Chapter 11

Disclosure: presentation of financial

statements

Prepared by
Emma Holmes

Learning objectives
1. Describe what constitutes a complete set of financial
statements
2. Understand the eight general features of a complete
set of financial statements
3. Understand the information to be presented either in
the statement of financial position or in the notes
4. Understand the information to be presented either in
the statement of comprehensive income or in the
notes
5. Understand the information to be presented either in
the statement of changes in equity or in the notes
6. List the information required by AASB 101 to be
presented in the notes

Components Of A Complete set of

Statements

• Per AASB 101, a complete set of financial statements

comprises:

• Statement of Financial Position

• Statement of Comprehensive Income
• Statement of Changes in Equity
• Statement of Cash flows
• Notes

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 What are some of the changes proposed under
AASB101 ‘Presentation of Financial Statements’?

Kerry Clark
Partner – Technical Consulting Group
Ernst & Young Melbourne

General features of financial

statements
• Per AASB 101, the following considerations must be
followed in the presentation of a financial report:

1. Fair presentation and compliance with International

Financial Reporting standards (IFRSs)
2. Going concern
3. Accrual basis of accounting
4. Materiality and aggregation
5. Offsetting
6. Frequency of reporting
7. Comparative information
8. Consistency of presentation

General features of financial

statements
Fair presentation & compliance with IFRSs
• A set of financial statements are required to present
fairly an entity’s financial performance, financial position
and cash flows

• Applying IFRSs (with additional disclosures where

necessary) is presumed to result in a fair presentation

• Entities must explicitly state their compliance with AASB

and IFRS accounting standards in a note to the financial
statements

2
 Were there any perceived limitations to
IAS1/AASB101 or are these changes a natural, and
expected evolution, of the standard?

Kerry Clark
Partner – Technical Consulting Group
Ernst & Young Melbourne

General features of financial

statements
Going concern
• There is an assumption that all entities adopt
the going concern basis of accounting
• Exception applies where management intends
to liquidate or cease trading
• In such cases a liquidity basis is adopted

Accrual basis of accounting

• Except for cash flow information, the financial
statements are required to be presented using
the accruals basis of accounting

General features of financial

statements

Materiality and aggregation

• Each material class of similar items must be presented
separately
• Items of a dissimilar nature or function must be presented
separately, unless they are immaterial
Offsetting
• Assets/liabilities and income/expenses are not to be offset,
unless required or permitted by another accounting standard
• Offsetting detracts from the ability of the users to understand
the entity’s transactions
• Offsetting is appropriate when netting any income with related
expenses arising from the same transaction – eg gains/losses
on the sale of non-current assets

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 General features of financial
statements
Comparative information
• Comparative information for the immediately
preceding reporting period must be disclosed for
all amounts (including narrative discussion)
Consistency of presentation
• Financial information must be consistently
presented from one period to the next unless:
• There has been a significant change in the
entity’s operations
• A change in presentation or classification will
provide more relevant information
• A change in presentation or classification is
required by another accounting standard

Identification of the financial

statements

• AASB 101 requires the following information to be

disclosed separately in the financial report

– name of the entity

– reporting period
– presentation currency
– rounding used

Statement of Financial Position

• The statement of financial postion is the prime information source

about an entity’s financial position

• No prescribed format in AASB 101, but assets and liabilities to be

classified on basis of:
• Current/non-current
• In order of their liquidity (commonly by banks)
• See guidance to implementation of AASB 101 for examples
(refer Figure 11.2 of text)

• Assets are classified as current or non-current depending on

whether they are expected to be sold, consumed or realised as part
of the normal operating cycle within 12 months of balance date

• Conditions at balance date determine if liabilities are classified

current or non-current

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 Statement of Financial Position
• AASB 101 outlines the minimum line items to be
disclosed in the statement of financial position
• Requires inclusion of additional items, headings
and sub-totals, if relevant, based on assessment of:
• The nature and liquidity of assets
• The function of assets
• The amounts, nature and timing of liabilities

Statement of Financial Position

• Further sub-classifications needed for some items
• Inventories must be broken down into
appropriate classifications
• PP&E must be disaggregated into classes
(chapter 5)
• Further sub-classifications may also be required
due to the size, nature and function of the
amounts involved – eg splitting out provisions

• Specific share capital disclosures are also

prescribed by AASB 101.
• May be disclosed either in the statement of
financial position or in the notes.

Statement of Comprehensive
Income
• A prime source of information about an entity’s
performance

• Income, expenses and other comprehensive

income are included.
• Can be presented either in
• A single statement of comprehensive income
• Two statements – an income statement followed
by a statement of comprehensive income.
• Total comprehensive income has two
components:
1. Profit or loss
2. Other comprehensive income

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 Statement of Comprehensive
Income
Profit or loss
• AASB101 adopts an “all-inclusive” approach to
the determination of a company’s profit or loss
• All items of income and expense recognised
into period must be included in the company’s
profit or loss. The only exclusions relate to
• Corrections of errors and the effects of changes in
accounting policies
• Provisions within other AASBs that require or permit
components of other comprehensive income to be excluded
from profit or loss.

Will a ‘Statement of Comprehensive Income’

tell stakeholders anything different from the
Income Statement?

Kerry Clark
Partner – Technical Consulting Group
Ernst & Young Melbourne

Statement of Comprehensive Income

Other Comprehensive Income (OCI)

• OCI comprises items of income and expense
that are not recognised in profit or loss.
• Components of OCI comprise
• Changes in a revaluation surplus
• Actuarial gains and losses on defined benefit plans
• Gains and losses arising from the translation of financial
statements of foreign operations
• Gains and losses on remeasuring available-for-sale
financial assets
• The effective portion of gains and losses on hedging
instruments in a cash flow hedge

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 Statement of Comprehensive
Income
• Income tax relating to each component of OCI is
required to be disclosed.
• These disclosures may be either in the statement of
comprehensive income or in the notes.
• Reclassification adjustments relating to components
of OCI are also required to be disclosed.
• Reclassification adjustments are amounts that were
recognised in OCI in previous years but are
reclassified (or “recycled”) to the current period profit
or loss when the relevant item is derecognised.
• Reclassification adjustments to not arise on changes
in a revaluation surplus.

Statement of Comprehensive
Income
Reclassification adjustments
• Available for sale financial assets
• Initially measured at fair value
• Subsequently measured at fair value with
unrealised gains or losses in equity
• On derecognition (eg. sale) the balance in equity
is removed from equity and reclassified (or
recycled) to profit and loss.
• Refer Illustrative examples 11.1 and 11.2
of text for disclosures

Statement of Comprehensive
Income
AASB 101 prescribes line items to appear in the statement of
comprehensive income, but not the overall format. Minimum line
items required on face of statement are as follows:
• Revenue
• Finance cost (commonly referred to as borrowing costs &/or
interest expense)
• Share of profits/(losses) of associates and JV’s accounted for
under the equity method
• Tax expenses
• Profit/(loss) after tax from sale of discontinuing operations
• Profit/(loss)
• Each component of OCI, classified by nature
• Share of OCI of associates and JVs accounted for under the equity
method
• Total comprehensive income update
• Profit /(loss) attributed to non-controlling interests and the parent
• Total comprehensive income attributed to non-controlling interests
and the parent.

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 Statement of Comprehensive
Income
• Additional items, headings and totals can be
included in the income statement of
comprehensive income if considered relevant to
understanding (based on materiality and
nature/function of items)
• Income comprises
• Revenue – inflows from ordinary activities, eg
sale of goods, provisions of services
• Gains – inflows from activities outside
ordinary trading, eg sale of non-current assets
• Where material, revenue and gains may require
separate disclosure

Update
• To enhance understandability of the statement of
comprehensive income AASB 101 requires
separate disclosure of the nature and amount of
certain material income and expense items
including:
• Inventory and PPE write-downs
• Cost of restructuring
• Disposals of PPE & other investments
• Profit/(losses) re discontinuing operations
• Litigation settlements
• Reversals of provisions
• Such disclosures can be made either in the
statement of comprehensive income or in the
notes

What will be the significant impacts of these

changes for an entity and in practice?

Kerry Clark
Partner – Technical Consulting Group
Ernst & Young Melbourne

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 Update
• Entities are required to present expenses, classified
by nature or function, whichever provides the more
relevant and reliable information

Nature Function
Purchases of material Cost of sales
Employee benefits Costs of distribution
Depreciation Administrative costs
Advertising costs
• AASB 101 encourages, but does not require this
analysis to be presented on the face of the income
statement of comprehensive income

Update

• See guidance to implementation of AASB 101 for

examples (refer Figures 11.8 – 11.10 of text)

Statement of Changes in Equity

• The following is disclosed on the statement of changes in

equity:
• Total comprehensive income for the period attributable to:
• Equity holders of parent; and
• Non controlling intersts
• For each component of equity
• Changes in accounting policies; and
• Corrections of errors required by AASB 108
• For each component of equity a reconciliation
between opening and closing balances showing
changes resulting from
• Profit/(Loss)
• OCI
• Transactions with equity holders, showing separately
distributions to equity holders

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 Statement of Changes in Equity

• See guidance to implementation of AASB 101

for examples (refer Figure 11.11 of text)

Notes
• Notes enhance the understandability of the other
statements
• Each item in the statements is cross-referenced to
any related information in the notes
• The order of notes is:

• Summary of accounting policies

• Supporting information for items in statements
• Other disclosures:
• Dividends
• Company details
• Auditor remuneration

Sources Of Estimation Uncertainly

• Para.125 AASB 101, an entity shall disclose in notes

key assumptions about the future of estimation
uncertainty that is material

• Notes shall include details of

• Their nature
• Their carrying amount as at the reporting date
• Examples include future interest rates and useful
lives of non-current assets.

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