Professional Documents
Culture Documents
Unit 6 Slides
Unit 6 Slides
6.1. Introduction.
6.2. Normal Notes contents.
6.3. Abbreviated Notes contents.
6.4. Director’s Report Contents.
SGAP:
1. Minimum significant disclosure requirements.
2. Any other relevant (even qualitative) information must also be disclosed (also when
required by other regulations).
3. Quantitative information for 2 periods (except where specifically indicated
otherwise by an accounting standard).
4. Jointly controlled entities considered as Associates
5. Adaptation of note 4 requirements aiming concise and clear presentation.
IAS 113 An entity shall, as far as practicable, present notes in a systematic manner. An entity
shall cross-reference each item in the statements of financial position and of comprehensive
income, in the separate statement of comprehensive income (if presented), and in the
statements of changes in equity and of cash flows to any related information in the notes.
IAS 114 An entity normally presents notes in the following order, to assist users to understand
the financial statements and to compare them with financial statements of other entities:
(a) statement of compliance with IFRSs (see paragraph 16);
(b) summary of significant accounting policies applied (see paragraph 117);
(c) supporting information for items presented in the statements of financial position and of
comprehensive income, in the separate statement of comprehensive income (if presented), and
in the statements of changes in equity and of cash flows, in the order in which each statement
and each line item is presented; and
(d) other disclosures, including:
(i) contingent liabilities (see IAS 37) and unrecognised contractual commitments, and
(ii) non-financial disclosures, eg the entity’s financial risk management objectives and
policies (see IFRS 7).
© Departamento de Economía Financiera y Contabilidad Universidad Pablo de Olavide.
Section 1: Introduction.
Disclosure of accounting policies (IAS 117-124) An entity shall disclose in the summary of
significant accounting policies:
(a) the measurement basis (or bases) used in preparing the financial statements, and
(b) the other accounting policies used that are relevant to an understanding of the financial
statements.
Sources of estimation uncertainty (IAS 125-133) An entity shall disclose information about the
assumptions it makes about the future, and other major sources of estimation uncertainty at the end of
the reporting period, that have a significant risk of resulting in a material adjustment to the carrying
amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities,
the notes shall include details of:
(a) their nature, and
(b) their carrying amount as at the end of the reporting period.
Capital (IAS134-136) An entity shall disclose information that enables users of its financial statements
to evaluate the entity’s objectives, policies and processes for managing capital.
Puttable financial instruments classified as equity (IAS 136A) For puttable financial instruments
classified as equity instruments, an entity shall disclose (to the extent not disclosed elsewhere):
(a) summary quantitative data about the amount classified as equity;
(b) its objectives, policies and processes for managing its obligation to repurchase or redeem the
instruments when required to do so by the instrument holders, including any changes from the
previous period;
(c) the expected cash outflow on redemption or repurchase of that class of financial instruments; and
(d) information about how the expected cash outflow on redemption or repurchase was determined.
(a) the amount of dividends proposed or declared before the financial statements were
authorised for issue but not recognised as a distribution to owners during the period, and
the related amount per share; and
(b) the amount of any cumulative preference dividends not recognised.
138 An entity shall disclose the following, if not disclosed elsewhere in information published
with the financial statements:
(a) the domicile and legal form of the entity, its country of incorporation and the address of its
registered office (or principal place of business, if different from the registered office);
(b) a description of the nature of the entity’s operations and its principal activities;
(c) the name of the parent and the ultimate parent of the group; and
(d) if it is a limited life entity, information regarding the length of its life.
Notes Limitations:
The Spanish Commercial Code states that the Notes to the Financial Statements
must complete, develop and further discuss the contents of the other statements part
of the annual accounts.
We have already learned that the annual accounts must be formulated with clarity, so
that the information provided is understandable and useful for decision-making.
Moreover, they must show the true and fair view of the financial position,
performance and changes in financial position of an entity. We can easily see that the
information contained in the Balance Sheet and the Income Statement is not
enough to reach this objective.
- Additional information which is not shown in the Balance Sheet, Income Statement
and the other annual accounts statements.
© Departamento de Economía Financiera y Contabilidad Universidad Pablo de Olavide.
Section 2: Normal Notes contents.
Without going into further detail, the Notes contain information regarding:
• The measurement bases applied to the various items in the financial
statements and the methods used for calculating valuation adjustments.
• The name, registered office and legal form of the companies of which the
company is a general partner or in which it holds, directly or indirectly, an
ownership interest of not less 20%, or in which, even if this percentage is
lower, it exercises significant influence (The percentage of ownership of the
share capital and the percentage of voting power held must be indicated,
together with the amount of the equity in the investee’s last business year).
• Where there are several classes of shares, the number and par value of
each class.
• The existence of “ rights ” bonds, convertible debentures and similar
securities or rights, indicating the number of each and the scope of the rights
that they confer.
• The overall amount of the guarantee commitments to third parties, without
prejudice to their recognition on the liability side of the balance sheet when it
is probable that they will give rise to the effective settlement of an obligation.
© Departamento de Economía Financiera y Contabilidad Universidad Pablo de Olavide.
Section 2: Normal Notes contents.
Specific rules for preparing the Notes to the financial Statements can be found in the 3rd
part of the Spanish General Accounting Plan. According to the 10th standard, concerning
some methodological issues, as well as a template including the minimum contents:
The notes complement and expand upon the information provided in the other documents
comprising the annual accounts. The notes shall be prepared considering the following:
1. The model of the notes reflects the minimum disclosure requirements. However, where
the required information is not significant, the corresponding sections need not be
completed.
2. Any other information not included in the model of the notes but which is necessary to
report the company’s situation and activity during the reporting period shall also be
disclosed, to facilitate comprehension of the annual accounts and for these to present
fairly the equity, financial position and results of the company. Qualitative data reflecting
the position for the prior reporting period shall be included when significant. Any
disclosures required in accordance with other regulations shall also be included in the
notes.
3. The quantitative information to be disclosed in the notes should relate to the present
reporting period as well as to the comparative prior reporting period, except where
specifically indicated otherwise by an accounting standard.
4. Disclosure requirements in the notes relating to associates shall also be considered to
apply to jointly controlled entities.
5. The requirements of note 4 within the notes shall be adapted to enable a concise and
clear presentation.’
The companies may use the abbreviated format for notes when they meet at
least two of the following conditions at the balance sheet date:
− Total assets do not exceed 2.850.000 euros. Total assets shall be those
disclosed in the standard format balance sheet.
− Total annual revenue does not exceed 5.700.000 euros.
− The average number of employees during the reporting period does not
exceed 50.
q Profit Distribution
(Source: Laboratorios
Farmacéuticos Rovi S.A.,
2010 Annual Accounts)
(Source:
Laboratorios
Farmacéuticos Rovi
S.A., 2010 Annual
Accounts)
6. Financial assets
7. Financial liabilities
Directors’ report:
1.- What is the Directors´ report?
… a document based on the opinion of the company’s management
… that explains the situation, evolution, risks and expectations of the company
… that includes financial and non-financial information
… that complements the Annual Accounts
… that have to be filed in the Mercantile Register alongside with the Annual Accounts (except
for abbreviated Annual Accounts)
2.- What type of information is disclosed?
Royal Decree 1/2010, of 2nd July, which approves the Consolidated Text of the Act of Equity
Companies (Ley de Sociedades de Capital TR LSC). Paragraph 262: Director´s report
contents
Royal Decree-Law 18/2017, later - Law 11/2018 from 28th of December 2018 – new law requires
that large companies provide certain non-financial disclosure regarding the national or
international standards.
• Low standardization
• Used for learning about other aspects of the company (array of
products, personnel policy, social performance) à provides a positive
non balanced view of the firm
• Preparation left to discretion
• Does not allow inter-firm comparison
• Includes information such as forecasts that are subjective and difficult
to contrast