IAS 1: Presentation of Financial Statements

International Accounting Standard 1 (IAS 1) establishes the basis for presenting general-purpose financial statements under International Financial Reporting Standards (IFRS). It promotes comparability between different companies and across reporting periods by mandating a specific structure and set of principles. IAS 1 sets the overall framework for presentation but does not dictate the accounting for specific transactions. For annual reporting periods starting on or after January 1, 2027, IAS 1 will be superseded by IFRS 18, ‘Presentation and Disclosure in Financial Statements,’ though early adoption is permitted.

Required Components of Financial Statements

A complete set of financial statements under IAS 1 includes five components, which must be presented with equal prominence.

• The statement of financial position presents a snapshot of an entity’s assets, liabilities, and equity at a single point in time, and is used for assessing financial structure, liquidity, and solvency.
• The statement of profit or loss and other comprehensive income reports on financial performance over a specific period, such as a quarter or a year.
• The statement of changes in equity details movements in an entity’s equity accounts over the reporting period, reconciling opening and closing balances to show the effects of profit, other comprehensive income, and owner transactions.
• The statement of cash flows shows how an entity generates and uses cash, classified into operating, investing, and financing activities. IAS 1 mandates its inclusion, while detailed rules are in IAS 7.
• The notes to the financial statements provide supplementary information, including narrative descriptions, detailed breakdowns of amounts, and a summary of significant accounting policies.

Overarching Principles of Presentation

IAS 1 establishes several principles for preparing and presenting reliable financial statements under IFRS.

Fair Presentation and Compliance with IFRSs

Financial statements must achieve a fair presentation of an entity’s financial position, performance, and cash flows. Applying IFRS is presumed to result in a fair presentation, and an entity must make an explicit statement of compliance in the notes.

Going Concern

Statements are prepared on a going concern basis, assuming the entity will operate for at least 12 months from the reporting date. Management must assess this ability, and any material uncertainties must be disclosed.

Accrual Basis of Accounting

With the exception of the statement of cash flows, financial statements must use the accrual basis of accounting. This means transactions are recognized when they occur, not when cash is exchanged.

Materiality and Aggregation

Information is material if its omission could influence user decisions. Each material class of similar items must be presented separately, while immaterial items may be aggregated.

Offsetting

Assets and liabilities, as well as income and expenses, cannot be offset unless a specific IFRS requires or permits it. For instance, revenue should be presented at a gross amount.

Frequency of Reporting

An entity must present a complete set of financial statements at least annually. If the reporting period changes, the reason must be disclosed, along with a caution about comparability.

Comparative Information

Comparative information for the preceding period must be presented for all reported amounts. If an entity changes an accounting policy retrospectively, it must also present a third statement of financial position from the beginning of the earliest comparative period.

Consistency of Presentation

The presentation and classification of items should be consistent between periods. A change is justified only if required by an IFRS or if a new presentation provides more reliable and relevant information.

Structure and Minimum Content for Statements

IAS 1 prescribes a structure and minimum content for the primary financial statements to ensure consistency and comparability. These requirements dictate the minimum line items to be presented, though entities can add more if relevant.

Statement of Financial Position

The standard requires a classified statement of financial position, separating current and non-current assets and liabilities. An asset is current if it is expected to be realized within the entity’s normal operating cycle or 12 months of the reporting period. A liability is current if it is due to be settled within 12 months.

IAS 1 mandates minimum line items on the face of the statement, including:

• Property, plant, and equipment
• Investment property
• Intangible assets
• Financial assets
• Inventories
• Trade and other receivables
• Cash and cash equivalents

For liabilities, required lines include trade and other payables, provisions, financial liabilities, and tax liabilities. The equity section must separately show items such as issued capital and reserves.

Statement of Profit or Loss and Other Comprehensive Income

Entities can present performance as a single statement of profit or loss and other comprehensive income, or as two separate statements. If two are used, the profit or loss statement is presented first. The profit or loss section must include line items for revenue, finance costs, tax expense, and post-tax profit or loss from discontinued operations. Expenses must be classified by either their nature (e.g., depreciation) or their function (e.g., cost of sales).

The other comprehensive income (OCI) section presents items not recognized in profit or loss. These items are grouped based on whether they may be reclassified to profit or loss in the future.

Statement of Changes in Equity

The statement of changes in equity reconciles the equity balance from the beginning to the end of the period. For each component of equity, the statement must present total comprehensive income for the period, showing amounts attributable to parent owners and non-controlling interests. It must also detail transactions with owners, such as share issuances and dividend payments.

Requirements for the Notes to the Financial Statements

The notes to the financial statements provide context and detail that cannot be captured in the primary statements. IAS 1 sets requirements for their structure and content to ensure they are organized logically and contain necessary disclosures.

Structure of the Notes

IAS 1 prescribes an order for the notes to enhance usefulness. They must begin with an explicit statement of compliance with IFRS. This is followed by a summary of significant accounting policies. After policies, the notes provide supporting information for line items in the same order as the primary statements, allowing for easy cross-referencing. Other disclosures, such as contingent liabilities, are presented last.

Disclosure of Accounting Policies

This section explains the accounting policies that are material to the financial statements. An entity must disclose the measurement basis, such as historical cost or fair value, used in preparing the statements. It must also describe the specific accounting policies applied that are relevant to understanding the financial statements.

Judgements and Estimation Uncertainty

IAS 1 requires two distinct disclosures in this area. First, an entity must disclose the judgements made when applying its accounting policies that have the most significant effect on recognized amounts. Second, it must disclose information about key assumptions and other major sources of estimation uncertainty at the end of the reporting period. This applies to assumptions with a significant risk of causing a material adjustment to asset and liability carrying amounts within the next financial year.

Other Disclosures

IAS 1 also mandates other disclosures. An entity must disclose its objectives, policies, and processes for managing capital, including quantitative data and compliance with any external capital requirements. Information about dividends proposed or declared before the financial statements were authorized for issue but not recognized as a distribution must also be disclosed.