Presentation of Financial Statements
A complete set of financial statements comprises
SOFP
Statement of profit or loss and other comprehensive income
A statement of changes in equity
A statement of cash flows
Notes to the financial statements
Comparative information
All the statements are interconnected and must be looked at in totality to get the full impression of the business
All financial statements are required to be presented with equal prominence
IAS 1 requires that comparative information is provided in respect of the previous period for all amounts reported in the financial statements, both on the face of the financial statements and in the notes
Narrative and descriptive comparative information is also disclosed where it is relevant to understanding the financial statements of the current period
Various disclosures must be made if comparative figures are amended or reclassified due to a change in accounting policy
Consistency
The presentation and classification of items in the financial statements should be the same from one period to the next unless a change is justified either by a change in circumstances or a requirement of a new IFRS
Consistentcy is important because of the need for comparability of financial statements
Any change justified by either a change in circumstances or a requirement of a new IFRS must be disclosed along with its effects on financial statements items
Fair presentation
IAS 1 states that the financial statements must present the financial position, financial performance and cash flows of an entity fairly and accurately
Fair presentation is presumed to be achieved from compliance with IFRS as well as ensuring transactions are fairly represented in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses
IAS 1 requires an entity to explicitly disclose compliance with IFRS in the notes
A fair presentation requires
Selection and application of appropriate accounting policies and practices
Presentation of information that is relevant, reliable, comparable an dunderstandable
Additional disclosures where required to ensure that the financial statements give a fair representation of the results, financial position and cash flow
IAS 1 acknowledges that in extremely rare circumstances, departure from IFRS is permitted where compliance would conflict with the objective of financial statements thus misleading the users of financial statements
Deoarture from the IFRS requirement must be supported with detailed disclosure of the nature, reasons and impact of the departure
There must be good reasons for not following the principles as set out in the Conceptual Framework, he effect that would have been achieved by following IFRS should also be fully disclosed
Going concern
Financial statements are normally prepared on the assumption that the entity is a going concern and will continue in operation for the foreseeable future
IAS 1 requires management to make an assessment of an entity's ability to continue as a going concern
The financial statements should not be prepared on a going concern basis where there are material uncertainties over the entity's ability to continue to operate in the foreseeable future as a going concern
IAS 1 requires such uncertainties to be disclosed including details of events that might threaten the future of the entity
Accruals bais of accounting
The framework states that financial performance is reflected by accruals based accounting and this provides a better basis for assessing past and future performance than cash based information
IAS 1 requires financial statements except for cash flow information to be prepared using the accrual basis of accounting
Materiality and aggregation
IAS 1 states that each material class of similar items should be presented separately and items that are dissimilar in terms of nature or function should be presented separately unless they are immaterial
Offsetting
Materality depends on the nature or size of the item or a combination of both and whether the non-disclosure thereof could influence the financial decisions of the users of financial statements
The decision about whether or not an item is material requires the application of judgement and its relative significance to the user of financial statements
Information may be relevant or material simply because of its magnitude or because its omission from the financial statements could affect decision making
Financial information is capable of making a difference in decision making if it has predictive value, confirmatory value or both
Reporting period
Entities should prepare financial statements at least annually
Where an entity's reporting period is changed to less or more than one year, the entity should disclose
The reason for the change
The fact that the comparative figures given are not entirely comparable
Assets and liabilities and income and expenses shall not be offset unless required or permitted by a standard or an interpretation
The netting off can disguise both transactions and the financial position and hence may not provide a true picture of the entity's assets and liabilities or income and expenses