16 Presentation of Published Financial statements

Question 1

IAS 1 covers the form and content of financial statements. The main components are:

Answer 1

– Statement of financial position – Statement of profit or loss and other comprehensive income – Statement of changes in equity – Statement of cash flows – Notes to the financial statements

Question 2

How items are disclosed IAS 1 specifies disclosures of certain items in certain ways:

Answer 2

 Some items must appear on the face of the statement of financial position or statement of profit or loss and other comprehensive income.  Other items can appear in a note to the financial statements instead.  Recommended formats are given which entities may or may not follow, depending on their circumstances.

Question 3

The entity should identify each financial statement and the notes very clearly. IAS 1 also requires disclosure of the following information in a prominent position. If necessary it should be repeated wherever it is felt to be of use to the reader in his understanding of the information presented.

Answer 3

 Name of the reporting entity (or other means of identification)  Whether the accounts cover the single entity only or a group of entities  The date of the end of the reporting period or the period covered by the financial statements (as appropriate)  The presentation currency  The level of rounding used in presenting amounts in the financial statements

Question 4

Judgement must be used to determine the best method of presenting this information. In particular, the standard suggests that the approach to this will be very different when the financial statements are communicated electronically. T/F

Answer 4

Judgement must be used to determine the best method of presenting this information. In particular, the standard suggests that the approach to this will be very different when the financial statements are communicated electronically.

Question 5

The level of rounding is important, as presenting figures in thousands or millions of units makes the figures more understandable. The level of rounding must be disclosed, however, and it should not obscure necessary details or make the information less relevant.T/F

Answer 5

The level of rounding is important, as presenting figures in thousands or millions of units makes the figures more understandable. The level of rounding must be disclosed, however, and it should not obscure necessary details or make the information less relevant.

Question 6

It is normal for entities to present financial statements annually and IAS 1 states that they should be prepared at least as often as this. If (unusually) the end of an entity’s reporting period is changed, for whatever reason, the period for which the statements are presented will be less or more than one year. In such cases the entity should also disclose:

Answer 6

(a) The reason(s) why a period other than one year is used (b) The fact that the comparative figures given are not in fact comparable

Question 7

Statement of financial position; IAS 1 suggests a format for the statement of financial position. Certain items are specified for disclosure on the face of the financial statements. T/F

Answer 7

Statement of financial position; IAS 1 suggests a format for the statement of financial position. Certain items are specified for disclosure on the face of the financial statements.

Question 8

Any other line items, headings or sub-totals should be shown on the face of the statement of financial position when it is necessary for an understanding of the entity’s financial position. The example shown above is for illustration only (although we will follow the format in this Study Text). The IAS, however, does not prescribe the order or format in which the items listed should be presented. It simply states that they must be presented separately because they are so different in nature or function from each other. Whether additional items are presented separately depends on judgements based on the assessment of the following factors.

Answer 8

(a) Nature and liquidity of assets and their materiality. Thus goodwill and assets arising from development expenditure will be presented separately, as will monetary/non-monetary assets and current/non-current assets. (b) Function within the entity. Operating and financial assets, inventories, receivables and cash and cash equivalents are therefore shown separately. (c) Amounts, nature and timing of liabilities. Interest-bearing and non-interest-bearing liabilities and provisions will be shown separately, classified as current or non-current as appropriate.

Question 9

The sub-classification details will in part depend on the requirements of IFRSs. The size, nature and function of the amounts involved will also be important and the factors listed above should be considered. Disclosures will vary from item to item and IAS 1 gives the following examples.

Answer 9

a) Property, plant and equipment are classified by class as described in IAS 16, Property, plant and equipment. (b) Receivables are analysed between amounts receivable from trade customers, other members of the group, receivables from related parties, prepayments and other amounts. (c) Inventories are sub-classified, in accordance with IAS 2 Inventories, into classifications such as merchandise, production supplies, materials, work in progress and finished goods. (d) Provisions are analysed showing separately provisions for employee benefit costs and any other items classified in a manner appropriate to the entity’s operations. (e) Equity capital and reserves are analysed showing separately the various classes of paid in capital, share premium and reserves.

Question 10

The standard then lists some specific disclosures which must be made, either on the face of the statement of financial position or in the related notes

Answer 10

(a) Share capital disclosures (for each class of share capital) (i) Number of shares authorised (ii) Number of shares issued and fully paid, and issued but not fully paid (iii) Par value per share, or that the shares have no par value (iv) Reconciliation of the number of shares outstanding at the beginning and at the end of the year (v) Rights, preferences and restrictions attaching to that class including restrictions on the distribution of dividends and the repayment of capital (vi) Shares in the entity held by the entity itself or by related group companies (vii) Shares reserved for issuance under options and sales contracts, including the terms and amounts
(b) Description of the nature and purpose of each reserve within owners’ equity

Question 11

The current/non-current distinction what is the distinction?

Answer 11

In either case, the entity should disclose any portion of an asset or liability which is expected to be recovered or settled after more than 12 months. For example, for an amount receivable which is due in instalments over 18 months, the portion due after more than 12 months must be disclosed.

Question 12

End of the reporting period -> Agreement to refinance on longterm basis -> Date financial statements authorised for issue -> Settlement date <12 months after end of the reporting period therefore current liability T/F

Answer 12

End of the reporting period -> Agreement to refinance on longterm basis -> Date financial statements authorised for issue -> Settlement date <12 months after end of the reporting period therefore current liability

Question 13

A non-current financial liability that is payable on demand because the entity breached a condition of its loan agreement should be classified as current at the end of the reporting period even if the lender has agreed after the end of the reporting period, and before the financial statements are authorised for issue, not to demand payment as a consequence of the breach. T/F

Answer 13

A non-current financial liability that is payable on demand because the entity breached a condition of its loan agreement should be classified as current at the end of the reporting period even if the lender has agreed after the end of the reporting period, and before the financial statements are authorised for issue, not to demand payment as a consequence of the breach

Question 14

Condition of loan agreement breached. Non-current liability becomes payable on demand -> End of the reporting period –> Lender agrees not to enforce payment resulting from breach ->
Date financial statements are authorised for issue. Loan shown as current liability. T/F

Answer 14

Condition of loan agreement breached. Non-current liability becomes payable on demand -> End of the reporting period –> Lender agrees not to enforce payment resulting from breach ->
Date financial statements are authorised for issue. Loan shown as current liability

Question 15

IAS 1 (revised) allows income and expense items to be presented either:

Answer 15

(a) In a single statement of profit or loss and other comprehensive income; or (b) In two statements: a separate statement of profit or loss and statement of other comprehensive income

Question 16

Information presented in the statement of profit or loss The standard lists the following as the minimum to be disclosed on the face of the statement of profit or loss.

Answer 16

a) Revenue (b) Finance costs (c) Share of profits and losses of associates and joint ventures accounted for using the equity method (d) Pre-tax gain or loss recognised on the disposal of assets or settlement of liabilities attributable to discontinued operations (e) Tax expense (f) Profit or loss The following items must be disclosed as allocations of profit or loss for the period. (a) Profit or loss attributable to non-controlling interest (b) Profit or loss attributable to owners of the parent

Question 17

The allocated amounts must not be presented as items of income or expense. Income and expense items can only be offset when, and only when:

Answer 17

(a) It is permitted or required by an IFRS, or (b) Gains, losses and related expenses arising from the same or similar transactions and events are immaterial, in which case they can be aggregated.

Question 18

Information presented either in the statement or in the notes An analysis of expenses must be shown either in the profit or loss section (as above, which is encouraged by the standard) or by note, using a classification based on either the nature of the expenses or their function. This sub-classification of expenses indicates a range of components of financial performance; these may differ in terms of stability, potential for gain or loss and predictability. T/F

Answer 18

Information presented either in the statement or in the notes An analysis of expenses must be shown either in the profit or loss section (as above, which is encouraged by the standard) or by note, using a classification based on either the nature of the expenses or their function. This sub-classification of expenses indicates a range of components of financial performance; these may differ in terms of stability, potential for gain or loss and predictability

Question 19

Expenses are not reallocated amongst various functions within the entity, but are aggregated in the statement of profit or loss according to their nature (eg purchase of materials, depreciation, wages and salaries, transport costs). This is by far the easiest method, especially for smaller entities. T/F

Answer 19

Expenses are not reallocated amongst various functions within the entity, but are aggregated in the statement of profit or loss according to their nature (eg purchase of materials, depreciation, wages and salaries, transport costs). This is by far the easiest method, especially for smaller entities

Question 20

Dividends IAS 1 also requires disclosure of the amount of dividends paid during the period covered by the financial statements. This is shown either in the statement of changes in equity or in the notes

Answer 20

(a) All requirements previously set out in other Standards for the presentation of particular line items in the statement of financial position and statement of profit or loss and other comprehensive income are now dealt with in IAS 1. These line items are: biological assets; liabilities and assets for current tax and deferred tax; and pre-tax gain or loss recognised on the disposal of assets or settlement of liabilities attributable to discontinued operations. (b) An entity must disclose, in the summary of significant accounting policies and/or other notes, the judgements made by management in applying the accounting policies that have the most significant effect on the amounts of items recognised in the financial statements. (c) An entity must disclose in the notes information regarding key assumptions about the future, and other sources of measurement uncertainty, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Question 21

Structure The notes to the financial statements should perform the following functions.

Answer 21

(a) Provide information about the basis on which the financial statements were prepared and which specific accounting policies were chosen and applied to significant transactions/events (b) Disclose any information, not shown elsewhere in the financial statements, which is required by IFRSs (c) Show any additional information that is relevant to understanding which is not shown elsewhere in the financial statements

Question 22

The way the notes are presented is important. They should be given in a systematic manner and cross referenced back to the related figure(s) in the statement of financial position, statement of comprehensive income or statement of cash flows. Notes to the financial statements will amplify the information shown therein by giving the following.

Answer 22

(a) More detailed analysis or breakdowns of figures in the statements (b) Narrative information explaining figures in the statements (c) Additional information, eg contingent liabilities and commitments IAS 1 suggests a certain order for notes to the financial statements. This will assist users when comparing the statements of different entities. (a) Statement of compliance with IFRSs (b) Statement of the measurement basis (bases) and accounting policies applied(c) Supporting information for items presented in each financial statement in the same order as each line item and each financial statement is presented (d) Other disclosures, eg: (i) Contingent liabilities, commitments and other financial disclosures (ii) Non-financial disclosures

Question 23

Presentation of accounting policies The accounting policies section should describe the following.

Answer 23

(a) The measurement basis (or bases) used in preparing the financial statements (b) The other accounting policies used, as required for a proper understanding of the financial statements

Question 24

Other disclosures An entity must disclose in the notes:

Answer 24

(a) The amount of dividends proposed or declared before the financial statements were authorised for issue but not recognised as a distribution to owners during the period, and the amount per share
(b) The amount of any cumulative preference dividends not recognised

Question 25

IAS 1 ends by listing some specific disclosures which will always be required if they are not shown elsewhere in the financial statements.

Answer 25

(a) The domicile and legal form of the entity, its country of incorporation and the address of the registered office (or, if different, principal place of business) (b) A description of the nature of the entity’s operations and its principal activities (c) The name of the parent entity and the ultimate parent entity of the group

Question 26

Which of the following are examples of current assets?

Answer 26

Cash equivalents; Prepayments