CHAPTER 1

Development of Accounting Principles and Professional Practice

1.1. The environment of Financial Accounting
Countries are moving quickly to adopt International Financial Reporting Standards (IFRS). It
is estimated that over 300 of the 500 largest global companies are using IFRS. However, the
accounting profession faces many challenges in establishing these standards, such as
developing a sound conceptual framework, use of fair value measurements, proper
consolidation of financial results, off-balance-sheet financing, and proper accounting for
leases and pensions
The age of international trade and the interdependence of national economies continue to
evolve. Many of the largest companies in the world often do more of their business in foreign
lands than in their home countries. Companies now access not only their home country
capital markets for financing, but others as well. With this globalization, companies are
recognizing the need to have one set of financial reporting standards. For globalization of
capital markets to be efficient, what is reported for a transaction in Beijing should be reported
the same way in Paris, New York, or London.
In the past, many countries used their own sets of accounting standards or followed standards
set by larger countries, such as those used in Europe or in the United States. That protocol has
changed through the adoption of a single set of rules, called International Financial Reporting
Standards (IFRS).
Changing to IFRS does not come without cost and effort. However, academic research and
studies by adopting jurisdictions provide overwhelming evidence that the use of IFRS has
brought the net benefits to capital markets:

1.2 Financial reporting requirements in Ethiopia

The Ethiopian government has been undertaking various activities to prepare and present
credible, transparent and easy-to-read financial reports based on the financial sector. The
government set up the Accounting and Auditing Board of Ethiopia (AABE) to lead the
sector. The board requires companies’ entire accounting system to be in accordance with
international financial reporting standard (IFRS). In addition to that, companies in Ethiopia
are also regulated to perform their activities by adhering the commercial code.
According to the Ethiopian Commercial Code, any person or business organization carrying
on trade shall keep books and accounts considering the business practice and regulations.
Petty traders may be exempted from keeping accounts. Business organizations are required to
take inventory at the beginning of business practice and at the end of each business period to
facilitate the preparation of balance sheet and profit or loss account.
The books and accounts should be kept in chronological order without any blanks or
alterations. They should also be given a serial number and initiated by the prescribed
authority which will specify the total number of pages for the document. All books and
accounting documents shall be preserved for ten years from the date of the last entry in such
books or from the date of such documents.
The assets shall appear in the following order, (Establishment expenses; Fixed assets; Stocks;
Short term or liquid assets and the results (Debit balance of the Profit and Loss Account)).
Liabilities in the Balance Sheet shall appear in the following order, (The proper capital
account and reserves; Profits brought forward and renewal funds; Provisions and long-term
debts; personnel pension funds, if any; Short term debts and the results (Credit balance of the
Profit and Loss Account)).
Amortizations and provisions for depreciation shall appear under the respective headings of
the assets in the balance sheet. The adjustment accounts shall appear in the assets or liabilities
side of the balance sheet following the accounts to which they relate.
Valuation Technique
Fixed assets shall appear in the balance sheet at their value of origin or if they have
been revalued at their revaluation.
Merchandise, materials, supplies, packing materials in stock art the date of inventory
shall be valued at their cost price.
Immovable assets shall appear in the balance sheet at their purchase price.
Wastes (remains of materials and refuse proceeding from manufacture) shall be
valued at the ruling price at the date of the inventory or in the absence of a ruling
price at their probable value of realization.
Products or works in progress shall appear at their cost on the day of the inventory.
1.3 The IASB and its governance structure
For many years, many nations have relied on their own standard-setting organizations. For
example, Canada has the Accounting Standards Board, Japan has the Accounting Standards
Board of Japan, Germany has the German Accounting Standards Committee, and the United
States has the Financial Accounting Standards Board (FASB). The standards issued by these
organizations are sometimes principles-based, rules-based, tax-oriented, or business-based. In
other words, they often differ in concept and objective.

The main international standard-setting organization is based in London, England, and is

called the International Accounting Standards Board (IASB). The IASB issues International
Financial Reporting Standards (IFRS), which are used on most foreign exchanges. IFRS is
presently used or permitted in over 149 countries and is rapidly gaining acceptance in other
jurisdictions as well.

The two organizations that have a role in international standard-setting are the International
Organization of Securities Commissions (IOSCO) and the IASB.
 The International Organization of Securities Commissions (IOSCO) is an association
of organizations that regulate the world’s securities and futures markets. IOSCO does
not set accounting standards. Instead, this organization is dedicated to ensuring that
the global markets can operate in an efficient and effective basis. IOSCO supports the
 development and use of IFRS as the single set of high-quality international standards
in cross-border offerings and listings.

 The IASB is the independent, accounting standard-setting body of the IFRS

Foundation.

The standard-setting structure internationally is composed of the following four

organizations:
1. The IFRS Foundation provides oversight to the IASB, IFRS Advisory Council, and IFRS
Interpretations Committee. In this role, it appoints members, reviews effectiveness, and helps
in the fundraising efforts for these organizations.
2. The International Accounting Standards Board (IASB) develops, in the public interest, a
single set of high-quality, enforceable, and global international financial reporting standards
for general-purpose financial statements.
3. The IFRS Advisory Council (the Advisory Council) provides advice and counsel to the
IASB on major policies and technical issues.
4. The IFRS Interpretations Committee assists the IASB through the timely identification,
discussion, and resolution of financial reporting issues within the framework of IFRS.
In addition, as part of the governance structure, a Monitoring Board was created. The purpose
of this board is to establish a link between accounting standard-setters and those public
authorities (e.g., IOSCO) that generally oversee them. The Monitoring Board also provides
political legitimacy to the overall organization.

1.4 List of IASB pronouncement

Types of Pronouncements
The IASB issues three major types of pronouncements:
1. International Financial Reporting Standards.
2. Conceptual Framework for Financial Reporting.
3. International Financial Reporting Standards Interpretations.
1. International Financial Reporting Standards.
Financial accounting standards issued by the IASB are referred to as International Financial
Reporting Standards (IFRS). The IASB has issued 17 of these standards to date, covering
such subjects as business combinations, share-based payments, and leases. Prior to the IASB
(formed in 2001), standard-setting on the international level was done by the International
Accounting Standards Committee, which issued International Accounting Standards (IAS).
The committee issued 41 IASs, many of which have been amended or superseded by the
IASB. Those still remaining are considered under the umbrella of IFRS.
2. Conceptual Framework for Financial Reporting.
As part of a long-range effort to move away from the problem-by problem approach, the
IASB uses an IFRS conceptual framework. This Conceptual Framework for Financial
Reporting sets forth the fundamental objective and concepts that the Board uses in
developing future standards of financial reporting. The intent of the document is to form a
cohesive set of interrelated concepts—a conceptual framework— that will serve as tools for
solving existing and emerging problems in a consistent manner. For example, the objective of
general-purpose financial reporting discussed earlier is part of this Conceptual Framework.
The Conceptual Framework and any changes to it pass through the same due process
(preliminary views, public hearing, exposure draft, etc.) as an IFRS. However, this
Conceptual Framework is not an IFRS and hence does not define standards for any particular
measurement or disclosure issue. Nothing in this Conceptual Framework overrides any
specific international accounting standard. The Conceptual Framework is discussed more
fully in
3 International Financial Reporting Standards Interpretations
Interpretations issued by the IFRS Interpretations Committee are also considered
authoritative and must be followed. These interpretations cover (1) newly identified financial
reporting issues not specifically dealt with in IFRS and (2) issues where unsatisfactory or
conflicting interpretations have developed, or seem likely to develop, in the absence of
authoritative guidance. The IFRS Interpretations Committee has issued over 20 of these
interpretations to date. In keeping with the IASB’s own approach to setting standards, the
IFRS Interpretations Committee applies a principles-based approach in providing
interpretative guidance. To this end, the IFRS Interpretations Committee looks first to the
Conceptual Framework as the foundation for formulating a consensus. It then looks to the
principles articulated in the applicable standard, if any, to develop its interpretative guidance
and to determine that the proposed guidance does not conflict with provisions in IFRS. The
IFRS Interpretations Committee helps the IASB in many ways. For example, emerging issues
often attract public attention. If not resolved quickly, these issues can lead to financial crises
and scandals. They can also undercut public confidence in current reporting practices. The
next step, possible governmental intervention, would threaten the continuance of standard-
setting in the private sector. The IFRS Interpretations Committee can address controversial
accounting problems as they arise. It determines whether it can resolve them or whether to
involve the IASB in solving them. In essence, it becomes a “problem filter” for the IASB.
Thus, the IASB will hopefully work on more pervasive long-term problems, while the IFRS
Interpretations Committee deals with short-term emerging issues.
1.5 The IASB‟s conceptual framework for financial reporting

Basic Objective The objective of financial reporting is the foundation of the Conceptual
Framework. Other aspects of the Conceptual Framework— qualitative characteristics,
elements of financial statements, recognition, measurement, and disclosure—flow logically
from the objective.
1.5.1 Objectives of financial reporting
The objective of general-purpose financial reporting is to provide financial information about
the reporting entity that is useful to present and potential equity investors, lenders, and other
creditors in making decisions about providing resources to the entity. Those decisions involve
buying, selling, or holding equity and debt instruments, and providing or settling loans and
other forms of credit.
Management stewardship is how well management uses a company’s resources to create and
sustain value. To evaluate stewardship, companies should provide information about their
financial position, changes in financial position, and performance. They should also show
how efficiently and effectively management and the board of directors have discharged their
responsibilities to use the company’s resources wisely. Therefore, information that is useful
in assessing stewardship can also be useful for assessing a company’s prospects for future net
cash inflows. Information that is decision-useful to capital providers may also be helpful to
users of financial reporting who are not capital providers.

1.5.2 Qualitative characteristics of financial reports

Qualitative characteristics are either fundamental or enhancing characteristics, depending
on how they affect the decision-usefulness of information. Regardless of classification, each
qualitative characteristic contributes to the decision-usefulness of financial reporting
information. However,
Providing useful financial information is limited by a pervasive constraint on financial
reporting—cost should not exceed the benefits of a reporting practice.
Fundamental Quality—Relevance
Relevance is one of the two fundamental qualities that make accounting information useful
for decision-making.
To be relevant, accounting information must be capable of making a difference in a decision.
Information with no bearing on a decision is irrelevant. Financial information is capable of
making a difference when it has predictive value, confirmatory value, or both.

Predictive value: Financial information has predictive value if it has value as an input to
predictive processes used by investors to form their own expectations about the future. For
example, if potential investors use accounting information to predict the occurrence of future
event and make decision on investing or not investing or provide credit or not

Confirmatory value: Relevant information also helps users confirm or correct prior
expectations; it has confirmatory value. For example, using year-end financial statements, we
can confirm or changes past (or present) expectations. It follows that predictive value and
confirmatory value are interrelated.
Materiality: It is a company-specific aspect of relevance. Information is material if omitting
it or misstating it could influence decisions that users make on the basis of the reported
financial information. An individual company determines whether information is material
because both the nature and/or magnitude of the item(s) to which the information relates must
be considered in the context of an individual company’s financial report. Information is
immaterial, and therefore irrelevant, if it would have no impact on a decision-maker. In short,
it must make a difference or a company need not disclose it. Companies and their auditors
generally adopt the rule of thumb that anything under 5 percent of net income is considered
immaterial. However, companies must consider both quantitative and qualitative factors in
determining whether an item is material.

Fundamental Quality—Faithful Representation

Faithful representation is the second fundamental quality that makes accounting information
useful for decision-making.
Faithful representation means that the numbers and descriptions match what really existed or
happened. Faithful representation is a necessity because most users have neither the time nor
the expertise to evaluate the factual content of the information.

Completeness: Completeness means that all the information that is necessary for faithful
representation is provided. An omission can cause information to be false or misleading and
thus not be helpful to the users of financial reports. For example, when ABC company fails to
provide information needed to assess the value of its subprime (risky) loan receivables, the
information is not complete and therefore not a faithful representation of the value of the
receivable.

Neutrality: Neutrality means that a company cannot select information to favor one set of
interested parties over another. Providing neutral or unbiased information must be the
overriding consideration. For example, in the notes to financial statements, if a tobacco
company knowingly disregard outstanding lawsuit because of tobacco-related health
concerns. The IASB indicates that neutrality is supported by prudence. Prudence is the
exercise of caution when making judgments under conditions of uncertainty. That is, the
exercise of prudence means that assets and income are not overstated, and liabilities and
expenses are not understated.

Free from Error: An information item that is free from error will be a more accurate
(faithful) representation of a financial item. For example, if Nib bank misstates its loan
losses, its financial statements are misleading and not a faithful representation of its financial
results. However, faithful representation does not imply total freedom from error. This is
because most financial reporting measures involve estimates of various types that incorporate
management’s judgment. For example, management must estimate the number of
uncollectible accounts to determine bad debt expense.

Enhancing Qualities
Enhancing qualitative characteristics are complementary to the fundamental qualitative
characteristics. These characteristics distinguish more useful information from less useful
information. Enhancing characteristics, shown in the following diagram, are comparability,
verifiability, timeliness, and understandability.

Fig 2: Qualitative characteristics

Comparability: Information that is measured and reported in a similar manner for different
companies is considered comparable. Comparability enables users to identify the real
similarities and differences in economic events between companies. For example, if agro-
processing companies consistently apply the same accounting principle, they insure
comparability with in industry. The idea of consistency does not mean, however, that
companies cannot switch from one accounting method to another. A company can change
methods, but it must first demonstrate that the newly adopted method is preferable to the old.
If deemed appropriate by the auditor, the company must then disclose the nature and effect of
the accounting change, as well as the justification for it, in the financial statements for the
period in which it made the change.
Verifiability: Verifiability means that different knowledgeable and independent observers
could reach consensus, although not necessarily complete agreement, that a particular
depiction is a faithful representation. Verifiability occurs in the following situations.
1. Two independent auditors count METEC’s inventory and arrive at the same physical
quantity amount for inventory. Verification of an amount for an asset therefore can occur
by simply counting the inventory (referred to as direct verification).
2. Two independent auditors compute Tata Motors’ inventory value at the end of the year
using the FIFO method of inventory valuation. Verification may occur by checking the
inputs (quantity and costs) and recalculating the outputs (ending inventory value) using
the same accounting convention or methodology (referred to as indirect verification).

Timeliness: Timeliness means having information available to decision-makers before it

loses its capacity to influence decisions. Having relevant information available sooner can
enhance its capacity to influence decisions, and a lack of timeliness can rob information of its
usefulness. For example, if Niyala Motors waited to report its interim results until nine
months after the period, the information would be much less useful for decision-making
purposes.
Understandability: Decision-makers vary widely in the types of decisions they make, how
they make decisions, the information they already possess or can obtain from other sources,
and their ability to process the information. For information to be useful, there must be a
connection (linkage) between these users and the decisions they make. This link,
understandability, is the quality of information that lets reasonably informed users see its
significance. Understandability is enhanced when information is classified, characterized, and
presented clearly and concisely
1.5.3 Elements of financial statements
The elements directly related to the measurement of financial position are assets, liabilities,
and equity. These are defined as follows.

Asset A present economic resource controlled by the entity as a result of past events. (An
economic resource is a right that has the potential to produce economic benefits).
Liability A present obligation of the entity to transfer an economic resource as a result of
past events.
Equity The residual interest in the assets of the entity after deducting all its liabilities.
The elements of income and expenses are defined as follows.
Income Increases in assets, or decreases in liabilities, that result in increases in equity, other
than those relating to contributions from holders of equity claims.
Expenses Decreases in assets, or increases in liabilities, that result in decreases in equity,
other than those relating to distributions to holders of equity claims.
As indicated, the IASB classifies the elements into two distinct groups. The first group of
three elements—assets, liabilities, and equity— describes amounts of resources and claims to
resources at a moment in time. The second group of two elements describes transactions,
events, and circumstances that affect a company during a period of time. The first group,
affected by elements of the second group, provides at any time the cumulative result of all
changes. This interaction is referred to as “articulation.” That is, key figures in one financial
statement correspond to balances in another.
1.5.4 Recognition, Measurement, and Disclosure concepts
1.5.4.1 Assumptions

The Conceptual Framework specifically identifies only one assumption—the going concern
assumption. Yet, we believe there are a number of other assumptions that are present in the
reporting environment. As a result, for completeness, we discuss each of these five basic
assumptions in turn: (1) economic entity, (2) going concern, (3) monetary unit, (4)
periodicity, and (5) accrual basis.

I. Economic Entity Assumption

The economic entity assumption means that economic activity can be identified with a
particular unit of accountability. In other words, a company keeps its activity separate and
distinct from its owners and any other business unit.

II. Going Concern Assumption

Most accounting methods rely on the going concern assumption, that the company will have
a long life. Despite numerous business failures, most companies have a fairly high
continuance rate. As a rule, we expect companies to last long enough to fulfill their objectives
and commitments. This assumption has significant implications. The historical cost principle
would be of limited usefulness if we assumed eventual liquidation. Under a liquidation
approach, for example, a company would better state asset values at fair value than at
acquisition cost and no depreciation.

III. Monetary Unit Assumption

The monetary unit assumption means that money is the common denominator of economic
activity and provides an appropriate basis for accounting measurement and analysis. That is,
the monetary unit is the most effective means of expressing to interested parties’ changes in
capital and exchanges of goods and services.

IV. Periodicity Assumption

To measure the results of a company’s activity accurately, we would need to wait until it
liquidates. Decision-makers, however, cannot wait that long for such information. Users need
to know a company’s performance and economic status on a timely basis so that they can
evaluate and compare companies, and take appropriate actions. Therefore, companies must
report information periodically.
The periodicity (or time period) assumption implies that a company can divide its economic
activities into artificial time periods. These time periods vary, but the most common are
monthly, quarterly, and yearly.

V. Accrual Basis of Accounting

Companies prepare financial statements using the accrual basis of accounting. Accrual-basis
accounting means that transactions that change a company’s financial statements are recorded
in the periods in which the events occur. For example, using the accrual basis means that
companies recognize revenues when they satisfy a performance obligation (the revenue
recognition principle). This is in contrast to recognition based on receipt of cash. Likewise,
under the accrual basis, companies recognize expenses when incurred (the expense
recognition principle) rather than when paid.

1.5.4.2 Principles
We generally use four basic principles of accounting to record and report transactions: (1)
measurement, (2) revenue recognition, (3) expense recognition, and (4) full disclosure. We
look at each in turn.
I. Measurement Principles
We presently have a “mixed-attribute” system in which one of two measurement principles is
used. The most commonly used measurements are based on historical cost and current cost.
Selection of which principle to follow generally reflects a trade-off between relevance and
faithful representation. Here, we discuss each measurement principle.
A. Historical Cost
IFRS requires that companies account for and report many assets and liabilities on the basis
of acquisition price. This is often referred to as the historical cost principle. Cost has an
important advantage over other valuations: It is generally thought to be a faithful
representation of the amount paid for a given item.
B. Current Value
Current value measures provide monetary information about assets, liabilities, and related
income and expenses, using information updated to reflect conditions at the measurement
date. Because of the updating, current values of assets and liabilities reflect changes in
amounts since the previous measurement date. Current value bases include:
1. Fair value. the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement
date.

Fig 3: Fair Value Hierarchy

 2. Value in use and fulfillment value.
Value in use is the present value of the cash flows, or other economic benefits that a company
expects to derive from the use of an asset and from its ultimate disposal. Fulfillment value is
the present value of the cash, or other economic resources that a company expects to be
obliged to transfer as it fulfills a liability. Value in use and fulfillment value cannot be
observed directly and are determined using cash-flow-based measurement techniques.
3. Current cost.
The current cost of an asset is the cost of an equivalent asset at the measurement date,
comprising the consideration that would be paid at the measurement date plus the transaction
costs that would be incurred at that date. The current cost of a liability is the consideration
that would be received for an equivalent liability at the measurement date minus the
transaction costs that would be incurred at that date. Similar to historical cost, current cost is
an entry value: It reflects prices in the market in which the company would acquire the asset
or would incur the liability. As a result, current cost is distinguished from fair value, value in
use, and fulfillment value, which are exit values. However, unlike historical cost, current cost
reflects conditions at the measurement date.
II. Recognition Principle
Recognition is the process of capturing for inclusion in the statement of financial position or
the statement(s) of financial performance an item that meets the definition of one of the
elements of financial statements. Two important recognition principles are:

A. Revenue Recognition Principle

When a company agrees to perform a service or sell a product to a customer, it has a
performance obligation. When the company satisfies this performance obligation, it
recognizes revenue. The revenue recognition principle therefore requires that companies
recognize revenue in the accounting period in which the performance obligation is satisfied.
To illustrate, assume that WIB Cleaners cleans clothing on June 30 but customers do not
claim and pay for their clothes until the first week of July. WIB should record revenue in
June when it performed the service (satisfied the performance obligation) rather than in July
when it received the cash.
B. Expense Recognition Principle
Expenses are defined as outflows or other “using up” of assets or incurring of liabilities (or a
combination of both) during a period as a result of delivering or producing goods and/or
rendering services. It follows, then, that recognition of expenses is related to net changes in
assets and earning revenues. In practice, the approach for recognizing expenses is, “Let the
expense follow the revenues.” This approach is the expense recognition principle.

To illustrate, companies recognize expenses not when they pay wages or make a product, but
when the work (service) or the product actually contributes to revenue. Thus, companies tie
expense recognition to revenue recognition. That is, by matching efforts (expenses) with
accomplishment (revenues), the expense recognition principle is implemented in accordance
with the definition of expense.

III. Full Disclosure Principle

The full disclosure principle recognizes that the nature and amount of information included in
financial reports reflects a series of judgmental trade-offs. These trade-offs strive for (1)
sufficient detail to disclose matters that make a difference to users, yet (2) sufficient
condensation to make the information understandable, keeping in mind costs of preparing and
using it. Users find information about financial position, income, cash flows, and investments
in one of three places: (1) within the main body of financial statements, (2) in the notes to
those statements, or (3) as supplementary information.
 Financial Statements (main body) are a structured means of communicating
financial information. An item that meets the definition of an element should be
recognized in the financial statements.
 The notes to financial statements generally amplify or explain the items presented in
the main body of the statements. If the main body of the financial statements gives an
incomplete picture of the performance and position of the company, the notes should
provide the additional information needed. Information in the notes does not have to
be quantifiable, nor does it need to qualify as an element. Notes can be partially or
totally narrative. For example, notes include descriptions of the accounting policies
and methods used and explanations of uncertainties and contingencies.
 Supplementary information may include details or amounts that present a different
perspective from that adopted in the financial statements. It may be quantifiable
information that is high in relevance but low in reliability. For example, oil and gas
companies typically provide information on proven reserves as well as the related
discounted cash flows. Supplementary information may also include management’s
explanation of the financial information and its discussion of the significance of that
information.
1.5.4.3 Cost Constraint
In providing information with the qualitative characteristics that make it useful, companies
must consider an overriding factor that limits (constrains) the reporting. Companies must
weigh the costs of providing the information against the benefits that can be derived from
using it. Rule-making bodies and governmental agencies use cost-benefit analysis before
making final their informational requirements.
1.1 IFRS-based Financial Statements (IAS 1)
International Accounting Standard 1: Presentation of Financial Statements

This Standard prescribes the basis for presentation of general purpose financial statements to
ensure comparability both with the entity’s financial statements of previous periods and with
the financial statements of other entities. It sets out overall requirements for the presentation
of financial statements, guidelines for their structure and minimum requirements for their
content.

Financial statements

Financial statements are a structured representation of the financial position and financial
performance of an entity. The objective of financial statements is to provide information
about the financial position, financial performance and cash flows of an entity that is useful to
a wide range of users in making economic decisions. Financial statements also show the
results of the management’s stewardship of the resources entrusted to it. To meet this
objective, financial statements provide information about an entity’s:
a) Assets;
b) Liabilities;
c) Equity;
d) Income and expenses, including gains and losses;
e) Contributions by and distributions to owners in their capacity as owners; and
f) Cash flows.
This information, along with other information in the notes, assists users of financial
statements in predicting the entity’s future cash flows and, in particular, their timing and
certainty.
Complete set of financial statements
A complete set of financial statements comprises:
 a statement of financial position as at the end of the period;
 a statement of profit or loss and other comprehensive income for the period;
 a statement of changes in equity for the period;
 a statement of cash flows for the period;
 Notes, comprising significant accounting policies and other explanatory
information; comparative information in respect of the preceding period as
specified; and
 A statement of financial position as at the beginning of the preceding period
when an entity applies an accounting policy retrospectively or makes a
retrospective restatement of items in its financial statements, or when it
reclassifies items in its financial statements.

An entity may use titles for the statements other than those used in this Standard. For
example, an entity may use the title ‘statement of comprehensive income’ instead of
‘statement of profit or loss and other comprehensive income’
An entity may present a single statement of profit or loss and other comprehensive
income, with profit or loss and other comprehensive income presented in two sections.
The sections shall be presented together, with the profit or loss section presented first
followed directly by the other comprehensive income section. An entity may present the
profit or loss section in a separate statement of profit or loss. If so, the separate statement
of profit or loss shall immediately precede the statement presenting comprehensive
income, which shall begin with profit or loss.

Financial statements shall present fairly the financial position, financial performance and
cash flows of an entity. Fair presentation requires the faithful representation of the
effects of transactions, other events and conditions in accordance with the definitions
and recognition criteria for assets, liabilities, income and expenses set out in the
Framework. The application of IFRSs, with additional disclosure when necessary, is
presumed to result in financial statements that achieve a fair presentation.