QUESTION 2b
IAS 1 goes on to suggest that enterprises should present additional statements such as
environmental reports and value added statements. What are the reasons given to justify the
presentation of these additional statements and when are they particularly used.
The reasons given to justify presentation of additional statements
Additional line items may be needed to fairly present the entity's results of operations.
Items cannot be presented as 'extraordinary items' in the financial statements or in the notes.
Certain items must be disclosed separately either in the statement of comprehensive income or in
the notes, if material, including:
write-downs of inventories to net realizable value or of property, plant and equipment to
recoverable amount, as well as reversals of such write-downs
restructurings of the activities of an entity and reversals of any provisions for the costs of
restructuring
disposals of items of property, plant and equipment
disposals of investments
discontinuing operations
litigation settlements
other reversals of provisions
Statement of cash flows
Rather than setting out separate requirements for presentation of the statement of cash flows,
Statement of changes in equity
IAS 1 requires an entity to present a separate statement of changes in equity. 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 any retrospective application of accounting policies or restatements made in
accordance with IAS , separately for each component of other comprehensive income
reconciliations between the carrying amounts at the beginning and the end of the period
for each component of equity, separately disclosing:
profit or loss
other comprehensive income*
transactions with owners, showing separately contributions by and distributions to
owners and changes in ownership interests in subsidiaries that do not result in a
loss of control
An analysis of other comprehensive income by item is required to be presented either in the
statement or in the notes.
The following amounts may also be presented on the face of the statement of changes in equity,
or they may be presented in the notes: [IAS 1.107]
amount of dividends recognized as distributions
the related amount per share.
Notes to the financial statements
The notes must:
present information about the basis of preparation of the financial statements and the
specific accounting policies used
disclose any information required by IFRSs that is not presented elsewhere in the
financial statements and
provide additional information that is not presented elsewhere in the financial statements
but is relevant to an understanding of any of them
Notes are presented in a systematic manner and cross-referenced from the face of the financial
statements to the relevant note.
IAS 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 (or bases) used in preparing the financial statements
the other accounting policies used that are relevant to an understanding of the
financial statements
supporting information for items presented on the face of the statement of financial
position (balance sheet), statement(s) 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:
o contingent liabilities and unrecognized contractual commitments
o non-financial disclosures, such as the entity's financial risk management
objectives and policies
QUESTION 2c
IAS 32 ‘Financial instruments: Disclosure and presentation’ states that the purpose of the
disclosures required by this standards is to provide information that will enhance understanding
of the significance of on-balance sheet and off-balance sheet financial instruments to an
enterprise’s financial position, performance and cash flow and assist in assessing the amounts,
timing and certainty for future cash flows associated with those instruments. State and briefly
describe three types of financial risks described in the standards, in relation to transactions in
financial instruments
DESCRIBING THE FINANCIAL RISKS DESCRIBED IN THE IAS STANDARDS
In accordance stated standards on Financial Instruments and Disclosures requires disclosure of
information about the significance of financial instruments to an entity, and the nature and extent
of risks arising from those financial instruments, both in qualitative and quantitative terms.
Specific disclosures are required in relation to transferred financial assets and a number of other
matters.
Certain new disclosures about financial instruments to those previously required by IAS 32
Financial Instruments: Disclosure and Presentation replaces the disclosures previously required
by IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions
This therefore puts all of those financial instruments disclosures together in a new standard
on Financial Instruments: Disclosures. The remaining parts of IAS 32 deal only with financial
instruments presentation matters.
Disclosure requirements
The set standards requires certain disclosures to be presented by category of instrument based on
the IAS 39 measurement categories. Certain other disclosures are required by class of financial
instrument. For those disclosures an entity must group its financial instruments into classes of
similar instruments as appropriate to the nature of the information presented.
The two main categories of disclosures required by the standards are:
1. Information about the significance of financial instruments.
2. Information about the nature and extent of risks arising from financial instruments
Information about the significance of financial instruments
Statement of financial position
Disclose the significance of financial instruments for an entity's financial position and perfor-
mance. This includes disclosures for each of the following categories:
Financial assets measured at fair value through profit and loss, showing separately
those held for trading and those designated at initial recognition
Feld-to-maturity investments
Loans and receivables
Available-for-sale assets
Financial liabilities at fair value through profit and loss, showing separately those
held for trading and those designated at initial recognition
Financial liabilities measured at amortised cost
Other balance sheet-related disclosures:
Special disclosures about financial assets and financial liabilities designated to be
measured at fair value through profit and loss, including disclosures about credit risk
and market risk, changes in fair values attributable to these risks and the methods of
measurement.
Reclassifications of financial instruments from one category to another (e.g. from
fair value to amortized cost or vice versa)
Information about financial assets pledged as collateral and about financial or non-fi-
nancial assets held as collateral
Reconciliation of the allowance account for credit losses (bad debts) by class of
financial assets
Information about compound financial instruments with multiple embedded deriva-
tives
Breaches of terms of loan agreements
Statement of comprehensive income
Items of income, expense, gains, and losses, with separate disclosure of gains and
losses from:
(a)
Financial assets measured at fair value through profit and loss, showing sepa-
rately those held for trading and those designated at initial recognition.
Held-to-maturity investments.
Loans and receivables.
Available-for-sale assets.
Financial liabilities measured at fair value through profit and loss, showing sepa-
rately those held for trading and those designated at initial recognition.
Financial liabilities measured at mortised cost.
Other income statement-related disclosures:
Total interest income and total interest expense for those financial instruments
that are not measured at fair value through profit and loss
Fee income and expense
Amount of impairment losses by class of financial assets
Interest income on impaired financial assets
Other disclosures
Accounting policies for financial instruments
Information about hedge accounting, including: Description of each hedge, hedging in-
strument, and fair values of those instruments, and nature of risks being hedged
For cash flow hedges, the periods in which the cash flows are expected to occur,
when they are expected to enter into the determination of profit or loss, and a de-
scription of any forecast transaction for which hedge accounting had previously been
used but which is no longer expected to occur
If a gain or loss on a hedging instrument in a cash flow hedge has been recognized in
other comprehensive income, an entity should disclose the following:
The amount that was so recognised in other comprehensive income during the period
The amount that was removed from equity and included in profit or loss for the
period
The amount that was removed from equity during the period and included in the
initial measurement of the acquisition cost or other carrying amount of a non-finan-
cial asset or non- financial liability in a hedged highly probable forecast transaction
Note: Where IFRS Financial Instruments (2013) is applied, revised disclosure re-
quirements apply. The required hedge accounting disclosures apply where the entity
elects to adopt hedge accounting and require information to be provided in three
broad categories: (1) The entity’s risk management strategy and how it is applied to
manage risk
(2) How the entity’s hedging activities may affect the amount, timing and uncer-
tainty of its future cash flows, and
(3) The effect that hedge accounting has had on the entity’s statement of financial
position, statement of comprehensive income and statement of changes in equity.
The disclosures are required to be presented in a single note or separate section in its
financial statements, although some information can be incorporated by reference.
For fair value hedges, information about the fair value changes of the hedging instru-
ment and the hedged item
Hedge ineffectiveness recognized in profit and loss (separately for cash flow hedges
and hedges of a net investment in a foreign operation)
Uncertainty arising from the interest rate benchmark reform
Information about the fair values of each class of financial asset and financial liability,
along with:
Comparable carrying amounts
Description of how fair value was determined
The level of inputs used in determining fair value
Reconciliations of movements between levels of fair value measurement
hierarchy additional disclosures for financial instruments whose fair value is de-
termined using level 3 inputs including impacts on profit and loss, other compre-
hensive income and sensitivity analysis
Information if fair value cannot be reliably measured
The fair value hierarchy introduces 3 levels of inputs based on the lowest level of input
significant to the overall fair value
Level 1 – quoted prices for similar instruments
Level 2 – directly observable market inputs other than Level 1 inputs
Level 3 – inputs not based on observable market data
NOTE THAT, disclosure of fair values is not required when the carrying amount is a reasonable
approximation of fair value, such as short-term trade receivables and payables, or for instruments
whose fair value cannot be measured reliably.
Nature and extent of exposure to risks arising from financial instruments
Qualitative disclosures
The qualitative disclosures describe:
Risk exposures for each type of financial instrument
Management's objectives, policies, and processes for managing those risks
Changes from the prior period
Quantitative disclosures
The quantitative disclosures provide information about the extent to which the entity is
exposed to risk, based on information provided internally to the entity's key management
personnel. These disclosures include:
Summary quantitative data about exposure to each risk at the reporting date
Disclosures about credit risk, liquidity risk, and market risk and how these risks are
managed as further described below
Concentrations of risk
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a loss for the other
party by failing to pay for its obligation.
Disclosures about credit risk include:
Maximum amount of exposure (before deducting the value of collateral), description
of collateral, information about credit quality of financial assets that are neither past
due nor impaired, and information about credit quality of financial assets whose
terms have been renegotiated
For financial assets that are past due or impaired, analytical disclosures are required
Information about collateral or other credit enhancements obtained or called
Liquidity risk
Liquidity risk
Liquidity risk is the risk that an entity will have difficulties in paying its financial liabilities.
Disclosures about liquidity risk include: [IFRS 7.39]
A maturity analysis of financial liabilities
Description of approach to risk management
Market risk
Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate
due to changes in market prices. Market risk reflects interest rate risk, currency risk and other
price risks.
Disclosures about market risk include:
A sensitivity analysis of each type of market risk to which the entity is exposed
Additional information if the sensitivity analysis is not representative of the entity's
risk exposure (for example because exposures during the year were different to
exposures at year-end).
IFRS provides that if an entity prepares a sensitivity analysis such as value-at-risk
for management purposes that reflects interdependencies of more than one
component of market risk (for instance, interest risk and foreign currency risk
combined), it may disclose that analysis instead of a separate sensitivity analysis for
each type of market risk
Transfers of financial assets
An entity shall disclose information that enables users of its financial statements:
1. to understand the relationship between transferred financial assets that are not
derecognized in their entirety and the associated liabilities; and
2. to evaluate the nature of, and risks associated with, the entity's continuing involvement in
derecognized financial assets.
Transferred financial assets that are not derecognized in their entirety
Required disclosures include description of the nature of the transferred assets, nature
of risk and rewards as well as description of the nature and quantitative disclosure
depicting relationship between transferred financial assets and the associated liabilities.
Transferred financial assets that are derecognized in their entirety
Required disclosures include the carrying amount of the assets and liabilities
recognized, fair value of the assets and liabilities that represent continuing involve-
ment, maximum exposure to loss from the continuing involvement as well as maturity
analysis of the undiscounted cash flows to repurchase the derecognized financial
assets.
Additional disclosures are required for any gain or loss recognized at the date of
transfer of the assets, income or expenses recognize from the entity's continuing in-
volvement in the derecognized financial assets as well as details of uneven distribution
of proceed from transfer activity throughout the reporting period.
Other disclosures
Judgments and key assumptions
An entity must disclose, in the summary of significant accounting policies or other notes, the
judgments, apart from those involving estimations, that management has made in the process of
applying the entity's accounting policies that have the most significant effect on the amounts
recognized in the financial statements.
Examples cited in IAS 1.123 include management's judgments in determining:
when substantially all the significant risks and rewards of ownership of financial assets
and lease assets are transferred to other entities
whether, in substance, particular sales of goods are financing arrangements and
therefore do not give rise to revenue.
An entity must also 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.
Dividends
In addition to the distributions information in the statement of changes in equity, the following
must be disclosed in the notes: the amount of dividends proposed or declared before the
financial statements were authorized for issue but which were not recognized as a distribution to
owners during the period, and the related amount per share
the amount of any cumulative preference dividends not recognized.
Capital disclosures
An entity discloses information about its objectives, policies and processes for managing capital.
To comply with this, the disclosures include:
qualitative information about the entity's objectives, policies and processes for
managing capital, including:
o description of capital it manages
o nature of external capital requirements, if any
o how it is meeting its objectives
quantitative data about what the entity regards as capital
changes from one period to another
whether the entity has complied with any external capital requirements and
if it has not complied, the consequences of such non-compliance.
Puttable financial instruments
IAS requires the following additional disclosures if an entity has a puttable instrument that is
classified as an equity instrument:
summary quantitative data about the amount classified as equity
the entity's objectives, policies and processes for managing its obligation to repurchase
or redeem the instruments when required to do so by the instrument holders, including
any changes from the previous period
the expected cash outflow on redemption or repurchase of that class of financial
instruments and
information about how the expected cash outflow on redemption or repurchase was
determined.
Other information
The following other note disclosures are required by IAS 1 if not disclosed elsewhere in
information published with the financial statements:
domicile and legal form of the entity
country of incorporation
address of registered office or principal place of business
description of the entity's operations and principal activities
if it is part of a group, the name of its parent and the ultimate parent of the group
if it is a limited life entity, information regarding the length of the life