The Financial Statements

IFRS

International Financial Reporting Standards

• Developed by the IASB (International Accounting Standards Board).

• Provides rules/guidance for how companies prepare and present financial statements.

• Main aim: make financial statements consistent, comparable and transparent.

IFRS provides a common accounting framework so financial statements are more comparable and useful to investors and other users.

IFRS: Key Principles

• Relevance — information should help users make decisions.

• Faithful representation — information should accurately represent the underlying transactions.

• Comparability — allows users to compare companies and periods.

• Verifiability — information can be checked and supported.

• Timeliness — information is available when it can influence decisions.

• Understandability — information should be presented clearly.

IFRS provides a common accounting framework so financial statements are more comparable and useful to investors and other users.

Statement of Profit or Loss (Income Statement)

• Shows a company's financial performance over a period of time.

• Shows income/revenue, expenses, and the resulting profit or loss.

• Also commonly called the income statement.

• Unlike the statement of financial position, it covers a period so its known as a Period statement

Statement of Financial Position (Balance Sheet)

• Shows a company's financial position at a specific point in time.

• Shows assets, liabilities and equity.

• Based on the accounting equation: Assets = Equity + Liabilities

• Also known as the balance sheet.

Statement of Changes in Equity

• Shows how a company's equity changes over an accounting period.

• Explains the movements in the owners' interest in the company.

• Links the opening equity to the closing equity.

Statement of Cash Flow

• Shows how cash and cash equivalents move into and out of a company over an accounting period.

• Explains where cash came from and where it was spent.

Notes to the Accounts

• Provide additional information and explanations to the financial statements.

• Help users understand and interpret the figures in the accounts.

• Form part of the company's financial statements.

• Provide details that cannot all be shown directly on the main statements.

Income Vs Expenses

Income

• Income = increases in economic benefits during an accounting period.

• Income results in an increase in assets or decrease in liabilities, which increases equity.

• Includes both revenue and other gains.

Expenses

• Expenses = decreases in economic benefits during an accounting period.

• Expenses result in a decrease in assets or increase in liabilities, reducing equity.

• Examples include: Wages, Rent, Electricity, Advertising, Depreciation, Interest costs

Types of Income

• Revenue = income from ordinary business activities.

• Other income/gains = income from other sources.

Assets

• Assets = resources controlled by a business as a result of past events which are expected to provide future economic benefits.

Assets = Equity - Liabilities

Type of Assets

Non-current assets

• Held for long-term use, usually more than 12 months.

• Examples: Property, Machinery, Vehicles, Intangible assets such as patents

Current assets

• Expected to be used, sold or converted into cash within 12 months.

• Examples:, Inventory, Trade receivables, Cash and cash equivalents, Short-term investments

Liabilities

• Liabilities = present obligations of a business arising from past events which are expected to result in an outflow of economic resources.

Liabilities = Assets - Equity

Types of Liabilities

Current liabilities

• Obligations normally due within 12 months.

• Examples: Trade payables, Short-term loans, Tax payable, Accrued expenses

Non-current liabilities

• Obligations due after more than 12 months.

• Examples: Long-term bank loans, Bonds, Long-term lease liabilities

Equity

• Equity = the owners' residual interest in a company after liabilities are deducted.

• Also known as owners' equity or shareholders' equity.

Equity = Assets − Liabilities