Statements
ISSUED OR LAST REVISED December 2003
EFFECTIVE DATE January 1, 2005
PROBLEM AND PURPOSE
This standard was revised in 2003 as part of the IASB’s improvement project.
The fundamental approach to the presentation of financial statements has not been altered but user problems in dealing with alternatives and conflicts have largely been resolved. The main issues that the revision has addressed are achieving a fair presentation, classification of liabilities, treatment of extraor- dinary items, and some additional disclosures.
SCOPE
All general-purpose financial statements prepared and presented in accor- dance with IFRSs.
EXCLUSIONS
• Interim financial reports (IAS 34)
• Special purpose financial reports
IAS 1 • 71
MAIN REQUIREMENTS
The standard states that a complete set of financial statements includes the following:
• A balance sheet
• An income statement
• A statement of changes in equity showing either all changes in equity or those changes arising from transactions with equity holders
• A cash flow statement
• A summary of significant accounting policies and other explanatory notes Although the standard refers only to these financial statements, they are frequently included with other information in a published document referred to as the Annual Report and Accounts, or similar. The standard includes illus- trative examples of the financial statements. The main headings and subhead- ings of a balance sheet are:
ASSETS
Non-current assets
Line by line items ———
Subtotal ———
Current assets
Line by line items ———
Sub-total ———
Total assets ——————
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Line by line items ———
Sub-total ———
Minority interest
Total equity ———
Non-current liabilities
Line by line items ———
Total non-current liabilities ———
Current liabilities
Line by line items ———
Total current liabilities ———
Total liabilities ———
Total equity and liabilities ——————
Certain information must be disclosed on the balance sheet. The minimum requirements for these line items are as follows:
• Property, plant, and equipment
• Investment property
• Intangible assets
• Held for sale non-current assets and disposal groups
• Financial assets
• Biological assets
• Investments accounted for under the equity method
• Inventories
• Trade and other receivables
• Cash and cash equivalents
• Trade and other payables
• Liabilities included in disposal groups held for sale
• Current tax liabilities and assets
• Deferred tax liabilities and assets
• Provisions
• Financial liabilities
• Minority interest presented as part of equity
• Issued equity capital and reserves
Further details of subclassifications should be disclosed either on the bal- ance sheet or in the notes.
All items of income and expense recognized in the financial period must be included in the profit or loss unless a standard or an interpretation re- quires otherwise. The income statement can present the analysis of expenses based on either the nature of expenses or their function. With the former, expenses are aggregated in the income statement according to their nature (for example, depreciation, purchases of material, and employee benefits).
The second form of analysis is the function of expense, more commonly known as the “cost of sales.” This classifies expenses according to their function as part of cost of sales, or the cost of other administrative activi- ties. The most useful difference between the two is that the cost of sales IAS 1 • 73
method provides a figure for gross profit. The main headings and subhead- ings of the income statement are:
THE NATURE OF EXPENSES FORMAT
Revenue X
Other income X
Changes in inventories of finished goods
and work in progress X
Raw materials and consumables used X
Employee benefit costs X
Depreciation and amortization expense X
Other expenses X
Total expenses (X)
Profit X
THE COST OF SALES FORMAT
Revenue X
Cost of sales (X)
Gross profit X
Other income X
Distribution costs (X)
Administrative expenses (X)
Other expenses (X)
Profit X
The Statement of Changes in Equity is part of the set of financial state- ments. Changes in equity are attributable to the increase or decrease in net as- sets during the period, except for those transactions that have taken place directly with the shareholder. The statement should include the following in- formation:
• The profit for the period.
• Each item that has been reported directly in equity rather than the in- come statement.
• The total income or expense for the period. This is the sum of the first two items with any allocation to minority shareholders clearly separated.
• The effect of any changes in accounting policy, or the correction of an error.
The types of transactions that are taken directly to equity are reversal of impairment losses previously taken to equity (IAS 36), foreign exchange dif- ferences arising on consolidation (IAS 21), and revaluation surpluses on non- current assets (IAS 16).
IAS 1 also requires a full reconciliation of each reserve to be presented and the amount of any transaction that has taken place with shareholders to be separately identified.
In preparing the full set of financial statements, the following assumptions and considerations should be applied:
• The business is a going concern and will continue to operate into the foreseeable future.
• The accrual concept is used except for the cash flow statement.
• The presentation and classification of items in the financial statements will be consistent from one financial period to the next.
• Each material class of similar items is presented separately in the finan- cial statements.
• Dissimilar items are presented separately unless they are immaterial.
• No offsetting of assets and liabilities, or income and expenses, is allowed unless this is covered by a standard.
• Comparative information for the previous period should be disclosed for all amounts reported in the financial statements, except where a standard permits or requires.
IAS 1 requires that financial statements present fairly the financial position, financial performance, and cash flows. By complying with IFRSs, and provid- ing any additional information necessary, it is presumed that financial state- ments give a fair presentation. Where financial statements comply with IFRSs, an explicit and unreserved statement must be made in the notes to that effect.
An important part of the standard addresses the issue of compliance. As discussed in Part One of this book, the United Kingdom has the concept of
“true and fair.” This means that, in certain limited circumstances, entities are able to depart from a standard where it considers that compliance would re- sult in the financial statements not giving a “true and fair view.” This concept is partially weakened but retained in IAS 1. The standard states that where an entity considers that compliance with a particular standard or interpretation would be so misleading, it need not comply with the provisions. This is likely to be a very rare occurrence, and the entity must disclose that it has not com- plied with a particular standard, the title of the standard and the differences in treatment, and the financial impact of non-compliance.
IAS 1 • 75