IAS 1 — Presentation of Financial Statements

➢ sets out the overall requirements for financial statements, including

how they should be structured, the minimum requirements for their
content and overriding concepts such as going concern, the accrual
basis of accounting and the current/non-current distinction
➢ requires a complete set of financial statements to comprise a
statement of financial position, a statement of profit or loss and
other comprehensive income, a statement of changes in equity and
a statement of cash flows.
Objective of IAS 1
➢ to prescribe the basis for presentation of general purpose financial
statements
➢ to ensure comparability both with the entity's financial statements of
previous periods and with the financial statements of other entities
➢ sets out the overall requirements for the presentation of financial
statements, guidelines for their structure and minimum requirements
for their content.
Scope
➢ applies to all general purpose financial statements that are prepared
and presented in accordance with International Financial Reporting
Standards (IFRSs).
General purpose financial statements are those intended to serve users who
are not in a position to require financial reports tailored to their particular
information needs. [IAS 1.7]
Objective of financial statements
➢ 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.
➢ To meet that objective, financial statements provide information
about an entity's: [IAS 1.9]
✓ assets
 ✓ liabilities
✓ equity
✓ income and expenses, including gains and losses
✓ contributions by and distributions to owners (in their capacity as
owners)
✓ cash flows.
That information, along with other information in the notes, assists users
of financial statements in predicting the entity's future cash flows and, in
particular, their timing and certainty.
Components of financial statements
A complete set of financial statements includes: [IAS 1.10]
➢ a statement of financial position (balance sheet) at the end of the
period
➢ a statement of profit or loss and other comprehensive income for the
period (presented as a single statement, or by presenting the profit or
loss section in a separate statement of profit or loss, immediately
followed by a statement presenting comprehensive income beginning
with profit or loss)
➢ a statement of changes in equity for the period
➢ a statement of cash flows for the period
➢ notes, comprising a summary of significant accounting policies and
other explanatory notes
➢ comparative information prescribed by the standard.

An entity may use titles for the statements other than those stated above.
All financial statements are required to be presented with equal
prominence. [IAS 1.10]
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, it must also present a
statement of financial position (balance sheet) as at the beginning of the
earliest comparative period.
Reports that are presented outside of the financial statements – including
financial reviews by management, environmental reports, and value added
statements – are outside the scope of IFRSs. [IAS 1.14]
Fair presentation and compliance with IFRSs
• The financial statements must "present fairly" the financial position,
financial performance and cash flows of an entity.
• Fair presentation requires the faithful representation of the effects of
transactions, other events, and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and
expenses set out in the Framework.
• The application of IFRSs, with additional disclosure when necessary,
is presumed to result in financial statements that achieve a fair
presentation. [IAS 1.15]
IAS 1 requires an entity whose financial statements comply with IFRSs to
make an explicit and unreserved statement of such compliance in the
notes. Financial statements cannot be described as complying with IFRSs
unless they comply with all the requirements of IFRSs (which includes
IFRS, IAS, IFRIC Interpretations and SIC Interpretations). [IAS 1.16]
Inappropriate accounting policies are not rectified either by disclosure of
the accounting policies used or by notes or explanatory material. [IAS
1.18]
IAS 1 acknowledges that, in extremely rare circumstances, management
may conclude that compliance with an IFRS requirement would be so
misleading that it would conflict with the objective of financial statements
set out in the Framework. In such a case, the entity is required to depart
from the IFRS requirement, with detailed disclosure of the nature, reasons,
and impact of the departure. [IAS 1.19-21]
Going concern
The Conceptual Framework notes that financial statements are normally
prepared assuming the entity is a going concern and will continue in
operation for the foreseeable future. [Conceptual Framework, paragraph
4.1]
IAS 1 requires management to make an assessment of an entity's ability to
continue as a going concern. If management has significant concerns
about the entity's ability to continue as a going concern, the uncertainties
must be disclosed. If management concludes that the entity is not a going
concern, the financial statements should not be prepared on a going
concern basis, in which case IAS 1 requires a series of disclosures. [IAS
1.25]
Accrual basis of accounting
IAS 1 requires that an entity prepare its financial statements, except for
cash flow information, using the accrual basis of accounting. [IAS 1.27]
Consistency of presentation
The presentation and classification of items in the financial statements
shall be retained from one period to the next unless a change is justified
either by a change in circumstances or a requirement of a new IFRS. [IAS
1.45]
Materiality and aggregation
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. [IAS 1.7]*
Each material class of similar items must be presented separately in the
financial statements. Dissimilar items may be aggregated only if they are
individually immaterial. [IAS 1.29]
However, information should not be obscured by aggregating or by
providing immaterial information, materiality considerations apply to the
all parts of the financial statements, and even when a standard requires a
specific disclosure, materiality considerations do apply. [IAS 1.30A-31]
Offsetting
Assets and liabilities, and income and expenses, may not be offset unless
required or permitted by an IFRS. [IAS 1.32]
Comparative information
IAS 1 requires that comparative information to be disclosed in respect of
the previous period for all amounts reported in the financial statements,
both on the face of the financial statements and in the notes, unless another
Standard requires otherwise. Comparative information is provided for
narrative and descriptive where it is relevant to understanding the financial
statements of the current period. [IAS 1.38]
An entity is required to present at least two of each of the following
primary financial statements: [IAS 1.38A]
✓ statement of financial position*
✓ statement of profit or loss and other comprehensive income
✓ separate statements of profit or loss (where presented)
✓ statement of cash flows
✓ statement of changes in equity
✓ related notes for each of the above items.

* A third statement of financial position is required to be presented if the

entity retrospectively applies an accounting policy, restates items, or
reclassifies items, and those adjustments had a material effect on the
information in the statement of financial position at the beginning of the
comparative period. [IAS 1.40A]
Where comparative amounts are changed or reclassified, various
disclosures are required. [IAS 1.41]

Structure and content of financial statements in general

IAS 1 requires an entity to clearly identify: [IAS 1.49-51]
• the financial statements, which must be distinguished from other
information in a published document
• each financial statement and the notes to the financial statements.

In addition, the following information must be displayed prominently, and

repeated as necessary: [IAS 1.51]
• the name of the reporting entity and any change in the name
• whether the financial statements are a group of entities or an
individual entity
 • information about the reporting period
• the presentation currency (as defined by IAS 21 The Effects of
Changes in Foreign Exchange Rates)
• the level of rounding used (e.g. thousands, millions).

Reporting period
There is a presumption that financial statements will be prepared at least
annually. If the annual reporting period changes and financial statements
are prepared for a different period, the entity must disclose the reason for
the change and state that amounts are not entirely comparable. [IAS 1.36]
STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)
Current and non-current classification
An entity must normally present a classified statement of financial
position, separating current and non-current assets and liabilities, unless
presentation based on liquidity provides information that is reliable. [IAS
1.60] In either case, if an asset (liability) category combines amounts that
will be received (settled) after 12 months with assets (liabilities) that will
be received (settled) within 12 months, note disclosure is required that
separates the longer-term amounts from the 12-month amounts. [IAS 1.61]
Current assets are assets that are: [IAS 1.66]
✓ expected to be realised in the entity's normal operating cycle
✓ held primarily for the purpose of trading
✓ expected to be realised within 12 months after the reporting period
✓ cash and cash equivalents (unless restricted).

All other assets are non-current. [IAS 1.66]

Current liabilities are those: [IAS 1.69]
✓ expected to be settled within the entity's normal operating cycle
✓ held for purpose of trading
✓ due to be settled within 12 months
✓ for which the entity does not have the right at the end of the reporting
period to defer settlement beyond 12 months.
Other liabilities are non-current.
o When a long-term debt is expected to be refinanced under an existing
loan facility, and the entity has the discretion to do so, the debt is
classified as non-current, even if the liability would otherwise be
due within 12 months. [IAS 1.73]

o If a liability has become payable on demand because an entity has

breached an undertaking under a long-term loan agreement on or
before the reporting date, the liability is current, even if the lender
has agreed, after the reporting date and before the authorisation of the
financial statements for issue, not to demand payment as a
consequence of the breach. [IAS 1.74] However, the liability is
classified as non-current if the lender agreed by the reporting
date to provide a period of grace ending at least 12 months after
the end of the reporting period, within which the entity can rectify
the breach and during which the lender cannot demand immediate
repayment. [IAS 1.75]
Settlement by the issue of equity instruments does not impact
classification. [IAS 1.76B]
Line items
The line items to be included on the face of the statement of financial
position are: [IAS 1.54]
(a) property, plant and equipment
(b) investment property
(c) intangible assets
financial assets (excluding amounts under (e), (h),
(d) and (i))
(e) investments accounted for using the equity method
(f) biological assets
(g) inventories
(h) trade and other receivables
(i) cash and cash equivalents
(j) assets held for sale
(k) trade and other payables
(l) provisions
(m financial liabilities (excluding amounts under (k)
) and (l))
(n) current tax liabilities and current tax assets (IAS 12)
deferred tax liabilities and deferred tax assets (IAS
(o) 12)
(p) liabilities included in disposal groups
(q) non-controlling interests, presented within equity
issued capital and reserves attributable to owners of
(r) the parent.
*Additional line items, headings and subtotals may be needed to fairly present the entity's financial position. [IAS 1.55]
When an entity presents subtotals, those subtotals shall be comprised of
line items made up of amounts recognised and measured in accordance
with IFRS; be presented and labelled in a clear and understandable
manner; be consistent from period to period; and not be displayed with
more prominence than the required subtotals and totals. [IAS 1.55A]*
Further sub-classifications of line items presented are made in the
statement or in the notes, for example: [IAS 1.77-78]:
✓ classes of property, plant and equipment
✓ disaggregation of receivables
✓ disaggregation of inventories in accordance with IAS 2 Inventories
✓ disaggregation of provisions into employee benefits and other items
✓ classes of equity and reserves.

Format of statement
IAS 1 does not prescribe the format of the statement of financial position.
Assets can be presented current then non-current, or vice versa, and
liabilities and equity can be presented current then non-current then equity,
or vice versa. A net asset presentation (assets minus liabilities) is
allowed. The long-term financing approach used in UK and elsewhere –
fixed assets + current assets - short term payables = long-term debt plus
equity – is also acceptable.
Share capital and reserves
Regarding issued share capital and reserves, the following disclosures are
required: [IAS 1.79]
• numbers of shares authorised, issued and fully paid, and issued but not
fully paid
 • par value (or that shares do not have a par value)
• a reconciliation of the number of shares outstanding at the beginning
and the end of the period
• description of rights, preferences, and restrictions

• treasury shares, including shares held by subsidiaries and associates

• shares reserved for issuance under options and contracts
• a description of the nature and purpose of each reserve within equity.
*Additional disclosures are required in respect of entities without share capital and where an entity has reclassified puttable financial
instruments. [IAS 1.80-80A]

STATEMENT OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE INCOME
Concepts of profit or loss and comprehensive income
• Profit or loss - "the total of income less expenses, excluding the
components of other comprehensive income"
• Other comprehensive income - "items of income and expense
(including reclassification adjustments) that are not recognised in
profit or loss as required or permitted by other IFRSs".
• Total comprehensive income - "the change in equity during a period
resulting from transactions and other events, other than those changes
resulting from transactions with owners in their capacity as owners".
[IAS 1.7]
Comprehensive Profit or
= + OCI
Income for the period Loss

All items of income and expense recognised in a period must be included

in profit or loss unless a Standard or an Interpretation requires otherwise.
[IAS 1.88] Some IFRSs require or permit that some components to be
excluded from profit or loss and instead to be included in other
comprehensive income.
Examples of items recognised outside of profit or
loss
✓ Changes in revaluation surplus where the
revaluation method is used
 under IAS 16 Property, Plant and
Equipment and IAS 38 Intangible Assets
✓ Remeasurements of a net defined benefit liability
or asset recognised in accordance
with IAS 19 Employee Benefits (2011)
✓ Exchange differences from translating functional
currencies into presentation currency in
accordance with IAS 21 The Effects of Changes
in Foreign Exchange Rates
✓ Gains and losses on remeasuring available-for-
sale financial assets in accordance
with IAS 39 Financial Instruments: Recognition
and Measurement
✓ The effective portion of gains and losses on
hedging instruments in a cash flow hedge under
IAS 39 or IFRS 9 Financial Instruments
✓ Gains and losses on remeasuring an investment in
equity instruments where the entity has elected to
present them in other comprehensive income in
accordance with IFRS 9
✓ The effects of changes in the credit risk of a
financial liability designated as at fair value
through profit and loss under IFRS 9.
In addition, IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors requires the correction of errors and the effect of changes in
accounting policies to be recognised outside profit or loss for the current
period. [IAS 1.89]
Choice in presentation and basic requirements
An entity has a choice of presenting:
• a single statement of profit or loss and other comprehensive income,
with profit or loss and other comprehensive income presented in two
sections, or
• two statements:
✓ a separate statement of profit or loss
✓ a statement of comprehensive income, immediately following
the statement of profit or loss and beginning with profit or loss
[IAS 1.10A]

The statement(s) must present: [IAS 1.81A]

• profit or loss
 • total other comprehensive income
• comprehensive income for the period
• an allocation of profit or loss and comprehensive income for the
period between non-controlling interests and owners of the parent.

Profit or loss section or statement

The following minimum line items must be presented in the profit or loss
section (or separate statement of profit or loss, if presented): [IAS 1.82-
82A]
• revenue
• gains and losses from the derecognition of financial assets measured
at amortised cost
• finance costs
• share of the profit or loss of associates and joint ventures accounted
for using the equity method
• certain gains or losses associated with the reclassification of financial
assets
• tax expense
• a single amount for the total of discontinued items
Expenses recognised in profit or loss should be analysed either by nature
(raw materials, staffing costs, depreciation, etc.) or by function (cost of
sales, selling, administrative, etc). [IAS 1.99] If an entity categorises by
function, then additional information on the nature of expenses – at a
minimum depreciation, amortisation and employee benefits expense –
must be disclosed. [IAS 1.104]
Other comprehensive income section
The other comprehensive income section is required to present line
items which are classified by their nature, and grouped between those
items that will or will not be reclassified to profit and loss in subsequent
periods. [IAS 1.82A]
An entity's share of OCI of equity-accounted associates and joint ventures
is presented in aggregate as single line items based on whether or not it
will subsequently be reclassified to profit or loss. [IAS 1.82A]*
When an entity presents subtotals, those subtotals shall be comprised of
line items made up of amounts recognised and measured in accordance
with IFRS; be presented and labelled in a clear and understandable
manner; be consistent from period to period; not be displayed with more
prominence than the required subtotals and totals; and reconciled with the
subtotals or totals required in IFRS. [IAS 1.85A-85B]*
Other requirements
Additional line items may be needed to fairly present the entity's results of
operations. [IAS 1.85]
Items cannot be presented as 'extraordinary items' in the financial
statements or in the notes. [IAS 1.87]
Certain items must be disclosed separately either in the statement of
comprehensive income or in the notes, if material, including: [IAS 1.98]
• write-downs of inventories to net realisable value or of property, plant
and equipment to recoverable amount, as well as reversals of such
write-downs
• restructurings of the activities of an entity and reversals of any
provisions for the costs of restructuring
• disposals of items of property, plant and equipment
• disposals of investments
• discontinuing operations
• litigation settlements
• other reversals of provisions

STATEMENT OF CASH FLOWS

Rather than setting out separate requirements for presentation of the
statement of cash flows, IAS 1.111 refers to IAS 7 Statement of Cash
Flows.
STATEMENT OF CHANGES IN EQUITY
IAS 1 requires an entity to present a separate statement of changes in
equity. The statement must show: [IAS 1.106]
 • total comprehensive income for the period, showing separately
amounts attributable to owners of the parent and to non-controlling
interests

• the effects of any retrospective application of accounting policies or

restatements made in accordance with IAS 8, separately for each
component of other comprehensive income

• reconciliations between the carrying amounts at the beginning and the

end of the period for each component of equity, separately disclosing:
✓ profit or loss
✓ other comprehensive income*
✓ transactions with owners, showing separately contributions by
and distributions to owners and changes in ownership interests in
subsidiaries that do not result in a loss of control

* An analysis of other comprehensive income by item is required to be

presented either in the statement or in the notes. [IAS 1.106A]
The following amounts may also be presented on the face of the statement
of changes in equity, or they may be presented in the notes: [IAS 1.107]
• amount of dividends recognised as distributions
• the related amount per share.

NOTES TO THE FINANCIAL STATEMENTS

The notes must: [IAS 1.112]
• present information about the basis of preparation of the financial
statements and the specific accounting policies used

• disclose any information required by IFRSs that is not presented

elsewhere in the financial statements and

• provide additional information that is not presented elsewhere in the

 financial statements but is relevant to an understanding of any of
them
Notes are presented in a systematic manner and cross-referenced from the
face of the financial statements to the relevant note. [IAS 1.113]
IAS 1.114 suggests that the notes should normally be presented in the
following order:*
• a statement of compliance with IFRSs

• a summary of significant accounting policies applied, including: [IAS

1.117]
✓ the measurement basis (or bases) used in preparing the financial
statements

✓ the other accounting policies used that are relevant to an

understanding of the financial statements

• supporting information for items presented on the face of the

statement of financial position (balance sheet), statement(s) of profit
or loss and other comprehensive income, statement of changes in
equity and statement of cash flows, in the order in which each
statement and each line item is presented

• other disclosures, including:

✓ contingent liabilities (see IAS 37) and unrecognised contractual
commitments

✓ non-financial disclosures, such as the entity's financial risk

management objectives and policies (see IFRS 7 Financial
Instruments: Disclosures)

* Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016,

clarifies this order just to be an example of how notes can be ordered and
adds additional examples of possible ways of ordering the notes to clarify
that understandability and comparability should be considered when
determining the order of the notes.

OTHER DISCLOSURES
Judgements and key assumptions
An entity must disclose, in the summary of significant accounting policies
or other notes, the judgements, apart from those involving estimations,
that management has made in the process of applying the entity's
accounting policies that have the most significant effect on the amounts
recognised in the financial statements. [IAS 1.122]

Examples cited in IAS 1.123 include management's judgements in

determining:
• when substantially all the significant risks and rewards of ownership
of financial assets and lease assets are transferred to other entities

• whether, in substance, particular sales of goods are financing

arrangements and therefore do not give rise to revenue.

An entity must also disclose, in the notes, information about the key
assumptions concerning the future, and other key sources of estimation
uncertainty at the end of the reporting period, that have a significant risk
of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year. [IAS 1.125] These disclosures do
not involve disclosing budgets or forecasts. [IAS 1.130]
Dividends
In addition to the distributions information in the statement of changes in
equity (see above), the following must be disclosed in the notes: [IAS
1.137]
• the amount of dividends proposed or declared before the financial
statements were authorised for issue but which were not recognised
as a distribution to owners during the period, and the related amount
 per share

• the amount of any cumulative preference dividends not recognised.

Capital disclosures
An entity discloses information about its objectives, policies and processes
for managing capital. [IAS 1.134] To comply with this, the disclosures
include: [IAS 1.135]
• qualitative information about the entity's objectives, policies and

processes for managing capital, including:

✓ description of capital it manages
✓ nature of external capital requirements, if any
✓ how it is meeting its objectives

• quantitative data about what the entity regards as capital

• changes from one period to another
• whether the entity has complied with any external capital
requirements and
• if it has not complied, the consequences of such non-compliance.

Puttable financial instruments

IAS 1.136A requires the following additional disclosures if an entity has a
puttable instrument that is classified as an equity instrument:
• summary quantitative data about the amount classified as equity
• the entity's 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
• the expected cash outflow on redemption or repurchase of that class of
financial instruments and
• information about how the expected cash outflow on redemption or
repurchase was determined.
Other information
The following other note disclosures are required by IAS 1 if not disclosed
elsewhere in information published with the financial statements: [IAS
1.138]
• domicile and legal form of the entity
• country of incorporation
• address of registered office or principal place of business
• description of the entity's operations and principal activities
• if it is part of a group, the name of its parent and the ultimate parent of
the group
• if it is a limited life entity, information regarding the length of the life

Terminology
The 2007 comprehensive revision to IAS 1 introduced some new
terminology. Consequential amendments were made at that time to all of
the other existing IFRSs, and the new terminology has been used in
subsequent IFRSs including amendments.

IAS 1.8 states: "Although this Standard uses the terms 'other
comprehensive income', 'profit or loss' and 'total comprehensive income',
an entity may use other terms to describe the totals as long as the meaning
is clear.

For example, an entity may use the term 'net income' to describe profit or
loss." Also, IAS 1.57(b) states: "The descriptions used and the ordering of
items or aggregation of similar items may be amended according to the
nature of the entity and its transactions, to provide information that is
relevant to an understanding of the entity's financial position."

Term before 2007 Term as amended by IAS

revision of IAS 1 1 (2007)
balance sheet statement of financial
 position
cash flow statement statement of cash flows
income statement statement of
comprehensive income
(income statement is
retained in case of a two-
statement approach)
recognised in the recognised in profit or loss
income statement
recognised recognised in other
[directly] in equity comprehensive income
(only for OCI
components)
recognised recognised outside profit
[directly] in equity or loss (either in OCI or
(for recognition equity)
both in OCI and
equity)
removed from reclassified from equity to
equity and profit or loss as a
recognised in profit reclassification adjustment
or loss ('recycling')
Standard or/and IFRSs
Interpretation
on the face of in
equity holders owners (exception for
'ordinary equity holders')
balance sheet date end of the reporting period
reporting date end of the reporting period
after the balance after the reporting period
sheet date
 IAS 7 — Statement of Cash Flow
➢ requires an entity to present a statement of cash flows as an integral
part of its primary financial statements.
➢ Cash flows are classified and presented into operating activities
(either using the 'direct' or 'indirect' method), investing activities or
financing activities, with the latter two categories generally presented
on a gross basis.

Objective of IAS 7
➢ require the presentation of information about the historical changes
in cash and cash equivalents of an entity by means of a statement of
cash flows, which classifies cash flows during the period according to
operating, investing, and financing activities.

Fundamental principle in IAS 7

➢ All entities that prepare financial statements in conformity with
IFRSs are required to present a statement of cash flows. [IAS 7.1]

• The statement of cash flows analyses changes in cash and cash

equivalents during a period.
• Cash and cash equivalents comprise cash on hand and demand
deposits, together with short-term, highly liquid investments that are
readily convertible to a known amount of cash, and that are subject to
an insignificant risk of changes in value.
• Guidance notes indicate that an investment normally meets the
definition of a cash equivalent when it has a maturity of three months
or less from the date of acquisition.
• Equity investments are normally excluded, unless they are in
substance a cash equivalent (e.g. preferred shares acquired within
three months of their specified redemption date).
 • Bank overdrafts which are repayable on demand and which form
an integral part of an entity's cash management are also included as a
component of cash and cash equivalents. [IAS 7.7-8]

Presentation of the Statement of Cash Flows

➢ Cash flows must be analysed between operating, investing and
financing activities. [IAS 7.10]

Key principles specified by IAS 7 for the preparation of a statement of

cash flows are as follows:

✓ operating activities - are the main revenue-producing activities of

the entity that are not investing or financing activities
- operating cash flows include cash received from customers and
cash paid to suppliers and employees [IAS 7.14]

✓ investing activities - are the acquisition and disposal of long-term

assets and other investments that are not considered to be cash
equivalents [IAS 7.6]
✓ financing activities - activities that alter the equity capital and
borrowing structure of the entity [IAS 7.6]

❖ Interest and dividends received and paid may be classified as operating,

investing, or financing cash flows, provided that they are classified
consistently from period to period [IAS 7.31]
❖ Cash flows arising from taxes on income are normally classified as
operating, unless they can be specifically identified with financing or
investing activities [IAS 7.35]
❖ For operating cash flows, the direct method of presentation is
encouraged, but the indirect method is acceptable [IAS 7.18]

The direct method shows each major class of gross cash receipts and
gross cash payments. The operating cash flows section of the statement of
cash flows under the direct method would appear something like this:
Cash receipts from customers xx,xx
x
Cash paid to suppliers xx,xx
x
Cash paid to employees xx,xx
x
Cash paid for other operating xx,xx
expenses x
Interest paid xx,xx
x
Income taxes paid xx,xx
x
Net cash from operating xx,xx
activities x

The indirect method adjusts accrual basis net profit or loss for the effects
of non-cash transactions. The operating cash flows section of the
statement of cash flows under the indirect method would appear
something like this:
Profit before interest and xx,xx
income taxes x
Add back depreciation xx,xx
x
Add back impairment of assets xx,xx
x
Increase in receivables xx,x
xx
Decrease in inventories xx,xx
x
Increase in trade payables xx,xx
x
Interest expense xx,x
xx
Less Interest accrued but not xx,x
yet paid xx
Interest paid xx,xx
x
Income taxes paid xx,xx
x
Net cash from operating xx,xx
activities x
• The exchange rate used for translation of transactions denominated in a
foreign currency should be the rate in effect at the date of the cash
flows [IAS 7.25]
• Cash flows of foreign subsidiaries should be translated at the exchange
rates prevailing when the cash flows took place [IAS 7.26]
• As regards the cash flows of associates, joint ventures, and subsidiaries,
where the equity or cost method is used, the statement of cash flows
should report only cash flows between the investor and the investee;
where proportionate consolidation is used, the cash flow statement
should include the venturer's share of the cash flows of the investee
[IAS 7.37]
• Aggregate cash flows relating to acquisitions and disposals of
subsidiaries and other business units should be presented separately and
classified as investing activities, with specified additional disclosures.
[IAS 7.39] The aggregate cash paid or received as consideration should
be reported net of cash and cash equivalents acquired or disposed of
[IAS 7.42]
• Cash flows from investing and financing activities should be reported
gross by major class of cash receipts and major class of cash payments
except for the following cases, which may be reported on a net basis:
[IAS 7.22-24]
✓ cash receipts and payments on behalf of customers (for example,

receipt and repayment of demand deposits by banks, and receipts

collected on behalf of and paid over to the owner of a property)
✓ cash receipts and payments for items in which the turnover is quick,

the amounts are large, and the maturities are short, generally less
than three months (for example, charges and collections from credit
card customers, and purchase and sale of investments)
✓ cash receipts and payments relating to deposits by financial
institutions
✓ cash advances and loans made to customers and repayments thereof
 • Investing and financing transactions which do not require the use of
cash should be excluded from the statement of cash flows, but they
should be separately disclosed elsewhere in the financial statements
[IAS 7.43]
• Entities shall provide disclosures that enable users of financial
statements to evaluate changes in liabilities arising from financing
activities [IAS 7.44A-44E]
• The components of cash and cash equivalents should be disclosed,
and a reconciliation presented to amounts reported in the statement of
financial position [IAS 7.45]
• The amount of cash and cash equivalents held by the entity that is not
available for use by the group should be disclosed, together with a
commentary by management [IAS 7.48]

IAS 8 — Accounting Policies, Changes in

Accounting Estimates and Errors
➢ applied in selecting and applying accounting policies, accounting for
changes in estimates and reflecting corrections of prior period errors.
➢ requires compliance with any specific IFRS applying to a
transaction, event or condition, and provides guidance on developing
accounting policies for other items that result in relevant and reliable
information. Changes in accounting policies and corrections of
errors are generally retrospectively accounted for, whereas changes
in accounting estimates are generally accounted for on a prospective
basis.

❖ Accounting policies are the specific principles, bases, conventions, rules

and practices applied by an entity in preparing and presenting financial
statements.
❖ A change in accounting estimate is an adjustment of the carrying amount
of an asset or liability, or related expense, resulting from reassessing the
expected future benefits and obligations associated with that asset or
 liability.
❖ International Financial Reporting Standards are standards and
interpretations adopted by the International Accounting Standards Board
(IASB). They comprise:
✓ International Financial Reporting Standards (IFRSs)
✓ International Accounting Standards (IASs)
✓ Interpretations developed by the International Financial Reporting
Interpretations Committee (IFRIC) or the former Standing
Interpretations Committee (SIC) and approved by the IASB.

❖ Materiality. 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.
❖ Prior period errors are omissions from, and misstatements in, an entity's
financial statements for one or more prior periods arising from a failure
to use, or misuse of, reliable information that was available and could
reasonably be expected to have been obtained and taken into account in
preparing those statements. Such errors result from mathematical
mistakes, mistakes in applying accounting policies, oversights or
misinterpretations of facts, and fraud.

Selection and application of accounting policies

When a Standard or an Interpretation specifically applies to a transaction,

other event or condition, the accounting policy or policies applied to that
item must be determined by applying the Standard or Interpretation and
considering any relevant Implementation Guidance issued by the IASB for
the Standard or Interpretation. [IAS 8.7]
In the absence of a Standard or an Interpretation that specifically applies to
a transaction, other event or condition, management must use its
judgement in developing and applying an accounting policy that results in
information that is relevant and reliable. [IAS 8.10].
In making that judgement, management must refer to, and consider the
applicability of, the following sources in descending order:
• the requirements and guidance in IASB standards and interpretations

dealing with similar and related issues; and

• the definitions, recognition criteria and measurement concepts for

assets, liabilities, income and expenses in the Framework. [IAS 8.11]

Management may also consider the most recent pronouncements of other
standard-setting bodies that use a similar conceptual framework to develop
accounting standards, other accounting literature and accepted industry
practices, to the extent that these do not conflict with the sources in
paragraph 11. [IAS 8.12]

Consistency of accounting policies

An entity shall select and apply its accounting policies consistently for
similar transactions, other events and conditions, unless a Standard or an
Interpretation specifically requires or permits categorisation of items for
which different policies may be appropriate. If a Standard or an
Interpretation requires or permits such categorisation, an appropriate
accounting policy shall be selected and applied consistently to each
category. [IAS 8.13]

CHANGES IN ACCOUNTING POLICIES

An entity is permitted to change an accounting policy only if the change:
• is required by a standard or interpretation; or

• results in the financial statements providing reliable and more relevant

information about the effects of transactions, other events or

conditions on the entity's financial position, financial performance, or
cash flows. [IAS 8.14]

Note that changes in accounting policies do not include applying an

accounting policy to a kind of transaction or event that did not occur
previously or were immaterial. [IAS 8.16]
If a change in accounting policy is required by a new IASB standard or
interpretation, the change is accounted for as required by that new
pronouncement or, if the new pronouncement does not include specific
transition provisions, then the change in accounting policy is applied
retrospectively. [IAS 8.19]

❖ Retrospective application means adjusting the opening balance of each

affected component of equity for the earliest prior period presented and
the other comparative amounts disclosed for each prior period presented
as if the new accounting policy had always been applied. [IAS 8.22]
✓ However, if it is impracticable to determine either the period-specific

effects or the cumulative effect of the change for one or more prior
periods presented, the entity shall apply the new accounting policy to
the carrying amounts of assets and liabilities as at the beginning of
the earliest period for which retrospective application is practicable,
which may be the current period, and shall make a corresponding
adjustment to the opening balance of each affected component of
equity for that period. [IAS 8.24]
✓ Also, if it is impracticable to determine the cumulative effect, at the

beginning of the current period, of applying a new accounting policy

to all prior periods, the entity shall adjust the comparative
information to apply the new accounting policy prospectively from
the earliest date practicable. [IAS 8.25]

Disclosures relating to changes in accounting policies

a) Disclosures relating to changes in accounting policy caused by a new
standard or interpretation include: [IAS 8.28]
✓ the title of the standard or interpretation causing the change

✓ the nature of the change in accounting policy

✓ a description of the transitional provisions, including those that might

have an effect on future periods

✓ for the current period and each prior period presented, to the extent
 practicable, the amount of the adjustment:
o for each financial statement line item affected, and

o for basic and diluted earnings per share (only if the entity is

applying IAS 33)

✓ the amount of the adjustment relating to periods before those
presented, to the extent practicable
✓ if retrospective application is impracticable, an explanation and
description of how the change in accounting policy was applied.

Financial statements of subsequent periods need not repeat these

disclosures.
b) Disclosures relating to voluntary changes in accounting policy
include: [IAS 8.29]
✓ the nature of the change in accounting policy

✓ the reasons why applying the new accounting policy provides reliable

and more relevant information

✓ for the current period and each prior period presented, to the extent

practicable, the amount of the adjustment:

o for each financial statement line item affected, and

o for basic and diluted earnings per share (only if the entity is

applying IAS 33)

✓ the amount of the adjustment relating to periods before those
presented, to the extent practicable
✓ if retrospective application is impracticable, an explanation and

description of how the change in accounting policy was applied.

Financial statements of subsequent periods need not repeat these

disclosures.

If an entity has not applied a new standard or interpretation that has been
issued but is not yet effective, the entity must disclose that fact and any
and known or reasonably estimable information relevant to assessing the
possible impact that the new pronouncement will have in the year it is
applied. [IAS 8.30]

CHANGES IN ACCOUNTING ESTIMATES

The effect of a change in an accounting estimate shall be recognised
prospectively by including it in profit or loss in: [IAS 8.36]
• the period of the change, if the change affects that period only, or

• the period of the change and future periods, if the change affects both.

However, to the extent that a change in an accounting estimate gives rise

to changes in assets and liabilities, or relates to an item of equity, it is
recognised by adjusting the carrying amount of the related asset, liability,
or equity item in the period of the change. [IAS 8.37]

Disclosures relating to changes in accounting estimates

Disclose:
• the nature and amount of a change in an accounting estimate that has

an effect in the current period or is expected to have an effect in

future periods
• if the amount of the effect in future periods is not disclosed because

estimating it is impracticable, an entity shall disclose that fact. [IAS

8.39-40]

PRIOR PERIOD ERRORS

The general principle in IAS 8 is that an entity must correct all material
prior period errors retrospectively in the first set of financial statements
authorised for issue after their discovery by: [IAS 8.42]
• restating the comparative amounts for the prior period(s) presented in

which the error occurred; or

• if the error occurred before the earliest prior period presented, restating
the opening balances of assets, liabilities and equity for the earliest
prior period presented.
However, if it is impracticable to determine the period-specific effects of
an error on comparative information for one or more prior periods
presented, the entity must restate the opening balances of assets, liabilities,
and equity for the earliest period for which retrospective restatement is
practicable (which may be the current period). [IAS 8.44]

Further, if it is impracticable to determine the cumulative effect, at the

beginning of the current period, of an error on all prior periods, the entity
must restate the comparative information to correct the error prospectively
from the earliest date practicable. [IAS 8.45]

Disclosures relating to prior period errors

Disclosures relating to prior period errors include: [IAS 8.49]
• the nature of the prior period error

• for each prior period presented, to the extent practicable, the amount of

the correction:
o for each financial statement line item affected, and

o for basic and diluted earnings per share (only if the entity is

applying IAS 33)

• the amount of the correction at the beginning of the earliest prior

period presented
• if retrospective restatement is impracticable, an explanation and

description of how the error has been corrected.

 IAS 10 — Events After the Reporting Period
➢ contains requirements for when events after the end of the reporting
period should be adjusted in the financial statements.

❖ Event after the reporting period: An event, which could be favourable

or unfavourable, that occurs between the end of the reporting period and
the date that the financial statements are authorised for issue. [IAS 10.3]
❖ Adjusting event: An event after the reporting period that provides
further evidence of conditions that existed at the end of the reporting
period, including an event that indicates that the going concern
assumption in relation to the whole or part of the enterprise is not
appropriate. [IAS 10.3]
❖ Non-adjusting event: An event after the reporting period that is
indicative of a condition that arose after the end of the reporting period.
[IAS 10.3]

Accounting
• Adjust financial statements for adjusting events - events after the
 balance sheet date that provide further evidence of conditions that
existed at the end of the reporting period, including events that
indicate that the going concern assumption in relation to the whole or
part of the enterprise is not appropriate. [IAS 10.8]
• Do not adjust for non-adjusting events - events or conditions that
arose after the end of the reporting period. [IAS 10.10]
• If an entity declares dividends after the reporting period, the entity
shall not recognise those dividends as a liability at the end of the
reporting period. That is a non-adjusting event. [IAS 10.12]

Going concern issues arising after end of the reporting period

An entity shall not prepare its financial statements on a going concern
basis if management determines after the end of the reporting period either
that it intends to liquidate the entity or to cease trading, or that it has no
realistic alternative but to do so. [IAS 10.14]

Disclosure
Non-adjusting events should be disclosed if they are of such importance
that non-disclosure would affect the ability of users to make proper
evaluations and decisions. The required disclosure is (a) the nature of the
event and (b) an estimate of its financial effect or a statement that a
reasonable estimate of the effect cannot be made. [IAS 10.21]

A company should update disclosures that relate to conditions that existed

at the end of the reporting period to reflect any new information that it
receives after the reporting period about those conditions. [IAS 10.19]

Companies must disclose the date when the financial statements were
authorised for issue and who gave that authorisation. If the enterprise's
owners or others have the power to amend the financial statements after
issuance, the enterprise must disclose that fact. [IAS 10.17]

Examples of Adjusting Events include:

• Settlement of litigation against the entity after the reporting date, in
respect of events that occurred before the end of reporting period, may
provide evidence of the existence and amount of liability at the reporting
date. A liability in respect of the litigation may be recorded in the
financial statements if not recognized initially or the amount of liability
may be adjusted in accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets.

• Declaration of bankruptcy by a long outstanding receivable after the

reporting date may provide evidence that the receivable was impaired at
the reporting date. Impairment may be recognized in the financial
statements by reducing the amount of receivable to its recoverable
amount, if any.

• Detection of fraud or errors after the reporting period may indicate

that the financial statements are misstated. Financial statements may be
adjusted to reflect accounting for those errors or frauds that relate to the
present or prior reporting periods in accordance with IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors.

Examples of Non-Adjusting Events include:

• Declaration of dividends after the reporting date does not indicate

existence of liability to pay dividends at the reporting date and

shall not therefore trigger the recognition of liability in financial
statements in accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets.
• Destruction of assets of the entity by floods occurring after the

reporting period does not indicate that the assets of the entity were
impaired at the end of reporting period. Hence, the financial statements
should not be adjusted to account for the impairment loss that arose
after the end of reporting period.
• Initiation of litigation against the company arising out of events that
 occurred after the reporting period does not indicate the existence of
liability at the reporting date and shall not therefore trigger the
recognition of liability in the financial statements in accordance with
IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Examples of material non-adjusting events include:

• Management’s plan to discontinue or significantly curtail its

activities in major geographic segments.

• Initiation of a major litigation against the company arising out of

events that occurred after the reporting period.

• Major losses suffered as a result of a natural disaster occurring

after the end of reporting period.