IAS – 1

PRESENTATION OF FINANCIAL STATEMENTS

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 Compiled by: Sameer Hussain
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IAS – 1: PRESENTATION OF FINANCIAL STATEMENTS

OVERVIEW:
IAS 1 Presentation of Financial Statements sets out the overall requirements for financial
statements, including how they should be structured, the minimum requirements for their
content and overriding concepts such as going concern, the accrual basis of accounting and the
current/non-current distinction. The standard requires a complete set of financial statements to
comprise a statement of financial position, a statement of profit or loss and other
comprehensive income, a statement of changes in equity and a statement of cash flows.
IAS 1 was reissued in September 2007 and applies to annual periods beginning on or after 1
January 2009.

OBJECTIVES OF IAS – 1:
The objective of IAS 1 (2007) is to prescribe 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. IAS 1 sets out the overall
requirements for the presentation of financial statements, guidelines for their structure and
minimum requirements for their content. [IAS 1.1] Standards for recognising, measuring, and
disclosing specific transactions are addressed in other Standards and Interpretations. [IAS 1.3]

SCOPE:
IAS 1 applies to all general purpose financial statements that are prepared and presented in
accordance with International Financial Reporting Standards (IFRSs). [IAS 1.2]
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. [IAS 1.7]

OBJECTIVE OF FINANCIAL STATEMENTS:

The objective of general purpose financial statements is 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. To meet that objective, financial statements
provide information about an entity's: [IAS 1.9]
 Assets
 Liabilities
 Equity
 Income and expenses, including gains and losses
 Contributions by and distributions to owners (in their capacity as owners)
 Cash flows.
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.

COMPONENTS OF FINANCIAL STATEMENTS:

A complete set of financial statements includes: [IAS 1.10]
 a statement of financial position (balance sheet) at the end of the period
 a statement of profit or loss and other comprehensive income for the period (presented
as a single statement, or by presenting the profit or loss section in a separate statement
of profit or loss, immediately followed by a statement presenting comprehensive income
beginning with profit or loss)
 a statement of changes in equity for the period

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 a statement of cash flows for the period

 notes, comprising a summary of significant accounting policies and other explanatory
notes
 comparative information prescribed by the standard.
An entity may use titles for the statements other than those stated above. All financial
statements are required to be presented with equal prominence. [IAS 1.10]
When an entity applies an accounting policy retrospectively or makes a retrospective
restatement of items in its financial statements, or when it reclassifies items in its financial
statements, it must also present a statement of financial position (balance sheet) as at the
beginning of the earliest comparative period.
Reports that are presented outside of the financial statements – including financial reviews by
management, environmental reports, and value added statements – are outside the scope of
IFRSs. [IAS 1.14]

FAIR PRESENTATION AND COMPLIANCE WITH IFRS:

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 . The application of IFRSs, with
Framework

additional disclosure when necessary, is presumed to result in financial statements that achieve
a fair presentation. [IAS 1.15]
IAS 1 requires an entity whose financial statements comply with IFRSs to make an explicit and
unreserved statement of such compliance in the notes. Financial statements cannot be
described as complying with IFRSs unless they comply with all the requirements of IFRSs
(which includes International Financial Reporting Standards, International Accounting
Standards, IFRIC Interpretations and SIC Interpretations). [IAS 1.16]
Inappropriate accounting policies are not rectified either by disclosure of the accounting
policies used or by notes or explanatory material. [IAS 1.18]
IAS 1 acknowledges that, in extremely rare circumstances, management may conclude that
compliance with an IFRS requirement would be so misleading that it would conflict with the
objective of financial statements set out in the Framework. In such a case, the entity is required
to depart from the IFRS requirement, with detailed disclosure of the nature, reasons, and impact
of the departure. [IAS 1.19-21]

GOING CONCERN:
The Conceptual Framework notes that financial statements are normally prepared assuming the
entity is a going concern and will continue in operation for the foreseeable future. [Conceptual
Framework, paragraph 4.1]
IAS 1 requires management to make an assessment of an entity's ability to continue as 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. [IAS 1.25]

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. [IAS 1.27]

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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. [IAS 1.45]

MATERIALITY AND AGGREGATION:

Each material class of similar items must be presented separately in the financial statements.
Dissimilar items may be aggregated only if the are individually immaterial. [IAS 1.29]
However, information should not be obscured by aggregating or by providing immaterial
information, materiality considerations apply to the all parts of the financial statements, and
even when a standard requires a specific disclosure, materiality considerations do apply. [IAS
1.30A-31]*
* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.

OFFSETTING:
Assets and liabilities, and income and expenses, may not be offset unless required or permitted
by an IFRS. [IAS 1.32]

COMPARATIVE INFORMATION:
IAS 1 requires that comparative information to be disclosed in respect of the previous period for
all amounts reported in the financial statements, both on the face of the financial statements and
in the notes, unless another Standard requires otherwise. Comparative information is provided
for narrative and descriptive where it is relevant to understanding the financial statements of
the current period. [IAS 1.38]
An entity is required to present at least two of each of the following primary financial
statements: [IAS 1.38A]
 statement of financial position*
 statement of profit or loss and other comprehensive income
 separate statements of profit or loss (where presented)
 statement of cash flows
 statement of changes in equity
 related notes for each of the above items.
* A third statement of financial position is required to be presented if the entity retrospectively
applies an accounting policy, restates items, or reclassifies items, and those adjustments had a
material effect on the information in the statement of financial position at the beginning of the
comparative period. [IAS 1.40A]
Where comparative amounts are changed or reclassified, various disclosures are required. [IAS
1.41]

STRUCTURE AND CONTENT OF FINANCIAL STATEMENTS IN GENERAL:

IAS 1 requires an entity to clearly identify: [IAS 1.49-51]
 the financial statements, which must be distinguished from other information in a
published document
 each financial statement and the notes to the financial statements.

In addition, the following information must be displayed prominently, and repeated as

necessary: [IAS 1.51]

 the name of the reporting entity and any change in the name

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 whether the financial statements are a group of entities or an individual entity

 information about the reporting period
 the presentation currency (as defined by The Effects of Changes in Foreign Exchange
IAS 21

Rates)
 the level of rounding used (e.g. thousands, millions).

REPORTING PERIOD:
There is a presumption that financial statements will be prepared at least annually. If the annual
reporting period changes and financial statements are prepared for a different period, the entity
must disclose the reason for the change and state that amounts are not entirely comparable.
[IAS 1.36]

STATEMENT OF FINANCIAL POSITION (BALANCE SHEET):

CURRENT AND NON – CURRENT CLASSIFICATION:
An entity must normally present a classified statement of financial position, separating current
and non-current assets and liabilities, unless presentation based on liquidity provides
information that is reliable. [IAS 1.60] In either case, if an asset (liability) category combines
amounts that will be received (settled) after 12 months with assets (liabilities) that will be
received (settled) within 12 months, note disclosure is required that separates the longer-term
amounts from the 12-month amounts. [IAS 1.61]

Current assets are assets that are: [IAS 1.66]

 expected to be realised in the entity's normal operating cycle
 held primarily for the purpose of trading
 expected to be realised within 12 months after the reporting period
 cash and cash equivalents (unless restricted).
All other assets are non-current. [IAS 1.66]
Current liabilities are those: [IAS 1.69]
 expected to be settled within the entity's normal operating cycle
 held for purpose of trading
 due to be settled within 12 months
 for which the entity does not have an unconditional right to defer settlement beyond 12
months (settlement by the issue of equity instruments does not impact classification).
Other liabilities are non-current.

When a long-term debt is expected to be refinanced under an existing loan facility, and the
entity has the discretion to do so, the debt is classified as non-current, even if the liability would
otherwise be due within 12 months. [IAS 1.73]
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 authorisation of the financial
statements for issue, not to demand payment as a consequence of the breach. [IAS 1.74]
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. [IAS 1.75]

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LINE ITEMS:
The line items to be included on the face of the statement of financial position are: [IAS 1.54]
(a) property, plant and equipment
(b) investment property
(c) intangible assets
(d) financial assets (excluding amounts shown under (e), (h), and (i))
(e) investments accounted for using the equity method
(f) biological assets
(g) inventories
(h) trade and other receivables
(i) cash and cash equivalents
(j) assets held for sale
(k) trade and other payables
(l) provisions
(m)financial liabilities (excluding amounts shown under (k) and (l))
(n) current tax liabilities and current tax assets, as defined in IAS 12
(o) deferred tax liabilities and deferred tax assets, as defined in IAS 12
(p) liabilities included in disposal groups
(q) non-controlling interests, presented within equity
(r) issued capital and reserves attributable to owners of the parent.
Additional line items, headings and subtotals may be needed to fairly present the entity's
financial position. [IAS 1.55]
When an entity presents subtotals, those subtotals shall be comprised of line items made up of
amounts recognised and measured in accordance with IFRS; be presented and labelled in a clear
and understandable manner; be consistent from period to period; and not be displayed with
more prominence than the required subtotals and totals. [IAS 1.55A]*
* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
Further sub-classifications of line items presented are made in the statement or in the notes, for
example: [IAS 1.77-78]:
 classes of property, plant and equipment
 disaggregation of receivables
 disaggregation of inventories in accordance with Inventories
IAS 2

 disaggregation of provisions into employee benefits and other items

 classes of equity and reserves.

FORMAT OF STATEMENT:
IAS 1 does not prescribe the format of the statement of financial position. Assets can be
presented current then non-current, or vice versa, and liabilities and equity can be presented
current then non-current then equity, or vice versa. A net asset presentation (assets minus
liabilities) is allowed. The long-term financing approach used in UK and elsewhere – fixed assets
+ current assets - short term payables = long-term debt plus equity – is also acceptable.

SHARE CAPITAL AND RESERVES:

Regarding issued share capital and reserves, the following disclosures are required: [IAS 1.79]
 numbers of shares authorised, issued and fully paid, and issued but not fully paid
 par value (or that shares do not have a par value)
 a reconciliation of the number of shares outstanding at the beginning and the end of the
period
 description of rights, preferences, and restrictions

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 treasury shares, including shares held by subsidiaries and associates

 shares reserved for issuance under options and contracts
 a description of the nature and purpose of each reserve within equity.
Additional disclosures are required in respect of entities without share capital and where an
entity has reclassified puttable financial instruments. [IAS 1.80-80A]

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME:

CONCEPTS OF PROFIT OR LOSS AND COMPREHENSIVE INCOME:
Profit or loss is defined as "the total of income less expenses, excluding the components of other
comprehensive income". Other comprehensive income is defined as comprising "items of
income and expense (including reclassification adjustments) that are not recognised in profit or
loss as required or permitted by other IFRSs". Total comprehensive income is defined as "the
change in equity during a period resulting from transactions and other events, other than those
changes resulting from transactions with owners in their capacity as owners". [IAS 1.7]

Comprehensive income for the period = Profit or loss + Other comprehensive income

All items of income and expense recognised in a period must be included in profit or loss unless
a Standard or an Interpretation requires otherwise. [IAS 1.88] Some IFRSs require or permit
that some components to be excluded from profit or loss and instead to be included in other
comprehensive income.

Examples of items recognised outside of profit or loss

 Changes in revaluation surplus where the revaluation method is used
under IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets
 Remeasurements of a net defined benefit liability or asset recognised in accordance
with IAS 19 Employee Benefits (2011)
 Exchange differences from translating functional currencies into presentation currency
in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates
 Gains and losses on remeasuring available-for-sale financial assets in accordance
with IAS 39 Financial Instruments: Recognition and Measurement
 The effective portion of gains and losses on hedging instruments in a cash flow hedge
under IAS 39 or IFRS 9 Financial Instruments
 Gains and losses on remeasuring an investment in equity instruments where the entity
has elected to present them in other comprehensive income in accordance with IFRS 9
 The effects of changes in the credit risk of a financial liability designated as at fair value
through profit and loss under IFRS 9.

In addition, IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors requires the
correction of errors and the effect of changes in accounting policies to be recognised outside
profit or loss for the current period. [IAS 1.89]

CHOICE IN PRESENTATION AND BASIS REQUIREMENTS:

An entity has a choice of presenting:
 a single statement of profit or loss and other comprehensive income, with profit or loss
and other comprehensive income presented in two sections, or
 two statements:
o a separate statement of profit or loss

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o a statement of comprehensive income, immediately following the statement of

profit or loss and beginning with profit or loss [IAS 1.10A]
The statement(s) must present: [IAS 1.81A]
 profit or loss
 total other comprehensive income
 comprehensive income for the period
 an allocation of profit or loss and comprehensive income for the period between non-
controlling interests and owners of the parent.

PROFIT OR LOSS SECTION OR STATEMENT:

The following minimum line items must be presented in the profit or loss section (or separate
statement of profit or loss, if presented): [IAS 1.82-82A]
 revenue
 gains and losses from the derecognition of financial assets measured at amortised cost
 finance costs
 share of the profit or loss of associates and joint ventures accounted for using the equity
method
 certain gains or losses associated with the reclassification of financial assets
 tax expense
 a single amount for the total of discontinued items
Expenses recognised in profit or loss should be analysed either by nature (raw materials,
staffing costs, depreciation, etc.) or by function (cost of sales, selling, administrative, etc). [IAS
1.99] If an entity categorises by function, then additional information on the nature of expenses
– at a minimum depreciation, amortisation and employee benefits expense – must be disclosed.
[IAS 1.104]

OTHER COMPREHENSIVE INCOME SECTION:

The other comprehensive income section is required to present line items which are classified
by their nature, and grouped between those items that will or will not be reclassified to profit
and loss in subsequent periods. [IAS 1.82A]
An entity's share of OCI of equity-accounted associates and joint ventures is presented in
aggregate as single line items based on whether or not it will subsequently be reclassified to
profit or loss. [IAS 1.82A]*
* Clarified by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
When an entity presents subtotals, those subtotals shall be comprised of line items made up of
amounts recognised and measured in accordance with IFRS; be presented and labelled in a clear
and understandable manner; be consistent from period to period; not be displayed with more
prominence than the required subtotals and totals; and reconciled with the subtotals or totals
required in IFRS. [IAS 1.85A-85B]*
* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.

OTHER REQUIREMENTS:
Additional line items may be needed to fairly present the entity's results of operations. [IAS 1.85]
Items cannot be presented as 'extraordinary items' in the financial statements or in the notes. [IAS
1.87]
Certain items must be disclosed separately either in the statement of comprehensive income or in
the notes, if material, including: [IAS 1.98]
 write-downs of inventories to net realisable value or of property, plant and equipment to
recoverable amount, as well as reversals of such write-downs

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 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,
IAS 1.111 refers to IAS 7 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: [IAS 1.106]
 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 8, 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:
o profit or loss
o other comprehensive income*
o 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. [IAS 1.106A]
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 recognised as distributions
 the related amount per share.

NOTES TO THE FINANCIAL STATEMENTS:

The notes must: [IAS 1.112]
 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 1.113]
IAS 1.114 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: [IAS 1.117]
o the measurement basis (or bases) used in preparing the financial statements

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o 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 (see IAS 37) and unrecognised contractual commitments
o non-financial disclosures, such as the entity's financial risk management
objectives and policies (see IFRS 7 Financial Instruments: Disclosures)
* Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016, clarifies this order just
to be an example of how notes can be ordered and adds additional examples of possible ways of
ordering the notes to clarify that understandability and comparability should be considered
when determining the order of the notes.

OTHER DISCLOSURES:
JUDGMENTS AND KEY ASSUMPTIONS:
An entity must disclose, in the summary of significant accounting policies or other notes, the
judgements, 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
recognised in the financial statements. [IAS 1.122]
Examples cited in IAS 1.123 include management's judgements 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. [IAS 1.125] These disclosures do not involve
disclosing budgets or forecasts. [IAS 1.130]

DIVIDENDS:
In addition to the distributions information in the statement of changes in equity (see above),
the following must be disclosed in the notes: [IAS 1.137]
 the amount of dividends proposed or declared before the financial statements were
authorised for issue but which were not recognised as a distribution to owners during
the period, and the related amount per share
 the amount of any cumulative preference dividends not recognised.

CAPITAL DISCLOSURE:
An entity discloses information about its objectives, policies and processes for managing capital.
[IAS 1.134] To comply with this, the disclosures include: [IAS 1.135]
 qualitative information about the entity's objectives, policies and processes for
managing capital, including>
 description of capital it manages
 nature of external capital requirements, if any
 how it is meeting its objectives
 quantitative data about what the entity regards as capital

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 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 1.136A 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: [IAS 1.138]
 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

IAS – 1: Presentation of Financial Statements 10