Format of financial statements overview

Format of financial statements

• Structure and content: general points
• Section overview
• In addition to giving substantial guidance on the form and content of
published financial statements BAS 1 also covers a number of general
points:
– The profit or loss must be calculated after taking account of all income and
expense in the period (unless a standard or interpretation requires otherwise)
– Recommended formats are given
– Readers of annual reports must be able to distinguish between the financial
statements and other information
– Financial statements should be prepared at least annually
– Financial statements should be produced within six months of the balance
sheet date.

– Profit or loss for the period
• The income statement is the most significant indicator
of a company's financial performance. So it is
important to ensure that it is not misleading.
• BAS 1 stipulates that all items of income and expense
recognized in a period shall be included in profit or loss
unless a Standard or an Interpretation requires
otherwise.
• Circumstances where items may be excluded from
profit or loss for the current year include the correction
of errors and the effect of changes in accounting
policies

– Identification of financial statements
• As a result of the above point, it is most important that enterprises
distinguish the financial statements very clearly from any other
information published with them.
• The enterprise should identify each component of the financial
statements very clearly. BAS 1 also requires disclosure of the
following information in a prominent position. If necessary it should
be repeated wherever it is felt to be of use to the reader in his
understanding of the information presented.
• Name of the reporting enterprise (or other means of identification)
• Whether the accounts cover the single entity only or a group of entities
• The balance sheet date or the period covered by the financial statements (as
appropriate)
• The reporting currency
• The level of rounding used in presenting the figures in the financial statements

– Reporting period
• It is normal for entities to present financial statements
annually and BAS 1 states that they should be
prepared at least as often as this. If (unusually) an
entity's balance sheet date is changed, for whatever
reason, the period for which the statements are
presented will be less or more than one year. In such
cases the entity should also disclose:
• The reason(s) why a period other than one year is used, and
• The fact that the comparative figures given are not in fact
comparable (in particular for the income statement, changes in
equity, cash flows and related notes).

– Timeliness
• If the publication of financial statements is
delayed too long after the balance sheet date,
their usefulness will be severely diminished.
The standard states that entities should be
able to produce their financial statements
within six months of the balance sheet date.

• Section overview
• BAS 1 provides guidance on the layout of the balance
sheet.
• BAS 1 specifies that certain items must be shown on
the face of the balance sheet.
• Other information is required on the face of the
balance sheet or in the notes.
• Both assets and liabilities must be separately classified
as current and non-current.

•
– Information presented either on the face of the balance
sheet or by note
• Certain pieces of information may be presented either
on the face of the balance sheet or in the notes to the
financial statements.
• These comprise:
• Further sub-classification of line items on the face. Disclosures will
vary from item to item, which will in part depend on the
requirements of BFRS. For example, tangible assets are classified
by class as required by BAS 16 Property, Plant and Equipment.
• Details about each class of share capital.
• Details about each reserve within equity.

• Definition
• Operating cycle: The time between the
acquisition of assets for processing and their
realisation in cash or cash equivalents.

• Definition
• Current asset: 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 twelve months after the balance
sheet date, or
• It is cash or a cash equivalent (as defined in BAS 7 Cash Flow
Statements), unless it is restricted from being exchanged or used to
settle a liability for at least twelve months after the balance sheet
date.
All other assets should be classified as non-current assets.

• Definition
• Current liability: 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 twelve months after the balance
sheet date, or
• The entity does not have an unconditional right to defer
settlement of the liability for at least twelve months after the
balance sheet date.
• All other liabilities should be classified as non-current
liabilities.

– Income statement formats
• BAS 1 suggests two possible formats for the
income statement, the difference between
them being the classification of expenses:
• By function, or
• By nature
• Point to note: The income statement
classifying expenses by function is more
common in practice.

– Information presented on the face of the income statement
• The standard lists the following as the minimum to be disclosed on the face of the
income statement.
• Revenue
• Finance costs
• Share of profits and losses of associates accounted for using the equity method
• Income tax expense
• A single amount comprising the total of:
– The post-tax profit or loss of discontinued operations
– The post-tax gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the
assets constituting the discontinued operation
• Profit or loss
• The following items must be disclosed on the face of the income statement as
allocations of profit or loss for the period.
• Profit or loss attributable to minority interest
• Profit or loss attributable to equity holders of the parent
• The allocated amounts must not be presented as items of income or expense
• Point to note: Income and expense items can only be offset in certain
circumstances
•

– Other information presented either on the face of the income statement or in the notes
• These comprise:
• 'Exceptional items'
• These are material items of income and expense which should be disclosed
separately. These include:
– Write downs of inventories to NRV
– Write down of property, plant and equipment to recoverable amount
– Disposals of property, plant and equipment
– Restructuring of the activities of an entity and reversals of any provisions for the cost of restructuring
– Disposals of investments
– Discontinued operations
– Litigation settlements
– Other reversals of provisions
• Details, including per share amounts, of dividends recognised in the financial statements.
• Point to note: It is now best practice that dividends paid are not shown in the
income statement; instead they are shown in the statement of changes in equity.
•

– Statement of changes in equity
• The income statement is framed as a straightforward measure of financial
performance, in that it shows how the profit or loss for the period has
arisen. It is then necessary to link this result with income/expenses in the
period which are not shown in the income statement to arrive at the total
recognised income and expense for the period. The statement making the
link is the statement of changes in equity. This must be presented as a
separate component of the financial statements not just included in the
notes.
• The following should be shown on the face of the statement:
• The profit or loss for the period
• Each item of income and expense for the period that, as required by other standards, has
been recognised directly in equity rather than in the income statement
• The total income or expense for the period (being the sum of the first two items listed
above) showing separately the total amounts attributable to equity holders of the parent
and to the minority interest, and
• The effect of changes in accounting policy or correction of errors for each component of
equity where these have been recognised during the period in accordance with BAS 8

• Notes to the financial statements
– Contents of notes
• The notes to the financial statements will
amplify the information given in the balance
sheet, income statement and statement of
changes in equity

– Structure
• The notes to the financial statements should perform the following
functions:
• Provide information about the basis on which the financial statements were
prepared and which specific accounting policies were chosen and applied to
significant transactions/events.
• Disclose any information, not shown elsewhere in the financial statements,
which is required by BFRSs.
• Show any additional information that is necessary for a fair presentation
which is not shown on the face of the financial statements.
• The way the notes are presented is important. They should be set
out in a systematic manner and cross-referenced back to the
related figure(s) in the balance sheet, income statement, cash flow
statement or statement of changes in equity.

• Notes to the financial statements will amplify the information shown
therein by giving the following:
• More detailed analysis or breakdowns of figures in the statements.
• Narrative information explaining figures in the statements.
• Additional information where items are not included in the financial statements, e.g.
contingent liabilities and commitments.
• BAS 1 suggests a certain order for the notes to the financial statements.
This will assist users when comparing the statements of different entities.
(Remember, comparability is one of the qualitative characteristics of
useful information.)
• Statement of compliance with BFRSs.
• Summary of significant accounting policies applied.
• Supporting information for items presented on the face of each financial statement in
the same order as the financial statements and each line item within them.
• Other disclosures, e.g.:
– Contingent liabilities, commitments and other financial disclosures
– Non-financial disclosures

•
– Disclosure of accounting policies
• The accounting policies section should describe the following.
• The measurement basis (or bases) used in preparing the financial statements.
• The other accounting policies used, as required for a proper understanding of the
financial statements.
• The judgments, apart from those involving estimations, made by management in
applying the accounting policies.
• The key assumptions made about the future and other key sources of estimation
uncertainty which carry a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year.
• This information may be shown in the notes or sometimes as a separate
component of the financial statements.
• The information on measurement bases used is obviously fundamental to
an understanding of the financial statements. Where more than one basis
is used, it should be stated to which assets or liabilities each basis has
been applied.

– Other disclosures
• An entity must disclose in the notes:
• The amount of dividends proposed or declared before the financial statements
were authorised for issue but not recognised as a distribution to equity
holders during the period, and the amount per share.
• The amount of any cumulative preference dividends not recognised.
• BAS 1 ends by listing some specific disclosures which will always be
required if they are not shown elsewhere in the financial
statements.
• The domicile and legal form of the entity, its country of incorporation and the
address of the registered office (or, if different, principal place of business).
• A description of the nature of the entity's operations and its principal
activities.
• The name of the parent entity and the ultimate parent entity of the group.

Format of financial statements overview

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