IAS 1 Presentation of Financial Statements

IAS 1 Presentation of Financial Statements prescribes the basis for the presentation of general purpose financial statements to ensure comparability with the entity’s financial statements of previous periods and other entities’ financial statements. It sets out overall requirements for the presentation of financial statements, guidelines for their structure, and minimum requirements for their content.

General Requirements

True and Fair View

Financial statements should present fairly the entity’s financial position, financial performance, and cash flows.

Comparatives

Comparative information for the immediately preceding accounting period should be disclosed (you will not be asked to provide comparative information).

Identification

Each component of the financial statements must be properly identified with the following information displayed prominently:

• The name of the reporting entity
• The date of the end of the reporting period or the period covered by the statement, whichever is appropriate
• The currency in which the figures are reported
• The level of rounding used in the figures (for example, whether the figures are thousands of rupees or millions of rupees).

Other Titles

IAS 1 does not specify what the statements must be called and allows the use of other terminology. For example, a statement of financial position is often called a balance sheet, and a statement of profit or loss is often called an income statement.

Requirements As to Statement of Financial Position

Current and Non-Current Assets

IAS 1 states that an asset should be classified as a current asset if it satisfies any of the following criteria:

• The entity expects to realize the asset or sell or consume it, in its normal operating cycle.
• The asset is held for trading purposes.
• The entity expects to realize the asset within 12 months after the reporting period.
• It is cash or a cash equivalent unless the asset is restricted from being used for at least 12 months after the reporting date. (Note: An example of ‘cash’ is money in a current bank account. An example of a ‘cash equivalent’ is money held in a term deposit account with a bank.)

All other assets should be classified as non-current assets.

This definition allows inventory or trade receivables to qualify as current assets, even if they may not be realized into cash within 12 months, provided that they will be realized in the entity’s normal operating cycle or trading cycle.

Current and Non-Current Liabilities

IAS 1 also states that a liability should be classified as a current liability if it satisfies any of the following criteria:

• The entity expects to settle the liability in its normal operating cycle.
• The liability is held primarily for trading. This means that all trade payables are current liabilities, even if settlement is not due for over 12 months after the end of the reporting period.
• It is due to be settled within 12 months after the end of the reporting period.
• The entity does not have the unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

All other liabilities should be classified as non-current liabilities.

Illustration:

If a company obtains a five-year bank loan, where none of the loan principal is repayable until the end of the loan period, the loan will be a non-current liability for the first four years and will then become a current liability in the fifth year when it is repayable within 12 months.

Accrued expenses (and deferred income) are current liabilities as these are monies due to a third party but not yet paid; for example, wages payable

Operating Cycle

The operating cycle of an entity is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. When the entity’s normal operating cycle is not identifiable, it is assumed to be twelve months. This is almost always the case.

Minimum Face Items

IAS 1 provides a list of items that, as a minimum, must be shown on the face of the statement of financial position as a ‘line item’ (in other words, on a separate line in the statement):

Assets

• Property, plant and equipment
• Investment property
• Intangible assets
• Long-term investments
• Investment in associate
• Biological assets
• Inventories
• Trade and other receivables
• Cash and cash equivalents.

Liabilities

• Trade and other payables
• Provisions
• Financial liabilities, loans, etc.
• Current tax liabilities (but possibly assets)
• Deferred tax liabilities (but possibly assets). These are always non-current.

Frequently Asked Questions