MODULE 2: PRESENTATION OF FINANCIAL STATEMENTS
Exam Weight: 14 %
Approximately 9 marks
PART A: PRESENTATION OF FS
Topic Notes IFRS Ref
2.1 Complete Set of FS
Objective of financial provide information about the financial position, financial IAS 1 61
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statements performance, cash flows….... results of the management’s stewardship of
the resources entrusted to it
Components a) statement of financial position b) statement of P/L and OCI c) statement
of changes in equity d) statement of cash flows e) notes f) comparative
information re preceeding period
See Figure 2.1 on page 61
Other appropriate titles entites are permitted to use other appropriate titles for the financial IAS 1 62
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statements e.g. balance sheet, statement of comprehensive income, etc
GPFS Reporting entities are required to prepare and present general purpose
financial statements
SPFS a non-reporting entity will normally prepare and present special purpose 62
financial statements (SPFSs)…....... must still apply, as a minimum, the
disclosure requirements of the following set of Australian Accounting
standards (see page 62)
AASB 1054 p. 9 Australian an entity is required to disclose in its accounting policy note whether the
Additional Disclosures financial statements are general purpose or special purpose financial
statements
IAS p. 11 An entity must give ‘equal prominence to all of the financial statements in
a complete set of financial statements’
Interim Financial Reports IAS 34 does not specify which entities have to prepare interim financial
reports
Section 302 of Corporations act require disclosing entities to prepare and
present half-year financial reports
Disclosing entity an entity that issues ‘enhanced disclosure’ (ED) securities
ASX Listing rules also require all listed entities to prepare and present half-
year financial reports
Half-year report contains condensed
financial statements and substantially reduced disclosure requirements
Additional Information required by law or voluntarily (e.g. financial review by management outside
of the financial statements)
Includes items in page 63
Segment Reporting applies to entities that are subect to Tier 1 reporting 63
presenting disaggregated financial information in the notes that enables
users to evaluate the nature and financial effects of business activities that
the entity engages in
IFRS 8 Objective to identify and report on operating segments effectively using the same
basis as the internal decision maker
Operating segment Components: 1) undertakes business activities; 2) regularly reviewed by
chief operating decision maker; 3) has discrete financial information
Disclosure requirement for See list in page 63-64
each reportable segment
Fair Presentation and Compliance with IFRS
Fair presentation The application of IFRSs, with additional disclosures where necessary, is IAS 1 64
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presumed to result in financial statements that are fairly presented
Compliance with IFRS requires a statement that the financial statements have been prepared in IAS 1
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accordance with IFRS
Departure depart from a requirement in an IFRS is not permitted except when
compliance would be so misleading that it does not provide relevant and
faithfully represented financial info
the departure from IFRS only if permitted by its regulatory framework with
full disclosure
Daparture disclosres see page 64
Non-compliance adopting an accounting policy that is not permitted by an IFRS and disclosing 64
the details in the notes to the financial statements does not overcome non-
compliance with an IFRS
Other General Features
Going Concern implicit assumption when preparing financial statements 65
If entity is not considered going concern - should be disclosed together
with: 1) the reason and 2) basis for FS preparation.
If significant uncertainty as to the continuity but FS are still prepared on
going concern, should disclose details of uncertainty
When no longer going concern, FS be prepared in a realisable or liquidation
basis
Accrual Basis items are recognised as assets, liabilities, equity, income and expenses when IAS 1 65
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they satisfy the definitions and recognition criteria in the Conceptual
Framework
Materiality and Aggregation
shall present separately each material class of similar items; shall present 66
separately items of a dissimilar nature or function unless they are immaterial
Materiality concept of materiality to assist preparers to decide which items can be
added together and which must be separately reported
Parts of Materiality 1) reasonable expectation to influence the decision making of users
2) nature or magnitude of information, or both
3) information is obscured if material info is hidden
Offsetting combining the balances, of assets and liabilities or income and expenses 66
may result in the loss of relevant information; detracts ability of users to
understand the transactions and other events
IAS 1 prohibits offsetting except:
1) current tax assets and liabilities
2) revenue from contracts (any trade discounts and volume rebates)
3) foreign exchange gains/loss
4) gains/losses on financial instruments
Not offsetting reporting assets net of valuation allowances is not offsetting and is
permissible
example: Trade receivables net of allowance for Doubtful Debts
Frequency of Reporting An entity shall present a complete set of financial statements (including
comparative information) at least annually
when entity change the end of its reporting period and presents financial
statements for a period longer or shorter than one year, should disclose:
1) reason for change and 2) and facts that amounts presented are not
entirely comparable
Comparative information must present comparative information regarding the preceding period for all 67
amounts reported in the current period’s financial statements, except when
the IFRSs permit or require otherwise
Consistency an entity should retain the presentation and classification items in the 67
financial statements from one period to the next, except when changed
due to:
1) change in accounting policy is necessary to show a
more appropriate presentation or classification
2) a change is required by an IFRS
2.2 Accounting Policies
Accounting policies the specific principles, bases, conventions, rules and practices applied by an IAS 8 68
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entity in preparing and presenting financial statements
Selection of Accounting Policies IAS 8 requires management to select and apply accounting policies using a
hierarchy; Where specific IFRSs requirements do not apply to a transaction,
other event or condition, IAS 8 requires management to use professional
judgment
Order of applicability 1)the requirements in the IFRSs that deal with similar and related issues
2) the Conceptual Framework’s definitions, recognition criteria and
measurement concepts for assets, liabilities, income and expenses (IAS 8,
para. 11).
3) may also apply pronouncements from other standard-setting bodies to
the extent that these are consistent with IFRS and CF
Consistency of Accounting an entity must apply its accounting policies consistently for similar 69
Policies transactions, other events and conditions unless categorisation of items is
allowed (e.g. PPE measured at cost and FV)
Disclosure of Accounting requires that the notes to the financial statements present information 69
Policies about the specific accounting policies used in the preparation of the
financial statements
Changes in Accounting Policies change in accounting policies is permitted only when: 70
1) change is required by an IFRS
2) results in the financial statements providing reliable and more relevant
information
Not a change in accounting 1) application of an accounting policy for transactions, other events or
policy conditions that differ in
substance from those previously occurring
2) application of a new accounting policy
Transitional provisions change in accounting policy due to a new IFRS, transitional provisions must
apply
Retrospective application if change due to new IFRS has not transitional provisions or change is
voluntary, must be applied retrospectively
1) adjustment in each equity component for the earliest prior period
presented
2) restatement of other comparative amounts disclosed for each prior period
If impracticable to adjust then applied on the earliest date practicable - adjusted through opening
comparative information retained earnings
Disclosures See page 71
2.3 Revision of Accounting Estimates and Correction of Errors
Changes in Accounting must be recognised prospectively by including it in the profit or loss in: 72
estimates
1) period of the change, the current period, if the change affects that period
only
2) period of the change and future periods, if the change affects both
Recognition of For income and expense - in either the current reporting period or the
Adjustments current and future reporting periods
For balance sheet accounts - in the reporting period of the change
Specific disclosure disclosure on the: nature, amount of revision in the current period and if
practicable effect on future reporting periods
Material Errors in prior When material errors are discovered subsequent reporting period, 73
period retrospective correction of the error in the first set of financial statements
issued after the error’s discovery must be made
Error Correction 1) restating the comparative amounts for the prior period(s)
2) if the error occurred before the earliest prior period presented ,
restating the opening balances
2.4 Events after the Reporting Period
Events after the reporting period are only reflected in the financial 75
statements up to the date of
authorisation for issue
- financial statements are considered to be authorised for issue on the
date that the directors approve the financials
See Figure 2.3 76
Adjusting Events events that provide new or further evidence of conditions that existed at the
end of the reporting period
an entity shall adjust the financial statements to reflect these events
Examples see page 76
Non-adjusting events events that reflect conditions that were not in existence at the end of the
reporting period, but which arose for the first time after the end of the
reporting period
Examples see page 77
See Figure 2.4 77
Dividends declared dividends declared/payable shall be regarded as a non-adjusting event and 78
be disclosed in the notes to the financial statements
Going Concern adjusting event - the financial statements would have to be presented on 78
the basis that the entity is not a going concern, for example, using
liquidation values
2.5 Impact of Technological Advancements
IBM, Oracle, SAP and many others are now offering powerful cloud-based 79
disclosure management applications that can automatically generate reports
that combine an entity’s structured financial data with narrative analysis