IAS 1R- Presentation of Financial Statements. Introduction to IFRS / Ind AS

Transcription

1 IAS 1R- Presentation of Financial Statements Introduction to IFRS / Ind AS

2 IAS 1R- Presentation of financial statements

3 Objective 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. Slide 3

4 Fair presentation and compliance 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 Slide 4

5 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 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. Slide 5

6 Components of financial statements 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 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 Slide 6

7 Statement of Financial Position Basis of presentation Classified Balance sheet An entity shall present current and non-current asset, and current and noncurrent 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 Slide 7

8 Statement of Financial Position Current vs. Non-current Classification Current asset Expected to be realised, sold or consumed within entity s normal operating cycle Held primarily for trading purposes Expected to be realised within 12 months after balance sheet date Unrestricted cash or cash equivalent Current liability Expected to be settled within entity s normal operating cycle Held primarily for trading purposes Expected to be settled within 12 months after balance sheet date 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. Slide 8

9 Statement of Financial Position 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 Slide 9

10 Statement of Financial Position Minimum line items 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 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. Slide 10

11 Statement of Financial Position Slide 11

12 Statement of Comprehensive Income Basis of presentation 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). Slide 12

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 Slide 13

14 Statement of Comprehensive Income Minimum line items 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 An entity shall not present any items of income or expense as extraordinary items Slide 14

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) Slide 15

16 Other Comprehensive Income ( OCI ) Components of Other Comprehensive Income 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. All non-owners change in equity are recognised in OCI 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. Items of income and expense are recognised in profit or loss unless standards prescribe or permit otherwise. Slide 16

17 Other Comprehensive Income ( OCI ) Recycling of other comprehensive income Reclassifications ( recycling ) - as required by standards items previously recognised in OCI shall be transferred to Statement of Comprehensive Income Items Revaluation of PPE and intangible assets Actuarial gains/losses on defined benefit plans (optional) FX gains/losses from the translation of foreign operations Gain/losses on revaluation of available-for-sale financial assets Effective portion of gains/losses from cash flow hedges Recycled under IFRS? No No Yes Yes Yes Remarks Decrease can only be recognised in OCI if they reverse previous increments for the same asset Immediate recognition in retained earnings Transfer to P&L required Transfer to P&L required Transfer to P&L or include in cost/carrying amount of non-financial asset or liability (basis adjustment) Slide 17

18 Two statement, by function of expense Slide 18

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. Slide 19

20 Statement of changes in shareholders equity Slide 20

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 Slide 21

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 Slide 22

23 IAS 1R- Presentation of financial statements IAS 7 Cash flow statements

24 Cash flow statements 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 Slide 24

25 Cash flow statements 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 Slide 25

26 Cash flow statements Significant differences between IFRS and IND AS Classification of interest and dividend Other additional disclosures Slide 26

27 IAS 1R- Presentation of financial statements IAS 8 Accounting policies, changes in accounting estimates & errors

28 Accounting policies, changes in accounting estimates & errors 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 Slide 28

29 Accounting policies, changes in accounting estimates & errors Selection of Accounting Policy - Hierarchy 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 Slide 29

30 Accounting policies, changes in accounting estimates & errors What s the big change? 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 Slide 30

31 Accounting policies, changes in accounting estimates & errors Change in Accounting Policy - 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) 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 Slide 31

32 Accounting policies, changes in accounting estimates & errors Correction of Error in previously Issued Financial Statements Errors discovered subsequent to issuance of financial statement reported as a priorperiod 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. Slide 32

33 Thank You