Appreciate the role of annual reports as a

communication tool

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 Chapter 4

Presentation of
Financial Statements
Annual reports as a communication
tool
• Top source of information for shareholders,
lenders, potential investors etc.
• Provide information about the company from
company visions, goals to financial information
and changes in strategy.
• Substance over form

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Typical structure of an annual
report

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Corporate Information
• Short history of company
• Members of board of directors and key
management personnel
• Organization structure
• Awards and accolades
• Key markets and products
• Operating Statistics and financial highlights

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Analysis and commentaries

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Other statements and disclosure

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Financial Statements
• Acknowledgement of responsibility for
preparing financial statements by management
• Auditor’s report
• 3 types of opinions:
Unqualified
Qualified
Adverse

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Know the general features of financial
statements

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Complete set of financial
statements
Proper labeling of financial
statements

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Fair presentation and compliance
with IFRS
• Faithful representation of effects of transactions
▫ Cannot selectively apply standards and proclaim
compliance with IFRS
• Cannot rectify inappropriate policies
▫ By notes or explanatory material

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Accrual basis and going concern
• Going concern: Entity intends to, and has ability
to, operate into the foreseeable future.
• All financial statements, except cash flow info, to
be prepared using accrual basis.

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Materiality and Aggregation
• Accounts can be aggregated if they are immaterial
• An item is material when its omission or
misstatement can influence the economic
decisions of users based on financial statements.

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Offsetting
• Not allowed to offset assets and liabilities,
income and expenses

• Offsetting is different from netting

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Frequency of reporting
• Entities are to present financial info at least
annually
• Listed companies might have to publish interim
reports

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Comparative information and
Consistency of presentation
• Numbers from previous periods must be
disclosed
Minimum 2 years of information
Under certain situations, 3 ears
Comparatives made in narrative and descriptive
information
• Firms are expected to maintain presentation and
classification of items period to period

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Understand presentation requirements for
Statement of Financial Position

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Statement of Financial Position

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Statement of Financial Position

• Liquidity
• Current assets and current liabilities

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Statement of financial postion
• Account format

Liabilities
Assets
Equities

• Report format

Assets
Liabilities
Equities

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Understand presentation requirements for
Statement of Comprehensive Income

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Statement of comprehensive
income

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Categorizing expenses by nature

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Categorizing expenses by function

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Understand presentation requirements for
Statement of Changes in Equity

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Key reconciling items

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Accounting changes
• Dealt with in IAS 8
• Changes due to new accounting standards or
pronouncements
• Changes in accounting estimates
• Changes in accounting policies
• Prior-period errors

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Notes to the accounts

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