presentation of financial statements 11

8/11/2019 Presentation of Financial Statements 11

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PRESENTATION OF

FINANCIAL STATEMENTS

IAS 1

David KolitzRoom 1.02, Streatham court

[email protected]

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OBJECTIVE AND SCOPEObjectiveBasis for presentation of financial statements

comparability Overall requirements for presentation

Purpose

Complete setGeneral features (Overall considerations)Structure and content

(IAS 1, p1)Scope

Applies to general purpose financial statementsMeets the needs of users who are not in a position torequest tailored reports

External users(IAS 1, p2 6)


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FINANCIAL STATEMENTS-PURPOSE

Structured representation offinancial position and financialperformance

Objective of financial statementsProvide information aboutFinancial position, financialperformance and cash f lows that isuseful to wide range of users in makingeconomic decisions

Managements stewardship(IAS 1, p9)


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FINANCIAL STATEMENTS COMPLETESET

Statement of financialposition (B/S)Statement of

comprehensive income(I/S)SOCIEStatement of cash flows(CF/S)Notes, comprisingaccounting policies &other information

(IAS 1, p10)


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FINANCIAL STATEMENTS GENERALFEATURES

The Framework is not part of accountingstandardsBrings concepts from The Framework withinthe ambit of accounting standards

Fair presentation and compliance with IFRSsGoing concern Accrual basis of accountingMateriality and aggregation

OffsettingFrequency of reportingComparative informationConsistency of presentation


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Fair presentation and compliancewith IFRSsFair presentation

Faithful representation (qualitative characteristic fromThe Framework)Definitions and recognition criteria (from the

Framework) Application of IFRSs presumed to result in fairpresentation

If financial statements comply with IFRS

Statement of complianceall requirements of IFRSsInappropriate treatment not rectified by disclosure

(IAS 1, p15- 24)


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2 Accounting policies(a) Statement of complianceThe Groups financial statements have been prepared in accordancewith International Financial Reporting Standards (IFRSs) asadopted by the European Union and International FinancialReporting Interpretations Committee (IFRICs) interpretations and

with those parts of the Companies Act 2006 applicable tocompanies reporting under IFRSs. The Companys financialstatements have been prepared on the same basis and, aspermitted by Section 408(3) of the Companies Act 2006, no incomestatement is presented for the Company.
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Fair presentation and compliancewith IFRSs . . .

In extremely rare circumstances , management mayconclude that compliance is misleading and conflicts with the objective of financial statements in TheFramework

Where regulatory framework requires or does not prohibit departureIAS 1, p20 (a) (d)

Where regulatory framework prohibits departureIAS 1, p23 (a) (b)

Management considers Why objective of financial statements is not achievedHow circumstances differ from other entities that docomply


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Going concernUnderlying assumption of TheFrameworkManagement to assessFS prepared on going concern basisunless management intends to liquidateor cease trading or has no realisticalternative but to do soTo assess going concern assumption

All available information about futureusing at least 12 month time horizonhistory of profitable operationsother cases

profitability debt repaymentssources of financing

(IAS 1, p25 26)
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Accrual basis

Underlying assumption of The FrameworkFinancial statements prepared using accrual

basisItems recognised as A, L, OE, I & E whenthey satisfy definitions and recognitioncriteria

(IAS 1, p27 28)


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Materiality and aggregation

Information is material if it is capable of changinga users decision

Significant in amountSignificant in nature or function

Present separately Each material class of similar itemsItems of a dissimilar nature

If line item not individually material, aggregated with other items

(IAS 1, p29 31)


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Materiality and aggregation - Examples1. Should inventory and PP&E be disclosed separately?

Functions are so different (held for sale v used in business) that separate disclosure

required on face of SOFP2. CA of land is 50 000 and CA of furniture is

100 000. Companys materiality limit is 300 000. Should land and furniturebe disclosed separately? Although both are assets used in business, their different nature or function

requires separate disclosure in notes3. Company has following assets, and materiality limit of 300 000CA of machinery is 500 000 (including Machine A with CA of 450 000).CA of office furniture is 300 000CA of office equipment is 310 000

Should Machine A be disclosed separately and should the furniture andequipment be disclosed as separate assetsNo separate disclosure for Machine A as not material in function or nature .Even though furniture and equipment are material in amount , they are

aggregated due to their common nature or functionOn face of SOFP, machinery, furniture and equipment all aggregated into PP&E

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OffsettingEntity not to offset A & L or I & E, except whererequired by a StandardReporting of assets net of valuation allowances isnot offsettingTransactions incidental to main revenuegenerating activities reported net of relatedexpensesGain on disposal = Proceeds - CA - selling expenses

(IAS 1, p32 35)


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Offsetting - Examples1. A machine (NCA) with CA of 20 000 is sold for

30 000. Disclose in I/S I/S

Other income- Profit on sale of machine (30 20) 10 000

2. A company, whose business is to buy and sellmachines, sold a machine for 30 000. Machine hadoriginal cost of 20 000. Disclose in I/S

I/SRevenue 30 000Cost of sales (20 000)

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Frequency of reporting

Present a complete set of financial statements at leastannually If end of reporting period changes and financialstatements presented for shorter or longer than one year

ReasonFact that amounts not comparable

(IAS 1, p36 37)
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Comparative information

SOFP, SOCI, SOCIE, SOCF presented iro previousperiod forall amountsnarrative information where relevant

(IAS 1, p38 44)

IAS 8 deals with adjustments to comparativeinformation for changes in accounting policy andcorrection of error

SOFP presented forEnd of previous period (beginning of current period)Beginning of previous period


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Consistency of presentation

Retain presentationand classification ofitems unless

change in operationsor review ofpresentationIFRS requires a change

(IAS 1, p45 46)


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Statement of directors responsibilities

The Directors are responsible for preparing the Annual Report, the Remunerationreport and the financial statements in accordance with applicable law and regulations.Company law requires the Directors to prepare financial statements for each financialyear. Under that law the Directors have elected to prepare the Company and Groupfinancial statements in accordance with International Financial Reporting Standards(IFRSs) as adopted by the European Union. Under company law the Directors must notapprove the financial statements unless they are satisfied that they give a true and fairview of the state of affairs of the Company and the Group and of the profit or loss of theGroup for that period. In preparing these financial statements, the Directors are requiredto: select suitable accounting policies and then apply them consistently;

make judgements and accounting estimates that are reasonable and prudent; state whether applicable IFRSs as adopted by the European Union have beenfollowed, subject to any material departures disclosed and explained in the financialstatements; and prepare the financial statements on the going concern basis unless it is inappropriateto presume that the Company and the Group will continue in business .


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STRUCTURE AND CONTENTDisclosure in

SOFP, SOCI, SOCIENotesOther items either in thosestatement or notes

(IAS 1, p47 48)Identify financialstatements anddistinguish from otherinformation

(IAS 1, p49)Display

namecompany or groupdate / periodcurrency level of rounding

(IAS 1, p51- 53)

2 Accounting policies(b) Basis of preparationThe financial statements are presentedin sterling, rounded to the nearestmillion (m) unless otherwise stated


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Statement of financial position

Does not prescribe order or formatLine items included when size, nature or functionrelevant to understanding

Descriptions and ordering amended according tonature of entity and its transactions

(IAS 1, p54 78)


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Information to be presented in thestatement of financial position

Minimum line item disclosureProperty, plant & equipmentIntangible assetsFinancial assetsInventoriesTrade & other receivablesCash and equivalentsTrade & other payablesFinancial liabilitiesLiabilities and assets for current tax and deferred taxProvisionsNon-current liabilitiesMinority interestIssued capital and reserves (IAS 1, p54 59)

ExampleSainsburys 2011 FS, B/S. p52


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Current / non-current distinctionRequired to present current and non-current

assets and liabilities on face of B/S (usefulinformation for entities with identifiable operatingcycles) except where liquidity presentationprovides more relevant and reliable information

(financial institutions) (IAS 1, p60 -76)Operating cycle:

Realised by saleto customers

Accountsreceivable

Cash inflowfrom customers

Inventory Cash

Acquisition fromsuppliers

Accountspayable

Cash outlowto suppliers


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The non-current and currentdistinction

Current assetsrealised, sold orconsumed in course ofoperating cycleheld for trading purposes

expected to be realised within 12 months afterreporting periodcash or cash equivalents

All other assets are non-current

(IAS 1, p66-68)

Current liabilitiessettled within course ofoperating cycle

Held for trading purposes

settled within 12 months afterreporting period

No unconditional right to defersettlement for 12 months afterreporting period

All other liabilities are non-current

(IAS 1, p69 -76)


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Example Liabilities and refinancing ofdue payments

Loan of 100 000 is raised in 20X1. Loan is to be repaid intwo instalments, 40 000 in 20X5 and 60 000 in 20X6. Anagreement is reached whereby payment of the 40 000need only be made in 20X6. Show SOFP at 31/12/X4a) Agreement is signed on 05/01/X5b) Agreement is signed on 27/12/X4SOFP at 31/12/X4

20x4 20x3a) LIABILITIES

Non current 60 000 100 000Current 40 000b) LIABILITIES

Non- current 100 000 100 000

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Information to be presentedeither in the SOFP or in the notes

Further sub-classifications depending upon IFRSsand on size, nature and function of amounts

Classes of P,P&EReceivablesClassifications of inventoriesProvisionsClasses of equity capital and reserves

(IAS 1, p 77 78)

Di l i h i SOFP SOCIE


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Disclosure either in SOFP or SOCIEor notes

For each class of share capitalNumber authorisedNumber issuedPV, or that shares are NPV

Reconciliation of number of shares at beginning and end of yearRights and restrictions

Description of each reserve(IAS 1, p79)

ExampleSainsburys 2011 FS, Note 23


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Statement of comprehensiveincome

Present all items of income and expense recognised in aperiodIn a single statement of comprehensive incomeIn two statements

Components of profit or loss (I/S)

Profit or loss +/- components of comprehensive income (SOCI) (IAS 1, p81) All items of income and expense recognised in a periodincluded in computation of profit or loss for period,except

Items recognised outside profit / loss (IAS 8)Items that meet definition of income / expense and excluded fromprofit / loss

Revaluation of PP&E(IAS 1, p88 89)


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Information to be presented in thestatement of comprehensive income

Minimum line item disclosureRevenueFinance costsTax expenseProfit or loss for periodComponents of other comprehensive incomeTotal comprehensive income Allocations of

Profit or loss attributable toMinority interestOwners of the parent

Total comprehensive income attributable toMinority interestOwners of the parent

(IAS 1,p 82 87)Example

Sainsburys 2010 FS - I/S and SOCI, pg 50, 51


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In ormation to e presente in t e


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In ormation to e presente in t eSOCIor in notes

Material items of income and expense are disclosed separately (p97)

Circumstances include Write-down of inventories to NRV and of PP&E to RA Disposals of PP&ELitigation settlements

Analysis of expenses by nature or by functionNature of expenses method

Such as purchases, depreciation, staff costs, otherFunction of expensesCOSDistribution costs Administration costsOther operating costs

When classifying expenses by function, disclosure required of natureof certain expenses depreciation / amortisationand employeebenefits (p104)

(IAS 1, p 97 105)Example

Sainsburys FS 2011, Note 5, Operating profit


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Statement of changes in equityIASB considers it useful to separate changes inequity arising from

Transactions with owners in their capacity as ownersOther changes in equity (reflected in TCI)

ThusOwner changes in equity presented in SOCIENon-owner changes in equity presented in SOCI

(IAS 1, p106 110)

I f ti t b t d i th


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Information to be presented in thestatement of changes in equity

Total comprehensive income for periodEffects of retrospective application ito IAS 8For each component of equity, reconciliation betweencarrying amount at bop and eop, separately disclosing

Profit or loss

Each item of OCITransactions with owners in their capacity as ownersContributionsDistributions

Dividends

And related amount per share (in SOCIE or in notes)(IAS 1, p106 & 107)

ExampleSainsburys FS 2011, SOCIE, pg 54


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NotesOrder of notes

Statement of compliance (p16) Accounting policies (p117)

Measurement basisOther accounting policies

Supporting notes for items in SOFP, SOCI, SOCIE andSOCFOther

Contingent liabilities (IAS 37)Non-financial

Dividends not recognised (p137)Dividends proposed or declared that are not recognised as adistribution and related amount per shareCumulative preference dividends not recognised

(IAS 1, p112 138)


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10 DividendAfter the balance sheet date, a final dividend of 10.80 pence per share (2009:10.20 pence per share) was proposed by the Directors in respect of the 52 weeks to19 March 2011, resulting in a total final proposed dividend of 201million (2009:189million). The proposed final dividend has not been included as a liabilityat 19 March 2011.


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ReadingIAS 1Collins & McKeith, Financial Accounting & Reporting

1.3 Preparation of company annual accounts1.4 Preparing company financial statements forinternal use1.6 Presentation of financial statements

presentation of financial statements 11

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