From the desk of M.Iftykhar Alam ..::: :::..
HISTORY OF IAS 1
March 1974 / Exposure Draft E1, Disclosure of Accounting Policies
January 1975 / IAS 1, Disclosure of Accounting Policies
June 1975 / E5, Information to Be Disclosed in Financial Statements
October 1976 / IAS 5, Information to Be Disclosed in Financial Statements
July 1978 / E14, Current Assets and Current Liabilities
November 1979 / IAS 13, Presentation of Current Assets and Current Liabilities
1994 / IAS 1, IAS 5, and IAS 13 were reformatted
July 1996 / E53 Presentation of Financial Statements
August 1997 / IAS 1 (1997), Presentation of Financial Statements, superseded IAS 1 (1975), IAS 5, and IAS 13 (1979)
1 July 1998 / Effective Date of IAS 1 (1997)
RELATED INTERPRETATIONS
SIC 8, First-Time Application of IASs as the Primary Basis of Accounting
SIC 18, Consistency - Alternative Methods
SIC 27, Evaluating the Substance of Transactions in the Legal Form of a Lease
SIC 29, Disclosure – Service Concession Arrangements
AMENDMENTS UNDER CONSIDERATION BY IASB
Improvements to IFRS
Convergence Topics
Reporting Performance
SUMMARY OF IAS 1
Objective of IAS 1
The objective of IAS 1 (revised 1997) is to prescribe the basis for presentation of general purpose financial statements. It sets out the overall framework and responsibilities for the presentation of financial statements, guidelines for their structure and minimum requirements for the content of the financial statements.
Scope
Applies to all general purpose financial statements based on International Accounting Standards. [IAS 1.1]
General purpose financial statements are those intended to serve users who do not have the authority to demand financial reports tailored for their own needs. [IAS 1.2]
Components of Financial Statements
A complete set of financial statements should include: [IAS 1.7]
- a balance sheet,
- income statement,
- statement showing changes in equity,
- cash flow statement, and
- accounting policies and explanatory notes.
The Standard specifies minimum headings to be presented on the face of the balance sheet and income statement and guidance for the identification of additional line-items. [IAS 1.42]
Structure and content of financial statements in general
Clearly identify: [IAS 1.44-46]
- the financial statements
- the reporting enterprise
- whether the statements are for the enterprise or for a group
- the date or period covered
- the reporting currency
- the level of precision (thousands, millions, etc.)
There is a presumption that financial statements will be prepared at least annually. If the annual reporting period changes and financial statements are prepared for a different period, the enterprise must disclose the reason for the change and a warning abount problems of comparability. [IAS 1.49]
Balance Sheet
An enterprise is given a choice as to the presentation of its balance sheet between:
- separating current and noncurrent assets and liabilities, or
- presenting assets and liabilities in order of their liquidity (or in reverse order of liquidity) without a current/noncurrent distinction [IAS 1.53]. In either case, if an asset (liability) category commingles amounts that will be received (settled) after 12 months with assets (liabilities) that will be received (settled) within 12 months, note disclosure is required that separates the longer-term amounts from the 12-month amounts. [IAS 1.54]
- Current assets are cash; cash equivalent; assets held for collection, sale, or consumption within the enterprise's normal operating cycle; or assets held for short-term trading within the next 12 months. All other assets are noncurrent. [IAS 1.57]
- Current liabilities are those to be settled within the enterprise's normal operating cycle or due within 12 months. Other liabilities are noncurrent. [IAS 1.60] Long-term debt expected to be refinanced is noncurrent, even if due within 12 months. [IAS 1.63]
- property, plant and equipment
- intangible assets
- financial assets
- equity method investments
- inventories
- receivables
- cash and cash equivalents
- payables
- tax assets and liabilities
- provisions
- noncurrent interest-bearing liabilities
- minority interest
- issued capital and reserves (see below)
IAS 1 does not prescribe the format of the balance sheet. Assets can be presented current then noncurrent, or vice versa, and liabilities and equity can be presented current then noncurrent then equity, or vice versa. A net asset presentation (assets minus liabilities) is allowed. The long-term financing approach used in UK and elsewhere -- fixed assets + current assets - short term payables = long-term debt plus equity -- is also acceptable.
Regarding issued share capital and reserves, the following disclosures are required: [IAS 1.74]
- numbers of shares authorised, issued and fully paid, and issued but not fully paid
- par value
- reconiliation of shares outstanding at the beginning and the end of the period
- description of rights, preferences, and restrictions
- treasury shares, including shares held by subsidiaries and associates
- shares reserved for issuance under options and contracts
- a description of the nature and purpose of each reserve within owners' equity
- dividends proposed or declared after balance sheet date
- cumulative dividends in arrears
Minimum items on the face of the income statement should include: [IAS 1.75]
- revenue
- results of operating activities
- financing costs
- share of profits of equity method associates and joint ventures
- income tax expense
- profit or loss from ordinary activities
- extraordinary items
- minority interest
- net profit or loss for the period
- dividends per share [IAS 1.85]
Expenses should be analysed either by nature (raw materials, staffing costs, depreciation, etc.) or by function (cost of sales, selling, administrative, etc.) either on the face of the income statement or in the notes. [IAS 1.77] If an enterprise categorises by function, additional information on the nature of expenses -- at a minimum depreciation, amortisation, and staff costs -- must be disclosed. [IAS 1.83]
Cash Flow Statement
Rather than setting out separate standards for presenting the cash flow statement, IAS 1 refers to IAS 7, Cash Flow Statements
Statement of Changes in Equity
IAS 1 (Revised 1997) introduces a requirement to present a statement of changes in equity as a separate component of the financial statements, showing: [IAS 1.86]
- the net profit or loss for the period;
- each item of income or expense, gain or loss which is recognised directly in equity and the total of those items; and
- the cumulative effect of prior period adjustments.
- capital transactions with owners;
- the balance of accumulated profits at the beginning and at the end of the period, and the movements for the period; and
- a reconciliation between the carrying amount of each class of equity capital, share premium and each reserve at the beginning and at the end of the period, disclosing each movement.
At a minimum, notes to the financial statements should present the accounting policies followed [IAS 1.97], information required by other IAS, narrative descriptions or detailed analyses of items shown on the face of the financial statements [IAS 1,93], information required or encouraged by other IAS [IAS 1.91], and other disclosures necessary for an understanding and fair presentation of the financial statements [IAS 1.91].
Notes should be cross-referenced from the face of the financial statements to the relevant note. [IAS 1.92]
The following other disclosures are required by IAS 1.102 if not disclosed elsewhere in information published with the financial statements:
- domicile of the enterprise;
- country of incorporation;
- legal form;
- address of registered office or principal place of business;
- description of the enterprise's operations;
- name of its parent and the ultimate parent if it is part of a group; and
- number of employees - either end of period or average.
Financial statements are required to present fairly the financial position, financial performance and cash flows of an enterprise. Such fair presentation will generally be achieved by compliance with IAS. Fair presentation means: [IAS 1.10 and 1.15]
- Selecting accounting policies that comply fully with IAS or, in the absence of an IAS, result in relevant and reliable information [IAS 1.20]
- Presenting the information to maximise relevance, reliability, comparability, and understandability
- Providing additional disclosures that aid in understanding financial position and performance
Disclosure of accounting policies or other explanations in the notes does not rectify any inappropriate accounting treatment. [IAS 1.12]
In the rare circumstances where non-compliance with IAS is necessary in order to achieve a fair presentation, the enterprise is required to make comprehensive disclosures in order to justify the non-compliance and to highlight its financial impact. [IAS 1.13]
In the period in which IAS are applied in full for the first time, the financial statements should be presented as if the enterprise had always applied IAS. Standards and Interpretations should generally be applied retrospectively - and the resulting adjustment treated as an adjustment to the opening balance of retained earnings. [SIC 8]
The Standard also specifies fundamental principles underlying the preparation of financial statements:
- the enterprise is a going concern (unless otherwise stated); [IAS 1.23]
- financial statement presentation and classification are consistent with prior periods (unless otherwise stated); [IAS 1.27]
- the accrual basis of accounting is used; [IAS 1.25]
- materiality; [IAS 1.29]
- timeliness: publish within six months of balance sheet date; [IAS 1.52]
- disclosure if an International Accounting Standard has been applied before its effective date; [IAS 1.18]
- the basis for selection of accounting policies and how they should be disclosed
- rules for the offsetting of assets and liabilities, and income and expenses; [IAS 1.33-34] and
- a requirement for presenting comparative amounts. [IAS 1.38]