INTEGRATED

FINANCIAL REPORTING

Components and
General Features
of Financial
Statements
Components of Financial Statements
 Components of Financial Statements
• The overall principles and other considerations relating to the presentation of
financial statements are contained in AASB 101/IAS 1.
• A complete set of financial statements is defined in paragraph 10:
Components of Financial Statements

a) a statement of financial position as at the end of the period

b) a statement of profit or loss and other comprehensive income for the period
c) a statement of changes in equity for the period
d) a statement of cash flows for the period
e) notes, comprising a summary of significant accounting policies and other
explanatory information
f) comparative information in respect of the preceding period as specified in
paragraphs 38 and 38A
 Components of Financial Statements (Cont.)

• Entities may use other labels when presenting these financial

statements (e.g., the statement of financial position can be
Components of Financial Statements

labelled as “balance sheet”, and the statement of profit or loss

and other comprehensive income as “statement of
comprehensive income”)

• Each component of the financial statements must be clearly

identified in the financial statements and distinguished from other
information reported in the same document.
General Features of Financial Statements
 General Features of Financial Statements

• AASB 101/IAS 1 describes eight general principles that need to

General Features of Financial Statements

be applied in the presentation of financial statements.

• These requirements are intended to ensure that the financial

statements of an entity are a faithful presentation of its financial
position, financial performance and cash flows in accordance with
the Conceptual Framework.
 1. Fair presentation and compliance with standards:
General Features of Financial Statements

• Paragraph 15 states that financial statements shall 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 Conceptual Framework.
 1. Fair presentation and compliance with standards: (Cont.)
General Features of Financial Statements

• Paragraph 17 of AASB 101/IAS 1 elaborates on the meaning of ‘fair

presentation’ as including:
• selecting and applying accounting policies in accordance with AASB 108/IAS 8

• presenting information that is in a manner that provides relevant, reliable,

comparable and understandable information

• providing additional disclosures to assist the understanding of users, where

necessary, to those specified by accounting standards.
 2. Going concern

• The Conceptual Framework makes a similar underlying

General Features of Financial Statements

assumption.

• When management is aware of any material uncertainties that cast

doubt upon the entity’s ability to continue as a going concern, those
uncertainties must be disclosed.
 2. Going concern (Cont.)
• Paragraph 25 of AASB 101/IAS 1 states that financial statements shall be
General Features of Financial Statements

prepared on a going concern basis.

• When financial statements are not prepared on a going concern basis,

that fact must be disclosed, together with the basis on which the financial
statements are prepared (e.g., ‘liquidation’ basis, which means that
assets and liabilities are measured at the amounts expected to be
received or settled on liquidation) and the reason why the entity is not
regarded as a going concern.
 3. Accrual basis of accounting:
• Financial statements, except for the statement of cash flows, must be
General Features of Financial Statements

prepared using the accrual basis of accounting.

• Under accrual basis, the effects of all transactions and other events are
recognized in the accounting records when they occur, rather than when
cash or its equivalent is received or paid.

• Accrual accounting is expected to provide a better basis for assessing the

entity’s past and future performance than information solely about cash
receipts and payments during that period.
 4. Materiality and aggregation:

• Materiality depends on the size and nature of the omission or

General Features of Financial Statements

misstatement of the item judged in the surrounding circumstances.

• Each material class of similar items must be presented separately

in the financial statements in accordance with paragraph 29 of
AASB 101/IAS 1.
 4. Materiality and aggregation: (Cont.)

• Items of a dissimilar nature or function must be presented

General Features of Financial Statements

separately unless they are immaterial.

• Financial statements result from processing large volumes of

transactions that are then aggregated into classes according to
their nature or function. These classes form the line items of each
financial statement.
 5. Offsetting:

• Paragraph 32 of AASB 101/IAS 1 states that assets and liabilities,

General Features of Financial Statements

and income and expenses shall not be offset unless required or

permitted by an accounting standard.

• For users of financial statements, however, the disadvantage of

offsetting is that aggregation leads to loss of information.
 5. Offsetting: (Cont.)

• Paragraphs 34 and 35 identify situations where offsetting would

General Features of Financial Statements

be appropriate such as gains and losses on the disposal of non-

current assets, which should be reported net instead of
separately reporting the gross proceeds as income and the cost
of the asset disposed of as an expense.
 6. Frequency of reporting:

• Paragraph 36 of AASB 101/IAS 1 requires that financial

General Features of Financial Statements

statements be presented at least annually.

• If an entity’s reporting period changes, the length of the reporting

period will be greater or less than a year in the period of the
change. When this occurs, the entity must disclose the reason for
the longer or shorter period and the fact that the amounts
presented in the financial statements are not entirely comparable.
 7. Comparative information:

• Paragraph 38A of AASB 101/IAS 1 requires that an entity shall

General Features of Financial Statements

present at least:
• two statements of financial position,

• two statements of profit or loss and other comprehensive income,

• two separate statements of profit or loss (if presented),

• two statements of cash flows,

• two statements of changes in equity, and

• related notes
 8. Consistency of presentation:

• Paragraph 45 of AASB 101/IAS 1 requires that the presentation

General Features of Financial Statements

and classification of items in the financial statements be retained

from one period to the next unless:
a) it is apparent, following a significant change in the nature of the entity’s
operations or a review of its financial statements, that another presentation
or classification would be more appropriate having regard to the criteria for
the selection and application of accounting policies in AASB 108 [IAS 8]; or
b) An accounting standard requires a change in presentation.
 8. Consistency of presentation: (Cont.)

• An entity may present its assets and liabilities in current and non-
General Features of Financial Statements

current classifications or in order of liquidity where this

presentation is more reliable and relevant.

• If, after a change in operations, an entity elects to reclassify its

assets and liabilities from the current/non-current presentation to
the liquidity-based presentation, the comparative financial
information must also be reclassified.