Chapter 12: Presentation Of Financial Statements Flashcards
What is the objective of financial statements
The objective of financial statements is to provide information about the financial position, financial performance and cash flow of an entity that is useful to a wide range of users in making economic decisions.
Why are financial statements prepared
General purpose financial statements are prepared for the needs of common users, such as owners and creditors, who do not have specific requirements regarding financial statements.
Why should IFRS standards be adhered to
The aim of these standards is to ensure that the financial statements of an entity are comparable with those of previous periods as well as with those of other entities
What does the IFRS focus on
The presentation of financial statements is set out in the International Financial Reporting
Standards (IFRS), which focus on the structure and content of general purpose financial statement
According to these standards, the headings of the financial statements must include the following
- Name of entity
- Title of financial statement
- Date or period of financial statement
- Currency unit used (e.g. R)
- and the extent to which figures are rounded off
After how long should financial statements be prepared
Financial statements must be prepared at least on an annual basis and must be issued to users within six months of the financial yearend.
Explain fair presentation
All information provided in the financial statements must be a fair presentation of the financial performance and position.
In other words the information must reflect the true state of affairs of the entity.
Materiality and aggregation
Explain offsetting
Assets and liabilities as well as income and expenses may not be offset against each other but must be disclosed separately
Explain comparative information
Information for the previous financial period must be disclosed together with information from the current financial period. The purpose of comparative information is to assist an entity to determine trends.
Explain consistency of presentation
The presentation of financial statements must remain consistent from year to year unless
- Significant changes have occurred in the nature of the entities activities.
- A change will improve presentation
- or a new standard has been published that requires a change
Explain the frequency of reporting
As already mentioned, financial statements must be issued on at least an annual basis
Explain going concern
When preparing financial statements, it is assumed that an entity will continue to exist for the
foreseeable future and that a substantial portion of the activities of the entity will not be discontinued .
Explain accrual basis
Transactions must be recorded in the accounting records when they occur, not necessanly when cash is received or paid.
