FINANCIAL

STATEMENTS AND
NOTES TO FINANCIAL
STATEMENTS

PAS 1 – Presentation of
Financial Statements
 • IAS 1 Presentation of Financial
Statements sets out the overall requirements
for financial statements, including how they
Objective should be structured, the minimum
of IAS 1 requirements for their content and
overriding concepts such as going concern,
the accrual basis of accounting and the
current/non-current distinction.
The general
purpose
financial
statements
• •General purpose
financial statements are
those intended to serve
users who do not have the
authority to demand
financial reports tailored for
their own needs. General
purpose financial
statements cater to most of
the common needs of a wide
range of external users.
General purpose financial
statements are the subject
matter of the Conceptual
Framework and the PFRSs.
Components of
financial
statements
• A complete set of financial statements includes: (IAS 1.10)
• A statement of financial position (balance sheet) at the
end of the period.
• A statement of profit or loss and other comprehensive
income for the period (presented as a single
statement, or by presenting the profit or loss section in
a separate statement of profit or loss, immediately
followed by the statement of comprehensive income
with profit or loss)
• 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 other explanatory notes
• Comparative information prescribed by the standard.
Components
cont.....
• An entity may use titles for the statements other than those stated
above. All financial statements are required to be presented with
equal prominence. [IAS 1.10]
• When an entity applies an accounting policy
retrospectively or makes a retrospective restatement of
items in its financial statements, or when it reclassifies
items in its financial statements, it must also present a
statement of financial position (balance sheet) as at the
beginning of the earliest comparative period.
• Reports that are presented outside of the financial
statements – including financial reviews by
management, environmental reports, and value added
statements – are outside the scope of IFRSs. [IAS 1.14]
General features
1. Fair Presentation and Compliance with
PFRSs
2. Going concern
3. Accrual basis of accounting
4. Consistency of presentation
5. Materiality and aggregation
6. Offsetting
7. Comparative information
8. Structure and content of financial statements in general
9. Reporting period
Fair presentation and
compliance with IFRSs
• The financial statements must "present fairly" the financial position,
financial performance and cash flows of an entity. Fair presentation
requires the faithful representation of the effects of transactions, other
events, and conditions in accordance with the definitions and recognition
criteria for assets, liabilities, income and expenses set out in the
Framework. The application of IFRSs, with additional disclosure when
necessary, is presumed to result in financial statements that achieve a
fair presentation. [IAS 1.15]
• IAS 1 requires an entity whose financial statements comply with IFRSs to
make an explicit and unreserved statement of such compliance in the
notes. Financial statements cannot be described as complying with IFRSs
unless they comply with all the requirements of IFRSs (which includes
International Financial Reporting Standards, International Accounting
Standards, IFRIC Interpretations and SIC Interpretations). [IAS 1.16]
• Inappropriate accounting policies are not rectified either by disclosure of
the accounting policies used or by notes or explanatory material. [IAS
1.18]
• IAS 1 acknowledges that, in extremely rare circumstances, management
may conclude that compliance with an IFRS requirement would be so
misleading that it would conflict with the objective of financial
statements set out in the Framework. In such a case, the entity is
required to depart from the IFRS requirement, with detailed disclosure of
the nature, reasons, and impact of the departure. [IAS 1.19-21]
Going concern
• The Conceptual Framework notes that financial
statements are normally prepared assuming the
entity is a going concern and will continue in
operation for the foreseeable future. [Conceptual
Framework, paragraph 4.1]
• IAS 1 requires management to make an assessment
of an entity's ability to continue as a going concern.
If management has significant concerns about the
entity's ability to continue as a going concern, the
uncertainties must be disclosed. If management
concludes that the entity is not a going concern, the
financial statements should not be prepared on a
going concern basis, in which case IAS 1 requires a
series of disclosures. [IAS 1.25]
Accrual basis
of accounting
• IAS 1 requires that an entity prepare its
financial statements, except for cash flow
information, using the accrual basis of
accounting. [IAS 1.27]
Consistency of
presentation
• The presentation and classification of
items in the financial statements shall be
retained from one period to the next
unless a change is justified either by a
change in circumstances or a
requirement of a new IFRS. [IAS 1.45]
Materiality and aggregation
• Information is material if omitting, misstating or obscuring it could reasonably
be expected to influence decisions that the primary users of general purpose
financial statements make on the basis of those financial statements, which
provide financial information about a specific reporting entity. [IAS 1.7]*
• Each material class of similar items must be presented separately in the
financial statements. Dissimilar items may be aggregated only if they are
individually immaterial. [IAS 1.29]
• However, information should not be obscured by aggregating or by providing
immaterial information, materiality considerations apply to the all parts of the
financial statements, and even when a standard requires a specific disclosure,
materiality considerations do apply. [IAS 1.30A-31]
• * Clarified by Definition of Material (Amendments to IAS 1 and IAS 8), effective
1 January 2020.
Offsetting

• Assets and liabilities, and

income and expenses,
may not be offset unless
required or permitted by
an IFRS. [IAS 1.32]
 Comparative
information
• IAS 1 requires that comparative information to be disclosed in respect of the
previous period for all amounts reported in the financial statements, both on the
face of the financial statements and in the notes, unless another Standard requires
otherwise. Comparative information is provided for narrative and descriptive where
it is relevant to understanding the financial statements of the current period. [IAS
1.38]
• An entity is required to present at least two of each of the following primary
financial statements: [IAS 1.38A]
• statement of financial position*
• statement of profit or loss and other comprehensive income
• separate statements of profit or loss (where presented)
• statement of cash flows
• statement of changes in equity
• related notes for each of the above items.
• * A third statement of financial position is required to be presented if the entity
retrospectively applies an accounting policy, restates items, or reclassifies items,
and those adjustments had a material effect on the information in the statement of
financial position at the beginning of the comparative period. [IAS 1.40A]
• Where comparative amounts are changed or reclassified, various disclosures are
required. [IAS 1.41]
Structure and content of
financial statements in general
• IAS 1 requires an entity to clearly identify: [IAS 1.49-51]
• the financial statements, which must be distinguished from other
information in a published document
• each financial statement and the notes to the financial statements.
• In addition, the following information must be displayed prominently,
and repeated as necessary: [IAS 1.51]
• the name of the reporting entity and any change in the name
• whether the financial statements are a group of entities or an
individual entity
• information about the reporting period
• the presentation currency (as defined by IAS 21 The Effects of
Changes in Foreign Exchange Rates)
• the level of rounding used (e.g. thousands, millions).
Reporting Period
• Frequency of reporting – An entity shall present a complete
set of financial statements (including comparative information)
at least annually.
• When an entity changes the end of its reporting period and
presents financial statements for a period longer or shorter
than one year, an entity shall disclose the following:
• The period covered by the financial statements,
• The reason for using a longer or shorter period, and
• The fact that amounts presented in the financial statements
are not entirely comparable.
 • A Statement of Financial Position (which is
also called the statement of financial
condition or the Balance Sheet) reports the
Statement financial position of an entity at a particular
date.​
of • A statement of financial position is a
financial summary of an entity's economic
resources (assets), economic
position obligations (liabilities), and equity and their
relationships to each other at a moment in
(balance time, which is the end of the reporting period.​
• It is for this reason that it is generally
sheet) described as a detailed expression of the
basic accounting equation:​
• Assets = Liabilities + Equity.​
Statement of
financial
position
• A statement of financial position
may be presented as either
• Classified – showing
distinctions between current
and noncurrent assets and
liabilities, or
• Unclassified (based on
liquidity) – showing no
distinction between current
and noncurrent items
Additional
Statement of
financial position
• An additional statement of financial
position is presented as at the beginning
of the preceding period when an entity:
• Applies an accounting policy
retrospectively, or
• Makes a retrospective restatement
of items in its financial statements,
or
• reclassifies items in its financial
statements.

…..and the effect of the event to the

statement of financial position as at the
beginning of the preceding period is
material.
Purpose of a Statement
of Financial Position​
• The purpose of a statement of financial position
is to provide information about an entity’s
financial position, by summarizing the entity’s
assets, liabilities and equity. It thus provides
the basic information for evaluating an entity’s
capital structure and analyzing its liquidity,
solvency and financial flexibility and
also provides a basis for computing rates of
return and measures of solvency and liquidity.​
Forms of Statement of
Financial Position
• Account form – which looks like a big T-account, where assets
are listed on the left side of the statement, while liabilities
and equity are listed on the right side.
• Report form – which is a continuous format of presenting all
the three elements. Liabilities are presented immediately
after total assets and equity accounts are listed after the
liabilities section.
• Financial position form – which emphasizes the working
capital of the firm. Working capital is current assets less
current liabilities. in this format of the statement of position,
net assets are equal to equity.
STATEMENT OF
COMPREHENSIVE INCOME
• The statement of comprehensive income presents the performance of the entity for a given period.

• It presents two elements: 1) income and 2) expenses

• Income – Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or
decreases of liabilities that result in increases in equity, other than those relating to contributions from shareholders.
• Income includes both revenues and gains.
• Revenues - ordinary activities of a company
• Sales
• Fee revenue
• Interest revenue
• Dividend revenue
• Rent revenue
• Gains - may or may not arise from ordinary activities.
• Gains on the sale of long-term assets
• Unrealized gains on trading securities.

• The statement presenting the financial performance of an entity is an expended statement in two sections: the profit or loss section (which is the
conventional income statement) and the other comprehensive income section.

• The income statement may be prepared using any of these two forms:
• One statement form that includes both the profit or loss and the other comprehensive income; or
• Two-statement format: one statement for the profit or loss reported in the first statement and other comprehensive income.
Income from continuing operations
Statement of Comprehensive
income cont...

• Com­pre­hen­sive income is defined as "the change in equity during a period resulting from trans­ac­tions and other events,
other than those changes resulting from trans­ac­tions with owners in their capacity as owners".
• Comprehensive Income = Net Income + Other Comprehensive Income
• The expenses in the profit or loss section (or the section of the income statement) may be presented using either of the two methods:
• The function of expense method
• May be used by an entity engaged either in merchandising or manufacturing activity. Under this method, expenses are
classified under cost of goods sold, selling or marketing and general and administrative expenses and other operating
expenses.
• The nature of expense method
• May be used by an entity engaged in any type of business activity.
• Under this method, there is no need to classify the expenses by function.
• Expenses are presented based on their account name in the general ledger.
• They are presented as salaries expense, amortization expense and other operating expenses.
Statement of Profit or
Loss
• The profit and loss (P&L) statement is a financial statement that
summarizes the revenues, costs, and expenses incurred during a
specified period, usually a fiscal quarter or year. The P&L statement is
synonymous with the income statement.
• These records provide information about a company's ability or
inability to generate profit by increasing revenue, reducing costs,
or both. Some refer to the P&L statement as a statement of profit
and loss, income statement, statement of operations, statement
of financial results or income, earnings statement or expense
statement.
• Usefulness
• Evaluate past performance.
• Predicting future performance.
• Help assess the risk or uncertainty of achieving future cash flows.
Statement of comprehensive
income cont.....
• Whichever method is adopted by an entity,
interest expenses or finance costs is required
to be presented as a line item in profit or loss.
• Income tax expense is likewise presented
separately.
• Enterprises classified as large and/or small,
publicly accountable entities are required to
present on the face of the statement of
comprehensive income figures for earnings
per share.
• Earnings per share indicate the profit earned
by a holder of one ordinary share capital.
Finance cost
Additional items that
may need disclosure:
• Losses on write-downs of inventories to net
realizable value or of property, plant, and
equipment to recoverable amount, as well as
reversals of such write-downs.
• Losses on restructurings of the activities and
reversals of any provisions for the costs of
restructuring.
• Gains or losses on the disposal of items of
property, plant, and, equipment or investments.
• Litigation settlements.
• Other reversals of liabilities.
Other Comprehensive
Income
• Other comprehensive income is comprised of revenues,
expenses, gains and losses that, according to the GAAP and
PFRS, are excluded from net income on the income
statements.
• Revenues, expenses, gains and losses that are reported as
other comprehensive income are only those that have not
been realized yet.
• Common items included in the account include:
• Gains or losses on investments available for sale
• Gains or losses on derivatives held as cash flow hedges
• Foreign currency exchange gains or losses
• Pension plan gains or losses
Discontinued
Operations
• A component of an entity that either has been disposed of, or is classified as
held-for-sale, and:
• Represents a major line of business or geographical area of operations, or
• Is part of a single, co-coordinated plan to dispose of a major line of
business or geographical area of operations, or
• Is a subsidiary acquired exclusively with a view to resell.
Companies report as discontinued operations
• (in a separate income statement category) the gain or loss from disposal
of a component of a business.
• The results of operations of a component that has been or will be disposed
of separately from continuing operations.
• The effects of discontinued operations net of tax, as a separate category
after continuing operations.
• A company that reports a discontinued operation must report per share amounts
for the line item either on the face of the income statement or in the notes to the
financial statements.
 • Relates the income tax expense to the specific items
that give rise to the amount of the tax expense.

Intraperiod Tax • On the income statement, income tax is allocated to:

Allocation • (1)
• (2)
Income from continuing operations before tax
Discontinued operations
Allocation to Non-Controlling Interest
STATEMENT OF CASH
FLOWS
• The statement of cash flows, or the cash flow statement, is a
financial statement that summarizes the amount of cash and cash
equivalents entering and leaving a company.
• The cash flow statement (CFS) measures how well a company
manages its cash position, meaning how well the company
generates cash to pay its debt obligations and fund its operating
expenses. The cash flow statement complements the balance
sheet and income statement and is a mandatory part of a
company's financial reports.
• PAS 7 Statement of Cash Flows requires an entity to present a
statement of cash flows as an integral part of its primary financial
state­ments. Cash flows are clas­si­fied and presented into operating
ac­tiv­i­ties (either using the 'direct' or 'indirect' method), investing ac­
tiv­i­ties or financing ac­tiv­i­ties, with the latter two cat­e­gories
generally presented on a gross basis.
Objective
 • Comparative statements of financial position.
Sources of • An analysis of the Retained Earnings.
Information • Writedowns, amortization charges, and similar “book”
for the entries, such as depreciation, because they have no
effect on cash.
Statement • The basis recommended by the IASB for the statement
of Cash of cash flows is actually “cash and cash equivalents.”
Cash equivalents are short-term, highly liquid
Flows investments that are both:
• Readily convertible to known amounts of cash, and
• So near their maturity that they present insignificant
risk of changes in value (e.g., due to changes in
interest rates).
• Generally, only investments with original maturities of
three months or less qualify under this definition
 • Operating Activities - Income Statement
Transactions
Classification
or Activities of • Investing Activities - Changes in
Cash Flows Investments and Long-Term Asset Items

• Financing Activities - Changes in Non-

trade Liabilities and Stockholders’ Equity
Presentation:

• Operating activities - Direct / Indirect method

• Investing activities - Direct
• Financing activities - Direct

• Report inflows and outflows from investing and financing

activities separately.
• Reconciliation of financing balances
• Entities must reconcile the opening and closing amounts in the
statement of financial position for items classified as financing
activities.
Operating Activities –Income Statement Items
Indirect Method – Adjustments needed to
Direct Method determine Net Cash Flow from Operating
Investing & Financing
Significant Non-Cash
Transactions
• Common non-cash transactions that a company
should disclose:
• Acquisition of assets by assuming liabilities
(including finance lease obligations) or by issuing
equity securities.
• Exchanges of non-monetary assets.
• Refinancing of long-term debt.
• Conversion of debt or preference shares to
ordinary shares.
• Issuance of equity securities to retire debt.
Special
Disclosures
• PFRS requires companies to disclose:
• Cash paid for taxes.
• Cash flows from interest and
dividends received and paid.
STATEMENT OF CHANGES IN
EQUITY

• The Statement of changes in equity shows the movement of each equity

component during the reporting period.
• The final figures of these equity components are presented in the statement
of financial position under the equity portion.
• The statement of changes in equity is required to show the total
comprehensive income for the period; the effects on each component of
equity of retrospective application or retrospective restatement in
accordance with IAS 8; and for each component of equity, a reconciliation
between the opening and closing balances, disclosing each change
separately.
NOTES TO THE
FINANCIAL
STATEMENTS
• The notes must include information about the accounting policies
followed;
• the judgements that management has made in the process of
applying the entity’s accounting policies that have the most
significant effect on the amounts recognized in the financial
statements;
• sources of estimation uncertainty; and
• management of capital and compliance with capital
requirements.
• Supporting schedules for line items presented on the face of the
financial statements. Examples are schedules presenting
the details of the balances of inventories, ppe, intangible assets.
• Other disclosures, including contingent liabilities, contractual
commitments, and events after the reporting period which may
be relevant to the decisions to be made by and evaluation of
users.