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Presentation of Financial Statements (IAS 1)

Last updated: 17 May 2024

IAS 1 serves as the main standard that outlines the general requirements for presenting financial statements. It is applicable to ‘general purpose financial statements’, which are designed to meet the informational needs of users who cannot demand customised reports from an entity. Documents like management commentary or sustainability reports, which are often included in annual reports, fall outside the scope of IFRS, as indicated in IAS 1.13-14. Similarly, financial statements submitted to a court registry are not considered general purpose financial statements (see IAS 1.BC11-13).

The standard primarily focuses on annual financial statements, but its guidelines in IAS 1.15-35 also extend to interim financial reports (IAS 1.4). These guidelines address key elements such as fair presentation, compliance with IFRS, the going concern principle, the accrual basis of accounting, offsetting, materiality, and aggregation. For comprehensive guidance on interim reporting, please refer to IAS 34 .

Note that IAS 1 will be superseded by the upcoming IFRS 18 Presentation and Disclosure in Financial Statements .

Now, let’s explore the general requirements for presenting financial statements in greater detail.

Financial statements

Components of a complete set of financial statements.

Paragraph IAS 1.10 outlines the elements that make up a complete set of financial statements. Companies have the flexibility to use different titles for these documents, but each statement must be presented with equal prominence (IAS 1.11). The terminology used in IAS 1 is tailored for profit-oriented entities. However, not-for-profit organisations or entities without equity (as defined in IAS 32), may use alternative terminology for specific items in their financial statements (IAS 1.5-6).

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Compliance with IFRS

Financial statements must include an explicit and unreserved statement of compliance with IFRS in the accompanying notes. This statement is only valid if the entity adheres to all the requirements of every IFRS standard (IAS 1.16). In many jurisdictions, such as the European Union, laws mandate compliance with a locally adopted version of IFRS.

IAS 1 does consider extremely rare situations where an entity might diverge from a specific IFRS requirement. Such a departure is permissible only if it prevents the presentation of misleading information that would conflict with the objectives of general-purpose financial reporting (IAS 1.20-22). Alternatively, entities can disclose the impact of such a departure in the notes, explaining how the statements would appear if the exception were made (IAS 1.23).

Identification of financial statements

The guidelines for identifying financial statements outlined in IAS 1.49-53 are straightforward and rarely cause issues in practice.

Going concern

The ‘going concern’ principle is a cornerstone of IFRS and other major GAAP. It assumes that an entity will continue to operate for the foreseeable future (at least 12 months). IAS 1 mandates management to assess whether the entity is a ‘going concern’. Should there be any material uncertainties regarding the entity’s future, these must be disclosed (IAS 1.25-26). IFRSs do not provide specific accounting principles for entities that are not going concerns, other than requiring disclosure of the accounting policies used. One of the possible approaches is to measure all assets and liabilities using their liquidation value.

See also this educational material at IFRS.org.

Materiality and aggregation

IAS 1.29-31 emphasise the importance of materiality in preparing user-friendly financial statements. While IFRS mandates numerous disclosures, entities should only include information that is material. This concept should be at the forefront when preparing financial statements, as reminders about materiality are seldom provided in other IFRS standards or publications.

Generally, entities should not offset assets against liabilities or income against expenses unless a specific IFRS standard allows or requires it. IAS 1.32-35 offer guidance on what can and cannot be offset. Offsetting of financial instruments is discussed further in IAS 32 .

Frequency of reporting

Entities are required to present a complete set of financial statements at least annually (IAS 1.36). However, some Public Interest Entities (PIEs) may be obliged to release financial statements more frequently, depending on local regulations. However, these are typically interim financial statements compiled under IAS 34 .

IAS 1 also allows for a 52-week reporting period instead of a calendar year (IAS 1.37). This excerpt from Tesco’s annual report serves to demonstrate this point, showing that the group uses 52-week periods for their financial year, even when some subsidiaries operate on a calendar-year basis:

If an entity changes its reporting period, it must clearly disclose this modification and provide the rationale for the change (IAS 1.36). It is advisable to include an explanatory note with comparative data that aligns with the new reporting period for clarity.

Comparative information

As a general guideline, entities should present comparative data for the prior period alongside all amounts reported for the current period, even when specific guidelines in a given IFRS do not require it. However, there’s no obligation to include narrative or descriptive information about the preceding period if it isn’t pertinent for understanding the current period (IAS 1.38).

If an entity opts to provide comparative data for more than the immediately preceding period, this additional information can be included in selected primary financial statements only. However, these additional comparative periods should also be detailed in the relevant accompanying notes (IAS 1.38C-38D).

IAS 1.40A-46 outlines how to present the statement of financial position when there are changes in accounting policies, retrospective restatements, or reclassifications. This entails producing a ‘third balance sheet’ at the start of the preceding period (which may differ from the earliest comparative period, if more than one is presented). Key points to note are:

• The third balance sheet is required only if there’s a material impact on the opening balance of the preceding period (IAS 1.40A(b)).
• If a third balance sheet is included, there’s no requirement to add a corresponding third column in the notes, although this could be useful where numbers have been altered by the change (IAS 1.40C).
• Interim financial statements do not require a third balance sheet (IAS 1.BC33).

IAS 8 also requires comprehensive disclosures concerning changes in accounting policies and corrections of errors .

Statement of financial position

IAS 1.54 enumerates the line items that must, at a minimum, appear in the statement of financial position. Entities should note that separate lines are not required for immaterial items (IAS 1.31). Additional line items can be added for entity-specific or industry-specific matters. IAS 1 permits the inclusion of subtotals, provided the criteria set out in IAS 1.55A are met.

Additional disclosure requirements are set out in IAS 1.77-80A. Of particular interest are the requirements pertaining to equity (IAS 1.79), which begin with the number of shares and extend to include details such as ‘rights, preferences, and restrictions relating to share capital, including restrictions on the distribution of dividends and the repayment of capital.’ While these kinds of limitations are common across various legal jurisdictions (for example, not all retained earnings can be distributed as dividends), many companies neglect to disclose such limitations in their financial statements.

For guidance on classifying assets and liabilities as either current or non-current, please refer to the separate page dedicated to this topic.

Statement of profit or loss and other comprehensive income

IAS 1 provides two methods for presenting profit or loss (P/L) and other comprehensive income (OCI). Entities can either combine both P/L and OCI into a single statement or present them in separate statements (IAS 1.81A-B). Additionally, the P/L and total comprehensive income for a given period should be allocated between the owners of the parent company and non-controlling interests (IAS 1.81B).

Minimum contents in P/L and OCI

IAS 1.82-82A specifies the minimum items that must appear in the P/L and OCI statements. These items are required only if they materially impact the financial statements (IAS 1.31).

Entities are permitted to add subtotals to the P/L statement if they meet the criteria specified in IAS 1.85A. Operating income is often the most commonly used subtotal in P/L. This practice may be attributed to the 1997 version of IAS 1, which mandated the inclusion of this subtotal—although this is no longer the case. IAS 1.BC56 clarifies that an operating profit subtotal should not exclude items commonly considered operational, such as inventory write-downs, restructuring costs, or depreciation/amortisation expenses.

Profit or loss (P/L)

All items of income and expense must be recognised in P/L (or OCI). This means that no income or expenses should be recognised directly in the statement of changes in equity, unless another IFRS specifically mandates it (IAS 1.88). Direct recognition in equity may also result from intra-group transactions . IAS 1.97-98 require separate disclosure of material items of income and expense, either directly in the income statement or in the notes.

Expenses in P/L can be presented in one of two ways (IAS 1.99-105):

• By their nature (e.g., depreciation, employee benefits); or
• By their function within the entity (e.g., cost of sales, distribution costs, administrative expenses).

When opting for the latter, entities must provide additional details on the nature of the expenses in the accompanying notes (IAS 1.104).

Other comprehensive income (OCI)

OCI encompasses income and expenses that other IFRS specifically exclude from P/L. There is no conceptual basis for deciding which items should appear in OCI rather than in P/L. Most companies present P/L and OCI as separate statements, partly because OCI is generally overlooked by investors and those outside of accounting and financial reporting circles. The concern is that combining the two could reduce net profit to merely a subtotal within total comprehensive income.

All elements that constitute OCI are specifically outlined in IAS 1.7, as part of its definitions.

Reclassification adjustments

A reclassification adjustment refers to the amount reclassified to P/L in the current period that was recognised in OCI in the current or previous periods (IAS 1.7). All items in OCI must be grouped into one of two categories: those that will or will not be subsequently reclassified to P/L (IAS 1.82A). Reclassification adjustments must be disclosed either within the OCI statement or in the accompanying notes (IAS 1.92-96).

To illustrate, foreign exchange differences arising on translation of foreign operations and gains or losses from certain cash flow hedges are examples of items that will be reclassified to P/L. In contrast, remeasurement gains and losses on defined benefit employee plans or revaluation gains on properties will not be reclassified to P/L.

The practice of transferring items from OCI to P/L, commonly known as ‘recycling’, lacks a concrete conceptual basis and the criteria for allowing such transfers in IFRS are often considered arbitrary.

Tax effects

OCI items can be presented either net of tax effects or before tax, with the overall tax impact disclosed separately. In either case, entities must specify the tax amount related to each item in OCI, including any reclassification adjustments (IAS 1.90-91). Interestingly, there is no such requirement to disclose tax effects for individual items in the income statement.

Statement of changes in equity

IAS 1.106 outlines the minimum line items that must be included in the statement of changes in equity. Subsequent paragraphs specify the disclosure requirements, which can be addressed either within the statement itself or in the accompanying notes. It’s crucial to note that changes in equity during a reporting period can arise either from income and expense items or from transactions involving owners acting in their capacity as owners (IAS 1.109). This means that entities cannot adjust equity directly based on changes in assets or liabilities unless these adjustments result from transactions with owners, such as capital contributions or dividend payments, or are otherwise mandated by other IFRSs.

Statement of cash flows

The statement of cash flows is governed by IAS 7 .

• Explanatory notes

Structure of explanatory notes

The structure for explanatory notes is detailed in IAS 1.112-116. In practice, there are several commonly adopted approaches to organising these notes:

Approach #1:

• Primary financial statements (P/L, OCI, etc.)
• Statement of compliance and basis of preparation
• Accounting policies

Approach #1 is logically coherent, as understanding accounting policies is crucial before delving into the financial data. However, in reality, few people read the accounting policies in their entirety. Consequently, users often have to navigate past several pages of accounting policies to reach the explanatory notes.

Approach #2:

• Primary financial statements (P/L, OCI, etc)

In Approach #2, accounting policies are treated as an appendix and positioned at the end of the financial statements. The advantage here is that all numerical data is clustered together, uninterrupted by extensive descriptions of accounting policies.

Approach #3:

• Explanatory notes integrated with relevant accounting policies

Approach #3 pairs accounting policies directly with the associated explanatory notes. For example, accounting policies relating to inventory would appear alongside the explanatory note that breaks down inventory components.

Management of capital

IAS 1.134-136 outline the disclosures related to capital management. These provisions apply to all entities, whether or not they are subject to external capital requirements. An important note here is that entities are not obligated to disclose specific values or ratios concerning capital objectives or requirements.

IAS 1.137 mandates disclosure of dividends proposed or declared before the financial statements were authorised for issue but not recognised as a distribution to owners during the period. Furthermore, entities are required to disclose the amount of any cumulative preference dividends not recognised.

Disclosure of accounting policies

IAS 1 specifies the requirements for disclosing accounting policy information which are discussed here .

Disclosing judgements and sources of estimation uncertainty

IAS 1 mandates disclosing judgements and sources of estimation uncertainty .

Other disclosures

Additional miscellaneous disclosure requirements are detailed in paragraphs IAS 1.138.

IFRS 18 Presentation and Disclosure in Financial Statements

On 9 April 2024, the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements , which replaces IAS 1 and amends IAS 7. This new standard will be effective from 2027 with early application permitted.

Here are the key changes under IFRS 18:

• Two new subtotals have been added to the income statement: ‘Operating Profit’ and ‘Profit Before Financing and Income Taxes’. This change requires companies to categorise income and expenses into operating, investing, and financing activities.
• A new requirement mandates the reconciliation of non-GAAP measures with IFRS-specified subtotals, but this only applies to P/L measures such as adjusted profit. Other metrics like free/organic cash flow or net debt are not included.
• The statement of cash flows will start with operating profit for the indirect method, and the classification of cash flows related to interest and dividends has been standardised. Typically, dividends and interest paid will fall under financing activities, while those received will be recorded under investing activities.

While many IAS 1 provisions remain under IFRS 18, others, including the basis of financial statement preparation and disclosure of accounting policies, have moved to IAS 8, which will be retitled Basis of Preparation of Financial Statements . For further insights, see the IASB Project Summary .

© 2018-2024 Marek Muc

The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. Use at your own risk. Excerpts from IFRS Standards come from the Official Journal of the European Union (© European Union, https://eur-lex.europa.eu). You can access full versions of IFRS Standards at shop.ifrs.org. IFRScommunity.com is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. For official information concerning IFRS Standards, visit IFRS.org.

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IPSAS 1 — Presentation of Financial Statements

Effective date.

Annual periods beginning on or after January 1, 2008.

To set out the manner in which general-purpose financial statements shall be prepared under the accrual basis of accounting, including guidance for their structure and the minimum requirements for content.

• Fundamental principles underlying the preparation of financial statements, including going-concern assumption, consistency of presentation and classification, accrual basis of accounting, and aggregation and materiality.
• Statement of financial position
• Statement of financial performance
• Statement of changes in net assets/equity
• Cash flow statement
• When the entity makes it approved budget publicly available, a comparison of budget and accrual amounts
• Notes, comprising a summary of significant accounting policies and other explanatory notes
• An entity whose financial statements comply with IPSAS shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with IPSAS unless they comply with all the requirements of IPSAS.
• Assets and liabilities, and revenue and expenses, may not be offset unless offsetting is permitted or required by another IPSAS.
• Comparative prior-period information shall be presented for all amounts shown in the financial statements and notes. Comparative information shall be included when it is relevant to an understanding of the current period’s financial statements. In the case presentation or classification is amended, comparative amounts shall be reclassified, and the nature, amount of, and reason for any reclassification shall be disclosed.
• The statement of changes in net assets/equity shows all changes in net assets/equity.
• Financial statements generally to be prepared annually. If the date of the year-end changes, and financial statements are presented for a period other than one year, disclosure thereof is required.
• Current/non-current distinction for assets and liabilities is normally required. In general, subsequent events are not considered in classifying items as current or non-current. An entity shall disclose for each asset and liability item that combines amounts expected to be recovered or settled both before and after 12 months from the reporting date, the amount to be recovered or settled after more than 12 months.
• IPSAS 1 specifies minimum line items to be presented on the face of the statement of financial position, statement of financial performance, and statement of changes in net assets/equity, and includes guidance for identifying additional line items, headings, and subtotals.
• Analysis of expenses in the statement of financial performance may be given by nature or by function. If presented by function, classification of expenses by nature shall be provided additionally.
• Accounting policies followed
• The judgements that management has made in the process of applying the entity’s accounting policies that have the most significant effect on the amounts recognised in the financial statements
• The key assumptions concerning the future, and other key sources of estimation uncertainty, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year
• The domicile and legal form of the entity
• A description of the nature of the entity’s operations
• A reference to the relevant legislation
• The name of the controlling entity and the ultimate controlling entity of the economic entity
• An appendix to IPSAS 1 provides illustrative statements of financial position, statements of financial performance, and statements of changes in net assets/equity.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.

• Conceptual Framework
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IAS 1 Presentation of Financial Statements

Learn the key accounting principles to be applied to financial statements, including fair presentation and compliance with IFRS Standards.

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IAS 1 Presentation of Financial Statements: Summary

IAS 1 Presentation of Financial Statements represents a basis of the whole IFRS reporting, as it sets overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.

Financial Statements

Purpose of the financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.

The complete set of financial statements compliant with IFRS comprises 5 elements:

• a statement of financial position as at the end of the period
• a statement of comprehensive income for the period
• a statement of changes in equity for the period
• a statement of cash flows for the period
• notes containing a summary of significant accounting policies and other explanatory information.

If some accounting policy is applied retrospectively, or some retrospective restatements or reclassifications were made, then also a statement of financial position as at the beginning of the earliest comparative period shall be presented.

IAS 1 explains the general features of financial statements, such as fair presentation and compliance with IFRS , going concern, accrual basis of accounting, materiality and aggregation, offsetting, frequency of reporting, comparative information and consistency of presentation.

Structure and Content

IAS 1 requires identification of the financial statements and distinguishing them from other information in the same published document.

Every element of the financial statements shall contain the name of the reporting entity, the information whether the financial statements are of an individual or of a group, the date of the reporting entity and period covered, the presentation currency and the level of rounding (thousands, millions…).

IAS 1 lists the minimum content to be presented in the financial statements, except for the statement of cash flows (subject to IAS 7). So let’s look at it in a detail.

Statement of Financial Position

Before significant amendments of IAS 1, this statement was simply called “balance sheet”, however, it was renamed.

IAS 1 requires presentation of classified statement of financial position where current assets or liabilities are separated from non-current assets or liabilities. Basically, the asset or liability is current when it is expected to be recovered or settled within 12 months after the reporting period.

With regard to a minimum content, the following line items shall be presented:

Further subclassifications of the line items shall be disclosed either directly in the statement of financial position or in the notes, such as disaggregation of property, plant and equipment into classes, and similar. Also, certain information related to the share capital, reserves and a few others shall be included in the statement of financial position, the statement of changes in equity or in the notes.

IAS 1 does NOT prescribe the precise format of the statement of financial position. Instead, several formats are acceptable if they fulfill all requirements outlined above.

Statement of Comprehensive Income

The statement of comprehensive income has 2 basic elements:

• Profit or loss for the period : here, all items of income and expenses must be recognized.
• Other comprehensive income : items recognized directly to equity or reserves, such as changes in revaluation surplus, gains or losses from subsequent measurement of available-for-sale financial assets, etc.

As a minimum , the statement of comprehensive income must contain the following items:

As opposed to US GAAP , IAS 1 prohibits to report any transaction or item as extraordinary items.

Profit or loss for the period, as well as total comprehensive income shall be both presented in allocation:

• attributable to non-controlling interests and
• attributable to owners of the parent.

The entity might choose to classify expenses recognized in profit or loss for the period by their nature or by their function.

IAS 1 requires disclosure of certain items separately , either in the statement of comprehensive income, or in the notes. These items are as follows: write-downs of inventories and property, plant and equipment, their reversals, restructuring of activities and reversals of related provisions, disposals of property, plant and equipment, disposals of investments, discontinuing operations, litigation settlements and other reversals of provisions.

Statement of Changes in Equity

As a minimum , the statement of changes in equity must contain the following items:

• total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to non-controlling interests
• the effect of retrospective application or restatement for each component of equity (if applicable)
• those resulting from profit or loss
• resulting from other comprehensive income
• resulting from transactions with owners (contributions, distributions and changes in ownership)

Also, IAS 1 prescribes to present amount of dividends recognized as distributions and the related amount per share on the face of the statement of changes in equity or in the notes.

Notes to the Financial Statements

The notes are meant to be the document accompanying numerical financial statements listed above. They should provide additional information not contained in the numbers, the basis of preparation of the financial statements and some additional information that might be relevant.

IAS 1 sets that the notes shall contain a statement of compliance with IFRS , summary of significant accounting policies applied, supporting information for the numbers presented in the financial statements and other disclosures.

You can read more about the notes and how to write them in this article .

IAS 1 is shortly summarized in the following video:

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43 Comments

Thank you for simplifying this standard . It is very helpful in my study and revision . looking forward to the other standards

A speed point machine, is it an asset that needs to be recorded in a business if they are using it?

Dear Silvia, Are prudence and conservatism concepts still applicable now under the new Conceptual Framework?

Hi I want to know can we prepare multiyear financials (i.e. 2 years to show I comparatives) as per the international auditing standards

SILIVAIA I really apprentice the presentation please can i have the ppt.?

Hi Asmera, no sorry, we only provide pdf to our subscribed students of the IFRS Kit.

Hi i have case that we debit the account Other comprehensive income (Re-measurement losses / Gain on defined benefit liability) by amount 12 Million and credit two account one of them is end of service expenses ( P&L item) by 7 Million and other account is provision of end of service by 6 Million Dr/ Other comprehensive income 12 Million Cr/ End of service expense ( P&L Item). Cr/ Provision of end of service ( Balance sheet item). my question :- 1- Other comprehensive account will be appear in balance sheet and income statement 2- and if it must appear in income statement shall we put total balance of this account 12 Million or just put 6 Million which is came from PL and ignore the 7 Million which came from provision of end of service as it is balance sheet item

This video has made my understanding of IAS 1 more clearly and understandable.I can confidently say I`am ready for the test.

I didn’t see any explanatiins for Cash Flow statement. This is also an element of Financial Statement as whole. Or would that mean it is no longer considered as part the whole reported Financial Statement?

You did not see it because it is not covered by IAS 1 (and, you are reading the article about IAS 1). You should check out IAS 7 .

Hello Silvia, Can you please help me to know as to what is the objective of creating Other Comprehensive Income and how to decide what all items should go to Other comprehensive income and Profit or loss account ?

Hi Diksha, I think this article can give you the answer . S.

hello siliva, help me with tax expense computation when u have provision, some balance due

In my opinion the documents that you share through social media is more attractive and brief to understand. I would like to follow you! Please, would you like to share brief notes and explanation on IFRS 9. By focusing MFI in detail!

Til now, I don’t understand what is the main consideration, if any, the IASB classifies a transaction as profit or loss while another as other comprehensive income. Is there any theoretical foundation or something behind the existence of other comprehensive income items?

Dear Siklus, I think this article might help . S.

Dear Sylvia, if a Company made a decision to decrease share capital (due to accumulated loss that existed on December 31, 2016) on January 17, should this be treated as an adjusting event?

Thank you very much for your help!

It depends on when the decision was made. If after 31 Dec 2016, then no, it’s non-adjusting event. S.

amazing presentation of statement of financial position but other comprehensive income should elaborate clearly. Over all presentation was very good . I also learn from that.thank you very much

Very lucid explanations. Thanks

The presentation is very knowledgeable. Is it possible for you to mail me the ppt. It would be of great help.

Hi Silvia, is it required by the standard to present the subscribed share capital with the outstanding balance of subscription receivables or a presentation of share capital would be fine?

comprehensive and material indeed

helped me tounderstand the IFRS

dear waseem…we record purchase cost as 110000.coz we did not avail the discout optiom given by the seller.

I have doubt in IAS 2. Lets say for a example, a manufacturer purchased raw material by giving 4 months pd cheque for 110,000. If they had paid by cash, price would be 100,000. What is treatment for this difference? Can we record this difference of 10,000 as finance charges?

Hey Silvia, I was about to subscribe. But I found that the name of my country (Bangladesh) is not in the list. Please let me know.

thank you for help

wow, made my studies simpler and to make sense…a superb summary indeed.

clearly and comprehensive IAS1 elaborated

Great site and well summarized IASs

very well summarized and it is very good for accounting students. thank you.

Verry good!IAS 1 !

very good indeed.impressed for days

great work………..

Great Vedio…

IT IS WELL ARRANGED OF STATEMENT.

Excellent summarized information of IAS-1

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• 1.1 Financial statement presentation and disclosure requirements

ASC 205-10-45-1A

• Financial position at the end of the period
• Earnings (net income) for the period, (which may be presented as a separate statement or within a continuous statement of comprehensive income [see paragraph 220-10-45-1A ])
• Comprehensive income (total nonowner changes in equity) for the period in one statement or two separate but consecutive statements (if the reporting entity is required to report comprehensive income, see paragraph 220-10-15-3 )
• Cash flows during the period
• Investments by and distributions to owners during the period.

1.1.1 Reporting periods

ASC 205-10-45-2

In any one year it is ordinarily desirable that the statement of financial position, the income statement, and the statement of changes in equity be presented for one or more preceding years, as well as for the current year.

1.1.2 Chronological ordering of data

1.1.3 basis of presentation, 1.1.4 disclosure of accounting policies.

ASC 235-10-50-3

• A selection from existing acceptable alternatives
• Principles and methods peculiar to the industry in which the entity operates, even if such principles and methods are predominantly followed in that industry
• Unusual or innovative applications of GAAP.

1.1.5 Use of estimates

ASC 275-10-50-4

Financial statements shall include an explanation that the preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires the use of management's estimates.

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Fair presentation and compliance with IFRS

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An Executive Guide to IFRS: Content, Costs and Benefits to Business by Peter Walton

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Fair presentation

IAS 1 says that the statements must present fairly the financial position, financial performance and cash flows of the entity. It specifies that it is presumed that this will be achieved by compliance with IFRS. However, it does allow that ‘in extremely rare circumstances’ an entity may decide that compliance would not result in a fair presentation, and in such circumstances it may depart from individual standards. If it does this, it must explain why and show the effect on the financial statements.

It adds a proviso that this is available to the extent that the relevant regulatory framework, normally national law, allows or does not prohibit such a departure. For example, the EU company law directives specify that if following GAAP does not give ‘a true and fair view’ an entity should in the first instance disclose extra information, and only if that is not thought workable, not follow the standard concerned. (The UK Accounting Standards Board obtained a legal opinion that producing statements that fairly present under IFRS is equivalent to providing a true and fair view.)

the statements must present fairly the financial position, financial performance and cash flows of the entity

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• Wednesday, August 28, 2024
• The Financial Encyclopedia

• February 15, 2022

Fair Presentation

An accounting standards’ requirement that an entity’s financial statements should be presented in a fair way to all relevant users of these statements. In other words, it is premised on the requirement that these statements should not be misleading. Under the principle of fair presentation, financial statements must fairly present the financial position, financial performance and cash flows of the entity. Fair presentation requires the faithful (unbiased) representation of the monetary effects of transactions, other events and circumstances in accordance with the applicable concepts and recognition criteria for assets , liabilities , income and expenses .

Fair presentation is the US and International Accounting Standards (IAS) equivalent of the British requirement that financial statements provide a true and fair view (which entails that statements/ accounts have been truly prepared and fairly presented in accordance with applicable accounting standards and framework . It also implies that the financial statements are free from material misstatements and faithfully represent the financial position and performance of an entity, subject-matter of an audit process.).

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Accounting 101: Considerations for the presentation of financial statements

In our previous series of articles on Beginner’s guide on Accounting – Accounting 101 , we have shared with you the objectives and the users of the general purpose financial statements . We have also explained the components of the general purpose financial statements . For this round, we will share with you the considerations for presentation of the financial statements – what are the things that preparers factored in when preparing the financial statements. We, however, will focus on the International Financial Reporting Standards (“IFRS”) framework as many preparers are using this framework. IFRS framework is equivalent to the Malaysian Financial Reporting Standards (“MFRS”) framework, so the requirements in the IFRS are also applicable to MFRS preparers.

Presentation of the financial statements

For entities using IFRS Framework, IAS 1 Presentation of Financial Statements (MFRS 101 equivalent) governs the principles of the presentation of financial statements. Why do preparers need this standard to govern the presentation of financial statements? Just imagine. There are millions of entities preparing their financial statements with millions of managements having their own preference and ways of presenting the financial statements. In addition, presentation of the financial statements may also be different from one year to another. IAS 1 aims to establish the principles that entities should follow to ensure the presentation of financial statements are consistent from one entity to another and from one year to another. Simply said – to ensure the comparability objective is met.

So, what are the principles covered by this standard? Here, the principles are grouped into 4 components:

A complete set of financial statements

The general features of financial statements.

• The structure and contents of financial statements
• Other disclosures.

This article will cover the discussion on a complete set of financial statements as well as the general features of financial statements.

What does it mean by “a complete set of financial statements”? IAS 1 states that a complete set of financial statements consist of the following:

• The four primary statements – a statement of financial position as at the end of the period, a statement of profit or loss and other comprehensive income for the period, a statement of changes in equity for the period, and a statement of cash flows for the period;
• The notes – which must comprise the significant accounting policies and other explanatory notes;
• The comparative information of the preceding period; and
• A statement of financial position as at the beginning of the preceding period (if applicable).

The four primary statements and notes to the financial statements have been explained in great detail in our previous article . You can refer to the components of the general purpose financial statements for a refresher of these items.

Comparative information must be included in the financial statements. Comparative information allows users of the financial statements to compare the financial position, the financial performance and the cash flows movement of the entity in the current and previous year or period. These are useful information for users to understand how the entity has performed or progressed as compared to the last year or period. As the general principle, comparative information must be included in the primary statements as well as in the notes. However, there are certain standards which specifically do not require comparative information to be presented for certain notes. For example, paragraph 84 of IAS 37 Provisions, Contingent Liabilities and Contingent Assets does not require an entity to disclose the comparative information on the movement in the provision account.

The third statement of financial position – i.e. the statement of financial position as at the beginning of the preceding period – is required to be presented. This third statement of financial position should only be presented under 3 scenarios – (1) when applying accounting policy retrospectively, (2) to make retrospective restatement of items in the financial statements; or (3) when reclassifies items in the financial statements. The third statement of financial position shall be presented if any of the three scenarios has a material effect on the information in the statement of financial position at the beginning of the preceding period. Otherwise, the third statement of financial position does not need to be presented. The notes on the third statement of financial position are, however, not required to be prepared (paragraph 40C of IAS 1).

This component deals with various features or aspects regarding the presentation of financial statements that an entity must comply with. They are:

1. Fair presentation and compliance with IFRS

Generally, the financial statements prepared by entities shall present a fair presentation of the financial position, financial performance and cash flows of the entity. Fair representation means the financial statements must faithfully represent the effect of transactions and events which had taken place, including:

• Selecting and applying appropriate accounting policies in the absence of an IFRS that specifically applies to an item.
• To present information so that they provide relevant, comparable and understandable information.
• To provide additional disclosures when the current disclosure requirements in IFRSs are insufficient to enable users to understand the impact of transactions or events.

IAS 1 also requires an entity to make an explicit and unreserved statement if the financial statements have been prepared in compliance with IFRSs. In the event that an entity does not comply with a requirement in an IFRS (which normally happens in extremely rare circumstances), an entity is required to make certain disclosures in the financial statements so that users are aware of the departure and the financial effect arising from the departure. Additional disclosures are also required if an entity thinks compliance with IFRS would be so misleading but at the same time is prohibited by the regulatory framework to depart from IFRS.

2. Going concern

The financial statements are prepared based on the going concern basis – i.e. the entity will continue the business for a foreseeable future. When management intends to liquidate the entity or cease its operation, the financial statements should not be prepared on a going concern basis. Instead, another basis of preparation will be used such as a break-up basis. So, whenever the financial statements are not prepared on a going concern basis, such facts, including the basis and reasons must be disclosed in the financial statements.

3. Accrual basis of accounting

Financial statements under IFRS are prepared under the accrual basis of accounting – except for the statement of cash flows. To learn about the accrual basis of accounting, you can refer to Introduction to Accounting .

4. Materiality and aggregation

This principle deals with combining items in the financial statements. It deals with questions, for example: ‘can I combine an item with another item in the statement of financial position?’ or ‘can I lump this expense with another expense in the profit or loss statement?’. The general principle in IAS 1 clearly states that an entity must:

• Present separately each material class of similar items. Material items should not be combined even if they are similar in nature.
• Present separately items of a dissimilar nature and function. This means items with dissimilar nature and function should not be combined together – unless if they are immaterial.

This principle must be applied with regard to the presentation of items in the primary statements or in the notes.

5. Offsetting

This principle deals with the question of whether an entity can offset assets and liabilities or income and expenses. IAS 1 prohibits an entity to offset assets and liabilities or income and expenses in the financial statements unless required or permitted by an IFRS.

6. Frequency of reporting

With regard to the frequency of reporting, IAS 1 requires an entity to present the complete set of financial statements at least annually.

7. Comparative information

Under IAS 1, an entity is required to present comparative information for all amounts reported in the current period’s financial statements, except when IFRS permit or require otherwise. Because of this, an entity shall present, at a minimum:

• Two statements of financial position;
• Two statements of profit or loss;
• Two statements of cash flows;
• Two statements of changes in equity; and
• Related notes.

Can an entity present more comparative information? For example, a statement of profit or loss for one additional comparative period. The answer to this is yes, but such information must also be prepared in accordance with IFRS. Interestingly, for this additional comparative information, it need not comprise a complete set of financial statements (i.e. an entity doesn’t need to prepare all four primary statements) and only present notes related to those additional statement(s) prepared.

8. Consistency of presentation

In principle, an entity is expected to retain the presentation and classification of items in the financial statements from one period to the next, except if:

• Another presentation or classification would be more appropriate, taking into consideration the criteria for the selection and application of accounting policies in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors . This can happen perhaps from a significant change in the nature of the entity’s operation or a review of its financial statements.
• An IFRS requires a change in presentation.

Now you already have the idea on what constitutes a complete set of financial statements as well as the general features of financial statements. In our next article, we will share with you the remaining two components – the structure and contents of the financial statements as well as other disclosure requirements.

Editorial Team @THEACCSENSE More by THEACCSENSE

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Financial statements (AASB101_07-15_COMPmar20_07-21)

Financial statements, purpose of financial statements.

Financial statements are a structured representation of the financial position and financial performance of an entity. The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Financial statements also show the results of the management’s stewardship of the resources entrusted to it. To meet this objective, financial statements provide information about an entity’s:

(a)             assets;

(b)             liabilities;

(c)             equity;

(d)             income and expenses, including gains and losses;

(e)             contributions by and distributions to owners in their capacity as owners; and

(f)             cash flows.

This information, along with other information in the notes, assists users of financial statements in predicting the entity’s future cash flows and, in particular, their timing and certainty.

Complete set of financial statements

A complete set of financial statements comprises:

(a)             a statement of financial position as at the end of the period;

(b)             a statement of profit or loss and other comprehensive income for the period;

(c)             a statement of changes in equity for the period;

(d)             a statement of cash flows for the period;

(e)             notes, comprising significant accounting policies and other explanatory information;

(ea)             comparative information in respect of the preceding period as specified in paragraphs 38 and 38A ; and

(f)             a statement of financial position as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements in accordance with paragraphs 40A–40D .

An entity may use titles for the statements other than those used in this Standard. For example, an entity may use the title ‘statement of comprehensive income’ instead of ‘statement of profit or loss and other comprehensive income’.

An entity may present a single statement of profit or loss and other comprehensive income, with profit or loss and other comprehensive income presented in two sections. The sections shall be presented together, with the profit or loss section presented first followed directly by the other comprehensive income section. An entity may present the profit or loss section in a separate statement of profit or loss. If so, the separate statement of profit or loss shall immediately precede the statement presenting comprehensive income, which shall begin with profit or loss.

An entity shall present with equal prominence all of the financial statements in a complete set of financial statements.

Many entities present, outside the financial statements, a financial review by management that describes and explains the main features of the entity’s financial performance and financial position, and the principal uncertainties it faces. Such a report may include a review of:

(a)             the main factors and influences determining financial performance, including changes in the environment in which the entity operates, the entity’s response to those changes and their effect, and the entity’s policy for investment to maintain and enhance financial performance, including its dividend policy;

(b)             the entity’s sources of funding and its targeted ratio of liabilities to equity; and

(c)             the entity’s resources not recognised in the statement of financial position in accordance with Australian Accounting Standards.

Many entities also present, outside the financial statements, reports and statements such as environmental reports and value added statements, particularly in industries in which environmental factors are significant and when employees are regarded as an important user group. Reports and statements presented outside financial statements are outside the scope of Australian Accounting Standards.

General features

Fair presentation and compliance with standards.

Financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Conceptual Framework for Financial Reporting ( Conceptual Framework ). The application of Australian Accounting Standards, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation.

Notwithstanding paragraph 15 , in respect of AusCF entities, financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework . [AusCF2]  The application of Australian Accounting Standards, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation.

An entity whose financial statements comply with IFRSs shall make an explicit and unreserved statement of such compliance in the notes. An entity shall not describe financial statements as complying with IFRSs unless they comply with all the requirements of IFRSs.

Paragraphs AusCF15–AusCF24 contain references to the objective of financial statements set out in the Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048 ). In December 2013 the AASB amended the Framework , and thereby replaced the objective of financial statements with the objective of general purpose financial reporting: see Chapter 1 of the Framework .

[Deleted by the AASB]

Not-for-profit entities need not comply with the paragraph 16 requirement to make an explicit and unreserved statement of compliance with IFRSs.

In virtually all circumstances, an entity achieves a fair presentation by compliance with applicable Australian Accounting Standards. A fair presentation also requires an entity:

(a)             to select and apply accounting policies in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors . AASB 108 sets out a hierarchy of authoritative guidance that management considers in the absence of an Australian Accounting Standard that specifically applies to an item.

(b)             to present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information.

(c)             to provide additional disclosures when compliance with the specific requirements in Australian Accounting Standards is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.

An entity cannot rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory material.

In the extremely rare circumstances in which management concludes that compliance with a requirement in an Australian Accounting Standard would be so misleading that it would conflict with the objective of financial statements set out in the Conceptual Framework , the entity shall depart from that requirement in the manner set out in paragraph 20 if the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.

Notwithstanding paragraph 19 , in respect of AusCF entities, in the extremely rare circumstances in which management concludes that compliance with a requirement in an Australian Accounting Standard would be so misleading that it would conflict with the objective of financial statements set out in the Framework , the entity shall depart from that requirement in the manner set out in paragraph AusCF20 if the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.

In relation to paragraph 19 , the following shall not depart from a requirement in an Australian Accounting Standard:

(a)             entities required to prepare financial reports under Part 2M.3 of the Corporations Act;

(b)             private and public sector not-for-profit entities; and

(c)             entities applying Australian Accounting Standards – Simplified Disclosures.

When an entity departs from a requirement of an Australian Accounting Standard in accordance with paragraph 19 , it shall disclose:

(a)             that management has concluded that the financial statements present fairly the entity’s financial position, financial performance and cash flows;

(b)             that it has complied with applicable Australian Accounting Standards, except that it has departed from a particular requirement to achieve a fair presentation;

(c)             the title of the Australian Accounting Standard from which the entity has departed, the nature of the departure, including the treatment that the Australian Accounting Standard would require, the reason why that treatment would be so misleading in the circumstances that it would conflict with the objective of financial statements set out in the Conceptual Framework , and the treatment adopted; and

(d)             for each period presented, the financial effect of the departure on each item in the financial statements that would have been reported in complying with the requirement.

Notwithstanding paragraph 20 , in respect of AusCF entities, when an entity departs from a requirement of an Australian Accounting Standard in accordance with paragraph AusCF19 , it shall disclose:

(c)             the title of the Australian Accounting Standard from which the entity has departed, the nature of the departure, including the treatment that the Australian Accounting Standard would require, the reason why that treatment would be so misleading in the circumstances that it would conflict with the objective of financial statements set out in the Framework , and the treatment adopted; and

When an entity has departed from a requirement of an Australian Accounting Standard in a prior period, and that departure affects the amounts recognised in the financial statements for the current period, it shall make the disclosures set out in paragraph 20(c) and (d) .

Paragraph 21 applies, for example, when an entity departed in a prior period from a requirement in an Australian Accounting Standard for the measurement of assets or liabilities and that departure affects the measurement of changes in assets and liabilities recognised in the current period’s financial statements.

In the extremely rare circumstances in which management concludes that compliance with a requirement in an Australian Accounting Standard would be so misleading that it would conflict with the objective of financial statements set out in the Conceptual Framework , but the relevant regulatory framework prohibits departure from the requirement, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing:

(a)             the title of the Australian Accounting Standard in question, the nature of the requirement, and the reason why management has concluded that complying with that requirement is so misleading in the circumstances that it conflicts with the objective of financial statements set out in the Conceptual Framework ; and

(b)             for each period presented, the adjustments to each item in the financial statements that management has concluded would be necessary to achieve a fair presentation.

Notwithstanding paragraph 23 , in respect of AusCF entities, in the extremely rare circumstances in which management concludes that compliance with a requirement in an Australian Accounting Standard would be so misleading that it would conflict with the objective of financial statements set out in the Framework , but the relevant regulatory framework prohibits departure from the requirement, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing:

(a)             the title of the Australian Accounting Standard in question, the nature of the requirement, and the reason why management has concluded that complying with that requirement is so misleading in the circumstances that it conflicts with the objective of financial statements set out in the Framework ; and

For the purpose of paragraphs 19–23 , an item of information would conflict with the objective of financial statements when it does not represent faithfully the transactions, other events and conditions that it either purports to represent or could reasonably be expected to represent and, consequently, it would be likely to influence economic decisions made by users of financial statements.   When assessing whether complying with a specific requirement in an Australian Accounting Standard would be so misleading that it would conflict with the objective of financial statements set out in the Conceptual Framework , management considers:

(a)             why the objective of financial statements is not achieved in the particular circumstances; and

(b)             how the entity’s circumstances differ from those of other entities that comply with the requirement.   If other entities in similar circumstances comply with the requirement, there is a rebuttable presumption that the entity’s compliance with the requirement would not be so misleading that it would conflict with the objective of financial statements set out in the Conceptual Framework .

Notwithstanding paragraph 24 , in respect of AusCF entities, for the purpose of paragraphs AusCF19–AusCF23 , an item of information would conflict with the objective of financial statements when it does not represent faithfully the transactions, other events and conditions that it either purports to represent or could reasonably be expected to represent and, consequently, it would be likely to influence economic decisions made by users of financial statements. When assessing whether complying with a specific requirement in an Australian Accounting Standard would be so misleading that it would conflict with the objective of financial statements set out in the Framework , management considers:

(b)             how the entity’s circumstances differ from those of other entities that comply with the requirement.   If other entities in similar circumstances comply with the requirement, there is a rebuttable presumption that the entity’s compliance with the requirement would not be so misleading that it would conflict with the objective of financial statements set out in the Framework .

Going concern

When preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern. An entity shall prepare financial statements on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, the entity shall disclose those uncertainties. When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern.

In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. The degree of consideration depends on the facts in each case. When an entity has a history of profitable operations and ready access to financial resources, the entity may reach a conclusion that the going concern basis of accounting is appropriate without detailed analysis. In other cases, management may need to consider a wide range of factors relating to current and expected profitability, debt repayment schedules and potential sources of replacement financing before it can satisfy itself that the going concern basis is appropriate.

Accrual basis of accounting

An entity shall prepare its financial statements, except for cash flow information, using the accrual basis of accounting.

When the accrual basis of accounting is used, an entity recognises items as assets, liabilities, equity, income and expenses (the elements of financial statements) when they satisfy the definitions and recognition criteria for those elements in the Conceptual Framework .

Notwithstanding paragraph 28 , in respect of AusCF entities, when the accrual basis of accounting is used, an entity recognises items as assets, liabilities, equity, income and expenses (the elements of financial statements) when they satisfy the definitions and recognition criteria for those elements in the Framework . [AusCF3]

The Framework for the Preparation and Presentation of Financial Statements was amended by the AASB in December 2013.

Materiality and aggregation

An entity shall present separately each material class of similar items. An entity shall present separately items of a dissimilar nature or function unless they are immaterial.

Financial statements result from processing large numbers of transactions or other events that are aggregated into classes according to their nature or function. The final stage in the process of aggregation and classification is the presentation of condensed and classified data, which form line items in the financial statements. If a line item is not individually material, it is aggregated with other items either in those statements or in the notes. An item that is not sufficiently material to warrant separate presentation in those statements may warrant separate presentation in the notes.

When applying this and other Australian Accounting Standards an entity shall decide, taking into consideration all relevant facts and circumstances, how it aggregates information in the financial statements, which include the notes. An entity shall not reduce the understandability of its financial statements by obscuring material information with immaterial information or by aggregating material items that have different natures or functions.

Some Australian Accounting Standards specify information that is required to be included in the financial statements, which include the notes. An entity need not provide a specific disclosure required by an Australian Accounting Standard if the information resulting from that disclosure is not material. This is the case even if the Australian Accounting Standard contains a list of specific requirements or describes them as minimum requirements. An entity shall also consider whether to provide additional disclosures when compliance with the specific requirements in Australian Accounting Standards is insufficient to enable users of financial statements to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.

An entity shall not offset assets and liabilities or income and expenses, unless required or permitted by an Australian Accounting Standard.

An entity reports separately both assets and liabilities, and income and expenses. Offsetting in the statement(s) of profit or loss and other comprehensive income or financial position, except when offsetting reflects the substance of the transaction or other event, detracts from the ability of users both to understand the transactions, other events and conditions that have occurred and to assess the entity’s future cash flows. Measuring assets net of valuation allowances—for example, obsolescence allowances on inventories and doubtful debts allowances on receivables—is not offsetting.

AASB 15 Revenue from Contracts with Customers requires an entity to measure revenue from contracts with customers at the amount of consideration to which the entity expects to be entitled in exchange for transferring promised goods or services. For example, the amount of revenue recognised reflects any trade discounts and volume rebates the entity allows. An entity undertakes, in the course of its ordinary activities, other transactions that do not generate revenue but are incidental to the main revenue-generating activities. An entity presents the results of such transactions, when this presentation reflects the substance of the transaction or other event, by netting any income with related expenses arising on the same transaction. For example:

(a)             an entity presents gains and losses on the disposal of non-current assets, including investments and operating assets, by deducting from the amount of consideration on disposal the carrying amount of the asset and related selling expenses; and

(b)             an entity may net expenditure related to a provision that is recognised in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and reimbursed under a contractual arrangement with a third party (for example, a supplier’s warranty agreement) against the related reimbursement.

In addition, an entity presents on a net basis gains and losses arising from a group of similar transactions, for example, foreign exchange gains and losses or gains and losses arising on financial instruments held for trading. However, an entity presents such gains and losses separately if they are material.

Frequency of reporting

An entity shall present a complete set of financial statements (including comparative information) at least annually. When an entity changes the end of its reporting period and presents financial statements for a period longer or shorter than one year, an entity shall disclose, in addition to the period covered by the financial statements:

(a)             the reason for using a longer or shorter period, and

(b)             the fact that amounts presented in the financial statements are not entirely comparable.

Normally, an entity consistently prepares financial statements for a one-year period. However, for practical reasons, some entities prefer to report, for example, for a 52-week period. This Standard does not preclude this practice.

Comparative information

Except when Australian Accounting Standards permit or require otherwise, an entity shall present comparative information in respect of the preceding period for all amounts reported in the current period’s financial statements. An entity shall include comparative information for narrative and descriptive information if it is relevant to understanding the current period’s financial statements.

An entity shall present, as a minimum, two statements of financial position, two statements of profit or loss and other comprehensive income, two separate statements of profit or loss (if presented), two statements of cash flows and two statements of changes in equity, and related notes.

In some cases, narrative information provided in the financial statements for the preceding period(s) continues to be relevant in the current period. For example, an entity discloses in the current period details of a legal dispute, the outcome of which was uncertain at the end of the preceding period and is yet to be resolved. Users may benefit from the disclosure of information that the uncertainty existed at the end of the preceding period and from the disclosure of information about the steps that have been taken during the period to resolve the uncertainty.

An entity may present comparative information in addition to the minimum comparative financial statements required by Australian Accounting Standards, as long as that information is prepared in accordance with Australian Accounting Standards. This comparative information may consist of one or more statements referred to in paragraph 10 , but need not comprise a complete set of financial statements. When this is the case, the entity shall present related note information for those additional statements.

For example, an entity may present a third statement of profit or loss and other comprehensive income (thereby presenting the current period, the preceding period and one additional comparative period). However, the entity is not required to present a third statement of financial position, a third statement of cash flows or a third statement of changes in equity (ie an additional financial statement comparative). The entity is required to present, in the notes to the financial statements, the comparative information related to that additional statement of profit or loss and other comprehensive income.

An entity shall present a third statement of financial position as at the beginning of the preceding period in addition to the minimum comparative financial statements required in paragraph 38A if:

(a)             it applies an accounting policy retrospectively, makes a retrospective restatement of items in its financial statements or reclassifies items in its financial statements; and

(b)             the retrospective application, retrospective restatement or the reclassification has a material effect on the information in the statement of financial position at the beginning of the preceding period.

In the circumstances described in paragraph 40A , an entity shall present three statements of financial position as at:

(a)             the end of the current period;

(b)             the end of the preceding period; and

(c)             the beginning of the preceding period.

When an entity is required to present an additional statement of financial position in accordance with paragraph 40A , it must disclose the information required by paragraphs 41–44 and AASB 108 . However, it need not present the related notes to the opening statement of financial position as at the beginning of the preceding period.

The date of that opening statement of financial position shall be as at the beginning of the preceding period regardless of whether an entity’s financial statements present comparative information for earlier periods (as permitted in paragraph 38C ).

If an entity changes the presentation or classification of items in its financial statements, it shall reclassify comparative amounts unless reclassification is impracticable. When an entity reclassifies comparative amounts, it shall disclose (including as at the beginning of the preceding period):

(a)             the nature of the reclassification;

(b)             the amount of each item or class of items that is reclassified; and

(c)             the reason for the reclassification.

When it is impracticable to reclassify comparative amounts, an entity shall disclose:

(a)             the reason for not reclassifying the amounts, and

(b)             the nature of the adjustments that would have been made if the amounts had been reclassified.

Enhancing the inter-period comparability of information assists users in making economic decisions, especially by allowing the assessment of trends in financial information for predictive purposes. In some circumstances, it is impracticable to reclassify comparative information for a particular prior period to achieve comparability with the current period. For example, an entity may not have collected data in the prior period(s) in a way that allows reclassification, and it may be impracticable to recreate the information.

AASB 108 sets out the adjustments to comparative information required when an entity changes an accounting policy or corrects an error.

Consistency of presentation

An entity shall retain the presentation and classification of items in the financial statements from one period to the next unless:

(a)             it is apparent, following a significant change in the nature of the entity’s operations or a review of its financial statements, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies in AASB 108 ; or

(b)             an Australian Accounting Standard requires a change in presentation.

For example, a significant acquisition or disposal, or a review of the presentation of the financial statements, might suggest that the financial statements need to be presented differently. An entity changes the presentation of its financial statements only if the changed presentation provides information that is reliable and more relevant to users of the financial statements and the revised structure is likely to continue, so that comparability is not impaired. When making such changes in presentation, an entity reclassifies its comparative information in accordance with paragraphs 41 and 42 .

True and Fair View of Financial Statements

True and fair view in auditing means that the financial statements are free from material misstatements and faithfully represent the financial performance and position of the entity.

Explanation

Application & importance, share this post, related posts, assertions in the audit of financial statements, audit risks & business risks, audit risk model: inherent risk, control risk & detection risk, types of audit engagements, limitations of audit of financial statements, purpose and objectives of auditing financial statements.

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The requirement that financial statements should not be misleading. ‘Fair presentation’ is the US and International Accounting Standards equivalent of the British requirement that financial statements give a true and fair view.

From:   fair presentation   in  A Dictionary of Finance and Banking »

Subjects: Social sciences — Economics

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date: 28 August 2024

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