ias 1 presentation of financial statements

04/12/23 N R GOVINDARAJAN CHARTERED ACCOUNTANT FCA AICWA CISA DISA

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IAS 1 PRESENTATION OF FINANCIAL STATEMENTS

N R GOVINDARAJAN

CHARTERED ACCOUNT

FCA,AICWA, CISA, DISA(ICAI)


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OVERVIEW

• Scope and objectives

• Components of Financial Statements

• Overall considerations

• Presentation and Disclosures

• Statement of Financial Position


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OVERVIEW

• Statement of Comprehensive Income

• Statement of Changes in Equity

• Cash flow statement

• Accounting policies and notes to accounts

• Model financial statements


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Scope and objectives

• Current version issued in September 2007• Improvements made in May 08• Both applies to annual periods beginning

on or after 1 Jan 2009• Sets out the overall framework for

presenting general purpose financial statements in accordance with IFRS

• Provides guidelines for their structure and establishes minimum contents


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Scope and objectives

• A foundation standard which guides in basic accounting and financial reporting principles

• Framework for preparation and presentation takes over where this standard is silent

• Not applicable to condensed interim financial information

• Applicable to both individual as well as consolidated Financial Statements

• Ensures comparability of FS


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Components of Financial Statements

• A complete set of IFRS compliant Financial Statement consists of:

• Statement of Financial Position (B/S)• Statement of Comprehensive Income (P&L)• Statement of Changes in Equity (Appropriations)• Statement of Cash flows• Notes consisting of significant accounting policies and

other notes of explanations• Restatement and accounting policies changes

retrospectively necessitate a statement of financial position as at the beginning of the earliest comparative period


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• Financial review by the management• Source of funding• Risk management policies• Environmental reports• Factors determining financial performance• Usage of titles for FS can be other than those

stated earlier• Equal prominence for all components of FS


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• Prominent disclosures

• Name of the reporting entity and changes

• Group or individual information

• Reporting period end, coverage

• Presentation currency

• Level of precision (rounding in thousands or millions in the presentation currency)


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Overall considerations

• Fair presentation• Accrual basis of accounting• Consistency• Materiality and aggregation• Offsetting• Going concern• Comparative information• Reporting frequency


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Fair presentation

• Selection of accounting policies ( IAS 8)• Complies with international GAAP- No

deviations except under Para 20 IAS 1• Recognition criteria for assets, liabilities, income

and expenses as per Framework• Full IFRS compliance• Deviations and its effect in the current period• Adopting inappropriate policies and disclosing

them would not be fair presentation


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Deviation from IFRS – Para 20

• Only under exceptional circumstances deviation is permitted

• Management should conclude that by not deviating so would be materially misleading and conflicting with the objective of financial statements

• To achieve fair presentation adequate disclosures should be made


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Disclosure as per Para 20

• The entity has complied with IFRS except the ones it has departed

• Title of IFRS, reason and nature of departure• Treatment under IFRS and why it would be

misleading• Financial effect of the departure• If Prior period departure and it affects the current

period then too it should be disclosed


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Accrual and Consistency

• FS are prepared under accrual basis except for Cash Flow information

• Presentation and Classification of items in the financial statements shall be retained from one period to another

• Change is justified either by a change in circumstances or requirement of a new IFRS


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Materiality, aggregation and Offsetting

• Each material class of similar items shall be presented separately in the FS

• Immaterial amounts can be aggregated with amounts of classes of different items

• In general, items of income, expenses, assets and liabilities are presented separately

• Offsetting means presentation of assets, liabilities or income, expenses as single item

• Offsetting is allowed only if required by another standard or permitted by it


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Offsetting

• Following are not offsetting:• Sundry debtors less provisions• Obsolescence provision against

inventories• Offsetting – • Setting off expenses on sale with sale

proceeds of plant• Setting of warranty claims against

provisions made towards warranty


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Going concern

• Management should make an assessment of the entity’s ability to continue as a going concern

• Uncertainties about the entities ability as going concern should be disclosed

• FS must be prepared on going concern basis unless management intends to liquidate or cease trading and there is no realistic alternative other than doing so

• Disclose if FS not prepared on GC basis


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Comparative information

• Disclose comparative information in respect of the previous period for all the amounts reported in the FS

• It should be made on the face of FS as well as in the notes, unless another standard requires otherwise

• If comparative amount is changed or reclassified various disclosures are called for ( nature, effect, reasons)


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Reporting frequency

• Annual reporting presumed

• Longer or shorter period is permitted

• If the annual reporting period is changed and the FS is prepared for a different period , reason and the fact that FS is not comparable should be disclosed


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Presentation and Disclosures

• Identify financial statements clearly from other information presented

• Components should be clearly identified• Prominent Disclosures:• Financial statements• Name of the reporting enterprise, changes if any

from previous year• Individual entity reporting or group• Date, period and presentation currency• Level of precision


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Statement of Financial Position

• Techniques of presentation• No specific format• Classification of assets and liabilities under current and

non current categories• Exception – liquidity presentation – FIs• LP for more relevant and reliable information (but no

operating cycle)• Minimum line items to be presented• Size, nature or function decides the line items• Aggregation of similar items• Minimum line items


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Current and Non current assets• Entity to present amounts expected to be recovered or estimated to

settle within a period of not exceeding 12 months and more than 12 months – CA/CL

• Current Assets:• Cash or cash equivalent, assets held for collection, sale, or

consumption and expected to be realised within the enterprise’s normal operating cycle, or within the next 12 months whichever is later

• Eg: Inventories, receivables, advances, loans , current portion of non current assets lease receivable within the next 12 months

• All others are non current assets• Eg: Tangible assets like property, plant and equipment,

intangible assets and financial instruments other than held for trading and to be realised beyond a period of 12 months are classified as NON CURRENT ASSETS


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Operating cycle

• Period from acquisition of asset to the point of consumption in process or sale and realisation in cash or cash equivalents

• Can be 12 months if the above is not determinable


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Current liabilities

• To fufill the following conditions• Expected to be settled in the entity’s

normal operating cycle• Primarily held for trading• Due to be settled within 12 months from

the balance sheet date• Entity does not have unconditional right to

defer settlement of the liability for at least 12 months after the balance sheet date


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Current liabilities

• Eg: Bank OD, dividend payable, income tax, other non trade payables, current portion of non current financial liabilities

• All other liabilities not meeting the conditions are non current liabilities


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Can a long term liability be treated as current liability?

• When it is to be settled within 12 months of balance sheet date and the original term was for a period in excess of 12 months

• An agreement to reschedule payments on a long term basis is completed after the balance sheet date but before FS are authorised

• In case of breach of long term agreement, the liability becomes repayable on demand, it would be deemed to be a current liability


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Exceptions

• In case the lender has agreed by the balance sheet date to provide period of grace

• Such period ends 12 months after the date of balance sheet

• The entity can rectify the breach during which the lender cannot demand immediate repayment

• The liability would be non current


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Statement of Comprehensive Income

• Represents the financial performance of an entity during an accounting period

• Revision made in September 2007• Two alternatives• Components of P & L and other items of

comprehensive income in a single statement• Income statement and other comprehensive

income statement that begins with profit or loss• FORMAT SINGLE STATEMENT• FORMAT SEPARATE STATEMENT


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Comprehensive Income

• It is nothing but the changes in equity during a period resulting from transactions and other events

• It is other than such changes resulting from transactions with owners in their capacity as owners

• There are no “Extraordinary items”• C I = Profit or Loss Plus Other Comprehensive income• Items of other comprehensive income are direct

transfers to equity and are dealt with respective IFRSs in the profit and loss

• They arise out of reclassification adjustments and retained earning adjustments


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Components of Comprehensive Income

• 1. Gains or losses on fair value re-measurements arising out of available for sale financial assets under IAS 39 (reclassification adjustment)

• 2. Revaluation surplus under IAS 38 or IAS 16 (retained earning adjustment)

• 3. Gains or losses on translation of financial statements of foreign operations IAS 21(reclassification adjustment)

• 4. Actuarial gains or losses under defined benefit plans covered by IAS 19 (retained earning adjustment)

• 5. Effective portion of gains and losses on hedging instruments under IAS 39 (reclassification adjustment)


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Nature method

• Aggregation of expenses takes place on the basis of nature of expense

• Eg Depn, transport, advertising, wages etc

• No functional allocation

• Simple and applied to smaller entities

• FORMAT


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Function method

• Classification of expenses is done function wise

• Eg Cost of sales, Administrative expenses, Distribution expenses etc

• Other items presented includes depreciation, amortisation, employee cost etc

• FORMAT


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Statement of Changes in Equity

• An entity shall present a statement of changes in equity showing:

• Total comprehensive income for the period, showing separately, a break up of amounts attributable to owners (shareholders of parents) and non-controlling interests (shareholders of subsidiaries, other than parent)

• Effects of retrospective application or restatement, recognised during the period


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• For each component of equity a reconciliation between carrying amounts at the beginning and at the end of the period in respect of:

• Profit or loss (basic income statement)• Other comprehensive income• Transactions with owners and changes in

ownership interests in subsidiariesthat do not result in loss of control


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• The Standard requires that the changes (that constitute all or some of the foregoing elements) in equity should be presented in the form of a statement, showing separately:

• A break up of amounts attributable to owners (shareholders of parents) and


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• Non-controlling interests (shareholders of subsidiaries, other than parent) in respect of:

• Profit or loss (basic income statement)• Other comprehensive income• Transaction with owners • Similar to schedule of reserves and surplus to

the balance sheet in India as per Part I of Schedule VI

• FORMAT


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Cash flow statement

• Gives the information about the difference between cash basis and accrual basis of income

• Classification of cash flows into• Operating activities• Investing activities• Financing activities• Both direct and indirect methods are

recognised


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Cash flow statement

• Essential differences are as follows:

• Bank ODs are to be treated as cash and cash equivalents – (rectified in ED)

• Prohibition of separate disclosures of extraordinary items (rectified in ED)

• Use of the term reporting currency in the place of functional currency (rectified in ED)


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Notes to accounts

• To include information in a systematic manner

• Cross reference to notes should be given against items presented on the face of financial statements

• Used to disclose post balance sheet date events having material bearing on the financial statements


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Notes to accounts

• Basis of preparation of FS and specific accounting policies

• Information required by IFRS and not presented elsewhere in FS

• Any other additional relevant information


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Notes to accounts

• Statement of compliance with IFRS• Significant accounting policies• Supporting information to items presented

in FS• Other disclosures including contingent

liabilities and unrecognised contractual commitments

• Non financial information – eg risk management policy of the entity


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Disclosure of accounting policies

• Measurement bases used in preparing FS

• Other accounting policies relevant to understanding the FS

• Judgements made in applying the accounting policies which have most significant effect on the amounts recognised in FS


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Estimation uncertainty

• Key assumptions about the future and major sources of estimation uncertainty that have significant risk of causing material adjustment to the carrying amount of assets and liabilities within next year

• In relation to those assets and liabilities their nature and carrying amount


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Capital disclosures

• Entity's objectives, policies and processes for managing capital

• It includes:• Qualitative information like what is capital,

capital adequacy requirements , how the management of capital objectives is met

• Quantitative data about components of capital• Any changes in capital from the PY• Whether capital adequacy norms have been met• Consequences of not meeting it


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Other disclosures

• Domicile of the entity

• Legal form

• Address of registered office

• Nature of operations or principal activities or both

• Name of the parent and ultimate parent

• Disclosure of dividend information – in contrast with IndianGAAP


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Structure of Statement of Financial Position 2009 2008

ASSETS

Non-current Assets

Property , Plant & Equipment

Goodwill

Other Intangible Assets

Investments in Associates

Available for Sale Investments

Current Assets

Inventories

Trade Receivables

Other Current Assets

Cash & Cash Equivalents

Total Assets


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EQUITY AND LIABILITIES

Equity attributable to the owners of the parent

Share Capital

Retained Earnings

Other components of Equity

Non-controlling Interest

Total Equity

Structure of Statement of Financial Position

2009 2008


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Non-current Liabilities

Long-term borrowings

Deferred tax

Long term provisions

Total non-current liabilities

Current Liabilities

Trade and other payables

Short-term borrowings

Current portion of long- term borrowings

Current tax payable

Short-term provisions

Total current liabilities

Total liabilities


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SUMMARY

• AS 1 VS DRAFT AS 1

• Conclusion


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ias 1 presentation of financial statements

Economy & Finance

model financial statements

misleading financial

components of fs

ifrs para

consistency fs

disclosed fs

concern management

current period