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IFRS is easy
M ost people find the layout of each standard boring. Hence, let’s take our time to first
understand the concept of the title and body of each standard. This will help simplify the
mystery behind it.
Carefully read through these to have a clearer view of what each standard entails as explained
below.
Subject matter: this refers to the title or topic of the standard issued, or preferably the subject
of discussion e.g. IAS 1 addresses the Presentation of Financial Statements. While IAS 2 addresses
Inventories.
Objective: this refers to the purpose of issuing the standard. Why did the IASB go through the
stress of producing this standard? What guideline is the standard prepared to provide? –these
are the questions the objective provides answer for.
Scope: this refers to the area of coverage of the standard. What the standard covers and/or what
it fails to cover or address.
Definition: this gives an expression to the accounting meaning of the jargons used in the standard
e.g. the definition of an asset to an accountant is quite different from what it means to a lay-man.
Recognition Criteria: this refers to the basis upon which an element of financial statement
(asset/liability/equity/expense/income) is carried (written/recognized/included) on the face of
the financial statements (Statement of profit or loss account/statement of financial position).
Measurement: this refers to the basis upon which cost is attached to a particular element of the
financial statement. Note that accounting does more of quantitative activities. This is in tandem
with the monetary concept. Hence, what is our basis of attaching value to this element?
Disclosure: this refers to the aspect of disclosing in the notes to the account, both the supporting
explanations and qualitative factors that affect the financial statement with respect to the
element of financial statement discussed. Since we can’t possibly record qualitative factors that
affect the decisions of the stakeholders, then a platform for this has been created –this is referred
to as the disclosures made in the notes. It entails both the quantitative and qualitative
explanations to the elements recognized on the face of the financial statements.
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IFRS is easy
Note that the standards are not limited to the details above. Each standard might have some
additional features discussed. The above are merely general issues addressed by the IASB with
respect to each standard issued.
OBJECTIVE
IAS 1 provides guidelines on the presentation of the “general purpose financial statements” so
as to ensure COMPARABILITY both with the entity’s financial statements of previous periods
and with those of other entities.
It provides overall requirements for the presentation of financial statements, guidance on their
structure and the minimum requirements for their contents.
It also prescribes the components of the financial statements in a bid to generate a complete set
of financial statements.
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IFRS is easy
SCOPE
The requirements of IAS 1 are to be applied to all ‘general purpose financial statements’ that
have been prepared and presented in accordance with IFRS.
It is not applicable to condensed interim financial statements prepared according to IAS 34
DEFINITION
Impracticable: Applying a requirement becomes impracticable when the entity cannot apply a
requirement despite all reasonable efforts to do so.
IFRS: Include Standards and interpretations adopted by the IASB and those issued by them.
These include:
International Financial Reporting Standards e.g. IFRS 1, IFRS 2, IFRS 3, among others
International Accounting Standards e.g. IAS 1, IAS 2, IAS 8, among others
Interpretations issued by the IFRS Interpretation Committee, named IFRIC
Interpretations issued by the defunct Standing Interpretation Committee, named SIC
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Accrual: Accrual basis of accounting should be applied when preparing the financial
statements, except for cash flow information. Under this basis, items are recognized as assets,
liabilities, equity, income, and expenses when they meet the definitions and recognition
criteria.
Offset: Assets and liabilities should not be offset unless it is required or allowed by another
IFRS. However, immaterial gains, losses, and related expenses arising from similar transactions
and events can be offset e.g. Discount allowed (an expense) cannot be subtracted from
Discount received (an income).
Consistency of Presentation: Entities are required to retain their presentation and classification
of items in successive periods unless an alternative would be more appropriate or if so required
by a Standard.
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This is a major reason why land and building will be recorded first, while cash will be treated
as the last figure. Also Equity is recorded first, while the least liability e.g accrued expense is
recorded as the last figure, depending on the organization’s transactions. Hence, all assets
and liabilities should be presented in the order in which they can or might be required to be
liquidated.
Exception: In the case of a bank or similar financial institution, Cash is the most illiquid item.
Hence, it stays on top of the financial statement.
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Current assets
Inventories X
Trade and other receivables X
Other current assets X
Cash and cash equivalents X
Non-current assets held for sale X
Total current assets X
Total assets X
Non-current liabilities
Long-term borrowings X
Deferred tax X
Long-term provisions X
Total non-current liabilities X
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Current liabilities
Trade and other payables X
Short-term borrowings (bank overdraft) X
Current portion of long-term borrowing X
Current tax payable X
Short-term provisions X
Total current liabilities X
Total liabilities X
Total equity and liabilities X
In a single statement of profit or loss and other comprehensive income (in which there
is a sub-total for profit or loss); or
In a separate statement of profit or loss (displaying components of profit or loss) and a
statement of profit or loss and other comprehensive income (beginning with profit or
loss and displaying components of other comprehensive income).
An entity shall recognize all items of income and expense in a period in profit or loss unless an
IFRS requires or permits otherwise.
An entity shall present an analysis of expenses recognized in profit or loss using a classification
based on either their nature or their function within the entity, whichever provides information
that is reliable and more relevant.
However, an entity classifying expenses by the “function of expense” method shall disclose
additional information on the nature of expenses, including depreciation and amortization
expenses and employee benefit.
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Disclosure that the financial statements of an entity comply fully with International
Financial Reporting Standards, this fact should be disclosed;
The judgments 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;
Information about management of capital and compliance with capital requirements.
Dividends proposed or declared before the financial statements were authorized, but
not recognized as distribution during the period
Cumulative preference dividends not recognized
Legal corporate information if not disclosed elsewhere
Domicile and legal form of the entity
Country of incorporation
Address of registered office
Description of nature of entity's operations and principal activities
Name of parent and ultimate parent of group
I hope this material threw more light on the Presentation of Financial Statements –IAS 1.
Watch out for the questions and solutions edition of IAS 1. You’ll be glad you did.
You can get more topics on Financial Reporting on adedamolaotun.blogspot.com.
You are free to drop your comments as well. You can also get a free update of each IFRS blog by
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Regards,
Adedamola Otun
tnadedamola@gmail.com
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