IAS 1 (Revised) was published in September 2007. It introduced a number of changes, the main ones being as follows:
- The titles of the main financial statements were amended to Statement of Changes in Position, Statement of Comprehensive Income and Statement of Cash Flows
- To present all non-owner changes in equity (comprehensive income) either in one statement of comprehensive income or a separate income statement and statement showing other comprehensive income
- To present a statement of financial position at the beginning of the earliest comparative period when the entity applies a prior period adjustment.
The intention of the revision is to improve the quality of the information provided to users by aggregating information in the financial statements on the basis of shared characteristics.
The objectives of IAS 1 are to:
- Provide the formats for the presentation of Financial Statements, such as Income Statement and Statement of Financial Position.
- Ensure that the Financial Statements are comparable year on year for the entity and comparable to competitors.
- Set out the disclosure required by management relating to the judgements they have made in selecting the entity’s accounting policies.
- Set out the disclosure to be made in relation to estimating uncertainty at the Statement of Financial Position date, in particular where there is a significant risk of causing a material adjustment to the carrying amounts at which assets and liabilities will be presented in the next financial year.
PURPOSE OF FINANCIAL STATEMENTS
The objective of general purpose financial statements is to provide information about the financial position of an entity. General purpose financial statements are those intended to serve users who do not have the authority to demand financial reports tailored for their own needs.
Financial statements also show the results of management’s stewardship of the entity’s resources.
COMPONENTS OF FINANCIAL STATEMENTS
A complete set of financial statements should include:
- A statement of financial position at the end of the period,
- A statement of comprehensive income for the period,
- A statement of changes in equity for the period
- Statement of cash flows for the period, and
- Notes, comprising a summary of accounting policies and other explanatory 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 must also present a statement of financial position as at the beginning of the earliest comparative period.
An entity may use titles for the statements other than those stated above. For example, an entity may continue to use the previous title of Statement of Financial Position and cash flow statement.
FINANCIAL REVIEW BY MANAGEMENT
In addition to the Financial Statements identified in Section D above, management may present a Financial Review outside of the Financial Statements. The Financial Review explains the main features of the entities financial performance and financial position as well as the main areas of uncertainty. This Financial Review typically includes:
- An outline of the main factors affecting performance including changes in the business environment in which the entity operates. How the entity has reacted to those changes and the effect.
- Entity’s policy for investment and its dividend policy.
- How the entity is financed.
- Any resources that the entity uses that are not disclosed on the Statement of Financial Position in accordance with IFRS’s.
Other reports which may be included are:
- Environmental Reports – Particularly in industries where environmental issues are of significance.
- Value Added Statements.
Any reports provided in addition to the Financial Statements are outside the scope of the IAS’s.
STRUCTURE, CONTENT AND REPORTING
- The financial statements shall be identified clearly and distinguished from other information.
- The financial statements should show:
− The name of the reporting entity
− The Statement of Financial Position date or the period covered by the income statement
- The currency in which the financial statements are presented
- The level of rounding used in presenting amounts e.g. RWF’000, RWFm or the like.
- The financial statements shall be presented at least annually.
Fair Presentation and Compliance with IFRSs
The financial statements must “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.
IAS 1 requires that an entity whose financial statements comply with IFRSs make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with IFRSs unless they comply with all the requirements of IFRSs (including Interpretations).
Inappropriate accounting policies are not rectified either by disclosure of the accounting policies used or by notes or explanatory material.
IAS 1 acknowledges that, in extremely rare circumstances, management may conclude that compliance with an IFRS requirement would be so misleading that it would conflict with the objective of financial statements set out in the Framework. In such a case, the entity is required to depart from the IFRS requirement, with detailed disclosure of the nature, reasons, and impact of the departure
An entity preparing IFRS financial statements is presumed to be a going concern. If management has significant concerns about the entity’s ability to continue as a going concern, the uncertainties must be disclosed. If management concludes that the entity is not a going concern, the financial statements should not be prepared on a going concern basis, in which case IAS 1 requires a series of disclosures.
Accruals Basis of Accounting
IAS 1 requires that an entity prepare its financial statements, except for cash flow information, using the accrual basis of accounting.
Consistency of Presentation
The presentation and classification of items in the financial statements shall be retained from one period to the next unless a change is justified either by a change in circumstances or a requirement of a new IFRS.
Materiality and Aggregation
Each material class of similar items must be presented separately in the financial statements. Dissimilar items may be aggregated only if they are individually immaterial.
Materiality has been defined as follows: “Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions of users taken on the basis of the Financial Statements. Materiality depends in the size and nature of the omission or misstatement judged in the circumstances. The size or nature of the item, or a combination of both, could be the determining factor.”
Assets and liabilities, and income and expenses, may not be offset unless required or permitted by a Standard or an Interpretation.
IAS 1 requires that comparative information shall be disclosed in respect of the previous period for all amounts reported in the financial statements, both face of financial statements and notes, unless another Standard requires otherwise.
If comparative amounts are changed or reclassified, various disclosures are required.
STATEMENT OF FINANCIAL POSITION FORMAT
It is important before attempting a Statement of Financial Position to clearly understand the split between current and non-current assets and liabilities
An asset shall be classified as current when it satisfies any of the following criteria:
- It is expected to be realised or is intended for sale or use in the entity’s normal operating cycle;
- It is held primarily for the purpose of being traded;
- It is expected to be realised within 12 months after the Statement of Financial Position date, or
- It is cash or a cash equivalent (as defined by IAS 7 Cash Flow Statements) All other assets shall be classified as non-current.
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 the Statement of Financial Position date.
All other liabilities shall be classified as non-current liabilities.
STATEMENT OF COMPREHENSIVE INCOME
IAS 1 allows a choice of two presentations of comprehensive income:
- A statement of comprehensive income showing total comprehensive income; OR
- An income statement showing the realised profit or loss for the period PLUS a statement showing other comprehensive income.
Total comprehensive Income is the realised profit or loss for the period, plus other comprehensive income.
Other comprehensive income is income and expenses that are not recognised in profit or loss. That is, they are recorded in reserves rather than as an element of the realised profit for the period. For example, other comprehensive income would include a change in revaluation surplus.
INFORMATION TO BE PRESENTED EITHER ON THE FACE OF THE INCOME STATEMENT OR IN THE NOTES
When items of income and expense are material, their nature and amount shall be disclosed separately. Examples of these would include:
- The write down of inventories to net realisable value
- The write down of property, plant and equipment to recoverable amount
- Gains/losses on disposal of property, plant and equipment
- Gains/losses on disposal of investments
- Legal settlements
An entity shall not present any items of income and expenses as extraordinary items. The description extraordinary items was used in the past to represent income and expenses arising from events outside the ordinary activities of the business. IAS 1 has therefore abolished this classification of items.
STATEMENT OF CHANGES IN EQUITY
An entity shall present a statement of changes in equity showing on the face of the statement:
- Profit or loss for the period
- Each item of income and expense for the period that is recognised directly in equity e.g. a revaluation surplus on the revaluation of property
- The effects of changes in accounting policies and correction of errors recognised in accordance with IAS8
- The amounts of transactions with equity holders e.g. issue of shares, any premium thereon and dividends to equity holders.
- The balance of retained earnings (accumulated profit) at the start of the year, changes during the year and the balance at the end of the year.
- The balance on each reserve account at the start of the year, changes during the year and the balance at the end of the year.
Therefore, the statement of changes in equity provides a summary of all changes in equity arising from transactions with owners, including the effect of share issues and dividends.
Other non-owner changes in equity are disclosed in aggregate only.
Statement of Changes in Equity
Essentially the statement of changes in equity presents in a columnar format all the changes which have affected the various equity balances of share capital and reserves.
DISCLOSURE OF SIGNIFICANT ACCOUNTING POLICIES
An entity shall disclose the significant accounting policies used in preparing the financial statements.