Financial Statements Presentation

Changes in Accounting Policies,

Estimates & Errors

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Objectives
 To ensure:
□ Consistency:
– Comparability between entity’s financial statements of
previous periods
□ Comparability:
– Vis a vis financial statements of other entities
 Sets out:
□ Overall requirements for presentation;
□ Guidelines for their structure; and
□ Minimum requirements for their content
• Exposure Draft AS 1 (Revised) issued by ICAI recently pursuant to the
decision to converge with IFRS, based on IAS 1 (Revised 2007). Current
AS 1 deals only with Disclosure of Accounting Policies

•Revised IAS 1 is effective for annual periods beginning on or after 1

January 2009.

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Fair presentation and compliance with IFRSs
 Financial statements to fairly present financial position,
performance and cash flows essentially requiring faithful
representation of:
□ Effects of transactions
□ Other events and
□ Conditions
In accordance with the Framework
 Application of IFRSs, with additional disclosures as
necessary, is presumed to result in fair presentation
 Where FS comply with IFRSs, an explicit and unreserved
statement thereof to be made in the notes
 Inappropriate accounting policies are not rectified by
disclosure or by notes or by explanatory material
•Unless financial statements comply with all IFRSs, SICs and IFRICs,
they shall not be described as complying with IFRSs
•Recognition, Measurement & Disclosure are the three fundamentals of
the reporting framework
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The key changes from previous version of IAS 1:
 Owner changes in equity to be presented in the statement of
changes in equity, separately from non-owner changes in
equity (“Other Comprehensive Income”). In respect of OCI:
□ Income tax relating to each component to be disclosed.
□ Reclassification adjustments relating to components also
to be disclosed
□ Share of equity accounted…..
 Presentation of Dividends
□ Dividends to owners and related amounts per share to be
presented in the Statement of Changes in Equity or in
the notes.
 The terms “Balance sheet" and “Cash Flow statement" are
replaced with “Statement of Financial Position" and
“Statement of Cash Flows“. “SORIE” no more relevant.
 New disclosure requirements for puttable instruments and
obligations arising on liquidation
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Components of Complete set of financial statements
 Statement of financial position
 Statement of comprehensive income ##
 Statement of changes in equity,
 Statement of Cash flows
 Notes, comprising a summary of significant accounting
policies and other explanatory information
 A statement of financial position as at the beginning of
the earliest comparative period when an entity either
□ Applies an accounting policy retrospectively
□ Makes a retrospective restatement of items in its
financial statements
□ Reclassifies items in its financial statements

## May be presented in a single statement or P & L components

presented in a separate ‘income statement’ immediately before OCI

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Some Definitions
 Profit or Loss
□ total of income less expenses, excluding the components of other
comprehensive income.
 Other Comprehensive Income
□ Changes in revaluation surplus (IAS 16 and IAS 38)
□ Actuarial gains and loss on defined benefit plans (IAS 19, para 93A)
□ Gains and losses from translating financial statements of foreign
operation (IAS 21)
□ Gains and losses on re-measuring AFS financial assets (IAS 39)
□ Effective portion of gains and losses on hedging instruments in a
cash flow hedge (IAS 39)
 Total Comprehensive Income
□ is 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.
□ comprises all components of ‘profit or loss’ and of ‘other
comprehensive income’

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Some Definitions (conti..)
 Impracticable:
□ Applying a requirement is impracticable when the entity cannot
apply it after making every reasonable effort to do so.
 Material Omissions or misstatements of items
□ Items which individually or collectively, influence the economic
decisions which users make on the basis of the financial
statements
 Reclassification Adjustments
□ amounts reclassified to profit or loss in the current period that
were recognised in other comprehensive income in the current
or previous periods.

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General principles
Accrual basis of accounting
 Accrual basis of accounting, except for cash flow information.
Materiality and Aggregation
 Each material class of similar items is presented separately
 Dissimilar items are presented separately, unless they are
immaterial
Consistency of presentation
 The presentation and classification of items of FS shall be
retained from period to period unless
□ A significant change in operations (acquisition/disposal) or a financial
statement’s review makes a different presentation/classification more
appropriate
□ A standard or interpretation requires a change
□ In such case, comparative information is also reclassified

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 General principles (contd)
Offsetting
 Assets-liabilities, income-expenditures are not offset unless
required or permitted by a standard or interpretation
 Measuring assets net of valuation allowance is not offsetting
 Revenue to be shown net of trade discounts/volume rebates
 For transactions incidental to generating revenue, income
and related expenses are netted off
□ Gain/loss on disposal of non-current assets
□ Third-party reimbursement of an expense provided
 Unless material, gains/losses from group of similar
transactions are reported net
□ FE gain/loss, or gain/loss on financial instruments

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 General principles (contd)
Frequency of reporting

 An entity shall present a complete set of financial

statements (including comparative information) at least
annually.

 When an entity changes the end of its reporting period and

presents financial statements for a period longer or shorter
than one year, an entity shall disclose, in addition to the
period covered by the financial statements:
□ the reason for using a longer or shorter period, and
□ the fact that amounts presented in the financial statements are not
entirely comparable.

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Going concern
 Management to make going concern assessment
 Financial statements prepared on going concern basis
unless management intends to liquidate entity, or to cease
trading, or has no realistic alternative but to do so
 Material uncertainties that cast significant doubt as to
going concern shall be disclosed
 If financial statements are not prepared on going concern
basis, that fact is disclosed, along with basis on which they
are prepared, and the reason why entity is not regarded as
going concern
 For going concern judgement
□ To look at least 12 mths into future
□ Degree of consideration depends on facts of each case

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Comparative information
 Comparative information shall be disclosed for
□ all amounts reported in current year’s financial statements
□ for narrative/descriptive information relevant to
understanding of current FS
 If previous period narrative information remains relevant also
in current period, it is disclosed in current period.
 When presentation/classification is amended, comparatives
are reclassified, unless impracticable. To disclose
□ Nature of reclassification
□ Amount of each item or class of items reclassified
□ Reason for reclassification

 When impracticable to reclassify comparatives, to disclose

□ Reason for not reclassifying
□ Nature of adjustment to be made if amounts had been
reclassified
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Structure and
Content
Introduction
 Distinction made between particular disclosures on
the face of the FS and other disclosures either on
the face of the FS or in the notes
 Cash flow information is presented in accordance
with IAS 7
 Where other standards prescribe disclosures, they
may be made either on the face of the financial
statements, unless specified in this standard or
any other standard.

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Identification of the financial statements
 Financial Statements (each component thereof) to be
clearly identified and distinguished from other information
in the same published document
 Entity shall display prominently the following informationto
enhance understandability of the financial statements :
□ the name of the reporting entity or other means of identification,
and any change in that information from the end of the preceding
reporting period;
□ whether the financial statements are of an individual entity or a
group of entities;
□ the date of the end of the reporting period or the period covered
by the set of financial statements or notes;
□ the presentation currency, as defined in IAS 21; and
□ the level of rounding used in presenting amounts in the financial
statements (thousands or millions or billions etc)

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Information to be presented in the statement of financial position

 PPE  Financial liabilities (excluding

 Investment property next 2 bullets)
 Intangible assets  Trade and other payables
 Financial assets (excluding  Provisions
next 3 bullets)  Current tax assets/liabilities
 Investments accounted for  Deferred tax assets/liabilities
using equity method  Liabilities classified as held for
 Trade and other receivables sale (IFRS 5)
 Cash & cash equivalents  Minority interests, presented
 Biological assets within equity
 Inventories  Issued capital and reserves
 Assets classified as held for attributable to equity holders
sale (IFRS 5) of the parent
The standard does not prescribe the order or format in which an entity
presents the items. Para 54 lists items that are sufficiently different in
nature or function to warrant a separate presentation.
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Information to be presented in the statement of financial position
 When an entity presents current and non-current assets, and
current and non-current liabilities, as separate classifications
in its statement of financial position, it shall not classify
deferred tax assets (liabilities) as current assets (liabilities).
 Entity shall present additional line items, headings and
subtotals in the statement of financial position to enhance
understanding of the financial position.
 Additionally,
□ line items are included when the size, nature or function of an item or
aggregation of similar items warrants a separate presentation; and
□ Line items are included due to the nature of the entity and its
transactions. For example, a financial institution
 Judgement for showing additional items separately based on
□ Nature and liquidity of assets
□ Function of the assets within the entity
□ Amounts, nature and timing of liabilities

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Current/noncurrent distinction
 Assets and liabilities to be separately classified under current and
noncurrent based on the realisation and settlement, respectively,
within its normal operating cycle.
 Allowed alternative – based on liquidity , if it provides information
that is more reliable and relevant (eg for financial institutions)
 It is permitted to present some items using the current-noncurrent
classification and others using the liquidity based classification (eg
where an entity has diverse operations)
 Where amounts recoverable / to be settled in < 12 months and >
12 months are combined then, under either method, it is required
to disclose the amount recoverable / to be settled within and after
12 months

An operating cycle is the time between acquisition of assets for

processing and their realisation into cash or cash equivalents,
which may be more than 12 months

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What are current and noncurrent assets?
 An asset is classified as current if it satisfies ANY of the
following criteria:
□ expected to be realised in, or is intended for sale or
consumption in, the entity’s normal operating cycle
□ held primarily for the purpose of being traded
□ expected to be realised within 12 months after balance sheet
date
□ It is cash or a cash equivalent (unless it is restricted for > 12
months)
 All other assets are classified as noncurrent
 Noncurrent assets include tangible, intangible or long-term
financial assets – such descriptions may be used as long as
the meaning is clear
 The same normal operating cycle applies to the classification
of all Assets/Liabilities.

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What are current and noncurrent liabilities?
 A liability is classified as current if it satisfies ANY of the
following criteria
□ expected to be settled in the entity’s normal operating cycle
□ held primarily for the purpose of being traded
□ due to be settled within 12 months after balance sheet date
□ The entity does not have an unconditional right to defer
settlement of the liability for at least 12 months after balance
sheet date
 All other liabilities are classified as non-current
 Some current liabilities (trade payables, employee accruals)
are part of working capital used in a normal operating cycle
and are treated as current, even though payable after 12
mths

What about funded working capital limits renewed annually in India ?

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What are current and noncurrent liabilities?
 Financial liabilities are current, if to be settled within 12
months, even if
□ The original term was for > 12 mths
□ A refinance or rescheduling agreement is completed after
balance sheet date and before the FS are authorised for issue
 If under an existing loan facility, an entity expects / has the
discretion to refinance or roll over an obligation for > 12
months, it is noncurrent
 If as a result of payment default before B/S date a long
term obligation becomes callable, it is current – even if
after B/S date lender agrees not to demand payment
 If following happen between B/S date and before the FS
are authorised for issue, they qualify for disclosure as non-
adjusting events under IAS 10 (Events after B/S Date)
□ Refinancing an long term obligation
□ Rectification of breach of an long term loan agreement
□ Receipt from lender of a period of grace to rectify breach of
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an long term loan agreement
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Information to be presented either on the face of
the Statement of financial position or in the Notes
 Further sub-classifications of the line items, suitably
classified, may be presented either in the statement of
financial position or in the notes (schedules), classified in a
manner appropriate to the entity’s operations.
 Disclosures vary for each item – e.g.
□ Items of PPE are disaggregated into classes per IAS 16 (PPE)
□ Receivables are disaggregated into amounts receivable from
trade customers, related parties, prepayments and other
amounts
□ Inventories are classified per IAS 2 (Inventories) like
merchandise, product supplies, materials, WIP, finished goods..
□ Provisions are disaggregated into those for employee benefits
and other items
□ Contributed equity and reserves are disaggregated into
different classes like paid in capital, share premium, reserves.

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Information to be presented either on the face of
the Statement of financial position or in the Notes
 For each class of share capital
□ Number of shares authorised
□ Number of shares issued and fully paid, and issued and not fully
paid
□ Par value per share, or that shares have no par value
□ Reconciliation of number of shares outstanding at beginning
and at end of the period
□ Rights, preferences and restrictions attaching to a class,
including restrictions on distribution of dividends and repayment
of capital
□ Shares in the entity held by the entity (treasury) or by its
subsidiaries or associates
□ Shares reserved for issue under options and contracts for the
sale of shares, including terms and amounts
 Description of the nature and purpose of each reserve within
equity
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Statement of Comprehensive Income
 Entity shall present all items of income and expense, in
either
□ Single statement of Comprehensive Income; or
□ In two statements viz.
– Statement of profit or loss (separate income statement)
– Statement beginning with profit or loss and displaying components of
OCI
 Entity shall recognize all items of income and expenses in a
period in statement of profit or loss, unless permitted by the
standard
 Examples where a standard permits otherwise
□ The correction of errors, and the effect of changes in accounting
policies (IAS 8)
□ Revaluation surpluses (IAS 16)
□ Gains/losses arising in translating FS of a foreign operation (IAS 21)
□ Gains/losses on remeasuring AFS financial assets (IAS 39)

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Information to be presented on the face of the
Statement of Comprehensive Income
 Revenue
 Finance cost
 Share of profit or loss of associates or JVs accounted for using
the equity method
 Tax expense
 A single amount comprising the total of: (1) post-tax P/L of
discontinued operations, and (2) the post-tax gain/loss
recognised on the measurement to fair value (less cost to sell)
or on disposal of the assets or disposal group(s) constituting the
discontinued operation
 Profit or loss
 Each component of OCI classified by nature (excl next item)
 Share of OCI of associates and joint ventures accounted for
using equity method
 Total comprehensive income
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Information to be presented on the face of the
Statement of Comprehensive Income
 An entity shall disclose the following items in the
statement of comprehensive income as allocations
of profit or loss for the period:
□ profit or loss for the period attributable to:
– Non-controlling interest, and
– owners of the parent.
□ total comprehensive income for the period attributable
to:
– Non-controlling interest, and
– owners of the parent.

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Information to be presented on the face of the
Statement of Comprehensive Income
 Additional line items, headings, subtotals are presented on
face of Statement of Comprehensive Income when such
presentation is relevant to an understanding of the entity’s
financial performance
 An entity shall not present any items of income and
expenditure as extraordinary items either in the Statement
of Comprehensive Income or a separate income statement
(if presented) or in the notes

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Information to be presented either in the Statement
of Comprehensive Income or in the notes
 When items of income and expense are material,
their nature and amount shall be disclosed
separately
 Circumstances requiring separate disclosure:
□ Write-down of inventory to NRV, or of PPE 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 PPE
□ Disposals of investments
□ Discontinued operations
□ Litigation settlements
□ Other reversals of provisions

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32
Analysis
 An entity presents an analysis of expenses, recognised in
profit or loss, using a classification based on either the
nature of expenses or their function within the entity,
whichever provides information that is reliable and more
relevant
 Expenses are sub-classified to highlight components of
financial performance that may differ in terms of
frequency, potential for gain or loss and predictability
 Entities classifying expenses by function disclose additional
information on the nature of expenses, including
depreciation and amortisation expense and employee
benefits expense

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Classification by nature
 Example
Revenue X
Other income X
Changes in inventories of FG and WIP X
Raw materials and consumables used X
Employee benefit expense X
Depreciation and amortisation expense X
Other expenses X
Total expenses (X)
Profit X

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Classification by function or “cost of sales” method
 Example

Revenue X
Cost of sales (X)
Gross profit X
Other income X
Distribution costs (X)
Administrative costs (X)
Other expenses (X)
Profit X

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Statement of
Changes in Equity/OCI
Information to be presented on the face of the
statement of changes in equity
 Total comprehensive income for the period, showing separately
the total amounts attributable to owners of the parent and to non
controlling interest;
 For each component of equity, the effects of retrospective
application accounting policies or retrospective restatement of
corrections of errors recognised in accordance with IAS 8
 For each component of equity, a reconciliation between the
carrying amount at the beginning and the end of the period
separately disclosing each change from:
□ Transactions with owners in that capacity
□ Contributions by and distributions to owners & ownership interest changes
in subsidiaries (with no control change)
 The entity shall present in the statement or in the notes the
amount of dividends recognised as distributions to owners during
the period, and the related amount per share.
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Retrospective adjustments and retrospective
restatements
 IAS 8 requires retrospective adjustments to effect changes
in accounting policies, to the extent practicable
 IAS 8 also requires that restatements to correct errors are
made retrospectively, to the extent practicable
 Retrospective adjustments and retrospective restatements
are generally made to the balance of retained earnings
 These adjustments are disclosed for each prior period and
the beginning of the period

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Other Comprehensive Income for the period
 An entity shall disclose the amount of income tax
relating to each component of other
comprehensive income, including reclassification
adjustments, either in the statement of
comprehensive income or in the notes.
 An entity may present components of other
comprehensive income either:
□ net of related tax effects, or
□ before related tax effects with one amount shown for
the aggregate amount of income tax relating to those
components.
 An entity shall disclose reclassification adjustments
relating to components of other comprehensive
income.
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40
Accounting Policies &
Notes
Structure
 The notes shall:
□ Present information about the basis of preparation of the
financial statements and the specific accounting policies
used
□ Disclose the information required by IFRSs that is not
presented in the statement of position, statement of
comprehensive income, statement of changes in equity,
or statement of cash flows
□ Provide additional information that is not presented in
the financial statements, but is relevant to an
understanding of any of them.
 Each item in the statement of position, statement of
comprehensive income, statement of changes in equity, or
statement of cash flows is cross-referenced to any related
information in the notes
 Notes are, as far as practicable, presented in a systematic
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manner (see next slide)
Normal order of presentation
 Statement of compliance with IFRSs
 A summary of significant accounting policies applied
 Supporting information for items presented on the face of
the statement of financial position, statement of
comprehensive income, statement of changes in equity and
of cash flows, in the order in which each statement and
each line item is presented; and
 Other disclosures, including:
□ Contingent liabilities (IAS 37), and unrecognised
contractual commitments
□ Non-financial disclosures, e.g. the entity’s financial risk
management objectives and policies (IFRS 7)

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Normal order of presentation
 In some circumstances, it may be necessary or
desirable to vary the ordering of specific items within
the notes
□ Eg, information on changes in FV recognised in profit or
loss may be combined with information on maturities of
financial instruments, although the former disclosures
relate to the income statement and the latter relate to the
balance sheet
 Nevertheless, a systematic structure for the notes is
retained as far as practicable
 Notes regarding the basis of preparation of financial
statements and significant accounting policies may
be presented as a separate component of the
financial statements
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Disclosure of accounting policies
 An entity shall disclose in the summary of
significant accounting policies:
□ The measurement basis (or bases) used in preparing
the financial statements (Eg historical cost, current
cost, NRV, FV or recoverable amount)
□ The other accounting policies used that are relevant to
an understanding of the financial statements

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Disclosure of accounting policies
 Consideration whether disclosure would assist users in
understanding how transactions, other events and conditions are
reflected in the reported financial performance and financial
position
 Disclosure of particular accounting policies especially when
alternatives are provided in standards and interpretations – e.g.
□ Disclosure of whether a venturer recognises its interest in a jointly
controlled entity using proportionate consolidation or the equity
method (IAS 31 Interests in JVs)
 Some standards specifically require disclosure of particular
accounting policies, including choices made by management
between different policies they allow – e.g.
□ IAS 16 PPE, requires disclosure of the measurement bases used for
classes of property, plant and equipment
□ IAS 23 Borrowing Costs, requires disclosure of whether borrowing
costs are recognised immediately as an expense or capitalised as
part of the cost of qualifying assets

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Disclosure of accounting policies
 Each entity considers the nature of its operations and the
policies that the users of its financial statements would
expect to be disclosed for that type of entity – e.g.
□ An entity subject to income taxes would be expected to
disclose its accounting policies for income taxes, including
those applicable to deferred tax liabilities and assets
□ When an entity has significant foreign operations or
transactions in foreign currencies, disclosure of accounting
policies for the recognition of foreign exchange gains and
losses would be expected
□ When business combinations have occurred, the policies
used for measuring goodwill and non-controlling interest are
disclosed

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Disclosure of accounting policies
 An accounting policy may be significant because of the
nature of the entity’s operations, even if amounts for
current and prior periods are not material
 It is also appropriate to disclose each significant accounting
policy that is not specifically required by IFRSs, but is
selected and applied in accordance with IAS 8

48
 Disclosure of accounting policies - judgements
 An entity discloses the judgements, apart from those
involving estimations, that management has made in the
process of applying the entity’s accounting policies and that
have the most significant effect on the amounts recognised in
the FS
 Examples of judgements:
□ Whether financial assets are held-to-maturity investments
□ 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
□ Whether the substance of the relationship between the
entity and a special purpose entity indicates that the
special purpose entity is controlled by the entity
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Disclosure of accounting policies – judgements
 Some of the judgements to be disclosed are required by
other standards – eg
□ IAS 27 requires an entity to disclose the reasons why
the entity’s ownership interest does not constitute
control, in respect of an investee, that is not a
subsidiary, even though more than half of its voting or
potential voting power is owned directly or indirectly
through subsidiaries
□ IAS 40 requires disclosure of the criteria developed by
the entity to distinguish investment property from
owner-occupied property and from property held for
sale in the ordinary course of business, when
classification of the property is difficult

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Disclosure of accounting policies – assumptions and
estimation uncertainty
 An entity discloses 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
 In respect of those assets and liabilities, the notes shall
include details of:
□ Their nature
□ Their carrying amount as at the end of the reporting period
 Assumptions: eg
□ risk adjustment to cash flows or discount rates used to
arrive at recoverable value of PPE
□ future changes in salaries to calculate long term employee
benefit liabilities

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 Disclosure of accounting policies – assumptions and
estimation uncertainty
 The key assumptions and other key sources of estimation
uncertainty to be disclosed are estimates that require
management’s most difficult, subjective or complex
judgements
 These disclosures are not required for assets or liabilities
with a significant risk that their carrying amounts might
change materially within the next financial year if, at end
of the reporting period, they are measured at FV

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Disclosure of accounting policies – assumptions and
estimation uncertainty
 Such disclosures are presented in a manner that helps
users of FS to understand the management’s judgements
about the future and estimation uncertainty – eg
□ Nature of the assumption or other estimation uncertainty
□ Sensitivity of carrying amounts to the methods, assumptions
and estimates underlying their calculation, including the
reasons for the sensitivity
□ The expected resolution of an uncertainty, and the range of
reasonably possible outcomes within the next financial year
in respect of the carrying amounts of the A/L affected
□ An explanation of changes made to past assumptions
concerning those A/L, if the uncertainty remains unresolved
 Budget information or forecasts are not disclosed

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 Disclosure of accounting policies – assumptions
and estimation uncertainty
 When it is impracticable to disclose the extent of the possible effects
of a key assumption or another key source of estimation uncertainty at
the end of the reporting period, the entity discloses
□ that it is reasonably possible, based on existing knowledge, that
outcomes within the next financial year that are different from
assumptions could require a material adjustment to the carrying
amount of the assets/liabilities (A/L) affected
□ In all cases, the nature and carrying amount of the specific A/L (or
class of A/L) affected by the assumption are disclosed
 Some of these disclosures are specifically required by other standards
– e.g.
□ IAS 37 requires disclosure of assumptions concerning future events
affecting classes of provisions
□ IAS 32 requires disclosure of assumptions applied in estimating FVs
of financial A/L measured at FV
□ IAS 16 requires disclosure of assumptions applied in estimating FVs
of revalued items of PPE
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Disclosure of accounting policies – capital
 An entity shall disclose information that enables users of its
financial statements to evaluate the entity’s objectives,
policies and processes for managing capital
 Following disclosures are made
□ qualitative information about its objectives, policies and
processes for managing capital, including (but not
limited to):
– a description of what it manages as capital
– when an entity is subject to externally imposed
capital requirements, the nature of those
requirements and how those requirements are
incorporated into the management of capital
– how it is meeting its objectives for managing capital

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Disclosure of accounting policies – capital
 Following disclosures are made (cont/d)
□ Summary quantitative data about what it manages as capital
– Some entities regard some financial liabilities (eg some
forms of subordinated debt) as part of capital; other
entities regard capital as excluding some components of
equity (eg components arising from cash flow hedges)
□ Any changes in the above from the previous period
□ Whether during the period it complied with any externally
imposed capital requirements to which it is subject
□ When the entity has not complied with such externally
imposed capital requirements, the consequences of such non-
compliance
 These disclosures shall be based on the information provided
internally to the entity’s key management personnel

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Hold on..
Departure from IFRS

 In the extremely rare circumstances in which management

concludes that compliance with a requirement in a standard
or an interpretation would be so misleading that it would
conflict with the objective of FS set out in the Framework,
the entity shall depart from that requirement giving the
disclosures below if the relevant regulatory framework
requires, or otherwise does not prohibit, such a departure

 Pg 247 of 2007 Annual Report

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Departure from IFRS (contd)
 Disclosures to be made
□ 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 standards and interpretations,
except that it has departed from a particular requirement to achieve
a fair presentation
□ the title of the standard or interpretation from which the entity has
departed, the nature of the departure, including the treatment that
the standard or interpretation would require, the reason why that
treatment would be so misleading in the circumstances that it would
conflict with the objective of financial statement set out in the
Framework, and the treatment adopted
□ for each period presented, the financial impact of the departure on
each item in the financial statement that would have been reported
in complying with the requirement

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Departure from IFRS (contd)
 When assessing whether complying with a specific
requirement in a standard or an interpretation would be so
misleading that it would conflict with the objective of
financial statements set out in the Framework,
management considers
□ why the objective of financial statements is not achieved in the
particular circumstances; and
□ how the entity’s circumstances differ from those of other entities
that comply with the requirement.
 If other entities in similar circumstances comply with the
requirement, there is a rebuttable presumption that the
entity’s compliance with the requirement would not be so
misleading that it would conflict with the objective of
financial statements set out in the Framework

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Departure from IFRS (contd)
 When an entity had departed from a
requirement of a standard or an
interpretation in a prior period, and that
departure affects the amounts recognised in
the financial statements for the current
period, it shall make the last two disclosures
below

 Ref Societe Generale 2008 Report

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Fair presentation and compliance with IFRSs
Departure from IFRS and regulatory framework
 In the extremely rare circumstances in which management
concludes that compliance with a requirement in a standard
or an interpretation would be so misleading that it would
conflict with the objective of financial statements set out in
the Framework, and the relevant regulatory framework
prohibits such departure from the requirement, the entity
shall, to the maximum extent possible, reduce the perceived
misleading aspects of compliance by disclosing:
□ the title of the IFRS in question,
□ the nature of the requirement, and
□ the reason for management’s conclusion and
□ for each period presented, the adjustments to each item
in the financial statements that management has
concluded would be necessary to achieve a fair
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presentation.
New (read ‘onerous’)Disclosure
requirements
Additional Disclosure Requirements
 Re Puttable Instruments -136 A
(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.
 Capital Disclosures – Ref guidance
 Risk Management disclosures – Illustrative
Annual Reports

64
Capital Disclosures illusration

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66
Changes in Accounting
Policies/Estimates &
Errors
Accounting policies
 Specific application: Standard, interpretation, IASB
implementation guidance
 No specific application: Management judgement
resulting in information that is:
□ Relevant to eco decision-making needs of users &
□ Reliable, in that the FS:
– represent faithfully the financial position,
performance & CFs
– reflect economic substance (not merely legal form)
– are neutral (free from bias)
– are prudent &
– are complete in all material respects

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Accounting policies
 Hierarchy for judgement (in descending order)
□ A
– Standards/ interpretations dealing with similar/
related issues
– Definitions / recognition criteria / measurement
concepts for A/L , I/E in the Framework
□ B
– Most recent pronouncements of other standard-
setting bodies that use a similar conceptual
framework
– Other accounting literature, &
– Accepted industry practices

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Accounting policies
 Selected policies must be applied consistently to
similar transactions
 Change in accounting policy only if change:
□ is required by a Standard / Interpretation; or
□ results in the FS providing reliable and more relevant
information
 Where new standard has transition provision, that is
followed, if not, change is applied retrospectively
 Voluntary changes are applied retrospectively as if
new policy always applied (earlier allowed alternative
removed)

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Estimates
 Estimation involves judgements based on
latest available, reliable information
 Examples
□ Doubtful receivables
□ Inventory obsolescence
□ FV of financial assets / financial liabilities
□ Useful lives of depreciable assets
□ Warranty obligations

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Estimates
 An estimate may need revision if
□ circumstances on which estimate was based change, or
□ as a result of new information / more experience
 Revision of estimate does not relate to prior periods,
and is not the correction of an error
 Change in measurement basis applied is a change in
policy, not a change in estimate
 When it is difficult to distinguish if it is a change in
policy or in estimate, it is treated as change in
estimate

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Estimates
 Effect of change in estimate is given in P/L
or to A/L/E prospectively
□ In the period of change – eg doubtful
receivables
□ In period of change + future periods – eg
change in useful life of PPE
 Detailed disclosures are prescribed,
including nature and amount of change

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Errors
 Errors can arise in respect of the recognition,
measurement, presentation or disclosure of elements of
FS
 FS do not comply with IFRSs if they contain either
material errors, or immaterial errors made intentionally
to achieve a particular presentation
 Errors are material if they could, individually or
collectively, influence the economic decisions of users
 Materiality depends on the size and nature of omission/
misstatement
 Concept of “fundamental” error removed; no distinction
between fundamental error and other material errors

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Errors
 Material prior period errors are corrected
retrospectively in the first set of FS
authorised for issue after discovery by:
□ Restating prior period comparatives of period
when error occurred, or
□ If error occurred before the earliest period
presented, restating the O/Bs of A/L/E of the
earliest period presented
 If period-specific or cumulative effects of
error are impractical to determine,
correction is made to O/Bs of A/L/E of
earliest period for which that is practicable
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Errors
 Correction of prior period error is excluded from P/L
of the period in which the error is discovered
 Any information presented about prior periods (eg in
Notes) is restated as far back as is practicable
 Correction resulting from change in estimate is not
correction of error
 Detailed disclosures are prescribed, including impact
of opening correction, correction for each prior period
affected, on each line item as well as on basic and
diluted EPS

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Errors
 Impracticality in retrospective application /
restatement eg
□ Data may not have been collected in the past
period(s)
□ Estimates required for application of new policy in past
period may be difficult
 Retrospective accounting requires
distinguishing information that
□ Provides evidence of circumstances that then existed
□ Would have been available when the FS for that prior
period were authorised for issue

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Errors
 When it is impossible to distinguish these
two types of information, it is impracticable
to apply the new policy or correct the error
retrospectively
 Hindsight should not be used
□ Eg HTM financial assets of past period cannot
be made AFS just because subsequently they
were not HTM
□ Eg Estimate of benefit obligation for sick leave
cannot reckon impact of severe influenza in
subsequent period

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 Questions?

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