SBR Notes IAS 1

IAS 1: Presentation of Financial Statements

Objective of IAS 1: The objective of IAS 1 is to prescribe 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. IAS 1 sets out the overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content. Standards for recognising, measuring, and disclosing specific transactions are addressed in other Standards and Interpretations.

Scope: IAS 1 applies to all general purpose financial statements that are prepared and presented in accordance with International Financial Reporting Standards (IFRSs).

General purpose financial statements are those intended to serve users who are not in a position to require financial reports tailored to their particular information needs. For example annual report.

 Application: All types of entities with profit objective are required to prepare financial statements Individual as well as consolidated financial statements if they are in group.

Objective of financial statements: The objective of general purpose 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. To meet that objective, financial statements provide information about an entity's:

• Assets

• Liabilities

• Equity

• Income and expenses, including gains and losses

• Contributions by and distributions to owners (in their capacity as owners)

• Cash flows.

That 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.

Components of financial statements: According to IAS 1 Presentation of Financial Statements, a complete set of financial statements has the following components:

• A statement of financial position (balance sheet) at the end of the period

• A statement of profit or loss and other comprehensive income (presented as a single statement, or by presenting the profit or loss section in a separate statement of profit or loss, immediately followed by a statement presenting comprehensive income beginning with profit or loss)

• A statement of changes in equity for the period

• A statement of cash flows for the period

• Accounting policies note and other explanatory notes

• A statement of financial position at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or corrects an error retrospectively.

Other reports and statements in the annual report (such as a financial review, integrated report (Value added report), an environmental report or a social report) are outside the scope of IAS 1.

An entity may use titles for the statements other than those stated above.  All financial statements are required to be presented with equal prominence.

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, it must also present a statement of financial position (balance sheet) as at the beginning of the earliest comparative period.

Reports that are presented outside of the financial statements – including financial reviews by management, environmental reports, and value added statements – are outside the scope of IFRSs.

Structure and content of financial statements in general/Identification of financial statements: IAS 1 requires an entity to clearly identify:

• The financial statements, which must be distinguished from other information in a published document.

• Each financial statement and the notes to the financial statements.

In addition, the following information must be displayed prominently, and repeated as necessary:

• The name of the reporting entity and any change in the name

• Whether the financial statements are a group of entities or an individual entity

• Information about the reporting period or period covered by financial statements

• The presentation currency (as defined by IAS 21 The Effects of Changes in Foreign Exchange Rates)

• The level of rounding used (e.g. thousands, millions).

Reporting period: Financial statements of the company normally prepared for the twelve month period which normally starts from when company starts trading or after the completion of twelve months or there is a presumption that financial statements will be prepared at least annually. If the annual reporting period changes and financial statements are prepared for a different period, the entity must disclose the reason for the change and state that amounts are not entirely comparable.

Statement of financial position (balance sheet)

An entity must normally present a classified statement of financial position, separating current and non-current assets and liabilities, unless presentation based on liquidity provides information that is reliable. In either case, if an asset (liability) category combines amounts that will be received (settled) after 12 months with assets (liabilities) that will be received (settled) within 12 months, note disclosure is required that separates the longer-term amounts from the 12-month amounts.

Current assets: IAS 1 states that an asset should be classified as a current asset if it satisfies any of the following criteria:

• The entity expects to realise the asset, or sell or consume it, in its normal operating cycle.

• The asset is held for trading purposes.

• The entity expects to realise the asset within 12 months after the reporting period.

• It is cash or a cash equivalent. (Note: An example of ‘cash’ is money in a current bank account. An example of a ‘cash equivalent’ is money held in a term deposit account with a bank).

All other assets should be classified as non-current assets.

Current liabilities: IAS 1 also states that a liability should be classified as a current liability if it satisfies any of the following criteria:

• The entity expects to settle the liability in its normal operating cycle. This means that all trade payables are current liabilities, even if settlement is not due for over 12 months after the end of the reporting period.

• The liability is held primarily for the purpose of trading.

• It is due to be settled within 12 months after the end of the reporting period.

• The entity does not have the unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period (known as rolling over the liability).

All other liabilities should be classified as non-current liabilities.

This means (amongst other things) that if an entity has the unconditional right to defer settlement of a liability for at least 12 months after the end of the reporting period, that liability would be non-current.

When a long-term debt is expected to be refinanced under an existing loan facility, and the entity has the discretion to do so, the debt is classified as non-current, even if the liability would otherwise be due within 12 months.

If a liability has become payable on demand because an entity has breached an undertaking under a long-term loan agreement on or before the reporting date, the liability is current, even if the lender has agreed, after the reporting date and before the authorisation of the financial statements for issue, not to demand payment as a consequence of the breach. However, the liability is classified as non-current if the lender agreed by the reporting date to provide a period of grace ending at least 12 months after the end of the reporting period, within which the entity can rectify the breach and during which the lender cannot demand immediate repayment.

Line items: The line items to be included on the face of the statement of financial position are:

(a)	Property, plant and equipment
(b)	Investment property
(c)	Intangible assets
(d)	Financial assets (excluding amounts shown under (e), (h), and (i))
(e)	Investments accounted for using the equity method
(f)	Biological assets
(g)	Inventories
(h)	Trade and other receivables
(i)	Cash and cash equivalents
(j)	Assets held for sale
(k)	Trade and other payables
(l)	Provisions
(m)	Financial liabilities (excluding amounts shown under (k) and (l))
(n)	Current tax liabilities and current tax assets, as defined in IAS 12
(o)	Deferred tax liabilities and deferred tax assets, as defined in IAS 12
(p)	Liabilities included in disposal groups
(q)	Non-controlling interests, presented within equity
(r)	Issued capital and reserves attributable to owners of the parent.

Additional line items, headings and subtotals may be needed to fairly present the entity's financial position.

When an entity presents subtotals, those subtotals shall be comprised of line items made up of amounts recognised and measured in accordance with IFRS; be presented and labelled in a clear and understandable manner; be consistent from period to period; and not be displayed with more prominence than the required subtotals and totals.

Further sub-classifications of line items presented are made in the statement or in the notes, for example:

• Classes of property, plant and equipment

• Disaggregation of receivables

• Disaggregation of inventories in accordance with IAS 2 Inventories

• Disaggregation of provisions into employee benefits and other items

• Classes of equity and reserves.

Format of statement: IAS 1 does not prescribe the format of the statement of financial position. Assets can be presented current then non-current, or vice versa, and liabilities and equity can be presented current then non-current then equity, or vice versa. A net asset presentation (assets minus liabilities) is allowed. The long-term financing approach used in UK and elsewhere – fixed assets + current assets - short term payables = long-term debt plus equity – is also acceptable.

Share capital and reserves: Regarding issued share capital and reserves, the following disclosures are required:

• Numbers of shares authorised, issued and fully paid, and issued but not fully paid

• Par value (or that shares do not have a par value)

• A reconciliation of the number of shares outstanding at the beginning and the end of the period

• Description of rights, preferences, and restrictions

• Treasury shares, including shares held by subsidiaries and associates

• Shares reserved for issuance under options and contracts

• A description of the nature and purpose of each reserve within equity.

Additional disclosures are required in respect of entities without share capital and where an entity has reclassified puttable financial instruments.

Statement of profit or loss and other comprehensive income:

Concepts of profit or loss and comprehensive income: Profit or loss is defined as "the total of income less expenses, excluding the components of other comprehensive income".  Other comprehensive income is defined as comprising "items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by other IFRSs".  Total comprehensive income is defined as "the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners".

Comprehensive income for the period = Profit or loss + Other comprehensive income

All items of income and expense recognised in a period must be included in profit or loss unless a Standard or an Interpretation requires otherwise. [IAS 1.88] Some IFRSs require or permit that some components to be excluded from profit or loss and instead to be included in other comprehensive income.

Examples of items recognised outside of profit or loss

• Changes in revaluation surplus where the revaluation method is used under IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets

• Remeasurements of a net defined benefit liability or asset recognised in accordance with IAS 19 Employee Benefits (2011)

• Exchange differences from translating functional currencies into presentation currency in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates

• Gains and losses on remeasuring available-for-sale financial assets in accordance with IAS 39 Financial Instruments: Recognition and Measurement

• The effective portion of gains and losses on hedging instruments in a cash flow hedge and the gains and losses on hedging instruments that hedge investments in equity instruments measured at fair value through other comprehensive income under IAS 39 or IFRS 9 Financial Instruments

• Gains and losses on remeasuring an investment in equity instruments where the entity has elected to present them in other comprehensive income in accordance with IFRS 9

• The effects of changes in the credit risk of a financial liability designated as at fair value through profit and loss under IFRS 9.

In addition, IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors requires the correction of errors and the effect of changes in accounting policies to be recognised outside profit or loss for the current period.

Choice in presentation and basic requirements: An entity has a choice of presenting:

• A single statement of profit or loss and other comprehensive income, with profit or loss and other comprehensive income presented in two sections, or

• Two statements:

¾     a separate statement of profit or loss

¾     a statement of comprehensive income, immediately following the statement of profit or loss and beginning with profit or loss

The statement(s) must present:

• Profit or loss

• Total other comprehensive income

• Comprehensive income for the period

• An allocation of profit or loss and comprehensive income for the period between non-controlling interests and owners of the parent.

A criticism that has been raised is that there is no consistent basis for determining whether gains or losses should be identified recognised in P&L or in OCI.

Profit or loss section or statement: The following minimum line items must be presented in the profit or loss section (or separate statement of profit or loss, if presented):

• Revenue

• Gains and losses from the derecognition of financial assets measured at amortised cost

• Finance costs

• Share of the profit or loss of associates and joint ventures accounted for using the equity method

• Certain gains or losses associated with the reclassification of financial assets

• Tax expense

• A single amount for the total of discontinued items

Expenses recognised in profit or loss should be analysed either by nature (raw materials, staffing costs, depreciation, etc.) or by function (cost of sales, selling, administrative, etc). If an entity categorises by function, then additional information on the nature of expenses – at a minimum depreciation, amortisation and employee benefits expense – must be disclosed.

Material items: IAS 1 specifies, however, that in order to enable users to obtain a better understanding of financial performance, material items of profit or loss should be disclosed, either as separate line items within profit or loss, or in a note to the financial statements, showing both their nature and the amount. IAS 1 provides a list of the type of transaction that might be disclosed. As well as being material, most of these items are relatively unusual and may not occur every year. Users need to be made aware that these items are included in profit and loss because they may distort the overall result for the period. For example, if an entity has sold several properties at a profit, its profit for the current period may be exceptionally high, but will fall to a more normal level in the following period.

Material items are normally disclosed in the notes, but they may be disclosed as a separate line item on the face of the statement of profit or loss if they are sufficiently material or unusual to justify this treatment.

Other comprehensive income section: The other comprehensive income section is required to present line items which are classified by their nature, and grouped between those items that will or will not be reclassified to profit and loss in subsequent periods.

An entity's share of OCI of equity-accounted associates and joint ventures is presented in aggregate as single line items based on whether or not it will subsequently be reclassified to profit or loss.

When an entity presents subtotals, those subtotals shall be comprised of line items made up of amounts recognised and measured in accordance with IFRS; be presented and labelled in a clear and understandable manner; be consistent from period to period; not be displayed with more prominence than the required subtotals and totals; and reconciled with the subtotals or totals required in IFRS.

Other requirements: Additional line items may be needed to fairly present the entity's results of operations.

Items cannot be presented as 'extraordinary items' in the financial statements or in the notes.

Certain items must be disclosed separately either in the statement of comprehensive income or in the notes, if material, including:

• Write-downs of inventories to net realisable value or of property, plant and equipment to recoverable amount, as well as reversals of such write-downs

• Restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring

• Disposals of items of property, plant and equipment

• Disposals of investments

• Discontinuing operations

• Litigation settlements

• Other reversals of provisions

Reclassification adjustments: Reclassification adjustments are amounts reclassified to profit or loss in the current period that were recognised in other comprehensive income in the current or previous periods. Amounts are said to be recycled from OCI to profit or loss.

For example, an entity might own a foreign subsidiary. Exchange gains and losses on the periodic retranslation of the subsidiary’s financial statements are recognised in OCI and accumulated as a separate reserve in equity. When the subsidiary is sold the net gain or loss previously recognised is reclassified from OCI to P&L.

For example, suppose that an entity buys a foreign subsidiary at the start of year 1. At the end of year 1 the financial statements of this subsidiary are retranslated resulting in an exchange loss of $10,000. This is recognised in year 1 as a debit to OCI and this debit in turn is transferred to a separate balance in equity.

The entity then sells the subsidiary in year 2. The loss previously recognised in OCI must now be recognised in P&L. The double entry to achieve this is:

Dr P&L: $10,000

Cr OCI: $10,000

This credit in OCI in turn is transferred to the separate balance in equity where it nets the debit that was taken there in year 1 back to zero.

Reclassification adjustments are needed for most items of other comprehensive income, when a gain or loss is subsequently recognised in profit or loss.

Reclassification adjustments required:

• For any exchange differences previously recognised in OCI in respect of a foreign operation that is later sold; and

• For deferred gains or losses in designated cash flow hedges.

Reclassification adjustments are not allowed for:

• Changes in the revaluation surplus on a non-current asset, and

• Remeasurements of defined benefit pension schemes.

Arguments for and against reclassification

Arguments for	Arguments against
Reclassification protects the integrity of profit or loss by allowing the initial exclusion of transactions (recognised in OCI) that would distort the profit or loss for the period.	There is no consistent theoretical basis for determining whether transactions should be recycled or not.
Reclassification provides users with relevant information about a transaction which occurred in the period	Reclassification adds to the complexity of financial reporting.
Reclassification improves comparability where IFRS permits similar items to be recognised in either profit or loss or OCI	Reclassification may lead to the recognition of transactions that do not meet the definitions of income or expense in the period (changes having occurred in previous periods).

Format one: statement of profit or loss and other comprehensive income: For illustration, one of the recommended formats from the implementation guidance in IAS 1 is as follows:

XYZ Group – Statement of profit or loss and other comprehensive income for the year ended 31 December 20X3

	$000
Revenue	X
Cost of sales	(X)
Gross profit	X
Other operating income	X
Distribution costs	(X)
Administrative expenses	(X)
Other operating expenses	(X)
Profit from operations	X
Finance costs	(X)
Share of profit of associates	X
Profit before tax	X
Income tax expense	(X)
Profit or loss for the period	X
Other comprehensive income
Items that will not be reclassified to profit or loss:
Gains on property revaluation	X
Remeasurement or actuarial gains and losses on defined benefit pension plans	(X)
Remeasurement of equity investments designated to be accounted for through OCI	X
Income tax relating to items that will not be reclassified	(X)
Total – items that will not be reclassified to profit or loss net of tax:	X
Items that may be reclassified subsequently to profit or loss:
Cash flow hedges	X
Exchange differences on translating foreign operations	X
Income tax relating to items that may be reclassified	(X)
Total – items that may be reclassified to profit or loss net of tax:	X
Total – other comprehensive income net of tax for the year	X
Total comprehensive income for the year	X
Profit attributable to:	$000
Owners of the parent	X
Non-controlling interest	X
	X
Total comprehensive income attributable to:
Owners of the parent	X
Non-controlling interest	X
	X

Other comprehensive income and related tax: 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 (as shown in the above examples).

The purpose of this is to provide users with tax information relating to these components, as they often have tax rates different from those applied to profit or loss.

Statement of cash flows: Rather than setting out separate requirements for presentation of the statement of cash flows, IAS 1.111 refers to IAS 7 Statement of Cash Flows.

Statement of changes in equity: IAS 1 requires an entity to present a separate statement of changes in equity. The statement must show:

• Equity reserve and Revaluation reserve and share premium

• Total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to non-controlling interests

• The effects of any retrospective application of accounting policies or restatements made in accordance with IAS 8, separately for each component of other comprehensive income

• Reconciliations between the carrying amounts at the beginning and the end of the period for each component of equity, separately disclosing:

¾     profit or loss

¾     other comprehensive income

¾     transactions with owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control

An analysis of other comprehensive income by item is required to be presented either in the statement or in the notes.

The following amounts may also be presented on the face of the statement of changes in equity, or they may be presented in the notes:

• Amount of dividends recognised as distributions

• The related amount per share.

Total comprehensive income is shown in aggregate only for the purposes of reconciling opening to closing equity.

XYZ Group – Statement of changes in equity for the year ended 31 December 20X3.

	Equity capt'l $000	Ret'd earng's $000	Transl'n of for'gn operations $000	Financial assets thru' OCI $000	Cash flow hdg's $000	Reval'n surplus $000	Total $000
Balance at 1 Jan 20X3	X	X	(X)	X	X	–	X
Changes in accounting policy	–	X	–	–	–	–	X
Restated balance	X	X	X	X	X	X	X
Changes in equity for 20X3
Dividends	–	(X)	–	–	–	–	(X)
Issue of equity capital	X	–	–	–	–	–	X
Total comprehensive income for year	–	X	X	X	X	X	X
Transfer to retained earnings	–	X	–	–	–	(X)	–
Balance at 31 December 20X3	X	X	X	X	X	X	X

In addition to these columns, there should be columns headed:

(a) Non-controlling interest

(b) Total equity

A comparative statement for the prior period must also be published.

Total equity: The difference between total equity at the beginning and end of a financial period can be explained by two factors:

• Total comprehensive income; and

• Owner changes in equity.

Owner changes in equity are caused by transactions with the equity shareholders of an entity ‘in their capacity as owners’. These transactions have nothing to do with the financial performance of the entity, but they create increases or reductions in total equity. The main examples of these transactions are:

• Issues of new equity;

• Payments of dividends; and

• Purchase of its own shares by the company (and subsequent cancellation of the shares).

The purpose of a statement of changes in equity is to show how each component of equity has changed between the beginning and the end of the reporting period.

‘Owner changes in equity’ (transactions with equity owners in their capacity as owners) are distinguished from changes in equity due to profit or loss and other comprehensive income.

For each component of equity, a SOCIE shows the amount at the beginning of the period for that component of equity, changes during the period, and its amount at the end of the period.

In a SOCIE for a group of companies, the amounts attributable to owners of the parent entity and the amounts attributable to the non-controlling interest (NCI) should be shown separately.

Retrospective adjustments: IAS 8 requires that when an entity introduces a change of accounting policy or restates amounts in the financial statements to correct prior period errors, the adjustments should be made retrospectively (to the extent that this is practicable).

Retrospective adjustments result in changes in the reported amount of an equity component, usually retained earnings. Retrospective adjustments and re-statements are not changes in equity, but they are adjustments to the opening balance of retained earnings (or other component of equity).

Where retrospective adjustments are made, the SOCIE must show for each component of equity (usually retained earnings) the effect of the retrospective adjustment. This is shown first, as an adjustment to the opening balance, before the changes in equity are reported.

Notes to the financial statements: The notes must:

• Present the details of the transactions.

• Present the effects of the transactions on financial statements.

• Present the details related to the transaction.

• Present the details related to the event.

• Present information about the basis of preparation of the financial statements and the specific accounting policies used

• Disclose any information required by IFRSs that is not presented elsewhere in the financial statements and

• Provide additional information that is not presented elsewhere in the financial statements but is relevant to an understanding of any of them

Notes are presented in a systematic manner and cross-referenced from the face of the financial statements to the relevant note.

IAS 1.114 suggests that the notes should normally be presented in the following order:

• A statement of compliance with IFRSs

• A summary of significant accounting policies applied, including:

¾     the measurement basis (or bases) used in preparing the financial statements

¾     the other accounting policies used that are relevant to an understanding of the financial statements

• Supporting information for items presented on the face of the statement of financial position (balance sheet), statement(s) of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows, in the order in which each statement and each line item is presented

• Other disclosures, including:

¾     contingent liabilities (see IAS 37) and unrecognised contractual commitments

¾     non-financial disclosures, such as the entity's financial risk management objectives and policies (see IFRS 7 Financial Instruments: Disclosures)

General features of financial statements:

Going concern: The Conceptual Framework notes that financial statements are normally prepared assuming the entity is a going concern and will continue in operation for the foreseeable future.

IAS 1 requires management to make an assessment of an entity's ability to continue as a going concern.  If management has significant concerns about the entity's ability to continue as a going concern, the uncertainties must be disclosed. If management concludes that the entity is not a going concern, the financial statements should not be prepared on a going concern basis, in which case IAS 1 requires a series of disclosures. If management conclude that going concern is not there they then require to prepare the financial statements on peace meal basis.

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.

Matching concept: Expenses are recognized on basis of direct association between cost incurred and earning of specific items of income.

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.

Materiality and aggregation: An item is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. This could be based on the size or nature of an omission or misstatement.

When assessing materiality, entities should consider the characteristics of the users of its financial statements. It can be assumed that these users have a 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.

However, information should not be obscured by aggregating or by providing immaterial information, materiality considerations apply to the all parts of the financial statements, and even when a standard requires a specific disclosure, materiality considerations do apply.

Offsetting: IAS 1 says that assets and liabilities, and income and expenses, should only be offset when required or permitted by an IFRS standard. Offsetting is allowed in following conditions and in these situations:

Conditions: It should be between two parties, the dates should be same and there should be a written agreement between them

Situation: Gains/Losses on the sale of non-current assets are reported after deducting the carrying amount from the amount from the consideration of disposal.

• Gain/Losses relating to group of similar transactions will be reported on a net basis for example foreign exchange gains and losses. Any Material gain or loss should be reported separately

• Expenditure related to recognized provision, where reimbursement occurs from a third party. May be netted off against the reimbursement

Comparative information: IAS 1 requires that comparative information to be disclosed in respect of the previous period for all amounts reported in the financial statements, both on the face of the financial statements and in the notes, unless another Standard requires otherwise. Comparative information is provided for narrative and descriptive where it is relevant to understanding the financial statements of the current period. For the users of financial statements up to five year prior financial statements should be included in the financial statements of the organisation so that user of the financial statements can compare the financial statement information.

An entity is required to present at least two of each of the following primary financial statements:

• Statement of financial position

• Statement of profit or loss and other comprehensive income

• Separate statements of profit or loss (where presented)

• Statement of cash flows

• Statement of changes in equity

• Related notes for each of the above items.

A third statement of financial position is required to be presented if the entity retrospectively applies an accounting policy, restates items, or reclassifies items, and those adjustments had a material effect on the information in the statement of financial position at the beginning of the comparative period.

Where comparative amounts are changed or reclassified, various disclosures are required.

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.

Fair presentation and compliance with IFRSs

The financial statements must "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.

IAS 1 requires an entity whose financial statements comply with IFRSs to make an explicit and unreserved statement of such compliance in the notes. Financial statements cannot be described as complying with IFRSs unless they comply with all the requirements of IFRSs (which includes International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations and SIC Interpretations).

Inappropriate accounting policies are not rectified either by disclosure of the accounting policies used or by notes or explanatory material.

IAS 1 acknowledges that, in extremely rare circumstances, management may conclude that compliance with an IFRS requirement would be so misleading that it would conflict with the objective of financial statements set out in the Framework. In such a case, the entity is required to depart from the IFRS requirement, with detailed disclosure of the nature, reasons, and impact of the departure and management need to conclude that organization has prepared whole financial statements according to applicable reporting framework except for the matter in which they depart from the IFRS on the grounds of fair presentation giving detailed explanation on the matter.

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.

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.

Other disclosures

Judgements and key assumptions: An entity must disclose, in the summary of significant accounting policies or other notes, the judgements, apart from those involving estimations, that management has made in the process of applying the entity's accounting policies that have the most significant effect on the amounts recognised in the financial statements. Examples cited in IAS 1.123 include management's judgements in determining:

• When substantially all the significant risks and rewards of ownership of financial assets and lease assets are transferred to other entities

• Whether, in substance, particular sales of goods are financing arrangements and therefore do not give rise to revenue.

An entity must also disclose, in the notes, information about the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. These disclosures do not involve disclosing budgets or forecasts.

Dividends: In addition to the distributions information in the statement of changes in equity (see above), the following must be disclosed in the notes:

• The amount of dividends proposed or declared before the financial statements were authorised for issue but which were not recognised as a distribution to owners during the period, and the related amount per share

• The amount of any cumulative preference dividends not recognised.

Capital disclosures: An entity discloses information about its objectives, policies and processes for managing capital. To comply with this, the disclosures include:

• Qualitative information about the entity's objectives, policies and processes for managing capital, including:

¾     description of capital it manages

¾     nature of external capital requirements, if any

¾     how it is meeting its objectives

• Quantitative data about what the entity regards as capital

• Changes from one period to another

• Whether the entity has complied with any external capital requirements and

• If it has not complied, the consequences of such non-compliance.

Puttable financial instruments: IAS 1.136A requires the following additional disclosures if an entity has a puttable instrument that is classified as an equity instrument:

• Summary quantitative data about the amount classified as equity

• The entity's objectives, policies and processes for managing its obligation to repurchase or redeem the instruments when required to do so by the instrument holders, including any changes from the previous period

• The expected cash outflow on redemption or repurchase of that class of financial instruments and

• Information about how the expected cash outflow on redemption or repurchase was determined.

Other information: The following other note disclosures are required by IAS 1 if not disclosed elsewhere in information published with the financial statements:

• Domicile and legal form of the entity

• Country of incorporation

• Address of registered office or principal place of business

• Description of the entity's operations and principal activities

• If it is part of a group, the name of its parent and the ultimate parent of the group

• If it is a limited life entity, information regarding the length of the life

Terminology: The 2007 comprehensive revision to IAS 1 introduced some new terminology. Consequential amendments were made at that time to all of the other existing IFRSs, and the new terminology has been used in subsequent IFRSs including amendments. IAS 1.8 states: "Although this Standard uses the terms 'other comprehensive income', 'profit or loss' and 'total comprehensive income', an entity may use other terms to describe the totals as long as the meaning is clear. For example, an entity may use the term 'net income' to describe profit or loss." Also, IAS 1.57(b) states: "The descriptions used and the ordering of items or aggregation of similar items may be amended according to the nature of the entity and its transactions, to provide information that is relevant to an understanding of the entity's financial position."

Term before 2007 revision of IAS 1	Term as amended by IAS 1 (2007)
balance sheet	statement of financial position
cash flow statement	statement of cash flows
income statement	statement of comprehensive income (income statement is retained in case of a two-statement approach)
recognised in the income statement	recognised in profit or loss
recognised [directly] in equity (only for OCI components)	recognised in other comprehensive income
recognised [directly] in equity (for recognition both in OCI and equity)	recognised outside profit or loss (either in OCI or equity)
removed from equity and recognised in profit or loss ('recycling')	reclassified from equity to profit or loss as a reclassification adjustment
Standard or/and Interpretation	IFRSs
on the face of	in
equity holders	owners (exception for 'ordinary equity holders')
balance sheet date	end of the reporting period
reporting date	end of the reporting period
after the balance sheet date	end of the reporting period

Problems with IAS 1: 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:

• There is no consistent basis across IFRS Standards for determining when a gain or loss is recognised in profit or loss and when it is recognised in OCI. This often means that the OCI is not fully understood by the users of the financial statements.

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

• The notion of recycling gains and losses from OCI is unclear, particularly with regards to which items are recycled and when. Moreover this recycling results in profits or losses being recorded in a different period from the change in the related asset or liability, thus contradicting the Conceptual Framework’s definition of incomes and expenses.

• There are differences between IFRS Standards and US GAAP in respect of OCI. This reduces the comparability of profit-based performance measures.

Problems with disclosure of additional information (non-GAAP information): It may not be possible to readily derive the information from the financial statements or reconcile it back to them.

The lack of standardised approaches might result in it being difficult to compare an entities financial position and performance to earlier periods or other entities.

Non-GAAP information may not be consistent with information defined or required by IFRS.

Non-GAAP information may be presented with greater prominence that information required by IFRS possible detracting from the view that IFRS tries to present.

Non-GAAP information may not be audited.

Current issues: liabilities: The following exposure draft is an examinable.

ED/2015/1: Classification of Liabilities: The Board proposes to amend IAS 1 to clarify that the classification of a liability as current or non-current is based on rights as at the reporting date.

ED 2015/01: Classification of liabilities – proposed amendments to IAS 1

The proposed amendments are meant to clarify the guidance in IAS 1 on the identification of current liabilities but not to change it by making minor changes to the wording of that part of the definition of current liabilities concerned with rolling a liability over.

The rolling over criterion changes to a liability should be classified as a current liability if the entity does not have a right at the end of the reporting period to defer settlement of the liability for at least 12 months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

The changes are as follows:

• The term “unconditional right” is replaced with “right”. Rights are rarely “unconditional” as the entity would have to comply with conditions imposed by a lender.

• The new criterion stresses that the right must exist at the reporting date.

• The new criterion also states that a conversion right does not otherwise affect the classification.

The prosed amendments also clarify that settlement of a liability refers to the transfer to the counterparty of cash, equity instruments, other assets or services that results in the extinguishment of the liability.