Accounting Information

Systems

Preparation of Financial Statements Under

International Accounting Standard 1 (IAS 1)
The Format of Published Accounts
 Some entities must publish financial statements in
accordance with International Financial Reporting Standards
 IAS 1: Presentation of Financial Statements, sets out the
rules on the form and content of financial statements which
such entities must comply with.
 IAS 1 specifies what published ‘general-purpose’ financial
statements should include, and provides a format for a
statement of financial position, statement of comprehensive
income, and statement of changes in equity.
 The objective of general-purpose financial statements is to
provide information about the financial position of the
company, and its financial performance and cash flows, that
is useful to a wide range of users in making economic
decisions.
Set of Financial Statements
 A statement of financial position as at the end of the period;
 A statement of comprehensive income for the period (made
up of a statement of profit or loss and a statement of other
comprehensive income);
 A statement of changes in equity for the period;
 A statement of cash flows;
 Notes to these statements, consisting of a summary of
significant accounting policies used by the entity and other
explanatory notes; and
 A statement of financial position as at the beginning of the
preceding comparative 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.
Other Requirements for Financial
Statements
 Financial statements should present fairly the financial
position, financial performance and cash flows of the entity.
 Comparative information for the immediately preceding
accounting period should be disclosed
 Each component of the financial statements must be
properly identified with the following information displayed
prominently:
 the name of the reporting entity

 the date of the end of the reporting period or the period

covered by the statement, whichever is appropriate
 the currency in which the figures are reported

 the level of rounding used in the figures (for example,

whether the figures thousands of rupees or millions of
rupees).
Structure & Content of Statement of
Financial Position
Current and Non-Current Assets and Liabilities
 Current and non-current items should normally be
presented separately in the statement of financial
position, so that:
 Current and non-current assets are divided into
separate classifications; and
 Current and non-current liabilities are also classified
separately.
 As a general rule, an amount is ‘current’ if it is
expected to be recovered or settled no more than 12
months after the end of the reporting period.
 Current Assets
IAS 1 states that an asset should be classified as a
current asset if it satisfies any of the following criteria:
 The entity expects to realise the asset, or sell or
consume it, in its normal operating cycle.
 The asset is held for trading purposes.

 The entity expects to realise the asset within 12

months after the reporting period.
 It is cash or a cash equivalent unless the asset is
restricted from being used for at least 12 months after
the reporting date. (Note: An example of ‘cash’ is money
in a current bank account. An example of a ‘cash
equivalent’ is money held in a term deposit account with
a bank.)
Current Assets
 This definition allows inventory or trade receivables to
qualify as current assets, even if they may not be
realised into cash within 12 months, provided that they
will be realised in the entity’s normal operating cycle or
trading cycle
 The operating cycle of an entity is the time between
the acquisition of assets for processing and their
realisation in cash or cash equivalents. When the
entity's normal operating cycle is not clearly
identifiable, it is assumed to be twelve months. This is
almost always the case.
 All other assets should be classified as non-current
assets.
 Current Liabilities
IAS 1 also states that a liability should be classified as a
current liability if it satisfies any of the following criteria:
 The entity expects to settle the liability in its normal
operating cycle.
 The liability is held primarily for the purpose of trading.
This means that all trade payables are current liabilities,
even if settlement is not due for over 12 months after
the end of the reporting period.
 It is due to be settled within 12 months after the end of
the reporting period.
 The entity does not have the unconditional right to
defer settlement of the liability for at least 12 months
after the end of the reporting period.
Information to be Presented on the Face
of the Statement of Financial Position
Assets
(a) Property, plant and equipment
(b) Investment property
(c) Intangible assets
(d) Financial assets excluding amounts shown under (e), (h)& (i)
(e) Investments accounted for using the equity method
(f) Biological assets
(g) Inventories
(h) Trade and other receivables
(i) Cash and cash equivalents
Information to be Presented on the Face
of the Statement of Financial Position
Liabilities
(k) Trade and other payables
(l) Provisions
(m) Financial liabilities, excluding any items in (k) and (l)
above: (for example, bank loans)
(n) Liabilities (but possibly assets) for current tax,
(o) Deferred tax liabilities (but possibly assets). These
are always non-current.
Information to be Presented on the Face
of the Statement of Financial Position
Equity
(q) Non-controlling interests
(r) Issued capital and reserves attributable to the
owners of the entity. (The term ‘owners’, refers to
the equity holders.)
Information usually Presented in notes
to the Statement of Financial Position
For example:
 Tangible non-current assets should be divided into sub-
categories, as required by IAS 16: Property, Plant and
Equipment.
 Receivables should be sub-classified into trade receivables,
receivables from related parties, prepayments and other
amounts.
 Inventories are sub-classified in accordance with IAS 2:
Inventories into categories such as merchandise, materials,
work-in-progress and finished goods.
 Where liquidity provides more reliable and relevant
information then arrange the line items on increasing or
decreasing liquidity.
Structure & Content of The Statement
of Comprehensive Income
A single statement or two statements
 The statement of comprehensive income provides
information about the performance of an entity in a
period. It consists of two parts:
 A statement of profit or loss – a list of income and
expenses which result in a profit or loss for the
period; and
 A statement of other comprehensive income – a list of
other gains and losses that have arisen in the period.
Structure & Content of The Statement
of Comprehensive Income
 IAS 1 allows an entity to present the two sections in a
single statement or in two separate statements. I
 If two separate statements are used they should
include all the information that would otherwise be
included in the single statement of comprehensive
income.
 The statement of profit or loss shows the components
of profit or loss, beginning with ‘Revenue’ and ending
with ‘Profit (or Loss)’ for the period after tax.
Structure & Content of The Statement
of Comprehensive Income
As a minimum, IAS 1 requires that the statement of
comprehensive income should include line items showing the
following amounts for the financial period:
(a) revenue, presenting separately interest revenue calculated
using the effective interest method;
(b) Gains or losses arising from the derecognition of financial
assets measured at amortised cost
(c) finance costs
(d) share of the profit or loss of associates and joint ventures
accounted for using the equity method;
(e) tax expense
(f) Impairment losses including reversals or impairment gains
(g) a single amount related to the total of discontinued
operations
Information usually shown in notes of
the Statement of Comprehensive Income
The following information may be shown either on the
face of the statement of comprehensive income or in a
note to the financial statements:
 material items of income and expense

 an analysis of expenses, providing either:

 expenses analysed by their nature, or

 expenses analysed by the function that has

incurred them.
Information usually shown in notes of
the Statement of Comprehensive Income
Material items that might be disclosed separately
include:
 a write-down of inventories from cost to net
realisable value, or a write-down of items of property,
plant and equipment to recoverable amount
 the cost of a restructuring of activities

 disposals of items of property, plant and equipment

 disposals of investments

 discontinued operations

 litigation settlements

 a reversal of a provision.
Information usually shown in notes of
the Statement of Comprehensive Income
Analysis of expenses by their function
 When expenses are analysed according to their
function, the functions are commonly ‘cost of sales’,
‘distribution costs’, ‘administrative expenses’ and
‘other expenses’.
 This method of analysis is also called the ‘cost of
sales method’.
Information usually shown in notes of
the Statement of Comprehensive Income
Analysis of expenses by their nature
 When expenses are analysed according to their
nature, the categories of expenses will vary according
to the nature of the business.
 In a manufacturing business, expenses would probably
be classified as:
 raw materials and consumables used;

 staff costs (‘employee benefits costs’); and

 Depreciation.
Information usually shown in notes of
the Statement of Comprehensive Income
Analysis of expenses by their nature
 Items of expense that on their own are immaterial
are presented as ‘other expenses’.
 There will also be an adjustment for the increase or
decrease in inventories of finished goods and work-in-
progress during the period.
 Other entities (non-manufacturing entities) may
present other expenses that are material to their
business.’.
Statement of Changes in Equity(SOCIE)
A complete set of financial statements must include a
statement of changes in equity (SOCIE).
 A SOCIE shows for each component of equity the amount
at the beginning of the period, changes during the period,
and its amount at the end of the period.
 Components of equity include:

 share capital;

 share premium;

 retained earnings;

 revaluation surplus.

 In a SOCIE for a group of companies, the amounts

attributable to owners of the parent entity and the
amounts attributable to the non-controlling interest
should be shown separately. (Non-controlling interest is a
concept used in group accounts.)
Statement of Changes in Equity(SOCIE)
For each component of equity, the SOCIE should show
changes resulting from:
 profit or loss for the period;

 each item of other comprehensive income;

 transactions with owners in their capacity as owners.

Statement of Changes in Equity(SOCIE)
Transactions with owners in their capacity as owners.
These include:
 new issues of shares;

 payments of dividends;

 repurchases and cancellation of its own shares by the

company.
Notes To The Financial Statements
Structure
The notes to the financial statements of an entity must:
 present information about the basis of preparation of
the financial statements and the specific accounting
policies selected and applied for significant
transactions and other significant events;
 disclose the information required by IFRSs that is
not presented elsewhere in the financial statements;
and
 provide additional information that is not presented
on the face of the financial statements but is
relevant to an understanding of them.
Notes To The Financial Statements
Structure
Notes to the financial statements must be presented in
a systematic manner. Each item on the face of the
statement of financial position, statement of
comprehensive income, statement of changes in equity
and statement of cash flows must be cross-referenced
to any related information in the notes.
Notes To The Financial Statements
Structure
Notes are normally presented in the following order:
 a statement of compliance with IFRS;

 a summary of significant accounting policies applied;

 supporting information for items presented on the

face of each financial statement in the order in which
each financial statement and each line item is
presented; and
 other disclosures, including:
 contingent liabilities;
 unrecognised contractual commitments; and
 non-financial disclosures, e.g. the entity financial
risk, management objectives and policies.
Notes To The Financial Statements
Disclosure of accounting policies
An entity must disclose the following in the summary of
significant accounting policies:
 the measurement basis (or bases) used in preparing
the financial statements; and
 the other accounting policies used that are relevant
to an understanding of the financial statements.
Notes To The Financial Statements
Disclosure of accounting policies
 the judgements (apart from those involving estimations)
made by management in applying the accounting policies
that have the most significant effect on the amounts of
items recognised in the financial statements. For example:
 whether financial assets are held-to-maturity
investments;
 when substantially all the significant risks and rewards

of ownership of financial assets and lease assets are

transferred to other entities;
 whether, in substance, particular sales of goods are

financing arrangements and therefore do not give rise

to revenue; and
 whether the substance of the relationship between the

entity and a special purpose entity indicates that the

entity controls the special purpose entity.
Notes To The Financial Statements
Disclosure of accounting policies
 An entity must disclose information regarding key
assumptions about the future, and other key sources
of measurement uncertainty, that have a significant
risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next
financial year.
 In respect of those assets and liabilities, the notes
must include details of:
 their nature; and
 their carrying amount as at the reporting date.
Notes To The Financial Statements
Disclosure of accounting policies
Examples of key assumptions disclosed are:
 future interest rates;

 future changes in salaries;

 future changes in prices affecting other costs; and,

 useful lives.
Notes To The Financial Statements
Disclosure of accounting policies
Examples of the types of disclosures made are:
 the nature of the assumption or other measurement
uncertainty;
 the sensitivity of carrying amounts to the methods,
assumptions and estimates underlying their calculation,
including the reasons for the sensitivity;
 the expected resolution of an uncertainty and the
range of reasonably possible outcomes within the next
financial year in respect of the carrying amounts of the
assets and liabilities affected; and
 an explanation of changes made to past assumptions
concerning those assets and liabilities, if the
uncertainty remains unresolved.
Notes To The Financial Statements
Other disclosures
An entity must 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 owners during the period, and
the related amount per share; and
 the amount of any cumulative preference dividends not
recognised.
 An entity must disclose the following, if not disclosed
elsewhere in information published with the financial
statements:
 the domicile and legal form of the entity;
 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..
Thank you