17/01/2018

CHAPTER 3

PRESENTATION OF FINANCIAL
STATEMENTS

Connolly – International Financial Accounting and Reporting – 4th Edition

3.1 INTRODUCTION

• Relate to legal and conceptual frameworks for financial

reporting

• Principles of financial reporting (See Section 3.2)

• Structure and content of financial statements (IAS 1

Presentation of Financial Statements) (See Section 3.3)

Connolly – International Financial Accounting and Reporting – 4th Edition

3.2 PRINCIPLES OF FINANCIAL REPORTING

• The purpose of financial statements is to provide information
about the financial position, financial performance and
cash flows of an entity that is useful to a wide range of
users in making economic decisions
• IAS 1 Presentation of Financial Statements
 Prescribes the basis for the presentation of general
purpose financial statements to ensure comparability
between the enterprise’s own financial statements of
previous periods and with the financial statements of
other enterprises
 Applies to the presentation of all general purpose
financial statements prepared and presented in
accordance with IASs/IFRSs
Connolly – International Financial Accounting and Reporting – 4th Edition

1
 17/01/2018

3.2 PRINCIPLES OF FINANCIAL REPORTING

• Fair presentation and compliance with IASs/IFRSs (See

next)
• Going concern (See later)
• Accruals basis of accounting (See later)
• Consistency of presentation (See later)
• Materiality and aggregation (See later)
• Offsetting (See later)
• Comparative information (See later)

Connolly – International Financial Accounting and Reporting – 4th Edition

Fair presentation and compliance with IASs/IFRSs

• Financial statements are required to present fairly the

financial position, financial performance and cash flows of an
enterprise
• Compliance with IASs/IFRSs will result in financial
statements that achieve fair presentation in virtually all
circumstances
• If financial statements comply with IASs/IFRSs, they must
state that fact
• Financial statements must not be described as complying
with IASs/IFRSs unless they comply with each applicable
IAS/IFRS and each applicable SIC Interpretation

Connolly – International Financial Accounting and Reporting – 4th Edition

Fair presentation and compliance with IASs/IFRSs

• Fair presentation override

 Non-compliance with a requirement in a standard is
permitted where, in management’s opinion, compliance
would be misleading and would not give a fair
presentation
 This is expected to be extremely rare and would need to
be accompanied by detailed disclosures outlining the
reason for, the nature of, and the financial effect of the
non-compliance

Connolly – International Financial Accounting and Reporting – 4th Edition

2
 17/01/2018

Going concern

• Going concern must be assessed at each reporting date and

must be prepared on that basis, unless management either
intends to liquidate the enterprise or to cease trading, or has
no realistic alternative
• If going concern basis is not applied, must state that fact,
explain why and state the basis on which the financial
statements have been prepared

Connolly – International Financial Accounting and Reporting – 4th Edition

Accruals basis of accounting

• The accrual basis should be applied in the preparation of

financial statements, except the statement of cash flows

Connolly – International Financial Accounting and Reporting – 4th Edition

Consistency of presentation

• The presentation and classification of items should be

retained from one period to the next unless:
 the enterprise significantly changes the nature of its
operations or identifies that a change will result in a more
appropriate presentation
 a change is required by an IAS/IFRS or a SIC
Interpretation

Connolly – International Financial Accounting and Reporting – 4th Edition

3
 17/01/2018

Materiality and aggregation

• IASs/IFRSs apply to only material items

• Material items should be presented separately
• Immaterial items are to be aggregated with amounts of a
similar nature and function

Connolly – International Financial Accounting and Reporting – 4th Edition

Offsetting

• Not permitted in respect of assets and liabilities unless

specifically required or permitted by another IAS/IFRS
• Income and expense items are to be offset only:
 if an IAS/IFRS requires or permits; or
 gains, losses and related expenses arising from the same
or similar transactions and events are not material

Connolly – International Financial Accounting and Reporting – 4th Edition

Comparative information

• Comparatives are required for the previous period unless

specifically exempted in another IAS/IFRS
• Comparatives must be reclassified if the presentation and
classification in the financial statements is amended, unless
it is impracticable to do so

Connolly – International Financial Accounting and Reporting – 4th Edition

4
 17/01/2018

3.3 STRUCTURE AND CONTENT OF FINANCIAL

STATEMENTS

• The annual report and financial statements consist of:

 The financial statements
o Statement of financial position (See later)
o Statement of profit or loss and other comprehensive
income (See later)
o Statement of changes in equity (See later)
o Statement of cash flows.
 Notes to the financial statements, including accounting
policies (See later)
 Other narrative information (e.g. directors’ report)

Connolly – International Financial Accounting and Reporting – 4th Edition

2.3 STRUCTURE AND CONTENT OF FINANCIAL

STATEMENTS

• The financial statements must be clearly identified and

distinguished from other information in the financial report
• Each component of the financial statements must be clearly
identified and the following disclosed:
 Name of the enterprise
 Whether individual or consolidated statements
 Reporting date or period covered by the statement
 Reporting currency
 The level of precision in the presentation of figures
• Where, in exceptional circumstances, an enterprise is
required to, or decides to, change its reporting date, it is
required to state why the change occurred and the fact that
the comparative amounts are not comparable
Connolly – International Financial Accounting and Reporting – 4th Edition

Statement of financial position

• IAS 1 specifies the asset, liability and equity line items that
must, as a minimum, be presented on the face of the SFP

• Additional line items, headings and sub-totals are to be

presented on the face of the SFP if required by another IAS
or if considered necessary to present fairly the enterprise’s
financial position

Connolly – International Financial Accounting and Reporting – 4th Edition

5
 17/01/2018

Example: Statement of Financial Position

XYZ Group – Statement of Financial Position as at 31st December 2014
(excluding comparatives)

2014 2014
€’000 €’000
ASSETS
Non-current Assets
Property, plant and equipment X
Goodwill X
Other intangible assets X
Investments in associates X
Biological assets X
X
Current Assets
Inventories X
Trade and other receivables X
Prepayments X
Cash and cash equivalents X
X
Total Assets X

Connolly – International Financial Accounting and Reporting – 4th Edition

Example: Statement of Financial Position

XYZ Group – Statement of Financial Position as at 31st December 2014
(excluding comparatives)
2014 2014
€’000 €’000
EQUITY AND LIABILITIES
Equity Attributable to Owners of the Parent
Issued share capital X
Retained earnings X
Other components of equity X
X
Non-controlling interests X
Non Current Liabilities
Long-term borrowings X
Deferred tax X
Provisions X
X
Current Liabilities
Bank overdraft X
Trade and other payables X
Current portion of long-term borrowings X
Tax payable X
X
Total Equity and Liabilities X

Connolly – International Financial Accounting and Reporting – 4th Edition

Statement of financial position

• Further sub-classifications of the line items presented on the

face of the SFP can be given, with amounts payable to and
receivable from related parties being disclosed separately
• Assets and liabilities can be presented either on a
current/non-current basis or in order of their liquidity
• Must disclose the amounts of assets and liabilities expected
to be recovered or settled after more than twelve months
from end of reporting period
• Detailed disclosures relating to equity line items are required

Connolly – International Financial Accounting and Reporting – 4th Edition

6
 17/01/2018

Statement of financial position

• Current assets are assets that are:

 expected to be realised, consumed or disposed of in
the normal course of the enterprise’s operating cycle;
or
 held primarily for trading purposes or the short-term
and expected to be realised within 12 months of end of
reporting period; or
 a cash or cash equivalent asset not restricted in its use

Connolly – International Financial Accounting and Reporting – 4th Edition

Statement of financial position

• Current liabilities are liabilities that are:

 expected to be settled in the normal course of the
enterprise’s operating cycle; or
 due to be settled within 12 months of end of reporting
period

• Long-term borrowings continue to be classified as long-

term even if due for settlement within 12 months provided
that the enterprise has the intention and ability to ‘roll over’
the obligation

Connolly – International Financial Accounting and Reporting – 4th Edition

Statement of profit or loss and other comprehensive income

• IAS 1 specifies the line items that, as a minimum, should

be presented on the face of the SPLOCI
• Additional line items, headings and sub-totals are to be
presented on the face of the SPLOCI if required by
another IAS/IFRS or if considered necessary to present
fairly the enterprise’s financial performance

Connolly – International Financial Accounting and Reporting – 4th Edition

7
 17/01/2018

Example: Statement of Profit or Loss and Other Comprehensive Income

XYZ Group – Statement of Profit or Loss and Other Comprehensive Income for the Year
Ended 31st December 2014 (excluding comparatives) (classification of expenses by function)

2014
€’000
Revenue X
Cost of sales (X)
Gross profit X
Other operating income X
Distribution costs (X)
Administrative expenses (X)
Profit from operations X
Finance costs (X)
Share of profit/(loss) of associates X
Profit before tax X
Income tax expense (X)
Profit for the year X
Other Comprehensive Income:

Continued ....

Connolly – International Financial Accounting and Reporting – 4th Edition

Example: Statement of Profit or Loss and Other Comprehensive Income

XYZ Group – Statement of Profit or Loss and Other Comprehensive Income for the Year
Ended 31st December 2014 (excluding comparatives) (classification of expenses by function)
2014
€’000
Other comprehensive income:
Items that may be reclassified into profit or loss:
Foreign exchange gains arising from the translation of foreign operations X
Items that will not be reclassified into profit or loss
Gain/(loss) on property revaluation X
Other comprehensive income for year X
Total comprehensive income for year X

Profit/(loss) attributable to:

Owners of the parent X
Non-controlling interests X
X

Total comprehensive income/(loss) attributable to:

Owners of the parent X
Non-controlling interests X
X

Connolly – International Financial Accounting and Reporting – 4th Edition

Statement of profit or loss and other comprehensive income

• Additional information disclosed on face of the SPLOCI or in

the notes
 An analysis of expenses using a classification based on
either the nature of expenses or their function within the
enterprise
 If functional classification adopted, must also disclose
information on the nature of expenses, including
depreciation and staff costs
 Dividends per share (declared or proposed)

Connolly – International Financial Accounting and Reporting – 4th Edition

8
 17/01/2018

Statement of changes in equity

• Third component of a set of financial statements

• Components that make up comprehensive income must not
be shown in the statement of changes in equity (only totals
shown)
• Main purpose is to show the amounts of transactions with
owners (e.g. shares and dividends) and to reconcile opening
and closing balance of each equity and reserve

Connolly – International Financial Accounting and Reporting – 4th Edition

Statement of changes in equity

Share Other Retained
Capital Reserves Earnings Total
€’000 €’000 €’000 €’000
Opening balance x x x x
Changes in accounting policy - - x x
Restated balance x x x x

Changes in equity for year

Dividends (x) (x)
Total comprehensive income x x x
Issue of share capital x - - x
Total changes in equity x x x x

Closing balance x x x x

Connolly – International Financial Accounting and Reporting – 4th Edition

Notes to the financial statements

• Must include accounting policies, identifying the

measurement basis used in preparing the financial
statements and the significant accounting policies adopted
• Must include other information required by IASs/IFRSs or
necessary for a fair presentation
• Other disclosures include information about the enterprise if
not disclosed elsewhere in information published with the
financial statements (e.g. the domicile and legal form of the
enterprise, principal activities, number of employees)

Connolly – International Financial Accounting and Reporting – 4th Edition