ASHIK IQBAL

ICAB CERTIFICATE COURSE ON IFRS

IAS 1 PRESENTATION OF FINANCIAL STATEMENTS

17 February 2021
DISCLAIMER

• This material has been developed for training and education

purposes for the participants of Certificate Course on IFRS offered
by ICAB. This should not be distributed or shared with anyone who
is not a participant of this course.
• Any distribution of this material outside the participant group is
strictly prohibited.
• This material and the facilitation do not create any client &
consultant relationship between the participants and the facilitator.
• For any real-life decision making regarding financial reporting and
auditing, please refer to the original IFRSs. Views expressed in
this document are personal.
GROUND RULES

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SCOPE
SCOPE

IAS 1 applies to:

• Preparing and presenting general purpose financial

statements (FS) as per IFRS
• Consolidated FS as per IFRS 10
• Separate FS as per IAS 27

Does not apply to:

• Condensed financial statement (FS) as per IAS 34

(structure and content)
DEFINITION
DEFINITION

General purpose financial statements

(referred to as ‘financial statements’)

Are those intended to meet the needs of users who are not in a position to
require an entity to prepare reports tailored to their particular information
needs.

International Financial Reporting Standards (IFRSs)

are Standards and Interpretations issued by the International Accounting
Standards Board (IASB). They comprise:

1. International Financial Reporting Standards (IFRS);

2. International Accounting Standards (IAS);
3. IFRIC Interpretations; and
4. SIC Interpretations
DEFINITION

Impracticable

Applying a requirement is impracticable when the entity cannot apply it after

making every reasonable effort to do so.

Material

Information is material if omitting, misstating or obscuring it could reasonably

be expected to influence decisions that the primary users of general purpose
financial statements make on the basis of those financial statements, which
provide financial information about a specific reporting entity.

Materiality depends on the nature or magnitude of information, or both.

Information is obscured if it is communicated in a way that would have a

similar effect for primary users of financial statements to omitting or
misstating that information
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS

A complete set of FS comprises:

1. a statement of financial position as at the end of the period;

2. a statement of profit or loss and other comprehensive income for the
period;
3. a statement of changes in equity for the period;
4. a statement of cash flows for the period;
5. notes, comprising significant accounting policies and other explanatory
information;
6. comparative information in respect of the preceding period as specified in
; and
7. a statement of financial position as at the beginning of the preceding
period 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 in accordance with
paragraphs 40A–40D
 FAIR PRESENTATION
AND COMPLIANCE WITH
IFRS
FAIR PRESENTATION AND COMPLIANCE WITH IFRS

Para 16:

An entity whose financial statements comply with IFRSs shall make an explicit
and unreserved statement of such compliance in the notes.

An entity shall not describe financial statements as complying with IFRSs

unless they comply with all the requirements of IFRSs.

Para 17:
In virtually all circumstances, an entity achieves a fair presentation by
compliance with applicable IFRSs.

Para 18:
An entity cannot rectify inappropriate accounting policies either by disclosure
of the accounting policies used or by notes or explanatory material.
FAIR PRESENTATION AND COMPLIANCE WITH IFRS

Para 19:

In the extremely rare circumstances in which management concludes that

compliance with a requirement in an IFRS would be so misleading that it
would conflict with the objective of financial statements set out in the
Conceptual Framework, the entity shall depart from that requirement in the
manner set out in paragraph 20 if the relevant regulatory framework
requires, or otherwise does not prohibit, such a departure.
FAIR PRESENTATION AND COMPLIANCE WITH IFRS

Para 20:

When an entity departs from a requirement of an IFRS in accordance with

paragraph 19, it shall disclose:

• that management has concluded that the FS present fairly the entity’s
financial position, financial performance and cash flows;

• that it has complied with applicable IFRSs, except that it has departed
from a particular requirement to achieve a fair presentation;

• the title of the IFRS from which the entity has departed, the nature of the
departure, including the treatment that the IFRS would require, the reason
why that treatment would be so misleading in the circumstances that it
would conflict with the objective of financial statements set out in the
Conceptual Framework, and the treatment adopted; and

• for each period presented, the financial effect of the departure on each
item in the financial statements that would have been reported in
complying with the requirement.
FAIR PRESENTATION AND COMPLIANCE WITH IFRS

Question 1:

An entity that is incorporated in a country where legislation does not permit

unrealized gains to be reported in profit or loss. The entity prepares its
financial statements in compliance with IFRS Standards including measuring
derivatives at fair value; however, to comply with the national laws, fair value
gains on those derivatives are taken directly to equity and are not recognized
in profit or loss until the derivatives are derecognized. The entity cannot claim
compliance with IFRS Standards. The fact that an entity is prevented by
legislation from complying with IFRS Standards does not change the
requirement in IFRS Standards.

Answer 1:

The Entity is required to comply with the regulatory requirements. The entity
cannot claim compliance with IFRS Standards. The fact that an entity is
prevented by legislation from complying with IFRS Standards does not
change the requirement in IFRS Standards.
FAIR PRESENTATION AND COMPLIANCE WITH IFRS
FAIR PRESENTATION AND COMPLIANCE WITH IFRS
FAIR PRESENTATION AND COMPLIANCE WITH IFRS
GOING CONCERN
GOING CONCERN

A. When preparing financial statements, management shall assess an entity’s

ability to continue as a going concern.

B. An entity shall prepare financial statements on a going concern basis

unless

• management either intends to liquidate the entity or

• to cease trading, or
• has no realistic alternative but to do so.

C. When management is aware of material uncertainties related to events or

conditions that may cast significant doubt upon the entity’s ability to continue
as a going concern, the entity shall disclose those uncertainties.

D. When an entity does not prepare FS on a going concern basis, it shall

disclose that fact, together with the basis on which it prepared the FS and the
reason why the entity is not regarded as a going concern
GOING CONCERN

Going concern basis is not appropriate:

For an entity that is not a going concern the FS should be prepared on a basis
other than that of a going concern.

However, there is no guidance in either IAS 1 or IAS 10 regarding the

appropriate basis of preparation for the financial statements.

In the financial reporting period in which an entity ceases to trade it is,

appropriate to prepare the FSs on a basis other than that of a going concern
in order to give sufficient emphasis to the effects of cessation of trading.
GOING CONCERN

Question 2:

An entity is experiencing severe financial difficulties. Can it prepare FS on a

going concern basis?

Answer 2:

When an entity prepares financial statements on a going concern basis, this

does not imply an absolute level of confidence that the entity will be able to
continue as a going concern.

Even when an entity is in severe financial difficulties, IAS 1:25 requires the
going concern basis to be used unless management either intends to liquidate
the entity or to cease trading or has no realistic alternative but to do so.
GOING CONCERN
Question 3:

The directors of YEP Ltd. are considering whether to cease trading. At the
date of preparation of the financial statements, the directors have not yet
reached a decision. There is a reasonable possibility that the entity will
continue to trade.

Requirement:
1. Can YEP Ltd. prepare FS using the going concern basis of accounting?
2. Is there any other concern about impairment?

Answer 3:

1. There is a reasonable possibility that the entity will continue to trade and,
therefore, the FSs are being prepared on a going concern basis.

2. It is appropriate to regard the fact that the directors are considering

ceasing to trade as an indication of impairment. The directors of an entity
do not usually consider ceasing to trade if the entity is expected to be
profitable. The fact that the directors are considering ceasing to trade may
call into question the ability of the entity to continue to trade profitably
and, therefore, whether the carrying amounts of assets are recoverable.
GOING CONCERN
Question 4:

Entity Y is set up as a dormant company. It has never traded, and the

directors do not intend that it will trade in the future. The directors intend to
keep Entity Y in existence as a dormant company for the foreseeable future.
Is going concern basis appropriate for the Entity Y?

Answer 4:

The financial statements of Entity Y should be prepared on a going concern

basis. The criteria to depart from the going concern basis in accordance with
IAS 1:25 have not been met because the directors do not intend either to
liquidate the entity or to cease trading.
GOING CONCERN
Question 5:

XLP Ltd. has a December year end.

• It ceases trading during 2021, and finishes disposing of its assets during
2022.

• By the 2022-year end, the only items in the statement of financial position
are intragroup receivables and payables, which are not expected to be
settled in the foreseeable future.

• The directors intend to keep Entity XLP in existence for the foreseeable
future.

Requirement:

Recommend the possible approach for preparation of the financial statements

for each of the 2021, 2022, 2023 and 2024 reporting periods.
GOING CONCERN
Answer 5:

Year 2021 A basis other than that of a going concern

Year 2022 A basis other than that of a going concern (because both the 2022 and
2021 statements of comprehensive income include effects of ceasing
to trade, i.e., the disposal of the assets of XLP)
Year 2023 A basis other than that of a going concern (because the 2022
statement of comprehensive income includes effects of ceasing to
trade)
Year 2024 Going concern basis (all effects of ceasing to trade have been 'washed
through' and there is no impact on either the 2024 or 2023 statements
of comprehensive income)

One possible approach would be for the financial statements to be prepared on a basis
other than that of a going concern until such time as the only amounts reported in the
current and prior year statements of comprehensive income and financial position relate
to the entity’s ongoing existence (i.e., any effects of ceasing to trade have been 'washed
through’).

Thereafter, the financial statements will no longer include any items relating to the trade
that has ceased and, therefore, references to such cessation may be confusing.
PRESENTATION
PRESENTATION
An entity shall present an analysis of expenses recognized in profit or loss
using a classification based on either their nature or their function within the
entity, whichever provides information that is reliable and more relevant.

Nature of expense Function of expense

• Aggregates expenses within profit or • Classifies expenses according to their
loss according to their nature. function as part of cost of sales.

• Does not reallocate them among • Also called the cost of sales method
functions within the entity
Example: Example:

• Employee benefit • Cost of sales

• Raw materials and consumable used • Gross profit
• Changes in inventories of FG & WIP • Distribution cost
• Depreciation • Administrative costs
• Other expense • Other expenses
PRESENTATION
An entity classifying expenses by function shall disclose additional information
on the nature of expenses, including depreciation and amortization expense
and employee benefits expense.
PRESENTATION
Offsetting

Assets and liabilities, and income and expenses, are not offset unless
required or permitted by an IFRS.

It is important that assets and liabilities, and income and expenses, are
reported separately.

Offsetting in the statements of comprehensive income or financial position,

except when this reflects the substance of the transactions or other events,
detracts from the ability of users both to understand the transactions (or
other events or conditions) that have occurred and to assess the entity’s
future cash flows.

Measuring assets (e.g., inventories or receivables) net of valuation allowances

is not regarded as offsetting for the purposes of applying IAS 1.
DISCLOSURES
DISCLOSURES

Source: Illustrative financial statements of KPMG

DISCLOSURES

Source: Illustrative financial statements of KPMG

DISCLOSURES

Source: Illustrative financial statements of KPMG

DISCLOSURES

Source: Illustrative financial statements of KPMG

DISCLOSURES

Source: Illustrative financial statements of KPMG

DISCLOSURES

Source: Illustrative financial statements of KPMG

DISCLOSURES

Source: Illustrative financial statements of KPMG

THANK YOU