the IAS Interpretations
Committee);
2. The Conceptual Framework for Financial Reporting; and
3. Pronouncements of other standard-setting bodies that use a
similar conceptual framework (e.g., U.S. GAAP).
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 FINANCIAL REPORTING CHALLENGES
ILLUSTRATION

IFRS in a Political Environment User Groups that Influence the

Formulation of Accounting
Standards

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 FINANCIAL REPORTING CHALLENGES

The Expectations Gap

What the public thinks accountants should do vs. what
accountants think they can do.

Significant Financial Reporting Issues

► Non-financial measurements

► Forward-looking information

► Soft assets

► Timeliness

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 FINANCIAL REPORTING CHALLENGES

Ethics in the Environment of Financial Accounting

► Companies that concentrate on “maximizing the bottom

line,” “facing the challenges of competition,” and
“stressing short-term results” place accountants in an
environment of conflict and pressure.

► IFRS do not always provide an answer.

► Technical competence is not enough when encountering

ethical decisions.

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 FINANCIAL REPORTING CHALLENGES

International Convergence
Examples of how convergence is occurring:
1. China’s goal is to eliminate differences between its standards and
IFRS.
2. Japan now permits the use of IFRS for domestic companies.
3. The IASB and the FASB have spent the last 12 years working to
converge their standards.
4. Malaysia helped amend the accounting for agricultural assets.
5. Italy provided advice and counsel on the accounting for business
combinations under common control.

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 THE IASB’S CONCEPTUAL FRAMEWORK
FOR FINANCIAL REPORTING
CONCEPTUAL FRAMEWORK
Conceptual Framework establishes the concepts that underlie
financial reporting.

Need for a Conceptual Framework

► Rule-making should build on and relate to an established

body of concepts.

► Enables IASB to issue more useful and consistent

pronouncements over time.

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 THE IASB’S CONCEPTUAL FRAMEWORK
FOR FINANCIAL REPORTING
Development of a Conceptual Framework
Presently, the Conceptual Framework is comprises of the following.
• Chapter 1: The Objective of General Purpose Financial Reporting
• Chapter 2: The Reporting Entity (not yet issued)
• Chapter 3: Qualitative Characteristics of Useful Financial Information
• Chapter 4: The Framework, comprised of the following:
1. Underlying assumption—the going concern assumption;
2. The elements of financial statements;
3. Recognition of the elements of financial statements;
4. Measurement of the elements of financial statements; and
5. Concepts of capital and capital maintenance.
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 ASSUMPTIONS PRINCIPLES CONSTRAINTS
1. Economic entity 1. Measurement 1. Cost
2. Going concern 2. Revenue recognition
Third level
3. Monetary unit 3. Expense recognition The "how"—
4. Periodicity 4. Full disclosure implementation
5. Accrual

QUALITATIVE
CHARACTERISTICS ELEMENTS
1. Fundamental 1. Assets
qualities 2. Liabilities Second level
2. Enhancing 3. Equity Bridge between
qualities 4. Income levels 1 and 3
5. Expenses
ILLUSTRATION
Conceptual Framework
for Financial Reporting OBJECTIVE
Provide information
about the reporting
entity that is useful
First level
to present and potential
equity investors,
The "why"—purpose
lenders, and other of accounting
creditors in their
capacity as capital
providers.
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 FIRST LEVEL: BASIC OBJECTIVE

OBJECTIVE
“To provide financial information about the reporting entity
that is useful to present and potential equity investors,
lenders, and other creditors in making decisions about
providing resources to the entity.

 Provided by issuing general-purpose financial statements.

 Assumption is that users need reasonable knowledge of business
and financial accounting matters to understand the information.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Qualitative Characteristics of Accounting

Information
IASB identified the Qualitative Characteristics of accounting
information that distinguish better (more useful) information
from inferior (less useful) information for decision-making
purposes.

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 FIRST LEVEL: BASIC OBJECTIVE

OBJECTIVE
“To provide financial information about the reporting entity
that is useful to present and potential equity investors,
lenders, and other creditors in making decisions about
providing resources to the entity.

 Provided by issuing general-purpose financial statements.

 Assumption is that users need reasonable knowledge of business
and financial accounting matters to understand the information.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Qualitative Characteristics of Accounting

Information
IASB identified the Qualitative Characteristics of accounting
information that distinguish better (more useful) information
from inferior (less useful) information for decision-making
purposes.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

ILLUSTRATION
Hierarchy of Accounting
Qualities

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 Relevance

ILLUSTRATION
Conceptual Framework
for Financial Reporting

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Relevance

To be relevant, accounting information must be capable of making a

difference in a decision.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Relevance

Financial information has predictive value if it has value as an input to

predictive processes used by investors to form their own expectations
about the future.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Relevance

Relevant information also helps users confirm or correct prior

expectations.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Relevance

Information is material if omitting it or misstating it could influence

decisions that users make on the basis of the reported financial
information.

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 Faithful Representation

ILLUSTRATION
Conceptual Framework
for Financial Reporting

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Faithful Representation

Faithful representation means that the numbers and descriptions

match what really existed or happened.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Faithful Representation

Completeness means that all the information that is necessary for

faithful representation is provided.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Faithful Representation

Neutrality means that a company cannot select information to favor one

set of interested parties over another.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Fundamental Quality—Faithful Representation

An information item that is free from error will be a more accurate

(faithful) representation of a financial item.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Enhancing Qualities

Information that is measured and reported in a similar manner for

different companies is considered comparable.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Enhancing Qualities

Verifiability occurs when independent measurers, using the same

methods, obtain similar results.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Enhancing Qualities

Timeliness means having information available to decision-makers

before it loses its capacity to influence decisions.

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SECOND LEVEL: FUNDAMENTAL CONCEPTS

Enhancing Qualities

Understandability is the quality of information that lets reasonably

informed users see its significance.

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 Basic Elements

ILLUSTRATION
Conceptual Framework
for Financial Reporting

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 SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements

A resource controlled by the entity as a

Asset
result of past events and from which future
economic benefits are expected to flow to
Liability the entity.

Equity

Income

Expenses

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 SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements

Asset
A present obligation of the entity arising
from past events, the settlement of which
Liability
is expected to result in an outflow from the
entity of resources embodying economic
Equity benefits.

Income

Expenses

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 SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements

Asset

Liability

The residual interest in the assets of the

Equity
entity after deducting all its liabilities.

Income

Expenses

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 SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements

Asset

Liability

Equity Increases in economic benefits during the

accounting period in the form of inflows or
enhancements of assets or decreases of
Income
liabilities that result in increases in equity,
other than those relating to contributions
Expenses from equity participants.

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 SECOND LEVEL: BASIC ELEMENTS
Elements of Financial Statements

Asset

Liability

Equity Decreases in economic benefits during the

accounting period in the form of outflows or
Income depletions of assets or incurrences of
liabilities that result in decreases in equity,
other than those relating to distributions to
Expenses
equity participants.
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THIRD LEVEL: RECOGNITION, MEASUREMENT,
AND DISCLOSURE CONCEPTS

These concepts explain how companies should recognize,

measure, and report financial elements and events.

Recognition, Measurement, and Disclosure Concepts

ASSUMPTIONS PRINCIPLES CONSTRAINTS
1. Economic entity 1. Measurement 1. Cost
2. Going concern 2. Revenue recognition
3. Monetary unit 3. Expense recognition
4. Periodicity 4. Full disclosure
5. Accrual

ILLUSTRATION Conceptual
Framework for Financial
Reporting

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 THIRD LEVEL: ASSUMPTIONS

Basic Assumptions
Economic Entity – company keeps its activity separate from its
owners and other business unit.

Going Concern - company to last long enough to fulfill objectives

and commitments.

Monetary Unit - money is the common denominator.

Periodicity - company can divide its economic activities into time

periods.

Accrual Basis of Accounting – transactions are recorded in the

periods in which the events occur.
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 THIRD LEVEL: BASIC PRINCIPLES

Measurement Principles
IASB established a fair value hierarchy that provides insight into the
priority of valuation techniques to use to determine fair value.
ILLUSTRATION 2-4

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 THIRD LEVEL: BASIC PRINCIPLES

Revenue Recognition
When a company agrees to perform a service or sell a product to
a customer, it has a performance obligation.

Requires that companies recognize revenue in the accounting

period in which the performance obligation is satisfied.

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 THIRD
LEVEL:
BASIC
PRINCIPLES
Illustration: Assume the
Airbus (DEU) signs a
contract to sell airplanes
to British Airways (GRB)
for €100 million. To
determine when to
recognize revenue,
Airbus uses the five
steps for revenue
recognition shown at
right.

ILLUSTRATION
The Five Steps of
1-58 Revenue Recognition
 THIRD LEVEL: BASIC PRINCIPLES

Expense Recognition - Outflows or “using up” of assets or

incurring of liabilities during a period as a result of delivering or
producing goods and/or rendering services.
ILLUSTRATION 2-6
Expense Recognition

“Let the expense follow the revenues.”

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 THIRD LEVEL: BASIC PRINCIPLES

Full Disclosure
Providing information that is of sufficient importance to
influence the judgment and decisions of an informed user.

Provided through:
 Financial Statements

 Notes to the Financial Statements

 Supplementary information

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 THIRD LEVEL: COST CONSTRAINT

Cost Constraint
Companies must weigh the costs of providing the information
against the benefits that can be derived from using it.

 Rule-making bodies and governmental agencies use cost-

benefit analysis before making final their informational
requirements.

 In order to justify requiring a particular measurement or

disclosure, the benefits perceived to be derived from it
must exceed the costs perceived to be associated with it.

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 Summary of
the Structure

ILLUSTRATION
Conceptual Framework
for Financial Reporting

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 IFRS-based Financial Statements (IAS 1)

Objective of IAS 1
Scope of IAS 1
Objective of Financial Statements
Components of Financial Statements
Presentation requirements

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 Objective of IAS 1
 The objective of IAS 1 is to prescribe the basis for
presentation of general purpose financial statements, to
ensure comparability both with
a) the entity's financial statements of previous periods and
b) with the financial statements of other entities.
 IAS 1 sets out the overall requirements for
 the presentation of financial statements,
 guidelines for their structure and
 minimum requirements for their content.
 Standards for recognizing, measuring, and disclosing
specific transactions are addressed in other Standards and
Interpretations.

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 Scope of IAS 1
 Applies to all general purpose financial statements based on
International Financial Reporting Standards.
 General purpose financial statements are those intended to
serve users who are NOT in a position to require financial
reports tailored to their particular information needs.

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 Objective of Financial Statements

 To provide information about the financial position,

financial performance, and cash flows of an entity that is
useful to a wide range of users in making economic
decisions.
assets

To meet that cash flows liabilities

objective, financial
statements provide contributions
information about by and
distributions equity
an entity's: to owners
income and
expenses,
including gains
and losses

That information, along with other information in the notes, assists users of
financial statements in predicting the entity's future cash flows and, in particular,
their timing and certainty.
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 Components of Financial Statements
 A complete set of financial statements should include:
1) Statement of Financial Position ”at the end of the period”,
2) Single Statement of Profit or Loss and Other Comprehensive Income
“for the period” (or two statements: Statement of Profit and Loss and
Statement of Other Comprehensive Income),
3) Statement of changes in equity ”for the period”,
4) Statement of Cash Flows “for the period”, and
5) Notes, comprising a summary of accounting policies and other
explanatory notes
 An entity must also present a statement of financial position as at the
beginning of the earliest comparative period when:
 an accounting policy is applied retrospectively; or
 items are restated retrospectively; or
 when items are reclassified
• Reports that are presented outside of the financial statements – Including
financial reviews by management, environmental reports, and value added
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 Presentation Requirements
♣ General Features
♣ Statement of Financial Position
♣ Statement of Profit or Loss and Other Comprehensive
income
♣ Statement of Cash Flows
♣ Statement of Change in Equity
♣ Notes to The Financial Statements

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 General Features
Structure and Content of Financial Statements in General
Clearly identify:
• The financial statements must be clearly identified and
distinguished from other information in the same published
document.
• Each financial statement and the notes must be clearly identified
• In addition the following must be displayed prominently:
• name of the reporting entity;
• whether the financial statements are of an individual entity or a
group;
• reporting date;
• presentation currency (as defined in IAS 21); and
• level of rounding used (thousands, millions, etc.)

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 General Features

Fair Presentation and Compliance with IFRSs

• The financial statements must "present fairly" the financial
position, financial performance and cash flows of an entity.
• Fair presentation requires the faithful representation of the
effects of transactions, other events, and conditions in
accordance with the definitions and recognition criteria for
assets, liabilities, income and expenses set out in the
Framework.
• IAS 1 requires that an entity whose financial statements
comply with IFRSs make an explicit and unreserved statement
of such compliance in the notes.
• Departure from a requirement might be required (extremely
rarely).

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 General Features

 In extremely rare cases compliance with an IFRS

requirement would be so misleading as to conflict
with the objective of financial statements set out in
“The Framework”
 Rebuttable presumption – there is no conflict where
other entities in similar circumstances comply with
the requirement

In assessing whether conflict exists

management must consider:
• why the objective is not achieved in the particular
circumstances; and
• how the entity’s circumstances differ from those of other
entities that comply with the requirement

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 General Features

Fair Presentation and

Compliance with IFRSs
• Inappropriate accounting
policies are NOT rectified
either by
• disclosure of the
accounting policies used or
• by notes or explanatory
material.

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 General Features

Going Concern

• An entity preparing IFRS financial statements

is presumed to be a going concern.
• If management has significant concerns about
the entity's ability to continue as a going
concern, the uncertainties must be disclosed.
• If management concludes that the entity is
NOT a going concern, the financial statements
should NOT be prepared on a going concern
basis, in which case IAS 1 requires a series of
disclosures.

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 General Features

Accrual Basis of Accounting

IAS 1 requires that an entity prepare its financial statements, except for
cash flow information, using the accrual basis of accounting.

Consistency of Presentation
The presentation and classification of items in the financial statements
shall be retained from one period to the next unless a change is justified
either by a change in circumstances or a requirement of a new IFRS.

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 General Features

Materiality and Aggregation

• Preparation of financial statements involves processing a large

number of transactions and aggregating these into classes
according to their nature or function
• The final stage in the process is the presentation line items on the
face of the financial statements
• Guidance
• Each material class of similar items must be presented separately
• Items of a dissimilar nature or function must be presented
separately unless they are immaterial
• If a line item is not individually material it is aggregated with other
items
• A specific disclosure requirement in IFRS need not be satisfied if
the information is not material

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 General Features

Offsetting

• Assets and liabilities, and income and expenses,

must not be offset unless required or permitted by
IFRS
• IAS 32 (Financial Instruments: Presentation)
contains rules on the offset of financial assets and
financial liabilities which require offset when (and
only when) an entity:
• has a legal right to set off; and
• intends to settle on a net basis; or
• to realise the asset and settle the liability
simultaneously

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 General Features

Comparative Information

• IAS 1 requires that comparative information

shall be disclosed in respect of the previous
period for all amounts reported in the
financial statements, both face of financial
statements and notes, unless another
Standard requires otherwise.
• If comparative amounts are changed or
reclassified, various disclosures are
required.

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 General Features

• There is a presumption that financial

statements will be prepared at least
annually.
• When an entity changes the end of its
Reporting reporting period (resulting in financial
statements covering a period longer or
Period shorter than one year) it must disclose:
• the reason for using a longer or shorter
period, and
• the fact that amounts presented in the
financial statements are not entirely
comparable

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 Statement of Financial Position

An entity must normally present a

classified statement of financial position,
separating current and noncurrent assets
and liabilities.

Only if a presentation based on liquidity

provides information that is reliable and
more relevant may the current/noncurrent
split be omitted.

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 Statement of Financial Position

Current assets

• are cash; cash equivalent; assets held for collection,

sale, or consumption within the entity's normal
operating cycle; or assets held for trading within the
next 12 months. All other assets are noncurrent.

Current liabilities

• are those to be settled within the entity's normal

operating cycle or due within 12 months, or those
held for trading, or those for which the entity does
NOT have an unconditional right to defer payment
beyond 12 months. Other liabilities are noncurrent.

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 Statement of Financial Position

When a long-term debt is expected to be refinanced

under an Existing loan facility and the entity has the
discretion, the debt is classified as Non-current, even if
due within 12 months.

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 Statement of Financial Position

 If a liability has become payable on demand because an entity has breached

an undertaking under a long-term loan agreement on or before the
reporting date, the liability is CURRENT, even if the lender has agreed,
after the reporting date and before the authorization of the financial
statements for issue, NOT to demand payment as a consequence of the
breach.
 However, the liability is classified as NON-CURRENT if the lender agreed
by the reporting date to provide a period of grace ending at least 12 months
after the end of the reporting period, within which the entity can rectify the
breach and during which the lender cannot demand immediate repayment.

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 Statement of Financial Position

 IAS 1 does NOT prescribe the format of the Statement of

Financial Position. Assets can be presented current then
noncurrent, or vice versa, and liabilities and equity can be
presented current then noncurrent then equity, or vice versa. A
net asset presentation (assets minus liabilities) is allowed.
 Certain items (“line items”) must be shown on the face of the
statement of financial position as a minimum:
 additional line items, headings and sub-totals are presented when relevant
to an understanding of financial position;

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 Statement of Profit or Loss and other Comprehensive
Income

Other
Comprehensive
Profit or Loss
Income
for that period
recognized in
that period.

Total Comprehensive
income for a period

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 Statement of Profit or Loss and other Comprehensive
Income

 All items of income and expense recognized

in a period must be included in profit or loss
unless a Standard or an Interpretation requires
otherwise.
 Some IFRSs require or permit that some
components to be excluded from profit or loss
and instead to be included in other
comprehensive income.

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 Statement of Profit or Loss and other Comprehensive
Income

The components of other comprehensive

income include:
• Changes in revaluation surplus (IAS 16 and IAS 38)
• Actuarial gains and losses on defined benefit plans
recognized in accordance with IAS 19
• Gains and losses arising from translating the financial
statements of a foreign operation (IAS 21)
• Gains and losses on remeasuring available-for-sale
financial assets (IAS 39)
• The effective portion of gains and losses on hedging
instruments in a cash flow hedge (IAS 39).

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 Statement of Profit or Loss and other Comprehensive
Income

An entity has a choice of presenting:

a single statement of profit or loss and

other comprehensive income or two
statements:
a statement of other
a statement of profit or loss comprehensive income that
displaying components of begins with profit or loss and
profit or loss and displays components of other
comprehensive income

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 Statement of Profit or Loss and other Comprehensive
Income

 No items may be presented in the statement of

profit or loss and other comprehensive income
(or in the statement of profit or loss, if separately
presented) or in the notes as ‘extraordinary
items’.
 Expenses recognized in profit or loss should be
analyzed either by nature (raw materials, staffing
costs, depreciation, etc.) or by function (cost of
sales, selling, administrative, etc).
 If an entity categorizes by function, then
additional information on the nature of expenses
– at a minimum depreciation, amortization and
employee benefits expense – must be disclosed.
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S1

Statement of Profit or Loss and other Comprehensive

Income
Revenue X
Expenses (X)
Share of profit of associate X
Profit before tax X
Income tax expense (X)
Profit from continuing ops X
Loss from discontinued ops (X)
PROFIT FOR THE YEAR X
May be two separate
statements
Other comprehensive income:
AFS assets X
Revaluation (X)
OCI before tax X
Tax relating to OCI (X)
OCI after tax X
TOTAL COMPREHENSIVE INCOME X

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S1

Statement of Profit or Loss and other Comprehensive

Income
Revenue X
Expenses (X)
Share of profit of associate X
Profit before tax X
Income tax expense (X)
Profit from continuing ops X
Loss from discontinued ops (X)
PROFIT FOR THE YEAR X
Other comprehensive income:
AFS assets X These are analysed into
Revaluation (X)
amounts attributable to
OCI before tax X
owners of the parent and
Tax relating to OCI (X)
to the NCI
OCI after tax X
TOTAL COMPREHENSIVE INCOME X

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S1

Statement of Profit or Loss and other Comprehensive

Income
Revenue X
Expenses (X)
Share of profit of associate X
Profit before tax X
Income tax expense (X)
Profit from continuing ops X
Loss from discontinued ops (X)
PROFIT FOR THE YEAR X
Other comprehensive income:
The components
AFS assets X
of OCI could also
Revaluation (X) be presented as
OCI before tax X net of tax
Tax relating to OCI (X) amounts rather
OCI after tax X than gross with
TOTAL COMPREHENSIVE INCOME X tax deducted

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 Statement of Cash Flows

IAS 1 refers to IAS 7

Statement of Cash Flows

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 Statement of Changes in Equity

IAS 1 requires an entity to present a statement of changes in

equity as a separate component of the financial statements. The
statement must show:
• total comprehensive income for the period, showing
separately amounts attributable to owners of the parent and to
non-controlling interests
• the effects of retrospective application, when applicable, for
each component
• reconciliations between the carrying amounts at the beginning
and the end of the period for each component of equity,
separately disclosing:
• profit or loss,
• each item of other comprehensive income, and
• transactions with owners.

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 Statement of Changes in Equity

Sh. cap. Ret. CTD AFS CFH Total NCI Total equity
earn’s
Balance b/f X X X X X X X X
Changes in acc policy
(X) (X) (X) (X)
Restated X X X X X X X X
Changes in equity in
year:
Share issue X X
Dividends (X) (X) (X)
Total comprehensive
income
X X X X X X X

Balance c/f X X X X X X X X

Disclosed in Statement of profit or loss and

other comprehensive income
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 Statement of Changes in Equity

 The amount of dividends recognised as distributions

to owners during the period, and the related amount
per share must be disclosed either in the statement of
changes in equity or in the notes

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 Notes to the Financial Statements

IAS 1 suggests that the notes should normally be presented in the

following order:
• a statement of compliance with IFRSs
• a summary of significant accounting policies applied, including:
• the measurement basis used in preparing the financial statements
• the other accounting policies used
• supporting information for items presented on the face of the statement
of financial position, statement of profit or loss and other
comprehensive income, statement of changes in equity and statement
of cash flows, in the order in which each statement and each line item
is presented
• other disclosures, including:
• contingent liabilities (see IAS 37) and unrecognized contractual
commitments
• non-financial disclosures, such as the entity's financial risk
management objectives and policies (see IFRS 7)

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 Notes to the Financial Statements

Disclosure of key sources of

estimation uncertainty.
• An entity must disclose, in the notes,
information about the key assumptions
concerning the future, and other key sources
of estimation uncertainty at the end of the
reporting period, that have a significant risk
of causing a material adjustment to the
carrying amounts of assets and liabilities
within the next financial year.
• These disclosures do not involve disclosing
budgets or forecasts

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 Notes to the Financial Statements

• the amount of dividends proposed or

declared before the financial
about Dividends
Disclosures

statements were authorized for issue

but not recognized as a distribution to
owners during the period, and the
related amount per share and the
amount of any cumulative preference
dividends not recognized.

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