IAS 1 Presentation

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IAS 1 PRESENTATION OF
FINANCIAL STATEMENTS
N R GOVINDARAJAN
CHARTERED ACCOUNT
FCA,AICWA, CISA, DISA(ICAI)

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OVERVIEW
• Scope and objectives
• Components of Financial Statements
• Overall considerations
• Presentation and Disclosures
• Statement of Financial Position

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OVERVIEW
• Statement of Comprehensive Income
• Statement of Changes in Equity
• Cash flow statement
• Accounting policies and notes to accounts
• Model financial statements

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Scope and objectives
• Current version issued in September 2007
• Improvements made in May 08
• Both applies to annual periods beginning
on or after 1 Jan 2009
• Sets out the overall framework for
presenting general purpose financial
statements in accordance with IFRS
• Provides guidelines for their structure and
establishes minimum contents

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Scope and objectives
• A foundation standard which guides in basic
accounting and financial reporting principles
• Framework for preparation and presentation
takes over where this standard is silent
• Not applicable to condensed interim financial
information
• Applicable to both individual as well as
consolidated Financial Statements
• Ensures comparability of FS

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Components of Financial
Statements
• A complete set of IFRS compliant Financial Statement
consists of:
• Statement of Financial Position (B/S)
• Statement of Comprehensive Income (P&L)
• Statement of Changes in Equity (Appropriations)
• Statement of Cash flows
• Notes consisting of significant accounting policies and
other notes of explanations
• Restatement and accounting policies changes
retrospectively necessitate a statement of financial
position as at the beginning of the earliest comparative
period

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Components of Financial
Statements
• Financial review by the management
• Source of funding
• Risk management policies
• Environmental reports
• Factors determining financial performance
• Usage of titles for FS can be other than those
stated earlier
• Equal prominence for all components of FS

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Components of Financial
Statements
• Prominent disclosures
• Name of the reporting entity and changes
• Group or individual information
• Reporting period end, coverage
• Presentation currency
• Level of precision (rounding in thousands
or millions in the presentation currency)

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Overall considerations
• Fair presentation
• Accrual basis of accounting
• Consistency
• Materiality and aggregation
• Offsetting
• Going concern
• Comparative information
• Reporting frequency

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Fair presentation
• Selection of accounting policies ( IAS 8)
• Complies with international GAAP- No
deviations except under Para 20 IAS 1
• Recognition criteria for assets, liabilities, income
and expenses as per Framework
• Full IFRS compliance
• Deviations and its effect in the current period
• Adopting inappropriate policies and disclosing
them would not be fair presentation

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Deviation from IFRS – Para 20
• Only under exceptional circumstances
deviation is permitted
• Management should conclude that by not
deviating so would be materially
misleading and conflicting with the
objective of financial statements
• To achieve fair presentation adequate
disclosures should be made

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Disclosure as per Para 20
• The entity has complied with IFRS except the
ones it has departed
• Title of IFRS, reason and nature of departure
• Treatment under IFRS and why it would be
misleading
• Financial effect of the departure
• If Prior period departure and it affects the current
period then too it should be disclosed

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Accrual and Consistency
• FS are prepared under accrual basis
except for Cash Flow information
• Presentation and Classification of items in
the financial statements shall be retained
from one period to another
• Change is justified either by a change in
circumstances or requirement of a new
IFRS

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Materiality, aggregation and
Offsetting
• Each material class of similar items shall be
presented separately in the FS
• Immaterial amounts can be aggregated with
amounts of classes of different items
• In general, items of income, expenses, assets
and liabilities are presented separately
• Offsetting means presentation of assets,
liabilities or income, expenses as single item
• Offsetting is allowed only if required by another
standard or permitted by it

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Offsetting
• Following are not offsetting:
• Sundry debtors less provisions
• Obsolescence provision against
inventories
• Offsetting –
• Setting off expenses on sale with sale
proceeds of plant
• Setting of warranty claims against
provisions made towards warranty

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Going concern
• Management should make an assessment of the
entity’s ability to continue as a going concern
• Uncertainties about the entities ability as going
concern should be disclosed
• FS must be prepared on going concern basis
unless management intends to liquidate or
cease trading and there is no realistic alternative
other than doing so
• Disclose if FS not prepared on GC basis

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Comparative information
• Disclose comparative information in
respect of the previous period for all the
amounts reported in the FS
• It should be made on the face of FS as
well as in the notes, unless another
standard requires otherwise
• If comparative amount is changed or
reclassified various disclosures are called
for ( nature, effect, reasons)

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Reporting frequency
• Annual reporting presumed
• Longer or shorter period is permitted
• If the annual reporting period is changed
and the FS is prepared for a different
period , reason and the fact that FS is not
comparable should be disclosed

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Presentation and Disclosures
• Identify financial statements clearly from other
information presented
• Components should be clearly identified
• Prominent Disclosures:
• Financial statements
• Name of the reporting enterprise, changes if any
from previous year
• Individual entity reporting or group
• Date, period and presentation currency
• Level of precision

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Statement of Financial Position
• Techniques of presentation
• No specific format
• Classification of assets and liabilities under current and
non current categories
• Exception – liquidity presentation – FIs
• LP for more relevant and reliable information (but no
operating cycle)
• Minimum line items to be presented
• Size, nature or function decides the line items
• Aggregation of similar items
• Minimum line items

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Current and Non current assets
• Entity to present amounts expected to be recovered or estimated to
settle within a period of not exceeding 12 months and more than 12
months – CA/CL
• Current Assets:
• Cash or cash equivalent, assets held for collection, sale, or
consumption and expected to be realised within the
enterprise’s normal operating cycle, or within the next 12
months whichever is later
• Eg: Inventories, receivables, advances, loans , current portion
of non current assets lease receivable within the next 12
months
• All others are non current assets
• Eg: Tangible assets like property, plant and equipment,
intangible assets and financial instruments other than held for
trading and to be realised beyond a period of 12 months are
classified as NON CURRENT ASSETS

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Operating cycle
• Period from acquisition of asset to the
point of consumption in process or sale
and realisation in cash or cash equivalents
• Can be 12 months if the above is not
determinable

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Current liabilities
• To fufill the following conditions
• Expected to be settled in the entity’s
normal operating cycle
• Primarily held for trading
• Due to be settled within 12 months from
the balance sheet date
• Entity does not have unconditional right to
defer settlement of the liability for at least
12 months after the balance sheet date

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Current liabilities
• Eg: Bank OD, dividend payable, income
tax, other non trade payables, current
portion of non current financial liabilities
• All other liabilities not meeting the
conditions are non current liabilities

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Can a long term liability be treated
as current liability?
• When it is to be settled within 12 months of
balance sheet date and the original term was for
a period in excess of 12 months
• An agreement to reschedule payments on a long
term basis is completed after the balance sheet
date but before FS are authorised
• In case of breach of long term agreement, the
liability becomes repayable on demand, it would
be deemed to be a current liability

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Exceptions
• In case the lender has agreed by the
balance sheet date to provide period of
grace
• Such period ends 12 months after the date
of balance sheet
• The entity can rectify the breach during
which the lender cannot demand
immediate repayment
• The liability would be non current

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Statement of Comprehensive
Income
• Represents the financial performance of an
entity during an accounting period
• Revision made in September 2007
• Two alternatives
• Components of P & L and other items of
comprehensive income in a single statement
• Income statement and other comprehensive
income statement that begins with profit or loss
• FORMAT SINGLE STATEMENT
• FORMAT SEPARATE STATEMENT

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Comprehensive Income
• It is nothing but the changes in equity during a period
resulting from transactions and other events
• It is other than such changes resulting from transactions
with owners in their capacity as owners
• There are no “Extraordinary items”
• C I = Profit or Loss Plus Other Comprehensive income
• Items of other comprehensive income are direct
transfers to equity and are dealt with respective IFRSs in
the profit and loss
• They arise out of reclassification adjustments and
retained earning adjustments

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Components of Comprehensive
Income
• 1. Gains or losses on fair value re-measurements arising
out of available for sale financial assets under IAS 39
(reclassification adjustment)
• 2. Revaluation surplus under IAS 38 or IAS 16 (retained
earning adjustment)
• 3. Gains or losses on translation of financial statements
of foreign operations IAS 21(reclassification adjustment)
• 4. Actuarial gains or losses under defined benefit plans
covered by IAS 19 (retained earning adjustment)
• 5. Effective portion of gains and losses on hedging
instruments under IAS 39 (reclassification adjustment)

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Nature method
• Aggregation of expenses takes place on
the basis of nature of expense
• Eg Depn, transport, advertising, wages etc
• No functional allocation
• Simple and applied to smaller entities
• FORMAT

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Function method
• Classification of expenses is done function
wise
• Eg Cost of sales, Administrative
expenses, Distribution expenses etc
• Other items presented includes
depreciation, amortisation, employee cost
etc
• FORMAT

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Statement of Changes in Equity
• An entity shall present a statement of changes in
equity showing:
• Total comprehensive income for the period,
showing separately, a break up of amounts
attributable to owners (shareholders of parents)
and non-controlling interests (shareholders of
subsidiaries, other than parent)
• Effects of retrospective application or
restatement, recognised during the period

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Statement of Changes in Equity
• For each component of equity a
reconciliation between carrying amounts
at the beginning and at the end of the
period in respect of:
• Profit or loss (basic income statement)
• Other comprehensive income
• Transactions with owners and changes in
ownership interests in subsidiariesthat do
not result in loss of control

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Statement of Changes in Equity
• The Standard requires that the changes
(that constitute all or some of the
foregoing elements) in equity should be
presented in the form of a statement,
showing separately:
• A break up of amounts attributable to
owners (shareholders of parents) and

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Statement of Changes in Equity
• Non-controlling interests (shareholders of
subsidiaries, other than parent) in respect of:
• Profit or loss (basic income statement)
• Other comprehensive income
• Transaction with owners
• Similar to schedule of reserves and surplus to
the balance sheet in India as per Part I of
Schedule VI
• FORMAT

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Cash flow statement
• Gives the information about the difference
between cash basis and accrual basis of
income
• Classification of cash flows into
• Operating activities
• Investing activities
• Financing activities
• Both direct and indirect methods are
recognised

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Cash flow statement
• Essential differences are as follows:
• Bank ODs are to be treated as cash and
cash equivalents – (rectified in ED)
• Prohibition of separate disclosures of
extraordinary items (rectified in ED)
• Use of the term reporting currency in the
place of functional currency (rectified in
ED)

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Notes to accounts
• To include information in a systematic
manner
• Cross reference to notes should be given
against items presented on the face of
financial statements
• Used to disclose post balance sheet date
events having material bearing on the
financial statements

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Notes to accounts
• Basis of preparation of FS and specific
accounting policies
• Information required by IFRS and not
presented elsewhere in FS
• Any other additional relevant information

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Notes to accounts
• Statement of compliance with IFRS
• Significant accounting policies
• Supporting information to items presented
in FS
• Other disclosures including contingent
liabilities and unrecognised contractual
commitments
• Non financial information – eg risk
management policy of the entity

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Disclosure of accounting policies
• Measurement bases used in preparing FS
• Other accounting policies relevant to
understanding the FS
• Judgements made in applying the
accounting policies which have most
significant effect on the amounts
recognised in FS

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Estimation uncertainty
• Key assumptions about the future and
major sources of estimation uncertainty
that have significant risk of causing
material adjustment to the carrying
amount of assets and liabilities within next
year
• In relation to those assets and liabilities
their nature and carrying amount

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Capital disclosures
• Entity's objectives, policies and processes for
managing capital
• It includes:
• Qualitative information like what is capital,
capital adequacy requirements , how the
management of capital objectives is met
• Quantitative data about components of capital
• Any changes in capital from the PY
• Whether capital adequacy norms have been met
• Consequences of not meeting it

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Other disclosures
• Domicile of the entity
• Legal form
• Address of registered office
• Nature of operations or principal activities
or both
• Name of the parent and ultimate parent
• Disclosure of dividend information – in
contrast with IndianGAAP

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Structure of Statement of Financial Position 2009 2008
ASSETS
Non-current Assets
Property , Plant & Equipment
Goodwill
Other Intangible Assets
Investments in Associates
Available for Sale Investments
Current Assets
Inventories
Trade Receivables
Other Current Assets
Cash & Cash Equivalents
Total Assets

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EQUITY AND LIABILITIES
Equity attributable to the owners of the
parent
Share Capital
Retained Earnings
Other components of Equity
Non-controlling Interest
Total Equity
Structure of Statement of Financial
Position
2009 2008

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Non-current Liabilities
Long-term borrowings
Deferred tax
Long term provisions
Total non-current liabilities
Current Liabilities
Trade and other payables
Short-term borrowings
Current portion of long- term borrowings
Current tax payable
Short-term provisions
Total current liabilities
Total liabilities

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SUMMARY
• AS 1 VS DRAFT AS 1
• Conclusion

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