PRESENTATION OF

FINANCIAL
STATEMENTS
IAS 1
 PRESENTATION OF
FINANCIAL STATEMENTS:
OBJECTIVE
SCOPE
i. Purpose of financial statements
ii. Complete set of financial statements
iii. General features
STRUCTURE AND CONTENT
iv. Identification of the financial statements
v. Statement of financial position
vi. Statement of profit or loss and other comprehensive
income
vii. Statement of changes in equity
 OBJECTIVE OF IAS 1

• This Standard prescribes the basis for presentation

of general purpose financial statements to ensure
comparability both with the entity’s financial
statements of previous periods and with the
financial statements of other entities.
• It sets out overall requirements for the presentation
of financial statements, guidelines for their
structure and minimum requirements for their
content
 PURPOSES OF
PREPARING FINANCIAL
STATEMENT
• IAS 1 .9 describes financial statements as structured representations of
the financial position, financial performance and cash flows of an entity
that is useful to a wide range of users in making economic decisions.
• Financial statements not only provide information to users but also show
the result of management’s stewardship of the resources entrusted to
them.
• To meet its purpose, financial statements provide information about an
entity’s:
 Assets;
 Liabilities;
 Equity;
 Income and expenses, including gains and losses;
 Other changes in equity; and
 Cash flows.
• The standard observes that this information, along with other
information in the notes, would assist users of financial statements in
 COMPONENTS OF
FINANCIAL STATEMENTS
• According to IAS 1. 10, a complete set of financial
statements comprises:
A statement of financial position as at the end of the
period;
A statement of profit or loss and other comprehensive
income for the period;
A statement of changes in equity for the period;
A statement of cash flows for the period; and
Notes, comprising a summary of significant accounting
policies and other explanatory notes.,
 FAIR PRESENTATION AND
COMPLIANCE WITH IFRS
Fair presentation and compliance with IFRSs:
• Financial statements shall 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 Conceptual Framework for Financial Reporting
(Conceptual Framework). The application of IFRSs, with additional
disclosure when necessary, is presumed to result in financial statements
that achieve a fair presentation.
• An entity whose financial statements comply with IFRSs shall make an
explicit and unreserved statement of such compliance in the notes.
• An entity shall not describe financial statements as complying with IFRSs
unless they comply with all the requirements of IFRSs.
 GOING CONCERN
Going concern
• When preparing financial statements, management shall make an
assessment of an entity’s ability to continue as a going concern.
• An entity shall prepare financial statements on a going concern basis
unless management either intends to liquidate the entity or to cease
trading, or has no realistic alternative but to do so.
• When management is aware, in making its assessment, of material
uncertainties related to events or conditions that may cast
significant doubt upon the entity’s ability to continue as a going
concern, the entity shall disclose those uncertainties.
• When an entity does not prepare financial statements on a going
concern basis, it shall disclose that fact, together with the basis on
which it prepared the financial statements and the reason why the
entity is not regarded as a going concern.
 GOING CONCERN
• In assessing whether the going concern assumption is appropriate,
management takes into account all available information about the
future, which is at least, but is not limited to, twelve months from the
end of the reporting period.
• The degree of consideration depends on the facts in each case.
• When an entity has a history of profitable operations and ready
access to financial resources, the entity may reach a conclusion that
the going concern basis of accounting is appropriate without detailed
analysis.
• In other cases, management may need to consider a wide range of
factors relating to current and expected profitability, debt repayment
schedules and potential sources of replacement financing before it
can satisfy itself that the going concern basis is appropriate.
 ACCRUAL BASIS
OF ACCOUNTING
Accrual basis of accounting
• An entity shall prepare its financial
statements, except for cash flow
information, using the accrual basis of
accounting.
• When the accrual basis of accounting is
used, an entity recognises items such as
assets, liabilities, equity, income and
expenses (the elements of financial
statements) when they satisfy the
 MATERIALITY AND
AGGREGATION

Materiality and aggregation

• An entity shall present separately each material

class of similar items.
• An entity shall present separately items of a
dissimilar nature or function unless they are
immaterial.
 OFFSETTING
Offsetting
• An entity shall not offset assets and liabilities or income and
expenses, unless required or permitted by an IFRS. An entity
reports separately both assets and liabilities, and income and
expenses.
• Offsetting in the statement(s) of profit or loss and other
comprehensive income or financial position, except when
offsetting reflects the substance of the transaction or other event,
detracts from the ability of users both to understand the
transactions, other events and conditions that have occurred and
to assess the entity’s future cash flows.
• Measuring assets net of valuation allowances—for example,
obsolescence allowances on inventories and doubtful debts
 FREQUENCY OF REPORTING

Frequency of reporting
• An entity shall present a complete set of financial statements
(including comparative information) at least annually.
• When an entity changes the end of its reporting period and
presents financial statements for a period longer or shorter
than one year, an entity shall disclose, in addition to the
period covered by the financial statements:
(a) the reason for using a longer or shorter period, and
(b) the fact that amounts presented in the financial
statements are not entirely comparable.
 COMPARATIVE INFORMATION
Comparative information
• Minimum comparative information except when IFRSs permit or require
otherwise, an entity shall present comparative information in respect of the
preceding period for all amounts reported in the current period’s financial
statements.
• An entity shall include comparative information for narrative and
descriptive information if it is relevant to understanding the current
period’s financial statements.
• An entity shall present, as a minimum, two statements of financial position,
two statements of profit or loss and other comprehensive income, two
separate statements of profit or loss (if presented), two statements of cash
flows and two statements of changes in equity, and related notes.
 COMPARATIVE INFORMATION

• In some cases, narrative information provided in the financial

statements for the preceding period(s) continues to be
relevant in the current period.
• For example, an entity discloses in the current period details
of a legal dispute, the outcome of which was uncertain at the
end of the preceding period and is yet to be resolved.
• Users may benefit from the disclosure of information that the
uncertainty existed at the end of the preceding period and
from the disclosure of information about the steps that have
been taken during the period to resolve the uncertainty.
 CONSISTENCY OF
PRESENTATION

Consistency of presentation
An entity shall retain the presentation and classification of items
in the financial statements from one period to the next unless:
• (a) it is apparent, following a significant change in the
nature of the entity’s operations or a review of its financial
statements, that another presentation or classification would
be more appropriate having regard to the criteria for the
selection and application of accounting policies in IAS 8; or
• (b) an IFRS requires a change in presentation.
 STRUCTURE AND CONTENTS OF
FINANCIAL STATEMENTS

• IAS 1.47 requires particular disclosures on the face of

the statements of financial position, statements of
profit or loss and other comprehensive income and
statement of changes in equity and requires
disclosure of other line items either on the face of
those statements or in the notes.
• With regard to the statement of cash flows,
requirements regarding disclosure in this statement
are set out in IAS 7, which deals with the statement
of cash flow
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS
Identification of financial statements
• IAS 1.51 to .53 require that each component of the financial
statements shall be identified clearly so that the users can easily
distinguish them from other information complied in financial reports.
In addition, the following information shall be displayed prominently
and repeated when it is necessary for a proper understanding of the
information presented:
 The name of the reporting entity;
 The date at the end of the reporting period or the period covered
by the set of financial statements or notes;
 The presentation currency;
 The level of rounding used in presenting amounts in the financial
statements.
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS
Statement of financial position (information about the
financial position of the entity):
• The economic resources available to generate future cash flows;
• The financial structure with emphasis on own and borrowed
capital and may be used to predict future borrowing needs;
• The liquidity position and may be used to predict the availability
of cash after settling financial commitments for the same
period; and
• The solvency position and may be used to predict the
availability of cash over longer periods to meet financial
commitments as they fall due.
 STRUCTURE AND CONTENTS OF
FINANCIAL STATEMENTS

Statement of financial position

• As a minimum, the statement of financial position shall include line
items that present the following amounts: IAS 1.54:
 Property, plant and equipment
 Investment property
 Intangible assets
 Financial assets (for example an equity instrument of another
entity held for investment purposes or a cash investment)
 Inventories
 Trade and other receivables
 Cash and cash equivalents
 Trade and other payables
 Financial liabilities
 Issued capital and reserves
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS

• IAS 1.55 to 57 further states that an entity shall present

additional line items, headings and subtotals in the
statement of financial position when such presentation
is relevant to an understanding of the entity’s financial
position.
• These line items are included when the size, nature or
function of an item or aggregation of similar items such
that separate presentation is relevant to an
understanding of the entity’s financial position.
 STRUCTURE AND
CONTENTS OF FINANCIAL
STATEMENTS

• An entity shall present current and

non-current assets, and current and
non-current liabilities as separate
classification in the statement of
financial position (IAS 1.60)
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS
Information to be presented either in the statement of
financial position or in the notes
• According to IAS 1.77, an entity shall disclose, either in the
statement of financial position or in the notes, further sub
classifications of the line items presented, classified in a manner
appropriate to the entity’s operations. For example, items of
property, plant and equipment are disaggregated into
appropriate classes, while receivables are disaggregated into
amounts such as accrued income (IAS 1.78)
• While IAS 1.79(a) deals with how the share capital and reserves
of a company shall be disclosed
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS
• Statement of profit or loss and other
comprehensive income (information about the
financial performance of the entity):
• Allows assessment of potential changes in
economic resources in the future;
• Permits assessment of potential effective use of
additional resources; and
• Is useful in predicting the capacity of the entity to
generate cash flows from existing resources.
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS

Statement of profit or loss and other comprehensive

income
• According to IAS 1.81 an entity shall present all items of
income and expenses recognised in a period:
• In a single statement of profit or loss and other
comprehensive income; or
• In two statements: a statement displaying components of
profit or loss (separate income statement) and a second
statement beginning with profit or loss and displaying
components of other income (statement of comprehensive
income).
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS
Information to be presented in the statement of profit or loss
and other comprehensive income
As a minimum, the statement of profit or loss and other
comprehensive income shall include line items that present the
following amounts for the period (IAS 1.82):
 Revenue
 Operating expenses
 Finance costs
 Tax expense
 Profit or loss
 Each component of other comprehensive income classified by nature; and
 Total comprehensive income

Additional line items, headings and subtotals shall be presented in the

statement of profit or loss and other comprehensive income when such
presentation is relevant to an understanding of the entity’s financial
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS
Information to be presented either in the statement of profit or
loss and other comprehensive income on in the notes
• According to IAS 1.97 to .98, when item of income and expenses are
material, their nature and amount shall be disclosed separately, for
example:
 The write downs of inventories to the net realisable value and reversal of such
write-downs;
 The disposal of items of property, plant and equipment; and
 The disposal of investments.

• IAS 1.99 further states that an entity shall present an analysis of

expenses using a classification based on either the nature of the
expense or its function within the entity, classification based on either
the nature of the expense or its function within the entity, whichever
provides information that is reliable and more relevant
STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS

Statement of changes in equity (information about

changes in the capital structure of an entity):
• Allows assessment of changes in equity and transactions
affecting equity.
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS

Statement of changes in equity

(a) Information to be presented in the statement of changes in equity
• According to IAS 1.106, an entity shall present a statement of changes in
equity showing in the statement:
• Total comprehensive income for the period
• The amounts of transactions with owners acting in their capacity as owners,
showing contributions by and distribution to owners separately; and
• For each component of equity, a reconciliation between the carrying amount at
the beginning and the end of the period, separately disclosing each change.
(b) Information to be presented in the statement of changes in equity
or in the notes (IAS 1.107)
• The amount of dividends recognised as distribution to owners during the
period, and the related amounts per share.
STATEMENT OF CHANGES IN EQUITY
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS

Statement of cash flows (information about changes in

the financial position of entity):
• Allows assessment of the operating investing and financing
activities of an entity and its ability to generate cash and
cash equivalents in order to meet its cash flow need.
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS

Statement of cash flows

• According to IAS 1.111, cash flow information provides
users of financial statements with a basis to assess the
ability of the entity to generate cash and cash
equivalents and the needs of the entity to utilise those
cash flows.
• IAS 7 Statements of cash flows sets outs the
requirements for the presentation of Statement of Cash
Flows and related disclosures. Statement of cash flows
are discussed in the next unit.
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS

Notes to the financial statement:

• Contain additional information that is relevant to the needs
of the users about the items in the balance sheet
(statement of financial position), income statement
(statement of profit or loss and other
comprehensive income), statement of changes in equity
and cash flow statement (statement of cash flows).
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS

Notes
• Notes contain information in addition to that
presented in the statement of financial position,
statement of profit or loss and other
comprehensive income, statement changes in
equity and statement of cash flows.
• Notes provides descriptions or disaggregation of
items disclosed in those statements and
information about items that do not qualify for
recognition in those statements (IAS 1.7).
 STRUCTURE AND CONTENTS
OF FINANCIAL STATEMENTS
Structure
IAS 1.112 states that the notes shall:
• Present information about the basis of preparation of the statements
and the specific accounting policies used;
• Disclose the information required by the 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 understanding any of them.
• Notes must, as far as practicable, be presented in a systematic
manner. Each item in the statements of financial position and of
comprehensive income, in the separate income statement (if
presented), and in the statements of changes in equity and of cash
flows shall be cross-referenced to any related information in the
notes (IAS 1.113).
 STRUCTURE AND CONTENT
OF FINANCIAL STATEMENTS
According to IAS 1.114, notes are normally presented in the
following order, which assists the users in understanding the
financial statements and comparing them to financial statements
of other entities:
 A statement of compliance with the IFRSs;
 A summary of the significant accounting policies applied;
 The supporting information for items presented in the
statements of financial position and of comprehensive
income, in the separate income statement (if presented),
and in the statements of changes in equity and cash flows, in
the order which each statement or line is presented; and
 Other disclosures.