IAS 1 Presentation of Financial Statements represents a basis of the whole IFRS reporting, as it sets overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.
Financial Statements
Purpose of the 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.
The complete set of financial statements compliant with IFRS comprises 5 elements:
- a statement of financial position as at the end of the period
- a statement of comprehensive income for the period
- a statement of changes in equity for the period
- a statement of cash flows for the period
- notes containing a summary of significant accounting policies and other explanatory information.
If some accounting policy is applied retrospectively, or some retrospective restatements or reclassifications were made, then also a statement of financial position as at the beginning of the earliest comparative period shall be presented.
IAS 1 explains the general features of financial statements, such as fair presentation and compliance with IFRS, going concern, accrual basis of accounting, materiality and aggregation, offsetting, frequency of reporting, comparative information and consistency of presentation.
Structure and Content
IAS 1 requires identification of the financial statements and distinguishing them from other information in the same published document.
Every element of the financial statements shall contain the name of the reporting entity, the information whether the financial statements are of an individual or of a group, the date of the reporting entity and period covered, the presentation currency and the level of rounding (thousands, millions…).
IAS 1 lists the minimum content to be presented in the financial statements, except for the statement of cash flows (subject to IAS 7). So let’s look at it in a detail.
Statement of Financial Position
Before significant amendments of IAS 1, this statement was simply called “balance sheet”, however, it was renamed.
IAS 1 requires presentation of classified statement of financial position where current assets or liabilities are separated from non-current assets or liabilities. Basically, the asset or liability is current when it is expected to be recovered or settled within 12 months after the reporting period.
With regard to a minimum content, the following line items shall be presented:
| ASSETS | EQUITY AND LIABILITIES |
|---|---|
| Property, plant and equipment | Issued capital and reserves attributable to owners of the parent |
| Investment property | |
| Intangible assets | Non-controlling interests |
| Financial assets | Financial Liabilities |
| Investments accounted for using equity method | Provisions |
| Biological assets | |
| Inventories | |
| Trade and other receivables | Trade and other payables |
| Cash and cash equivalents | |
| Totals of assets in accordance with IFRS 5 Non-current assets Held for Sale and Discontinued Operations | Totals of liabilities in accordance with IFRS 5 Non-current assets Held for Sale and Discontinued Operations |
| Current tax assets | Current tax liabilities |
| Deferred tax assets | Deferred tax liabilities |
Further subclassifications of the line items shall be disclosed either directly in the statement of financial position or in the notes, such as disaggregation of property, plant and equipment into classes, and similar. Also, certain information related to the share capital, reserves and a few others shall be included in the statement of financial position, the statement of changes in equity or in the notes.
IAS 1 does NOT prescribe the precise format of the statement of financial position. Instead, several formats are acceptable if they fulfill all requirements outlined above.
Statement of Comprehensive Income
The statement of comprehensive income has 2 basic elements:
- Profit or loss for the period: here, all items of income and expenses must be recognized.
- Other comprehensive income: items recognized directly to equity or reserves, such as changes in revaluation surplus, gains or losses from subsequent measurement of available-for-sale financial assets, etc.
As a minimum, the statement of comprehensive income must contain the following items:
| PROFIT OR LOSS |
|---|
| Revenue |
| Gains and losses arising from the derecognition of financial assets at amortized cost |
| Finance costs |
| Share of the profit or loss of associates and joint ventures accounted for using the equity method |
| Tax expense |
| Post-tax profit/gain or loss of operations or assets in accordance with IFRS 5 (Non-current assets Held for Sale and Discontinued Operations) |
| Profit or loss |
| OTHER COMPREHENSIVE INCOME |
| Each component of other comprehensive income classified by nature |
| Share of the other comprehensive income of associates and joint ventures accounted for using equity method |
| Total comprehensive income |
As opposed to US GAAP, IAS 1 prohibits to report any transaction or item as extraordinary items.
Profit or loss for the period, as well as total comprehensive income shall be both presented in allocation:
- attributable to non-controlling interests and
- attributable to owners of the parent.
The entity might choose to classify expenses recognized in profit or loss for the period by their nature or by their function.
IAS 1 requires disclosure of certain items separately, either in the statement of comprehensive income, or in the notes. These items are as follows: write-downs of inventories and property, plant and equipment, their reversals, restructuring of activities and reversals of related provisions, disposals of property, plant and equipment, disposals of investments, discontinuing operations, litigation settlements and other reversals of provisions.
Statement of Changes in Equity
As a minimum, the statement of changes in equity must contain the following items:
- total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to non-controlling interests
- the effect of retrospective application or restatement for each component of equity (if applicable)
- the reconciliation between the carrying amount at the beginning and the end of the period for each
component of equity. Here, the following changes shall be disclosed separately:- those resulting from profit or loss
- resulting from other comprehensive income
- resulting from transactions with owners (contributions, distributions and changes in ownership)
Also, IAS 1 prescribes to present amount of dividends recognized as distributions and the related amount per share on the face of the statement of changes in equity or in the notes.
Notes to the Financial Statements
The notes are meant to be the document accompanying numerical financial statements listed above. They should provide additional information not contained in the numbers, the basis of preparation of the financial statements and some additional information that might be relevant.
IAS 1 sets that the notes shall contain a statement of compliance with IFRS, summary of significant accounting policies applied, supporting information for the numbers presented in the financial statements and other disclosures.
You can read more about the notes and how to write them in this article.
IAS 1 is shortly summarized in the following video:
