Connolly – International Financial Accounting and Reporting – 4 th Edition CHAPTER 2 PRESENTATION OF FINANCIAL STATEMENTS

Connolly – International Financial Accounting and Reporting – 4 th Edition 2.1 INTRODUCTION Relate to legal and conceptual frameworks for financial reporting (See Chapter 1) Principles of financial reporting (See Section 2.2) Structure and content of financial statements (IAS 1 Presentation of Financial Statements) (See Section 2.3)

Connolly – International Financial Accounting and Reporting – 4 th Edition 2.2 PRINCIPLES OF FINANCIAL REPORTING The purpose 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 IAS 1 Presentation of Financial Statements  Prescribes the basis for the presentation of general purpose financial statements to ensure comparability between the enterprise’s own financial statements of previous periods and with the financial statements of other enterprises  Applies to the presentation of all general purpose financial statements prepared and presented in accordance with IASs/IFRSs

Connolly – International Financial Accounting and Reporting – 4 th Edition 2.2 PRINCIPLES OF FINANCIAL REPORTING Fair presentation and compliance with IASs/IFRSs (See next) Going concern (See later) Accruals basis of accounting (See later) Consistency of presentation (See later) Materiality and aggregation (See later) Offsetting (See later) Comparative information (See later)

Connolly – International Financial Accounting and Reporting – 4 th Edition Fair presentation and compliance with IASs/IFRSs Financial statements are required to present fairly the financial position, financial performance and cash flows of an enterprise Compliance with IASs/IFRSs will result in financial statements that achieve fair presentation in virtually all circumstances If financial statements comply with IASs/IFRSs, they must state that fact Financial statements must not be described as complying with IASs/IFRSs unless they comply with each applicable IAS/IFRS and each applicable SIC Interpretation

Connolly – International Financial Accounting and Reporting – 4 th Edition Fair presentation and compliance with IASs/IFRSs Fair presentation override  Non-compliance with a requirement in a standard is permitted where, in management’s opinion, compliance would be misleading and would not give a fair presentation  This is expected to be extremely rare and would need to be accompanied by detailed disclosures outlining the reason for, the nature of, and the financial effect of the non-compliance

Connolly – International Financial Accounting and Reporting – 4 th Edition Going concern Going concern must be assessed at each reporting date and must be prepared on that basis, unless management either intends to liquidate the enterprise or to cease trading, or has no realistic alternative If going concern basis is not applied, must state that fact, explain why and state the basis on which the financial statements have been prepared

Connolly – International Financial Accounting and Reporting – 4 th Edition Accruals basis of accounting The accrual basis should be applied in the preparation of financial statements, except the statement of cash flows

Connolly – International Financial Accounting and Reporting – 4 th Edition Consistency of presentation The presentation and classification of items should be retained from one period to the next unless:  the enterprise significantly changes the nature of its operations or identifies that a change will result in a more appropriate presentation  a change is required by an IAS/IFRS or a SIC Interpretation

Connolly – International Financial Accounting and Reporting – 4 th Edition Materiality and aggregation IASs/IFRSs apply to only material items Material items should be presented separately Immaterial items are to be aggregated with amounts of a similar nature and function

Connolly – International Financial Accounting and Reporting – 4 th Edition Offsetting Not permitted in respect of assets and liabilities unless specifically required or permitted by another IAS/IFRS Income and expense items are to be offset only:  if an IAS/IFRS requires or permits; or  gains, losses and related expenses arising from the same or similar transactions and events are not material

Connolly – International Financial Accounting and Reporting – 4 th Edition Comparative information Comparatives are required for the previous period unless specifically exempted in another IAS/IFRS Comparatives must be reclassified if the presentation and classification in the financial statements is amended, unless it is impracticable to do so

Connolly – International Financial Accounting and Reporting – 4 th Edition 2.3 STRUCTURE AND CONTENT OF FINANCIAL STATEMENTS The annual report and financial statements consist of:  The financial statements o Statement of financial position (See later) o Statement of profit or loss and other comprehensive income (See later) o Statement of changes in equity (See later) o Statement of cash flows (See Chapters 19 and 33)  Notes to the financial statements, including accounting policies (See later)  Other narrative information (e.g. directors’ report)

Connolly – International Financial Accounting and Reporting – 4 th Edition 2.3 STRUCTURE AND CONTENT OF FINANCIAL STATEMENTS The financial statements must be clearly identified and distinguished from other information in the financial report Each component of the financial statements must be clearly identified and the following disclosed:  Name of the enterprise  Whether individual or consolidated statements  Reporting date or period covered by the statement  Reporting currency  The level of precision in the presentation of figures Where, in exceptional circumstances, an enterprise is required to, or decides to, change its reporting date, it is required to state why the change occurred and the fact that the comparative amounts are not comparable

Connolly – International Financial Accounting and Reporting – 4 th Edition Statement of financial position IAS 1 specifies the asset, liability and equity line items that must, as a minimum, be presented on the face of the SFP Additional line items, headings and sub-totals are to be presented on the face of the SFP if required by another IAS or if considered necessary to present fairly the enterprise’s financial position See Chapter 2, Figure 2.1

Connolly – International Financial Accounting and Reporting – 4 th Edition Example: Statement of Financial Position XYZ Group – Statement of Financial Position as at 31 st December 2014 (excluding comparatives) XTotal Assets X XCash and cash equivalents XPrepayments XTrade and other receivables XInventories Current Assets X XBiological assets XInvestments in associates XOther intangible assets XGoodwill XProperty, plant and equipment Non-current Assets ASSETS 2014 €’ €’000

Connolly – International Financial Accounting and Reporting – 4 th Edition Example: Statement of Financial Position XYZ Group – Statement of Financial Position as at 31 st December 2014 (excluding comparatives) 2014 €’ €’000 EQUITY AND LIABILITIES Equity Attributable to Owners of the Parent Issued share capitalX Retained earningsX Other components of equity X X Non-controlling interestsX Non Current Liabilities Long-term borrowingsX Deferred taxX ProvisionsX X Current Liabilities Bank overdraftX Trade and other payablesX Current portion of long-term borrowingsX Tax payableX X Total Equity and LiabilitiesX

Connolly – International Financial Accounting and Reporting – 4 th Edition Statement of financial position Further sub-classifications of the line items presented on the face of the SFP can be given, with amounts payable to and receivable from related parties being disclosed separately Assets and liabilities can be presented either on a current/non-current basis or in order of their liquidity Must disclose the amounts of assets and liabilities expected to be recovered or settled after more than twelve months from end of reporting period Detailed disclosures relating to equity line items are required

Connolly – International Financial Accounting and Reporting – 4 th Edition Statement of financial position Current assets are assets that are:  expected to be realised, consumed or disposed of in the normal course of the enterprise’s operating cycle; or  held primarily for trading purposes or the short-term and expected to be realised within 12 months of end of reporting period; or  a cash or cash equivalent asset not restricted in its use

Connolly – International Financial Accounting and Reporting – 4 th Edition Statement of financial position Current liabilities are liabilities that are:  expected to be settled in the normal course of the enterprise’s operating cycle; or  due to be settled within 12 months of end of reporting period Long-term borrowings continue to be classified as long- term even if due for settlement within 12 months provided that the enterprise has the intention and ability to ‘roll over’ the obligation

Connolly – International Financial Accounting and Reporting – 4 th Edition Statement of profit or loss and other comprehensive income IAS 1 specifies the line items that, as a minimum, should be presented on the face of the SPLOCI Additional line items, headings and sub-totals are to be presented on the face of the SPLOCI if required by another IAS/IFRS or if considered necessary to present fairly the enterprise’s financial performance See Chapter 2, Figures 2.2 – 2.6

Connolly – International Financial Accounting and Reporting – 4 th Edition Example: Statement of Profit or Loss and Other Comprehensive Income XYZ Group – Statement of Profit or Loss and Other Comprehensive Income for the Year Ended 31 st December 2014 (excluding comparatives) (classification of expenses by function) 2014 €’000 RevenueX Cost of sales(X) Gross profitX Other operating income X Distribution costs(X) Administrative expenses(X) Profit from operationsX Finance costs(X) Share of profit/(loss) of associates X Profit before tax X Income tax expense(X) Profit for the yearX Other Comprehensive Income: Continued....

Connolly – International Financial Accounting and Reporting – 4 th Edition Example: Statement of Profit or Loss and Other Comprehensive Income XYZ Group – Statement of Profit or Loss and Other Comprehensive Income for the Year Ended 31 st December 2014 (excluding comparatives) (classification of expenses by function) 2014 €’000 Other comprehensive income: Items that may be reclassified into profit or loss: Foreign exchange gains arising from the translation of foreign operationsX Items that will not be reclassified into profit or loss Gain/(loss) on property revaluation X Other comprehensive income for yearX Total comprehensive income for yearX Profit/(loss) attributable to: Owners of the parentX Non-controlling interestsX X Total comprehensive income/(loss) attributable to: Owners of the parentX Non-controlling interestsX X

Connolly – International Financial Accounting and Reporting – 4 th Edition Statement of profit or loss and other comprehensive income Additional information disclosed on face of the SPLOCI or in the notes  An analysis of expenses using a classification based on either the nature of expenses or their function within the enterprise (See Chapter 2, Example 2.1)  If functional classification adopted, must also disclose information on the nature of expenses, including depreciation and staff costs  Dividends per share (declared or proposed)

Connolly – International Financial Accounting and Reporting – 4 th Edition Statement of changes in equity Third component of a set of financial statements Components that make up comprehensive income must not be shown in the statement of changes in equity (only totals shown) Main purpose is to show the amounts of transactions with owners (e.g. shares and dividends) and to reconcile opening and closing balance of each equity and reserve See Chapter 2, Figure 2.7

Connolly – International Financial Accounting and Reporting – 4 th Edition Statement of changes in equity Share Capital €’000 Other Reserves €’000 Retained Earnings €’000 Total €’000 Opening balancexxxx Changes in accounting policy--xx Restated balancexxxx Changes in equity for year Dividends(x) Total comprehensive incomexxx Issue of share capitalx--x Total changes in equityxxxx Closing balancexxxx

Connolly – International Financial Accounting and Reporting – 4 th Edition Notes to the financial statements Must include accounting policies, identifying the measurement basis used in preparing the financial statements and the significant accounting policies adopted Must include other information required by IASs/IFRSs or necessary for a fair presentation Other disclosures include information about the enterprise if not disclosed elsewhere in information published with the financial statements (e.g. the domicile and legal form of the enterprise, principal activities, number of employees)