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IAS 1 - PRESENTATION
OF FINANCIAL
STATEMENTS
BY SABI AKTHER 1
 What to focus on?

• Components of financial statements

• General features of financial statements

• Disclosures

• Criticisms of the use of other comprehensive income

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 Components of Financial Statements

• a statement of financial position

• a statement of profit or loss and other comprehensive income (or statement of profit or loss with
a separate statement of other comprehensive income)

• a statement of changes in equity

• a statement of cash flows

• accounting policies note and other explanatory notes.

Other reports and statements in the annual report (such as a financial review, or an environmental
report) are outside the scope of IAS 1. 3
 Components of Financial Statements

The statement of financial position

Assets

IAS 1 says that an entity must classify an asset as current on the statement of financial position if
it:

• is realised or consumed during the entity’s normal trading cycle, or

• is held for trading, or

• will be realised within 12 months of the reporting date.

All other assets are classified as non-current.

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 Components of Financial Statements

The statement of financial position

Liabilities

IAS 1 says that an entity must classify a liability as current on the statement of financial position
if:

• it is settled during the entity’s normal trading cycle, or

• it is held for trading, or

• it will be settled within 12 months of the reporting date

All other liabilities are classified as non-current.

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 Components of Financial Statements

The statement of profit or loss and other comprehensive income

IAS 1 provides the following definitions:

• Other comprehensive income (OCI) are income and expenses recognized outside of profit or
loss, as required by particular IFRS Standards.

• Total comprehensive income (TCI) is the total of the entity's profit or loss and other
comprehensive income for the period.

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 Components of Financial Statements

The statement of profit or loss and other comprehensive income

IAS 1 requires that OCI is classified into two groups as follows:

• items that might be reclassified (or recycled) to profit or loss in subsequent accounting
periods:

• foreign exchange gains and losses arising on translation of a foreign operation (IAS 21)

• effective parts of cash flow hedging arrangements (IFRS 9)

• Remeasurement of investments in debt instruments that are classified as fair value through
OCI (IFRS 9)
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 Components of Financial Statements

The statement of profit or loss and other comprehensive income

• items that will not be reclassified (or recycled) to profit or loss in subsequent accounting
periods:

• changes in revaluation surplus (IAS 16 & IAS 38)

• remeasurement components on defined benefit plans (IAS 19)

• remeasurement of investments in equity instruments that are classified as fair value

through OCI (IFRS 9).

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 Components of Financial Statements

The statement of profit or loss and other comprehensive income

IAS 1 requires an entity to disclose income tax relating to each component of OCI. This may be
achieved by either:

• disclosing each component of OCI net of any related tax effect, or

• disclosing OCI before related tax effects with one amount shown for tax.

Entities can prepare one combined statement showing profit or loss for the year and OCI.
Alternatively, an entity can prepare a statement of profit or loss and a separate statement of OCI.

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Components of Financial Statements

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Components of Financial Statements

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Components of Financial Statements

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 Components of Financial Statements

Statement of changes in equity

IAS 1 requires all changes in equity arising from transactions with owners in their capacity as owners to be
presented separately from non-owner changes in equity. This would include:

• issues of shares

• dividends.

A comparative statement for the prior period must also be published

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Components of Financial Statements

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Components of Financial Statements

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General Features of Financial Statements

1) Going concern

• IAS 1 states that management should assess whether the going concern assumption is
appropriate. Management should take into account all available information about events within
at least twelve months of the end of the reporting period

• Where there is uncertainty, management should consider all available information about the
future, including current and expected profitability, debt repayment finance and potential
sources of alternative finance. If there is greater doubt or uncertainty, then more work will be
required to evaluate whether or not the entity can be regarded as a going concern.

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General Features of Financial Statements

1) Going concern

• Once management have assessed that there are no material uncertainties as to the ability of an
entity to continue for the foreseeable future, the financial statements should be prepared on the
assumption that the entity will in fact continue. In other words, the financial statements will be
prepared on a going concern basis.

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General Features of Financial Statements
The following are indicators of a going concern uncertainty:

• A lack of cash and cash equivalents

• Increased levels of overdrafts and other forms of short-term borrowings

• Major debt repayments due in the next 12 months

• A rise in payables days

• Increased levels of gearing

• Negative cash flows, particularly in relation to operating activities

• Disclosures or provisions relating to material legal claims

• Large impairment losses. 18

 General Features of Financial Statements

2) Accruals basis of accounting

The accruals basis of accounting means that transactions and events are recognised when they
occur, not when cash is received or paid for them.

3) Consistency of presentation

The presentation and classification of items in the financial statements should be retained from one
period to the next unless:

• it is clear that a change will result in a more appropriate presentation, or

• a change is required by an IFRS or IAS Standard

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General Features of Financial Statements
4) Materiality and aggregation

• Information is material if omitting, misstating or obscuring it would influence the economic

decisions of financial statement users. Materiality judgements should be based on quantitative
and qualitative factors.

• When assessing materiality, entities should consider the characteristics of the users of its
financial statements. It can be assumed that these users have knowledge of business and
accounting

• To aid user understanding, financial statements should show material classes of items separately.

• Immaterial items may be aggregated with amounts of a similar nature, as long as this does not
reduce understandability. 20
General Features of Financial Statements

5) Offsetting

IAS 1 says that assets and liabilities, and income and expenses, should only be offset when required
or permitted by an IFRS standard.

6) Comparative information

Comparative information for the previous period should be disclosed

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 Disclosures
Disclosure note presentation

IAS 1 says that entities must present their disclosure notes in a systematic order. This might mean:

• Giving prominence to the most relevant areas

• Grouping items measured in similar ways, such as assets held at fair value

• Following the order in which items are presented in the statement of profit or loss and the
statement of financial position.

Compliance with IFRS Standards

Entities should make an explicit and unreserved statement that their financial statements comply
with IFRS Standards.
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 Disclosures

Accounting policies

Entities must produce an accounting policies disclosure note that details:

• the measurement basis (or bases) used in preparing the financial statements (e.g. historical cost,
fair value, etc)

• each significant accounting policy

Sources of uncertainty

An entity should disclose information about the key sources of estimation uncertainty that may
cause a material adjustment to assets and liabilities within the next year, e.g. key assumptions about
the future.
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 Disclosures

Reclassification adjustments

• Reclassification adjustments are amounts 'recycled' from other comprehensive income to profit
or loss.

• IAS 1 requires that reclassification adjustments are disclosed, either on the face of the statement
of profit or loss and other comprehensive income or in the notes.

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 Criticisms of the use of OCI

The accounting treatment and guidance with respect to other comprehensive income (OCI) has
been criticised in recent years. Some of these criticisms are as follows:

• Many users ignore OCI, since the gains and losses reported there are not related to an entity’s
trading cash flows. As a result, material expenses presented in OCI may not be given the
attention that they require.

• Reclassification from OCI to profit or loss results in profits or losses being recorded in a
different period from the change in the related asset or liability. This contradicts the definitions
of income and expenses in the Conceptual Framework.

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 Summary

1) Components of financial statements

• a statement of financial position

• a statement of profit or loss and other comprehensive income (or statement of profit or loss with
a separate statement of other comprehensive income)

• a statement of changes in equity

• a statement of cash flows

• accounting policies note and other explanatory notes.

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 Summary

2) General features of financial statements

• Going concern

• Accrual basis of accounting

• Consistency of presentation

• Materiality & aggregation

• Offsetting

• Comparative information

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 Summary

3) Disclosures

• Disclosure note presentation

• Compliance with IFRS

• Accounting policies

• Sources of uncertainty

• Reclassifications adjustment

4) Criticisms of the use of OCI

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Thank You for Watching!!

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