The Genesis: IAS 1 - Presentation of Financial Statements

Hi everyone,
Happy new month!

We shall be discussing IAS1 today!

Let's consider this: Most books contain a table of contents and preface, giving a brief introduction to the book and its contents.

Likewise, this standard basically prescribes the minimum information and content of financial statements, as it includes the standard formats of financial statements. IAS 1 has defined financial statements to include:
1. Statement of Financial Position (formerly Balance Sheet)
2. Statement of Profit or Loss and other Comprehensive Income (formerly Profit ot Loss account)
3. Statement of Cash flows
4. Statement of Changes in Equity
5. Statement of Accounting Policies and Explanatory Notes to the Account
6. Statement of Financial Position for the earliest comparative period; where there is a retrospective restatement [This means a last past statement of financial position, when there is a retrospective application. This would be fully discussed in IAS8]

When you buy a new machine like: a generator or washing machine, there are instructions for its use usually enclosed in it. In a similar manner, IAS1 has stated some "Concepts" to be followed in preparing financial statements. They are as follows:

1. Going Concern: Financial Statements shall be prepared on going concern basis i.e. prepared with the intentions that the business will last infinitely and nothing will threaten it.

2. Accrual Basis: Apart from the cashflow statement, other statements would be prepared on accrual basis i.e. Revenue is recorded when earned not received while Expenses are recorded when incurred not paid for.

3. Materiality & Aggregation: Record each material item of a similar class separately, dis-similar items should be recorded separately. For example, all revenue items should be recorded together, but don't mix up revenue and expenses, as they are dis-similar.

4. Frequency of Reporting: Companies need to present their financial statements (including comparatives) at least annually.

5. Consistency of Presentation: Companies are expected to maintain the same manner of presentation in preparing their financial statements except:
(A) There is a more appropriate manner of presentation that best reflects their activities. This change shall be done in respect to the provisions of IAS 8
(B) An IFRS requires the change.

6. Offsetting: In preparing financial statements, report separately assets and liabilities, income and expenses, don't offset against each other.

7. Comparative information: Companies are expected to disclose comparative information except when an IFRS prevents it. That is, provide past iinformation on the statements. If you are preparing a statement of financial position for 2015, you are expected to include that of 2014 as well.

Another important area this standard highlights is, Fair presentation and Compliance with IFRS. It is expected that financial statements should contain transparent and comparable information to help users make informed decisions. Hence:
1. It views fair presentation as compliance with IFRS. That is, Compliance with the IFRS = Fair presentation of financial statement.

2. You are expected to disclose that, you have complied with IFRS and this can only be done if you have followed the applicable IFRS's in preparing your financial statements.

3. The standard also states that, the use of a wrong accounting treatment is not justified by disclosing or giving explanatory notes. For example, you are expected to debit expenses, if you choose to credit it and disclose in the notes; it is not justified because it is a wrong accounting treatment.

4. There could be rare situations where compliance with a standard or its interpretation could be misleading and won't give a true and fair presentation. Companies are allowed to depart from the standard but have to disclose that they have departed from the standards and give reasons why.

DAILY CHALLENGE: List 5 main highlights of IAS1 in your own words. (This helps to demonstrate an understanding of the standard)

For further clarifications, mail: nneomakristen@gmail.com

Have a nice day!