Presentation of financial Statements Flashcards
A complete set of financial statements comprises:
- The statement of financial position
- The statement of profit or loss and Other Comprehensive Income
- The statement of changes in equity
- The statement of cash flows
- Notes
What is the objective of the presentation of financial statements?
The major aim is the Fair Presentation in accordance with IAS 1.15. Therefore, IFRS statements have to comply with all requirements of the IASB Framework, the published Standards (IAS and IFRS), and the Interpretations (SIC).
What do we assume when working on an IFRS report?
Going concern prognosis IAS 1.25; an entity shall prepare financial statements on a going concern basis
Accrual Basis IAS 1.27; an entity shall recognize all assets, liabilities, income and expenses in the period they economically belong to (regardless of time of payment). However, the accrual basis does not comply with the cash-flow statement, rather the cash-flow statement follows the contrary of it, which is the cash-based system.
When should an asset be classified as a current asset?
Par. 66; all other assets are non-current
Only one of the conditions needs to be met for classification as a current asset
When should a liability be classified as a current liability?
Par. 69; all other liabilities are non-current
Only one of the criteria needs to apply!
What does the statement of financial presentation represent?
Assets, Liabilities and equity of a company at the reporting date
What does the statement of profit or Loss or OCI present?
The Statement of Profit or Loss or other comprehensive income presents the company´s performance over the reporting period.
What is the statement of comprehensive Income?
The Statement of comprehensive income recognizes all changes in equity that stem from the entities BUSINESS PERFORMANCE.
! Equity changes due to transactions with equity owners (shareholders) are excluded from the statement !
There is no specific Layout prescribed, he income should be reported either (1) in a single statement of comprehensive income (= subtotal for net profit or loss) (2) in two statements (= Presentation of the recognized income in an income statements; OCI in a separate statement of comprehensive income)
What is income?
First, distinction between the clean surplus and the dirty surplus needs to be made.
In clean surplus, all changes in equity are presented in P/L
In dirty surplus, some changes in equity are excluded from P/L
What accounting system is used by IFRS?
IFRS uses the dirty surplus accounting system; therefore, changes in equity are divided in P/L ( gains and losses) and OCI (equity changes which stem mainly from certain valuation techniques)
P/L + OCI = Total comprehensive income = overall equity changes due to business performance
What are Profit or Loss, OCI, and total comprehensive income?
Profit or Loss: Total of income - expenses
OCI: comprises items of income and expense that are not recognized in P/L
TCI: change in equity during a period resulting from transactions and other events
What is the statement of changes in equity?
The Statement of changes in equity is the third statement of the financial statements of a company. For each component of equity, a reconciliation between the carrying amount at the beginning and at the end of the period is done.
What is the statement of cash flows?
The statement of cash flows is the fourth statement to be included in the financial statements of a company. This statement allows the users of financial statements to assess a company´s ability to generate cash and cash equivalents.
It is divided into: Cashflows from
- operating activities
- investing activities
- financing activities
- Net cash increase or decrease
- opening balance (= cash and cash equivalent at the beginning of the year)
- closing balance (= cash and cash equivalent at the end of the year)
What are the notes to the accounts?
The notes to the financial statements are, “where everything else goes”.
IAS 1.112 + 1.113 summarize the functions of the notes
