IAS 1 Notes

IAS 1 - Presentation of Financial Statements

Objective

• To establish the foundation for presenting general-purpose financial statements.

• Ensure comparability:

  • With the entity's financial statements from prior periods.

  • With financial statements from other entities.

• Sets out overall requirements, structure guidelines, and minimum content requirements.

Scope

• Applies to all general-purpose financial statements prepared and presented according to IFRSs.

• Other IFRSs dictate recognition, measurement, and disclosure for specific items.

• Exclusion: Condensed interim financial statements under IAS 34 (except paragraphs 15-35).

• Applies equally to all entities, including those presenting:

  • Consolidated financial statements (IFRS 10).

  • Separate financial statements (IAS 27).

• Terminology suited for profit-oriented entities, including public sector businesses.

  • Not-for-profit entities may need to modify line item descriptions.

  • Entities without equity (as per IAS 32) or with non-equity share capital may need to adapt the presentation of members' or unitholders' interests.

Definitions

• Accounting Policies: Defined in IAS 8, paragraph 5; retains the same meaning here.

• General Purpose Financial Statements: Designed to meet the needs of users who cannot demand tailored reports.

• Impracticable: When an entity cannot apply a requirement despite reasonable efforts.

• International Financial Reporting Standards (IFRSs): Standards and Interpretations from the IASB, comprising:

  • International Financial Reporting Standards.

  • International Accounting Standards.

  • IFRIC Interpretations.

  • SIC Interpretations.

• Material: Information that, if omitted, misstated, or obscured, could influence the decisions of the primary users of general-purpose financial statements.

  • Materiality depends on the nature and/or magnitude of the information.

  • Assessment is made in the context of the overall financial statements, considering individual and combined effects.

  • Obscured information has a similar effect to omitting or misstating it. Examples include:

    • Vague or unclear language about a material item.

    • Scattering information about a material item throughout the statements.

    • Inappropriate aggregation of dissimilar items.

    • Inappropriate disaggregation of similar items.

    • Reduced understandability due to immaterial information hiding material information.

  • Requires considering the characteristics of users and the entity's circumstances.

  • Primary users include existing and potential investors, lenders, and creditors who rely on general-purpose financial statements.

  • Users are assumed to have a reasonable understanding of business and economics and diligently analyze the information. They may seek expert advice for complex matters.

• Notes: Additional information to the financial statements (statement of financial position, statement(s) of profit or loss and other comprehensive income, statement of changes in equity, and statement of cash flows).

  • Provide narrative descriptions and disaggregations of items.

  • Information about items not recognized in the statements.

• Other Comprehensive Income: Income and expenses (including reclassification adjustments) not recognized in profit or loss as per other IFRSs. Includes:

  • Changes in revaluation surplus (IAS 16, IAS 38).

  • Remeasurements of defined benefit plans (IAS 19).

  • Gains/losses from translating foreign operations (IAS 21).

  • Gains/losses from equity instruments at fair value through other comprehensive income (IFRS 9, paragraph 5.7.5).

  • Gains/losses on financial assets measured at fair value through other comprehensive income (IFRS 9, paragraph 4.1.2A).

  • Effective portion of gains/losses on hedging instruments in cash flow hedges, and gains/losses on hedging instruments that hedge investments in equity instruments measured at fair value through other comprehensive income (IFRS 9, Chapter 6).

  • For liabilities designated at fair value through profit or loss, the change in fair value attributable to the liability’s credit risk (IFRS 9, paragraph 5.7.7).

  • Changes in the value of the time value of options when separating the intrinsic value and time value of an option contract (IFRS 9, Chapter 6).

  • Changes in the value of the forward elements of forward contracts and changes in the value of the foreign currency basis spread of a financial instrument (IFRS 9, Chapter 6).

  • Insurance finance income and expenses from contracts issued within the scope of IFRS 17 excluded from profit or loss when total insurance finance income or expenses is disaggregated (IFRS 17, paragraph 88(b) and 89(b)).

  • Finance income and expenses from reinsurance contracts held excluded from profit or loss when total reinsurance finance income or expenses is disaggregated (IFRS 17, paragraph 88(b)).

• Owners: Holders of instruments classified as equity.

• Profit or Loss: Total income less expenses, excluding other comprehensive income.

• Reclassification Adjustments: Amounts reclassified to profit or loss in the current period that were recognized in other comprehensive income in the current or previous periods.

• Total Comprehensive Income: Change in equity during a period resulting from transactions and events other than transactions with owners in their capacity as owners.

  • Includes both profit or loss and other comprehensive income.

  • Alternative terms may be used as long as the meaning is clear (e.g., 'net income' for profit or loss).

• Terms defined in IAS 32 Financial Instruments: Presentation:

  • Puttable financial instrument classified as an equity instrument (IAS 32, paragraphs 16A and 16B).

  • Instrument imposing an obligation to deliver a pro rata share of net assets on liquidation, classified as equity (IAS 32, paragraphs 16C and 16D).

Financial Statements

• A structured representation of an entity’s financial position and performance.

• Objective: To provide information useful for economic decision-making to a wide range of users.

• Also demonstrates management’s stewardship of resources.

• Provides information about:

  • Assets.

  • Liabilities.

  • Equity.

  • Income and expenses, including gains and losses.

  • Contributions by and distributions to owners.

  • Cash flows.

• This information, along with notes, helps users predict future cash flows, their timing, and certainty.

Complete Set of Financial Statements

• Comprises:

  • Statement of financial position (balance sheet) at the end of the period.

  • Statement of profit or loss and other comprehensive income (income statement) for the period.

  • Statement of changes in equity for the period.

  • Statement of cash flows for the period.

  • Notes, including material accounting policy information and other explanatory information.

  • Comparative information for the preceding period (paragraphs 38 and 38A).

  • Statement of financial position as at the beginning of the preceding period under specific circumstances (paragraphs 40A–40D).

• Alternative titles may be used for the statements.

  • E.g., 'statement of comprehensive income' instead of 'statement of profit or loss and other comprehensive income'.

• A single statement of profit or loss and other comprehensive income may be presented in two sections (profit or loss section first, followed by other comprehensive income section).

• A separate statement of profit or loss may be presented, preceding the statement of comprehensive income.

• All financial statements in a complete set must be presented with equal prominence.

• Many entities present a financial review by management outside the financial statements:

  • Describes and explains the main features of performance and position, and principal uncertainties.

  • May include a review of:

    • Main factors influencing performance, including environmental changes and the entity’s response.

    • Funding sources and targeted liabilities-to-equity ratio.

    • Resources not recognized in the statement of financial position under IFRSs.

• Entities may also present environmental reports and value-added statements outside the financial statements.

• Reports outside financial statements are outside the scope of IFRSs.

General Features

• Fair Presentation and Compliance with IFRSs

  • Financial statements must fairly present the financial position, performance, and cash flows.

  • Fair presentation requires faithful representation in accordance with the Conceptual Framework for Financial Reporting.

  • Compliance with IFRSs, with additional disclosure when necessary, is presumed to result in fair presentation.

  • An explicit and unreserved statement of compliance with IFRSs must be included in the notes if the financial statements comply with all IFRS requirements.

  • Fair presentation also requires:

    • Selecting and applying accounting policies according to IAS 8.

    • Presenting information in a relevant, reliable, comparable, and understandable manner.

    • Providing additional disclosures if compliance with specific IFRS requirements is insufficient for users to understand the impact of transactions, events, and conditions.

  • Inappropriate accounting policies cannot be rectified by disclosure.

  • Departure from an IFRS requirement is permitted only in extremely rare circumstances where compliance would be so misleading that it conflicts with the objective of financial statements in the Conceptual Framework, provided the regulatory framework requires or does not prohibit such a departure.