IAS 1

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Arba Minch University, Department of Accounting and Finance
Learning Objectives

At the completion of studying this chapter, you will

be able to:
• Define Financial Statement Presentation.
• Explain objective of financial statement presentation
• Explain structure & content of financial statements .
• Distinguish financial statement presentation under us
GAAP and IFRS

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Objective of the standard(IAS 1)
 Prescribes the basis for presentation of general purpose
financial statements to ensure comparability within the
entity and with other entities.
 Sets out overall requirements for the presentation of
financial statements.
 provides guidelines for financial statements structure and
minimum requirements for their content.

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Definitions of terms

 General-purpose financial statements: are intended for

users who are not in a position to require an entity to prepare
reports tailored to their particular needs.
 Material omissions or misstatements: omissions and
misstatements of items from financial statements is material
if they individually or collectively influence user’s economic
decisions .
 Notes to the financial statements : Contains information in
addition to what is presented in the financial statements.

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Definitions of terms cont…
 Other comprehensive income(OCI): The total of income less
expenses that are not recognized in profit or loss as required
or permitted by other IFRS .
 The components of other comprehensive income include:
a. Changes in revaluation surplus (IAS 16 - PPE and IAS 38-
intangible asset);
b. Gains and losses on defined benefit plans (IAS 19 -
employee benefits);
c. Translation gains and losses (IAS 21 -the effects of
changes in foreign exchange rates);

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Components of OCI cont….
d. Gains and losses on re-measuring available-for-sale financial
assets (IAS 39); and
e. Re-measurement gains and losses on hedging instruments .

 Reclassification adjustments: Amount which was

recognized in other comprehensive income in the current or
previous periods , but to be reclassified to profit or loss in
the current period.

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Definitions of terms cont…
 Total comprehensive income: It comprises all components of
“profit or loss” and of “other comprehensive income.”
 Profit or loss: The total of income less expenses, excluding
the components of other comprehensive income(OCI).

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Financial statements

 IAS 1 refers to financial statements as “a structured

representation of the financial position and financial
performance of an entity”.
 They are a principal means through which an entity
communicates its financial information to external parties.
Purpose of Financial Statements
 They provide information about the financial position,
financial performance and cash flows of an entity to a wide
range of users in making economic decisions.
 They also show the results of the management’s stewardship
of the resources entrusted to it.
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Financial statements Cont….
 Identification of financial statements:
IAS 1 also requires disclosure of :
 Name of the reporting entity

 Whether the accounts cover the single entity or a group of

entities
 The date of the end of the reporting period or the period
covered by the financial statements (as appropriate)
 The presentation currency.

 The level of rounding used in presenting amounts in the

financial statements(thousands, millions…)
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Structure & Content of Financial
Statements

 Complete Set of Financial Statements:

IAS 1 defines a complete set of financial statements to be
comprised of the following:
A. Statement of financial position.

B. Statement of profit or loss and other comprehensive

income.
C. Statement of changes in equity.

D. Statement of cash flows.

E. Notes to the financial statements.

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Statement of financial position
 IAS 1 specifies various items which must appear on the face
of the statement of financial position. The minimum line
items are:
 Property, plant and equipment

 Investment property

 Intangible assets

 Financial assets

 Investments accounted for using the equity method

 Biological assets

 Inventories

 Trade and other receivables

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Statement of financial position cont..
 Cash and cash equivalents
 Assets classified as held for sale under IFRS 5

 Trade and other payables

 Provisions

 Financial liabilities

 Current tax liabilities and assets as in IAS 12

 Deferred tax liabilities and assets

 Liabilities included in disposal groups under IFRS 5

 Non-controlling interests

 Issued capital and reserves

An entity can present additional line items, headings and subtotals in

Statement of Financial Position, provided such presentation will give
more relevant and reliable information to the users for their
understanding of the entity’s financial position. 12
The current/non-current distinction
 An entity must present current and non-current, assets and
Liabilities as separate classifications on the face of the
statement of financial position .
 However, if the entity (For example, financial institutions)
believes that the liquidity basis of presentation will reveal
more relevant and reliable information, then the entity can
present the assets and liabilities in order of their liquidity.

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Current assets
 An asset should be classified as a current asset when it:
 Is expected to be realized or is held for sale or
consumption in the normal course of the entity's operating
cycle; or 12 months after the end of the reporting period
 Is cash or a cash equivalent asset which is not restricted in
its use.

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Example
 ABC company has outstanding receivable of 10,000Br at the
end of year2. The total outstanding balance will be collected
at the end of year3 and year4 in equal amount.
 Required: What balance of the receivable should be reported
as current asset at the end of year2.

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Current liabilities
 A liability should be classified as a current liability
when it:
 Is expected to be settled in the normal course of the
entity's operating cycle; or 12 months after the end of the
reporting period
 The entity does not have an unconditional right to defer
settlement of the liability for at least twelve months after
the end of the reporting period.

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Current/non- Current liabilities
 When an entity breaches a provision of a long-term loan
arrangement on or before the end of the reporting period
with the effect that the liability becomes payable on demand,
the entire liability has to be classified as current (IAS 1.74).

 Example: On Dec 31, 01, the remaining time for maturity of a

loan taken by entity E is 18 months and E’s normal operating
cycle is 12 months. The breach of covenant entitles (but does
not oblige) the lender to require immediate repayment. The
loan is re-paid in lump sum.
 Required: Assess whether the liability has to be classified as
current or as non-current in E’s statement of financial position
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as of Dec 31, 01 under the following cases:

Example Cont…
A. No further events took place with regard to the liability.
B. The lender declares on Jan 03, 02 its willingness not to exercise the
right of immediate repayment , but the terms of the loan hasn’t
changed.
C. The situation is the same as in case B, but, the lender declares its
willingness not to exercise the right of immediate repayment on
Dec 31, 01, but the term of the loan hasn’t changed.
D. The situation is the same as in case B. However, on Jan 05, 02, the
lender signs an agreement in which it waives its right to demand
immediate repayment of the entire loan.
E. The situation is the same as in case D. However, the agreement
described in case D is signed on Dec 31, 01
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Statement of Comprehensive Income
(Format)
 IAS 1 allows income and expense items to be presented either:
 In a single statement of profit or loss and other
comprehensive income; or
 In two statements: a separate statement of profit or loss and
statement of other comprehensive income.
 The statement should also Shaw Profit or loss and
comprehensive income for the period attributable to:
 Non-controlling interests

 Owners of the parent

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Elements Statement of comprehensive
income
a. Profit or loss .
b. item of other comprehensive income(OCI) which include:
 Revaluation surplus of PPE and intangible assets;

 Re-measurements on defined benefit plans

 Gains and losses arising from translating the financial statements

of a foreign operation
 Gains and losses on re-measuring available-for-sale financial
assets
 Gains and losses on re-measuring hedging instruments .
 Share of OCI of associates and joint ventures .

c. Total comprehensive income.

= Profit or loss + Other comprehensive income
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 A reclassification adjustment is included with the related
component of other comprehensive income in the period that
the adjustment is reclassified to profit or loss.
 These amounts may have been recognized in other
comprehensive income as unrealized gains in the current or
previous periods and it must be deducted from other
comprehensive income in the period in which the realized
gains are reclassified to profit or loss to avoid including them
in total comprehensive income twice.

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A statement of changes in equity for
the reporting period
 This statement is meant for depicting the movement in equity
during the accounting period.
 It reflects :
 Various components of the equity with separate
presentation of non-controlling interest .
 Distribution of total comprehensive income during the
year to various equity components and non-controlling
interest .
 Distribution of dividend to owners and other transaction
with owners like issue of shares.
 This statement makes reconciliation of balances of various
equity components at the beginning and end of the
accounting period.( Two periods statement of equity are
presented) 24
Notes to the financial statements

 IAS 1 requires the presentation of notes to the financial

statements that:
 Present information about the basis of preparation of the
financial statements
 The specific accounting policies ,estimates and judgments
used;
 Statement of compliance with IFRSs

 Supporting information for items presented in the financial

statements.
 Disclose the information required by IFRS that is not
presented on the face of the primary statements; and
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US GAAP Comparison

 Similarities between US GAAP and IFRS relating to financial

statement presentation.
 Under both frameworks, the components of financial
statements including notes are similar.
 Both frameworks require that the financial statements be
prepared on the accrual basis of accounting .
 Both GAAPs have similar concepts regarding materiality
and consistency considered in preparing their financial
statements.

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US GAAP Comparison
Differences
Point of
difference IFRS US GAAP

Overall An entity whose financial statements Unlike IFRS, U.S. GAAP

comply with IFRS makes an explicit and does not have a similar
unreserved statement of such compliance requirement.
in the notes.

An entity does not describe financial

statements as complying with IFRS unless
they comply with all the requirements of
IFRS (IAS 1.16).
US GAAP Comparison
Differences
Point of US GAAP IFRS
difference

Financial Generally, comparative financial Comparative information

periods statements can be presented, but not must be disclosed in
required required except SEC registrants. respect of the previous
period for all amounts
According to SEC rules, Public entities are reported in the financial
required to present balance sheets of two statements.
most recent years, & other statements
must cover the three-year period ended
on the balance sheet date.
Differences
Point of difference US GAAP IFRS

Presentation of Debt for which there has been a Debt associated with a
long term debt as covenant violation may be presented covenant violation must
current versus as non-current if a lender agreement be presented as current
noncurrent in the to waive the right to demand unless the lender
balance sheet repayment for more than one year agreement was reached
exists prior to the issuance of the prior to the balance
financial statements. sheet date.
Differences
Point of difference US GAAP IFRS

Income statement - Requires extraordinary items Prohibited.(An entity does not

extraordinary items to be segregated from present any items of income or
ordinary operations and expense as extraordinary items
shown separately in the (IAS 1.87).
income statement

Layout of balance No general requirement IAS 1 Presentation of Financial

sheet and income within US GAAP to prepare Statements does not prescribe
statement the balance sheet and income a standard layout, but includes
statement in accordance with a list of minimum items.
a specific layout
END

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