Post on 19-Jul-2018
transcript
IAS 1R- Presentation of Financial Statements Introduction to IFRS / Ind AS
IAS 1R- Presentation of financial statements
Slide 3
The objective of this Standard is to prescribe the basis for presentation of
general purpose financial statements, to ensure comparability both with the
entity's financial statements of previous periods and with the financial
statements of other entities. To achieve this objective, this Standard sets out
overall requirements for the presentation of financial statements, guidelines for
their structure and minimum requirements for their content.
Objective
Presentation of financial statements
Slide 4
• An entity whose financial statements comply with IFRSs shall make an explicit and
unreserved statement of such compliance in the notes. An entity shall not describe financial statements as complying with IFRSs unless they comply with all the
requirements of IFRSs.
• An entity cannot rectify inappropriate accounting policies either by disclosure of the
accounting policies used or by notes or explanatory material.
• In the extremely rare circumstances in which management concludes that
compliance with a requirement in an IFRS would be so misleading that it would
conflict with the objective of financial statements set out in the Framework, the entity
shall depart from that requirement. However the entity is required to make specific
disclosures prescribed under IAS 1R
Fair presentation and compliance
Presentation of financial statements
Slide 5
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, the entity is required to disclose a statement of financial position
as at the beginning of the earliest comparative period.
Comparative information
• Comparatives required for all numerical information
• Comparatives required for narrative and descriptive information when it is relevant to an understanding of the current period’s financial statement
• Additional statement of financial position
Presentation of financial statements
Slide 6
A complete set of financial statements comprises
• The primary statements
- Statement of financial position for the period end
- Statement of comprehensive income for the period
- Statement of changes in equity for the period
- Statement of cash flows for the period
• Notes, including summary of accounting policies and other explanatory information
Components of financial statements
An entity may use titles for the statements other than those prescribed in IAS 1R, however the titles used shall not be misleading.
All primary statements of equal prominence
Presentation of financial statements
Slide 7
Statement of Financial Position
Basis of presentation
Classified Balance sheet An entity shall present current and non-current asset, and current and non- current liability as separate classification on the face of the statement of financial position Exception to above rule • When a presentation based on liquidity provides information that is reliable
and more relevant. • All assets and liabilities are required to be presented in the order of liquidity. Choice driven by type of business
• Manufacturers and retailers → current/non-current basis
• Financial institutions, banks and real estate companies → liquidity basis
Presentation of financial statements
Slide 8
Current vs. Non-current Classification
Current asset Current liability
Expected to be realised, sold or consumed
within entity’s normal operating cycle
Expected to be settled within entity’s normal operating cycle
Held primarily for trading purposes Held primarily for trading purposes
Expected to be realised within 12 months after
balance sheet date
Expected to be settled within 12 months after
balance sheet date
Unrestricted cash or cash equivalent No unconditional right to defer settlement for
at least 12 months after balance sheet date
An entity shall classify all
other assets as
non-current.
An entity shall classify all
other liabilities as
non-current.
Statement of Financial Position
Presentation of financial statements
Slide 9
Operating cycle
Definition
“the operating cycle of an entity is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents” • Items realised, sold or consumed within operating cycle are current items
• Operating cycle may be more than 12 months
Statement of Financial Position
Presentation of financial statements
Slide 10
• Property, plant and equipment
• Investment property
• Intangible assets
• Financial assets (other than those shown on other line items)
• Investments accounted for using the equity method
• Biological assets
• Inventories
• Trade and other receivables
• Cash and cash equivalents
• Held for sale assets and assets included in disposal groups
• Trade and other payables
• Provisions
• Financial liabilities (other than those shown on other line items)
• Current tax assets and liabilities
• Deferred tax assets and liabilities
• Liabilities included in disposal groups
• Minority interest
• Issued capital and reserves attributable to owners of the parent
Minimum line items
An entity shall present additional line items, headings and subtotals in the statement of financial
position when such presentation is relevant to an understanding of the entity's financial position.
Statement of Financial Position
Presentation of financial statements
Slide 11
Statement of Financial Position
Presentation of financial statements
Slide 12
Statement of Comprehensive Income
An entity shall present all items of income and expense recognised in a period
• 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 profit or loss and displaying components of other comprehensive income (statement of comprehensive income).
Basis of presentation
Presentation of financial statements
Slide 13
Statement of Comprehensive Income
Application of the requirement to analyse expenses
• Choose most relevant presentation analysis method by:
- Function - usually used by manufacturers, retailers, etc.
- Nature - usually used by financial institutions, etc.
• If analysis by function is provided, additional note disclosures analysing the nature of expenses is required
Presentation of financial statements
Slide 14
Statement of Comprehensive Income
• Revenue
• Finance costs
• Share of profit or loss of associates and joint ventures
• Tax expense
• Discontinued operations
• Profit or loss
• Profit or loss attributable to:
- Minority interest
- Owners of the parent
• Each component of other comprehensive income by nature
• Share of other comprehensive income of associates and joint ventures
• Total comprehensive income attributable to:
- Minority interest
- Owners of the parent
Minimum line items
An entity shall not present any items of income or expense as extraordinary items
Presentation of financial statements
Slide 15
Statement of Comprehensive Income
Additional line items, headings and sub-totals
• Required when relevant to an understanding of performance
• Description and order of line items amended where necessary to explain elements of performance
• Framework qualitative characteristics of financial statements
- Understandability
- Relevance
- Reliability
- Comparability
• Undefined terms may be used where relevant to an understanding (subject to meeting qualitative characteristics)
Presentation of financial statements
Slide 16
Other Comprehensive Income (‘OCI’)
• Changes in revaluation surplus (on account of PPE and intangibles)
• Actuarial gains and losses on defined benefit plans recognised in full in equity, if the entity elects the option available under IAS 19
• Gains and losses arising from translation of a foreign operation
• Gains and losses on re-measuring available-for-sale financial assets
• Effective portion of gains and losses on hedging instruments in a cash flow hedge.
Items of income and expense are recognised in profit or loss unless standards
prescribe or permit otherwise.
Components of Other Comprehensive Income
Components of OCI shall be presented either net of related taxes or at gross of
related tax with one amount representing aggregate amount of income tax relating to
those components.
All non-owners change in equity are recognised in OCI
Presentation of financial statements
Slide 17
Other Comprehensive Income (‘OCI’)
‘Recycling’ of other comprehensive income
Items Recycled under
IFRS? Remarks
Revaluation of PPE and intangible assets
No Decrease can only be recognised in OCI if they reverse previous increments for the same asset
Actuarial gains/losses on defined benefit plans (optional)
No Immediate recognition in retained earnings
FX gains/losses from the translation of foreign operations
Yes Transfer to P&L required
Gain/losses on revaluation of available-for-sale financial assets
Yes Transfer to P&L required
Effective portion of gains/losses from cash flow hedges
Yes Transfer to P&L or include in cost/carrying amount of non-financial asset or liability (basis adjustment)
Reclassifications (‘recycling’) - as required by standards items previously recognised in OCI shall be transferred to Statement of Comprehensive Income
Presentation of financial statements
Slide 18
Two statement, by function of expense
Presentation of financial statements
Slide 19
Statement of changes in shareholders’ equity
• This statement shows movements/ transactions during the reporting period that have
affected the shareholders’ equity.
• It is generally tabular in approach with the various categories of equity across the top
common shares, additional paid-in capital, retained earnings, other reserves.
• The transactions are listed line by line and include amongst others – net income for
the year, cumulative translation adjustments (if applicable), issue of shares,
dividends paid, other movements in shares.
• The outcome is a reconciliation in the movement of each category of shareholder’s equity from one period to the next.
Presentation of financial statements
Slide 20
Statement of changes in shareholders’ equity
Presentation of financial statements
Slide 21
Notes to financial statements
Notes to financial statements comprise of:
• Background of the Company
• Significant accounting policies
• Accounting estimates
• Changes in accounting policies
• Concentration of risks
• Schedule of individual material items on B/s, I/s, CF and Sh Equity
• Explanation of material transaction e.g., acquisition, disposal.
• Recently issued pronouncements and their implications
Presentation of financial statements
Slide 22
Significant differences between IFRS and IND AS
• Single statement of profit and loss
• Statement of changes in equity
• Classification of expenses recognized in profit and loss
Presentation of financial statements
IAS 1R- Presentation of financial statements IAS 7 – Cash flow statements
Slide 24
Statement of cash flows
Cash and cash equivalents
• Cash equivalents are short-term, highly liquid
investments that are readily convertible to
known amounts of cash and so near their
maturity that they present insignificant risk of
changes in value because of changes in
interest rates.
• Generally, only investments with original
maturities of three months or less qualify as
cash equivalents. They may also include
bank overdrafts. Under Indian GAAP bank
overdrafts are excluded from cash and cash
equivalents
• Examples: fixed deposits, Treasury bills,
commercial paper etc.
• Requires disclosure of policy used for
determining items treated as ‘cash equivalents’
Cash flow statements
Slide 25
Statement of cash flows
Direct versus Indirect Method
• Enterprise may choose to report the cash flow from operating activity by using
either the direct or the indirect method
• Reconciliation of net income and net cash flow from operating activity is required to
be provided if the direct method is used
Net Cash provided by or used in:
• Operating activities
• Investing activities
• Financing activities
• Net increase (decrease) in cash and cash equivalent
Cash flow statements
Slide 26
Significant differences between IFRS and IND AS
• Classification of interest and dividend
• Other additional disclosures
Cash flow statements
IAS 1R- Presentation of financial statements IAS 8 – Accounting policies, changes in accounting estimates & errors
Slide 28
Introduction
IFRS
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
Indian GAAP
AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting
Policies
Accounting policies, changes in accounting estimates & errors
Slide 29
• Prescribed Standard or Interpretation – IFRS, IAS, IFRIC, SIC
• Any relevant Implementation Guidance issued by the IASB for the Standard or
Interpretation – (technically not a part of the standards)
• Guidance for similar or related issue
• Framework of IFRS
• Most recent pronouncements of other standard-setting bodies
• Other accounting literature and accepted industry practices
• Onus on management - select policy to make financials relevant & reliable
Selection of Accounting Policy - Hierarchy
Accounting policies, changes in accounting estimates & errors
Slide 30
Accounting policies change: retrospective application
Accounting estimate change: Prospective application
• Change in depreciation method = prospective
Correction of errors: retrospective application
Management cannot assert compliance with IFRS if financial statements does
not comply with all prescribed accounting standards
What’s the big change?
Accounting policies, changes in accounting estimates & errors
Slide 31
Change in Accounting Policy
Following are not changes in accounting policies:
Accounting policy for transactions that differ in substance from those previously occurring; and
Application of a new accounting policy for transactions that did not occur previously or were immaterial.
Retrospective application to all prior periods unless impracticable
- Change in inventory valuation method (i.e., from LIFO to FIFO)
- Change in method of amortizing actuarial gains and losses
- Change in method of presenting the statement of cash flows (i.e., direct vs. indirect)
Accounting policies, changes in accounting estimates & errors
Slide 32
Correction of Error in previously Issued Financial Statements
Errors discovered subsequent to issuance of financial statement reported as a prior-
period adjustment by restating previously issued financial statements.
Example
• Corrections of mistakes in the application of IFRS
• Corrections of mathematical mistakes
• Oversight or misuse of facts that existed at the time the financial statements were
prepared.
Accounting policies, changes in accounting estimates & errors
Thank You