Transcript Slide 1

IAS 1
Presentation of Financial
Statements
AGN WAA Region Meeting-Damascus
22nd November 2008
CA R. BUPATHY
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Objective
• IAS 1 has been recently revised and reissued in 2007 with the objective of
1. Basis for presentation of General Purpose Financial
Statements (aim: comparability within and outside)
2. 140 paragraphs – 106 paragraphs of BC – four
members dissenting (4/14)
CA R. BUPATHY
AGN WAA Region Meeting-Damascus
22nd November 2008
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IAS 1
Two broad components
First of the two
Purpose of FS and how that purpose can be achieved
Fair presentation
GCA, Materiality, Aggregation, Selection and application
of accounting policies, off-setting, comparatives, etc
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AGN WAA Region Meeting-Damascus
22nd November 2008
IAS 1
Two broad components
Second of the two
Guidelines for the structure and content of FS What
constitutes Financial Statements?
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22nd November 2008
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Purpose of financial statements
• Provide information about the financial position,
performance & cash flows of an entity
• Useful to a wide range of users in making economic
decisions
Assumption as regards user - para 25 of frame work
“users are assumed to have a reasonable knowledge of
business & economic activities & accounting & a
willingness to study the information with reasonable
diligence “
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22nd November 2008
Guideline for structure
• Entities must present a complete set of FS
• Complete Set comprises of following components
1. Statement of Financial Position (end of)
2. Statement of Comprehensive Income (for )
3. Statement of changes in equity (for )
4. Statement of Cash Flows (for )
5. Notes comprising a summary of significant
accounting policies and other explanatory
information
6. In addition, a statement of financial position as at
the beginning of earliest accounting period should
also be presented when there is an accounting
policy change or reclassification or restatement
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22nd November 2008
Equal prominence
All of (six) components of the financial statements must
be presented with equal prominence
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22nd November 2008
Financial Statements
•
•
•
•
As it exists
Balance Sheet
Income Statement
Statement of changes in
equity
– Either all changes in
equity
– Or, changes in equity
other than transactions
with owners
• Cash Flow, + Notes
CA R. BUPATHY
• Already revised 1-1-09
• Balance Sheet
• Income Statement
– Single Statement
– Two statements (i)
separate income alone,
and (ii) statement of
comprehensive income
beginning with Profit / loss
+ other comprehensive
income
• Statement of Changes in
equity.
• Cash Flow, + Notes
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22nd November 2008
Minimum content in BS
1. Minimum line items
2. Current & Non-current assets or liabilities
3. Sub-classification (e.g. debtors into trade/non-trade) to
reflect entity specific circumstances and needs
4. Share capital related disclosures (Objectives, policies
and processes for managing capital!)
Preferred approach
 Current, non-current classification of assets and
liabilities
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22nd November 2008
Current Assets
• An asset shall be classified as current when it satisfies
any of the following criteria:
– It is expected to be realized 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 realized within 12 months after
BS date
– It is cash or cash equivalent (as defined in IAS 7)
unless it is restricted from being exchanged or used
to settle a liability for at least twelve months after the
BS date
• All other assets shall be classified as non-current
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22nd November 2008
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 being traded
– It is due to be settled within 12 months after BS date
– The entity does not have an unconditional right to defer
the settlement of the liabilities for at least 12 after the
BS date
• All other liabilities shall be classified as non-current
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22nd November 2008
Current/non current or Liquidity?
• Preferred approach – Current, non current approach
• Except – more relevant reliable information
• When exception applies, then present in the order of
liquidity
• In any case > < 12 months for each line item should be
given as a part of disclosures CA R. BUPATHY
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22nd November 2008
Two types of income statement
• Nature of expense
• Revenue
• Other income
– Inventory/WIP Changes
– RM & Consumables
– Employee benefit
expenses
– Depreciation and
amortisation
– Other expenses
– Total expense
• PBT
CA R. BUPATHY
• Function base
• Revenue
• Less cost of sales
• GP
• Other income
• Distribution costs
• Admn expenses
• Other expenses
• PBT
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22nd November 2008
Components of income
statement
Function basis – or nature of expenses basis
• Can be on the face of P&L
• If function basis adopted – disclosure of additional
information as regards nature of expenses, including
depreciation & amortisation expense and employee
benefits expense
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Statement of comprehensive
income
•Minimum line items
•Revenue
•Finance costs
•Share of profit or loss of associates & JV accounted for
using equity method
•Tax expense
•Post – tax gain or loss of discontinued operations
•Profit or loss
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22nd November 2008
Statement of comprehensive
income
•Each component of other comprehensive income
classified by nature excluding share of other
comprehensive income of associates & JV
•Total comprehensive income
•Profit or loss – segregated to show (i) attributable to noncontrolling interests and (ii) owners of the parent
•Total comprehensive income for the period segregated to
show (i) attributable to non-controlling interests and (ii)
owners of the parent
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22nd November 2008
Other comprehensive income
• Exchange differences on translation of foreign operations
• Fair value changes in available for sale financial assets
• Gains on property revaluation etc
• Tax effect of above items
• Reclassification adjustments
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22nd November 2008
Statement of Changes in equity
•Total comprehensive income showing separately – total
amount attribute to owners of parent & to non controlling
interests
•For each component of equity, the effects of retrospective
application or retrospective restatements recognised in
accordance with IAS 8
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22nd November 2008
Statement of Changes in equity
•For each component of equity a reconciliation between the
carrying amount at the beginning and end of the period,
separately disclosing changes resulting from –
•Profit or loss
•Each item of other comprehensive income
•Transaction with owners in their capacity as owners, showing
separately contributions by and distribution to owners and changes in
ownership interest in subsidiaries that do not result in a loss of control
•Amount of dividends recognised as distribution to owners
during the period, and the related amount per share
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22nd November 2008
A word about Extraordinary items
An entity shall not present any items of income
or expense as extraordinary items in the
statement of comprehensive income or
separate income statement (if presented) or in
the notes
Also refer to para 112 (c)
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22nd November 2008
Optional items
• A review of performance
• Value added statement
• Resources not recognized in financial position
• The optional disclosures are outside the scope of
IFRSs
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22nd November 2008
Content - Fair Presentation
• Financial statements should present fairly the financial
position, performance and cash flows of an entity.
• How is this is different from True and Fair View
presentation?
• What would be the audit certification?
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How is fair presentation
achieved?
• By selecting and applying appropriate accounting policies
• By presenting information in a manner that is relevant,
reliable, comparable and which is representationally
faithful
• By providing additional information, when compliance
with IFRS alone is considered insufficient
• Detailed guidance in IAS 8
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22nd November 2008
Accounting policies
Selection and application of inappropriate
accounting policies are not rectified either by
disclosure of the accounting policies used or by
notes or explanatory material
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22nd November 2008
Statement of Compliance
• Entities whose FS comply with IFRSs must make an
explicit and unreserved statement of compliance with
IFRSs
• An entity shall not describe FS as complying with IFRSs
unless the entity complies with all the requirements of
IFRSs
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22nd November 2008
Departure from IFRS
Yes – but conditionally
Exceptionally rare circumstances
Only when relevant regulatory framework requires or
otherwise does not prohibit
If an entity should conclude that compliance with a
requirement in a Standard or Interpretation would be so
misleading that it would conflict with objective of FS –
then depart (but disclose)
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22nd November 2008
When regulatory framework
requires
The entity shall – to the maximum extent possible reduce the
perceived misleading aspects of compliance by disclosing
Title, nature, etc. and the reason why the entity has
concluded that complying with that requirement is so
misleading that it conflicts with the objective of FS as laid
down in Framework
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22nd November 2008
Structure and Content - Notes to
Accounts
• Identification of FS (domicile, legal form, name, address
Registered office, principal places of business, principal
activities, stand-alone or CFS, reporting period/date,
presentation currency, extent of rounding off,, name of
parent and ultimate parent of the group)
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22nd November 2008
Structure and Content - Notes to
Accounts
• Basis of preparation of financial statements
• Significant Accounting policies that
(a) impact the measurement basis; and
(b) are relevant to an understanding of
financial statements
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22nd November 2008
Structure and Content - Notes to
Accounts
• Key sources of estimation uncertainty
• Unrecognized proposed/declared equity dividend and
cumulative preference dividend
• Information required by the IFRS that is not presented
on the face of the financial statements (+ other
information that is relevant to understanding the FS)
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22nd November 2008
Off setting
Assets and liabilities, and, income and expenses shall not be
off-set unless required or permitted by a Standard or an
Interpretation.
Consider a few situations Gains and losses on disposal of
non-current assets
Provision and reimbursements recognised as assets
Foreign exchange gains or losses
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22nd November 2008
Comparatives
Comparatives should be presented for at least one Previous
Period.
Comparative information shall also be presented for narrative
and descriptive information where needed
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22nd November 2008
Comparatives
Where needed, comparative information should be
reclassified, unless it is impracticable to do so.
If it is impracticable, then, reason for not reclassifying, had it
been reclassified, what would have been the nature of
adjustments?
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22nd November 2008
Recap
Components 5 + 1
BS Current – Non-C, MM line items (set-off principle)
Income statement = +/- Other Comprehensive income
Changes in Owner Equity
Statement of Cash Flows
Notes – Identifying the Entity, the BS, Impact on
Assumptions on P&L and in BS etc.
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22nd November 2008