International Accounting Standard 1
Presentation of Financial Statements
This version includes amendments resulting from IFRSs issued up to 31 December 2010 with an effectivedate no later than 1 January 2011.
IAS 1 Presentation of Financial Statements was issued by the International AccountingStandards Committee in September 1997. It replaced IAS 1 Disclosure of Accounting Policies(originally approved in 1974), IAS 5 Information to be Disclosed in Financial Statements (originallyapproved in 1977) and IAS 13 Presentation of Current Assets and Current Liabilities (originallyapproved in 1979).
In April 2001 the International Accounting Standards Board (IASB) resolved that allStandards and Interpretations issued under previous Constitutions continued to beapplicable unless and until they were amended or withdrawn.
In December 2003 the IASB issued a revised IAS 1, and in August 2005 issued anAmendment to IAS 1—Capital Disclosures.
IAS 1 and its accompanying documents were also amended by the following IFRSs:••••
IFRS 5Non-current Assets Held for Sale and Discontinued Operations (issued March 2004)Actuarial Gains and Losses, Group Plans and Disclosures (Amendments to IAS 19)(issued December 2004)
IFRS 7Financial Instruments: Disclosures (issued August 2005) IAS 23Borrowing Costs (as revised in March 2007).*
In September 2007 the IASB issued a revised IAS 1, with an effective date of 1 January 2009.Since then, IAS 1 has been amended by the following IFRSs:••••
Puttable Financial Instruments and Obligations Arising on Liquidation (Amendments to IAS 32 and IAS 1) (issued February 2008)Improvements to IFRSs (issued May 2008)Improvements to IFRSs (issued April 2009)†Improvements to IFRSs (issued May 2010).§
Amendments with an effective date later than 1 January 2011
IAS 1 and its accompanying documents have been amended by IFRS 9 Financial Instruments(issued November 2009 and October 2010). Those amendments have an effective date of1 January 2013 and are therefore not included in this edition.
*†§
effective date 1 January 2009effective date 1 January 2010effective date 1 January 2011
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The following Interpretations refer to IAS 1:••••••••••
SIC-7 Introduction of the Euro (issued May 1998 and subsequently amended)
SIC-15 Operating Leases—Incentives (issued December 1998 and subsequently amended)SIC-25 Income Taxes—Changes in the Tax Status of an Entity or its Shareholders (issued December 1998 and subsequently amended)SIC-29 Service Concession Arrangements: Disclosures
(issued December 2001 and subsequently amended)
SIC-32 Intangible Assets—Web Site Costs (issued March 2002 and subsequently amended)IFRIC 1Changes in Existing Decommissioning, Restoration and Similar Liabilities (issued May 2004)
IFRIC 14IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements andtheir Interaction (issued July 2007)
IFRIC 15Agreements for the Construction of Real Estate (issued July 2008)*IFRIC 17Distributions of Non-cash Assets to Owners (issued November 2008)†
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (issued November 2009).§
*†§
effective date 1 January 2009effective date 1 July 2009effective date 1 July 2010
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CONTENTS
paragraphs
INTRODUCTION
IN1–IN16
INTERNATIONAL ACCOUNTING STANDARD 1PRESENTATION OF FINANCIAL STATEMENTS
OBJECTIVESCOPEDEFINITIONS
FINANCIAL STATEMENTSPurpose of financial statementsComplete set of financial statementsGeneral features
Fair presentation and compliance with IFRSsGoing concern
Accrual basis of accountingMateriality and aggregationOffsetting
Frequency of reportingComparative informationConsistency of presentationSTRUCTURE AND CONTENTIntroduction
Identification of the financial statementsStatement of financial position
Information to be presented in the statement of financial positionCurrent/non-current distinctionCurrent assetsCurrent liabilities
Information to be presented either in the statement of financial positionor in the notes
Statement of comprehensive income
Information to be presented in the statement of comprehensive incomeProfit or loss for the period
Other comprehensive income for the period
Information to be presented in the statement of comprehensive incomeor in the notes
Statement of changes in equity
12–67–8A9–46
910–1415–4615–2425–2627–2829–3132–3536–3738–4445–47–13847–4849–5354–80A54–5960–6566–6869–7677–80A81–10582–8788–90–9697–105106–110
Information to be presented in the statement of changes in equity106Information to be presented in the statement of changes in equity or in the notes106A–110Statement of cash flows
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Notes
Structure
Disclosure of accounting policiesSources of estimation uncertaintyCapital
Puttable financial instruments classified as equityOther disclosures
TRANSITION AND EFFECTIVE DATEWITHDRAWAL OF IAS 1 (REVISED 2003)APPENDIX
Amendments to other pronouncements
APPROVAL BY THE BOARD OF IAS 1 ISSUED IN 2007
112–138112–116117–124125–133134–136
136A137–138139–139F
140
APPROVAL BY THE BOARD OF PUTTABLE FINANCIAL INSTRUMENTS
AND OBLIGATIONS ARISING ON LIQUIDATION (AMENDMENTS TO IAS 32 AND IAS 1) ISSUED IN FEBRUARY 2008BASIS FOR CONCLUSIONS
APPENDIX
Amendments to the Basis for Conclusions on other IFRSsDISSENTING OPINIONSIMPLEMENTATION GUIDANCE
APPENDIX
Amendments to guidance on other IFRSsTABLE OF CONCORDANCE
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International Accounting Standard 1 Presentation of Financial Statements (IAS 1) is set outin paragraphs 1–140 and the Appendix. All the paragraphs have equal authority.IAS1should be read in the context of its objective and the Basis for Conclusions, thePreface to International Financial Reporting Standards and the Conceptual Framework forFinancial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errorsprovides a basis for selecting and applying accounting policies in the absence of explicitguidance.
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Introduction
IN1
International Accounting Standard 1 Presentation of Financial Statements (IAS 1)replaces IAS 1 Presentation of Financial Statements (revised in 2003) as amended in 2005.IAS 1 sets overall requirements for the presentation of financial statements,guidelines for their structure and minimum requirements for their content.
Reasons for revising IAS 1
IN2
The main objective of the International Accounting Standards Board in revisingIAS 1 was to aggregate information in the financial statements on the basis ofshared characteristics. With this in mind, the Board considered it useful toseparate changes in equity (net assets) of an entity during a period arising fromtransactions with owners in their capacity as owners from other changes inequity. Consequently, the Board decided that all owner changes in equity shouldbe presented in the statement of changes in equity, separately from non-ownerchanges in equity.
In its review, the Board also considered FASB Statement No. 130 ReportingComprehensive Income (SFAS 130) issued in 1997. The requirements in IAS 1regarding the presentation of the statement of comprehensive income are similarto those in SFAS 130; however, some differences remain and those are identifiedin paragraph BC106 of the Basis for Conclusions.
In addition, the Board’s intention in revising IAS 1 was to improve and reordersections of IAS 1 to make it easier to read. The Board’s objective was not toreconsider all the requirements of IAS 1.
IN3
IN4
Main features of IAS 1
IN5
IAS 1 affects the presentation of owner changes in equity and of comprehensiveincome. It does not change the recognition, measurement or disclosure ofspecific transactions and other events required by other IFRSs.
IAS 1 requires an entity to present, in a statement of changes in equity, all ownerchanges in equity. All non-owner changes in equity (ie comprehensive income)are required to be presented in one statement of comprehensive income or in twostatements (a separate income statement and a statement of comprehensiveincome). Components of comprehensive income are not permitted to bepresented in the statement of changes in equity.
IAS 1 requires an entity to present a statement of financial position as at thebeginning of the earliest comparative period in a complete set of financialstatements when the entity applies an accounting policy retrospectively or makesa retrospective restatement, as defined in IAS 8 Accounting Policies, Changes inAccounting Estimates and Errors, or when the entity reclassifies items in the financialstatements.
IN6
IN7
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IAS 1 requires an entity to disclose reclassification adjustments and income taxrelating to each component of other comprehensive income. Reclassificationadjustments are the amounts reclassified to profit or loss in the current periodthat were previously recognised in other comprehensive income.
IAS 1 requires the presentation of dividends recognised as distributions to ownersand related amounts per share in the statement of changes in equity or in thenotes. Dividends are distributions to owners in their capacity as owners and thestatement of changes in equity presents all owner changes in equity.
IN9
Changes from previous requirements
IN10
The main changes from the previous version of IAS 1 are described below.
A complete set of financial statements
IN11
The previous version of IAS 1 used the titles ‘balance sheet’ and ‘cash flowstatement’ to describe two of the statements within a complete set of financialstatements. IAS 1 uses ‘statement of financial position’ and ‘statement of cashflows’ for those statements. The new titles reflect more closely the function ofthose statements, as described in the Framework* (see paragraphs BC14–BC21 of theBasis for Conclusions).
IAS 1 requires an entity to disclose comparative information in respect of theprevious period, ie to disclose as a minimum two of each of the statements andrelated notes. It introduces a requirement to include in a complete set offinancial statements a statement of financial position as at the beginning of theearliest comparative period whenever the entity retrospectively applies anaccounting policy or makes a retrospective restatement of items in its financialstatements, or when it reclassifies items in its financial statements. The purposeis to provide information that is useful in analysing an entity’s financialstatements (see paragraphs BC31 and BC32 of the Basis for Conclusions).
IN12
Reporting owner changes in equity and comprehensiveincome
IN13
The previous version of IAS 1 required the presentation of an income statementthat included items of income and expense recognised in profit or loss.Itrequired items of income and expense not recognised in profit or loss to bepresented in the statement of changes in equity, together with owner changes inequity. It also labelled the statement of changes in equity comprising profit orloss, other items of income and expense and the effects of changes in accountingpolicies and correction of errors as ‘statement of recognised income and expense’.IAS 1 now requires:
*
The reference to the Framework is to IASC’s Framework for the Preparation and Presentation of FinancialStatements, adopted by the IASB in 2001. In September 2010 the IASB replaced the Framework withthe Conceptual Framework for Financial Reporting.
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(a)
all changes in equity arising from transactions with owners in theircapacity as owners (ie owner changes in equity) to be presented separatelyfrom non-owner changes in equity. An entity is not permitted to presentcomponents of comprehensive income (ie non-owner changes in equity) inthe statement of changes in equity. The purpose is to provide betterinformation by aggregating items with shared characteristics andseparating items with different characteristics (see paragraphs BC37 andBC38 of the Basis for Conclusions).
income and expenses to be presented in one statement (a statement ofcomprehensive income) or in two statements (a separate income statementand a statement of comprehensive income), separately from owner changesin equity (see paragraphs BC49–BC54 of the Basis for Conclusions).
components of other comprehensive income to be displayed in thestatement of comprehensive income.
total comprehensive income to be presented in the financial statements.
(b)
(c)(d)
Other comprehensive income—reclassification adjustmentsand related tax effects
IN14
IAS 1 requires an entity to disclose income tax relating to each component of othercomprehensive income. The previous version of IAS 1 did not include such arequirement. The purpose is to provide users with tax information relating to thesecomponents because the components often have tax rates different from thoseapplied to profit or loss (see paragraphs BC65–BC68 of the Basis for Conclusions).IAS 1 also requires an entity to disclose reclassification adjustments relating tocomponents of other comprehensive income. Reclassification adjustments areamounts reclassified to profit or loss in the current period that were recognisedin other comprehensive income in previous periods. The purpose is to provideusers with information to assess the effect of such reclassifications on profit orloss (see paragraphs BC69–BC73 of the Basis for Conclusions).
IN15
Presentation of dividends
IN16
The previous version of IAS 1 permitted disclosure of the amount of dividendsrecognised as distributions to equity holders (now referred to as ‘owners’) and therelated amount per share in the income statement, in the statement of changesin equity or in the notes. IAS 1 requires dividends recognised as distributions toowners and related amounts per share to be presented in the statement ofchanges in equity or in the notes. The presentation of such disclosures in thestatement of comprehensive income is not permitted (see paragraph BC75 of theBasis for Conclusions). The purpose is to ensure that owner changes in equity (inthis case, distributions to owners in the form of dividends) are presentedseparately from non-owner changes in equity (presented in the statement ofcomprehensive income).
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International Accounting Standard 1Presentation of Financial Statements
Objective
1
This Standard prescribes the basis for presentation of general purpose financialstatements to ensure comparability both with the entity’s financial statements ofprevious periods and with the financial statements of other entities. It sets outoverall requirements for the presentation of financial statements, guidelines fortheir structure and minimum requirements for their content.
Scope
2
An entity shall apply this Standard in preparing and presenting general purposefinancial statements in accordance with International Financial ReportingStandards (IFRSs).
34
Other IFRSs set out the recognition, measurement and disclosure requirementsfor specific transactions and other events.
This Standard does not apply to the structure and content of condensed interimfinancial statements prepared in accordance with IAS 34 Interim Financial Reporting.However, paragraphs 15–35 apply to such financial statements. This Standardapplies equally to all entities, including those that present consolidated financialstatements and those that present separate financial statements as defined inIAS27Consolidated and Separate Financial Statements.
This Standard uses terminology that is suitable for profit-oriented entities,including public sector business entities. If entities with not-for-profit activitiesin the private sector or the public sector apply this Standard, they may need toamend the descriptions used for particular line items in the financial statementsand for the financial statements themselves.
Similarly, entities that do not have equity as defined in IAS 32 Financial Instruments:Presentation (eg some mutual funds) and entities whose share capital is not equity(eg some co-operative entities) may need to adapt the financial statementpresentation of members’ or unitholders’ interests.
5
6
Definitions
7
The following terms are used in this Standard with the meanings specified:
General purpose financial statements (referred to as ‘financial statements’) are thoseintended to meet the needs of users who are not in a position to require an entityto prepare reports tailored to their particular information needs.
Impracticable Applying a requirement is impracticable when the entity cannotapply it after making every reasonable effort to do so.
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International Financial Reporting Standards (IFRSs) are Standards andInterpretations issued by the International Accounting Standards Board (IASB).They comprise:(a)(b)(c)(d)
International Financial Reporting Standards;International Accounting Standards; andIFRIC Interpretations; andSIC Interpretations.*
Material Omissions or misstatements of items are material if they could,individually or collectively, influence the economic decisions that users makeonthe basis of the financial statements. Materiality depends on the size andnature of the omission or misstatement judged in the surrounding circumstances.The size or nature of the item, or a combination of both, could be the determiningfactor.
Assessing whether an omission or misstatement could influence economicdecisions of users, and so be material, requires consideration of thecharacteristics of those users. The Framework for the Preparation and Presentation ofFinancial Statements states in paragraph 25† that ‘users are assumed to have areasonable knowledge of business and economic activities and accounting and awillingness to study the information with reasonable diligence.’ Therefore, theassessment needs to take into account how users with such attributes couldreasonably be expected to be influenced in making economic decisions.
Notes contain information in addition to that presented in the statement offinancial position, statement of comprehensive income, separate incomestatement (if presented), statement of changes in equity and statement of cashflows. Notes provide narrative descriptions or disaggregations of items presentedin those statements and information about items that do not qualify forrecognition in those statements.
Other comprehensive income comprises items of income and expense (includingreclassification adjustments) that are not recognised in profit or loss as requiredor permitted by other IFRSs.
The components of other comprehensive income include:(a)(b)(c)(d)
changes in revaluation surplus (see IAS 16 Property, Plant and Equipment andIAS 38 Intangible Assets);
actuarial gains and losses on defined benefit plans recognised inaccordance with paragraph 93A of IAS 19 Employee Benefits;
gains and losses arising from translating the financial statements of aforeign operation (see IAS 21 The Effects of Changes in Foreign Exchange Rates);gains and losses on remeasuring available-for-sale financial assets (see IAS 39Financial Instruments: Recognition and Measurement);
*†
Definition of IFRSs amended after the name changes introduced by the revised Constitution ofthe IFRS Foundation in 2010.
In September 2010 the IASB replaced the Framework with the Conceptual Framework for FinancialReporting. Paragraph 25 was superseded by Chapter 3 of the Conceptual Framework.
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the effective portion of gains and losses on hedging instruments in a cashflow hedge (see IAS 39).
Owners are holders of instruments classified as equity.
Profit or loss is the total of income less expenses, excluding the components ofother comprehensive income.
Reclassification adjustments are amounts reclassified to profit or loss in thecurrent period that were recognised in other comprehensive income in thecurrent or previous periods.
Total comprehensive income is the change in equity during a period resulting fromtransactions and other events, other than those changes resulting fromtransactions with owners in their capacity as owners.
Total comprehensive income comprises all components of ‘profit or loss’ and of‘other comprehensive income’.
8
Although this Standard uses the terms ‘other comprehensive income’, ‘profit orloss’ and ‘total comprehensive income’, an entity may use other terms to describethe totals as long as the meaning is clear. For example, an entity may use the term‘net income’ to describe profit or loss.
The following terms are described in IAS 32 Financial Instruments: Presentation andare used in this Standard with the meaning specified in IAS 32:(a)(b)
puttable financial instrument classified as an equity instrument (describedin paragraphs 16A and 16B of IAS 32)
an instrument that imposes on the entity an obligation to deliver toanother party a pro rata share of the net assets of the entity only onliquidation and is classified as an equity instrument (described inparagraphs 16C and 16D of IAS 32).
8A
Financial statements
Purpose of financial statements
9
Financial statements are a structured representation of the financial position andfinancial performance of an entity. The objective of financial statements is toprovide information about the financial position, financial performance and cashflows of an entity that is useful to a wide range of users in making economicdecisions. Financial statements also show the results of the management’sstewardship of the resources entrusted to it. To meet this objective, financialstatements provide information about an entity’s:(a)(b)(c)(d)
assets;liabilities;equity;
income and expenses, including gains and losses;
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contributions by and distributions to owners in their capacity as owners;andcash flows.
This information, along with other information in the notes, assists users offinancial statements in predicting the entity’s future cash flows and, inparticular, their timing and certainty.
Complete set of financial statements
10
A complete set of financial statements comprises:(a)(b)(c)(d)(e)(f)
a statement of financial position as at the end of the period;a statement of comprehensive income for the period;a statement of changes in equity for the period;a statement of cash flows for the period;
notes, comprising a summary of significant accounting policies and otherexplanatory information; and
a statement of financial position as at the beginning of the earliestcomparative period when an entity applies an accounting policyretrospectively or makes a retrospective restatement of items in itsfinancial statements, or when it reclassifies items in its financialstatements.
An entity may use titles for the statements other than those used in this Standard.
11
An entity shall present with equal prominence all of the financial statements in acomplete set of financial statements.
12
As permitted by paragraph 81, an entity may present the components of profit orloss either as part of a single statement of comprehensive income or in a separateincome statement. When an income statement is presented it is part of acomplete set of financial statements and shall be displayed immediately beforethe statement of comprehensive income.
Many entities present, outside the financial statements, a financial review bymanagement that describes and explains the main features of the entity’sfinancial performance and financial position, and the principal uncertainties itfaces. Such a report may include a review of:(a)
the main factors and influences determining financial performance,including changes in the environment in which the entity operates, theentity’s response to those changes and their effect, and the entity’s policyfor investment to maintain and enhance financial performance, includingits dividend policy;
the entity’s sources of funding and its targeted ratio of liabilities to equity;and
the entity’s resources not recognised in the statement of financial positionin accordance with IFRSs.
13
(b)(c)
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Many entities also present, outside the financial statements, reports andstatements such as environmental reports and value added statements,particularly in industries in which environmental factors are significant andwhen employees are regarded as an important user group. Reports andstatements presented outside financial statements are outside the scope of IFRSs.
General features
Fair presentation and compliance with IFRSs
15
Financial statements shall present fairly the financial position, financialperformance and cash flows of an entity. Fair presentation requires the faithfulrepresentation of the effects of transactions, other events and conditions inaccordance with the definitions and recognition criteria for assets, liabilities,income and expenses set out in the Framework.* The application of IFRSs, withadditional disclosure when necessary, is presumed to result in financialstatements that achieve a fair presentation.
An entity whose financial statements comply with IFRSs shall make an explicitand unreserved statement of such compliance in the notes. An entity shall notdescribe financial statements as complying with IFRSs unless they comply with allthe requirements of IFRSs.
16
17
In virtually all circumstances, an entity achieves a fair presentation bycompliance with applicable IFRSs. A fair presentation also requires an entity:(a)
to select and apply accounting policies in accordance with IAS 8 AccountingPolicies, Changes in Accounting Estimates and Errors. IAS 8 sets out a hierarchyofauthoritative guidance that management considers in the absence of anIFRS that specifically applies to an item.
to present information, including accounting policies, in a manner thatprovides relevant, reliable, comparable and understandable information.to provide additional disclosures when compliance with the specificrequirements in IFRSs is insufficient to enable users to understand theimpact of particular transactions, other events and conditions on theentity’s financial position and financial performance.
(b)(c)
1819
An entity cannot rectify inappropriate accounting policies either by disclosure ofthe accounting policies used or by notes or explanatory material.
In the extremely rare circumstances in which management concludes thatcompliance with a requirement in an IFRS would be so misleading that it wouldconflict with the objective of financial statements set out in the Framework, theentity shall depart from that requirement in the manner set out in paragraph 20if the relevant regulatory framework requires, or otherwise does not prohibit,such a departure.
*
Paragraphs 15–24 contain references to the objective of financial statements set out in theFramework [for the Preparation and Presentation of Financial Statements]. In September 2010 the IASBreplaced the Framework with the Conceptual Framework for Financial Reporting, which replaced theobjective of financial statements with the objective of general purpose financial reporting: seeChapter 1 of the Conceptual Framework.
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20
When an entity departs from a requirement of an IFRS in accordance withparagraph 19, it shall disclose:(a)(b)(c)
that management has concluded that the financial statements presentfairly the entity’s financial position, financial performance and cash flows;that it has complied with applicable IFRSs, except that it has departed froma particular requirement to achieve a fair presentation;
the title of the IFRS from which the entity has departed, the nature of thedeparture, including the treatment that the IFRS would require, the reasonwhy that treatment would be so misleading in the circumstances that itwould conflict with the objective of financial statements set out in theFramework, and the treatment adopted; and
for each period presented, the financial effect of the departure on eachitem in the financial statements that would have been reported incomplying with the requirement.
(d)
21
When an entity has departed from a requirement of an IFRS in a prior period, andthat departure affects the amounts recognised in the financial statements for thecurrent period, it shall make the disclosures set out in paragraph 20(c) and (d).
22
Paragraph 21 applies, for example, when an entity departed in a prior period froma requirement in an IFRS for the measurement of assets or liabilities and thatdeparture affects the measurement of changes in assets and liabilities recognisedin the current period’s financial statements.
In the extremely rare circumstances in which management concludes thatcompliance with a requirement in an IFRS would be so misleading that it wouldconflict with the objective of financial statements set out in the Framework, butthe relevant regulatory framework prohibits departure from the requirement,the entity shall, to the maximum extent possible, reduce the perceived misleadingaspects of compliance by disclosing:(a)
the title of the IFRS in question, the nature of the requirement, and thereason why management has concluded that complying with thatrequirement is so misleading in the circumstances that it conflicts with theobjective of financial statements set out in the Framework; and
for each period presented, the adjustments to each item in the financialstatements that management has concluded would be necessary to achievea fair presentation.
23
(b)
24
For the purpose of paragraphs 19–23, an item of information would conflict withthe objective of financial statements when it does not represent faithfully thetransactions, other events and conditions that it either purports to represent orcould reasonably be expected to represent and, consequently, it would be likely toinfluence economic decisions made by users of financial statements. Whenassessing whether complying with a specific requirement in an IFRS would be somisleading that it would conflict with the objective of financial statements setout in the Framework, management considers:(a)
why the objective of financial statements is not achieved in the particularcircumstances; and
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how the entity’s circumstances differ from those of other entities thatcomply with the requirement. If other entities in similar circumstancescomply with the requirement, there is a rebuttable presumption that theentity’s compliance with the requirement would not be so misleading thatit would conflict with the objective of financial statements set out in theFramework.
Going concern
25
When preparing financial statements, management shall make an assessment ofan entity’s ability to continue as a going concern. An entity shall prepare financialstatements on a going concern basis unless management either intends toliquidate the entity or to cease trading, or has no realistic alternative but to do so.When management is aware, in making its assessment, of material uncertaintiesrelated to events or conditions that may cast significant doubt upon the entity’sability to continue as a going concern, the entity shall disclose thoseuncertainties. When an entity does not prepare financial statements on a goingconcern basis, it shall disclose that fact, together with the basis on which itprepared the financial statements and the reason why the entity is not regardedas a going concern.
26
In assessing whether the going concern assumption is appropriate, managementtakes into account all available information about the future, which is at least,but is not limited to, twelve months from the end of the reporting period.Thedegree of consideration depends on the facts in each case. When an entity hasa history of profitable operations and ready access to financial resources, theentity may reach a conclusion that the going concern basis of accounting isappropriate without detailed analysis. In other cases, management may need toconsider a wide range of factors relating to current and expected profitability,debt repayment schedules and potential sources of replacement financing beforeit can satisfy itself that the going concern basis is appropriate.
Accrual basis of accounting
27
An entity shall prepare its financial statements, except for cash flow information,using the accrual basis of accounting.
28
When the accrual basis of accounting is used, an entity recognises items as assets,liabilities, equity, income and expenses (the elements of financial statements)when they satisfy the definitions and recognition criteria for those elements inthe Framework.*
Materiality and aggregation
29
An entity shall present separately each material class of similar items. An entityshall present separately items of a dissimilar nature or function unless they areimmaterial.
30
Financial statements result from processing large numbers of transactions orother events that are aggregated into classes according to their nature orfunction. The final stage in the process of aggregation and classification is thepresentation of condensed and classified data, which form line items in the
replaced by the Conceptual Framework in September 2010
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financial statements. If a line item is not individually material, it is aggregatedwith other items either in those statements or in the notes. An item that is notsufficiently material to warrant separate presentation in those statements maywarrant separate presentation in the notes.
31
An entity need not provide a specific disclosure required by an IFRS if theinformation is not material.
Offsetting
32
An entity shall not offset assets and liabilities or income and expenses, unlessrequired or permitted by an IFRS.
33
An entity reports separately both assets and liabilities, and income and expenses.Offsetting in the statements of comprehensive income or financial position or inthe separate income statement (if presented), except when offsetting reflects thesubstance of the transaction or other event, detracts from the ability of users bothto understand the transactions, other events and conditions that have occurredand to assess the entity’s future cash flows. Measuring assets net of valuationallowances—for example, obsolescence allowances on inventories and doubtfuldebts allowances on receivables—is not offsetting.
IAS 18 Revenue defines revenue and requires an entity to measure it at the fairvalue of the consideration received or receivable, taking into account the amountof any trade discounts and volume rebates the entity allows. An entityundertakes, in the course of its ordinary activities, other transactions that do notgenerate revenue but are incidental to the main revenue-generating activities.Anentity presents the results of such transactions, when this presentationreflects the substance of the transaction or other event, by netting any incomewith related expenses arising on the same transaction. For example:(a)
an entity presents gains and losses on the disposal of non-current assets,including investments and operating assets, by deducting from theproceeds on disposal the carrying amount of the asset and related sellingexpenses; and
an entity may net expenditure related to a provision that is recognised inaccordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assetsand reimbursed under a contractual arrangement with a third party(forexample, a supplier’s warranty agreement) against the relatedreimbursement.
34
(b)
35
In addition, an entity presents on a net basis gains and losses arising from a groupof similar transactions, for example, foreign exchange gains and losses or gainsand losses arising on financial instruments held for trading. However, an entitypresents such gains and losses separately if they are material.
Frequency of reporting
36
An entity shall present a complete set of financial statements (includingcomparative information) at least annually. When an entity changes the end of itsreporting period and presents financial statements for a period longer or shorterthan one year, an entity shall disclose, in addition to the period covered by thefinancial statements:
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(a)(b)
the reason for using a longer or shorter period, and
the fact that amounts presented in the financial statements are not entirelycomparable.
37
Normally, an entity consistently prepares financial statements for a one-yearperiod. However, for practical reasons, some entities prefer to report, forexample, for a 52-week period. This Standard does not preclude this practice.
Comparative information
38
Except when IFRSs permit or require otherwise, an entity shall disclosecomparative information in respect of the previous period for all amountsreported in the current period’s financial statements. An entity shall includecomparative information for narrative and descriptive information when it isrelevant to an understanding of the current period’s financial statements.
39
An entity disclosing comparative information shall present, as a minimum, twostatements of financial position, two of each of the other statements, and relatednotes. When an entity applies an accounting policy retrospectively or makes aretrospective restatement of items in its financial statements or when itreclassifies items in its financial statements, it shall present, as a minimum, threestatements of financial position, two of each of the other statements, and relatednotes. An entity presents statements of financial position as at:(a)(b)(c)
the end of the current period,
the end of the previous period (which is the same as the beginning of thecurrent period), and
the beginning of the earliest comparative period.
40
In some cases, narrative information provided in the financial statements for theprevious period(s) continues to be relevant in the current period. For example, anentity discloses in the current period details of a legal dispute whose outcome wasuncertain at the end of the immediately preceding reporting period and that isyet to be resolved. Users benefit from information that the uncertainty existed atthe end of the immediately preceding reporting period, and about the steps thathave been taken during the period to resolve the uncertainty.
When the entity changes the presentation or classification of items in its financialstatements, the entity shall reclassify comparative amounts unlessreclassification is impracticable. When the entity reclassifies comparativeamounts, the entity shall disclose:(a)(b)(c)
the nature of the reclassification;
the amount of each item or class of items that is reclassified; andthe reason for the reclassification.
41
42
When it is impracticable to reclassify comparative amounts, an entity shalldisclose:(a)
the reason for not reclassifying the amounts, and
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the nature of the adjustments that would have been made if the amountshad been reclassified.
43
Enhancing the inter-period comparability of information assists users in makingeconomic decisions, especially by allowing the assessment of trends in financialinformation for predictive purposes. In some circumstances, it is impracticableto reclassify comparative information for a particular prior period to achievecomparability with the current period. For example, an entity may not havecollected data in the prior period(s) in a way that allows reclassification, and itmay be impracticable to recreate the information.
IAS 8 sets out the adjustments to comparative information required when anentity changes an accounting policy or corrects an error.
44
Consistency of presentation
45
An entity shall retain the presentation and classification of items in the financialstatements from one period to the next unless:(a)
it is apparent, following a significant change in the nature of the entity’soperations or a review of its financial statements, that anotherpresentation or classification would be more appropriate having regard tothe criteria for the selection and application of accounting policies in IAS 8;or
an IFRS requires a change in presentation.
(b)
46
For example, a significant acquisition or disposal, or a review of the presentationof the financial statements, might suggest that the financial statements need tobe presented differently. An entity changes the presentation of its financialstatements only if the changed presentation provides information that is reliableand more relevant to users of the financial statements and the revised structureis likely to continue, so that comparability is not impaired. When making suchchanges in presentation, an entity reclassifies its comparative information inaccordance with paragraphs 41 and 42.
Structure and content
Introduction
47
This Standard requires particular disclosures in the statement of financialposition or of comprehensive income, in the separate income statement(ifpresented), or in the statement of changes in equity and requires disclosure ofother line items either in those statements or in the notes. IAS 7 Statement of CashFlows sets out requirements for the presentation of cash flow information. This Standard sometimes uses the term ‘disclosure’ in a broad sense,encompassing items presented in the financial statements. Disclosures are alsorequired by other IFRSs. Unless specified to the contrary elsewhere in thisStandard or in another IFRS, such disclosures may be made in the financialstatements.
48
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Identification of the financial statements
49
An entity shall clearly identify the financial statements and distinguish themfrom other information in the same published document.
50
IFRSs apply only to financial statements, and not necessarily to other informationpresented in an annual report, a regulatory filing, or another document.Therefore, it is important that users can distinguish information that is preparedusing IFRSs from other information that may be useful to users but is not thesubject of those requirements.
An entity shall clearly identify each financial statement and the notes.Inaddition, an entity shall display the following information prominently, andrepeat it when necessary for the information presented to be understandable:(a)(b)(c)(d)(e)
the name of the reporting entity or other means of identification, and anychange in that information from the end of the preceding reporting period; whether the financial statements are of an individual entity or a group ofentities;
the date of the end of the reporting period or the period covered by the setof financial statements or notes;
the presentation currency, as defined in IAS 21; and
the level of rounding used in presenting amounts in the financialstatements.
51
52
An entity meets the requirements in paragraph 51 by presenting appropriateheadings for pages, statements, notes, columns and the like. Judgement isrequired in determining the best way of presenting such information.Forexample, when an entity presents the financial statements electronically,separate pages are not always used; an entity then presents the above items toensure that the information included in the financial statements can beunderstood.
An entity often makes financial statements more understandable by presentinginformation in thousands or millions of units of the presentation currency.Thisis acceptable as long as the entity discloses the level of rounding and does notomit material information.
53
Statement of financial position
Information to be presented in the statement of financial position
54
As a minimum, the statement of financial position shall include line items thatpresent the following amounts:(a)(b)(c)(d)(e)
property, plant and equipment;investment property;intangible assets;
financial assets (excluding amounts shown under (e), (h) and (i));investments accounted for using the equity method;
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(f)(g)(h)(i)(j)
biological assets;inventories;
trade and other receivables;cash and cash equivalents;
the total of assets classified as held for sale and assets included in disposalgroups classified as held for sale in accordance with IFRS 5 Non-currentAssets Held for Sale and Discontinued Operations;trade and other payables;provisions;
financial liabilities (excluding amounts shown under (k) and (l));liabilities and assets for current tax, as defined in IAS 12 Income Taxes;deferred tax liabilities and deferred tax assets, as defined in IAS 12;liabilities included in disposal groups classified as held for sale inaccordance with IFRS 5;
non-controlling interests, presented within equity; and
issued capital and reserves attributable to owners of the parent.
(k)(l)(m)(n)(o)(p)(q)(r)
55
An entity shall present additional line items, headings and subtotals in thestatement of financial position when such presentation is relevant to anunderstanding of the entity’s financial position.
When an entity presents current and non-current assets, and current andnon-current liabilities, as separate classifications in its statement of financialposition, it shall not classify deferred tax assets (liabilities) as current assets(liabilities).
56
57
This Standard does not prescribe the order or format in which an entity presentsitems. Paragraph 54 simply lists items that are sufficiently different in nature orfunction to warrant separate presentation in the statement of financial position.In addition:(a)
line items are included when the size, nature or function of an item oraggregation of similar items is such that separate presentation is relevantto an understanding of the entity’s financial position; and
the descriptions used and the ordering of items or aggregation of similaritems may be amended according to the nature of the entity and itstransactions, to provide information that is relevant to an understanding ofthe entity’s financial position. For example, a financial institution mayamend the above descriptions to provide information that is relevant to theoperations of a financial institution.
(b)
58
An entity makes the judgement about whether to present additional itemsseparately on the basis of an assessment of:(a)(b)
the nature and liquidity of assets;
the function of assets within the entity; and
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the amounts, nature and timing of liabilities.
The use of different measurement bases for different classes of assets suggests thattheir nature or function differs and, therefore, that an entity presents them asseparate line items. For example, different classes of property, plant andequipment can be carried at cost or at revalued amounts in accordance with IAS 16.
Current/non-current distinction
60
An entity shall present current and non-current assets, and current andnon-current liabilities, as separate classifications in its statement of financialposition in accordance with paragraphs 66–76 except when a presentation basedon liquidity provides information that is reliable and more relevant. When thatexception applies, an entity shall present all assets and liabilities in order ofliquidity.
Whichever method of presentation is adopted, an entity shall disclose the amountexpected to be recovered or settled after more than twelve months for each assetand liability line item that combines amounts expected to be recovered or settled:(a)(b)
no more than twelve months after the reporting period, and more than twelve months after the reporting period.
61
62
When an entity supplies goods or services within a clearly identifiable operatingcycle, separate classification of current and non-current assets and liabilities inthe statement of financial position provides useful information by distinguishingthe net assets that are continuously circulating as working capital from thoseused in the entity’s long-term operations. It also highlights assets that areexpected to be realised within the current operating cycle, and liabilities that aredue for settlement within the same period.
For some entities, such as financial institutions, a presentation of assets andliabilities in increasing or decreasing order of liquidity provides information thatis reliable and more relevant than a current/non-current presentation because theentity does not supply goods or services within a clearly identifiable operatingcycle.
In applying paragraph 60, an entity is permitted to present some of its assets andliabilities using a current/non-current classification and others in order ofliquidity when this provides information that is reliable and more relevant.Theneed for a mixed basis of presentation might arise when an entity has diverseoperations.
Information about expected dates of realisation of assets and liabilities is usefulin assessing the liquidity and solvency of an entity. IFRS 7 Financial Instruments:Disclosures requires disclosure of the maturity dates of financial assets andfinancial liabilities. Financial assets include trade and other receivables, andfinancial liabilities include trade and other payables. Information on theexpected date of recovery of non-monetary assets such as inventories andexpected date of settlement for liabilities such as provisions is also useful,whether assets and liabilities are classified as current or as non-current.Forexample, an entity discloses the amount of inventories that are expected to berecovered more than twelve months after the reporting period.
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Current assets
66
An entity shall classify an asset as current when:(a)(b)(c)(d)
it expects to realise the asset, or intends to sell or consume it, in its normaloperating cycle;
it holds the asset primarily for the purpose of trading;
it expects to realise the asset within twelve months after the reportingperiod; or
the asset is cash or a cash equivalent (as defined in IAS 7) unless the asset isrestricted from being exchanged or used to settle a liability for at leasttwelve months after the reporting period.
An entity shall classify all other assets as non-current.
67
This Standard uses the term ‘non-current’ to include tangible, intangible andfinancial assets of a long-term nature. It does not prohibit the use of alternativedescriptions as long as the meaning is clear.
The operating cycle of an entity is the time between the acquisition of assets forprocessing and their realisation in cash or cash equivalents. When the entity’snormal operating cycle is not clearly identifiable, it is assumed to be twelvemonths. Current assets include assets (such as inventories and trade receivables)that are sold, consumed or realised as part of the normal operating cycle evenwhen they are not expected to be realised within twelve months after thereporting period. Current assets also include assets held primarily for thepurpose of trading (examples include some financial assets classified as held fortrading in accordance with IAS 39) and the current portion of non-currentfinancial assets.
68
Current liabilities
69
An entity shall classify a liability as current when:(a)(b)(c)(d)
it expects to settle the liability in its normal operating cycle;it holds the liability primarily for the purpose of trading;
the liability is due to be settled within twelve months after the reportingperiod; or
it does not have an unconditional right to defer settlement of the liabilityfor at least twelve months after the reporting period (see paragraph 73).Terms of a liability that could, at the option of the counterparty, result inits settlement by the issue of equity instruments do not affect itsclassification.
An entity shall classify all other liabilities as non-current.
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70
Some current liabilities, such as trade payables and some accruals for employeeand other operating costs, are part of the working capital used in the entity’snormal operating cycle. An entity classifies such operating items as currentliabilities even if they are due to be settled more than twelve months after thereporting period. The same normal operating cycle applies to the classification ofan entity’s assets and liabilities. When the entity’s normal operating cycle is notclearly identifiable, it is assumed to be twelve months.
Other current liabilities are not settled as part of the normal operating cycle, butare due for settlement within twelve months after the reporting period or heldprimarily for the purpose of trading. Examples are some financial liabilitiesclassified as held for trading in accordance with IAS 39, bank overdrafts, and thecurrent portion of non-current financial liabilities, dividends payable, incometaxes and other non-trade payables. Financial liabilities that provide financing ona long-term basis (ie are not part of the working capital used in the entity’s normaloperating cycle) and are not due for settlement within twelve months after thereporting period are non-current liabilities, subject to paragraphs 74 and 75.An entity classifies its financial liabilities as current when they are due to besettled within twelve months after the reporting period, even if:(a)(b)
the original term was for a period longer than twelve months, and
an agreement to refinance, or to reschedule payments, on a long-term basisis completed after the reporting period and before the financial statementsare authorised for issue.
71
72
73
If an entity expects, and has the discretion, to refinance or roll over an obligationfor at least twelve months after the reporting period under an existing loanfacility, it classifies the obligation as non-current, even if it would otherwise bedue within a shorter period. However, when refinancing or rolling over theobligation is not at the discretion of the entity (for example, there is noarrangement for refinancing), the entity does not consider the potential torefinance the obligation and classifies the obligation as current.
When an entity breaches a provision of a long-term loan arrangement on orbefore the end of the reporting period with the effect that the liability becomespayable on demand, it classifies the liability as current, even if the lender agreed,after the reporting period and before the authorisation of the financialstatements for issue, not to demand payment as a consequence of the breach.Anentity classifies the liability as current because, at the end of the reportingperiod, it does not have an unconditional right to defer its settlement for at leasttwelve months after that date.
However, an entity classifies the liability as non-current if the lender agreed bythe end of the reporting period to provide a period of grace ending at least twelvemonths after the reporting period, within which the entity can rectify the breachand during which the lender cannot demand immediate repayment.
In respect of loans classified as current liabilities, if the following events occurbetween the end of the reporting period and the date the financial statements areauthorised for issue, those events are disclosed as non-adjusting events inaccordance with IAS 10 Events after the Reporting Period:
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(a)(b)(c)
refinancing on a long-term basis;
rectification of a breach of a long-term loan arrangement; and
the granting by the lender of a period of grace to rectify a breach of along-term loan arrangement ending at least twelve months after thereporting period.
Information to be presented either in the statement of financial position or in the notes
77
An entity shall disclose, either in the statement of financial position or in thenotes, further subclassifications of the line items presented, classified in amanner appropriate to the entity’s operations.
78
The detail provided in subclassifications depends on the requirements of IFRSsand on the size, nature and function of the amounts involved. An entity also usesthe factors set out in paragraph 58 to decide the basis of subclassification.Thedisclosures vary for each item, for example:(a)(b)
items of property, plant and equipment are disaggregated into classes inaccordance with IAS 16;
receivables are disaggregated into amounts receivable from tradecustomers, receivables from related parties, prepayments and otheramounts;
inventories are disaggregated, in accordance with IAS 2 Inventories, intoclassifications such as merchandise, production supplies, materials, workin progress and finished goods;
provisions are disaggregated into provisions for employee benefits andother items; and
equity capital and reserves are disaggregated into various classes, such aspaid-in capital, share premium and reserves.
(c)
(d)(e)
79
An entity shall disclose the following, either in the statement of financial positionor the statement of changes in equity, or in the notes:(a)
for each class of share capital:(i)(ii)(iii)(iv)(v)
the number of shares authorised;
the number of shares issued and fully paid, and issued but not fullypaid;
par value per share, or that the shares have no par value;
a reconciliation of the number of shares outstanding at the beginningand at the end of the period;
the rights, preferences and restrictions attaching to that classincluding restrictions on the distribution of dividends and therepayment of capital;
shares in the entity held by the entity or by its subsidiaries orassociates; and
(vi)
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(vii)shares reserved for issue under options and contracts for the sale of
shares, including terms and amounts; and(b)
80
a description of the nature and purpose of each reserve within equity.
An entity without share capital, such as a partnership or trust, shall discloseinformation equivalent to that required by paragraph 79(a), showing changesduring the period in each category of equity interest, and the rights, preferencesand restrictions attaching to each category of equity interest.If an entity has reclassified(a)(b)
a puttable financial instrument classified as an equity instrument, oran instrument that imposes on the entity an obligation to deliver toanother party a pro rata share of the net assets of the entity only onliquidation and is classified as an equity instrument
80A
between financial liabilities and equity, it shall disclose the amount reclassifiedinto and out of each category (financial liabilities or equity), and the timing andreason for that reclassification.
Statement of comprehensive income
81
An entity shall present all items of income and expense recognised in a period:(a)(b)
in a single statement of comprehensive income, or
in two statements: a statement displaying components of profit or loss(separate income statement) and a second statement beginning with profitor loss and displaying components of other comprehensive income(statement of comprehensive income).
Information to be presented in the statement of comprehensive income
82
As a minimum, the statement of comprehensive income shall include line itemsthat present the following amounts for the period:(a)(b)(c)(d)(e)
revenue;finance costs;
share of the profit or loss of associates and joint ventures accounted forusing the equity method;tax expense;
a single amount comprising the total of:(i)(ii)
the post-tax profit or loss of discontinued operations and
the post-tax gain or loss recognised on the measurement to fair valueless costs to sell or on the disposal of the assets or disposal group(s)constituting the discontinued operation;
(f)profit or loss;
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(g)(h)(i)
83
each component of other comprehensive income classified by nature(excluding amounts in (h));
share of the other comprehensive income of associates and joint venturesaccounted for using the equity method; andtotal comprehensive income.
An entity shall disclose the following items in the statement of comprehensiveincome as allocations for the period:(a)
profit or loss for the period attributable to:(i)(ii)(b)
non-controlling interests, andowners of the parent.
total comprehensive income for the period attributable to:(i)(ii)
non-controlling interests, andowners of the parent.
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An entity may present in a separate income statement (see paragraph 81) the lineitems in paragraph 82(a)–(f) and the disclosures in paragraph 83(a).
An entity shall present additional line items, headings and subtotals in thestatement of comprehensive income and the separate income statement(ifpresented), when such presentation is relevant to an understanding of theentity’s financial performance.
86
Because the effects of an entity’s various activities, transactions and other eventsdiffer in frequency, potential for gain or loss and predictability, disclosing thecomponents of financial performance assists users in understanding the financialperformance achieved and in making projections of future financialperformance. An entity includes additional line items in the statement ofcomprehensive income and in the separate income statement (if presented), andit amends the descriptions used and the ordering of items when this is necessaryto explain the elements of financial performance. An entity considers factorsincluding materiality and the nature and function of the items of income andexpense. For example, a financial institution may amend the descriptions toprovide information that is relevant to the operations of a financial institution.An entity does not offset income and expense items unless the criteria inparagraph 32 are met.
An entity shall not present any items of income or expense as extraordinaryitems, in the statement of comprehensive income or the separate incomestatement (if presented), or in the notes.
87
Profit or loss for the period
88
An entity shall recognise all items of income and expense in a period in profit orloss unless an IFRS requires or permits otherwise.
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Some IFRSs specify circumstances when an entity recognises particular itemsoutside profit or loss in the current period. IAS 8 specifies two suchcircumstances: the correction of errors and the effect of changes in accountingpolicies. Other IFRSs require or permit components of other comprehensiveincome that meet the Framework’s* definition of income or expense to be excludedfrom profit or loss (see paragraph 7).
Other comprehensive income for the period
90
An entity shall disclose the amount of income tax relating to each component ofother comprehensive income, including reclassification adjustments, either inthe statement of comprehensive income or in the notes.
91An entity may present components of other comprehensive income either:(a)(b)
net of related tax effects, or
before related tax effects with one amount shown for the aggregateamount of income tax relating to those components.
92
An entity shall disclose reclassification adjustments relating to components ofother comprehensive income.
93
Other IFRSs specify whether and when amounts previously recognised in othercomprehensive income are reclassified to profit or loss. Such reclassifications arereferred to in this Standard as reclassification adjustments. A reclassificationadjustment is included with the related component of other comprehensiveincome in the period that the adjustment is reclassified to profit or loss.Forexample, gains realised on the disposal of available-for-sale financial assetsare included in profit or loss of the current period. These amounts may have beenrecognised in other comprehensive income as unrealised gains in the current orprevious periods. Those unrealised gains must be deducted from othercomprehensive income in the period in which the realised gains are reclassifiedto profit or loss to avoid including them in total comprehensive income twice. An entity may present reclassification adjustments in the statement ofcomprehensive income or in the notes. An entity presenting reclassificationadjustments in the notes presents the components of other comprehensiveincome after any related reclassification adjustments.
Reclassification adjustments arise, for example, on disposal of a foreign operation(see IAS 21), on derecognition of available-for-sale financial assets (see IAS 39) andwhen a hedged forecast transaction affects profit or loss (see paragraph 100 ofIAS39 in relation to cash flow hedges).
Reclassification adjustments do not arise on changes in revaluation surplusrecognised in accordance with IAS 16 or IAS 38 or on actuarial gains and losses ondefined benefit plans recognised in accordance with paragraph 93A of IAS 19.These components are recognised in other comprehensive income and are notreclassified to profit or loss in subsequent periods. Changes in revaluation
94
95
96
*
In September 2010 the IASB replaced the Framework with the Conceptual Framework for FinancialReporting.
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surplus may be transferred to retained earnings in subsequent periods as the assetis used or when it is derecognised (see IAS 16 and IAS 38). Actuarial gains andlosses are reported in retained earnings in the period that they are recognised asother comprehensive income (see IAS 19).
Information to be presented in the statement of comprehensive income or in the notes
97
When items of income or expense are material, an entity shall disclose theirnature and amount separately.
98
Circumstances that would give rise to the separate disclosure of items of incomeand expense include:(a)(b)(c)(d)(e)(f)(g)
write-downs of inventories to net realisable value or of property, plant andequipment to recoverable amount, as well as reversals of such write-downs;restructurings of the activities of an entity and reversals of any provisionsfor the costs of restructuring;
disposals of items of property, plant and equipment;disposals of investments;discontinued operations;litigation settlements; andother reversals of provisions.
99
An entity shall present an analysis of expenses recognised in profit or loss usinga classification based on either their nature or their function within the entity,whichever provides information that is reliable and more relevant.
100101
Entities are encouraged to present the analysis in paragraph 99 in the statementof comprehensive income or in the separate income statement (if presented).Expenses are subclassified to highlight components of financial performance thatmay differ in terms of frequency, potential for gain or loss and predictability.Thisanalysis is provided in one of two forms.
The first form of analysis is the ‘nature of expense’ method. An entity aggregatesexpenses within profit or loss according to their nature (for example,depreciation, purchases of materials, transport costs, employee benefits andadvertising costs), and does not reallocate them among functions within theentity. This method may be simple to apply because no allocations of expenses tofunctional classifications are necessary. An example of a classification using thenature of expense method is as follows:
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RevenueOther income
Changes in inventories of finished goods and work in progressRaw materials and consumables usedEmployee benefits expense
Depreciation and amortisation expenseOther expensesTotal expensesProfit before tax
103
XXXXX
XX
(X)X
The second form of analysis is the ‘function of expense’ or ‘cost of sales’ methodand classifies expenses according to their function as part of cost of sales or, forexample, the costs of distribution or administrative activities. At a minimum, anentity discloses its cost of sales under this method separately from other expenses.This method can provide more relevant information to users than theclassification of expenses by nature, but allocating costs to functions may requirearbitrary allocations and involve considerable judgement. An example of aclassification using the function of expense method is as follows:
RevenueCost of salesGross profitOther incomeDistribution costsAdministrative expensesOther expensesProfit before tax
X(X)XX(X)(X)(X)X
104
An entity classifying expenses by function shall disclose additional informationon the nature of expenses, including depreciation and amortisation expense andemployee benefits expense.
105
The choice between the function of expense method and the nature of expensemethod depends on historical and industry factors and the nature of the entity.Both methods provide an indication of those costs that might vary, directly orindirectly, with the level of sales or production of the entity. Because eachmethod of presentation has merit for different types of entities, this Standardrequires management to select the presentation that is reliable and morerelevant. However, because information on the nature of expenses is useful inpredicting future cash flows, additional disclosure is required when the functionof expense classification is used. In paragraph 104, ‘employee benefits’ has thesame meaning as in IAS 19.
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Statement of changes in equity
Information to be presented in the statement of changes in equity
106
An entity shall present a statement of changes in equity as required by paragraph 10.The statement of changes in equity includes the following information:(a)
total comprehensive income for the period, showing separately the totalamounts attributable to owners of the parent and to non-controllinginterests;
for each component of equity, the effects of retrospective application orretrospective restatement recognised in accordance with IAS 8; and[deleted]
for each component of equity, a reconciliation between the carryingamount at the beginning and the end of the period, separately disclosingchanges resulting from:(i)(ii)(iii)
profit or loss;
other comprehensive income; and
transactions with owners in their capacity as owners, showingseparately contributions by and distributions to owners and changesin ownership interests in subsidiaries that do not result in a loss ofcontrol.
(b)(c)(d)
Information to be presented in the statement of changes in equity or in the notes
106A
For each component of equity an entity shall present, either in the statement ofchanges in equity or in the notes, an analysis of other comprehensive income byitem (see paragraph 106(d)(ii)).
An entity shall present, either in the statement of changes in equity or in thenotes, the amount of dividends recognised as distributions to owners during theperiod, and the related amount of dividends per share.
107
108
In paragraph 106, the components of equity include, for example, each class ofcontributed equity, the accumulated balance of each class of othercomprehensive income and retained earnings.
Changes in an entity’s equity between the beginning and the end of the reportingperiod reflect the increase or decrease in its net assets during the period. Exceptfor changes resulting from transactions with owners in their capacity as owners(such as equity contributions, reacquisitions of the entity’s own equityinstruments and dividends) and transaction costs directly related to suchtransactions, the overall change in equity during a period represents the totalamount of income and expense, including gains and losses, generated by theentity’s activities during that period.
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110
IAS 8 requires retrospective adjustments to effect changes in accounting policies,to the extent practicable, except when the transition provisions in another IFRSrequire otherwise. IAS 8 also requires restatements to correct errors to be maderetrospectively, to the extent practicable. Retrospective adjustments andretrospective restatements are not changes in equity but they are adjustments tothe opening balance of retained earnings, except when an IFRS requiresretrospective adjustment of another component of equity. Paragraph 106(b)requires disclosure in the statement of changes in equity of the total adjustmentto each component of equity resulting from changes in accounting policies and,separately, from corrections of errors. These adjustments are disclosed for eachprior period and the beginning of the period.
Statement of cash flows
111
Cash flow information provides users of financial statements with a basis toassess the ability of the entity to generate cash and cash equivalents and the needsof the entity to utilise those cash flows. IAS 7 sets out requirements for thepresentation and disclosure of cash flow information.
Notes
Structure
112
The notes shall:(a)
present information about the basis of preparation of the financialstatements and the specific accounting policies used in accordance withparagraphs 117–124;
disclose the information required by IFRSs that is not presented elsewherein the financial statements; and
provide information that is not presented elsewhere in the financialstatements, but is relevant to an understanding of any of them.
(b)(c)
113
An entity shall, as far as practicable, present notes in a systematic manner.Anentity shall cross-reference each item in the statements of financial positionand of comprehensive income, in the separate income statement (if presented),and in the statements of changes in equity and of cash flows to any relatedinformation in the notes.
114
An entity normally presents notes in the following order, to assist users tounderstand the financial statements and to compare them with financialstatements of other entities:(a)(b)(c)
statement of compliance with IFRSs (see paragraph 16);
summary of significant accounting policies applied (see paragraph 117);supporting information for items presented in the statements of financialposition and of comprehensive income, in the separate income statement(if presented), and in the statements of changes in equity and of cash flows,in the order in which each statement and each line item is presented; and
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(d)other disclosures, including:(i)(ii)
contingent liabilities (see IAS 37) and unrecognised contractualcommitments, and
non-financial disclosures, eg the entity’s financial risk managementobjectives and policies (see IFRS 7).
115
In some circumstances, it may be necessary or desirable to vary the order ofspecific items within the notes. For example, an entity may combine informationon changes in fair value recognised in profit or loss with information onmaturities of financial instruments, although the former disclosures relate to thestatement of comprehensive income or separate income statement (if presented)and the latter relate to the statement of financial position. Nevertheless, anentity retains a systematic structure for the notes as far as practicable.
An entity may present notes providing information about the basis of preparationof the financial statements and specific accounting policies as a separate sectionof the financial statements.
116
Disclosure of accounting policies
117
An entity shall disclose in the summary of significant accounting policies:(a)(b)
the measurement basis (or bases) used in preparing the financialstatements, and
the other accounting policies used that are relevant to an understanding ofthe financial statements.
118
It is important for an entity to inform users of the measurement basis or basesused in the financial statements (for example, historical cost, current cost, netrealisable value, fair value or recoverable amount) because the basis on which anentity prepares the financial statements significantly affects users’ analysis.When an entity uses more than one measurement basis in the financialstatements, for example when particular classes of assets are revalued, it issufficient to provide an indication of the categories of assets and liabilities towhich each measurement basis is applied.
In deciding whether a particular accounting policy should be disclosed,management considers whether disclosure would assist users in understandinghow transactions, other events and conditions are reflected in reported financialperformance and financial position. Disclosure of particular accounting policiesis especially useful to users when those policies are selected from alternativesallowed in IFRSs. An example is disclosure of whether a venturer recognises itsinterest in a jointly controlled entity using proportionate consolidation or theequity method (see IAS 31 Interests in Joint Ventures). Some IFRSs specifically requiredisclosure of particular accounting policies, including choices made bymanagement between different policies they allow. For example, IAS 16 requiresdisclosure of the measurement bases used for classes of property, plant andequipment.
119
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Each entity considers the nature of its operations and the policies that the usersof its financial statements would expect to be disclosed for that type of entity.Forexample, users would expect an entity subject to income taxes to disclose itsaccounting policies for income taxes, including those applicable to deferred taxliabilities and assets. When an entity has significant foreign operations ortransactions in foreign currencies, users would expect disclosure of accountingpolicies for the recognition of foreign exchange gains and losses.
An accounting policy may be significant because of the nature of the entity’soperations even if amounts for current and prior periods are not material.Itisalso appropriate to disclose each significant accounting policy that is notspecifically required by IFRSs but the entity selects and applies in accordancewithIAS 8.
An entity shall disclose, in the summary of significant accounting policies orother notes, the judgements, apart from those involving estimations(seeparagraph 125), that management has made in the process of applying theentity’s accounting policies and that have the most significant effect on theamounts recognised in the financial statements.
121
122
123
In the process of applying the entity’s accounting policies, management makesvarious judgements, apart from those involving estimations, that cansignificantly affect the amounts it recognises in the financial statements.Forexample, management makes judgements in determining:(a)(b)(c)(d)
whether financial assets are held-to-maturity investments;
when substantially all the significant risks and rewards of ownership offinancial assets and lease assets are transferred to other entities;
whether, in substance, particular sales of goods are financingarrangements and therefore do not give rise to revenue; and
whether the substance of the relationship between the entity and a specialpurpose entity indicates that the entity controls the special purpose entity.
124
Some of the disclosures made in accordance with paragraph 122 are required byother IFRSs. For example, IAS 27 requires an entity to disclose the reasons why theentity’s ownership interest does not constitute control, in respect of an investeethat is not a subsidiary even though more than half of its voting or potentialvoting power is owned directly or indirectly through subsidiaries. IAS 40Investment Property requires disclosure of the criteria developed by the entity todistinguish investment property from owner-occupied property and fromproperty held for sale in the ordinary course of business, when classification ofthe property is difficult.
Sources of estimation uncertainty
125
An entity shall disclose information about the assumptions it makes about thefuture, and other major sources of estimation uncertainty at the end of thereporting period, that have a significant risk of resulting in a material adjustmentto the carrying amounts of assets and liabilities within the next financial year.Inrespect of those assets and liabilities, the notes shall include details of:
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their nature, and
their carrying amount as at the end of the reporting period.
126
Determining the carrying amounts of some assets and liabilities requiresestimation of the effects of uncertain future events on those assets and liabilitiesat the end of the reporting period. For example, in the absence of recentlyobserved market prices, future-oriented estimates are necessary to measure therecoverable amount of classes of property, plant and equipment, the effect oftechnological obsolescence on inventories, provisions subject to the futureoutcome of litigation in progress, and long-term employee benefit liabilities suchas pension obligations. These estimates involve assumptions about such items asthe risk adjustment to cash flows or discount rates, future changes in salaries andfuture changes in prices affecting other costs.
The assumptions and other sources of estimation uncertainty disclosed inaccordance with paragraph 125 relate to the estimates that requiremanagement’s most difficult, subjective or complex judgements. As the numberof variables and assumptions affecting the possible future resolution of theuncertainties increases, those judgements become more subjective and complex,and the potential for a consequential material adjustment to the carryingamounts of assets and liabilities normally increases accordingly.
The disclosures in paragraph 125 are not required for assets and liabilities with asignificant risk that their carrying amounts might change materially within thenext financial year if, at the end of the reporting period, they are measured at fairvalue based on recently observed market prices. Such fair values might changematerially within the next financial year but these changes would not arise fromassumptions or other sources of estimation uncertainty at the end of thereporting period.
An entity presents the disclosures in paragraph 125 in a manner that helps usersof financial statements to understand the judgements that management makesabout the future and about other sources of estimation uncertainty. The natureand extent of the information provided vary according to the nature of theassumption and other circumstances. Examples of the types of disclosures anentity makes are:(a)(b)
the nature of the assumption or other estimation uncertainty;
the sensitivity of carrying amounts to the methods, assumptions andestimates underlying their calculation, including the reasons for thesensitivity;
the expected resolution of an uncertainty and the range of reasonablypossible outcomes within the next financial year in respect of the carryingamounts of the assets and liabilities affected; and
an explanation of changes made to past assumptions concerning thoseassets and liabilities, if the uncertainty remains unresolved.
127
128
129
(c)
(d)
130
This Standard does not require an entity to disclose budget information orforecasts in making the disclosures in paragraph 125.
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Sometimes it is impracticable to disclose the extent of the possible effects of anassumption or another source of estimation uncertainty at the end of thereporting period. In such cases, the entity discloses that it is reasonably possible,on the basis of existing knowledge, that outcomes within the next financial yearthat are different from the assumption could require a material adjustment tothe carrying amount of the asset or liability affected. In all cases, the entitydiscloses the nature and carrying amount of the specific asset or liability (or classof assets or liabilities) affected by the assumption.
The disclosures in paragraph 122 of particular judgements that managementmade in the process of applying the entity’s accounting policies do not relate tothe disclosures of sources of estimation uncertainty in paragraph 125.
Other IFRSs require the disclosure of some of the assumptions that wouldotherwise be required in accordance with paragraph 125. For example, IAS 37requires disclosure, in specified circumstances, of major assumptions concerningfuture events affecting classes of provisions. IFRS 7 requires disclosure ofsignificant assumptions the entity uses in estimating the fair values of financialassets and financial liabilities that are carried at fair value. IAS 16 requiresdisclosure of significant assumptions that the entity uses in estimating the fairvalues of revalued items of property, plant and equipment.
132
133
Capital
134
An entity shall disclose information that enables users of its financial statementsto evaluate the entity’s objectives, policies and processes for managing capital.
135To comply with paragraph 134, the entity discloses the following:(a)
qualitative information about its objectives, policies and processes formanaging capital, including:(i)(ii)
a description of what it manages as capital;
when an entity is subject to externally imposed capital requirements,the nature of those requirements and how those requirements areincorporated into the management of capital; andhow it is meeting its objectives for managing capital.
(iii)(b)
summary quantitative data about what it manages as capital. Someentities regard some financial liabilities (eg some forms of subordinateddebt) as part of capital. Other entities regard capital as excluding somecomponents of equity (eg components arising from cash flow hedges).any changes in (a) and (b) from the previous period.
whether during the period it complied with any externally imposed capitalrequirements to which it is subject.
when the entity has not complied with such externally imposed capitalrequirements, the consequences of such non-compliance.
(c)(d)(e)
The entity bases these disclosures on the information provided internally to keymanagement personnel.
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136
An entity may manage capital in a number of ways and be subject to a number ofdifferent capital requirements. For example, a conglomerate may include entitiesthat undertake insurance activities and banking activities and those entities mayoperate in several jurisdictions. When an aggregate disclosure of capitalrequirements and how capital is managed would not provide useful informationor distorts a financial statement user’s understanding of an entity’s capitalresources, the entity shall disclose separate information for each capitalrequirement to which the entity is subject.
Puttable financial instruments classified as equity
136A
For puttable financial instruments classified as equity instruments, an entityshall disclose (to the extent not disclosed elsewhere):(a)(b)
summary quantitative data about the amount classified as equity;
its objectives, policies and processes for managing its obligation torepurchase or redeem the instruments when required to do so by theinstrument holders, including any changes from the previous period;the expected cash outflow on redemption or repurchase of that class offinancial instruments; and
information about how the expected cash outflow on redemption orrepurchase was determined.
(c)(d)
Other disclosures
137
An entity shall disclose in the notes:(a)
the amount of dividends proposed or declared before the financialstatements were authorised for issue but not recognised as a distribution toowners during the period, and the related amount per share; and the amount of any cumulative preference dividends not recognised.
(b)
138
An entity shall disclose the following, if not disclosed elsewhere in informationpublished with the financial statements:(a)
the domicile and legal form of the entity, its country of incorporation andthe address of its registered office (or principal place of business, ifdifferent from the registered office);
a description of the nature of the entity’s operations and its principalactivities;
the name of the parent and the ultimate parent of the group; andif it is a limited life entity, information regarding the length of its life.
(b)(c)(d)
Transition and effective date
139
An entity shall apply this Standard for annual periods beginning on or after1January 2009. Earlier application is permitted. If an entity adopts this Standardfor an earlier period, it shall disclose that fact.
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139A
IAS 27 (as amended in 2008) amended paragraph 106. An entity shall apply thatamendment for annual periods beginning on or after 1 July 2009. If an entityapplies IAS 27 (amended 2008) for an earlier period, the amendment shall beapplied for that earlier period. The amendment shall be applied retrospectively.Puttable Financial Instruments and Obligations Arising on Liquidation (Amendments toIAS 32 and IAS 1), issued in February 2008, amended paragraph 138 and insertedparagraphs 8A, 80A and 136A. An entity shall apply those amendments forannual periods beginning on or after 1 January 2009. Earlier application ispermitted. If an entity applies the amendments for an earlier period, it shalldisclose that fact and apply the related amendments to IAS 32, IAS 39, IFRS 7 andIFRIC 2 Members’ Shares in Co-operative Entities and Similar Instruments at the same time.Paragraphs 68 and 71 were amended by Improvements to IFRSs issued in May 2008.An entity shall apply those amendments for annual periods beginning on or after1 January 2009. Earlier application is permitted. If an entity applies theamendments for an earlier period it shall disclose that fact.
Paragraph 69 was amended by Improvements to IFRSs issued in April 2009. An entityshall apply that amendment for annual periods beginning on or after 1 January2010. Earlier application is permitted. If an entity applies the amendment for anearlier period it shall disclose that fact.
[This paragraph refers to amendments with an effective date after 1 January 2011, and istherefore not included in this edition.]
Paragraphs 106 and 107 were amended and paragraph 106A was added byImprovements to IFRSs issued in May 2010. An entity shall apply those amendmentsfor annual periods beginning on or after 1 January 2011. Earlier application ispermitted.
139B
139C
139D
139E139F
Withdrawal of IAS 1 (revised 2003)
140
This Standard supersedes IAS 1 Presentation of Financial Statements revised in 2003, asamended in 2005.
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Appendix
Amendments to other pronouncements
The amendments in this appendix shall be applied for annual periods beginning on or after1January2009. If an entity applies this Standard for an earlier period, these amendments shall beapplied for that earlier period. In the amended paragraphs, new text is underlined and deleted text isstruck through.
* * * * *
The amendments contained in this appendix when this Standard was revised in 2007 have beenincorporated into the relevant pronouncements published in this volume.
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Approval by the Board of IAS 1 issued in September 2007
International Accounting Standard 1 Presentation of Financial Statements (as revised in 2007)was approved for issue by ten of the fourteen members of the International AccountingStandards Board. Professor Barth and Messrs Cope, Garnett and Leisenring dissented.Their dissenting opinions are set out after the Basis for Conclusions.Sir David TweedieThomas E JonesMary E BarthHans-Georg BrunsAnthony T CopePhilippe DanjouJan EngströmRobert P GarnettGilbert GélardJames J LeisenringWarren J McGregorPatricia L O’MalleyJohn T SmithTatsumi Yamada
ChairmanVice-Chairman
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Approval by the Board of Puttable Financial Instruments and Obligations Arising on Liquidation (Amendments to IAS 32 and IAS 1) issued in February 2008
Puttable Financial Instruments and Obligations Arising on Liquidation (Amendments to IAS 32Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements) was approvedfor issue by eleven of the thirteen members of the International Accounting StandardsBoard. Professor Barth and Mr Garnett dissented. Their dissenting opinions are set outafter the Basis for Conclusions on IAS 32.Sir David TweedieThomas E JonesMary E BarthStephen CooperPhilippe DanjouJan EngströmRobert P GarnettGilbert GélardJames J LeisenringWarren J McGregorJohn T SmithTatsumi YamadaWei-Guo Zhang
ChairmanVice-Chairman
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CONTENTS
paragraphs
BASIS FOR CONCLUSIONS ON
IAS 1 PRESENTATION OF FINANCIAL STATEMENTS
INTRODUCTION
The Improvements project—revision of IAS 1 (2003)Amendment to IAS 1—Capital Disclosures (2005)
Amendments to IAS 32 and IAS 1—Puttable Financial Instruments andObligations Arising on Liquidation (2008)Financial statement presentation—Joint projectDEFINITIONS
General purpose financial statementsFINANCIAL STATEMENTS
Complete set of financial statements
Titles of financial statementsEqual prominenceDepartures from IFRSs Comparative information
A statement of financial position as at the beginning of theearliest comparative periodIAS 34 Interim Financial ReportingCriterion for exemption from requirementsReporting owner and non-owner changes in equitySTATEMENT OF FINANCIAL POSITIONCurrent assets and current liabilities
Classification of the liability component of a convertible instrumentEffect of events after the reporting period on the classification of liabilitiesSTATEMENT OF COMPREHENSIVE INCOME Reporting comprehensive income Results of operating activities Subtotal for profit or loss Minority interest Extraordinary items
Other comprehensive income—related tax effects Reclassification adjustments
STATEMENT OF CHANGES IN EQUITY
Effects of retrospective application or retrospective restatement Reconciliation for each component of other comprehensive incomePresentation of dividendsSTATEMENT OF CASH FLOWS
BC1–BC10BC2–BC4BC5–BC6
BC6ABC7–BC10BC11–BC13BC11–BC13BC14–BC38BC14–BC22BC14–BC21
BC22
BC23–BC30BC31–BC36BC31–BC32
BC33
BC34–BC36BC37–BC38BC38A–BC48BC38A–BC38DBC38E-BC38IBC39–BC48BC49–BC73BC49–BC54BC55–BC56BC57–BC58
BC59
BC60–BCBC65–BC68BC69–BC73BC74–BC75
BC74BC74ABC75BC76
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IAS 7 Cash Flow StatementsNOTES
Disclosure of the judgements that management has made in the processBC76
BC77–BC104of applying the entity’s accounting policies
Disclosure of major sources of estimation uncertaintyDisclosures about capital
Objectives, policies and processes for managing capitalExternally imposed capital requirementsInternal capital targets
Puttable financial instruments and obligations arising on liquidationPresentation of measures per shareTRANSITION AND EFFECTIVE DATEDIFFERENCES FROM SFAS 130
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BC105BC106
IAS 1 BC
Basis for Conclusions on
IAS 1 Presentation of Financial Statements
This Basis for Conclusions accompanies, but is not part of, IAS 1.
The International Accounting Standards Board revised IAS 1 Presentation of Financial Statementsin 2007 as part of its project on financial statement presentation. It was not the Board’s intention toreconsider as part of that project all the requirements in IAS 1.
For convenience, the Board has incorporated into this Basis for Conclusions relevant material from theBasis for Conclusions on the revision of IAS 1 in 2003 and its amendment in 2005. Paragraphs have beenrenumbered and reorganised as necessary to reflect the new structure of the Standard.
References to the Framework are to IASC’s Framework for the Preparation and Presentation ofFinancial Statements, adopted by the IASB in 2001. In September 2010 the IASB replaced theFramework with the Conceptual Framework for Financial Reporting.
Introduction
BC1
The International Accounting Standards Committee (IASC) issued the first versionof IAS 1 Disclosure of Accounting Policies in 1975. It was reformatted in 1994 andsuperseded in 1997 by IAS 1 Presentation of Financial Statements.* In 2003 theInternational Accounting Standards Board revised IAS 1 as part of theImprovements project and in 2005 the Board amended it as a consequence ofissuing IFRS 7 Financial Instruments: Disclosures. In 2007 the Board revised IAS 1again as part of its project on financial statement presentation. This Basis forConclusions summarises the Board’s considerations in reaching its conclusionson revising IAS 1 in 2003, on amending it in 2005 and revising it in 2007.Itincludes reasons for accepting some approaches and rejecting others.Individual Board members gave greater weight to some factors than to others.
The Improvements project—revision of IAS 1 (2003)
BC2
In July 2001 the Board announced that, as part of its initial agenda of technicalprojects, it would undertake a project to improve a number of standards,including IAS 1. The project was undertaken in the light of queries and criticismsraised in relation to the standards by securities regulators, professionalaccountants and other interested parties. The objectives of the Improvementsproject were to reduce or eliminate alternatives, redundancies and conflictswithin standards, to deal with some convergence issues and to make otherimprovements. The Board’s intention was not to reconsider the fundamentalapproach to the presentation of financial statements established by IAS 1 in 1997. In May 2002 the Board published an exposure draft of proposed Improvements toInternational Accounting Standards, which contained proposals to revise IAS 1.TheBoard received more than 160 comment letters. After considering theresponses the Board issued in 2003 a revised version of IAS 1. In its revision theBoard’s main objectives were:
BC3
*IASC did not publish a Basis for Conclusions.
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(a)
to provide a framework within which an entity assesses how to presentfairly the effects of transactions and other events, and assesses whether theresult of complying with a requirement in an IFRS would be so misleadingthat it would not give a fair presentation;
to base the criteria for classifying liabilities as current or non-current solelyon the conditions existing at the balance sheet date;
to prohibit the presentation of items of income and expense as‘extraordinary items’;
to specify disclosures about the judgements that management has made inthe process of applying the entity’s accounting policies, apart from thoseinvolving estimations, and that have the most significant effect on theamounts recognised in the financial statements; and
to specify disclosures about sources of estimation uncertainty at thebalance sheet date that have a significant risk of causing a materialadjustment to the carrying amounts of assets and liabilities within thenext financial year.
(b)(c)(d)
(e)
BC4
The following sections summarise the Board’s considerations in reaching itsconclusions as part of its Improvements project in 2003:(a)(b)(c)(d)(e)(f)(g)(h)
departures from IFRSs (paragraphs BC23–BC30)
criterion for exemption from requirements (paragraphs BC34–BC36)effect of events after the reporting period on the classification of liabilities(paragraphs BC39–BC48)
results of operating activities (paragraphs BC55 and BC56)minority interest (paragraph BC59)*
extraordinary items (paragraphs BC60–BC)
disclosure of the judgements management has made in the process ofapplying the entity’s accounting policies (paragraphs BC77 and BC78)disclosure of major sources of estimation uncertainty (paragraphs BC79–BC84).
Amendment to IAS 1—Capital Disclosures (2005)
BC5
In August 2005 the Board issued an Amendment to IAS 1—Capital Disclosures.Theamendment added to IAS 1 requirements for disclosure of:(a)(b)(c)
the entity’s objectives, policies and processes for managing capital.quantitative data about what the entity regards as capital.
whether the entity has complied with any capital requirements; and if ithas not complied, the consequences of such non-compliance.
*
In January 2008 the IASB issued an amended IAS 27 Consolidated and Separate Financial Statements,which amended ‘minority interest’ to ‘non-controlling interests’.
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BC6
The following sections summarise the Board’s considerations in reaching itsconclusions as part of its amendment to IAS 1 in 2005:(a)(b)(c)(d)
disclosures about capital (paragraphs BC85–BC)
objectives, policies and processes for managing capital (paragraphs BC90and BC91)
externally imposed capital requirements (paragraphs BC92–BC97)internal capital targets (paragraphs BC98–BC100).
Amendments to IAS 32 and IAS 1—Puttable Financial Instruments and Obligations Arising on Liquidation (2008)
BC6A
In July 2006 the Board published an exposure draft of proposed amendmentsto IAS 32 and IAS 1 relating to the classification of puttable instrumentsandinstruments with obligations arising only on liquidation. The Boardsubsequently confirmed the proposals and in February 2008 issued anamendment that now forms part of IAS 1.
Financial statement presentation—Joint project
BC7
In September 2001 the Board added to its agenda the performance reportingproject (in March 2006 renamed the ‘financial statement presentation project’).The objective of the project was to enhance the usefulness of informationpresented in the income statement. The Board developed a possible new modelfor reporting income and expenses and conducted preliminary testing. Similarly,in the United States, the Financial Accounting Standards Board (FASB) added aproject on performance reporting to its agenda in October 2001, developed itsmodel and conducted preliminary testing. Constituents raised concerns aboutboth models and about the fact that they were different.
In April 2004 the Board and the FASB decided to work on financial statementpresentation as a joint project. They agreed that the project should addresspresentation and display not only in the income statement, but also in the otherstatements that, together with the income statement, would constitute acomplete set of financial statements—the balance sheet, the statement of changesin equity, and the cash flow statement. The Board decided to approach the projectin two phases. Phase A would address the statements that constitute a completeset of financial statements and the periods for which they are required to bepresented. Phase B would be undertaken jointly with the FASB and wouldaddress more fundamental issues relating to presentation and display ofinformation in the financial statements, including:(a)(b)(c)
consistent principles for aggregating information in each financialstatement.
the totals and subtotals that should be reported in each financialstatement.
whether components of other comprehensive income should bereclassified to profit or loss and, if so, the characteristics of the transactionsand events that should be reclassified and when reclassification should bemade.
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BC9
whether the direct or the indirect method of presenting operating cashflows provides more useful information.
In March 2006, as a result of its work in phase A, the Board published an exposuredraft of proposed amendments to IAS 1—A Revised Presentation. The Board receivedmore than 130 comment letters. The exposure draft proposed amendments thataffected the presentation of owner changes in equity and the presentation ofcomprehensive income, but did not propose to change the recognition,measurement or disclosure of specific transactions and other events required byother IFRSs. It also proposed to bring IAS 1 largely into line with the US standard—SFAS 130 Reporting Comprehensive Income. After considering the responses totheexposure draft the Board issued a revised version of IAS 1. The FASB decidedto consider phases A and B issues together, and therefore did not publish anexposure draft on phase A.
The following sections summarise the Board’s considerations in reaching itsconclusions as part of its revision in 2007:(a)(b)(c)(d)(e)(f)(g)(h)(i)(j)(k)(l)(m)(n)(o)(p)
general purpose financial statements (paragraphs BC11–BC13)titles of financial statements (paragraphs BC14–BC21)equal prominence (paragraph BC22)
a statement of financial position as at the beginning of the earliestcomparative period (paragraphs BC31 and BC32)IAS 34 Interim Financial Reporting (paragraph BC33)reporting owner and non-owner changes in equity (paragraphs BC37 and BC38)
reporting comprehensive income (paragraphs BC49–BC54)subtotal for profit or loss (paragraphs BC57 and BC58)
other comprehensive income-related tax effects (paragraphs BC65–BC68)reclassification adjustments (paragraphs BC69–BC73)
effects of retrospective application or retrospective restatement (paragraph BC74)
presentation of dividends (paragraph BC75)IAS 7 Cash Flow Statements (paragraph BC76)
presentation of measures per share (paragraphs BC101–BC104)effective date and transition (paragraph BC105)differences from SFAS 130 (paragraph BC106).
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Definitions
General purpose financial statements (paragraph 7)
BC11
The exposure draft of 2006 proposed a change to the explanatory paragraph ofwhat ‘general purpose financial statements’ include, in order to produce a moregeneric definition of a set of financial statements. Paragraph 7 of the exposuredraft stated:
General purpose financial statements include those that are presented separately orwithin other public documents such as a regulatory filing or report to shareholders.[emphasis added]
BC12
Respondents expressed concern about the proposed change. They argued that itcould be understood as defining as general purpose financial statements anyfinancial statement or set of financial statements filed with a regulator and couldcapture documents other than annual reports and prospectuses. They saw thischange as expanding the scope of IAS 1 to documents that previously would nothave contained all of the disclosures required by IAS 1. Respondents pointed outthat the change would particularly affect some entities (such as small privatecompanies and subsidiaries of public companies with no external users offinancial reports) that are required by law to place their financial statements ona public file.
The Board acknowledged that in some countries the law requires entities,whether public or private, to report to regulatory authorities and includeinformation in those reports that could be beyond the scope of IAS 1. Because theBoard did not intend to extend the definition of general purpose financialstatements, it decided to eliminate the explanatory paragraph of what ‘generalpurpose financial statements’ include, while retaining the definition of ‘generalpurpose financial statements’.
BC13
Financial statements
Complete set of financial statements
Titles of financial statements (paragraph 10)
BC14
The exposure draft of 2006 proposed changes to the titles of some of the financialstatements—from ‘balance sheet’ to ‘statement of financial position’, from‘income statement’ to ‘statement of profit or loss’ and from ‘cash flow statement’to ‘statement of cash flows’. In addition, the exposure draft proposed a ‘statementof recognised income and expense’ and that all owner changes in equity shouldbe included in a ‘statement of changes in equity’. The Board did not proposetomake any of these changes of nomenclature mandatory.
Many respondents opposed the proposed changes, pointing out that the existingtitles had a long tradition and were well understood. However, the Boardreaffirmed its view that the proposed new titles better reflect the function of eachfinancial statement, and pointed out that an entity could choose to use othertitles in its financial report.
BC15
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The Board reaffirmed its conclusion that the title ‘statement of financial position’not only better reflects the function of the statement but is consistent with theFramework for the Preparation and Presentation of Financial Statements, which containsseveral references to ‘financial position’. Paragraph 12 of the Framework statesthat the objective of financial statements is to provide information about thefinancial position, performance and changes in financial position of an entity;paragraph 19 of the Framework states that information about financial position isprimarily provided in a balance sheet. In the Board’s view, the title ‘balance sheet’simply reflects that double entry bookkeeping requires debits to equal credits.Itdoes not identify the content or purpose of the statement. The Board also notedthat ‘financial position’ is a well-known and accepted term, as it has been used inauditors’ opinions internationally for more than 20 years to describe what the‘balance sheet’ presents. The Board decided that aligning the statement’s titlewith its content and the opinion rendered by the auditor would help the users offinancial statements.
As to the other statements, respondents suggested that renaming the balancesheet the ‘statement of financial position’ implied that the ‘cash flow statement’and the ‘statement of recognised income and expense’ do not also reflect anentity’s financial position. The Board observed that although the latterstatements reflect changes in an entity’s financial position, neither can be calleda ‘statement of changes in financial position’, as this would not depict their truefunction and objective (ie to present cash flows and performance, respectively).The Board acknowledged that the titles ‘income statement’ and ‘statement ofprofit or loss’ are similar in meaning and could be used interchangeably, anddecided to retain the title ‘income statement’ as this is more commonly used. The title of the proposed new statement, the ‘statement of recognised income andexpense’, reflects a broader content than the former ‘income statement’.Thestatement encompasses both income and expenses recognised in profit orloss and income and expenses recognised outside profit or loss.
Many respondents opposed the title ‘statement of recognised income andexpense’, objecting particularly to the use of the term ‘recognised’. The Boardacknowledged that the term ‘recognised’ could also be used to describe thecontent of other primary statements as ‘recognition’, explained in paragraph 82of the Framework, is ‘the process of incorporating in the balance sheet or incomestatement an item that meets the definition of an element and satisfies thecriteria for recognition set out in paragraph 83.’ Many respondents suggestedtheterm ‘statement of comprehensive income’ instead.
In response to respondents’ concerns and to converge with SFAS 130, the Boarddecided to rename the new statement a ‘statement of comprehensive income’.The term ‘comprehensive income’ is not defined in the Framework but is used inIAS 1 to describe the change in equity of an entity during a period fromtransactions, events and circumstances other than those resulting fromtransactions with owners in their capacity as owners. Although the term‘comprehensive income’ is used to describe the aggregate of all components ofcomprehensive income, including profit or loss, the term ‘other comprehensiveincome’ refers to income and expenses that under IFRSs are included incomprehensive income but excluded from profit or loss.
BC17
BC18
BC19
BC20
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BC21
In finalising its revision, the Board confirmed that the titles of financialstatements used in this Standard would not be mandatory. The titles will be usedin future IFRSs but are not required to be used by entities in their financialstatements. Some respondents to the exposure draft expressed concern thatnon-mandatory titles will result in confusion. However, the Board believes thatmaking use of the titles non-mandatory will allow time for entities to implementchanges gradually as the new titles become more familiar.
Equal prominence (paragraphs 11 and 12)
BC22
The Board noted that the financial performance of an entity is not assessed byreference to a single financial statement or a single measure within a financialstatement. The Board believes that the financial performance of an entity can beassessed only after all aspects of the financial statements are taken into accountand understood in their entirety. Accordingly, the Board decided that in order tohelp users of the financial statements to understand the financial performance ofan entity comprehensively, all financial statements within the complete set offinancial statements should be presented with equal prominence.
Departures from IFRSs (paragraphs 19–24)
BC23
IAS 1 (as issued in 1997) permitted an entity to depart from a requirement in aStandard ‘in the extremely rare circumstances when management concludes thatcompliance with a requirement in a Standard would be misleading, and thereforethat departure from a requirement is necessary to achieve a fair presentation’(paragraph 17, now paragraph 19). When such a departure occurred,paragraph18 (now paragraph 20) required extensive disclosure of the facts andcircumstances surrounding the departure and the treatment adopted.
The Board decided to clarify in paragraph 15 of the Standard that for financialstatements to present fairly the financial position, financial performance andcash flows of an entity, they must represent faithfully the effects of transactionsand other events in accordance with the definitions and recognition criteria forassets, liabilities, income and expenses set out in the Framework.
The Board decided to limit the occasions on which an entity should depart froma requirement in an IFRS to the extremely rare circumstances in whichmanagement concludes that compliance with the requirement would be somisleading that it would conflict with the objective of financial statements setout in the Framework. Guidance on this criterion states that an item of informationwould conflict with the objective of financial statements when it does notrepresent faithfully the transactions, other events or conditions that it eitherpurports to represent or could reasonably be expected to represent and,consequently, it would be likely to influence economic decisions made by users offinancial statements.
These amendments provide a framework within which an entity assesses how topresent fairly the effects of transactions, other events and conditions, andwhether the result of complying with a requirement in an IFRS would be somisleading that it would not give a fair presentation.
BC24
BC25
BC26
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BC27
The Board considered whether IAS 1 should be silent on departures from IFRSs.The Board decided against making that change, because it would remove theBoard’s capability to specify the criteria under which departures from IFRSsshould occur.
Departing from a requirement in an IFRS when considered necessary to achieve afair presentation would conflict with the regulatory framework in somejurisdictions. The revised IAS 1 takes into account the existence of differentregulatory requirements. It requires that when an entity’s circumstances satisfythe criterion described in paragraph BC25 for departure from a requirement in anIFRS, the entity should proceed as follows:(a)
When the relevant regulatory framework requires—or otherwise does notprohibit—a departure from the requirement, the entity should make thatdeparture and the disclosures set out in paragraph 20.
When the relevant regulatory framework prohibits departure from therequirement, the entity should, to the maximum extent possible, reducethe perceived misleading aspects of compliance by making the disclosuresset out in paragraph 23.
BC28
(b)
This amendment enables entities to comply with the requirements of IAS 1 whenthe relevant regulatory framework prohibits departures from accountingstandards, while retaining the principle that entities should, to the maximumextent possible, ensure that financial statements provide a fair presentation.
BC29
After considering the comments received on the exposure draft of 2002, the Boardadded to IAS 1 a requirement in paragraph 21 to disclose the effect of a departurefrom a requirement of an IFRS in a prior period on the current period’s financialstatements. Without this disclosure, users of the entity’s financial statementscould be unaware of the continuing effects of prior period departures.
In view of the strict criteria for departure from a requirement in an IFRS, IAS 1includes a rebuttable presumption that if other entities in similar circumstancescomply with the requirement, the entity’s compliance with the requirementwould not be so misleading that it would conflict with the objective of financialstatements set out in the Framework.
BC30
Comparative information
A statement of financial position as at the beginning of the earliest comparative period (paragraph 39)
BC31
The exposure draft of 2006 proposed that a statement of financial position as atthe beginning of the earliest comparative period should be presented as part of acomplete set of financial statements. This statement would provide a basis forinvestors and creditors to evaluate information about the entity’s performanceduring the period. However, many respondents expressed concern that therequirement would unnecessarily increase disclosures in financial statements, orwould be impracticable, excessive and costly.
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BC32
By adding a statement of financial position as at the beginning of the earliestcomparative period, the exposure draft proposed that an entity should presentthree statements of financial position and two of each of the other statements.Considering that financial statements from prior years are readily available forfinancial analysis, the Board decided to require only two statements of financialposition, except when the financial statements have been affected byretrospective application or retrospective restatement, as defined in IAS 8Accounting Policies, Changes in Accounting Estimates and Errors, or when areclassification has been made. In those circumstances three statements offinancial position are required.
IAS 34 Interim Financial Reporting
BC33
The Board decided not to reflect in paragraph 8 of IAS 34 (ie the minimumcomponents of an interim financial report) its decision to require the inclusion ofa statement of financial position as at the beginning of the earliest comparativeperiod in a complete set of financial statements. IAS 34 has a year-to-dateapproach to interim reporting and does not replicate the requirements of IAS 1 interms of comparative information.
Criterion for exemption from requirements (paragraphs 41–44)
BC34
IAS 1 as issued in 1997 specified that when the presentation or classification ofitems in the financial statements is amended, comparative amounts should bereclassified unless it is impracticable to do so. Applying a requirement isimpracticable when the entity cannot apply it after making every reasonableeffort to do so.
The exposure draft of 2002 proposed a different criterion for exemption fromparticular requirements. For the reclassification of comparative amounts, and itsproposed new requirement to disclose key assumptions and other sources ofestimation uncertainty at the end of the reporting period (discussed inparagraphs BC79–BC84), the exposure draft proposed that the criterion forexemption should be that applying the requirements would require undue costor effort.
In the light of respondents’ comments on the exposure draft, the Board decidedthat an exemption based on management’s assessment of undue cost or effortwas too subjective to be applied consistently by different entities. Moreover,balancing costs and benefits was a task for the Board when it sets accountingrequirements rather than for entities when they apply them. Therefore, theBoard retained the ‘impracticability’ criterion for exemption. This affects theexemptions now set out in paragraphs 41–43 and 131 of IAS 1. Impracticability isthe only basis on which IFRSs allow specific exemptions from applying particularrequirements when the effect of applying them is material.*
BC35
BC36
*
In 2006 the IASB issued IFRS 8 Operating Segments. As explained in paragraphs BC46 and BC47 ofthe Basis for Conclusions on IFRS 8, that IFRS includes an exemption from some requirements ifthe necessary information is not available and the cost to develop it would be excessive.
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Reporting owner and non-owner changes in equity
BC37
The exposure draft of 2006 proposed to separate changes in equity of an entityduring a period arising from transactions with owners in their capacity as owners(ie all owner changes in equity) from other changes in equity (ie non-ownerchanges in equity). All owner changes in equity would be presented in thestatement of changes in equity, separately from non-owner changes in equity.Most respondents welcomed this proposal and saw this change as animprovement of financial reporting, by increasing the transparency of thoseitems recognised in equity that are not reported as part of profit or loss. However,some respondents pointed out that the terms ‘owner’ and ‘non-owner’ were notdefined in the exposure draft, the Framework or elsewhere in IFRSs, although theyare extensively used in national accounting standards. They also noted that theterms ‘owner’ and ‘equity holder’ were used interchangeably in the exposuredraft. The Board decided to adopt the term ‘owner’ and use it throughout IAS 1to converge with SFAS 130, which uses the term in the definition of‘comprehensive income’.
BC38
Statement of financial position
Current assets and current liabilities (paragraphs 68 and 71)
BC38A
As part of its improvements project in 2007, the Board identified inconsistentguidance regarding the current/non-current classification of derivatives. Somemight read the guidance included in paragraph 71 as implying that financialliabilities classified as held for trading in accordance with IAS 39 FinancialInstruments: Recognition and Measurement are always required to be presented ascurrent.
The Board expects the criteria set out in paragraph 69 to be used to assess whethera financial liability should be presented as current or non-current. The ‘held fortrading’ category in paragraph 9 of IAS 39 is for measurement purposes andincludes financial assets and liabilities that may not be held primarily for tradingpurposes.
The Board reaffirmed that if a financial liability is held primarily for tradingpurposes it should be presented as current regardless of its maturity date.However, a financial liability that is not held for trading purposes, such as aderivative that is not a financial guarantee contract or a designated hedginginstrument, should be presented as current or non-current on the basis of itssettlement date. For example, derivatives that have a maturity of more thantwelve months and are expected to be held for more than twelve months after thereporting period should be presented as non-current assets or liabilities.
BC38B
BC38C
BC38DTherefore, the Board decided to remove the identified inconsistency by amending
the examples of current liabilities in paragraph 71. The Board also amendedparagraph 68 in respect of current assets to remove a similar inconsistency.
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Classification of the liability component of a convertible instrument (paragraph 69)
BC38E
As part of its improvements project in 2007, the Board considered theclassification of the liability component of a convertible instrument as current ornon-current. Paragraph 69(d) of IAS 1 states that when an entity does not have anunconditional right to defer settlement of a liability for at least twelve monthsafter the reporting period, the liability should be classified as current. Accordingto the Framework, conversion of a liability into equity is a form of settlement. The application of these requirements means that if the conversion option can beexercised by the holder at any time, the liability component would be classifiedas current. This classification would be required even if the entity would not berequired to settle unconverted instruments with cash or other assets for morethan twelve months after the reporting period.
IAS 1 and the Framework state that information about the liquidity and solvencypositions of an entity is useful to users. The terms ‘liquidity’ and ‘solvency’ areassociated with the availability of cash to an entity. Issuing equity does not resultin an outflow of cash or other assets of the entity.
BC38F
BC38G
BC38HThe Board concluded that classifying the liability on the basis of the requirements
to transfer cash or other assets rather than on settlement better reflects theliquidity and solvency position of an entity, and therefore it decided to amendIAS1 accordingly. BC38I
The Board discussed the comments received in response to its exposure draft ofproposed Improvements to IFRSs published in 2007 and noted that some respondentswere concerned that the proposal in the exposure draft would apply to allliabilities, not just those that are components of convertible instruments asoriginally contemplated in the exposure draft. Consequently, in Improvements toIFRSs issued in April 2009, the Board amended the proposed wording to clarifythat the amendment applies only to the classification of a liability that can, at theoption of the counterparty, be settled by the issue of the entity’s equityinstruments.
Effect of events after the reporting period on the classification of liabilities (paragraphs 69–76)
BC39
Paragraph 63 of IAS 1 (as issued in 1997) included the following:
An enterprise should continue to classify its long-term interest-bearing liabilities asnon-current, even when they are due to be settled within twelve months of the balancesheet date if:(a)
the original term was for a period of more than twelve months;
(b)the enterprise intends to refinance the obligation on a long-term basis; and(c)
that intention is supported by an agreement to refinance, or to reschedule payments,which is completed before the financial statements are authorised for issue.
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BC40Paragraph 65 stated:
Some borrowing agreements incorporate undertakings by the borrower (covenants)which have the effect that the liability becomes payable on demand if certain conditionsrelated to the borrower’s financial position are breached. In these circumstances, theliability is classified as non-current only when:(a)
the lender has agreed, prior to the authorisation of the financial statements forissue, not to demand payment as a consequence of the breach; and
(b)it is not probable that further breaches will occur within twelve months of the
balance sheet date.
BC41
The Board considered these requirements and concluded that refinancing, or thereceipt of a waiver of the lender’s right to demand payment, that occurs after thereporting period should not be taken into account in the classification of aliability.
Therefore, the exposure draft of 2002 proposed:(a)
to amend paragraph 63 to specify that a long-term financial liability due tobe settled within twelve months of the balance sheet date should not beclassified as a non-current liability because an agreement to refinance, orto reschedule payments, on a long-term basis is completed after the balancesheet date and before the financial statements are authorised for issue.This amendment would not affect the classification of a liability asnon-current when the entity has, under the terms of an existing loanfacility, the discretion to refinance or roll over its obligations for at leasttwelve months after the balance sheet date.
to amend paragraph 65 to specify that a long-term financial liability that ispayable on demand because the entity breached a condition of its loanagreement should be classified as current at the balance sheet date even ifthe lender has agreed after the balance sheet date, and before the financialstatements are authorised for issue, not to demand payment as aconsequence of the breach. However, if the lender has agreed by thebalance sheet date to provide a period of grace within which the entity canrectify the breach and during which the lender cannot demand immediaterepayment, the liability is classified as non-current if it is due forsettlement, without that breach of the loan agreement, at least twelvemonths after the balance sheet date and:(i)(ii)
the entity rectifies the breach within the period of grace; or
when the financial statements are authorised for issue, the period ofgrace is incomplete and it is probable that the breach will be rectified.
BC42
(b)
BC43
Some respondents disagreed with these proposals. They advocated classifying aliability as current or non-current according to whether it is expected to usecurrent assets of the entity, rather than strictly on the basis of its date of maturityand whether it is callable at the end of the reporting period. In their view, thiswould provide more relevant information about the liability’s future effect on thetiming of the entity’s resource flows.
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BC44
However, the Board decided that the following arguments for changingparagraphs 63 and 65 were more persuasive:(a)
refinancing a liability after the balance sheet date does not affect theentity’s liquidity and solvency at the balance sheet date, the reporting of whichshould reflect contractual arrangements in force on that date. Therefore, itis a non-adjusting event in accordance with IAS 10 Events after the BalanceSheet Date and should not affect the presentation of the entity’s balancesheet.
it is illogical to adopt a criterion that ‘non-current’ classification ofshort-term obligations expected to be rolled over for at least twelve monthsafter the balance sheet date depends on whether the roll-over is at thediscretion of the entity, and then to provide an exception based onrefinancing occurring after the balance sheet date.
in the circumstances set out in paragraph 65, unless the lender has waivedits right to demand immediate repayment or granted a period of gracewithin which the entity may rectify the breach of the loan agreement, thefinancial condition of the entity at the balance sheet date was that theentity did not hold an absolute right to defer repayment, based on theterms of the loan agreement. The granting of a waiver or a period of gracechanges the terms of the loan agreement. Therefore, an entity’s receiptfrom the lender, after the balance sheet date, of a waiver or a period ofgrace of at least twelve months does not change the nature of the liabilityto non-current until it occurs.
(b)
(c)
BC45
IAS 1 now includes the amendments proposed in 2002, with one change.Thechange relates to the classification of a long-term loan when, at the end of thereporting period, the lender has provided a period of grace within which a breachof the loan agreement can be rectified, and during which period the lendercannot demand immediate repayment of the loan.
The exposure draft proposed that such a loan should be classified as non-currentif it is due for settlement, without the breach, at least twelve months after thebalance sheet date and:(a)(b)
the entity rectifies the breach within the period of grace; or
when the financial statements are authorised for issue, the period of graceis incomplete and it is probable that the breach will be rectified.
BC46
BC47
After considering respondents’ comments, the Board decided that the occurrenceor probability of a rectification of a breach after the reporting period is irrelevantto the conditions existing at the end of the reporting period. The revised IAS 1requires that, for the loan to be classified as non-current, the period of grace mustend at least twelve months after the reporting period (see paragraph 75).Therefore, the conditions (a) and (b) in paragraph BC46 are redundant.
The Board considered arguments that if a period of grace to remedy a breach of along-term loan agreement is provided before the end of the reporting period, theloan should be classified as non-current regardless of the length of the period ofgrace. These arguments are based on the view that, at the end of the reportingperiod, the lender does not have an unconditional legal right to demand
BC48
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repayment before the original maturity date (ie if the entity remedies the breachduring the period of grace, it is entitled to repay the loan on the original maturitydate). However, the Board concluded that an entity should classify a loan asnon-current only if it has an unconditional right to defer settlement of the loanfor at least twelve months after the reporting period. This criterion focuses on thelegal rights of the entity, rather than those of the lender.
Statement of comprehensive income
Reporting comprehensive income (paragraph 81)
BC49
The exposure draft of 2006 proposed that all non-owner changes in equity shouldbe presented in a single statement or in two statements. In a single-statementpresentation, all items of income and expense are presented together. In atwo-statement presentation, the first statement (‘income statement’) presentsincome and expenses recognised in profit or loss and the second statement(‘statement of comprehensive income’) begins with profit or loss and presents, inaddition, items of income and expense that IFRSs require or permit to berecognised outside profit or loss. Such items include, for example, translationdifferences related to foreign operations and gains or losses on available-for-salefinancial assets. The statement of comprehensive income does not includetransactions with owners in their capacity as owners. Such transactions arepresented in the statement of changes in equity.
Respondents to the exposure draft had mixed views about whether the Boardshould permit a choice of displaying non-owner changes in equity in onestatement or two statements. Many respondents agreed with the Board’s proposalto maintain the two-statement approach and the single-statement approach asalternatives and a few urged the Board to mandate one of them. However, mostrespondents preferred the two-statement approach because it distinguishes profitor loss and total comprehensive income; they believe that with the two-statementapproach, the ‘income statement’ remains a primary financial statement.Respondents supported the presentation of two separate statements as atransition measure until the Board develops principles to determine the criteriafor inclusion of items in profit or loss or in other comprehensive income. The exposure draft of 2006 expressed the Board’s preference for a singlestatement of all non-owner changes in equity. The Board provided several reasonsfor this preference. All items of non-owner changes in equity meet the definitionsof income and expenses in the Framework. The Framework does not define profit orloss, nor does it provide criteria for distinguishing the characteristics of itemsthat should be included in profit or loss from those items that should be excludedfrom profit or loss. Therefore, the Board decided that it was conceptually correctfor an entity to present all non-owner changes in equity (ie all income andexpenses recognised in a period) in a single statement because there are no clearprinciples or common characteristics that can be used to separate income andexpenses into two statements.
BC50
BC51
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BC52
However, in the Board’s discussions with interested parties, it was clear that manywere strongly opposed to the concept of a single statement. They argued thatthere would be undue focus on the bottom line of the single statement.Inaddition, many argued that it was premature for the Board to conclude thatpresentation of income and expense in a single statement was an improvementin financial reporting without also addressing the other aspects of presentationand display, namely deciding what categories and line items should be presentedin a statement of recognised income and expense.
In the light of these views, although it preferred a single statement, the Boarddecided that an entity should have the choice of presenting all income andexpenses recognised in a period in one statement or in two statements. An entityis prohibited from presenting components of income and expense (ie non-ownerchanges in equity) in the statement of changes in equity.
Many respondents disagreed with the Board’s preference and thought that adecision at this stage would be premature. In their view the decision about asingle-statement or two-statement approach should be subject to furtherconsideration. They urged the Board to address other aspects of presentation anddisplay, namely deciding which categories and line items should be presented ina ‘statement of comprehensive income’. The Board reaffirmed its reasons forpreferring a single-statement approach and agreed to address other aspects ofdisplay and presentation in the next stage of the project.
BC53
BC54
Results of operating activities
BC55
IAS 1 omits the requirement in the 1997 version to disclose the results ofoperating activities as a line item in the income statement. ‘Operating activities’are not defined in IAS 1, and the Board decided not to require disclosure of anundefined item.
The Board recognises that an entity may elect to disclose the results of operatingactivities, or a similar line item, even though this term is not defined. In suchcases, the Board notes that the entity should ensure that the amount disclosed isrepresentative of activities that would normally be regarded as ‘operating’. In theBoard’s view, it would be misleading and would impair the comparability offinancial statements if items of an operating nature were excluded from theresults of operating activities, even if that had been industry practice.Forexample, it would be inappropriate to exclude items clearly related tooperations (such as inventory write-downs and restructuring and relocationexpenses) because they occur irregularly or infrequently or are unusual inamount. Similarly, it would be inappropriate to exclude items on the groundsthat they do not involve cash flows, such as depreciation and amortisationexpenses.
BC56
Subtotal for profit or loss (paragraph 82)
BC57
As revised, IAS 1 requires a subtotal for profit or loss in the statement ofcomprehensive income. If an entity chooses to present comprehensive income byusing two statements, it should begin the second statement with profit or loss—the bottom line of the first statement (the ‘income statement’)—and display thecomponents of other comprehensive income immediately after that. The Board
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concluded that this is the best way to achieve the objective of equal prominence(see paragraph BC22) for the presentation of income and expenses. An entity thatchooses to display comprehensive income in one statement should include profitor loss as a subtotal within that statement.
BC58
The Board acknowledged that the items included in profit or loss do not possessany unique characteristics that allow them to be distinguished from items thatare included in other comprehensive income. However, the Board and itspredecessor have required some items to be recognised outside profit or loss.TheBoard will deliberate in the next stage of the project how items of income andexpense should be presented in the statement of comprehensive income.
Minority interest (paragraph 83)*
BC59
IAS 1 requires the ‘profit or loss attributable to minority interest’ and ‘profit or lossattributable to owners of the parent’ each to be presented in the income statementin accordance with paragraph 83. These amounts are to be presented as allocationsof profit or loss, not as items of income or expense. A similar requirement has beenadded for the statement of changes in equity, in paragraph106(a). These changesare consistent with IAS 27 Consolidated and Separate Financial Statements, whichrequires that in a consolidated balance sheet (now called ‘statement of financialposition’), minority interest is presented within equity because it does not meet thedefinition of a liability in the Framework.
Extraordinary items (paragraph 87)
BC60
IAS 8 Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies(issued in 1993) required extraordinary items to be disclosed in the incomestatement separately from the profit or loss from ordinary activities. Thatstandard defined ‘extraordinary items’ as ‘income or expenses that arise fromevents or transactions that are clearly distinct from the ordinary activities of theenterprise and therefore are not expected to recur frequently or regularly’.In 2002, the Board decided to eliminate the concept of extraordinary items fromIAS 8 and to prohibit the presentation of items of income and expense as‘extraordinary items’ in the income statement and the notes. Therefore, inaccordance with IAS 1, no items of income and expense are to be presented asarising from outside the entity’s ordinary activities.
Some respondents to the exposure draft of 2002 argued that extraordinary itemsshould be presented in a separate component of the income statement becausethey are clearly distinct from all of the other items of income and expense, andbecause such presentation highlights to users of financial statements the items ofincome and expense to which the least attention should be given when predictingan entity’s future performance.
BC61
BC62
*
In January 2008 the IASB issued an amended IAS 27 Consolidated and Separate Financial Statements,which amended ‘minority interest’ to ‘non-controlling interests’.
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BC63
The Board decided that items treated as extraordinary result from the normalbusiness risks faced by an entity and do not warrant presentation in a separatecomponent of the income statement. The nature or function of a transaction orother event, rather than its frequency, should determine its presentation withinthe income statement. Items currently classified as ‘extraordinary’ are only asubset of the items of income and expense that may warrant disclosure to assistusers in predicting an entity’s future performance.
Eliminating the category of extraordinary items eliminates the need for arbitrarysegregation of the effects of related external events—some recurring and othersnot—on the profit or loss of an entity for a period. For example, arbitraryallocations would have been necessary to estimate the financial effect of anearthquake on an entity’s profit or loss if it occurs during a major cyclicaldownturn in economic activity. In addition, paragraph 97 of IAS 1 requiresdisclosure of the nature and amount of material items of income and expense.
BC
Other comprehensive income—related tax effects (paragraphs 90 and 91)
BC65
The exposure draft of 2006 proposed to allow components of ‘other recognisedincome and expense’ (now ‘other comprehensive income’) to be presented beforetax effects (‘gross presentation’) or after their related tax effects(‘netpresentation’). The ‘gross presentation’ facilitated the traceability of othercomprehensive income items to profit or loss, because items of profit or lossare generally displayed before tax. The ‘net presentation’ facilitated theidentification of other comprehensive income items in the equity section of thestatement of financial position. A majority of respondents supported allowingboth approaches. The Board reaffirmed its conclusion that components of othercomprehensive income could be displayed either (a) net of related tax effects or(b) before related tax effects.
Regardless of whether a pre-tax or post-tax display was used, the exposure draftproposed to require disclosure of the amount of income tax expense or benefitallocated separately to individual components of other comprehensive income, inline with SFAS 130. Many respondents agreed in principle with this disclosure,because they agreed that it helped to improve the clarity and transparency of suchinformation, particularly when components of other comprehensive income aretaxed at rates different from those applied to profit or loss.
However, most respondents expressed concern about having to trace the taxeffect for each one of the components of other comprehensive income. Severalobserved that the tax allocation process is arbitrary (eg it may involve theapplication of subjectively determined tax rates) and some pointed out that thisinformation is not readily available for some industries (eg the insurance sector),where components of other comprehensive income are multiple and taxallocation involves a high degree of subjectivity. Others commented that they didnot understand why tax should be attributed to components of comprehensiveincome line by line, when this is not a requirement for items in profit or loss.
BC66
BC67
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BC68
The Board decided to maintain the disclosure of income tax expense or benefitallocated to each component of other comprehensive income. Users of financialstatements often requested further information on tax amounts relating tocomponents of other comprehensive income, because tax rates often differedfrom those applied to profit or loss. The Board also observed that an entity shouldhave such tax information available and that a disclosure requirement wouldtherefore not involve additional cost for preparers of financial statements.
Reclassification adjustments (paragraphs 92–96)
BC69
In the exposure draft of 2006, the Board proposed that an entity should separatelypresent reclassification adjustments. These adjustments are the amountsreclassified to profit or loss in the current period that were previously recognisedin other comprehensive income. The Board decided that adjustments necessaryto avoid double-counting items in total comprehensive income when those itemsare reclassified to profit or loss in accordance with IFRSs. The Board’s view wasthat separate presentation of reclassification adjustments is essential to informusers of those amounts that are included as income and expenses in differentperiods—as income or expenses in other comprehensive income in previousperiods and as income or expenses in profit or loss in the current period. Withoutsuch information, users may find it difficult to assess the effect ofreclassifications on profit or loss and to calculate the overall gain or lossassociated with available-for-sale financial assets, cash flow hedges and ontranslation or disposal of foreign operations.
Most respondents agreed with the Board’s decision and believe that the disclosureof reclassification adjustments is important to understanding how componentsrecognised in profit or loss are related to other items recognised in equity in twodifferent periods. However, some respondents suggested that the Board shoulduse the term ‘recycling’, rather than ‘reclassification’ as the former term is morecommon. The Board concluded that both terms are similar in meaning, butdecided to use the term ‘reclassification adjustment’ to converge with theterminology used in SFAS 130.
The exposure draft proposed to allow the presentation of reclassificationadjustments in the statement of recognised income and expense (now ‘statementof comprehensive income’) or in the notes. Most respondents supported thisapproach.
Some respondents noted some inconsistencies in the definition of‘reclassification adjustments’ in the exposure draft (now paragraphs 7 and 93 ofIAS 1). Respondents suggested that the Board should expand the definition inparagraph 7 to include gains and losses recognised in current periods in additionto those recognised in earlier periods, to make the definition consistent withparagraph 93. They commented that, without clarification, there could bedifferences between interim and annual reporting, for reclassifications of itemsthat arise in one interim period and reverse out in a different interim periodwithin the same annual period.
The Board decided to align the definition of reclassification adjustments withSFAS 130 and include an additional reference to ‘current periods’ in paragraph 7.
BC70
BC71
BC72
BC73
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Statement of changes in equity
Effects of retrospective application or retrospective restatement (paragraph 106(b))
BC74
Some respondents to the exposure draft of 2006 asked the Board to clarifywhether the effects of retrospective application or retrospective restatement, asdefined in IAS 8, should be regarded as non-owner changes in equity. The Boardnoted that IAS 1 specifies that these effects are included in the statement ofchanges in equity. However, the Board decided to clarify that the effects ofretrospective application or retrospective restatement are not changes in equityin the period, but provide a reconciliation between the previous period’s closingbalance and the opening balance in the statement of changes in equity.
Reconciliation for each component of other comprehensive income (paragraphs 106(d)(ii) and 106A)
BC74A
Paragraph 106(d) requires an entity to provide a reconciliation of changes in eachcomponent of equity. In Improvements to IFRSs issued in May 2010, the Boardclarified that entities may present the required reconciliations for eachcomponent of other comprehensive income either in the statement of changes inequity or in the notes to the financial statements.
Presentation of dividends (paragraph 107)
BC75
The Board reaffirmed its conclusion to require the presentation of dividends inthe statement of changes in equity or in the notes, because dividends aredistributions to owners in their capacity as owners and the statement of changesin equity presents all owner changes in equity. The Board concluded that anentity should not present dividends in the statement of comprehensive incomebecause that statement presents non-owner changes in equity.
Statement of cash flows
IAS 7 Cash Flow Statements (paragraph 111)
BC76
The Board considered whether the operating section of an indirect methodstatement of cash flows should begin with total comprehensive income instead ofprofit or loss as is required by IAS 7 Cash Flow Statements. When components ofother comprehensive income are non-cash items, they would become reconcilingitems in arriving at cash flows from operating activities and would add items tothe statement of cash flows without adding information content. The Boardconcluded that an amendment to IAS 7 is not required; however, as mentioned inparagraph BC14 the Board decided to relabel this financial statement as‘statement of cash flows’.
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Notes
Disclosure of the judgements that management has made in the process of applying the entity’s accounting policies (paragraphs 122–124)
BC77
The revised IAS 1 requires disclosure of the judgements, apart from thoseinvolving estimations, that management has made in the process of applying theentity’s accounting policies and that have the most significant effect on theamounts recognised in the financial statements (see paragraph 122). An exampleof these judgements is how management determines whether financial assets areheld-to-maturity investments. The Board decided that disclosure of the mostimportant of these judgements would enable users of financial statements tounderstand better how the accounting policies are applied and to makecomparisons between entities regarding the basis on which managements makethese judgements.
Comments received on the exposure draft of 2002 indicated that the purpose ofthe proposed disclosure was unclear. Accordingly, the Board amended thedisclosure explicitly to exclude judgements involving estimations (which are thesubject of the disclosure in paragraph 125) and added another four examples ofthe types of judgements disclosed (see paragraphs 123 and 124).
BC78
Disclosure of major sources of estimation uncertainty (paragraphs 125–133)
BC79
IAS 1 requires disclosure of the assumptions concerning the future, and othermajor sources of estimation uncertainty at the end of the reporting period, thathave a significant risk of causing a material adjustment to the carrying amountsof assets and liabilities within the next financial year. For those assets andliabilities, the proposed disclosures include details of:(a)(b)
BC80
their nature; and
their carrying amount as at the end of the reporting period (see paragraph125).
Determining the carrying amounts of some assets and liabilities requiresestimation of the effects of uncertain future events on those assets and liabilitiesat the end of the reporting period. For example, in the absence of recentlyobserved market prices used to measure the following assets and liabilities,future-oriented estimates are necessary to measure the recoverable amount ofclasses of property, plant and equipment, the effect of technological obsolescenceof inventories, provisions subject to the future outcome of litigation in progress,and long-term employee benefit liabilities such as pension obligations. Theseestimates involve assumptions about items such as the risk adjustment to cashflows or discount rates used, future changes in salaries and future changes inprices affecting other costs. No matter how diligently an entity estimates thecarrying amounts of assets and liabilities subject to significant estimationuncertainty at the end of the reporting period, the reporting of point estimates in
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the statement of financial position cannot provide information about theestimation uncertainties involved in measuring those assets and liabilities andthe implications of those uncertainties for the period’s profit or loss.
BC81
The Framework states that ‘The economic decisions that are made by users offinancial statements require an evaluation of the ability of an entity to generatecash and cash equivalents and of the timing and certainty of their generation.’The Board decided that disclosure of information about assumptions and othermajor sources of estimation uncertainty at the end of the reporting periodenhances the relevance, reliability and understandability of the informationreported in financial statements. These assumptions and other sources ofestimation uncertainty relate to estimates that require management’s mostdifficult, subjective or complex judgements. Therefore, disclosure in accordancewith paragraph 125 of the revised IAS 1 would be made in respect of relatively fewassets or liabilities (or classes of them).
The exposure draft of 2002 proposed the disclosure of some ‘sources ofmeasurement uncertainty’. In the light of comments received that the purposeof this disclosure was unclear, the Board decided:(a)(b)
to amend the subject of that disclosure to ‘sources of estimationuncertainty at the end of the reporting period’; and
to clarify in the revised Standard that the disclosure does not apply toassets and liabilities measured at fair value based on recently observedmarket prices (see paragraph 128 of IAS 1).
BC82
BC83
When assets and liabilities are measured at fair value on the basis of recentlyobserved market prices, future changes in carrying amounts would not resultfrom using estimates to measure the assets and liabilities at the end of thereporting period. Using observed market prices to measure assets or liabilitiesobviates the need for estimates at the end of the reporting period. The marketprices properly reflect the fair values at the end of the reporting period, eventhough future market prices could be different. The objective of fair valuemeasurement is to reflect fair value at the measurement date, not to predict afuture value.
IAS 1 does not prescribe the particular form or detail of the disclosures.Circumstances differ from entity to entity, and the nature of estimationuncertainty at the end of the reporting period has many facets. IAS 1 limits thescope of the disclosures to items that have a significant risk of causing a materialadjustment to the carrying amounts of assets and liabilities within the nextfinancial year. The longer the future period to which the disclosures relate, thegreater the range of items that would qualify for disclosure, and the less specificare the disclosures that could be made about particular assets or liabilities.Aperiod longer than the next financial year might obscure the most relevantinformation with other disclosures.
BC84
Disclosures about capital (paragraphs 134 and 135)
BC85
In July 2004 the Board published an exposure draft—ED 7 Financial Instruments:Disclosures. As part of that project, the Board considered whether it should requiredisclosures about capital.
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BC86
The level of an entity’s capital and how it manages capital are important factorsfor users to consider in assessing the risk profile of an entity and its ability towithstand unexpected adverse events. The level of capital might also affect theentity’s ability to pay dividends. Consequently, ED 7 proposed disclosures aboutcapital.
In ED 7 the Board decided that it should not limit the requirements for disclosuresabout capital to entities that are subject to external capital requirements(egregulatory capital requirements established by legislation or other regulation).The Board believes that information about capital is useful for all entities, as isevidenced by the fact that some entities set internal capital requirements andnorms have been established for some industries. The Board noted that thecapital disclosures are not intended to replace disclosures required by regulators.The Board also noted that the financial statements should not be regarded as asubstitute for disclosures to regulators (which may not be available to all users)because the function of disclosures made to regulators may differ from thefunction of those to other users. Therefore, the Board decided that informationabout capital should be required of all entities because it is useful to users ofgeneral purpose financial statements. Accordingly, the Board did not distinguishbetween the requirements for regulated and non-regulated entities.
Some respondents to ED 7 questioned the relevance of the capital disclosures inan IFRS dealing with disclosures relating to financial instruments. The Boardnoted that an entity’s capital does not relate solely to financial instruments and,thus, capital disclosures have more general relevance. Accordingly, the Boardincluded these disclosures in IAS 1, rather than IFRS 7 Financial Instruments:Disclosures, the IFRS resulting from ED 7.
The Board also decided that an entity’s decision to adopt the amendments to IAS 1should be independent of the entity’s decision to adopt IFRS 7. The Board notedthat issuing a separate amendment facilitates separate adoption decisions.
BC87
BC88
BC
Objectives, policies and processes for managing capital (paragraph 136)
BC90
The Board decided that disclosure about capital should be placed in the contextof a discussion of the entity’s objectives, policies and processes for managingcapital. This is because the Board believes that such a discussion bothcommunicates important information about the entity’s capital strategy andprovides the context for other disclosures.
The Board considered whether an entity can have a view of capital that differsfrom what IFRSs define as equity. The Board noted that, although for thepurposes of this disclosure capital would often equate with equity as defined inIFRSs, it might also include or exclude some components. The Board also notedthat this disclosure is intended to give entities the opportunity to describe howthey view the components of capital they manage, if this is different from whatIFRSs define as equity.
BC91
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Externally imposed capital requirements (paragraph 136)
BC92
The Board considered whether it should require disclosure of any externallyimposed capital requirements. Such a capital requirement could be:(a)(b)
BC93
an industry-wide requirement with which all entities in the industry mustcomply; or
an entity-specific requirement imposed on a particular entity by itsprudential supervisor or other regulator.
The Board noted that some industries and countries have industry-wide capitalrequirements, and others do not. Thus, the Board concluded that it should notrequire disclosure of industry-wide requirements, or compliance with suchrequirements, because such disclosure would not lead to comparability betweendifferent entities or between similar entities in different countries.
The Board concluded that disclosure of the existence and level of entity-specificcapital requirements is important information for users, because it informsthemabout the risk assessment of the regulator. Such disclosure improvestransparency and market discipline.
However, the Board noted the following arguments against requiring disclosureof externally imposed entity-specific capital requirements.(a)(b)
Users of financial statements might rely primarily on the regulator’sassessment of solvency risk without making their own risk assessment.The focus of a regulator’s risk assessment is for those whose interests theregulations are intended to protect (eg depositors or policyholders).Thisemphasis is different from that of a shareholder. Thus, it could bemisleading to suggest that the regulator’s risk assessment could, or should,be a substitute for independent analysis by investors.
The disclosure of entity-specific capital requirements imposed by aregulator might undermine that regulator’s ability to impose suchrequirements. For example, the information could cause depositors towithdraw funds, a prospect that might discourage regulators fromimposing requirements. Furthermore, an entity’s regulatory dialoguewould become public, which might not be appropriate in all circumstances.Because different regulators have different tools available, for exampleformal requirements and moral suasion, a requirement to discloseentity-specific capital requirements could not be framed in a way that wouldlead to the provision of information that is comparable across entities.Disclosure of capital requirements (and hence, regulatory judgements)could hamper clear communication to the entity of the regulator’sassessment by creating incentives to use moral suasion and other informalmechanisms.
Disclosure requirements should not focus on entity-specific capitalrequirements in isolation, but should focus on how entity-specific capitalrequirements affect how an entity manages and determines the adequacyof its capital resources.
BC94
BC95
(c)
(d)
(e)
(f)
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(g)
A requirement to disclose entity-specific capital requirements imposed by aregulator is not part of Pillar 3 of the Basel II Framework developed by theBasel Committee on Banking Supervision.
BC96
Taking into account all of the above arguments, the Board decided not to requirequantitative disclosure of externally imposed capital requirements. Rather, itdecided to require disclosures about whether the entity complied with anyexternally imposed capital requirements during the period and, if not, theconsequences of non-compliance. This retains confidentiality between regulatorsand the entity, but alerts users to breaches of capital requirements and theirconsequences.
Some respondents to ED 7 did not agree that breaches of externally imposedcapital requirements should be disclosed. They argued that disclosure aboutbreaches of externally imposed capital requirements and the associatedregulatory measures subsequently imposed could be disproportionatelydamaging to entities. The Board was not persuaded by these arguments becauseit believes that such concerns indicate that information about breaches ofexternally imposed capital requirements may often be material by its nature.TheFramework states that ‘Information is material if its omission or misstatementcould influence the economic decisions of users taken on the basis of the financialstatements.’ Similarly, the Board decided not to provide an exemption fortemporary non-compliance with regulatory requirements during the year.Information that an entity is sufficiently close to its limits to breach them, evenon a temporary basis, is useful for users.
BC97
Internal capital targets
BC98
The Board proposed in ED 7 that the requirement to disclose information aboutbreaches of capital requirements should apply equally to breaches of internallyimposed requirements, because it believed the information is also useful to a userof the financial statements.
However, this proposal was criticised by respondents to ED 7 for the followingreasons:(a)
The information is subjective and, thus, not comparable between entities.In particular, different entities will set internal targets for differentreasons, so a breach of a requirement might signify different things fordifferent entities. In contrast, a breach of an external requirement hassimilar implications for all entities required to comply with similarrequirements.
Capital targets are not more important than other internally set financialtargets, and to require disclosure only of capital targets would provideusers with incomplete, and perhaps misleading, information.
Internal targets are estimates that are subject to change by the entity. It isnot appropriate to require the entity’s performance against this benchmarkto be disclosed.
An internally set capital target can be manipulated by management.Thedisclosure requirement could cause management to set the target sothat it would always be achieved, providing little useful information to
BC99
(b)
(c)
(d)
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users and potentially reducing the effectiveness of the entity’s capitalmanagement.
BC100
As a result, the Board decided not to require disclosure of the capital targets setby management, whether the entity has complied with those targets, or theconsequences of any non-compliance. However, the Board confirmed its view thatwhen an entity has policies and processes for managing capital, qualitativedisclosures about these policies and processes are useful. The Board alsoconcluded that these disclosures, together with disclosure of the components ofequity and their changes during the year (required by paragraphs 106–110), wouldgive sufficient information about entities that are not regulated or subject toexternally imposed capital requirements.
Puttable financial instruments and obligations arising on liquidation
BC100AThe Board decided to require disclosure of information about puttable
instruments and instruments that impose on the entity an obligation to deliverto another party a pro rata share of the net assets of the entity only on liquidationthat are reclassified in accordance with paragraphs 16E and 16F of IAS 32. This isbecause the Board concluded that this disclosure allows users of financialstatements to understand the effects of any reclassifications.BC100BThe Board also concluded that entities with puttable financial instruments
classified as equity should be required to disclose additional information to allowusers to assess any effect on the entity’s liquidity arising from the ability of theholder to put the instruments to the issuer. Financial instruments classified asequity usually do not include any obligation for the entity to deliver afinancialasset to another party. Therefore, the Board concluded that additionaldisclosures are needed in these circumstances. In particular, the Board concludedthat entities should disclose the expected cash outflow on redemption orrepurchase of those financial instruments that are classified as equity andinformation about how that amount was determined. That information allowsliquidity risk associated with the put obligation and future cash flows to beevaluated.
Presentation of measures per share
BC101
The exposure draft of 2006 did not propose to change the requirements of IAS 33Earnings per Share on the presentation of basic and diluted earnings per share.Amajority of respondents agreed with this decision. In their opinion, earningsper share should be the only measure per share permitted or required in thestatement of comprehensive income and changing those requirements wasbeyond the scope of this stage of the financial statement presentation project. However, some respondents would like to see alternative measures per sharewhenever earnings per share is not viewed as the most relevant measure forfinancial analysts (ie credit rating agencies that focus on other measures). A fewrespondents proposed that an entity should also display an amount per share fortotal comprehensive income, because this was considered a useful measure.
BC102
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TheBoard did not support including alternative measures per share in thefinancial statements, until totals and subtotals, and principles for aggregatingand disaggregating items, are addressed and discussed as part of the next stage ofthe financial statement presentation project.
BC103
Some respondents also interpreted the current provisions in IAS 33 as allowing defacto a display of alternative measures in the income statement. In itsdeliberations, the Board was clear that paragraph 73 of IAS 33 did not leave roomfor confusion. However, it decided that the wording in paragraph 73 could beimproved to clarify that alternative measures should be shown ‘only in the notes’.This will be done when IAS 33 is revisited or as part of the annual improvementsprocess.
One respondent commented that the use of the word ‘earnings’ wasinappropriate in the light of changes proposed in the exposure draft and that themeasure should be denominated ‘profit or loss per share’, instead. The Boardconsidered that this particular change in terminology was beyond the scopeofIAS 1.
BC104
Transition and effective date
BC105
The Board is committed to maintaining a ‘stable platform’ of substantiallyunchanged standards for annual periods beginning between 1 January 2006 and31 December 2008. In addition, some preparers will need time to make the systemchanges necessary to comply with the revisions to IAS 1. Therefore, the Boarddecided that the effective date of IAS 1 should be annual periods beginning on orafter 1 January 2009, with earlier application permitted.
Differences from SFAS 130
BC106
In developing IAS 1, the Board identified the following differences from SFAS 130:(a)
Reporting and display of comprehensive income Paragraph 22 of SFAS 130permits a choice of displaying comprehensive income and its components,in one or two statements of financial performance or in a statement ofchanges in equity. IAS 1 (as revised in 2007) does not permit display in astatement of changes in equity.
Reporting other comprehensive income in the equity section of a statementof financial position Paragraph 26 of SFAS 130 specifically states that thetotal of other comprehensive income is reported separately from retainedearnings and additional paid-in capital in a statement of financial positionat the end of the period. A descriptive title such as accumulated othercomprehensive income is used for that component of equity. An entitydiscloses accumulated balances for each classification in that separatecomponent of equity in a statement of financial position, in a statement ofchanges in equity, or in notes to the financial statements. IAS 1 (as revisedin 2007) does not specifically require the display of a total of accumulatedother comprehensive income in the statement of financial position.
(b)
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(c)
Display of the share of other comprehensive income items of associates andjoint ventures accounted for using the equity method Paragraph 82 of IAS 1(as revised in 2007) requires the display in the statement of comprehensiveincome of the investor’s share of the investee’s other comprehensiveincome. Paragraph 122 of SFAS 130 does not specify how that informationshould be displayed. An investor is permitted to combine its proportionateshare of other comprehensive income amounts with its own othercomprehensive income items and display the aggregate of those amountsin an income statement type format or in a statement of changes in equity.
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Appendix
Amendments to the Basis for Conclusions on other IFRSs
This appendix contains amendments to the Basis for Conclusions on other IFRSs that are necessary inorder to ensure consistency with the revised IAS 1. Amended paragraphs are shown with the new textunderlined and deleted text struck through.
* * * * *
The amendments contained in this appendix when this Standard was revised in 2007 have beenincorporated into the relevant pronouncements published in this volume.
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Dissenting opinions on IAS 1
Dissent of Mary E Barth, Anthony T Cope, Robert P Garnett and James J Leisenring from IAS 1 (as revised in September 2007)
DO1
Professor Barth and Messrs Cope, Garnett and Leisenring voted against the issueof IAS 1 Presentation of Financial Statements in 2007. The reasons for their dissent areset out below.
Those Board members agree with the requirement to report all items of incomeand expense separately from changes in net assets that arise from transactionswith owners in their capacity as owners. Making that distinction clearly is asignificant improvement in financial reporting.
However, they believe that the decision to permit entities to divide the statementof comprehensive income into two separate statements is both conceptuallyunsound and unwise.
As noted in paragraph BC51, the Framework* does not define profit or loss, or netincome. It also does not indicate what criteria should be used to distinguishbetween those items of recognised income and expense that should be includedin profit or loss and those items that should not. In some cases, it is even possiblefor identical transactions to be reported inside or outside profit or loss. Indeed,in that same paragraph, the Board acknowledges these facts, and indicates that ithad a preference for reporting all items of income and expense in a singlestatement, believing that a single statement is the conceptually correct approach.Those Board members believe that some items of income and expense that willpotentially bypass the statement of profit and loss can be as significant to theassessment of an entity’s performance as items that will be included. Until aconceptual distinction can be developed to determine whether any items shouldbe reported in profit or loss or elsewhere, financial statements will lack neutralityand comparability unless all items are reported in a single statement. In such astatement, profit or loss can be shown as a subtotal, reflecting currentconventions.
In the light of those considerations, it is puzzling that most respondents to theexposure draft that proposed these amendments favoured permitting atwo-statement approach, reasoning that it ‘distinguishes between profit and lossand total comprehensive income’ (paragraph BC50). Distinguishing betweenthose items reported in profit or loss and those reported elsewhere isaccomplished by the requirement for relevant subtotals to be includedinastatement of comprehensive income. Respondents also stated that atwo-statement approach gives primacy to the ‘income statement’; that conflictswith the Board’s requirement in paragraph 11 of IAS 1 to give equal prominenceto all financial statements within a set of financial statements.
DO2
DO3
DO4
DO5
*
The reference to the Framework is to IASC’s Framework for the Preparation and Presentation of FinancialStatements, adopted by the IASB in 2001. In September 2010 the IASB replaced the Framework withthe Conceptual Framework for Financial Reporting.
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DO6
Those Board members also believe that the amendments are flawed by offeringentities a choice of presentation methods. The Board has expressed a desire toreduce alternatives in IFRSs. The Preface to International Financial Reporting Standards,in paragraph 13, states: ‘the IASB intends not to permit choices in accountingtreatment … and will continue to reconsider … those transactions and events forwhich IASs permit a choice of accounting treatment, with the objective ofreducing the number of those choices.’ The Preface extends this objective to bothaccounting and reporting. The same paragraph states: ‘The IASB’s objective is torequire like transactions and events to be accounted for and reported in a like wayand unlike transactions and events to be accounted for and reported differently’(emphasis added). By permitting a choice in this instance, the IASB hasabandoned that principle.
Finally, the four Board members believe that allowing a choice of presentation atthis time will ingrain practice, and make achievement of the conceptually correctpresentation more difficult as the long-term project on financial statementpresentation proceeds.
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Guidance on implementing
IAS 1 Presentation of Financial Statements
This guidance accompanies, but is not part of, IAS 1.
Illustrative financial statement structure
IG1
IAS 1 sets out the components of financial statements and minimumrequirements for disclosure in the statements of financial position,comprehensive income and changes in equity. It also describes further items thatmay be presented either in the relevant financial statement or in the notes.Thisguidance provides simple examples of ways in which the requirements of IAS 1for the presentation of the statements of financial position, comprehensiveincome and changes in equity might be met. An entity should change the orderof presentation, the titles of the statements and the descriptions used for lineitems when necessary to suit its particular circumstances.
The guidance is in three sections. Paragraphs IG3–IG6 provide examples of thepresentation of financial statements. Paragraphs IG7–IG9 provide an example ofthe determination of reclassification adjustments for available-for-sale financialassets in accordance with IAS 39 Financial Instruments: Recognition and Measurement.Paragraphs IG10 and IG11 provide examples of capital disclosures.
The illustrative statement of financial position shows one way in which an entitymay present a statement of financial position distinguishing between currentand non-current items. Other formats may be equally appropriate, provided thedistinction is clear.
The illustrations use the term ‘comprehensive income’ to label the total of allcomponents of comprehensive income, including profit or loss. The illustrationsuse the term ‘other comprehensive income’ to label income and expenses that areincluded in comprehensive income but excluded from profit or loss. IAS 1 doesnot require an entity to use those terms in its financial statements.
Two statements of comprehensive income are provided, to illustrate thealternative presentations of income and expenses in a single statement or in twostatements. The single statement of comprehensive income illustrates theclassification of income and expenses within profit or loss by function.Theseparate statement (in this example, ‘the income statement’) illustrates theclassification of income and expenses within profit by nature.
The examples are not intended to illustrate all aspects of IFRSs, nor do theyconstitute a complete set of financial statements, which would also include astatement of cash flows, a summary of significant accounting policies and otherexplanatory information.
IG2
IG3
IG4
IG5
IG6
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Part I: Illustrative presentation of financial statements
XYZ Group – Statement of financial position as at 31 December 20X7(in thousands of currency units)
ASSETS
Non-current assets
Property, plant and equipmentGoodwill
Other intangible assetsInvestments in associatesAvailable-for-sale financial assetsCurrent assetsInventoriesTrade receivablesOther current assetsCash and cash equivalentsTotal assets
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31 Dec 20X7
350,70080,800227,470100,150142,500901,620
135,23091,60025,650312,4005,8801,466,500
31 Dec 20X6
360,02091,200227,470110,770156,000945,460132,500110,80012,540322,900578,7401,524,200continued...
IAS 1 IG
...continued
XYZ Group – Statement of financial position as at 31 December 20X7(in thousands of currency units)
EQUITY AND LIABILITIES
Equity attributable to owners of the parentShare capitalRetained earnings
Other components of equityNon-controlling interestsTotal equity
Non-current liabilitiesLong-term borrowingsDeferred taxLong-term provisionsTotal non-current liabilitiesCurrent liabilitiesTrade and other payablesShort-term borrowings
Current portion of long-term borrowingsCurrent tax payableShort-term provisionsTotal current liabilitiesTotal liabilities
Total equity and liabilities
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650,000243,50010,200903,70070,050973,750
120,00028,80028,850177,650
115,100150,00010,00035,0005,000315,100492,7501,466,500
31 Dec 20X6
600,000161,70021,200782,90048,600831,500160,00026,04052,240238,280
187,620200,00020,00042,0004,800454,420692,7001,524,200
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XYZ Group – Statement of comprehensive income for the year ended31 December 20X7
(illustrating the presentation of comprehensive income in one
statement and the classification of expenses within profit by function)(in thousands of currency units)
20X7
Revenue390,000Cost of sales(245,000)Gross profit145,000Other income20,667Distribution costs(9,000)Administrative expenses(20,000)Other expenses(2,100)Finance costs
(8,000)Share of profit of associates(a)35,100Profit before tax161,667Income tax expense
(40,417)Profit for the year from continuing operations121,250
Loss for the year from discontinued operations–
PROFIT FOR THE YEAR121,250
Other comprehensive income:
Exchange differences on translating foreign operations(b)5,334Available-for-sale financial assets(b)(24,000)Cash flow hedges(b)
(667)Gains on property revaluation
933Actuarial gains (losses) on defined benefit pension plans(667)Share of other comprehensive income of associates(c)400Income tax relating to components of other comprehensive income(d)
4,667Other comprehensive income for the year, net of tax(14,000)TOTAL COMPREHENSIVE INCOME FOR THE YEAR
107,250
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20X6355,000(230,000)125,00011,300(8,700)(21,000)(1,200)(7,500)30,100128,000(32,000)96,000(30,500)65,500
10,66726,667(4,000)3,3671,333(700)(9,334)28,00093,500
continued...
IAS 1 IG
...continued
XYZ Group – Statement of comprehensive income for the year ended 31 December 20X7
(illustrating the presentation of comprehensive income in one
statement and the classification of expenses within profit by function)(in thousands of currency units)
20X7
Profit attributable to:
Owners of the parentNon-controlling interests
97,00024,250121,250
Total comprehensive income attributable to:
Owners of the parentNon-controlling interests
85,80021,450107,250
Earnings per share (in currency units):
Basic and diluted
0.46
0.3074,80018,70093,50052,40013,10065,50020X6
Alternatively, components of other comprehensive income could be presented in the statement of comprehensive income net of tax:Other comprehensive income for the year, after tax:Exchange differences on translating foreign operationsAvailable-for-sale financial assetsCash flow hedges
Gains on property revaluation
Actuarial gains (losses) on defined benefit pension plansShare of other comprehensive income of associatesOther comprehensive income for the year, net of tax(d)
20X74,000(18,000)(500)600(500)400(14,000)
20X68,00020,000(3000)2,7001,000(700)28,000
(a)This means the share of associates’ profit attributable to owners of the associates, ie it is after tax
and non-controlling interests in the associates.(b)This illustrates the aggregated presentation, with disclosure of the current year gain or loss and
reclassification adjustment presented in the notes. Alternatively, a gross presentation can be used.(c)This means the share of associates’ other comprehensive income attributable to owners of the
associates, ie it is after tax and non-controlling interests in the associates.(d)The income tax relating to each component of other comprehensive income is disclosed in the
notes.
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XYZ Group – Income statement for the year ended 31 December 20X7
(illustrating the presentation of comprehensive income in two statements and classification of expenses within profit by nature)(in thousands of currency units)
20X7
RevenueOther income
Changes in inventories of finished goods and work in progress
Work performed by the entity and capitalisedRaw material and consumables usedEmployee benefits expense
Depreciation and amortisation expenseImpairment of property, plant and equipmentOther expensesFinance costs
Share of profit of associates(e)Profit before taxIncome tax expense
Profit for the year from continuing operationsLoss for the year from discontinued operationsPROFIT FOR THE YEARProfit attributable to:
Owners of the parentNon-controlling interests
97,00024,250121,250
Earnings per share (in currency units):
Basic and diluted
0.46
0.3052,40013,10065,500
390,00020,667(115,100)16,000(96,000)(45,000)(19,000)(4,000)(6,000)(15,000)35,100161,667(40,417)121,250
–
121,250
20X6355,00011,300(107,900)15,000(92,000)(43,000)(17,000)
–(5,500)(18,000)30,100128,000(32,000)96,000(30,500)65,500
(e)This means the share of associates’ profit attributable to owners of the associates, ie it is after tax
and non-controlling interests in the associates.
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XYZ Group – Statement of comprehensive income for the year ended31 December 20X7
(illustrating the presentation of comprehensive income in two statements)(in thousands of currency units)
20X7
Profit for the year
Other comprehensive income:
Exchange differences on translating foreign operationsAvailable-for-sale financial assetsCash flow hedges
Gains on property revaluation
Actuarial gains (losses) on defined benefit pension plansShare of other comprehensive income of associates(f) Income tax relating to components of other comprehensive income(g)
Other comprehensive income for the year, net of taxTOTAL COMPREHENSIVE INCOME FORTHE YEAR
Total comprehensive income attributable to:
Owners of the parentNon-controlling interests
85,80021,450107,250
74,80018,70093,500
5,334(24,000)(667)933(667)4004,667(14,000)107,250
10,66726,667(4,000)3,3671,333(700)(9,334)28,00093,500
121,250
20X665,500
Alternatively, components of other comprehensive income could be presented, net of tax. Refer to the statement of comprehensive income illustrating the presentation of income and expenses in one statement.
(f)(g)
This means the share of associates’ other comprehensive income attributable to owners of the associates, ie it is after tax and non-controlling interests in the associates.
The income tax relating to each component of other comprehensive income is disclosed in the notes.
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XYZ Group
Disclosure of components of other comprehensive income(h)Notes
Year ended 31 December 20X7(in thousands of currency units)
20X7
Other comprehensive income:Exchange differences on translating foreign operations(i)
Available-for-sale financial assets:
Gains arising during the year
Less: Reclassification adjustments for gains included in profit or lossCash flow hedges:
Gains (losses) arising during the yearLess: Reclassification adjustments for gains (losses) included in profit or lossLess: Adjustments for amounts
transferred to initial carrying amount of hedged items
Gains on property revaluation
Actuarial gains (losses) on defined benefit pension plans
Share of other comprehensive income of associates
Other comprehensive incomeIncome tax relating to components of other comprehensive income(j)
Other comprehensive income for the year
(4,667)3,333
(4,000)
–
1,333(25,333)
(24,000)
30,667(4,000)
26,667
5,334
10,66720X6
667(667)933(667)400(18,667)4,667(14,000)
–(4,000)3,3671,333(700)37,334(9,334)28,000
(h)When an entity chooses an aggregated presentation in the statement of comprehensive income,
the amounts for reclassification adjustments and current year gain or loss are presented in the notes.(i)(j)
There was no disposal of a foreign operation. Therefore, there is no reclassification adjustment for the years presented.
The income tax relating to each component of other comprehensive income is disclosed in the notes.
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XYZ Group
Disclosure of tax effects relating to each component of othercomprehensive incomeNotes
Year ended 31 December 20X7(in thousands of currency units)
20X7
20X6
Before-taxamount
Exchange
differences on translatingforeignoperationsAvailable-forsale financialassets
Cash flow hedgesGains onpropertyrevaluationActuarial gains(losses) ondefined benefitpension plansShare of other comprehensiveincome ofassociatesOther
comprehensiveincome
Tax(expense)benefit
Net-of-taxBefore-taxamountamount
Tax
(expense)benefit
Net-of-taxamount
5,334(1,334)4,00010,667(2,667)8,000
(24,000)(667)
6,000167
(18,000)(500)
26,667(4,000)
(6,667)1,000
20,000(3,000)
933(333)6003,367(667)2,700
(667)167(500)1,333(333)1,000
400–400(700)–(700)
(18,667)4,667(14,000)37,334(9,334)28,000
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IFRS Foundation1037
IAS 1 IG
XYZ Group – Statement of changes in equity for the year ended31 December 20X7
(in thousands of currency units)
ShareRetainedTranslationAvailable-Cash flowRevaluationcapitalearningsof foreignfor-salehedgessurplus
operationsfinancial
assets
Balance at
1 January 20X6Changes in accounting policy
Restated balanceChanges in equity for 20X6Dividends
Total comprehensive income for the year(k)Balance at
31 December 20X6Changes in equity for 20X7
Issue of share capitalDividends
Total comprehensive income for the year(l)Transfer to retained earnings
Balance at
31 December 20X7
50,000
–
––3,200
–5,600
––(14,400)
–3,200
––(400)–(800)
–
50,000
–
50,000
–(10,000)–
53,200
–6,4002,400
–16,00017,600
–(2,400)(400)
–(10,000)1,600
74,800
–(10,000)18,700
93,500
600,000118,100
–
400
(4,000)
–(4,000)
1,600
–1,600
2,000
–2,000
Total
Non-controllinginterests
Totalequity
–717,700–
400
29,800747,500100
500
600,000118,500–718,10029,900748,000
600,000161,7001,600782,90048,600831,500
–(15,000)––
96,600200
–(15,000)800200
85,800
–
–(15,000)21,450107,250
–
–
650,000243,5002,200903,70070,050973,750
(k)
The amount included in retained earnings for 20X6 of 53,200 represents profit attributable to owners of the parent of 52,400 plus actuarial gains on defined benefit pension plans of 800(1,333, less tax 333, less non-controlling interests 200).
The amount included in the translation, available-for-sale and cash flow hedge reserves represent other comprehensive income for each component, net of tax and non-controlling interests, eg other comprehensive income related to available-for-sale financial assets for 20X6 of 16,000 is 26,667,less tax 6,667, less non-controlling interests 4,000.
The amount included in the revaluation surplus of 1,600 represents the share of other
comprehensive income of associates of (700) plus gains on property revaluation of 2,300 (3,367, less tax 667, less non-controlling interests 400). Other comprehensive income of associates relates solely to gains or losses on property revaluation.
(l)
The amount included in retained earnings for 20X7 of 96,600 represents profit attributable to owners of the parent of 97,000 plus actuarial losses on defined benefit pension plans of 400(667, less tax 167, less non-controlling interests 100).
The amount included in the translation, available-for-sale and cash flow hedge reserves represent other comprehensive income for each component, net of tax and non-controlling interests, eg other comprehensive income related to the translation of foreign operations for 20X7 of 3,200 is 5,334, less tax 1,334, less non-controlling interests 800.
The amount included in the revaluation surplus of 800 represents the share of other comprehensive income of associates of 400 plus gains on property revaluation of 400 (933, less tax 333, less non-controlling interests 200). Other comprehensive income of associates relates solely to gains or losses on property revaluation.
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IFRS Foundation
IAS 1 IG
Part II: Illustrative example of the determination of reclassification adjustments
IG7IG8
The Standard requires an entity to disclose reclassification adjustments relatingto each component of other comprehensive income.
This guidance provides an illustration of the calculation of reclassificationadjustments for available-for-sale financial assets recognised in accordance withIAS 39.
On 31 December 20X5, XYZ Group purchased 1,000 shares (equity instruments) at10 currency units (CU) per share, classified as available for sale. The fair value ofthe instruments at 31 December 20X6 was CU12; at 31 December 20X7 the fairvalue had increased to CU15. All of the instruments were sold on 31 December20X7; no dividends were declared on those instruments during the time that theywere held by XYZ Group. The applicable tax rate in accordance with IAS 12 IncomeTaxes is 30 per cent.Calculation of gains(in currency units)
Before tax
Gains recognised in other comprehensive income:Year ended 31 December 20X6Year ended 31 December 20X7Total gain
2,0003,0005,000
(600)(900)(1,500)
1,4002,1003,500
Income tax
Net of tax
IG9
Amounts reported in profit or loss and other comprehensive income for the years ended 31 December 20X6 and 31 December 20X7
20X7
Profit or loss:
Gain on sale of instrumentsIncome tax expense
Net gain recognised in profit or lossOther comprehensive income:Gain arising during the year, net of taxReclassification adjustment, net of tax
Net gain (loss) recognised in other comprehensive income
2,100(3,500)(1,400)2,100
1,400
–1,4001,400
5,000(1,500)3,500
20X6
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IFRS Foundation1039
IAS 1 IG
Alternatively, components of other comprehensive income may be shown gross of tax with a separate line item for tax effects:
Profit or loss:
Gain on sale of instrumentsIncome tax expense
Net gain recognised in profit or lossOther comprehensive income:Gain arising during the yearReclassification adjustmentIncome tax relating to othercomprehensive income
Net gain (loss) recognised in othercomprehensive income
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IFRS Foundation
20X7
5,000(1,500)3,500
3,000(5,000)600(1,400)2,100
20X6
2,000
–(600)1,4001,400
IAS 1 IG
Part III: Illustrative examples of capital disclosures (paragraphs 134–136)
An entity that is not a regulated financial institution
IG10
The following example illustrates the application of paragraphs 134 and 135 foran entity that is not a financial institution and is not subject to an externallyimposed capital requirement. In this example, the entity monitors capital usinga debt-to-adjusted capital ratio. Other entities may use different methods tomonitor capital. The example is also relatively simple. An entity decides, in thelight of its circumstances, how much detail it provides to satisfy the requirementsof paragraphs 134 and 135.Facts
Group A manufactures and sells cars. Group A includes a finance subsidiary that provides finance to customers, primarily in the form of leases. Group A is not subject to any externally imposed capital requirements.
Example disclosure
The Group’s objectives when managing capital are:•
to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and
to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.
•
The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
Consistently with others in the industry, the Group monitors capital on the basis of the debt-to-adjusted capital ratio. This ratio is calculated as net debt ÷ adjusted capital. Net debt is calculated as total debt (as shown in the statement of financial position) less cash and cash equivalents. Adjusted capital comprises all
components of equity (ie share capital, share premium, non-controlling interests, retained earnings, and revaluation surplus) other than amounts accumulated in equity relating to cash flow hedges, and includes some forms of subordinated debt.
continued...
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IFRS Foundation1041
IAS 1 IG
...continued
During 20X4, the Group’s strategy, which was unchanged from 20X3, was to maintain the debt-to-adjusted capital ratio at the lower end of the range 6:1 to 7:1, in order to secure access to finance at a reasonable cost by maintaining a BB credit rating. The debt-to-adjusted capital ratios at 31 December 20X4 and at 31December 20X3 were as follows:
31 Dec20X4CUmillion
Total debt
Less: cash and cash equivalentsNet debtTotal equity
Add: subordinated debt instruments
Less: amounts accumulated in equity relating to cash flow hedgesAdjusted capital
Debt-to-adjusted capital ratio
1,000(90)91011038(10)1386.6
31 Dec20X3CUmillion1,100(150)95010538(5)1386.9
The decrease in the debt-to-adjusted capital ratio during 20X4 resulted primarily from the reduction in net debt that occurred on the sale of
subsidiaryZ. As a result of this reduction in net debt, improved profitability and lower levels of managed receivables, the dividend payment was increased to CU2.8 million for 20X4 (from CU2.5 million for 20X3).
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IFRS Foundation
IAS 1 IG
An entity that has not complied with externally imposed capital requirements
IG11
The following example illustrates the application of paragraph 135(e) when anentity has not complied with externally imposed capital requirements during theperiod. Other disclosures would be provided to comply with the otherrequirements of paragraphs 134 and 135.Facts
Entity A provides financial services to its customers and is subject to capital requirements imposed by Regulator B. During the year ended 31 December 20X7, Entity A did not comply with the capital requirements imposed by
Regulator B. In its financial statements for the year ended 31 December 20X7, Entity A provides the following disclosure relating to its non-compliance.Example disclosure
Entity A filed its quarterly regulatory capital return for 30 September 20X7 on 20 October 20X7. At that date, Entity A’s regulatory capital was below the capital requirement imposed by Regulator B by CU1 million. As a result,
EntityA was required to submit a plan to the regulator indicating how it would increase its regulatory capital to the amount required. Entity A submitted a plan that entailed selling part of its unquoted equities portfolio with a carrying amount of CU11.5 million in the fourth quarter of 20X7. In the fourth quarter of 20X7, Entity A sold its fixed interest investment portfolio for CU12.6 million and met its regulatory capital requirement.
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IFRS Foundation1043
IAS 1 IG
Appendix
Amendments to guidance on other IFRSs
The following amendments to guidance on other IFRSs are necessary in order to ensure consistency withthe revised IAS 1. In the amended paragraphs, new text is underlined and deleted text is struck through.
* * * * *
The amendments contained in this appendix when IAS 1 was revised in 2007 have been incorporated intothe guidance on the relevant IFRSs, published in this volume.
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IFRS Foundation
IAS 1 IG
Table of Concordance
This table shows how the contents of IAS 1 (revised 2003 and amended in 2005) and IAS 1(as revised in 2007) correspond. Paragraphs are treated as corresponding if they broadlyaddress the same matter even though the guidance may differ.
Superseded
IAS 1 paragraph
1234567, 101112NoneNone13–2223, 2425, 2627, 2829–3132–3536None37–41
IAS 1 (revised 2007) paragraph
1, 324,7None5691013, 1477811, 1215–2425, 2627, 2845, 4629–3132–35383940–44
Superseded
IAS 1 paragraph42, 4344–4849, 5051–676868A69–7374–77None7879808182None83–85None86–9495None96, 9798
IAS 1 (revised 2007) paragraph47, 4849–5336,3760–76545455–5977–80818882838485–8790–9697–105107108106, 107109
Superseded IAS 1 paragraph
101102103–107108–115116–124124A–124C125, 126127127A127B128IG1NoneIG2NoneIG3, IG4NoneNoneNoneIG5, IG6
IAS 1 (revised 2007) paragraphNone111112–116117–124125–133134–136137, 138139NoneNone140IG1IG2IG3IG4IG5, IG6IG7IG8IG9IG10, IG11
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IFRS Foundation1045
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