Chapter 1 - Presentation Of Financial Statements

Question 1

What standard covers presentation of financial statements?

Answer 1

IAS 1

Question 2

When is IAS1 due to be replaced?

Answer 2

2027

Question 3

What standard will replace IAS1 in 2027?

Answer 3

IFRS 18

Question 4

What are general purpose financial statements?

Answer 4

Statements that have been prepared for general use by a variety of users

Question 5

What type of financial statements does IAS1 apply towards?

Answer 5

General purpose

Question 6

How often should financial statements be presented according to IAS1?

Answer 6

At least annually

Question 7

Per IAS1, what should happen if an entity changes its reporting period?

Answer 7

Entity should explain why a change has been made

Question 8

What are the 5 components of financial statements according to IAS1?

Answer 8

• Statement of financial position
• Statement of comprehensive income
• Statement of changes in equity
• Statement of cash flows
• Notes

Question 9

Can financial statements be provided as part of a wider document per IAS 1?

Answer 9

Yes, but they should be clearly identified and distinguished from other information.

Question 10

Under IAS 1, may different titles for the statements be used? (e.g. balance sheet instead of statement of financial position).

Answer 10

Yes

Question 11

What items must be satisfied to classify an asset as a current asset?

Answer 11

One of the following:

• Expected to be realised in entity’s normal operating cycle
• Held primarily for trading
• Expected to be realised ** within 12 months**
• Is **cash or cash equivalent. **

All other assets = non-current.

Question 12

What items must be satisfied to classify a liability as a current liability?

Answer 12

One of the following:

• Expected to be realised in entity’s normal operating cycle
• Held primarily for trading
• Expected to be realised ** within 12 months**
• Entity does not have an unconditional right to defer settlement for at least 12 months after the reporting period.

All other liabilities = non-current.

Question 13

Under IAS 1, an entity must classify a liability as current if it does not have the right to defer payment for more than 12 months.

What is important about “defer” in terms of payment/settlement?

Answer 13

Must have substance - not a theoretical right.

Question 14

What is an operating cycle?

Answer 14

The period between the commencement of work on behalf of a customer and the receipt of the final payment against outstanding invoices.

For a manufacturer, operating cycle starts with purchase of raw materials, spans the work in progress, finished goods and delivery, finishes when payment is received.

Question 15

When an operating cycle cannot be clearly identified, how long is it deemed to take?

Answer 15

12 months

Question 16

True or false:

Additional headings, sub-classifications and subtotals can be used either on the face of the statement of financial position or in the notes, if it adis the users’ understanding of the entity’s financial position.

Answer 16

True

Question 17

True or false:

Under IAS 1, deferred tax assets and liabilities can be classified as current.

Answer 17

False.

Deferred tax assets & liabilities shall always be classified as non-current.

Question 18

Under IAS 1.79, what additional information must be given about each class of share capital?

Answer 18

• Number of shares authorised and issued, and whether fully paid up or not fully paid up.
• Par value per share
• Reconciliation of shares at start and end of period
• Rights, preferences and restrictions if appropriate
• Shares held by the entity in itself or held by its subsidiaries or associates
• Shares reserved for issue under options.

Question 19

What should be disclosed when an entity does not have share capital?

Answer 19

Equivalent information should be disclosed

Question 20

True or false:

Under IAS 1, current tax liabilities should be kept separate to deferred tax assets / liabilities and classified as current.

Answer 20

True.

DTA / DTL’s should be non-current.

Question 21

An entity under IAS 1 chooses to present expenses by function on the Statement of Comprehensive Income.

What must the entity do?

Answer 21

Still provide separate disclosure of depreciation, amortisation and employee benefit expense (IAS 1.104).

Question 22

What is classified as other comprehensive income?

Answer 22

Any items of income / expenses which are not required by the other IAS or IFRS standards to be recognised in the profit and loss.

Examples:
- revaluation of property, plant and equipment
- remeasurements of defined benefit plans
- gains / losses on remeasuring investments in equity instruments.

Question 23

How does IAS 1 allow comprehensive income to be presented?

Answer 23

In a single statement of profit & loss and other comprehensive income
OR
in two statements - statement of P&L and a statement of P&L and other comprehensive income, which must begin with the profit & loss figure.

Question 24

What items should appear in the statement of profit & loss and other comprehensive income per IAS 1?

Answer 24

• Gains/losses from derecognition of financial assets measured at amortised cost
• Gains/losses on reclassification of financial assets to fair value
• A single figure for discontinued operations (IFRS 5)
• Profit or loss for the period attributalbe to non-controlling interests and owners of the parent
• Comprehensive income for the period attributable to non-controlling interest and owners of the parent.

Question 25

Are extraordinary items allowed per IAS 1?

Answer 25

No (IAS 1.88).

Question 26

Where there is a retrospective restatement or reclassification, what is required?

Answer 26

A third statement of financial position (at the beginning of the immediately preceding period). If a third statement provided, no notes are required.

Question 27

What 2 sections is other comprehensive income split into?

Answer 27

1. Items that will not be reclassified subsequently to profit & loss 2. Items that will be subsequently reclassfied to profit & loss when specific condtions are met (e.g. translation differences on foreign subsidiary which will be reclassified to P&L on disposal of the foreign subsidiary).

Question 28

For other comprehensive income items, how are these displayed with regards to tax effects?

Answer 28

May be presented gross or net of tax effects. Net of tax effects = tax effect is disclosed for each item.

Question 29

What does the statement of changes in equity capture?

Answer 29

Reflects the increase or decrease in net assets during the period (except for transactions that have taken place directly with shareholders).

Question 30

What should the statement of changes in equity include?

Answer 30

Per IAS 1.106: - Total comprehensive income for the period, showing separately the amounts due to owners of the parent and non-controlling interest - For each component, the effect of any change in accounting policy or correction of errors - For each component of equity, a reconciliation of the carrying amount at beginning and end of the period, which separately discloses changes from P&L, comprehensive income items and transactions with owners as capacity as owners.

Question 31

Should the statement of changes in equity include information about dividends?

Answer 31

Yes, either in the statement of changes or equity or in the notes. Must include the amount of dividends recognised in the period and related amount per share.

Question 32

What does IAS 7 cover?

Answer 32

Statement of cash flows

Question 33

For the notes to the financial statements, is comparative information required?

Answer 33

Yes, unless IFRS's permit or require otherwise

Question 34

How should notes be presented?

Answer 34

Per IAS 1, in the order of the line items in the primary statements

Question 35

What are 4 key things that the notes to the financial statements should include?

Answer 35

1. Dividends proposed or declared, but not recognised. Include the related amount per share. 2. The domicile and legal form of the entity, country of incorporation and address of registered office. 3. Disclose a description of the entity's operations and principal activities. 4. Disclose the name of the entity's parent and ultimate parent.

Question 36

True or false: The notes ot the financial statements do not need to include the entity's parent and ultimate parent.

Answer 36

False. The name of the entity's parent and ultimate parent should be displayed.

Question 37

What is meant by ultimate parent?

Answer 37

The company at the very top of the hierachy

Question 38

What should be included in the financial statements about IFRS?

Answer 38

An explicit and unreserved statement of compliance with IFRS must be made in the notes to the financial statements (IAS 1.16)

Question 39

If rare circumstances exist that is necessary to depart from IFRS, what should be completed?

Answer 39

Extensive disclosure around the circumstances and reasons for departing from IFRS (IAS 1.19-1.20)

Question 40

What 5 principles shall be applied in preparing an entity's financial statements?

Answer 40

1. Going concern basis, unless decision to liquidate or cease trading (IAS.25) 2. Accrual basis (IAS 1.27) 3. Consistency of presentation (IAS 1.45) 4. Materiality and aggregations (IAS 1.29) 5. Shall not offset asset & liabilities unless permitted by IFRS (IAS 1.32)

Question 41

Although draft and in progress, what is the likely impact of IFRS 18 which replaces IAS 1?

Answer 41

- Introducing defined subtotals and categories in the income statement / P&L (to allow better comparability between entities) - More requirements on aggregation and disaggregation - New management-defined performance measues and corresponding disclosures - Improvements to the statement of cash flows.

Question 42

The IASB has previously issued a practice statement regarding management commentary. Is this binding on all entities?

Answer 42

No, a non-binding framework for commentary, which is not a IFRS requirement but considered best practice for those companies reporting under IFRS that provide commentary. Regulators still decide which entities are required to publish management commentary.

Question 43

What key elements for management commentary per the IASB practice statement from 2010?

Answer 43

Management should provide commentary that: - Provides management's view of the entity's performance, position and progress - Supplements / complements the info in the financial statement. It should also provide information that is forward-looking and possesses qualitative characteristics.

Question 44

What are 5 recommended elements of management commentary per the IASB?

Answer 44

(a) Nature of the business (b) Management's objectives and strategies (c) Entity's most significant resources, risks and relationships (d) Results of operations and prospects (e) Criticial performance measures and indicators to enable user to evaluate the entity's performance against stated objectives.

Question 45

Which term describes assets recorded at the amount that represents the immediate purchase cost of the equivalent asset?

Answer 45

Current cost