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CareerDeal – IFRS

training
IAS 1 – Presentation of
financial statements
Agenda/Contents

Objective and scope


General features of financial statements
Structure and content

IAS 1 – Presentation of financial statements July 2017


PwC Slide 2
Objective and scope

IAS 1 – Presentation of financial statements July 2017


PwC Slide 3
Objective

• To prescribe the basis for presentation of general purpose financial


statements
• To ensure comparability both with:
- the entity’s financial statements of previous periods
- the financial statements of other entities
• Sets out overall requirements, minimum requirements and
guidelines for the structure and minimum content of the financial
statements

IAS 1 – Presentation of financial statements July 2017


PwC Slide 4
Scope

• To be applied to all general purpose financial statements prepared


and presented in accordance with International Financial Reporting
Standards (IFRSs)
• General purpose - intended to meet the needs of users who are not in
a position to require an entity to prepare reports tailored to their
particular information needs

IAS 1 – Presentation of financial statements July 2017


PwC Slide 5
Scope - continued

A complete set of financial statements comprises:


• Statement of financial position as at the end of the period;
• Statement of comprehensive income for the period;
• Statement of changes in equity for the period;
• Statement of cash flows for the period; and
• Notes, comprising a summary of significant accounting policies and
other explanatory information.

IAS 1 – Presentation of financial statements July 2017


PwC Slide 6
Scope - continued

Why provide notes to the financial statements?


• Additional information supporting the:
- statement of financial position;
- statement of comprehensive income;
- separate income statement (if presented);
- statement of changes in equity; and
- statement of cash flows.
• Provide narrative descriptions or disaggregations of items disclosed.
• Provide information about items that do not qualify for recognition
in those statements.

IAS 1 – Presentation of financial statements July 2017


PwC Slide 7
General features of financial
statements

IAS 1 – Presentation of financial statements July 2017


PwC Slide 8
Fair presentation and compliance with IFRSs

• Financial statements shall present fairly the financial position,


financial performance and cash flows of an entity
• Notion of a fair view - what is “fair view”?
- Faithful representation of the effects of transactions, events and
conditions in accordance with the definitions and recognition
criteria for assets, liabilities, income and expenses set out in the
Framework

IAS 1 – Presentation of financial statements July 2017


PwC Slide 9
Fair presentation and compliance with IFRSs -
continued

• 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.

IAS 1 – Presentation of financial statements July 2017


PwC Slide 10
Going concern

• Management must also make an assessment of an entity’s ability to


continue as a going concern
• Financial statements must be prepared 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
• Disclose any significant doubt upon the entity’s ability to continue as
a going concern
• If financial statements are not prepared on a going concern basis –
disclose basis of presentation and reasons

IAS 1 – Presentation of financial statements July 2017


PwC Slide 11
Consistency of presentation

• The presentation and classification of items in the financial


statements shall be retained from one period to the next unless:
- a significant change in the nature of the entity’s operations has
occurred; or
- an IFRS requires a change in presentation

IAS 1 – Presentation of financial statements July 2017


PwC Slide 12
Materiality, aggregation and offsetting

• An entity shall present separately:


- each material class of similar items; and
- items of a dissimilar nature or function unless they are immaterial
• An entity shall not offset assets and liabilities or income and
expenses, unless required or permitted by an IFRS

IAS 1 – Presentation of financial statements July 2017


PwC Slide 13
Materiality, aggregation and offsetting - continued

• What is materiality?
- Omission or misstatement of items that could, individually or
collectively, influence the economic decisions of users taken on the
basis of the financial statements
- It depends on the size and nature (or combination) of the omission
or misstatement
- It has to be judged in the surrounding circumstances

IAS 1 – Presentation of financial statements July 2017


PwC Slide 14
Comparative information

• An entity must disclose comparative information


• Comparatives - for all amounts reported in the current period’s
financial statements we must include the previous period amounts

IAS 1 – Presentation of financial statements July 2017


PwC Slide 15
Comparative Information - continued

• An entity shall include comparative information for narrative and


descriptive information when it is relevant to an understanding of the
current period’s financial statements

IAS 1 – Presentation of financial statements July 2017


PwC Slide 16
Structure and content

IAS 1 – Presentation of financial statements July 2017


PwC Slide 17
Introduction

• This Standard sets out what disclosures have to be made in the:


- statement of financial position;
- statement of comprehensive income;
- separate income statement (if presented);
- statement of changes in equity; and
- notes to the accounts
• IAS 7 Cash Flow Statements sets out requirements for the
presentation of the statement of cash flows

IAS 1 – Presentation of financial statements July 2017


PwC Slide 18
Identification of the financial statements

• The financial statements must be clearly identified and distinguished


from other information in the same published document
• The following information must be prominently displayed and
repeated where necessary:
- name of the reporting entity;
- whether the financial statements cover the individual entity or a
group of entities;
- date of the end of the reporting period or the period covered by the
set of financial statements or notes;
- presentation currency; and
- level of rounding used in presenting amounts in the financial
statements
IAS 1 – Presentation of financial statements July 2017
PwC Slide 19
Identification of the financial statements

Name

Period
covered

Presentation
currency
and level of
rounding

IAS 1 – Presentation of financial statements July 2017


PwC Slide 20
Reporting period

• Financial statements shall be presented at least annually


• If annual financial statements are presented for a period longer or
shorter than one year, the following must be disclosed:
- the reason for using a longer or shorter period; and
- the fact that comparative amounts are not entirely comparable

IAS 1 – Presentation of financial statements July 2017


PwC Slide 21
Current/non-current distinction

• Current and non-current assets and liabilities must be disclosed


separately in its statement of financial position except when a
presentation based on liquidity provides information that is reliable
and is more relevant
• In such a case, all assets and liabilities shall be presented broadly in
order of liquidity
• Current: no more than twelve months after the reporting period
• Non-current: more than twelve months after the reporting period

IAS 1 – Presentation of financial statements July 2017


PwC Slide 22
Current/non-current distinction - illustration

IAS 1 – Presentation of financial statements July 2017


PwC Slide 23
Presentation in order of liquidity - illustration

IAS 1 – Presentation of financial statements July 2017


PwC Slide 24
Current assets

• An asset shall be classified as current when it satisfies any of the


following criteria:
- it is expected to be realised in, or is intended for sale or
consumption, in the entity’s normal operating cycle;
- it is held primarily for the purpose of being traded;
- it is expected to be realised within twelve months after the
reporting period; or
- it is cash or a cash equivalent unless it is restricted from being
exchanged or used to settle a liability for at least twelve months
after the end of the reporting period
An entity shall classify all other assets as non-current.

IAS 1 – Presentation of financial statements July 2017


PwC Slide 25
Current liabilities

• A liability shall be classified as current when it satisfies any of the


following criteria:
- it is expected to be settled in the entity’s normal operating cycle,
- it is held primarily for the purpose of trading,
- it is due to be settled within twelve months after the reporting
period; or
- the entity does not have an unconditional right to defer settlement
of the liability for at least twelve months after the reporting period.
• An entity shall classify all other liabilities as non-current.

IAS 1 – Presentation of financial statements July 2017


PwC Slide 26
Current liabilities

• An entity classifies its financial liabilities as current even if:


- the original term was for a period longer than twelve months; and
- an agreement to refinance, or to reschedule payments, on a long-
term basis is completed after the reporting period but before the
financial statements are authorised for issue

IAS 1 – Presentation of financial statements July 2017


PwC Slide 27
Current liabilities – example

The following information pertains to Company A:


• Loan taken out: 1 July 2006
• Repayable over 5 years:
- 60 monthly instalments of €50,000 (i.e. €3,000,000)
- €2,000,000 upon maturity
• Maturity date: 30 June 2011
• On 5 February 2011, €2m loan amount due upon maturity was
refinanced with a new term of 5 years, commencing on 1 July 2011
• Year end: 31 December 2010

IAS 1 – Presentation of financial statements July 2017


PwC Slide 28
Current liabilities – example - continued

• On 1 July 2006: €5,000,000


• Payments 31 July 2006 – 31 December 2010
• (54 months x €50,000/month) €(2,700,000)
• Outstanding December 2010 €2,300,000
• Payments December 2010 – January 2011
• (1 month x €50,000/month) €(50,000)
• Outstanding 5 February 2011 €2,250,000

Should the €2.3m outstanding loan as at 31 December 2010 be shown


as current or non-current in the 2010 Statement of financial position?

IAS 1 – Presentation of financial statements July 2017


PwC Slide 29
Minimum information required

• As a minimum, (if present within the company) the statement of


financial position shall include:
- property, plant and equipment;
- investment property;
- intangible assets;
- financial assets
- investments accounted for using the equity method;
- biological assets;
- inventories;
- trade and other receivables;
- cash and cash equivalents;

IAS 1 – Presentation of financial statements July 2017


PwC Slide 30
Minimum information required - continued

- the total of assets classified as held for sale and assets included in
disposal groups;
- trade and other payables;
- provisions;
- financial liabilities;
- liabilities and assets for current tax;
- deferred tax liabilities/assets;
- liabilities included in disposal groups classified as held for sale;
- non-controlling interests, presented within equity; and
- issued capital and reserves attributable to equity holders of the
parent

IAS 1 – Presentation of financial statements July 2017


PwC Slide 31
Minimum information required - illustration

IAS 1 – Presentation of financial statements July 2017


PwC Slide 32
Minimum information required - illustration

IAS 1 – Presentation of financial statements July 2017


PwC Slide 33
Minimum information required - continued

• The statement of financial position shall also include line items that
present the following amounts:
- total assets classified as held for sale and assets included in
disposal groups classified as held for sale; and
- liabilities included in disposal group

IAS 1 – Presentation of financial statements July 2017


PwC Slide 34
Minimum information required - continued

• Deferred tax assets (liabilities) should not be classified as current


assets (liabilities)

IAS 1 – Presentation of financial statements July 2017


PwC Slide 35
Information in the statement of financial position
or in the notes

• An entity shall disclose, either in the statement of financial position


or in the notes, further sub-classifications of the line items presented.
• For each class of share capital it must disclose:
- the number of shares authorised;
- the number of shares issued and fully paid, and issued but not fully
paid;
- par value per share, or that the shares have no par value;
- a reconciliation of the number of shares outstanding at the
beginning and at the end of the period;

IAS 1 – Presentation of financial statements July 2017


PwC Slide 36
Information in the statement of financial position
or in the notes - continued

- the rights, preferences and restrictions attaching to that class


including restrictions on the distribution of dividends and the
repayment of capital;
- shares in the entity held by the entity or by its subsidiaries or
associates; and
- shares reserved for issue under options and contracts for the sale
of shares, including the terms and amounts.
• It must also disclose a description of the nature and purpose of each
reserve within equity

IAS 1 – Presentation of financial statements July 2017


PwC Slide 37
Information in the statement of financial position
or in the notes - illustration

IAS 1 – Presentation of financial statements July 2017


PwC Slide 38
Profit or loss for the period

All items of income and expense recognised in a period must be


included in profit or loss unless an IFRS requires otherwise.

IAS 1 – Presentation of financial statements July 2017


PwC Slide 39
Information to be presented in the statement of
comprehensive income

• As a minimum, (if applicable) the statement of comprehensive


income shall include:
- revenue;
- finance costs;
- share of the profit or loss of associates and joint ventures
accounted for using the equity method;
- tax expense;
- a single amount comprising the total of:
◦ the post-tax profit or loss of discontinued operations and
◦ the post-tax gain or loss recognised on the measurement to fair
value less costs to sell or on the disposal of the assets or disposal
group(s);

IAS 1 – Presentation of financial statements July 2017


PwC Slide 40
Information to be presented in the statement of
comprehensive income - continued

• As a minimum, (if applicable) the statement of comprehensive


income shall include - continued:
- profit or loss;
- each component of other comprehensive income classified by
nature;
- share of the other comprehensive income of associates and joint
ventures accounted for using the equity method; and
- total comprehensive income

IAS 1 – Presentation of financial statements July 2017


PwC Slide 41
Information to be presented in the statement of
comprehensive income - continued

• The following items shall be disclosed on the face of the income


statement as allocations of total comprehensive income:
- attributable to non-controlling interest; and
- attributable to equity holders of the parent

• Additional line items, headings and subtotals shall be presented on


the face of the statement of comprehensive income when such
presentation is relevant to an understanding of the entity’s financial
performance

IAS 1 – Presentation of financial statements July 2017


PwC Slide 42
Information to be presented in the statement of
comprehensive income - continued

• When items of income and expense are material, their nature and
amount shall be disclosed separately
• Expenses should be classified by their nature or function within the
entity, whichever provides information that is reliable and more
relevant

Aggregated by nature:
• E.g. depreciation, purchases of materials, transport costs, employee
benefits and advertising costs
• These are not reallocated among various functions within the entity
• Simple to apply because no allocations of expenses to functional
classifications are necessary
IAS 1 – Presentation of financial statements July 2017
PwC Slide 43
Information to be presented in the statement of
comprehensive income - continued

Aggregated by Function:
• Classifies expenses according to their function as part of cost of sales
• E.g. the costs of distribution or administrative activities
• This method can provide more relevant information to users than the
classification of expenses by nature
• However it may require arbitrary allocations and involve
considerable judgement
• In Malta, it is however the one used in practice

IAS 1 – Presentation of financial statements July 2017


PwC Slide 44
Information to be presented in the statement of
comprehensive income - illustration

IAS 1 – Presentation of financial statements July 2017


PwC Slide 45
Information to be presented in the statement of
comprehensive income - continued

• If classifying expenses by function then disclose additional


information on the nature of expenses
• Include depreciation and amortisation expense and employee
benefits expense

IAS 1 – Presentation of financial statements July 2017


PwC Slide 46
Statement of comprehensive income
Single statement, by function of expense

IAS 1 – Presentation of financial statements July 2017


PwC Slide 47
Statement of comprehensive income
Single statement, by function of expense

IAS 1 – Presentation of financial statements July 2017


PwC Slide 48
Statement of comprehensive income
Presentation of tax charge relating to comprehensive income

Alternatively, components of other comprehensive income could be


presented in the statement of comprehensive income net of tax:

IAS 1 – Presentation of financial statements July 2017


PwC Slide 49
Other comprehensive income
Tax effect

Entities are required to disclose


the income tax relating to each
component of other
comprehensive income either:
• in the statement of
comprehensive income or
• in the notes

IAS 1 – Presentation of financial statements July 2017


PwC Slide 50
Statement of comprehensive income
Attribution to owners of the parent and to minority interest

An entity shall disclose the following


items in the Statement of
comprehensive income as
allocations of profit or loss for the
period:
• profit or loss for the period
attributable to:
- minority interest, and
- owners of the parent.
• total comprehensive income for
the period attributable to:
- minority interest, and
- owners of the parent.
IAS 1 – Presentation of financial statements July 2017
PwC Slide 51
Other comprehensive
income - reclassifications

Reclassification adjustments (that


is, amounts reclassified to profit
and loss in the current period,
previously recognised as other
comprehensive income) should be
disclosed.

IAS 1 – Presentation of financial statements July 2017


PwC Slide 52
Statement of changes in equity

• An entity shall present a statement of changes in equity showing:


- total comprehensive income for the period, showing separately amounts
attributable to owners of the parent and to non-controlling interests;
- for each component of equity, the effects of retrospective changes in
accounting policies and corrections of errors;
- for each component of equity, a reconciliation between the carrying
amount at the beginning and the end of the period, separately disclosing
changes from:
◦ profit or loss;
◦ each item of other comprehensive income; and
◦ transactions with owners in their capacity as owners, showing
separately contributions by and distributions to owners and changes in
ownership interests in subsidiaries not resulting in loss of control

IAS 1 – Presentation of financial statements July 2017


PwC Slide 53
Statement of changes in
equity

An entity is not permitted


to present components of
income and expense (that
is, non-owner changes in
equity) directly (and only)
in the statement of changes
in equity.

IAS 1 – Presentation of financial statements July 2017


PwC Slide 54
Statement of changes in equity - continued

• An entity shall also present, either in the statement of changes in


equity or in the notes:
- the amount of dividends recognised as distributions to owners
during the period, and the related amount per share

IAS 1 – Presentation of financial statements July 2017


PwC Slide 55
Notes to the accounts

• The notes shall:


- present information about the basis of preparation of the financial
statements and the specific accounting policies used;

- Disclose information required by IFRSs that is not presented


elsewhere in the financial statements; and
- provide additional information that is relevant to an
understanding of the financial statements

IAS 1 – Presentation of financial statements July 2017


PwC Slide 56
Notes to the accounts - continued

• Notes must be
presented in a
systematic manner

IAS 1 – Presentation of financial statements July 2017


PwC Slide 57
Notes to the accounts - continued

• Proper cross-referencing should be used between items in the


accounts to any related information in the notes

IAS 1 – Presentation of financial statements July 2017


PwC Slide 58
Notes to the accounts - continued

IAS 1 – Presentation of financial statements July 2017


PwC Slide 59
Notes to the accounts - continued

• For understandability and comparability, notes are normally presented


as follows:
- statement of compliance with IFRSs
- summary of significant accounting policies applied
- supporting information for items found in the accounts, in the order in
which each statement and each line item is presented; and
- other disclosures, including:
◦ contingent liabilities, and
◦ non-financial disclosures, eg the entity’s financial risk management

IAS 1 – Presentation of financial statements July 2017


PwC Slide 60
Disclosure of accounting policies

• An entity shall disclose in the summary of significant accounting


policies:
- the measurement basis (or bases) used in preparing the financial
statements;
- the other accounting policies used that are relevant to an
understanding of the financial statements; and
- the judgements, other than those involving estimations, that
management has made in the process of applying the entity’s
accounting policies and that have the most significant effect on the
amounts recognised in the financial statements

IAS 1 – Presentation of financial statements July 2017


PwC Slide 61
Key sources of estimation uncertainty

• An entity shall disclose in the notes information about:


- the key assumptions concerning the future; and

- other major sources of estimation uncertainty at the end of the


reporting period, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year

IAS 1 – Presentation of financial statements July 2017


PwC Slide 62
Key sources of estimation uncertainty - continued

• In respect of those assets and liabilities, the notes shall include


details of:
- their nature; and
- their carrying amount as at the end of the reporting period

IAS 1 – Presentation of financial statements July 2017


PwC Slide 63
Other disclosures

• An entity shall disclose in the notes:


- the amount of dividends proposed or declared before the financial
statements were authorised for issue but not recognised as a
distribution to equity holders during the period, and the related
amount per share; and
- the amount of any cumulative preference dividends not recognised

IAS 1 – Presentation of financial statements July 2017


PwC Slide 64
Other disclosures - illustration

IAS 1 – Presentation of financial statements July 2017


PwC Slide 65
Other disclosures - continued

• An entity shall disclose the following, if not disclosed elsewhere in


information published with the financial statements:
- the domicile and legal form of the entity, its country of
incorporation and the address of its registered office (or principal
place of business, if different from the registered office);
- a description of the nature of the entity’s operations and its
principal activities; and
- the name of the parent and the ultimate parent of the group

IAS 1 – Presentation of financial statements July 2017


PwC Slide 66
Other disclosures – illustration

IAS 1 – Presentation of financial statements July 2017


PwC Slide 67
Other disclosures – illustration

IAS 1 – Presentation of financial statements July 2017


PwC Slide 68
Other disclosures – illustration

IAS 1 – Presentation of financial statements July 2017


PwC Slide 69
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