IFRS Conceptual Framework

The purpose of IFRS Conceptual Framework is threefold:

• It aids users of financial statements in consistently and coherently understanding and applying IFRS standards.
• It guides the preparers in selecting accounting policies when specific standards are absent.
• It supports the IASB in developing future accounting standards and reviewing existing ones, consistency across all standards.

  Moreover, the IFRS Conceptual Framework emphasizes several qualitative characteristics essential to financial statements:

• Relevance
• Materiality
• Faithfull representation
• Comparability
• Verifiability
• Timeliness
• Understandability

  These characteristics enhance the usefulness and reliability of financial information for stakeholders.  

International Accounting Standards – 1

IAS1 is a financial reporting standard issued by the International Accounting Standards Board (IASB), that outlines the principles for the presentation of the financial statements which includes the structure, content and disclosure requirements. Its main objective is to ensure that financial statements provide relevant and reliable information to users for making informed economic decisions.   International Accounting Standards 1 outlines the structure and the content of financial statements. The key components include:

• Statement of Financial Position (SOFP)
• Statement of Profit or Loss and Other Comprehensive Income (P&L and OCI)
• Statement of Changes in Equity
• Statement of Cash Flows
• Notes to the Financial Statements

 

Statement of Financial Position (SOFP)

In the statement of financial position, an entity is required to distinguish between current and non-current assets, presenting them as separate classifications. However, if a presentation based on liquidity offers more relevant and reliable information, all assets and liabilities should be broadly ordered by liquidity.   IAS1 delineates between current and non-current assets and liabilities by defining the term current asset or current liability as follows: Current Assets:

1. Assets expected to be realized or intended for sale and consumption in the entity’s normal operating cycle.
2. Assets are held primarily for trading purposes.
3. Assets due to be realized within 12 months.
4. Cash or cash equivalents not subject to exchange restrictions.

  Current Liabilities:

1. Liabilities expected to be settled in the entity’s normal operating cycle.
2. Liabilities are held primarily for trading purposes.
3. Liabilities due to be settled within 12 months.
4. Liabilities for which the entity does not have the right, at the end of the reporting period, to defer settlement for at least 12 months.

Any assets or liabilities not falling under these criteria are classified as non-current.  

Statement of Profit or Loss

IAS1 permits the presentation of income and expense items in two formats:

1. Single Statement Approach: Where both profit or loss and other comprehensive income are combined in a single statement of profit or loss and other comprehensive income.
2. Two-Statement Approach: Alternatively, entities can opt for separate statements: one for profit or loss and another for other comprehensive income.

  IAS1, which governs the presentation of financial statements, mandates the following for Statement of Profit & Loss:

• All income and expenses must be included in a statement of profit or loss and other comprehensive income.
• Entities cannot choose whether to present income and expenses in the profit or loss (P&L) section or the other comprehensive income (OCI) section; unless specified by a particular IFRS standard, all items must be included in the profit or loss section.
• If an item is presented in OCI rather than P&L, it is not factored into the calculation of earnings per share.

  Furthermore, regarding tax related to OCI:

• IAS1 stipulates that tax related to OCI can be either displayed separately within the OCI section or offset against each component of other comprehensive income, with disclosure provided in the financial statement notes.

 

Statement of Changes in Equity

Requirement of Statement of Changes in Equity under IAS 1:

According to IAS 1, entities must include a statement of changes in equity in their financial reporting, which should include:

• Total comprehensive income for the period, delineating amounts attributable to the parent company and Non-Controlling Interests (NCI).
• Effects of any retrospective application of accounting policies or restatements as per IAS 8.
• Reconciliation of the opening