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CR Common Practices Income statement format under IFRS
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Monitors ♦ Common Practices ♦ Emerging Issues ♦ Alerts ♦ Benchmarking Reports
© Company Reporting, HMS President, Victoria Embankment, London, EC4Y 0HJ, UK
Published on 25 January 2012. For more information, please email [email protected]
Introduction
Under International Financial Reporting Standards (IFRS), the presentation of the income statement is governed by IAS 1 “Presentation of financial statements”. Under IAS 1 a company is required to present either a single statement of comprehensive income or two separate statements one displaying components of profit and loss (separate income statement) and a second beginning with profit and loss showing components of other comprehensive income (statement of comprehensive income) (para 81). This report establishes through an analysis of the financial statements of 30 large global listed companies which approach is the most popular. It then goes on to examine the format and content of the profit and loss information presented considering whether expenses recognised in the calculation of profit and loss are more commonly presented using a classification based on their nature or function within the entity (para 99). Whichever format is followed companies are encouraged to present an analysis of expenses in the statement of comprehensive income or the separate income statement (para 100).
This report will also consider the presentation of mandatory items. On the face of the income statement, in the calculation of profit as a minimum a company shall include line items which represent: revenue; finance costs; share of the profit or loss of associates and joint ventures accounted for using the equity method; tax expense; and the total result from discontinued operations (para 82). Revenue is defined by IAS 18 “Revenue” as the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants (para 7). Under IAS 18 revenue excludes sales and other similar taxes and takes into account the amount of any trade discounts and volume rebates allowed by the entity.
In addition, a company shall disclose in the income statement as allocation for the period: profit or loss for the period attributable to non-controlling interests and owners of the parent (para 83(a)). Lastly, under IAS 33 “Earnings per share”, a company is required to present in the statement of comprehensive income basic and diluted earnings per share for profit or loss from continuing operations attributable to the ordinary equity holders of the parent entity (para 66).
Key observations include the following. The separate income statement and other comprehensive income statement
presentation format is favoured by 87% of companies. The primary analysis of expenses is by function rather than
nature for 77% of companies. Some form of expense breakdown is given on the face of the income statement by 87%
of companies. A gross finance costs figure is presented on the face of the income statement by 70% of companies. Of
those companies with evidence of equity accounted investments 83% present a separate line on the face of the
income statement. Of those companies with discontinued operations in the current year 88% disclose discontinued
profit separately on the face of the income statement. A clear allocation of profit between controlling and non-
controlling interests is presented by 90% of companies. Basic and diluted earnings per share are clearly disclosed on
the face of the income statement by 97% of companies.
Companies under examination
Our sample consists of 30 large global listed companies that prepare IFRS financial statements with period ends between 31 December 2011 and 30 September 2012. The sample is drawn from a globally diverse range of countries and includes an array of companies from different industries. The companies of which the accounts have been analysed are as follows:
Company Period End Auditors Country Industry Classification
African Rainbow Minerals
30 June 2012 Ernst & Young South Africa Mining
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Monitors ♦ Common Practices ♦ Emerging Issues ♦ Alerts ♦ Benchmarking Reports
© Company Reporting, HMS President, Victoria Embankment, London, EC4Y 0HJ, UK
Published on 25 January 2012. For more information, please email [email protected]
AGL Energy 30 June 2012 Deloitte Touche Tohmatsu Australia Multiutilities
Air China 31 December 2011 Ernst & Young China Airline
Americana Latina Logistica
31 December 2011 Ernst & Young Brazil Transportation Services
Amvig Holdings 31 December 2011 RSM Nelson Wheeler Hong Kong Containers & Packaging
Anglo American Platinum
31 December 2011 Deloitte & Touche South Africa Mining
Arcelor Mittal South Africa
31 December 2011 Deloitte & Touche South Africa Iron & Steel
Aspen Pharmacare Holdings
30 June 2012 Pricewaterhouse Coopers South Africa Pharmaceuticals
Associated British Foods
15 September 2012 KPMG UK Food Products
Axiata Group Berhad 31 December 2011 PricewaterhouseCoopers Malaysia Mobile Telecommunications
B2W Compnhia Global do Varejo
31 December 2011 PricewaterhouseCoopers Brazil Broadline Retailers
Bombardier 31 December 2011 Ernst & Young Canada Aerospace
Brazil Foods 31 December 2011 KPMG Brazil Food Products
British Sky Broadcasting
30 June 2012 Deloitte UK Broadcasting & Entertainment
CGI Group 30 September 2012 Ernst & Young Canada Computer Services
Genting Malaysia Berhad
31 December 2011 PricewaterhouseCoopers Malaysia Hotels
Imperial Tobacco 30 September 2012 PricewaterhouseCoopers UK Tobacco
Infineon Technologies
30 September 2012 KPMG Germany Semiconductors
JBS 31 December 2011 KPMG Brazil Food Products
Nexen 31 December 2011 Deloitte & Touche Canada Exploration & Production
Orica 30 September 2012 KPMG Australia Specialty Chemicals
Pernod Ricard 30 June 2012 Deloitte, Mazars France Distillers & Vintners
Shaw Communications
31 August 2012 Ernst & Young Canada Broadcasting & Entertainment
Siemens 30 September 2012 Ernst & Young Germany Electronic Equipment
Sky City 30 June 2012 PricewaterhouseCoopers New Zealand Hotels
Sky Network Television
30 June 2012 PricewaterhouseCoopers New Zealand Broadcasting & Entertainment
Smiths 31 July 2012 PricewaterhouseCoopers UK Diversified Industrial
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© Company Reporting, HMS President, Victoria Embankment, London, EC4Y 0HJ, UK
Published on 25 January 2012. For more information, please email [email protected]
Sodexo
31 August 2012 PricewaterhouseCoopers, KPMG
France Restaurants & Bars
ThyssenKrupp 30 September 2012 KPMG Germany Iron & Steel
Wolseley 31 July 2012 PricewaterhouseCoopers UK Industrial Supplier
Analysis
Income statement: presentation format
Our analysis shows that, it is more common for companies to present separate income and other comprehensive
income statements with 87% of companies including Pernod Ricard (Extract 1) favouring such an approach and 13%
of companies including Aspen Pharmacare (Extract 2) instead choosing to present a single statement of
comprehensive income. Four sample companies present a single statement of comprehensive income including three
of the four based in South Africa with the only other company to do so coming from Malaysia. In a presentation format
which falls short of IAS 1 Brazilian company Americana Latina Logistica includes its statement of other comprehensive
income in a note to the accounts rather than as a primary statement (para 10).
A second choice that companies have is whether the primary analysis of expenses presented is based on nature or
function. Our findings are that 77% of companies including Amvig Holdings (Extract 3) present the primary analysis of
expenses based on function with 23% of companies including Orica (Extract 4) instead opting for an expense
breakdown by nature. Seven companies adopt the latter approach including three of the four based in Australasia.
Company
Single Statement of Comprehensive
Income
Separate Income Statement and Other
Comprehensive Income Expenses by Nature Expenses by Function
Pernod Ricard
British Sky Broadcasting
Wolseley
African Rainbow Minerals
AGL Energy
Americana Latina Logistica
Amvig Holdings
B2W Compnhia global do Varejo
Bombardier
Brazil Foods
CGI Group
Genting Malaysia
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© Company Reporting, HMS President, Victoria Embankment, London, EC4Y 0HJ, UK
Published on 25 January 2012. For more information, please email [email protected]
Imperial Tobacco
Infineon Technologies
JBS
Associated British Foods
Shaw Communications
Siemens
Smiths
Sodexo
ThyssenKrupp
Air-China
Nexen
Orica
Sky City
Sky Network Television
Anglo American Platinum
Aspen Pharmacare
Arcelor Mittal South Africa
Axiata
Income statement: line items
All companies in our sample include a revenue line on the face of the income statement with seven describing the
figure reflected as net. All of the Brazilian companies in our sample including B2W Compnhia global do Varejo (Extract
5) plus Pernod Ricard, Nexen and ThyssenKrupp describe the revenue figure presented as net. The Brazilian
companies give a detailed breakdown in a note to the accounts. Two companies Genting Malaysia and African
Rainbow Minerals in a practice that separates them from other sample companies include investment or interest
income as part of revenue.
A second item which should be included as a minimum is finance costs. IAS 1 does not define whether the figure
expressed should be net of finance income but in the absence of any reference to finance income in our view the
gross figure should be presented. Of the companies in our sample 70% present a gross finance costs figure with the
remainder employing some form of netting. Canada is the only geography covered by our sample where all
companies disclose a gross figure. Of the UK companies in our sample only 40% present a gross figure.
Of the companies in our sample, 80% have evidence of equity accounted investments. Of these 83% include a line on
the face of the income statement showing a share of the results of equity accounted investments. Of the four
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Published on 25 January 2012. For more information, please email [email protected]
companies not to include such a line two are Brazil based. Genting Malaysia (Extract 6) in a presentation that goes
beyond the minimum requirements discloses its share of the results of associates and jointly controlled entities in two
separate lines.
A further item that companies should include as a minimum is taxation. IAS 12 “Income taxes” defines the tax expense
as the aggregate amount included in the determination of profit or loss in the period in respect of current tax and
deferred tax. Current tax represents the amount of income taxes payable in respect of the taxable profit for a period
and deferred tax represents income tax payable or recoverable in future periods (para 5). Of the sample companies
87% include a separate line item which relates specifically to income taxes. Three of the four Brazil based companies
in the sample do not include a specific income tax line. These companies aggregate income tax with social
contributions that represent an amount levied by the Brazilian government. Such contributions can only be used to
fund a series of guarantees provided in Brazilian legislation such as the universal right to social security and health of
workers. A fourth company not to include a standalone income tax line is Malaysian company Axiata which combines
income tax and zakat. Zakat forms one of the five pillars of Islam and represents a giving of a set proportion of wealth
to charity.
A final item that should be included as a minimum is the amount of profit that is generated from discontinued
operations. Of the sample companies 27% have evidence of discontinued operations in the current year. Of these
eight companies seven include a separate line item representing discontinued operations on the face of the income
statement with African Rainbow Minerals the only company not to do so.
While not mandatory IAS 1 encourages companies to include an analysis of expenses on the face of the income
statement. Of the sample, 87% of companies give some form of expense breakdown on the face of the income
statement. Of the four companies which do not give any breakdown two are from the UK and one each from Canada
and Australia. British Sky Broadcasting (Extract 7) presents no analysis of its expenses on the face of the income
statement including a single line labelled operating expense.
Two further items companies are required to include under IFRS are an allocation of profit between that which relates
to controlling and non controlling interests and basic and diluted earnings per share. Of the sample companies 90%
present a clear allocation of profit between controlling and non-controlling interests. Of the three companies not to do
so two are Brazilian and the third is Canadian company CGI Group (Extract 8). In respect of earnings per share 97%
of companies clearly disclose basic and diluted earnings per share figures. The only exception is Brazilian company is
B2W Compnhia global do Varejo (Extract 9).
The following table is ordered in such a way that those companies that according to our analysis are performing the
best are placed at the top. The ranking attributed does not penalise companies for the non presentation of non
applicable items with position based solely on the percentage of applicable items presented.
Company Minimum Line Items
Analysis of
Expenses on Face
Profit Controlling/Non-
Controlling
Earnings per
Share
Revenue Finance
Costs
Equity Accounted
Investments Tax Discontinued Operations
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Infineon Technology
ThyssenKrupp
Pernod Ricard N/A
Amvig Holdings N/A
Anglo American Platinum N/A
Orica N/A
Sodexo N/A
Air-China N/A
Genting Malaysia N/A
Sky Network Television N/A N/A
Nexen N/A
Smiths
Siemens
Associated British Foods N/A
Shaw Communication N/A
AGL Energy N/A
Wolseley N/A
Aspen Pharmacare N/A
Arcelor Mittal South Africa N/A
Sky City N/A
Imperial Tobacco N/A
Bombardier N/A
African Rainbow Minerals
CGI Group N/A
JBS N/A N/A
British Sky Broadcasting N/A
Brazil Foods N/A
Axiata N/A
Americana N/A
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© Company Reporting, HMS President, Victoria Embankment, London, EC4Y 0HJ, UK
Published on 25 January 2012. For more information, please email [email protected]
Latina Logistica
B2W Compnhia global do Varejo N/A N/A N/A = A non applicable item of which the company has no evidence.
Summary - Conclusion
Our principal conclusions are that:
The separate income statement and other comprehensive income statement presentation format is favoured
by 26 (87%) companies.
The primary analysis of expenses is by function rather than nature for 23 (77%) companies.
Some form of expense breakdown is given on the face of the income statement by 26 (87%) companies.
A gross finance costs figure is presented on the face of the income statement by 21 (70%) companies.
Of those 24 companies with equity accounted investments 20 (83%) include a separate line item on the face
of the income statement.
Of those 8 companies with discontinued operations in the current year 7 (88%) disclose discontinued profit
separately on the face of the income statement.
A clear allocation of profit between controlling and non-controlling interests is presented by 27 (90%)
companies.
Basic and diluted earnings per share are clearly disclosed on the face of the income statement by 29 (97%)
companies.
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© Company Reporting, HMS President, Victoria Embankment, London, EC4Y 0HJ, UK
Published on 25 January 2012. For more information, please email [email protected]
Extracts
Pernod Ricard: Separate income statement and statement of comprehensive income (Extract 1).
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© Company Reporting, HMS President, Victoria Embankment, London, EC4Y 0HJ, UK
Published on 25 January 2012. For more information, please email [email protected]
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Monitors ♦ Common Practices ♦ Emerging Issues ♦ Alerts ♦ Benchmarking Reports
© Company Reporting, HMS President, Victoria Embankment, London, EC4Y 0HJ, UK
Published on 25 January 2012. For more information, please email [email protected]
Aspen Pharmacare: Statement of comprehensive income (Extract 2).
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Published on 25 January 2012. For more information, please email [email protected]
Amvig Holdings: Income statement expenses presented by function (Extract 3).
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© Company Reporting, HMS President, Victoria Embankment, London, EC4Y 0HJ, UK
Published on 25 January 2012. For more information, please email [email protected]
Orica: Income statement expenses presented by nature (Extract 4).
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B2W Compnhia global do Varejo: Revenue labelled as net in income statement explained in a note (Extract 5).
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Genting Malaysia: Share of associate results shown separately from share of jointly controlled entities
(Extract 6).
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British Sky Broadcasting: Subsumes all expenses within a single line on the face of the income statement
(Extract 7).
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CGI Group: No clear allocation of profit between controlling and non-controlling interests (Extract 8).
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B2W Compnhia global do Varejo: No clear disclosure of basic and diluted earnings per share (Extract 9).