IAS 1 Presentation of Financial Statements, the Preliminary

IAS 1 Presentation of Financial Statements was issued by the International Accounting Standards Committee in September 1997. It replaced IAS 1 Disclosure of Accounting Policies (originally approved in 1974), IAS 5 Information to be Disclosed in Financial Statements (originally approved in 1977) and IAS 13 Presentation of Current Assets and Current Liabilities (originally approved in 1979).

In December 2003, the International Accounting Standard Board (IASB) issued a revised IAS 1, and in August 2005 issued an Amendment to IAS 1 Capital Disclosures.

Latest, in September 2007 the IASB issued a revised IAS 1.

Main features of IAS 1

IAS 1 affects the presentation of owner changes in equity and of comprehensive income. It does not change the recognition, measurement or disclosure of specific transactions and other events required by other IFRSs.

IAS 1 requires an entity to present, in a statement of changes in equity, all owner changes in equity. All non-owner changes in equity (i.e. comprehensive income) are required to be presented in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). Components of comprehensive income are not permitted to be presented in the statement of changes in equity.

IAS 1 requires an entity to present a statement of financial position as at the beginning of the earliest comparative period in a complete set of financial statements when the entity applies an accounting policy retrospectively or makes a retrospective restatement, as defined in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, or when the entity reclassifies items in the financial statements.

Changes from previous requirements

The main changes from the previous version of IAS 1 are described below

A complete set of financial statements

The previous version of IAS 1 used the titles ‘balance sheet’ and ‘cash flow statement’ to describe two of the statements within a complete set of financial statements. IAS 1 uses ‘statement of financial position’ and ‘statement of cash flows’ for those statements.

IAS 1 requires an entity to disclose comparative information in respective of the previous period, i.e. to disclose as a minimum two of each of the statements and related notes. It introduces a requirement to include in a complete set of financial statements a statement of financial position as at the beginning of the earliest comparative period whenever the entity retrospectively applies an accounting policy or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements. The purpose is to provide information that is useful in analyzing an entity’s financial statements.

Reporting owner changes in equity and comprehensive income

The previous version of IAS 1 required the presentation of an income statement that included items of income and expense recognized in profit or loss. It required items of income and expense not recognized in profit or loss to be presented in the statement of changes in equity, together with owner changes in equity. It also labeled the statement of changes in equity comprising profit or loss, other items of income and expense and the effects of changes in accounting policies and correction of errors as ‘statement of recognized income and expense’.

IAS 1 now requires:

1. All changes in equity arising from transactions with owners in their capacity as owners (i.e. owner changes in equity) to be presented separately from non-owner changes in equity. An entity is not permitted to present components of comprehensive income (i.e. non-owner changes in equity) in the statement of changes in equity. The purpose is to provide better information by aggregating items with shared characteristics and separating items with different characteristics.

2. Income and expense to be presented in one statement (a statement of comprehensive income) or in two statements (a separate income statement and a statement of comprehensive income), separately from owner changes in equity.

3. Component of other comprehensive income to be displayed in the statement of comprehensive income.

4. Total comprehensive income to be presented in the financial statements.

Other comprehensive income – reclassification adjustments and related tax effects

IAS 1 requires an entity to disclose income tax relating to each component of other comprehensive income. The previous version of IAS 1 did not include such a requirement. The purpose is to provide users with tax information relating to these components because the components often have tax rates different from those applied to profit or loss.

IAS 1 also requires an entity to disclose reclassification adjustments relating to components of other comprehensive income. Reclassification adjustments are amounts reclassified to profit or loss in the current period that were recognized in other comprehensive income in previous periods.

Presentation of Dividends

The previous version of IAS 1 permitted disclosure of the amount of dividends recognized as distributions to equity holders (now referred to as ‘owners’) and the related amount per share in the income statement, in the statement of changes in equity or in the notes. IAS 1 requires dividends recognized as distributions to owners and related amounts per share to be presented in the statement of changes in equity or in the notes. The presentation of such disclosures in the statement of comprehensive income is not permitted.

The purpose is to ensure that owner changes in equity (in this case, distribution to owners in the form of dividends) are presented separately from non-owner changes in equity (presented in the statement of comprehensive income).