IAS 1

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IAS 1

  1. 1. IAS 1: Presentation of FinancialStatements By Roshankumar S Pimpalkarroshankumar.2007@rediffmail.com
  2. 2. Scope:IAS 1 is applicable for all general purpose financial statements that are prepared inaccordance with International Financial Reporting Standards (IFRS). This Standarddoes not apply to condensed interim financial information.General purpose financial statements are aimed at users who do not have theauthority to demand financial reports that are tailored to their own needs. Generalpurpose financial statements must include: 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, comprising a summary of significant accounting policies and other explanatory information; and a statement of financial position as at the beginning of the earliest comparative period 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 statementsObjective of IAS 1:The objective of IAS 1 is to prescribe the basis for presentation of general purposefinancial statements in accordance with International Financial Reporting Standards(IFRS). This ensures comparability with: the entity’s financial statements of prior periods the financial statements of other entitiesObjective of Financial Statements: provide information on the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions show the results of management’s utilization of the resources entrusted to itOverall considerations:IAS 1 prescribes eight overall considerations that need to be met when preparingfinancial statements. These are: 1. fair presentation and compliance with IFRS 2. Going concern 3. accrual basis of accounting 4. consistency of presentationroshankumar.2007@rediffmail.com
  3. 3. 5. materiality and aggregation 6. offsetting 7. frequency of reporting 8. comparative informationLet’s look at each consideration in detailWhat happens in the exceptional circumstances when an entity concludes thatcompliance with IFRS would be misleading? In extremely rare circumstances management may conclude that compliance with a requirement in a Standard or Interpretation of a Standard would be so misleading that it would conflict with the objectives of financial statements as set out in the Framework. In these circumstances an entity can depart from the requirement if the relevant regulatory framework requires or does not prohibit the departure. But if the departure is prohibited then the entity must reduce the misleading effects of compliance by disclosing three things o the title of the IFRS in question o the nature of the requirement o reason why management has concluded that complying with the requirement is so misleading The adjustments to each item in the financial statements that is deemed necessary to achieve fair presentation must also be disclosed.Going Concern:Financial statements must be prepared on a going concern basis unlessmanagement: intends to liquidate the entity or cease trading; or has no realistic alternative but to liquidate the entity or cease tradingAny uncertainties about an entity’s ability to continue as a going concern should bedisclosed. When the financial statements are not prepared on a going concern basisthis fact must be disclosed, along with the: basis on which they are prepared and reason why the entity is not regarded as a going concernAccrual:An entity must prepare its financial statements under the accrual basis of accounting.The only component of general purpose financial statement to which this doesn’tapply is the statement of cash flows and notes to the statement of cash flows.roshankumar.2007@rediffmail.com
  4. 4. This means that items are recognised as assets, liabilities, equity, income andexpenses when they satisfy the definition and recognition criteria for those elements,as explained in the Framework.Consistency:The presentation and classification of items in the financial statements must be thesame from one period to the next unless: 1. the change is required by IFRS; or 2. there is significant change in the nature of operations of entity; or 3. A review of its financial statements indicates that a change in presentation is more appropriate.Materiality and Aggregation:The rules to follow when considering whether items can be aggregated are: 1. each material class of similar items shall be presented separately in the financial statements; and 2. dissimilar items shall be presented separately in the financial statements unless the amounts are immaterial; and 3. immaterial amounts can be aggregated with other items In this context information is material if its omission or misstatement could, individually or collectively; influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The concept of materiality means that the specific disclosure requirements of IFRSs need not be met if the resulting information is not material.Offsetting: Offsetting is the presentation of an asset and a liability (or group thereof) as a single item on the statement of financial position. Assets and liabilities can be offset only when offsetting is required or permitted by another IFRS. Items of income and expense can be offset only when an IFRS requires or permits it. The reporting of assets net of valuation allowances – for example, doubtful debt allowances on receivables – is not offsetting. Gains and losses arising from a group of similar transactions reported on a net basis is not offsetting. For example foreign exchange gains and losses arising on financial instruments held for trading purposes.Comparative information:Comparative information must be disclosed:roshankumar.2007@rediffmail.com
  5. 5. in respect of the previous period for all amounts reported in the financial statements, unless an IFRS permits or requires otherwise for narrative and descriptive information when it is relevant to an understanding of the current period’s financial statementsReclassifying comparative amounts:When the presentation or classification of items in the financial statements isamended, comparative amounts must be reclassified unless the reclassification isimpracticable. Applying a requirement is impracticable when the entity cannot applyit after making every reasonable effort to do so. When comparative amounts arereclassified the following must be disclosed: nature of reclassification; and amount of each item, or class of items, that has been reclassified; and reason for reclassificationWhen comparative amounts are not reclassified due to this being impracticable, thefollowing must be disclosed: reason for not reclassifying the amounts; and nature of the adjustments that would have been made if the amounts were reclassifiedIAS 1 requires that: financial statements must be clearly identifiable financial statements must be easily distinguishable from any other information in the same published documentThe following information must be prominently displayed in the financial statements: name of the reporting entity and any change in that information from the date of the end of the reporting period whether the statements cover a single entity or a group of entities date of the end of the reporting period, or period covered by the financial statements presentation currency level of rounding used in the presentation of amountsFinancial statements should be presented annually. If they are not presentedannually there are specific disclosure requirementsCurrent and Non-current distinction:An entity must present current and non-current assets and liabilities as separateclassifications on the face of the statement of financial position. An asset is classifiedas current when it is:roshankumar.2007@rediffmail.com
  6. 6. expected to be realised in, or is held for sale or consumption in, the normal course of the entity’s operating cycle held primarily for trading purposes expected to be realised within 12 months after the reporting period cash or a cash equivalent asset that is not restricted from being exchanged or used to settle a liability for at least 12 months after the reporting periodAll other assets should be classified as non-current. The operating cycle of anentity is the time between the acquisition of assets for processing and theirrealisation in cash or cash equivalents.A liability shall be classified as current when it is expected to be settled in the entitysnormal operating cycle or held primarily for the purpose of being traded. It is alsoclassified as current if it is due to be settled within 12 months after the reportingperiod, or the entity does not have an unconditional right to defer settlement ofthe liability for at least 12 months after the reporting period. All other liabilities areclassified as non-current.The difference between current asset and current liability regarding classification isthat in respect of asset first preference should always be given to the operating cycleeven if it is more than 12 months whereas in case of current liability both theconditions operating cycle and settlement within 12 months should be considered,satisfaction of either condition will lead to classification of liability as a current liability.Statement of Changes in Equity should include the total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests; for each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with IAS 8; and for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing certain changes as prescribed by IAS 1The notes to the accounts should include following information the basis of preparation and accounting policies additional information, if it adds to the understanding of the financial statements any information required by IFRSs that isnt disclosed elsewhere a structure and cross-references to the face of the financial statement An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of:roshankumar.2007@rediffmail.com
  7. 7. their nature, and their carrying amount as at the end of the reporting period.The assumptions and other sources of estimation uncertainty relate to the estimatesthat require management’s most difficult, subjective or complex judgements.Examples of the types of disclosures an entity makes are:(a) the nature of the assumption or other estimation uncertainty;(b) the sensitivity of carrying amounts to the methods, assumptions and estimatesunderlying their calculation, including the reasons for the sensitivity;(c) the expected resolution of an uncertainty and the range of reasonably possibleoutcomes within the next financial year in respect of the carrying amounts of theassets and liabilities affected; and(d) an explanation of changes made to past assumptions concerning those assetsand liabilities, if the uncertainty remains unresolved.for example: Disclosure of assumptions regarding discount rate.roshankumar.2007@rediffmail.com

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