1. Presentation of Financial Statements
IAS 1
Presentation of Financial Statements
AGN WAA Region Meeting-Damascus
22nd November 2008 1
CA R. BUPATHY

2. Objective
IAS 1 has been recently revised and reissued in with the objective of
Basis for presentation of General Purpose Financial Statements (aim: comparability within and outside)
140 paragraphs – 106 paragraphs of BC – four members dissenting (4/14)
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 2

3. Purpose of FS and how that purpose can be achieved
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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 3

4. IAS 1 Two broad components Second of the two
Guidelines for the structure and content of FS What constitutes Financial Statements?
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 4

5. 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 “
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 5

6. Guideline for structure
Entities must present a complete set of FS
Complete Set comprises of following components
Statement of Financial Position (end of)
Statement of Comprehensive Income (for )
Statement of changes in equity (for )
Statement of Cash Flows (for )
Notes comprising a summary of significant accounting policies and other explanatory information
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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 6

7. Equal prominence
All of (six) components of the financial statements must be presented with equal prominence
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 7

8. 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
Already revised
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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 8

9. Minimum content in BS Minimum line items
Current & Non-current assets or liabilities
Sub-classification (e.g. debtors into trade/non-trade) to reflect entity specific circumstances and needs
Share capital related disclosures (Objectives, policies and processes for managing capital!)
Preferred approach
Current, non-current classification of assets and liabilities
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 9

10. 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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 10

11. 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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 11

12. 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 AGN WAA Region Meeting-Damascus
22nd November 2008 12

13. 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
Function base
Revenue
Less cost of sales GP
Other income
Distribution costs
Admn expenses
Other expenses
PBT
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 13

14. 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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 14

15. 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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 15

16. 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 non-controlling 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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 16

17. 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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 17

18. 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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 18

19. 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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 19

20. 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)
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 20

21. Optional items A review of performance Value added statement
Resources not recognized in financial position
The optional disclosures are outside the scope of IFRSs
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 21

22. 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?
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 22

23. 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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 23

24. 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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 24

25. 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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 25

26. 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)
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 26

27. 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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 27

28. 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)
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 28

29. 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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 29

30. 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)
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 30

31. 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
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 31

32. Comparatives
Comparatives should be presented for at least one Previous Period.
Comparative information shall also be presented for narrative and descriptive information where needed
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 32

33. 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?
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 33

34. 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.
CA R. BUPATHY AGN WAA Region Meeting-Damascus
22nd November 2008 34