3 Discussion Paper – A Review of the Conceptual
1936, pp.187-191; American Accounting
Framework for Financial Reporting, IASB, July
Association, Executive Committee, ‘Accounting
2013.
Principles Underlying Corporate Financial 4
Exposure Draft ED/2015/3: Conceptual
Statements’, Accounting Review, June 1941,
Framework for Financial Reporting, IASB, July
pp.133-139; American Accounting Association,
2013.
Committee to Prepare a Statement of Basic 5 Discussion Paper – A Review of the Conceptual
Accounting Theory, A Statement of Basic
Framework for Financial Reporting, IASB, July
Accounting Theory, 1966; American
2013, para. 1.5.
Accounting Association, Committee on
107
Chapter 3
Presentation of financial
statements and
accounting policies
1 INTRODUCTION .............................................................................................. 111
1.1
Objective and scope of IAS 1 ............................................................................... 111
1.2 Objective
and
scope of IAS 8 .............................................................................. 112
2 THE PURPOSE AND COMPOSITION OF FINANCIAL STATEMENTS ............. 113
2.1
The purpose of financial statements .................................................................. 113
2.2 Frequency
of
reporting and period covered .................................................... 114
2.3
The components of a complete set of financial statements .......................... 114
2.4 Comparative
information
.....................................................................................
116
2.5
Identification of the financial statements and accompanying
information ............................................................................................................. 117
2.5.1
Identification of financial statements ................................................ 117
2.5.2 Statement
of
compliance with IFRS .................................................. 118
3 THE STRUCTURE OF FINANCIAL STATEMENTS .......................................... 119
3.1
The statement of financial position .................................................................. 120
3.1.1
The distinction between current/non-current assets and
liabilities .................................................................................................. 120
3.1.2
Non-current assets and disposal groups held for sale or
distribution .............................................................................................. 121
3.1.3 Current
assets
........................................................................................
122
3.1.4 Current
liabilities
..................................................................................
122
3.1.5
Information required on the face of the statement of
financial position .................................................................................. 125
3.1.6
Information required either on the face of the statement
of financial position or in the notes .................................................. 127
3.1.7 Illustrative
statements
of financial position .................................... 129
108 Chapter
3
3.2
The statement of comprehensive income and the statement of
profit or loss .......................................................................................................... 130
3.2.1
Profit and loss and comprehensive income .................................... 130
3.2.2
Information required on the face of the statement of
profit or loss ........................................................................................... 132
3.2.2.A
Operating profit ................................................................ 133
3.2.3
Classification of expenses recognised in profit or loss by
nature or function .................................................................................. 134
3.2.3.A
Analysis of expenses by nature ..................................... 134
3.2.3.B
Analysis of expenses by function ................................. 136
3.2.4
The statement of comprehensive income ....................................... 136
3.2.4.A
The face of the statement of comprehensive
income ................................................................................ 136
3.2.4.B Reclassification adjustments .......................................... 139
3.2.4.C
Tax on items of other comprehensive income ........... 141
3.2.5
Discontinued operations ..................................................................... 142
3.2.6 Material
and
extraordinary items ...................................................... 142
3.2.6.A
Material items ................................................................... 142
3.2.6.B Ordinary
activities and extraordinary items ............... 143
3.3
The statement of changes in equity .................................................................. 143
3.4
The notes to the financial statements ............................................................... 145
4 ACCOUNTING POLICIES ................................................................................ 146
4.1
General principles ................................................................................................ 146
4.1.1
Fair presentation ................................................................................... 147
4.1.1.A
Fair presentation and compliance with IFRS ............ 147
4.1.1.B
The fair presentation override ...................................... 148
4.1.2
Going concern ....................................................................................... 149
4.1.3 The
accrual
basis
of accounting ........................................................ 150
4.1.4 Consistency
............................................................................................ 150
4.1.5 Materiality,
aggregation and offset ..................................................... 151
4.1.5.A
Materiality and aggregation ............................................ 151
4.1.5.B
Offset .................................................................................. 152
4.1.6
Profit or loss for the period ................................................................ 153
4.1.7
Practice Statement 2 – Making Materiality Judgements .............. 154
4.1.7.A
General characteristics of materiality .......................... 155
4.1.7.B
Making materiality judgements ..................................... 156
4.1.7.C Specific
topics
..................................................................
156
4.2
The distinction between accounting policies and accounting
estimates ................................................................................................................. 157
4.3
The selection and application of accounting policies ................................... 158
4.4 Changes
in
accounting policies .......................................................................... 160
Presentation of financial statements and accounting policies 109
4.5 Changes
in
accounting estimates ........................................................................ 161
4.6 Correction
of
errors
.............................................................................................
162
4.7 Impracticability
of restatement .......................................................................... 164
4.7.1
Impracticability of restatement for a change in accounting
policy ....................................................................................................... 166
4.7.2
Impracticability of restatement for a material error ...................... 167
5 DISCLOSURE REQUIREMENTS ...................................................................... 168
5.1
Disclosures relating to accounting policies ..................................................... 168
5.1.1
Disclosure of accounting policies ...................................................... 168
5.1.1.A
Summary of significant accounting policies ............... 168
5.1.1.B
Judgements made in applying accounting
policies ............................................................................... 169
5.1.2
Disclosure of changes in accounting policies ................................. 169
5.1.2.A
Accounting policy changes pursuant to the
initial application of an IFRS ......................................... 170
5.1.2.B
Voluntary changes in accounting policy ..................... 170
5.1.2.C
Future impact of a new IFRS .......................................... 171
5.2
Disclosure of estimation uncertainty and changes in estimates ................... 171
5.2.1
Sources of estimation uncertainty ..................................................... 171
5.2.2
Changes in accounting estimates ....................................................... 173
5.3
Disclosure of prior period errors ....................................................................... 173
5.4 Disclosures
about capital..................................................................................... 174
5.4.1
General capital disclosures ................................................................. 174
5.4.2 Puttable
financial
instruments classified as equity ........................ 176
5.5
Other disclosures .................................................................................................. 176
6 FUTURE DEVELOPMENTS ............................................................................. 177
6.1
Standard-setting projects ..................................................................................... 177
6.2 Maintenance
projects
...........................................................................................
177
6.2.1
Distinction between a change in an accounting policy and
a change in an accounting estimate ................................................... 177
6.2.2 Accounting
policy
changes (amendments to IAS 8) ...................... 178
6.2.3
Proposed clarifications to the classification of liabilities ............. 178
6.2.4 Disclosure
initiative
– accounting policies ..................................... 178
6.2.5
Definition of material (amendments to IAS 1 and IAS 8) .............. 178
6.2.6
Disclosure Initiative – Targeted Standards-level Review
of Disclosures ........................................................................................ 179
6.3
Research projects ................................................................................................. 179
6.3.1
Principles of disclosure ....................................................................... 179
6.3.2 Primary
financial statements .............................................................. 179
110 Chapter
3
List of examples
Example 3.1:
Determining whether liabilities should be presented as
current or non-current ........................................................................ 124
Example 3.2:
Illustrative statement of financial position ...................................... 129
Example 3.3:
Example of classification of expenses by nature ........................... 135
Example 3.4:
Illustrative statement of profit or loss with expenses
classified by nature ............................................................................... 135
Example 3.5:
Example of classification of expenses by function ........................ 136
Example 3.6:
Presentation of comprehensive income in one statement
and the classification of expenses by function ............................... 138
Example 3.7:
Note disclosure of components of other comprehensive
income .................................................................................................... 140
Example 3.8:
Statement of comprehensive income illustrating the
presentation of comprehensive income in two statements
with note disclosure of the tax effects relating to components
of other comprehensive income ........................................................... 141
Example 3.9:
Combined statement of all changes in equity ................................. 144
Example 3.10:
Retrospective restatement of errors ................................................. 163
Example 3.11:
Prospective application of a change in accounting policy
when retrospective application is not practicable ......................... 166
Example 3.12:
Illustrative capital disclosures: An entity that is not a
regulated financial institution ............................................................. 175
Example 3.13:
Illustrative capital disclosures: An entity that has not
complied with externally imposed capital requirements ............. 176
111
Chapter 3
Presentation of fina
ncial
statements and
accounting policies
1 INTRODUCTION
There is no single IFRS dealing with the form, content and structure of financial
statements and the accounting policies to be applied in their preparation. Of course,
most international accounting standards specify some required disclosures and many
mention the level of prominence required (such as on the face of a primary statement
rather than in the notes). The subject of just what financial statements are, their purpose,
contents and presentation is addressed principally by three standards.
IAS 1 – Presentation of Financial Statements – is the main standard dealing with the
overall requirements for the presentation of financial statements, including their purpose,
form, content and structure. IAS 8 – Accounting Policies, Changes in Accounting
Estimates and Errors – deals with the requirements for the selection and application of
accounting policies. It also deals with the requirements as to when changes in accounting
policies should be made, and how such changes should be accounted for and disclosed.
This chapter deals with the requirements of IAS 1 and IAS 8. Chapter 4 discusses the
requirements of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations.
That standard deals with the classification and presentation of non-current assets held for
sale in the statement of financial position, and the presentation of the results of
discontinued operations, although it also sets out the measurement requirements for such
items. Chapter 36 discusses the requirements of IAS 7 – Statement of Cash Flows – for
the presentation of the statement of cash flows and related disclosures.
1.1
Objective and scope of IAS 1
IAS 1 deals with the components of financial statements, fair presentation, fundamental
accounting concepts, disclosure of accounting policies, and the structure and content of
financial statements.
IAS 1 applies to what it calls ‘general purpose financial statements’ (financial statements),
that is those intended to meet the needs of users who are not in a position to require an
entity to prepare reports tailored to meet their particular information needs, and it
112 Chapter
3
should be applied to all such financial statements prepared in accordance with
International Financial Reporting Standards (IFRSs). [IAS 1.2, 7]. Although International
Financial Reporting Standards is probably a self-explanatory phrase, both IAS 1 and
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 23
