Topic 3 – Presentation of Financial Statements under AASB 101

Context of the Session

The meeting focuses on Topic 3 – Presentation of Financial Statements under AASB 101 and sets the stage for Topic 4. It bridges foundational first-year accounting skills with second-year/ intermediate expectations, particularly:

• Moving from “training-wheel” statements (long lists of revenues and expenses) to public-company, AASB-compliant formats.
• Developing confidence in spotting and preparing minimum line items, classifying assets/liabilities and expenses correctly, and exercising professional judgement.
• Using five real 2024 annual reports (Qantas, Wesfarmers, Westpac, Woolworths, Telstra) to practise.

Complete Set of Financial Statements

A full set comprises:

1. Statement of Financial Position (SFP) – “Balance Sheet”.
2. Statement of Profit or Loss and Other Comprehensive Income (SPL/OCI or “SPLOCI”).
3. Statement of Changes in Equity (SOCE).
4. Statement of Cash Flows (SCF).
5. Notes to the Financial Statements – including accounting policies & comparatives.
6. Comparative figures for the preceding year.

Even though the notes are often overlooked in first-year courses, they are part of the formal set and must be analysed in assessments.

Key AASB 101 Paragraphs You MUST Memorise

General Presentation Principles

AASB 101 lists several universal assumptions. Students should be able to name, define and give an example of each:

• Going concern
• Accrual basis
• Consistency of presentation
• Materiality & aggregation
• Offsetting (normally prohibited)
• Comparative information
• Classification by nature/function & current/non-current

Materiality & Aggregation

Materiality combines nature and magnitude (§29 + Conceptual Framework QC11–QC14):

• Nature-driven example: employee fraud of 3{,}000 in a large bank is qualitatively material even if not quantitatively.
• Magnitude-driven example: office supplies of 5{,}000 may be immaterial for Wesfarmers; it may be material for a micro-entity.

Only material items receive separate line-item disclosure; immaterial ones can be aggregated into “Other expenses”, etc.

Offsetting (§32)

Default rule: do not offset assets vs liabilities or income vs expenses (e.g.
Accounts Receivable should not be shown net of Allowance for Doubtful Debts) unless another Standard explicitly requires/permits it (e.g. AASB 132 for certain financial instruments).

Statement of Financial Position (SFP)

AASB 101 does not prescribe a single layout. Two options are acceptable:

1. Current / Non-current split (most common).
2. Order of liquidity (often used by banks – e.g. Westpac 2024 – listing most liquid assets first).

Minimum line items (§54) include (partial list):

• Cash & cash equivalents
• Trade & other receivables
• Inventories
• Property, plant & equipment (PPE)
• Intangible assets
• Deferred tax assets / liabilities
• Provisions
• Issued capital and reserves

Remember: the term “Right-of-use assets” (IFRS 16 leases) is still PPE-related and qualifies as a separate line if material.

Statement of Profit or Loss & Other Comprehensive Income (SPL/OCI)

Two presentation formats (§81A):

1. Single-statement approach – P/L section followed immediately by OCI section.
2. Two-statement approach – a standalone P/L, then a separate “Statement of OCI”.

Minimum P/L Line Items (§82)

• Revenue
• Finance costs (interest expense)
• Share of profit/loss of equity-accounted investees (if any)
• Tax expense
• Profit or loss for the period

Classifying Expenses – Nature vs Function (§99–§105)

• By nature: depreciation, employee benefits, rent, raw-materials, etc. (typical manufacturing / service entities).
• By function: cost of sales, distribution, administrative, R&D. (Retail chains, conglomerates, some banks.)

Westpac 2024 presents a hybrid: “Operating expenses” (function) + “Impairment” (nature). Detailed breakdowns sit in Note 5 – perfectly acceptable as long as totals reconcile.

Other Comprehensive Income (OCI)

OCI captures gains/losses that change equity but are barred from P/L under other Standards. Common examples:

1. Revaluation surplus movements (AASB 116 PPE revaluation model).
2. Foreign currency translation differences on subsidiaries (§AASB 121).
3. Cash-flow hedge reserves (AASB 9).
4. Actuarial gains/losses on defined-benefit plans (AASB 119).

Illustrative revaluation example used in class:

• Carrying amount of a company car (historic) = 5{,}000.
• Fair value in 2024 second-hand boom = 8{,}000.
• Upward adjustment = 8{,}000-5{,}000 = 3{,}000.
• Not a “realised” profit ⇒ posted to Revaluation surplus (OCI), boosting equity but not current-year profit.

Statement of Changes in Equity (SOCE)

• Columns = each equity component: Share capital, Retained earnings, Revaluation surplus, OCI reserves, etc.
• Rows = movements: opening balance, profit, OCI transfers, dividends, share issues/ buy-backs, closing balance.
• Public companies often place current year and comparative year in separate tables because of width constraints.

Professional Judgement

Judgement permeates many choices:

• Selecting depreciation method (straight-line vs diminishing balance).
• Deciding between cost model vs revaluation model (PPE).
• Determining useful life, residual value, impairment indicators.
• Choosing current/non-current vs liquidity ordering (§60).
• Classifying expenses by nature or function (§99).

When citing judgement in assessments, identify the note page, describe the policy, and explain why it enhances relevance or reliability (Conceptual Framework QC17–QC18).

Practical Exercise (undertaken in class)

Company allocations:

Students must now complete Activities 2 & 3 at home:

1. Identify whether each company uses single- or two-statement SPL/OCI.
2. Confirm all §82 minimum items and specify whether expenses are by nature or function.
3. For each entity, locate and document (page & note) disclosures on:
   • Depreciation policy & estimates
   • Useful life & residual values
   • Inventory measurement basis
   • Critical accounting judgements & key estimates
   • Any voluntary reclassifications or restatements

Link to Upcoming Assessments

Assessment 1 (analysis) and Assessment 2 (statement preparation) demand:

• Mastery of §54 & §82 minimum line items.
• Correct grouping & presentation (no long “shopping lists”).
• Referencing of notes, pages, and standards when citing professional judgement.
• Awareness that AI tools must still comply with AASB-formats – check their output!

Key Formulae & Expressions

• Profit: \text{Profit} = \text{Revenue} - \text{Expenses}
• Comprehensive income: \text{CI} = \text{Profit} + \text{OCI}
• Revaluation surplus movement: \Delta RS = FV{\text{end}} - CV{\text{begin}}
• Aggregated immaterial expenses: \text{Other exp.} = \sum{i=1}^{n} xi \;\text{where}\; x_i < \text{materiality threshold}

Common Pitfalls & Tips

• Listing every revenue stream separately (e.g., “sales”, “interest”, “rent”) – NOT acceptable; combine non-core income as “Other income”.
• Forgetting finance costs and tax as standalone §82 lines.
• Offsetting receivables & allowances – violates §32.
• Copy-pasting entity terminology blindly – you must still check AASB terminology.
• Ignoring OCI – especially revaluation & FX translation effects.

Glossary

• AASB 101 – Australian equivalent of IAS 1.
• Liquidity ordering – arranging assets/liabilities from most- to least-liquid.
• Nature of expense – by intrinsic type; Function of expense – by role/department.
• OCI – Other Comprehensive Income; bypasses profit or loss.
• Revaluation surplus – equity reserve for upward PPE fair-value adjustments.

Further Reading / Prep for Topic 4

1. AASB 101 full text (focus §§54–105).
2. Conceptual Framework QC11–QC30 (materiality, relevance, faithful representation).
3. AASB 116 (§31-§42) – Revaluation model (ties into OCI).
4. Review your allotted company’s 2024 notes on “Critical accounting estimates & judgements”.

Come to the next session ready to debate whether each company could have chosen the alternative presentation method, and how that would impact users’ understanding.