International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards

  3 Discussion Paper – A Review of the Conceptual

  1936, pp.187-191; American Accounting

  Framework for Financial Reporting, IASB, July

  Association, Executive Committee, ‘Accounting

  2013.

  Principles Underlying Corporate Financial 4

  Exposure Draft ED/2015/3: Conceptual

  Statements’, Accounting Review, June 1941,

  Framework for Financial Reporting, IASB, July

  pp.133-139; American Accounting Association,

  2013.

  Committee to Prepare a Statement of Basic 5 Discussion Paper – A Review of the Conceptual

  Accounting Theory, A Statement of Basic

  Framework for Financial Reporting, IASB, July

  Accounting Theory, 1966; American

  2013, para. 1.5.

  Accounting Association, Committee on

  107

  Chapter 3

  Presentation of financial

  statements and

  accounting policies

  1 INTRODUCTION .............................................................................................. 111

  1.1

  Objective and scope of IAS 1 ............................................................................... 111

  1.2 Objective

  and

  scope of IAS 8 .............................................................................. 112

  2 THE PURPOSE AND COMPOSITION OF FINANCIAL STATEMENTS ............. 113

  2.1

  The purpose of financial statements .................................................................. 113

  2.2 Frequency

  of

  reporting and period covered .................................................... 114

  2.3

  The components of a complete set of financial statements .......................... 114

  2.4 Comparative

  information

  .....................................................................................

  116

  2.5

  Identification of the financial statements and accompanying

  information ............................................................................................................. 117

  2.5.1

  Identification of financial statements ................................................ 117

  2.5.2 Statement

  of

  compliance with IFRS .................................................. 118

  3 THE STRUCTURE OF FINANCIAL STATEMENTS .......................................... 119

  3.1

  The statement of financial position .................................................................. 120

  3.1.1

  The distinction between current/non-current assets and

  liabilities .................................................................................................. 120

  3.1.2

  Non-current assets and disposal groups held for sale or

  distribution .............................................................................................. 121

  3.1.3 Current

  assets

  ........................................................................................

  122

  3.1.4 Current

  liabilities

  ..................................................................................

  122

  3.1.5

  Information required on the face of the statement of

  financial position .................................................................................. 125

  3.1.6

  Information required either on the face of the statement

  of financial position or in the notes .................................................. 127

  3.1.7 Illustrative

  statements

  of financial position .................................... 129

  108 Chapter

  3

  3.2

  The statement of comprehensive income and the statement of

  profit or loss .......................................................................................................... 130

  3.2.1

  Profit and loss and comprehensive income .................................... 130

  3.2.2

  Information required on the face of the statement of

  profit or loss ........................................................................................... 132

  3.2.2.A

  Operating profit ................................................................ 133

  3.2.3

  Classification of expenses recognised in profit or loss by

  nature or function .................................................................................. 134

  3.2.3.A

  Analysis of expenses by nature ..................................... 134

  3.2.3.B

  Analysis of expenses by function ................................. 136

  3.2.4

  The statement of comprehensive income ....................................... 136

  3.2.4.A

  The face of the statement of comprehensive

  income ................................................................................ 136

  3.2.4.B Reclassification adjustments .......................................... 139

  3.2.4.C

  Tax on items of other comprehensive income ........... 141

  3.2.5

  Discontinued operations ..................................................................... 142

  3.2.6 Material

  and

  extraordinary items ...................................................... 142

  3.2.6.A

  Material items ................................................................... 142

  3.2.6.B Ordinary

  activities and extraordinary items ............... 143

  3.3

  The statement of changes in equity .................................................................. 143

  3.4

  The notes to the financial statements ............................................................... 145

  4 ACCOUNTING POLICIES ................................................................................ 146

  4.1

  General principles ................................................................................................ 146

  4.1.1

  Fair presentation ................................................................................... 147

  4.1.1.A

  Fair presentation and compliance with IFRS ............ 147

  4.1.1.B

  The fair presentation override ...................................... 148

  4.1.2

  Going concern ....................................................................................... 149

  4.1.3 The

  accrual

  basis

  of accounting ........................................................ 150

  4.1.4 Consistency

  ............................................................................................ 150

  4.1.5 Materiality,

  aggregation and offset ..................................................... 151

  4.1.5.A

  Materiality and aggregation ............................................ 151

  4.1.5.B

  Offset .................................................................................. 152

  4.1.6

  Profit or loss for the period ................................................................ 153

  4.1.7

  Practice Statement 2 – Making Materiality Judgements .............. 154


  4.1.7.A

  General characteristics of materiality .......................... 155

  4.1.7.B

  Making materiality judgements ..................................... 156

  4.1.7.C Specific

  topics

  ..................................................................

  156

  4.2

  The distinction between accounting policies and accounting

  estimates ................................................................................................................. 157

  4.3

  The selection and application of accounting policies ................................... 158

  4.4 Changes

  in

  accounting policies .......................................................................... 160

  Presentation of financial statements and accounting policies 109

  4.5 Changes

  in

  accounting estimates ........................................................................ 161

  4.6 Correction

  of

  errors

  .............................................................................................

  162

  4.7 Impracticability

  of restatement .......................................................................... 164

  4.7.1

  Impracticability of restatement for a change in accounting

  policy ....................................................................................................... 166

  4.7.2

  Impracticability of restatement for a material error ...................... 167

  5 DISCLOSURE REQUIREMENTS ...................................................................... 168

  5.1

  Disclosures relating to accounting policies ..................................................... 168

  5.1.1

  Disclosure of accounting policies ...................................................... 168

  5.1.1.A

  Summary of significant accounting policies ............... 168

  5.1.1.B

  Judgements made in applying accounting

  policies ............................................................................... 169

  5.1.2

  Disclosure of changes in accounting policies ................................. 169

  5.1.2.A

  Accounting policy changes pursuant to the

  initial application of an IFRS ......................................... 170

  5.1.2.B

  Voluntary changes in accounting policy ..................... 170

  5.1.2.C

  Future impact of a new IFRS .......................................... 171

  5.2

  Disclosure of estimation uncertainty and changes in estimates ................... 171

  5.2.1

  Sources of estimation uncertainty ..................................................... 171

  5.2.2

  Changes in accounting estimates ....................................................... 173

  5.3

  Disclosure of prior period errors ....................................................................... 173

  5.4 Disclosures

  about capital..................................................................................... 174

  5.4.1

  General capital disclosures ................................................................. 174

  5.4.2 Puttable

  financial

  instruments classified as equity ........................ 176

  5.5

  Other disclosures .................................................................................................. 176

  6 FUTURE DEVELOPMENTS ............................................................................. 177

  6.1

  Standard-setting projects ..................................................................................... 177

  6.2 Maintenance

  projects

  ...........................................................................................

  177

  6.2.1

  Distinction between a change in an accounting policy and

  a change in an accounting estimate ................................................... 177

  6.2.2 Accounting

  policy

  changes (amendments to IAS 8) ...................... 178

  6.2.3

  Proposed clarifications to the classification of liabilities ............. 178

  6.2.4 Disclosure

  initiative

  – accounting policies ..................................... 178

  6.2.5

  Definition of material (amendments to IAS 1 and IAS 8) .............. 178

  6.2.6

  Disclosure Initiative – Targeted Standards-level Review

  of Disclosures ........................................................................................ 179

  6.3

  Research projects ................................................................................................. 179

  6.3.1

  Principles of disclosure ....................................................................... 179

  6.3.2 Primary

  financial statements .............................................................. 179

  110 Chapter

  3

  List of examples

  Example 3.1:

  Determining whether liabilities should be presented as

  current or non-current ........................................................................ 124

  Example 3.2:

  Illustrative statement of financial position ...................................... 129

  Example 3.3:

  Example of classification of expenses by nature ........................... 135

  Example 3.4:

  Illustrative statement of profit or loss with expenses

  classified by nature ............................................................................... 135

  Example 3.5:

  Example of classification of expenses by function ........................ 136

  Example 3.6:

  Presentation of comprehensive income in one statement

  and the classification of expenses by function ............................... 138

  Example 3.7:

  Note disclosure of components of other comprehensive

  income .................................................................................................... 140

  Example 3.8:

  Statement of comprehensive income illustrating the

  presentation of comprehensive income in two statements

  with note disclosure of the tax effects relating to components

  of other comprehensive income ........................................................... 141

  Example 3.9:

  Combined statement of all changes in equity ................................. 144

  Example 3.10:

  Retrospective restatement of errors ................................................. 163

  Example 3.11:

  Prospective application of a change in accounting policy

  when retrospective application is not practicable ......................... 166

  Example 3.12:

  Illustrative capital disclosures: An entity that is not a

  regulated financial institution ............................................................. 175

  Example 3.13:

  Illustrative capital disclosures: An entity that has not

  complied with externally imposed capital requirements ............. 176

  111

  Chapter 3

  Presentation of fina
ncial

  statements and

  accounting policies

  1 INTRODUCTION

  There is no single IFRS dealing with the form, content and structure of financial

  statements and the accounting policies to be applied in their preparation. Of course,

  most international accounting standards specify some required disclosures and many

  mention the level of prominence required (such as on the face of a primary statement

  rather than in the notes). The subject of just what financial statements are, their purpose,

  contents and presentation is addressed principally by three standards.

  IAS 1 – Presentation of Financial Statements – is the main standard dealing with the

  overall requirements for the presentation of financial statements, including their purpose,

  form, content and structure. IAS 8 – Accounting Policies, Changes in Accounting

  Estimates and Errors – deals with the requirements for the selection and application of

  accounting policies. It also deals with the requirements as to when changes in accounting

  policies should be made, and how such changes should be accounted for and disclosed.

  This chapter deals with the requirements of IAS 1 and IAS 8. Chapter 4 discusses the

  requirements of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations.

  That standard deals with the classification and presentation of non-current assets held for

  sale in the statement of financial position, and the presentation of the results of

  discontinued operations, although it also sets out the measurement requirements for such

  items. Chapter 36 discusses the requirements of IAS 7 – Statement of Cash Flows – for

  the presentation of the statement of cash flows and related disclosures.

  1.1

  Objective and scope of IAS 1

  IAS 1 deals with the components of financial statements, fair presentation, fundamental

  accounting concepts, disclosure of accounting policies, and the structure and content of

  financial statements.

  IAS 1 applies to what it calls ‘general purpose financial statements’ (financial statements),

  that is those intended to meet the needs of users who are not in a position to require an

  entity to prepare reports tailored to meet their particular information needs, and it

  112 Chapter

  3

  should be applied to all such financial statements prepared in accordance with

  International Financial Reporting Standards (IFRSs). [IAS 1.2, 7]. Although International

  Financial Reporting Standards is probably a self-explanatory phrase, both IAS 1 and