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

Objective IAS 1 has been recently revised and reissued in 2007 - 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

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

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

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

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

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

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 1-1-09 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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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