The proposed amendments to IAS 1, replacing the word ‘Discretion’ with ‘Right’

The International Accounting Standards Board (IASB) has published on 10 February 2015 the Exposure Draft of proposed amendments to IAS 1 Presentation of Financial Statements to clarify the criteria for the classification of a LIABILITY as either CURRENT or NON-CURRENT.

The proposals clarify that classification of liabilities as either current or non-current is based on the RIGHTS that are existence at the END OF THE REPORTING PERIOD. In order to make this clear, the IASB proposes :

1. replacing ‘DISCRETION’ in paragraph 73 of the Standard with ‘RIGHT’ to align it with the requirements of paragraph 69(d) of the Standard;
2. making it explicit in paragraph 69(d) and 73 of the Standard that only rights in place AT THE REPORTING DATE should affect the classification of a liability; and
3. deleting ‘UNCONDITIONAL’ from paragraph 69(d) of the Standard so that ‘an unconditional right’ is replaced by ‘a right’

The IASB also proposes making clear the link between the settlement of the liability and the outflow of resources from the entity by adding that settlement ‘refers to the transfer to the counterparty of cash, equity instruments, other assets or services’ to paragraph 69 of the Standard.

The IASB further proposes that guidance in the Standard should be reorganised so that similar examples are grouped together.

Finally, the IASB proposes that retrospective application should be required and that early application should be permitted.

Comments on the proposals in this Exposure Draft (to be received by 10 June 2015) should be submitted using one of the following methods :

• Electronically, by visiting the ‘Comment on a proposal’ page, which can be found at : go.ifrs.org/comment
• Email, by sending to : commentletters@ifrs.org
• Postal, by addressing to : IFRS Foundation, 30 Cannon Street, London EC4M 6XH, United Kingdom

Please click this link to access the Exposure Draft

Classifying Liability as CURRENT or NON-CURRENT

IAS 1 Presentation of Financial Statements states that an entity shall present current and non-current LIABILITIES as separate classification in its Statement of Financial Position except when a presentation based on liquidity provides information that is reliable and more relevant.

Paragraph 69 of IAS 1 states that an entity shall classify a liability as CURRENT when :

1. it expects to settle the liability in its normal operating cycle;
2. it holds the liability primarily for the purpose of trading;
3. the liability is due to be settled within twelve months after the reporting period; or
4. it does not have an unconditional right to defer settlement of the liability for at least 12 months  after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification

An entity shall classify ALL OTHER LIABILITIES as NON-CURRENT.

Some current liabilities, as stated within paragraph 70, such as trade payables and some accruals for employee and other operating costs, are part of the WORKING CAPITAL used in the entity’s NORMAL OPERATING CYCLE. An entity classifies such operating items as current liabilities even if they are due to be settled more than 12 months after the reporting period. The same normal operating cycle applies to the classification of an entity’s assets and liabilities. When the entity’s normal operating cycle is not clearly identifiable, it is assumed to be 12 (twelve) months.

Further, paragraph 72 states that an entity classifies its financial liabilities as current when they are due to be settled within 12 months after the reporting period, even if :

1. the original term was for a period longer than 12 months, and
2. an agreement to refinance, or to reschedule payments, on a long-term basis is completed AFTER THE REPORTING PERIOD and before the financial statements are authorised for issue

If an entity expects, and has the DISCRETION, to refinance or roll over an obligation for at least 12 months after the reporting period under an existing loan facility, it classifies the obligation as NON-CURRENT, even if it would otherwise be due within a shorter period. However, when refinancing or rolling over the obligation is not at the discretion of the entity (for example, there is no arrangement for refinancing), the entity does not consider the potential to refinance the obligation and classifies the obligation as CURRENT.

When an entity breaches a provision of a long-term loan arrangement ON or BEFORE the END OF REPORTING PERIOD with the effect that the liability becomes payable on demand, it classifies the liability as current, even if the lender agreed, AFTER THE REPORTING PERIOD and before the authorisation of the financial statements for issue, not to demand payment as a consequence of the breach. An entity classifies the liability as current because, at the end of the reporting period, it does not have an unconditional right to defer its settlement for at least 12 months after that date.

However, an entity shall classify the liability as non-current if the lender agreed BY THE END of the REPORTING PERIOD to provide a period of grace ending at least 12 months after the reporting period, within which the entity can rectify the breach and during which the lender cannot demand immediate repayment.

Latest, paragraph 76 of IAS 1 states that in respect of loans classified as CURRENT LIABILITIES, if the following events occur between the end of the reporting date and the date the financial statements are authorised for issue, those events are DISCLOSED as NON-ADJUSTING EVENTS in accordance with IAS 10 Events after the Reporting Period :

• refinancing on a long-term basis;
• rectification of a breach of a long-term loan arrangement; and
• the granting by the lender of a period of grace to rectify a breach of a long-term loan arrangement ending at least 12 months after the reporting period

NOTE : On 10 February 2015 the IASB has published the Exposure Draft of Proposed Amendments to IAS 1 to clarify the criteria for the classification of a Liability as either Current or Non-current (HRD).

IASB published ED/2014/1 Disclosure Initiative (Proposed Amendments to IAS 1)

On 25 March 2014, the IASB has published for public comment an Exposure Draft outlining proposed amendments to IAS 1 regarding Presentation of Financial Statements. The amendments proposed have resulted mainly from the IASB’s Disclosure Initiative (pages 8-21 of the ED).

The amendments to IAS 1 arising from the Disclosure Initiative aim to make narrow-focus amendments that will clarify some of its presentation and disclosure requirements to ensure entities are able to use judgement when applying the Standard. The amendments respond to concerns that the wording of some of the requirements in IAS 1 may have prevented the use of such judgement.

The proposed amendments as follows :

Materiality and Aggregation

The IASB proposes to amend the materiality requirements in IAS 1 to emphasis that :

1. entities shall not aggregate or disaggregate information in a manner that obscures useful information;
2. the materiality requirements apply to the statement(s) of profit or loss and other comprehensive income, statement of financial position, statement of cash flows and statements of changes in equity and to the notes; and
3. when a Standard requires a specific disclosure, the resulting information shall be assessed to determine whether it is material and consequently whether presentation or disclosure of that information is warranted

Information to be presented in the Statement of Financial Position or the Statement(s) of Profit or Loss and Other Comprehensive Income

The IASB proposes to amend the requirements for presentation in the statement of financial position and in the statement(s) of profit or loss and other comprehensive income by :

1. clarifying that the presentation requirements for line items may be fulfilled by disaggregating a specific line item; and
2. introducing requirements for an entity when presenting subtotals in accordance with paragraphs 55 and 85 of IAS 1

Notes Structure

The IASB proposes to amend the requirements regarding the structure of the notes by :

1. emphasising that the understandability and comparability of its financial statements should be considered by an entity when deciding the systematic order for the notes; and
2. clarifying that entities have flexibility as to the systematic order for the notes, which does not need to be in the order listed in paragraph 114 of IAS 1

Disclosure of Accounting Policies

The IASB proposes to remove the guidance in paragraph 120 of IAS 1 for identifying a significant accounting policy, including removing potentially unhelpful examples.

Comments on this ED of IAS 1 is expected to be received by 23 July 2014.

CLICK here to get the attached ED of IAS 1

Changes to the Presentation of Other Comprehensive Income

At present, entities have an option in IAS 1 Presentation of Financial Statements to present either a statement of comprehensive income or two separate statements of profit or loss and other comprehensive income.

As prescribes in para. 81 of IAS 1 : an entity shall present all items of income and expense recognised in a period : (a) in a single statement of comprehensive income, or (b) in two statements : a statement displaying components of profit or loss (separate income statement) and a second statement beginning with profit or loss and displaying components of other comprehensive income (statement of comprehensive income).

On 27 May 2010, the International Accounting Standards Board (IASB) published for public comment proposals to improve the consistency of how items of Other Comprehensive Income (OCI) are presented.

This exposure draft proposes to require a statement of profit or loss and OCI containing two distinct sections - profit or loss and other comprehensive income.

It also proposes a new presentation approach for items of OCI. With recent decisions in other projects, more items will be presented in OCI. IFRS 9 and the proposed amendments to IAS 19 have introduced new items that will be presented in OCI.

The IASB is proposing to require that items that will never be recognised in profit or loss should be presented separately from those that are subject to subsequent reclassification (recycling).

The Board invites comments on the proposals in this ED, particularly on the questions set out in the ED. For instance, in Question 1 : the board proposes to change the title of the statement of comprehensive income to 'statement of profit or loss and other comprehensive income' when referred to in IFRSs and its other publications. Do you agree ? Why or why not ? What alternative do you propose ?

The exposure draft is open for comment until 30 September 2010.

Link to the IASB publications :

1. Presentation of Items of Other Comprehensive Income
2. IASB proposes improvements to the presentation of items of Other Comprehensive Income

The proposal of the changes to the presentation of items of Other Comprehensive Income

This is an IFRS email alert which just dropped into my inbox today, May 27, 2010. It’s about the proposal of the changes to the presentation of items of Other Comprehensive Income. Just proceed below to read more :

The International Accounting Standards Board (IASB) published today a proposal to improve the consistency of how items of Other Comprehensive Income (OCI) are presented.

The IASB is proposing to require that entities present profit or loss and other comprehensive income in separate sections of a continuous statement. The IASB is also proposing to group items in OCI on the basis of whether they will eventually be ‘recycled’ into the profit or loss section of the income statement.

The exposure draft, Presentation of Items of Other Comprehensive Income - Proposed Amendments to IAS 1, is open for comment until 30 September 2010. .

More information:

• Read the press release.
• Read the Snapshot, a short introduction to the document.
• Visit the project page

Access the document online:

• To access the document visit the "Get involved / Comment on a proposal" section on www.iasb.org
• If you are an eIFRS/Comprehensive subscriber, you can also view the document in the 'Latest Additions' section of eIFRS (you will be required to provide your login details).

Exposure draft of Conceptual Framework for Financial Reporting

This was an email alert from eIFRS on March 11, 2010 :

The International Accounting Standards Board (IASB) and US Financial Accounting Standards Board (FASB) today published for public comment an exposure draft on the reporting entity concept.

The proposals form part of a joint project to develop a common and improved conceptual framework that provides the basis for developing future accounting standards.

Comments on the exposure draft are invited by 16 July 2010.

Access the document online:

• To access the exposure draft "Conceptual Framework for Financial Reporting: The Reporting Entity" visit the "Open to comment" section on www.iasb.org.
• If you are an eIFRS/Comprehensive subscriber, you can view the document in the "Latest Additions" section of the secure eIFRS online area.
  (you will be required to provide your login details).

Print copies of the document:

Printed copies can be purchased from the IASC Foundation's online shop at: http://buy.iasb.org

Comprehensive subscribers will receive their printed copies soon.

More information:

• Read the press release
• Visit the project page

Financial Statement Presentation, the Latest Update from IASB

The International Accounting Standards Board met in London on 14-18 September 2009, when it discussed :

(1) Financial Crisis, (a) De-recognition, (b) Financial instruments : replacement of IAS 39, and (c) Classification of right issues

(2) Conceptual Framework

(3) Financial Instruments with Characteristics of Equity

(4) Financial Statement Presentation

(5) Insurance Contracts

(6) Leases

(7) Liabilities : amendments to IAS 37

(8) Post-employment Benefits

(9) Related Party Disclosures

(10)Revenue Recognition

Financial Statement Presentation

Regarding on Financial Statement Presentation, here is the update summary from the meeting.

The discussion paper Preliminary Views on Financial Statement Presentation proposes that an entity should present information about the way it creates value (its business activities) separately from information about the way it funds those business activities (its financing activities). The discussion paper proposes that an entity should:

(a) further separate information about its business activities by presenting information about its operating activities separately from information about its investing activities.

(b) further separate information about its financing activities so that non-owner sources of finance (and related charges) should be presented separately from owner sources of finance (and related charges).

(c) present information about its discontinued operations separately from its continuing business and financing activities.

The Board tentatively decided:

(a) to retain the requirement to distinguish between business activities (value creating activities) and financing activities (funding of that value creation) in each of the financial statements.

(b) to define the financing section as financial liabilities used as part of an entity's capital raising activities that have an agreed-upon schedule of repayments with an interest component (and that interest component is either explicit or implicit). Items directly related to those financial liabilities, such as fees, would also be classified in the financing section. A derivative held as part of an entity's non-equity sources of funding, regardless of whether it is an asset or a liability at the reporting date, would also be presented in this section.

(c) to retain an approach to classification within the business section that is based on how a reporting entity organises its activities and how it uses its assets and liabilities. Consequently, additional groupings of information within the business section (ie categories) would reflect the facts and circumstances of that entity and would be left to the discretion of management. Application guidance would be developed to help management determine meaningful groupings of information within an entity's business section. The Board may revisit the decision not to require specific categories in the business section once it has reviewed the application guidance.

(d) to retain the requirement to present information about discontinued operations in a separate section in each of its primary financial statements (except the statement of changes in equity). However, the Board decided not to prescribe how information about discontinued operations should be disaggregated, nor whether that disaggregation should appear on the face of financial statements or be disclosed in the notes.

The Board also considered whether an entity should present information about net debt in its financial statements. The discussion paper did not address presentation of net debt information. Respondents to the discussion paper note that information that would be useful in assessing an entity's liquidity, solvency and financial flexibility is missing from the presentation model proposed in the discussion paper. Moreover, some respondents are concerned that the financial statements do not necessarily include all the information that users need to either reconcile net debt or to analyse the components of net debt.

The Board tentatively decided:

(a) to require information about net debt to be presented in the financial statements; and

(b) to define net debt to be the financial liabilities that an entity classifies in the financing section together with the resources available to service those financial liabilities.

The Board also considered different ways to present net debt information in the financial statements. The presentation of net debt information will be reconsidered at the October joint meeting with the FASB as part of the discussion on the Statement of Cash Flows.

Go to the project page on the IASB website

Source : IASB Update September 2009 (Emailed News Letter)

Several Guidelines for the First-time Adoption of IFRS

IFRS 1 regarding on First-time Adoption of International Financial Reporting Standards.

Per IFRS 1, an entity must apply the standard in its first IFRS financial statements and in each interim financial report it presents under IAS 34 for a part of the period covered by its first IFRS financial statements. For example, if 2006 is the first annual period for which IFRS financial statements are being prepared, the quarterly or semiannual statements for 2006, if presented, must also comply with IFRS.

IFRS 1 stipulates that in preparing an opening IFRS statement of financial position, the first-time adopter (an entity is referred to as a first-time adopter in the period in which it presents its first IFRS financial statements) is to use the same accounting policies as it has used throughout all periods presented in its first IFRS financial statements.

Furthermore, the standard requires that those accounting policies must comply with each IFRS effective at the “reporting date” for its first IFRS financial statements, except under certain defined circumstances wherein the entity claims targeted exemptions from retrospective application of IFRS, or is prohibited by IFRS from applying IFRS retrospectively.

In other words, a first-time adopter should consistently apply the same accounting policies throughout the periods presented in its first IFRS financial statements and these accounting policies should be based on “latest version of the IFRS” effective at the reporting date.

If a new IFRS has been issued on the reporting date, but application is not yet mandatory, although reporting entities have been encouraged to apply it before the effective date, the first-time adopter is permitted, but not required, to apply it as well.

In general, IFRS 1 requires an entity to comply with each IFRS effective at the end of its first IFRS reporting period. In particular, the IFRS requires an entity to do the following in the opening IFRS statement of financial position that it prepares as a starting point for its accounting under IFRSs :

a) Recognize all assets and liabilities whose recognition is required by IFRSs;

b) Not recognize items as assets or liabilities if IFRSs do not permit such recognition;

c) Reclassify items that it recognized under previous GAAP as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity under IFRSs; and

d) Apply IFRSs in measuring all recognized assets and liabilities.

An entity is required to apply the IFRS if its first IFRS financial statements are for a period beginning on or after 1 January 2004. Earlier application is encouraged (IN6 IFRS 1)

To be continued (this is the first part of two articles)

Comparative Information of financial statements based on IAS 1

Except when IFRSs permit or require otherwise, an entity shall disclose comparative information in respect of the previous period for all amounts reported in the current period's financial statements. 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 par. 38).

Par. 39 stated that an entity disclosing comparative information shall present, as a minimum, two statements of financial position, two of each of the other statements, and related notes. 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, it shall present, as a minimum, three statements of financial position, two of each of the other statements, and related notes. An entity presents statements of financial position as at :

1. the end of the current period,
2. the end of the previous period (which is the same as the beginning of the current period), and
3. the beginning of the earliest comparative period

In some cases, narrative information provided in the financial statements for the previous period(s) continues to be relevant in the current period. For example, an entity discloses in the current period details of a legal dispute whose outcome was uncertain at the end of the immediately preceding reporting period and that is yet to be resolved. Users benefit from information that the uncertainty existed at the end of the immediately preceding reporting period, and about the steps that have been taken during the period to resolve the uncertainty (IAS 1 par. 40).

Further, par. 41 stated that when the entity changes the presentation or classification of items in its financial statements, the entity shall reclassify comparative amounts unless reclassification is impracticable. When the entity reclassifies comparative amounts, the entity shall disclose :

1. the nature of the reclassification;
2. the amount of each item or class of items that is reclassified; and
3. the reason for the reclassification.

When it is impracticable to reclassify comparative amounts, an entity shall disclose :

1. the reason for not reclassifying the amounts, and
2. the nature of the adjustments that would have been made if the amounts had been reclassified.

Enhancing the inter-period comparability of information assists users in making economic decisions, especially by allowing the assessment of trends in financial information for predictive purposes. In some circumstances, it is impracticable to reclassify comparative information for a particular prior period to achieve comparability with the current period. For example, an entity may not have collected data in the prior period(s) in a way that allows reclassification, and it may be impracticable to recreate the information (par. 43).

Later, par. 44 stated that IAS 8 sets out the adjustments to comparative information required when an entity changes an accounting policy or corrects an error (Hrd) ***

(Source : IAS 1 - Presentation of Financial Statements)

How to record the changes in accounting estimates ?

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors par. 32 - 40 rules the treatment of changes in accounting estimates.

As a result of the uncertainties inherent in business activities, many items in financial statements cannot be measured with precision but can only be estimated. Estimation involves judgements based on the latest available, reliable information. For example, estimates may be required of : (a) bad debts, (b) inventory obsolescence, (c) the fair value of financial assets or financial liabilities, (d) the useful lives of, or expected pattern of consumption of the future economic benefits embodied in, depreciable assets, and (e) warranty obligations.

The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine their reliability.

An estimate may need revision if changes occur in the circumstances on which the estimate was based or as a result of new information or more experience. By its nature, the revision of an estimate does not relate to prior periods and is not the correction of an error (par. 34).

A change in the measurement basis applied is a change in an accounting policy, and is not a change in an accounting estimate. When it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate, the change is treated as a change in an accounting estimate (par. 35).

Par. 36 of IAS 8 stated that the effect of a change in an accounting estimate, other than a change to which par. 37 applies, shall be recognized prospectively by including it in profit or loss in :

1. the period of the change, if the change affects that period only; or
2. the period of change and future periods, if the change affects both.

To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, it shall be recognized by adjusting the carrying amount of the related asset, liability or equity item in the period of change (par. 37).

Further, par. 38 stated that prospective recognition of the effect of a change in an accounting estimate means that the change is applied to transactions, other events and conditions from the date of the change in estimate. A change in an accounting estimate may effect only the current period's profit or loss, or the profit or loss of both the current period and future periods.

For example, a change in the estimate of the amount of bad debts affects only the current period's profit or loss and therefore is recognized in the current period. However, a change in the estimated useful life of, or the expected pattern of consumption of the future economic benefits embodied in, a depreciable asset affects depreciation expense for the current period and for each future period during the asset's remaining useful life.

In both cases, the effect of the change relating to the current period is recognized as income or expense in the current period. The effect, if any, on future periods is recognized as income or expense in those future periods.

Disclosure

An entity shall disclose the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods, except for the disclosure of the effect on future periods when it is impracticable to estimate that effect (par. 39).

If the amount of the effect in future periods is not disclosed because estimating it is impracticable, an entity shall disclose that fact (par. 40).

Source : IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

A Complete set of Financial Statements (as agree with IAS 1)

This Standard (IAS 1 Presentation of Financial Statements) prescribes the basis for presentation of general purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities. It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content (IAS 1 Presentation of Financial Statements par.1)

An entity shall apply this Standard in preparing and presenting general purpose financial statements in accordance with International Financial Reporting Standards (IFRSs) (IAS 1 Presentation of Financial Statements par. 2)

IAS 1 applies to all entities, including profit-oriented and not-for-profit entities. Not-for-profit entities in both the private and public sectors can apply this standard, however they may need to change the descriptions used for particular line items within their financial statements and for the financial statements themselves.

Financial statements are a structured representation of the financial position and financial performance of an entity.

The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Financial statements also show the results of the management’s stewardship of the resources entrusted to it.

To meet this objective, financial statements provide information about an entity’s: (a) assets, (b) liabilities, (c) equity, (d) income and expenses, including gains and losses, (e) contributions by and distributions to owners in their capacity as owners, and (f) cash flows.

This information along with other information in the notes, assists users of financial statements in predicting the entity’s future cash flows and, in particular, their timing and certainty.

Par. 10 of IAS 1 rules that a complete set of financial statements must comprises the following :

1. A statement of financial position as at the end of the period. The previous version of IAS 1 used the title “balance sheet”. The revised standard uses the title “statement of financial position.”

2. A statement of comprehensive income for the period

3. A statement of changes in equity for the period

4. A statement of cash flows for the period. The previous version of IAS 1 used the title “cash flow statement.”

5. Notes, comprising a summary of significant accounting policies and other explanatory information; and

6. A statement of financial position as at the beginning of the earliest 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.

An entity shall present with equal prominence all of the financial statements in a complete set of financial statements.

The financial statements, except for cash flow information, are to be prepared using accrual basis of accounting.

As permitted by paragraph 81 of IAS 1, an entity may present the components of profit or loss either as part of a single statement of comprehensive income or in a separate income statement.

When an income statement is presented it is part of a complete set of financial statements and shall be displayed immediately before the statement of comprehensive income.

Many entities present, outside the financial statements, a financial review by management that describes and explains the main features of the entity’s financial performance and financial position, and the principal uncertainties it faces.

Such a report may include a review of : (a) the main factors and influences determining financial performance, including changes in the environment in which the entity operates, the entity’s response to those changes and their effect, and the entity’s policy for investment to maintain and enhance financial performance, including its dividend policy; (b) the entity’s sources of funding and its targeted ratio of liabilities to equity; and (c) the entity’s resources not recognized in the statement of financial position in accordance with IFRSs.

Many entities also present, outside the financial statements, reports and statements such as environmental reports and value added statements, particularly in industries in which environment factors are significant and when employees are regarded as an important user group.

Reports and statements presented outside financial statements are outside the scope of IFRSs.

Source of this article : IAS 1 Presentation of Financial Statements (amendments resulting from IFRS issued up to 17 January 2008)

Fair Presentation and Compliance with IFRS, how IAS 1 rules it ?

IAS 1 Presentation of Financial Statements paragraphs 15-24 rules the fair presentation and compliance with IFRS of financial statement presentation.

Par. 15 stated that financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework.

The application of IFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation.

Par. 16 expressed that 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.

In virtually all circumstances, an entity achieves a fair presentation by compliance with applicable IFRSs.

A fair presentation also requires an entity:

(a) To select and apply accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. IAS 8 sets out a hierarchy of authoritative guidance that management considers in the absence of an IFRS that specifically applies to an item.

(b) To present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information.

(c) To provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.

Par. 18 rules that an entity cannot rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory material.

While in par. 19, it stated that in the extremely rare circumstances in which management concludes that compliance with a requirement in an IFRS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, the entity shall depart from that requirement in the manner set out in paragraph 20 if the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.

Par. 20 said that when an entity departs from a requirement of an IFRS in accordance with par. 19, it shall disclose :

(a) That management has concluded that the financial statements present fairly the entity’s financial position, financial performance and cash flows;

(b) That is has complied with applicable IFRSs, except that it has departed from a particular requirement to achieve a fair presentation;

(c) The title of the IFRS from which the entity has departed, the nature of the departure, including the treatment that the IFRS would require, the reason why that treatment would be so misleading in the circumstances that it would conflict with the objective of financial statements set out in the Framework, and the treatment adopted; and

(d) For each period presented, the financial effect of the departure on each item in the financial statements that would have been reported in complying with the requirement.

Further, par. 21 of IAS 1 stated that when an entity has departed from a requirement of an IFRS in a prior period, and that departure affects the amounts recognized in the financial statements for the current period, it shall make the disclosures set out in paragraph 20(c) and (d).

Par. 21 applies, for example, when an entity departed in a prior period from a requirement in an IFRS for the measurement of assets or liabilities and that departure affects the measurement of changes in assets and liabilities recognized in the current period’s financial statements.

Par. 23 stated that in the extremely rare circumstances in which management concluded that compliance with a requirement in an IFRS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, but the relevant regulatory framework prohibits departure from the requirement, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing:

(a) The title of the IFRS in question, the nature of the requirement, and the reason why management has concluded that complying with that requirement is so misleading in the circumstances that it conflicts with the objective of financial statements set out in the Framework; and

(b) For each period presented, the adjustments to each item in the financial statements that management has concluded would be necessary to achieve a fair presentation.

Latest, par. 24 stated that for the purpose of par. 19-23, an item of information would conflict with the objective of financial statements when it does not represent faithfully the transactions, other events and conditions that it either purports to represent or could reasonably be expected to represent and, consequently, it would be likely to influence economic decisions made by users of financial statements.

When assessing whether complying with a specific requirement in an IFRS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, management considers :

(a) Why the objective of financial statements is not achieved in the particular circumstances; and

(b) How the entity’s circumstances differ from those of other entities that comply with the requirement. If other entities in similar circumstances comply with the requirement, there is a rebuttable presumption that the entity’s compliance with the requirement would not be so misleading that it would conflict with the objective of financial statements set out in the Framework.

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).