more general requirement that the sub-classifications should be made in a manner
appropriate to the entity’s operations. [IAS 1.77]. The standard notes that the detail
provided in sub-classifications depends on the requirements of IFRSs (as numerous
disclosures are required by other standards) and on the size, nature and function of the
amounts involved. [IAS 1.78].
Aside of the specific requirements, deciding what level of detailed disclosure is
necessary is clearly a judgemental exercise. As is the case for items on the face of the
statement of financial position, IAS 1 requires that the judgement as to whether
additional items should be presented separately should be based on an assessment of:
(a) the nature and liquidity of assets;
(b) the function of assets within the entity; and
(c) the amounts, nature and timing of liabilities. [IAS 1.58, 78].
128 Chapter
3
The disclosures will also vary for each item, examples given by the standard are:
(a) items of property, plant and equipment are disaggregated into classes in
accordance with IAS 16;
(b) receivables are disaggregated into amounts receivable from trade customers,
receivables from related parties, prepayments and other amounts;
(c) inventories are disaggregated, in accordance with IAS 2 – Inventories, into
classifications such as merchandise, production supplies, materials, work in
progress and finished goods;
(d) provisions are disaggregated into provisions for employee benefits and other items;
and
(e) equity capital and reserves are disaggregated into various classes, such as paid-in
capital, share premium and reserves. [IAS 1.78].
IAS 1 specifically requires the following information regarding equity and share capital
to be shown either on the face of the statement of financial position or in the notes:
(a) for each class of share capital:
(i) the number of shares authorised;
(ii) the number of shares issued and fully paid, and issued but not fully paid;
(iii) par value per share, or that the shares have no par value;
(iv) a reconciliation of the number of shares outstanding at the beginning and at
the end of the period;
(v) the rights, preferences and restrictions attaching to that class including
restrictions on the distribution of dividends and the repayment of capital;
(vi) shares in the entity held by the entity or by its subsidiaries or associates; and
(vii) shares reserved for issue under options and contracts for the sale of shares,
including the terms and amounts; and
(b) a description of the nature and purpose of each reserve within equity. [IAS 1.79].
An entity without share capital (such as a partnership or trust) should disclose
information equivalent to that required by (a) above, showing changes during the period
in each category of equity interest, and the rights, preferences and restrictions attaching
to each category of equity interest. [IAS 1.80].
IAS 32 – Financial Instruments: Presentation – allows two specific classes of liabilities
to be reported as equity. These are:
• puttable financial instruments; and
• instruments that impose on the entity an obligation to deliver to another party a
pro rata share of the net assets of the entity only on liquidation.
Both terms are defined and discussed at length in IAS 32 (see Chapter 43 at 4.6).
If an entity reclassifies one of these items between financial liabilities and equity, IAS 1
requires disclosure of:
• the amount reclassified into and out of each category (financial liabilities or equity); and
• the timing and reason for that reclassification. [IAS 1.80A].
Presentation of financial statements and accounting policies 129
3.1.7
Illustrative statements of financial position
The implementation guidance accompanying IAS 1 provides an illustration of a
statement of financial position presented to distinguish current and non-current items.
It makes clear that other formats may be equally appropriate, as long as the distinction
is clear. [IAS 1.IG3]. As discussed in Chapter 4 at 2.2.4, IFRS 5 provides further guidance
relating to the presentation of non-current assets and disposal groups held for sale.
[IAS 1.IG Part I].
Example 3.2:
Illustrative statement of financial position
XYZ GROUP – STATEMENT OF FINANCIAL POSITION AS AT
31 DECEMBER 2019
(in thousands of Euros)
2019
2018
ASSETS
Non-current assets
Property, plant and equipment 350,700
360,020
Goodwill
80,800
91,200
Other intangible assets
227,470
227,470
Investments in associates
100,150
110,770
Investments in equity instruments
142,500
156,000
901,620
945,460
Current assets
Inventories
135,230
132,500
Trade receivables
91,600
110,800
Other current assets
25,650
12,540
Cash and cash equivalents
312,400
322,900
564,880
578,740
Total assets
1,466,500
1,524,200
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital
650,000
600,000
Retained earnings
243,500
161,700
Other components of equity
10,200
21,200
903,700
782,900
Non-controlling interests
70,050
48,600
Total equity
973,750
831,500
Non-current liabilities
Long-term borrowings
120,000
160,000
Deferred tax
28,800
26,040
Long-term provisions
28,850
52,240
Total non-current liabilities
177,650
238,280
130 Chapter
3
2019
2018
Current liabilities
Trade and other payables
115,100
187,620
Short-term borrowings
150,000
200,000
Current portion of long-term borrowings
10,000
20,000
Current tax payable
35,000
42,000
Short-term provisions
5,000
4,800
Total current liabilities
315,100
454,420
Total liabilities
492,750
692,700
Total equity and liabilities
1,466,500
1,524,200
3.2
The statement of comprehensive income and the statement of
profit or loss
3.2.1
Profit and loss and comprehensive income
The IASB regards all changes in net assets (ot
her than the introduction and return of
capital) and not just more traditional realised profits, as ‘performance’ in its widest sense.
Accordingly, IAS 1 requires a performance statement showing such changes and calls it
a statement of comprehensive income.
Total comprehensive income is defined by IAS 1 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. It comprises all components of ‘profit
or loss’ and of ‘other comprehensive income’. These two terms are defined as follows:
• profit or loss is the total of income less expenses, excluding the components of
other comprehensive income; and
• other comprehensive income comprises items of income and expense (including
reclassification adjustments) that are not recognised in profit or loss as required or
permitted by other IFRSs. [IAS 1.7].
What this means is that profit and loss is the default category – all comprehensive
income is part of profit and loss unless a provision of IFRS say it is or may be ‘other’
comprehensive income. [IAS 1.88].
The use of a variety of terminology is recognised by IAS 1 which notes the following.
‘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.’ [IAS 1.8].
IAS 1 sets out the following items which are included in other comprehensive income:
(a) changes in revaluation surplus relating to property, plant and equipment and
intangible assets;
(b) remeasurements on defined benefit plans in accordance with IAS 19;
(c) gains and losses arising from translating the financial statements of a foreign operation;
(d) gains and losses from investments in equity instruments designated at fair value
through other comprehensive income;
Presentation of financial statements and accounting policies 131
(e) gains and losses on financial assets measured at fair value through other
comprehensive income;
(f) 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;
(g) for particular liabilities designated as at fair value through profit and loss, the
amount of the fair value changes attributable to changes in the liability’s credit risk;
(h) changes in the value of the time value of options when separating the intrinsic
value and time value of an option contract and designating as the hedging
instrument only the changes in the intrinsic value;
(i)
changes in the value of the forward elements of forward contracts when separating
the forward element and spot element of a forward contract and designating as the
hedging instrument only the changes in the spot element, and changes in the value
of the foreign currency basis spread of a financial instrument when excluding it
from the designation of that financial instrument as the hedging instrument; and
(j) insurance finance income and expenses related to insurance or reinsurance
contracts which is excluded from profit or loss in certain circumstances in
accordance with IFRS 17. [IAS 1.7].
IAS requires that all items of income and expense be presented either:
(a) in a single statement of profit or loss and other comprehensive income (with a
separate section for each in the order stated); or
(b) in two separate statements:
(i) a statement of profit or loss; and
(ii) a statement of comprehensive income beginning with profit and loss and
containing components of other comprehensive income. [IAS 1.10A].
If the approach in (b) is followed, the statement of profit or loss must be displayed
immediately before the statement of comprehensive income. [IAS 1.10A].
In addition to this choice, IAS 1 provides that different titles may be used for these
statements. [IAS 1.10].
Many entities continue to present a separate statement of profit or loss (often titled
‘income statement’), and this section is structured in these terms. However, the
requirements are the same whether total comprehensive income is presented in one or
two statements.
IAS 1 adopts an essentially permissive approach to the format of the statement of profit
or loss and statement of comprehensive income. It observes that, because the effects of
an entity’s various activities, transactions and other events differ in frequency, potential
for gain or loss and predictability, disclosing the components of financial performance
assists users in understanding the financial performance achieved and in making
projections of future performance. [IAS 1.86]. In other words, some analysis of the make-
up of net profit and other comprehensive income is needed, but a wide variety of
presentations would all be acceptable.
132 Chapter
3
Whether one or two statements are presented, IAS 1 requires certain specific items to
appear on the face of the statement(s) and then supplements this with a more general
requirement that:
• additional line items be presented (including the disaggregation of those
specifically required) on the face of the statement(s); and
• the descriptions used and the ordering of items be amended;
when this is relevant to an understanding of the entity’s financial performance.
[IAS 1.85-86]. The standard explains that additional line items should be included, and
the descriptions used and the ordering of items amended when this is necessary to
explain the elements of financial performance. Factors to be considered would
include materiality and the nature and function of the items of income and expense.
An example of this is that a financial institution may amend the descriptions to
provide information that is relevant to the operations of a financial institution.
[IAS 1.86].
When additional subtotals are presented, line items should be given that reconcile those
subtotals with the subtotals or totals required in IFRS. [IAS 1.85B].
When such additional subtotals are presented, they should:
(a) be comprised of line items made up of amounts recognised and measured in
accordance with IFRS;
(b) be presented and labelled in a manner that makes the line items that constitute the
subtotal clear and understandable;
(c) be consistent from period to period (see 4.1.4 below); and
(d) not be displayed with more prominence than the subtotals and totals required in
IFRS for the statement(s) presenting profit or loss and other comprehensive
income. [IAS 1.85A].
3.2.2
Information required on the face of the statement of profit or loss
As is the case for the statement of financial position, IAS 1 sets out certain items which
must appear on the face of the statement of profit or loss and other required disclosures
which may be made either on the face or in the notes.
The face of the
statement of profit or loss should include, in addition to items required
by other IFRSs, line items that present the following amounts (although as noted above,
the order and description of the items should be amended as necessary): [IAS 1.82]
(a) revenue, presenting separately:
(i) interest revenue calculated using the effective interest method; and
(ii) insurance revenue under IFRS 17;
(b) gains and losses from the derecognition of financial assets measured at amortised cost;
(c) insurance service expenses from contracts issued in accordance with of IFRS 17;
(e) income or expenses from reinsurance contracts held in accordance with of IFRS 17;
(f) finance
costs;
(g) impairment losses (including reversals of impairment losses or impairment gains)
determined under IFRS 9;
Presentation of financial statements and accounting policies 133
(h) insurance finance income or expenses from contracts issued in accordance with of
IFRS 17;
(i) finance income or expenses from reinsurance contracts held in accordance with
of IFRS 17;
(j) share of the profit or loss of associates and joint ventures accounted for using the
equity method;
(k) any difference between fair value and the previous carrying amount at the date of
reclassification when a financial asset is reclassified out of the amortised cost
category to be measured at fair value through profit or loss;
(l) any accumulated gain or loss previously recognised in other comprehensive
income that is reclassified to profit or loss when a financial asset is reclassified out
of the fair value through other comprehensive income category so that it is
measured at fair value through profit or loss;
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 27
