IAS 1 Presentation of Financial Statements AGN WAA Region Meeting-Damascus 22 nd November 2008 CA R....

IAS 1

Presentation of Financial Statements

AGN WAA Region Meeting-Damascus

22nd November 2008

CA R. BUPATHY 1

Objective

• IAS 1 has been recently revised and reissued in 2007 -

with the objective of

1. Basis for presentation of General Purpose Financial

Statements (aim: comparability within and outside)

2. 140 paragraphs – 106 paragraphs of BC – four

members dissenting (4/14)

CA R. BUPATHY AGN WAA Region Meeting-Damascus 22nd November 2008

2

IAS 1

Two broad components

First of the two

Purpose of FS and how that purpose can be achieved

Fair presentation

GCA, Materiality, Aggregation, Selection and

application of accounting policies, off-setting,

comparatives, etc

CA R. BUPATHY AGN WAA Region Meeting-Damascus22nd November 2008

3

IAS 1

Two broad components

Second of the two

Guidelines for the structure and content of FS What

constitutes Financial Statements?


4


• Provide information about the financial position, performance & cash flows of an entity

• Useful to a wide range of users in making economic decisions

Purpose of financial statements

Assumption as regards user - para 25 of frame work

“users are assumed to have a reasonable knowledge of

business & economic activities & accounting & a

willingness to study the information with reasonable

diligence “

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Guideline for structure

1. Statement of Financial Position (end of)2. Statement of Comprehensive Income (for ) 3. Statement of changes in equity (for )4. Statement of Cash Flows (for )5. Notes comprising a summary of significant

accounting policies and other explanatory information

6. In addition, a statement of financial position as at the beginning of earliest accounting period should also be presented when there is an accounting policy change or reclassification or restatement


• Entities must present a complete set of FS• Complete Set comprises of following components

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Equal prominence

All of (six) components of the financial statements must

be presented with equal prominence


Financial Statements

• As it exists

• Balance Sheet

• Income Statement

• Statement of changes in equity

– Either all changes in equity

– Or, changes in equity other than transactions with owners

• Cash Flow, + Notes

• Already revised 1-1-09• Balance Sheet• Income Statement

– Single Statement– Two statements (i)

separate income alone, and (ii) statement of comprehensive income beginning with Profit / loss + other comprehensive income

• Statement of Changes in equity.

• Cash Flow, + NotesCA R. BUPATHY AGN WAA Region Meeting-Damascus

22nd November 20088

Minimum content in BS

1. Minimum line items

2. Current & Non-current assets or liabilities

3. Sub-classification (e.g. debtors into trade/non-trade) to

reflect entity specific circumstances and needs

4. Share capital related disclosures (Objectives, policies

and processes for managing capital!)

Preferred approach

Current, non-current classification of assets and

liabilitiesCA R. BUPATHY AGN WAA Region Meeting-Damascus

22nd November 20089

Current Assets• An asset shall be classified as current when it satisfies

any of the following criteria:– It is expected to be realized in, or is intended for

sale or consumption in, the entity’s normal operating cycle

– It is held primarily for the purpose of being traded– It is expected to be realized within 12 months after

BS date– It is cash or cash equivalent (as defined in IAS 7)

unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the BS date

• All other assets shall be classified as non-currentCA R. BUPATHY AGN WAA Region Meeting-Damascus

22nd November 200810

Current Liabilities• A liability shall be classified as current when it satisfies

any of the following criteria:

– It is expected to be settled in the entity’s normal

operating cycle

– It is held primarily for the purpose of being traded

– It is due to be settled within 12 months after BS date

– The entity does not have an unconditional right to defer

the settlement of the liabilities for at least 12 after the

BS date

• All other liabilities shall be classified as non-currentCA R. BUPATHY AGN WAA Region Meeting-Damascus


Current/non current or Liquidity?

• Preferred approach – Current, non current approach

• Except – more relevant reliable information

• When exception applies, then present in the order of

liquidity

• In any case > < 12 months for each line item should be

given as a part of disclosures -


Two types of income statement• Nature of expense• Revenue• Other income

– Inventory/WIP Changes– RM & Consumables– Employee benefit

expenses– Depreciation and

amortisation– Other expenses– Total expense

• PBT

• Function base

• Revenue

• Less cost of sales

• GP

• Other income

• Distribution costs

• Admn expenses

• Other expenses

• PBTCA R. BUPATHY AGN WAA Region Meeting-Damascus


Components of income statement

Function basis – or nature of expenses basis

• Can be on the face of P&L

• If function basis adopted – disclosure of additional

information as regards nature of expenses, including

depreciation & amortisation expense and employee

benefits expense CA R. BUPATHY AGN WAA Region Meeting-Damascus


•Minimum line items

•Revenue

•Finance costs

•Share of profit or loss of associates & JV accounted for

using equity method

•Tax expense

•Post – tax gain or loss of discontinued operations

•Profit or loss


Statement of comprehensive income

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•Each component of other comprehensive income

classified by nature excluding share of other

comprehensive income of associates & JV

•Total comprehensive income

•Profit or loss – segregated to show (i) attributable to non-

controlling interests and (ii) owners of the parent

•Total comprehensive income for the period segregated to

show (i) attributable to non-controlling interests and (ii)

owners of the parent


Statement of comprehensive income

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Other comprehensive income

• Exchange differences on translation of foreign operations

• Fair value changes in available for sale financial assets

• Gains on property revaluation etc

• Tax effect of above items

• Reclassification adjustments


•Total comprehensive income showing separately – total

amount attribute to owners of parent & to non controlling

interests

•For each component of equity, the effects of retrospective

application or retrospective restatements recognised in

accordance with IAS 8


Statement of Changes in equity

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•For each component of equity a reconciliation between the

carrying amount at the beginning and end of the period,

separately disclosing changes resulting from –

•Profit or loss

•Each item of other comprehensive income

•Transaction with owners in their capacity as owners, showing

separately contributions by and distribution to owners and changes in

ownership interest in subsidiaries that do not result in a loss of control

•Amount of dividends recognised as distribution to owners

during the period, and the related amount per share

Statement of Changes in equity


A word about Extraordinary items

An entity shall not present any items of income

or expense as extraordinary items in the

statement of comprehensive income or

separate income statement (if presented) or in

the notes

Also refer to para 112 (c)


Optional items

• A review of performance

• Value added statement

• Resources not recognized in financial position

• The optional disclosures are outside the scope of

IFRSs


Content - Fair Presentation

• Financial statements should present fairly the financial

position, performance and cash flows of an entity.

• How is this is different from True and Fair View

presentation?

• What would be the audit certification?


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How is fair presentation achieved?

• By selecting and applying appropriate accounting policies

• By presenting information in a manner that is relevant,

reliable, comparable and which is representationally

faithful

• By providing additional information, when compliance

with IFRS alone is considered insufficient

• Detailed guidance in IAS 8


Accounting policies

Selection and application of inappropriate

accounting policies are not rectified either by

disclosure of the accounting policies used or by

notes or explanatory material


Statement of Compliance

• Entities whose FS comply with IFRSs must make an

explicit and unreserved statement of compliance with

IFRSs

• An entity shall not describe FS as complying with IFRSs

unless the entity complies with all the requirements of

IFRSsCA R. BUPATHY AGN WAA Region Meeting-Damascus


Departure from IFRS

Yes – but conditionally

Exceptionally rare circumstances

Only when relevant regulatory framework requires or

otherwise does not prohibit

If an entity should conclude that compliance with a

requirement in a Standard or Interpretation would be so

misleading that it would conflict with objective of FS –

then depart (but disclose)


When regulatory framework requires

The entity shall – to the maximum extent possible reduce the

perceived misleading aspects of compliance by disclosing

Title, nature, etc. and the reason why the entity has

concluded that complying with that requirement is so

misleading that it conflicts with the objective of FS as laid

down in Framework


Structure and Content - Notes to Accounts

• Identification of FS (domicile, legal form, name,

address Registered office, principal places of business,

principal activities, stand-alone or CFS, reporting

period/date, presentation currency, extent of rounding

off,, name of parent and ultimate parent of the group)



• Basis of preparation of financial statements

• Significant Accounting policies that

(a) impact the measurement basis; and

(b) are relevant to an understanding of

financial statements


• Key sources of estimation uncertainty

• Unrecognized proposed/declared equity dividend and

cumulative preference dividend

• Information required by the IFRS that is not presented

on the face of the financial statements (+ other

information that is relevant to understanding the FS)



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Off settingAssets and liabilities, and, income and expenses shall not be

off-set unless required or permitted by a Standard or an

Interpretation.

Consider a few situations Gains and losses on disposal of

non-current assets

Provision and reimbursements recognised as assets

Foreign exchange gains or losses


Comparatives

Comparatives should be presented for at least one Previous

Period.

Comparative information shall also be presented for narrative

and descriptive information where needed


Comparatives

Where needed, comparative information should be

reclassified, unless it is impracticable to do so.

If it is impracticable, then, reason for not reclassifying, had it

been reclassified, what would have been the nature of

adjustments?


Components 5 + 1

BS Current – Non-C, MM line items (set-off principle)

Income statement = +/- Other Comprehensive income

Changes in Owner Equity

Statement of Cash Flows

Notes – Identifying the Entity, the BS, Impact on

Assumptions on P&L and in BS etc.


Recap

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IAS 1 Presentation of Financial Statements AGN WAA Region Meeting-Damascus 22 nd November 2008 CA R....

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