IAS 1 – Presentation of Financial Statements

1. Objective
The main purpose of IAS 1 is to prescribe the basis for presentation of
general-purpose financial statements to ensure comparability:
• With the entity’s own financial statements over time.
• With other entities’ financial statements.
It sets out:
• Overall requirements for the presentation of financial statements.
• Guidelines for their structure.
• Minimum content requirements.

2. Scope
• Applies to all general-purpose financial statements prepared in
accordance with IFRS.
• Not applicable to condensed interim financial statements (covered by IAS
34).

3. Key Features
• Fair presentation & compliance with IFRS: Must show a true and fair
view.
• Going concern: Assumes the entity will continue in operation for the
foreseeable future.
• Accrual basis: Except for cash flow information, financial statements
must be prepared using accrual accounting.
• Consistency of presentation: Must retain presentation & classification
unless a change provides more reliable/relevant info or is required by
IFRS.
• Materiality & aggregation: Material items must be presented separately;
immaterial items can be aggregated.
 • No offsetting: Assets and liabilities, or income and expenses, should not
be offset unless permitted by IFRS.

4. Components of a Complete Set of Financial Statements

According to IAS 1 (Revised 2007, effective 2009 and onwards), a complete set
includes:
1. Statement of Financial Position (Balance Sheet) at the end of the
period.
2. Statement of Profit or Loss and Other Comprehensive Income (OCI):
o Either as a single statement OR
o Two statements (a separate Profit or Loss statement and a
Statement of OCI).
3. Statement of Changes in Equity for the period.
4. Statement of Cash Flows (as per IAS 7).
5. Notes to the Financial Statements, including significant accounting
policies and other explanatory information.
6. Comparative Information for preceding period(s).
7. Third Statement of Financial Position (opening balance sheet) when:
o Restating retrospectively,
o Retrospective application of an accounting policy, or
o Reclassification of items.

5. Structure & Format Requirements

(A) Statement of Financial Position (Balance Sheet)
Typical Format:
• Assets
o Non-current assets
▪ Property, Plant & Equipment
 ▪ Intangible Assets
▪ Financial Assets (long-term)
▪ Investments in associates/joint ventures
▪ Deferred tax assets
▪ Other non-current assets
o Current assets
▪ Inventories
▪ Trade and other receivables
▪ Cash and cash equivalents
▪ Other current assets
• Liabilities
o Non-current liabilities
▪ Borrowings
▪ Provisions
▪ Deferred tax liabilities
o Current liabilities
▪ Trade and other payables
▪ Short-term borrowings
▪ Current tax liabilities
▪ Other current liabilities
• Equity
o Share capital
o Share premium
o Retained earnings
o Other reserves
o Non-controlling interests (if any)
(B) Statement of Profit or Loss and Other Comprehensive Income (SOPL
& OCI)
Single Statement Format (example):
• Revenue
• Other income
• Operating expenses
• Finance costs
• Share of profit/loss of associates & JVs
• Profit before tax
• Tax expense
• Profit for the year
• Other Comprehensive Income (OCI):
o Items that will not be reclassified to profit or loss (e.g., revaluation
surplus, actuarial gains/losses).
o Items that may be reclassified to profit or loss (e.g., foreign
currency translation, FVOCI investments).
• Total comprehensive income (Profit + OCI).

(C) Statement of Changes in Equity

Shows:
• Total comprehensive income for the period (split between owners & non-
controlling interests).
• Reconciliations of opening & closing balances of:
o Share capital
o Reserves
o Retained earnings
(D) Statement of Cash Flows
(Follows IAS 7 – Direct or Indirect Method).
• Operating Activities
• Investing Activities
• Financing Activities

(E) Notes to Financial Statements

Include:
• Basis of preparation.
• Statement of compliance with IFRS.
• Summary of significant accounting policies.
• Supporting information for line items in financial statements.
• Related party disclosures, contingencies, commitments, etc.

6. Presentation Principles
• Comparative information: At least one preceding period must be
presented.
• Uniform classification: Same items must be classified consistently.
• Current vs. non-current distinction: Except when a liquidity-based
presentation is more reliable.

7. Key Definitions in IAS 1

• Material: Omissions or misstatements are material if they could
influence users’ decisions.
• Other Comprehensive Income (OCI): Items not recognized in profit or
loss (e.g., revaluation gains, FX translation differences).
 • Total Comprehensive Income: Profit or loss + OCI.

In short
IAS 1 provides the foundation for financial statement presentation. It
standardizes format, content, and principles to ensure consistency and
comparability.

IAS 1 – Presentation of Financial Statements (Format)

1. Statement of Financial Position
As at [Date]

Assets Amount
Non-current assets:
• Property, Plant & Equipment
• Intangible Assets
• Financial Assets (long-term)
• Investments in Associates/Joint
Ventures
• Deferred Tax Assets
• Other Non-current Assets
Current assets:
• Inventories
• Trade and Other Receivables
• Cash and Cash Equivalents
• Other Current Assets

Equity and Liabilities

Equity and Liabilities Amount

Equity:
• Share Capital
• Share Premium
• Retained Earnings
• Other Reserves
• Non-controlling Interests
Non-current Liabilities:
• Borrowings
 • Provisions
• Deferred Tax Liabilities
Current Liabilities:
• Trade and Other Payables
• Short-term Borrowings
• Current Tax Liabilities
• Other Current Liabilities

2. Statement of Profit or Loss and Other Comprehensive Income

For the year ended [Date]

Revenue
Other Income
Operating Expenses
Finance Costs
Share of Profit/Loss of Associates & JVs
Profit Before Tax
Expense
Profit for the Year

Other Comprehensive Income (OCI):

• Items that will not be reclassified to Profit or Loss
• Items that may be reclassified to Profit or Loss

Total Comprehensive Income

3. Statement of Changes in Equity

For the year ended [Date]

Components:
• Opening Balance of Equity
• Profit or Loss for the Period
• Other Comprehensive Income
• Dividends
• Issuance/Redemption of Share Capital
 • Closing Balance of Equity

4. Statement of Cash Flows

For the year ended [Date]

Cash flows from Operating Activities

Cash flows from Investing Activities
Cash flows from Financing Activities
Net Increase/Decrease in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Period
Cash and Cash Equivalents at End of Period

5. Notes to Financial Statements

Notes should include:
• Basis of Preparation
• Compliance with IFRS
• Significant Accounting Policies
• Explanatory Notes for Line Items
• Related Party Disclosures
• Contingencies and Commitments

IFRS 9 Financial Instruments

1. Objective
IFRS 9 establishes principles for:
• Classification & measurement of financial assets and liabilities.
• Impairment (expected credit loss model).
• Hedge accounting.
It aims to provide users of financial statements with relevant information about:
• The entity’s financial position.
• Performance and cash flows.
2. Scope
Applies to all financial instruments, except:
• Interests in subsidiaries, associates, and joint ventures (covered under
IAS 27, IAS 28, IFRS 10).
• Employers’ rights and obligations under employee benefit plans (IAS 19).
• Insurance contracts (IFRS 17).
• Share-based payment transactions (IFRS 2).

3. Key Principles of IFRS 9

(A) Classification of Financial Assets
Financial assets are classified based on two tests:
1. Business Model Test – how the entity manages financial assets
(collecting cash flows, selling, or both).
2. SPPI Test (Solely Payments of Principal and Interest) – whether
contractual cash flows are only principal + interest.
Three categories of financial assets:
1. Amortised Cost
o Business model: hold to collect cash flows.
o Cash flows: SPPI.
o Example: Trade receivables, loans.
2. Fair Value Through Other Comprehensive Income (FVOCI)
o Business model: both collecting cash flows & selling.
o Cash flows: SPPI.
o Example: Bonds held for both interest and sale.
3. Fair Value Through Profit or Loss (FVTPL)
o Default category.
o Used if not meeting amortised cost or FVOCI criteria.
 o Example: Equity investments held for trading, derivatives.

(B) Classification of Financial Liabilities

• Generally measured at Amortised Cost.
• Exceptions measured at FVTPL:
o Held for trading.
o Designated at FVTPL to eliminate accounting mismatch.

(C) Impairment of Financial Assets

IFRS 9 replaces the old incurred loss model (IAS 39) with the Expected
Credit Loss (ECL) model.
• Recognize ECLs for:
o Financial assets at amortised cost.
o Debt instruments at FVOCI.
o Lease receivables (IFRS 16).
o Contract assets (IFRS 15).
ECL Approaches:
1. General Approach (3-Stage Model):
o Stage 1: Performing assets – 12-month ECL.
o Stage 2: Underperforming (significant increase in credit risk) –
Lifetime ECL.
o Stage 3: Credit-impaired – Lifetime ECL with interest on net
carrying amount.
2. Simplified Approach:
o For trade receivables, contract assets, lease receivables.
o Lifetime ECL always recognized.
(D) Hedge Accounting
Objective: Reflect risk management activities in financial reporting.
• Types of hedges:
1. Fair Value Hedge (hedging exposure to changes in fair value).
2. Cash Flow Hedge (hedging exposure to variability in cash flows).
3. Net Investment Hedge (hedging foreign operation net assets).
Requirements:
• Hedge relationship formally documented.
• Hedge must be effective (economic relationship between hedged item &
instrument).

4. Presentation
• Financial assets/liabilities classified per IFRS 9 must be presented
separately in the Statement of Financial Position.
• Gains/losses on remeasurement:
o FVTPL → Profit or Loss.
o FVOCI (debt) → OCI (recycled to P&L on disposal).
o FVOCI (equity) → OCI (not recycled).

5. Disclosures (IFRS 7 applies)

• Nature and extent of risks from financial instruments.
• ECL assumptions and credit risk exposure.
• Hedge accounting details.
Category Measurement Where Example
Basis gains/losses go?
Amortised Cost Effective interest Impairment in Trade receivables
method P&L
FVOCI (Debt) Fair value OCI → recycled Bonds
on disposal
FVOCI (Equity) Fair value OCI → not Equity
recycled investments
FVTPL Fair value P&L Derivatives,
trading securities
Liabilities Effective interest P&L on Bank loans
(Amortised Cost) method settlement
Liabilities Fair value P&L Trading liabilities
(FVTPL)

IFRS 9 fundamentally changed financial instruments accounting by:

1. Introducing a business-model + SPPI test for classification.
2. Replacing incurred losses with ECL model.
3. Aligning hedge accounting with risk management practices.