IAS 1
Active
Presentation of Financial Statements
Prescribes the overall requirements for the presentation of general purpose financial statements, including their structure, minimum content and principles for fair presentation.
1
Conceptual Framework Linkage
Why presentation is a Framework issue
The Conceptual Framework states that the objective of general purpose
financial statements is to provide information useful to users in
making decisions about providing resources to the entity. IAS 1
operationalises HOW that information is structured so it is
understandable and comparable. It does not itself prescribe
recognition or measurement – those sit in the substantive standards.
IAS 1 AND THE QUALITATIVE CHARACTERISTICS
Comparability – consistent structure and classification
from period to period; comparative information for the prior period Understandability – clear titles; aggregation of similar
items; separate presentation of dissimilar items when material Faithful representation – fair presentation achieved
through compliance with IFRS; in extremely rare cases a departure where
compliance would be misleading (the "true and fair override")
Measurement vs presentation – the key distinction
IAS 1 is almost entirely a PRESENTATION standard. It prescribes WHERE
assets, liabilities, equity, income and expenses appear and how they
are grouped – not how individual items are measured (those rules sit
in other standards such as IFRS 9, IAS 16, IFRS 15).
Framework conceptIAS 1 role
Elements (assets; liabilities; equity; income; expenses)Prescribes WHERE each element appears and how groups are
organised
Going concernA fundamental assumption management must explicitly assess;
uncertainties disclosed
MaterialityDrives aggregation, disaggregation, and disclosure decisions
throughout IAS 1
IAS 1 does not prescribe a rigid single-format template – it sets
minimum line items and overarching principles, leaving significant
structural flexibility to preparers.
2
Scope & Key Definitions
What IAS 1 covers – and what it does not
IAS 1 sets out the overall requirements for the presentation of
general purpose financial statements, guidelines for their structure,
and minimum requirements for their content – to ensure comparability
both with the entity's own prior periods and with other entities
applying IFRS.
All general purpose financial statements prepared under IFRS for
profit-oriented entities Consolidated financial statements of a group
Condensed interim financial statements → IAS 34 Recognition, measurement, disclosure of specific transactions →
relevant substantive standard (IFRS 15; IAS 16 etc.)
IAS 1 does not mandate the titles "statement of financial position" or
"statement of profit or loss" – entities may retain traditional names
("balance sheet"; "income statement") as long as they are not
misleading.
Key definitions
General purpose financial statements
Financial statements intended to meet the needs of users who are not
in a position to require an entity to prepare reports tailored to
their particular information needs.
Impracticable
Applying a requirement is impracticable when the entity cannot apply
it after making every reasonable effort to do so. A key threshold
used when considering whether to restate comparative information.
Material
Information is material if omitting, misstating, or obscuring it
could reasonably be expected to influence decisions of the primary
users of those financial statements.
Other comprehensive income (OCI)
Items of income and expense that are not recognised in profit or
loss as required or permitted by other IFRS Standards – presented in
a separate section of the statement(s) of profit or loss and OCI.
3
Overall Considerations – The Core Principles
Eight overarching principles that pervade every IAS 1 requirement
Fair presentation: financial statements shall present
fairly the financial position, financial performance, and cash flows
of an entity. Fair presentation requires the faithful representation
of the effects of transactions, other events and conditions in accordance
with the definitions and recognition criteria for assets, liabilities,
income and expenses set out in the Conceptual Framework. Compliance with IFRS: an entity whose financial
statements comply with IFRS Standards shall make an explicit and unreserved
statement of such compliance in the notes. An entity shall not describe
financial statements as complying with IFRS unless they comply with
all the requirements. Going concern: management shall make an assessment
of an entity's ability to continue as a going concern. When material
uncertainties exist, they must be disclosed; if the going concern
basis is not used, IAS 1 requires this fact to be disclosed together
with the basis on which the financial statements have been prepared. Accrual basis: an entity shall prepare its financial
statements using the accrual basis of accounting, except for cash
flow information – the only primary statement on a cash basis (IAS
7).
Materiality and aggregation: each material class
of similar items shall be presented separately; items of a dissimilar
nature or function shall be presented separately unless they are immaterial.
Aggregation of immaterial items is acceptable and may improve clarity. No offsetting: assets and liabilities, and income
and expenses, shall not be offset unless required or permitted by
an IFRS Standard. Offsetting obscures both the gross amounts and the
nature of individual items. Frequency of reporting: an entity shall present
a complete set of financial statements at least annually. When the
end of the reporting period changes and annual statements are presented
for longer or shorter than one year, additional disclosures are required. Comparative information: unless an IFRS Standard
permits or requires otherwise, an entity shall present comparative
information in respect of the prior period for all amounts reported
in the current period's financial statements. A third SoFP is required
when an entity applies an accounting policy retrospectively or makes
a retrospective restatement or reclassification that materially affects
the prior period SoFP (IAS 8).
4
A Complete Set of Financial Statements
Six required components and the comparative period rules
Statement of financial position (SoFP) as at the
end of the period – 2 years minimum (3 if restated) Statement of profit or loss and other comprehensive income
(SoPL&OCI) for the period – 2 years Statement of changes in equity (SoCE) for the period
– 2 years Statement of cash flows (SCF) for the period – 2
years (governed in detail by IAS 7) Notes comprising significant accounting policies
and other explanatory information Comparative information – prior period for all amounts;
prior period notes where relevant
Third balance sheet (SoFP): required as at the beginning
of the earliest comparative period when an entity (a) applies an accounting
policy retrospectively; (b) makes a retrospective restatement; or (c)
reclassifies items in its financial statements – and that change has
a material effect on the prior period SoFP. This third SoFP requires
only the primary statement; the related notes need not be presented.
All components are of equal prominence – no single statement is
the "primary" one Titles used are not mandated – entities retain flexibility on
naming Minimum of 12-monthly reporting; when the period is shorter or
longer than 12 months, disclose the reason and note comparatives
may not be entirely comparable
5
Statement of Financial Position – Structure
Minimum line items and presentation choices
MINIMUM LINE ITEMS ON THE FACE OF THE SoFP
Property, plant and equipment; investment property; intangible
assets; financial assets; equity-accounted investments Biological assets; inventories; trade and other receivables Cash and cash equivalents; assets held for sale (IFRS 5) Trade and other payables; provisions; financial liabilities Current and deferred tax assets/liabilities; liabilities in
disposal groups (IFRS 5) Non-controlling interests within equity; issued capital and
reserves
Additional line items, headings and subtotals are added whenever
relevant to understanding the entity's financial position. An entity
uses its judgement about whether to present further
sub-classifications on the face or in the notes.
Presentation approach – two permitted formats
Current / non-current distinction
Separate current and non-current assets, and current and
non-current liabilities, as distinct classifications. The most
common format for industrial and commercial entities. Uses the IAS
1 current/non-current criteria.
Order of liquidity
Items presented broadly in order of liquidity – no
current/non-current split. Used when this provides more relevant
information (e.g. banks; financial institutions where assets and
liabilities are managed on a liquidity basis).
A mixed approach is permitted: current/non-current for some assets and
liabilities, and order of liquidity for others – when this provides
more relevant information (e.g. an entity that has both financial and
non-financial operations).
6
Illustrative Statement of Financial Position
Statement of Financial Position – blank format then illustrative
example
FORMAT – X = positive amount · (X) = negative / deduction
· – = nil
Entity Name
Statement of Financial Position
As at [reporting date]
NoteCurrent yrPrior yr
ASSETS
Non-current assets
Property, plant and equipmentXXX
Right-of-use assetsXXX
Intangible assetsXXX
Investments in associates (equity method)XXX
FVOCI financial assetsXXX
Deferred tax assetsXXX
Total non-current assetsXX
Current assets
InventoriesXXX
Trade and other receivablesXXX
Contract assets (IFRS 15)XXX
Current tax receivable–XX
Cash and cash equivalentsXXX
Total current assetsXX
TOTAL ASSETSXX
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capitalXXX
Share premium–XX
Retained earnings–XX
Revaluation reserve–XX
FVOCI reserve [may be (X) if net loss position]–X/(X)X/(X)
Total – attributable to owners of parentXX
Non-controlling interests–XX
Total equityXX
Non-current liabilities
Bank borrowingsXXX
Lease liabilitiesXXX
Deferred tax liabilitiesXXX
Post-employment benefit obligationsXXX
Total non-current liabilitiesXX
Current liabilities
Trade and other payablesXXX
Contract liabilities (IFRS 15)XXX
Current portion of borrowingsXXX
Current lease liabilitiesXXX
Dividends payable [once declared]–X–
Current tax liability–XX
Total current liabilitiesXX
TOTAL EQUITY AND LIABILITIESXX
ILLUSTRATIVE EXAMPLE – all figures $000
ABC Group plc
Consolidated Statement of Financial Position
As at 31 December 2024
Note 2024 $000 2023 $000
ASSETS
Non-current assets
Property, plant and equipment48,5007,200
Right-of-use assets51,2001,400
Intangible assets62,1001,800
Investments in associates (equity method)71,8001,600
FVOCI financial assets8850750
Deferred tax assets14550250
Total non-current assets15,00013,000
Current assets
Inventories94,2003,800
Trade and other receivables103,0002,700
Contract assets (IFRS 15)11400350
Current tax receivable–150100
Cash and cash equivalents122,2502,050
Total current assets10,0009,000
TOTAL ASSETS25,00022,000
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital135,0005,000
Share premium–2,0002,000
Retained earnings–7,0005,700
Revaluation reserve–800700
FVOCI reserve–(200)(130)
Total – attributable to owners of parent14,60013,270
Non-controlling interests–420380
Total equity15,02013,650
Non-current liabilities
Bank borrowings155,2004,500
Lease liabilities5700900
Deferred tax liabilities14380340
Post-employment benefit obligations16200200
Total non-current liabilities6,4805,940
Current liabilities
Trade and other payables171,8001,600
Contract liabilities (IFRS 15)11250220
Current portion of borrowings15700300
Current lease liabilities5180200
Dividends payable–300–
Current tax liability–27090
Total current liabilities3,5002,410
TOTAL EQUITY AND LIABILITIES25,00022,000
Note: All figures are illustrative only. Director signature lines,
approval date and authorisation wording omitted for brevity.
Key balance-sheet pointers: (1) Contract assets and liabilities
(IFRS 15) are presented separately from trade receivables/payables. (2)
Both portions of borrowings (current and non-current) are presented – the
current portion includes amounts due within 12 months. (3) NCI is within
equity (not between liabilities and equity under IFRS). (4) Deferred tax
is never current under IAS 1/IAS 12. (5) Dividends payable appear as a current
liability only once declared; proposed but not yet declared dividends are
disclosed in notes only.
7
Current vs Non-Current Classification
Current asset – any ONE of four tests
Expected to be realised, sold, or consumed in the entity's normal operating cycle Held primarily for the purpose of trading Expected to be realised within twelve months after the
reporting period Is cash or a cash equivalent, unless restricted
from exchange/use to settle a liability for at least twelve months
All other assets are non-current. The operating cycle test means
inventory and trade receivables are current even when the cycle
exceeds twelve months (e.g. long-term construction; ageing wines;
whisky).
Current liability – any ONE of four tests
Expected to be settled in the entity's normal operating cycle Held primarily for the purpose of trading Due to be settled within twelve months after the reporting
period The entity does NOT have an unconditional right to defer
settlement for at least twelve months after the reporting period
Covenant breach trap: if a loan becomes repayable on demand
due to a covenant breach at the reporting date, it is classified as CURRENT
– even if the lender subsequently waives the breach after year-end but before
authorisation of issue. The right to defer must exist AT the reporting date
itself. This is among the most heavily examined IAS 1 classification points.
8
Statement of Profit or Loss & OCI – Structure
Presentation choices – two major policy decisions
CHOICE 1 – SINGLE STATEMENT OR TWO STATEMENTS
Single statement: one statement of profit or loss and
other comprehensive income; profit/loss appears as a subtotal; total comprehensive
income is the final total Two statements: a separate statement of profit or loss
(ending with profit/loss for the period); followed immediately by a statement
of OCI beginning with profit/loss and ending with total comprehensive
income
CHOICE 2 – EXPENSE CLASSIFICATION
By function (cost of sales method): expenses grouped
by their function – cost of sales; distribution; administrative; finance;
other. A cost-of-sales line and gross profit subtotal appear. Entities
using this method must disclose by-nature information (depreciation; employee
benefits) in the notes. By nature (nature of expense method): expenses grouped
by their nature – raw materials; employee benefits; depreciation; other.
No cost-of-sales line. Typically used by smaller or manufacturing-focused
entities.
"By function" provides more analysis on the face but requires
additional by-nature disclosures in the notes – so it demands MORE
total disclosure overall.
Minimum line items on the face of the SoPL
Revenue (disaggregated as required by IFRS 15) Finance costs Share of profit/loss of associates and joint ventures (equity
method – IAS 28) Tax expense (IAS 12) A single line for total of discontinued operations (IFRS 5) Profit or loss for the period Each component of OCI classified by recycling group Total comprehensive income
Subtotals: additional subtotals may be presented (e.g.
gross profit; operating profit; EBIT) when they are relevant to understanding
the entity's performance. They must be: (a) comprised of items recognised
and measured under IFRS; (b) presented and labelled in a manner that is
not misleading; (c) consistent from period to period.
9
Illustrative SoPL – By Function (Single-Statement)
Statement of P/L and OCI – by function – blank format then
illustrative example
FORMAT – X = positive · (X) = deduction / negative
· – = nil
Entity Name
Statement of Profit or Loss and Other Comprehensive Income (by
function)
For the year ended [reporting date]
Current yrPrior yr
PROFIT OR LOSS
RevenueXX
Cost of sales(X)(X)
Gross profitXX
Distribution costs(X)(X)
Administrative expenses(X)(X)
Other incomeXX
Finance costs(X)(X)
Share of profit of associatesXX
Profit before taxXX
Income tax expense(X)(X)
Profit for the yearXX
OTHER COMPREHENSIVE INCOME
Items that will NOT be reclassified to profit or loss
Revaluation surplus on PP&EXX
Remeasurements of defined benefit plan(X)(X)
Income tax on items above(X)(X)
Subtotal – never recycledXX
Items that MAY be reclassified subsequently to profit or loss
Exchange differences on translating foreign operationsX/(X)X/(X)
Cash flow hedges – effective portionX/(X)X/(X)
FVOCI debt investments – net fair value changeX/(X)X/(X)
Income tax on items aboveX/(X)X/(X)
Subtotal – may recycleX/(X)X/(X)
OCI for the year, net of taxX/(X)X/(X)
TOTAL COMPREHENSIVE INCOME FOR THE YEARXX
ATTRIBUTION OF PROFIT FOR THE YEAR
Attributable to owners of the parentXX
Attributable to non-controlling interestsXX
XX
ATTRIBUTION OF TOTAL COMPREHENSIVE INCOME
Attributable to owners of the parentXX
Attributable to non-controlling interestsXX
XX
EARNINGS PER SHARE (IAS 33 – listed entities)
Basic earnings per share ($)X.XXX.XX
Diluted earnings per share ($)X.XXX.XX
ILLUSTRATIVE EXAMPLE – all figures $000
ABC Group plc
Consolidated Statement of Profit or Loss and Other Comprehensive
Income (by function)
For the year ended 31 December 2024
2024 $0002023 $000
PROFIT OR LOSS
Revenue22,40019,800
Cost of sales(14,300)(12,600)
Gross profit8,1007,200
Distribution costs(1,800)(1,650)
Administrative expenses(3,200)(2,900)
Other income420380
Finance costs(480)(420)
Share of profit of associates140110
Profit before tax3,1802,720
Income tax expense(795)(680)
Profit for the year2,3852,040
OTHER COMPREHENSIVE INCOME
Items that will NOT be reclassified to profit or loss
Revaluation surplus on property, plant and equipment130100
Remeasurements of defined benefit plan(18)(12)
Income tax on items above(28)(22)
Subtotal – never recycled8466
Items that MAY be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations80(40)
Cash flow hedges – effective portion(30)25
FVOCI debt investments – net change in fair value(70)30
Income tax on items above5(4)
Subtotal – may recycle(15)11
Other comprehensive income for the year, net of tax6977
TOTAL COMPREHENSIVE INCOME FOR THE YEAR2,4542,117
ATTRIBUTION OF PROFIT FOR THE YEAR
Attributable to owners of the parent2,2251,905
Attributable to non-controlling interests160135
2,3852,040
ATTRIBUTION OF TOTAL COMPREHENSIVE INCOME
Attributable to owners of the parent2,2941,982
Attributable to non-controlling interests160135
2,4542,117
EARNINGS PER SHARE (IAS 33)
Basic earnings per share ($)0.4450.381
Diluted earnings per share ($)0.4380.375
Illustrative only. Notes required: revenue disaggregation (IFRS 15);
by-nature disclosures (depreciation; employee benefits) where
function method used; tax reconciliation (IAS 12); EPS
reconciliation (IAS 33).
10
Illustrative SoPL – By Nature (Profit or Loss Section Only)
Statement of P/L – by nature – blank format then illustrative example
FORMAT – X = positive · (X) = deduction / negative
· – = nil
Entity Name
Statement of Profit or Loss (by nature of expense)
For the year ended [reporting date]
Current yrPrior yr
PROFIT OR LOSS
RevenueXX
Other incomeXX
Changes in inventories of finished goods and WIPX/(X)X/(X)
Raw materials and consumables used(X)(X)
Employee benefit expense(X)(X)
Depreciation and amortisation(X)(X)
Other expenses(X)(X)
Finance costs(X)(X)
Share of profit of associatesXX
Profit before taxXX
Income tax expense(X)(X)
Profit for the yearXX
OCI section identical to by-function format – see Section 9.
ILLUSTRATIVE EXAMPLE – all figures $000
ABC Group plc
Statement of Profit or Loss (by nature)
Year ended 31 December 2024
2024 $0002023 $000
Revenue22,40019,800
Other income420380
Changes in inventories of finished goods and WIP(400)120
Raw materials and consumables used(11,200)(9,900)
Employee benefit expense(4,200)(3,950)
Depreciation and amortisation(2,000)(1,850)
Other expenses(1,640)(1,380)
Finance costs(480)(420)
Share of profit of associates140110
Profit before tax3,0402,910
Income tax expense(760)(728)
Profit for the year2,2802,182
OCI section is identical to the by-function statement – omitted
here for brevity.
BY FUNCTION vs BY NATURE – KEY DIFFERENCES
FeatureBy functionBy nature
Gross profit lineYes – cost of sales deductedNo – no cost-of-sales concept
Depreciation on faceEmbedded in COS / admin / distrib.Shown as a separate line
Employee costs on faceEmbedded in functional linesShown as a separate line
Additional note requiredYes – by-nature disclosures mandatoryNo extra note required
Common usersRetail; services; listed industrialsManufacturing; smaller entities
The OCI section is identical regardless of the expense method chosen – the function/nature choice applies only to the expenses within the
profit or loss section, not to OCI items.
11
OCI – Two Groups and the Recycling Rule
IAS 1 mandates that OCI items are grouped by whether they will or will
not be reclassified to profit or loss
GROUP 1 – WILL NOT BE RECLASSIFIED ("NEVER RECYCLED")
OCI itemStandard
Revaluation surplus on PP&E or intangiblesIAS 16/IAS 38
Remeasurements of defined benefit plan (actuarial
gains/losses)IAS 19
FVOCI equity investments – changes in fair value (irrevocable
election)IFRS 9
Own credit risk on financial liabilities designated at FVTPLIFRS 9
Items in Group 1 are permanently in equity. A revaluation surplus
may be transferred directly to retained earnings (depreciation or
disposal) but it is never reclassified through profit or loss.
GROUP 2 – MAY BE RECLASSIFIED ("RECYCLABLE")
OCI itemStandard
Exchange differences on translating foreign operationsIAS 21
Cash flow hedge – effective portion of gains/losses on
hedging instrumentIFRS 9
FVOCI debt instruments – cumulative fair value changesIFRS 9
Net investment hedge – effective portion (IAS 21)IFRS 9/IAS 21
Share of OCI of associates/joint ventures (recyclable items)IAS 28
Group 2 items accumulate in OCI (equity) and are "recycled"
(reclassified) to profit or loss in a future period when the
related item is derecognised, sold, or the hedged transaction
affects profit or loss.
12
Statement of Changes in Equity – Structure
What IAS 1 requires the SoCE to show – five mandatory elements
Total comprehensive income for the period – split between
amounts attributable to owners of the parent and to
non-controlling interests For each component of equity, the effects of retrospective
application or restatement recognised in accordance with IAS 8 For each component of equity, a reconciliation between the
opening and closing carrying amount, disclosing separately: (a)
profit or loss; (b) each item of OCI; (c) transactions with
owners (contributions; distributions; changes in ownership
without loss of control)
Amount of dividends recognised as distributions to owners (and
dividends per share) – either on the face or in the notes For each component – a column per component is the most common
presentation (share capital; share premium; retained earnings;
each OCI reserve; NCI; total)
IAS 8 restatements: prior period errors and voluntary
retrospective policy changes are shown as adjustments to opening retained
earnings – NOT as items flowing through profit or loss in the current
year. The corrected opening balance is the starting point; a third SoFP
may be needed.
13
Illustrative Statement of Changes in Equity
Statement of Changes in Equity – blank format then illustrative
example
FORMAT – X = positive · (X) = deduction / negative
· – = nil
Entity Name
Statement of Changes in Equity
For the years ended [prior date] and [current date]
Share capital Share premium Retained earnings Reval. reserve FVOCI reserve Attr. to owners NCI Total equity
Balance [opening prior year] XXX XX/(X) XXX
Prior year
Profit for the year ––X –– XXX
OCI – revaluation surplus (net of tax) ––– X– X–X
OCI – other items (net of tax) ––X/(X) –X/(X) X/(X)–X/(X)
Total comprehensive income ––X XX/(X) XXX
Dividends paid ––(X) –– (X)(X)(X)
Issue of share capital [if applicable] XX– –– X–X
Balance [closing prior year / opening current year] XXX XX/(X) XXX
Current year [repeat same movement structure]
Profit for the year ––X –– XXX
Other comprehensive income (net of tax) ––X/(X) X/(X)X/(X) X/(X)X/(X)X/(X)
Total comprehensive income ––X X/(X)X/(X) XXX
Dividends declared and paid ––(X) –– (X)(X)(X)
Balance [closing current year] XXX XX/(X) XXX
– = nil / no movement in this column · X/(X) = positive
or negative depending on direction · OCI is shown at
net-of-tax amounts per column affected
ILLUSTRATIVE EXAMPLE – all figures $000
ABC Group plc
Consolidated Statement of Changes in Equity
For the years ended 31 December 2023 and 31 December 2024
$000 Share capital Share premium Retained earnings Revaluation reserve FVOCI reserve Attr. to owners NCI Total equity
Balance 1 January 2023 5,0002,0004,545 634(141) 12,03826012,298
Year ended 31 December 2023
Profit for the year ––1,905 –– 1,9051352,040
Revaluation surplus (net of tax BHD 22) ––– 66– 66–66
Other OCI (net of tax) ––(9) –11 2–2
Total comprehensive income ––1,896 6611 1,9731352,108
Dividends paid ––(741) –– (741)(15)(756)
Balance 31 December 2023 5,0002,0005,700 700(130) 13,27038013,650
Year ended 31 December 2024
Profit for the year ––2,225 –– 2,2251602,385
Revaluation surplus (net of tax BHD 28) ––– 100– 100–100
DB plan remeasurements (net of tax) ––(14) –– (14)–(14)
Other OCI – recyclable items (net of tax) ––– –(70) (70)–(70)
Total comprehensive income ––2,211 100(70) 2,2411602,401
Dividends declared and paid ––(911) –– (911)(120)(1,031)
Balance 31 December 2024 5,0002,0007,000 800(200) 14,60042015,020
Illustrative only. Closing equity of $15,020 ties to the SoFP.
Columns: revaluation surplus – never recycled (IAS 16); DB
remeasurements – never recycled (IAS 19); FVOCI reserve – recyclable
debt instruments. Dividends per share disclosed in notes.
14
Statement of Cash Flows – Overview (IAS 7)
The one primary statement not governed by IAS 1 – IAS 7 provides the
detailed rules
IAS 1 requires a statement of cash flows to be presented as part of a
complete set of financial statements, but delegates all its detailed
requirements to IAS 7. It is the only primary statement prepared on a
cash basis rather than the accrual basis.
THREE SECTIONS – ALL STATEMENTS MUST SHOW
SectionContent
OperatingCash generated from the entity's principal revenue-producing
activities. May use direct method (gross cash receipts and
payments) or indirect method (profit adjusted for non-cash items
and working capital changes). Indirect method is by far the more
common in practice.
InvestingCash flows from acquisition and disposal of long-term assets and
investments not classified as cash equivalents. Always presented
gross (direct method) – e.g. proceeds from sale of PP&E; payments
to acquire subsidiaries.
FinancingCash flows that result in changes in the size and composition of
equity and borrowings – proceeds from share issues; repayment of
borrowings; dividends paid; lease repayments (IFRS 16). Always
presented gross.
Key IAS 7 classification choices and traps
Interest paid: may be classified as operating (most
common – matching the P&L finance cost) or financing (it represents borrowing
costs). Policy choice; applied consistently. Interest received: may be operating (return on investments)
or investing. Policy choice. Dividends paid: may be financing (most common – distributions
to owners) or operating. Policy choice. Dividends received: may be operating or investing. Policy
choice. Taxes: generally operating unless specifically identifiable
with financing or investing. Lease payments (IFRS 16): principal portion of lease
liability repayments → financing; interest portion → operating or financing
(policy choice); short-term and low-value lease payments → operating.
The indirect method reconciles profit/loss to cash from operations.
Key adjustments: add back depreciation/amortisation (non-cash);
add back finance costs charged (reclassified to financing);
deduct investment income (reclassified to investing); adjust for working capital changes (inventory; receivables; payables).
15
Notes & Accounting Policies
Structure and purpose of notes
Present information about the basis of preparation and the specific
accounting policies used Disclose information required by IFRS Standards that is not
presented elsewhere in the primary statements Provide information relevant to understanding the primary
statements that is not presented on their face
RECOMMENDED NOTE ORDER (IAS 1 – NOT MANDATORY)
Statement of compliance with IFRS and basis of preparation Summary of material accounting policies Supporting information for items presented on the face (in the same
order as the statements) Other disclosures: contingent liabilities; unrecognised contractual
commitments; non-financial disclosures
IAS 1 no longer mandates a single fixed note ordering – entities may
present notes in whatever order best communicates their financial
statements to users.
Material accounting policy information (2023 amendment)
Following the 2023 amendment, IAS 1 requires disclosure of "material
accounting policy information" rather than a summary of all
significant accounting policies. An accounting policy is material if
it is expected to significantly affect the amounts or disclosures in
the financial statements.
What makes a policy material: (a) an IFRS Standard allows
a policy choice and the entity has chosen a less common option; (b) management
has significant judgement in applying the policy; (c) the policy relates
to a complex or unusual transaction type that is significant to the entity Not material: boilerplate accounting policy descriptions
that copy IFRS wording and do not add entity-specific information do not
meet the threshold and should be omitted to improve clarity Practical effect: entities should remove "clutter" from
the notes – generic policy descriptions that provide no entity-specific
insight reduce the readability and usefulness of financial statements
16
Critical Judgements & Estimates Disclosures
Two distinct mandatory disclosures – commonly confused in practice and
in exams
Significant judgements (IAS 1.122)
Judgements that management has made in the process of applying
the entity's accounting policies and that have the most
significant effect on the amounts recognised in the financial
statements. Focus: the decision made (not the estimate of an
uncertain future outcome).
Whether the entity is the principal or agent in a contract
(IFRS 15) Whether a lease term includes option periods (IFRS 16) Whether an entity controls an investee (IFRS 10) Classification of a financial instrument as equity or liability
(IAS 32) Whether going concern basis remains appropriate
Key sources of estimation uncertainty (IAS 1.125)
Key assumptions about the future, and other major sources of
estimation uncertainty at the end of the reporting period, that
have a significant risk of resulting in a material adjustment to
the carrying amounts of assets and liabilities within the NEXT
financial year.
Expected credit loss assumptions (IFRS 9 – PD; LGD; EAD) Useful lives and residual values of property, plant and
equipment Actuarial assumptions for defined benefit plan obligations (IAS
19) Fair value measurements (Level 3 inputs) – IFRS 13 Recoverability of deferred tax assets – judgment on future
taxable profit
Key distinction: the estimation uncertainty disclosure
has a specific 12-month time horizon ("within the next
financial year"). Uncertainties with a longer horizon are not captured
here. The judgements disclosure has no such time horizon – it covers
all material judgements in the current period's policies.
17
IFRS vs US GAAP – Key Presentation Differences
FeatureIFRS (IAS 1)US GAAP
SoFP orderFree choice: liquidity order or current/non-current, whichever
more relevantTypically decreasing liquidity (current assets first) for US
public companies
Extraordinary itemsProhibited – no separate classificationAlso prohibited since ASU 2015-01; infrequent/unusual items may
be separately presented
OCI – presentationSingle or two-statement approach both permittedSingle or two-statement approach also permitted (largely
converged)
Expense classificationFree choice: by nature or by functionSEC registrants generally present by function (cost of revenues
required)
Comparative SoFP periodsTwo years minimum (three if restated)Two years for most entities (three for the income statement and
cash flows under SEC rules for large accelerated filers)
NCI presentationWithin equity – clearly labelled; never between liabilities and
equityWithin equity – same as IFRS; converged
Offsetting ruleNo offsetting unless required or permitted by IFRSSame general principle; specific guidance in ASC 210-20 on
netting financial instruments
Third balance sheetRequired on material retrospective restatements (IAS 8)No explicit equivalent requirement; restated comparatives
presented but no mandated third SoFP
Despite convergence efforts, the SEC's stricter comparative-period
requirements for the income statement and cash flow statement (three
years for large accelerated filers) and the typical format differences
in the SoFP remain practical differences for multinational preparers.
18
Statement Mapping – Where Every IAS 1 Concept Lands
IAS 1 concept / requirementStatement(s)Notes
Current/non-current or liquidity classificationSoFPStructural choice; applied consistently
By function / by nature expense presentationSoPLPolicy choice; function requires by-nature notes
OCI – never recycled (revaluations; remeasurements; FVOCI equity)OCIPermanently in equity; may transfer within equity
OCI – may recycle (FX translation; CFH; FVOCI debt)OCI → SoPLRecycled on disposal/derecognition/hedged item
Dividends declaredSoCEDistribution to owners; not an expense in SoPL
Prior period error / retrospective policy changeSoCE SoFPOpening retained earnings restated; may trigger third SoFP (IAS
8)
Cash from operations; investing; financingSCFThe only primary statement on cash basis (IAS 7)
Significant judgementsNotesCurrent period; most significant effect on amounts
Estimation uncertainty (12-month horizon)NotesRisk of material adjustment within NEXT financial year
Material accounting policy informationNotesPost-2023 amendment: material policies only; not boilerplate
Going concern material uncertaintyNotesDisclosed even if conclusion is that GC basis is still
appropriate
EPS (basic and diluted)SoPLOn face or in notes; mandatory for listed entities (IAS 33)
19
Related Standards – Cross-Reference Map
StandardNature of connection to IAS 1
IAS 7Statement of cash flows – IAS 1 requires it as part of a complete
set; IAS 7 provides all the detailed rules for structure;
direct/indirect method; classification of interest, dividends,
taxes
IAS 8Accounting policies; changes in estimates; errors – directly
triggers IAS 1's comparative restatement requirements and the
third SoFP when a material retrospective change is made
IAS 10Events after the reporting period – determines whether
post-year-end events (e.g. covenant waivers; dividend
declarations) affect the current/non-current classification
decisions made under IAS 1 at the reporting date
IAS 12Income taxes – deferred tax is always non-current under IAS 1;
IAS 12 governs measurement; the tax reconciliation note required
under IAS 12 complements IAS 1's disclosure framework
IAS 33Earnings per share – IAS 1 requires EPS to be presented for
entities with publicly traded ordinary shares; IAS 33 provides
detailed EPS calculation rules
IAS 34Interim financial reporting – sets the reduced content
requirements for condensed interim statements, distinct from IAS
1's full annual requirements
IFRS 5Non-current assets held for sale and discontinued operations –
determines the separate presentation line items on the SoFP and
SoPL face that IAS 1 prescribes as minimum line items
IFRS 12Disclosure of interests in other entities – the extensive
disclosure requirements for subsidiaries, associates, JVs, and
structured entities that supplement what IAS 1 captures in the
primary statements
IFRS 13Fair value measurement – Level 1/2/3 hierarchy disclosures appear
in the notes to the SoFP; the SoFP face shows carrying values but
the notes (required by IFRS 13) explain FV measurement methodology
20
Quick-Reference Glossary
Fair presentation
The faithful representation of the effects of transactions, events
and conditions in accordance with the definitions and recognition
criteria set out in the Conceptual Framework. Achieved through
compliance with IFRS; in extremely rare cases, departure from a
specific IFRS requirement is permitted if compliance would be so
misleading that it would conflict with the Framework's objective.
Reclassification adjustments (recycling)
Amounts previously recognised in OCI that are reclassified to profit
or loss in the current period – e.g. cumulative FX translation
differences recycled on disposal of a foreign operation. IAS 1
requires these to be separately identified in OCI in the period of
recycling.
Operating cycle
The time between the acquisition of assets for processing and their
realisation in cash or cash equivalents. When it is not clearly
identifiable, IAS 1 assumes it to be twelve months. Inventory and
receivables are current even when the cycle exceeds twelve months
(e.g. distilleries; construction).
Going concern
The assumption that an entity will continue in operation for the
foreseeable future – it has neither the intention nor the need to
liquidate or curtail the scale of its operations. When material
uncertainties exist, they are disclosed. When the going concern
basis is not used, IAS 1 requires disclosure of the alternative
basis.
Total comprehensive income
The change in equity during a period resulting from transactions and
other events, other than those changes resulting from transactions
with owners in their capacity as owners. It comprises profit or loss
plus other comprehensive income.
Non-controlling interests (NCI)
The equity in a subsidiary not attributable, directly or indirectly,
to a parent. Presented within equity in the consolidated SoFP –
separately from the equity of the owners of the parent. Never
classified between liabilities and equity under IFRS.
True and fair override
In the extremely rare circumstance where compliance with a specific
IFRS requirement would be so misleading that it conflicts with the
objective of financial statements, an entity may depart from that
requirement. The departure, the reason, and the financial effect
must all be disclosed. In practice, virtually never used.
Material accounting policy information
Following the 2023 IAS 1 amendment: accounting policy information is
material if it is expected to significantly affect amounts or
disclosures. Entities should omit boilerplate policy descriptions
that repeat IFRS wording without adding entity-specific insight –
these do not meet the materiality threshold.
Estimation uncertainty (12-month)
Key assumptions about the future and other major sources of
estimation uncertainty that have a significant risk of resulting in
a material adjustment to the carrying amounts of assets or
liabilities within the NEXT financial year. The "next financial
year" time horizon is specific to this disclosure and distinguishes
it from the judgements disclosure.
Statement abbreviations
SoFP Statement of financial position
SoPL Statement of profit or loss
OCI Other comprehensive income
SoCE Statement of changes in equity
SCF Statement of cash flows
Notes Notes to financial statements
History & Development
Mar-1974
Exposure Draft E1 Disclosure of Accounting Policies
Jan-1975
IAS 1 Disclosure of Accounting Policies issued
Operative for periods beginning on or after 1 January 1975
Jun-1975
Exposure Draft E5 Information to Be Disclosed in Financial Statements published
Oct-1976
IAS 5 Information to Be Disclosed in Financial Statements issued
Operative for periods beginning on or after 1 January 1975
Jul-1978
Exposure Draft E14 Current Assets and Current Liabilities published
Nov-1979
IAS 13 Presentation of Current Assets and Current Liabilities issued
Operative for periods beginning on or after 1 January 1981
1994
IAS 1, IAS 5, and IAS 13 reformatted
Jul-1996
Exposure Draft E53 Presentation of Financial Statements published
Aug-1997
IAS 1 Presentation of Financial Statements (1997) issued (Supersedes IAS 1 (1975), IAS 5, and IAS 13 (1979))
Operative for periods beginning on or after 1 July 1998
18-Dec-2003
IAS 1 Presentation of Financial Statements (2003) issued
Effective for annual periods beginning on or after 1 January 2005
18-Aug-2005
Amended by Amendment to IAS 1 - Capital Disclosures
Effective for annual periods beginning on or after 1 January 2007
16-Mar-2006
Exposure Draft Proposed Amendments to IAS 1 - A Revised Presentation published
Comment deadline 17 July 2006
22-Jun-2006
Exposure Draft Financial Instruments Puttable at Fair Value and Obligations Arising on Liquidation published
Comment deadline 23 October 2006
06-Sep-2007
IAS 1 Presentation of Financial Statements (2007) issued
Effective for annual periods beginning on or after 1 January 2009
14-Feb-2008
Amended by Puttable Financial Instruments and Obligations Arising on Liquidation
Effective for annual reporting periods beginning on or after 1 January 2009
22-May-2008
Amended by Annual Improvements to IFRSs 2007 (classification of derivatives as current or non-current)
Effective for annual reporting periods beginning on or after 1 January 2009
16-Apr-2009
Amended by Improvements to IFRSs 2009 (classification of liabilities as current)
Effective for annual periods beginning on or after 1 January 2010
06-May-2010
Amended by Improvements to IFRSs 2010 (clarification of statement of changes in equity)
Effective for annual periods beginning on or after 1 January 2011
27-May-2010
Exposure Draft ED/2010/5 Presentation of Items of Other Comprehensive Income published
Comment deadline 30 September 2010
16-Jun-2011
Amended by Presentation of Items of Other Comprehensive Income
Effective for annual periods beginning on or after 1 July 2012
17-May-2012
Amended by Annual Improvements 2009-2011 Cycle (comparative information)
Effective for annual periods beginning on or after 1 January 2013
18-Dec-2014
Amended by Disclosure Initiative (Amendments to IAS 1) (project history)
Effective for annual periods beginning on or after 1 January 2016
31-Oct-2018
Amended by Definition of Material (Amendments to IAS 1 and IAS 8)
Effective for annual periods beginning on or after 1 January 2020
23-Jan-2020
Amended by Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
Effective for annual periods beginning on or after 1 January 2022
15-Jul-2020
IASB defers effective date of Classification of Liabilities as Current or Non-current (Amendments to IAS 1) to 1 January 2022
The new effective date of the January 2020 amendments is now 1 January 2023
12-Feb-2021
Amended by Disclosure of Accounting Policies (Amendments to IAS 1)
Effective for annual periods beginning on or after 1 January 2023
31-Oct-2022
Amended by Non-current Liabilities with Covenants (Amendments to IAS 1)
Effective for annual periods beginning on or after 1 January 2024; the effective date of the January 2020 amendments is also pushed to 1 January 2024
09-Apr-2024
IFRS 18 Presentation and Disclosure in Financial Statements issued, which will superseded IAS 1 as of 1 January 2027