Conceptual Framework and Accounting Standards

Lesson #1

INTERNATIONAL ACCOUNTING  those intended to meet the needs

STANDARD 1 of users who are not in a position
Presentation of Financial to require an entity to prepare
Statement reports tailored to their particular
information needs.
Objective of the “Standard”
Impracticable
Basis for presentation GPFS to Ensure  Applying a requirement is
comparability to entity's FS of previous impracticable when the entity
periods and with the FS of other entity. cannot apply it after making every
reasonable effort to do.
Scope
IFRSs
 are Standards and Interpretations
1. Prepare and present GPFS by IFRS issued by the IASB. They comprise:
2. Other IFRS set recognition, 1. International Financial Reporting
measurement, and disclosure Standards (IFRS)
required (RMD) for specific 2. International Accounting
transactions and other events Standards (IAS)
3. Standard does not apply to the 3. IFRIC Interpretations
interim financial statements [IAS 4. SIC Interpretations.
34] however paragraphs 15-35
apply such FS Material
These standards apply equally to  Information is material if omitting,
all entities including those that misstating, or obscuring it could
present on: reasonably be expected to
Consolidated Financial Statement influence decisions that the
[IFRS 10 CFS] primary users of GPFS make based
Separate Financial Statement [IAS on those financial statements.
27 SFS]
4. Uses terminology for profit-oriented Materiality
entities.  Depends on the nature or
5. May need to Adapt Financial magnitude of information or both.
statements if Entity does not have
equity and share capital is not Obscured information
Equity.  Is communicated in a way that
would have a similar effect for
Definitions primary users of financial
statements to omit or misstate that
Accounting policies [Paragraph 5 of information. The following are
IAS 8] examples of circumstances that
 Changes in Accounting Estimates may result in material information
and Errors, and the term is used in being obscured:
this Standard with the same 1. Vague or unclear language
meaning. 2. Scattered information across
different sections of the fs
GPFS (referred to as FS) 3. Combining dissimilar items
Conceptual Framework and Accounting Standards
Lesson #1

4. Understandability is reduced recognized in profit or loss as

because of hidden material required or permitted by other
information IFRSs.

When deciding what information to The components of other comprehensive

include in financial statements, a income include:
company needs to think about: 1. Changes in revaluation surplus
2. Remeasurements of defined
 Who uses the statements: What benefit plans
do these people need to know? 3. Foreign exchange gains and losses
 The company's situation: How 4. Investments in equity gains and
big is the company? What kind of losses instruments designated at
business is it in? fair value through other
comprehensive income.
Potential investors, lenders, and other 4.1 Gains and losses on financial
creditors can't require reporting entities assets measured at fair value
to provide information directly to them through other comprehensive
and must rely on GPFS for much of the income.
financial information they need. 5. The effective portion of gains and
losses on hedging instruments in
They are the primary users of GPFS. a cash flow hedge and the gains
and losses on hedging instruments
Financial statements are prepared for that hedge investments in equity
users who have a reasonable knowledge instruments measured at fair value
of business and through OCI.
Economic activities and who review and *hedge is an investment that is
analyze the information diligently. At made to reduce the risk of adverse
times, even well-informed and diligent price movements in assets*
users may need to seek the aid of an 6. Changes in fair value due to credit
adviser to understand information about risk are recognized in the income
complex economic phenomena. statement.
7. Changes in the value of the time
Notes value of options when separating
 It contains information in addition the intrinsic value and time value
to that presented in the SFP, SP/SL of an option contract and
OCI, SCE, and SCF of cash flows. designating as the hedging
 It provides narrative instrument only the changes in the
descriptions or disaggregations intrinsic value.
of items presented in those ● Intrinsic Value: Based on the
statements and information about difference between stock price and strike
items that don’t qualify for price. (Price difference)
recognition in those statements. ● Time Value: Based on volatility
“unpredictability” and time to expiration.
Other comprehensive income (Forsaking and time left)
 comprises items of income and
expense (including reclassification
adjustments) that are not
Conceptual Framework and Accounting Standards
Lesson #1

8. 6. Insurance and reinsurance

Forward Foreign adjustments: Certain gains and
Contracts: Currency losses related to insurance and
Changes in the Basis Spread: reinsurance contracts.
value of the Changes in this
forward portion spread are not Owners are holders of instruments
are not included in classified as equity
considered hedging
hedging instrument Profit or loss
instruments designations.  is the total income less expenses,
when excluding the component of other
separated from comprehensive income.
the spot
element. Reclassification adjustments
 are amounts reclassified or
9. Insurance finance income/expenses recategorized to profit or loss in
excluded from profit or loss can be the current period that were
included if disaggregated using a recognized in other comprehensive
systematic allocation or to income in the current or previous
eliminate mismatches with periods.
underlying item finance
income/expenses. Total comprehensive income
10. Reinsurance finance  is the change in equity during a
income/expenses excluded from period resulting from transactions,
profit or loss can be included if other than those changes resulting
disaggregated using a systematic from transactions with owners in
allocation their capacity as owners. (Exclude
contributions to the entity’s owner)
In Summary:  comprises all components of
1. Revaluation adjustments: ‘profit or ‘loss’ and of ‘other
Changes in the value of property, comprehensive income’. TH
plant, equipment, and intangible  The standard uses ‘OCI’, ‘Profit or
assets. Loss’ , and ‘TCI’ an entity may use
2. Pension plan adjustments: other terms like ‘net income’ to
Changes in the value of defined describe profit or loss
benefit pension plans.
3. Foreign exchange gains and Presentation
losses: Changes in the value of  Puttable financial instrument
foreign currency assets and classified as an equity instrument.
liabilities.  An instrument that imposes on the
4. Fair value adjustments: Gains entity an obligation to deliver to
and losses on certain financial another party a pro rata share of
instruments measured at fair the net assets of the entity only on
value. liquidation and is classified as an
5. Hedging adjustments: Gains and equity instrument.
losses on hedging instruments that
are designated to offset other risks.
Conceptual Framework and Accounting Standards
Lesson #1

2. a statement of profit or loss and

FINANCIAL STATEMENTS other comprehensive income for
the period;
Purpose 3. a statement of changes in equity
for the
Financial statements are a structured
representation of the financial position ACRONYMS:
and financial performance of an entity. SFP - Statement of Financial Position
SP/SL - Statement of Profit or Loss
Objective OCI - Other Comprehensive Income
Provide information about the financial TCI – Total Comprehensive Income
position, financial performance, and cash SCE - Statement of Changes in Equity
flows of an entity that is useful to a wide SCF - Statement of Cash Flow
range of users in making
economic decisions. General Features in the
Preparation and Presentation of
It also shows the results of the Financial Statements
management’s stewardship of the
resources entrusted to it. 1. Fair presentation and
compliance with PFRS
To meet this objective, financial 2. Going concern
statements provide information about an 3. Accrual Basis
entity’s: 4. Materiality and aggregation
1. assets; 5. Offsetting
2. liabilities; 6. Frequency of Reporting
3. equity; 7. Comparative Information
4. income and expenses, including 8. Consistency of Operation
gains and losses;
5. contributions by and distributions Fair Presentation and Compliance
to owners in their capacity as with IFRS
owners; and
6. cash flows.  Financial statements shall fairly
present the financial position,
This information, along with other financial performance, and cash
information in the notes, assists users of flow of an entity adhering to the
financial statements in predicting the Conceptual Framework for
entity’s future cash flows and, in Financial Reporting's definition and
particular, their timing and certainty. recognition criteria.
Complete set of financial statements  An entity whose financial
statements comply with IFRSs shall
A complete set of financial statements make an explicit and unreserved
comprises: statement of such compliance in
1. a statement of financial position as the notes. An entity shall not
of the end of the period; describe financial statements as
complying with IFRSs unless they
Conceptual Framework and Accounting Standards
Lesson #1

comply with all the requirements of objective of financial statements

IFRSs. set out in the Conceptual
Framework, the entity shall depart
 In virtually all circumstances, an from that requirement in the
entity achieves a fair presentation manner set out in paragraph 20 if
by compliance with applicable the relevant regulatory framework
IFRSs. A fair representation also requires, or otherwise does not
requires an entity: prohibit such a departure.
1. to select and apply
accounting policies by IAS 8  When an entity departs from a
Accounting Policies, Changes requirement of an IFRS under
in Accounting Estimates and paragraph 19, it shall disclose:
Errors. IAS 8 sets out a 1. that management has
hierarchy of authoritative concluded that the financial
guidance that management statements present fairly the
considers in the absence of entity’s financial position,
an IFRS that specifically financial performance, and
applies to an item. cash flows;
2. to present information, 2. that it has complied with
including accounting policies, applicable IFRSs, except that
in a manner that provides it has departed from a
relevant, reliable, particular requirement to
comparable, and achieve a fair presentation;
understandable information. 3. the title of the IFRS from
3. to provide additional which the entity has
disclosures when compliance departed, the nature of the
with the specific departure, including the
requirements in IFRSs is treatment that the IFRS
insufficient to enable users to would require, the reason
understand the impact of why that treatment would be
particular transactions, other so misleading in the
events and conditions on the circumstances that it would
entity’s financial position and conflict with the objective of
financial performance. financial statements set out
in the Conceptual Framework
 An entity cannot rectify and the treatment adopted;
inappropriate accounting policies and
either by disclosure of the 4. for each period presented,
accounting policies used or by the financial effect of the
notes or explanatory material. departure on each item in
the financial statements that
 In the extremely rare would have been reported in
circumstances in which complying with the
management concludes that requirement.
compliance with a requirement in
an IFRS would be so misleading  When an entity has departed from
that it would conflict with the a requirement of an IFRS in a prior
Conceptual Framework and Accounting Standards
Lesson #1

period, and that departure affects assess an entity’s ability to

the amounts recognized in the continue as a going concern.
financial statements for the current
period, it shall make the  An entity shall prepare financial
disclosures set out in paragraphs statements on a going concern
20(c) and (d). basis unless management either
intends to liquidate the entity or to
 In the extremely rare cease trading or has no realistic
circumstances in which alternative but to do so.
management concludes that
compliance with a requirement in  When management is aware, in
an IFRS would be so misleading making its assessment, of material
that it would conflict with the uncertainties related to events or
objective of financial statements conditions that may cast significant
set out in the Conceptual doubt upon the entity’s ability to
Framework, but the relevant continue as a going concern, the
regulatory framework prohibits entity shall disclose those
departure from the requirement, uncertainties.
the entity shall, to the maximum
extent possible, reduce the  When an entity does not prepare
perceived misleading aspects of financial statements on a going
compliance by disclosing: concern basis, it shall disclose that
1. the title of the IFRS in fact, together with the basis on
question, the nature of the which it prepared the financial
requirement, and the reason statements and the reason why the
why management has entity is not regarded as a going
concluded that complying concern.
with that requirement is so
misleading in the Accrual basis of accounting
circumstances that it
conflicts with the objective of  An entity shall prepare its financial
financial statements set out statements, except for cash flow
in the Conceptual information, using the accrual basis
Framework; and of accounting.
2. for each period presented,
the adjustments to each item  An entity recognizes items as
in the financial statements assets, liabilities, equity, income,
that management has and expenses (the elements of
concluded would be financial statements) when they
necessary to achieve a fair satisfy the definitions and
presentation recognition criteria for those
elements in the Conceptual
Going Concern Framework.

 When preparing financial Materiality and aggregation

statements, management shall
Conceptual Framework and Accounting Standards
Lesson #1

 An entity shall present separately other comprehensive income or

each material class of similar financial position, except when
items. An entity shall present offsetting reflects the substance of
separate items of a dissimilar the transaction or other event,
nature or function unless they are detracts from the ability of users
immaterial. both to understand the
transactions, other events and
 Financial statements result from conditions that have occurred and
processing numerous transactions to assess the entity’s future cash
aggregated by nature or function, flows. Measuring assets net of
culminating in the presentation of valuation allowances—for example,
condensed data as line items. Non- obsolescence allowances on
material line items are combined inventories and doubtful debts
with others in the statements or allowances on receivables—is not
notes, while those that are offsetting.
immaterial may still be presented
separately in the notes. Entities  An entity presents on a net basis
must consider relevant facts when gains and losses arising from a
aggregating information and group of similar transactions, for
should not compromise the clarity example, foreign exchange gains
of financial statements by and losses or gains and losses
obscuring material information with arising on financial instruments
immaterial details or by mixing held for trading. However, an entity
different material items. Certain presents such gains and losses
IFRSs specify required disclosures, separately if they are material.
but entities need not provide those
if the information is not material, Frequency of reporting
even if listed as minimum
requirements. Additionally, entities  An entity shall present a complete
should consider offering further set of financial statements
disclosures if compliance with (including comparative
specific IFRS requirements does information) at least annually.
not sufficiently clarify the effects of
transactions or conditions on  When an entity changes the end of
financial position and performance. its reporting period and presents
financial statements for a period
Offsetting longer or shorter than one year, an
entity shall disclose, in addition to
 An entity shall not offset assets and the period covered by the financial
liabilities or income and expenses statements:
unless required or permitted by 1. The reason for using a longer
IFRS. or shorter period, and
2. the fact that amounts
 An entity reports separately both presented in the financial
assets and liabilities and income statements are not entirely
and expenses. Offsetting in the comparable.
statement(s) of profit or loss and
Conceptual Framework and Accounting Standards
Lesson #1

 Normally, an entity consistently related note information for those

prepares financial statements for additional statements.
one year. However, for practical
reasons, some entities prefer to  For example, an entity may present
report, for example, for 52 weeks. a third statement of profit or loss
This Standard does not preclude and other comprehensive income
this practice. (thereby presenting the current
period, the preceding period and
Comparative information one additional comparative period).
However, the entity is not required
Minimum comparative information to present a third statement of
 Except when IFRSs permit or financial position, a third statement
require otherwise, an entity shall of cash flows, or a third statement
present comparative information in of changes in equity (ie an
respect of the preceding period for additional financial statement
all amounts reported in the current comparative). The entity is
period’s financial statements. required to present, in the notes to
the financial statements, the
 An entity shall include comparative comparative information related to
information for narrative and that additional statement of profit
descriptive information if it is or loss and other comprehensive
relevant to understanding the income.
current period’s financial
statements. An entity shall present, Change in accounting policy,
as a minimum, two statements of retrospective restatement, or
financial position, two statements reclassification
of profit or loss and other  An entity shall present a third
comprehensive income, two statement of financial position as
separate statements of profit or at the beginning of the preceding
loss (if presented), two statements period in addition to the minimum
of cash flows and two statements comparative financial statements
of changes in equity, and related required in paragraph 38A if:
notes. 1. it applies an accounting
policy retrospectively, makes
Additional comparative information a retrospective restatement
 An entity may present comparative of items in its financial
information in addition to the statements, or reclassifies
minimum comparative financial items in its financial
statements required by IFRSs, as statements; and
long as that information is 2. the retrospective application,
prepared in accordance with IFRSs. retrospective restatement, or
This comparative information may reclassification has a
consist of one or more statements material effect on the
referred to in paragraph 10, but information in the statement
need not comprise a complete set of financial position at the
of financial statements. When this beginning of the preceding
is the case, the entity shall present period
Conceptual Framework and Accounting Standards
Lesson #1

In the circumstances described in  When it is impracticable to

paragraph 40A, an entity shall present reclassify comparative amounts, an
three statements of financial position: entity shall disclose:
1. the end of the current period; 1. the reason for not
2. the end of the preceding period; reclassifying the amounts,
and and
3. the beginning of the preceding 2. the nature of the
period. adjustments that would have
been made if the amounts
 When an entity is required to had been reclassified.
present an additional statement of
financial position in accordance  Enhancing the inter-period
with paragraph 40A, it must comparability of information assists
disclose the information required users in making economic
by paragraphs 41–44 and IAS 8. decisions, especially by allowing
However, it need not present the the assessment of trends in
related notes to the opening financial information for predictive
statement of financial position as purposes. In some circumstances,
at the beginning of the preceding it is impracticable to reclassify
period. comparative information for a
particular prior period to achieve
 The date of that opening statement comparability with the current
of financial position shall be as at period. For example, an entity may
the beginning of the preceding not have collected data in the prior
period regardless of whether an period(s) in a way that allows
entity’s financial statements reclassification, and it may be
present comparative information impracticable to recreate the
for earlier periods (as permitted in information.
paragraph 38C).  IAS 8 sets out the adjustments to
comparative information required
 If an entity changes the when an entity changes an
presentation or classification of accounting policy or corrects an
items in its financial statements, it error.
shall reclassify comparative
amounts unless reclassification is Consistency of presentation
impracticable. When an entity
reclassifies comparative amounts,  An entity shall retain the
it shall disclose (including as at the presentation and classification of
beginning of the preceding period): items in the financial statements
1. the nature of the from one period to the next unless:
reclassification; 1. it is apparent, following a
2. the amount of each item or significant change like the
class of items that is entity’s operations or a
reclassified; and review of its financial
3. the reason for the statements, that another
reclassification. presentation or classification
Conceptual Framework and Accounting Standards
Lesson #1

would be more appropriate statements, and is also required by other

having regard to the criteria IFRSs. Unless specified to the contrary
for the selection and elsewhere in this Standard or in another
application of accounting IFRS, disclosures may be made in the
policies in IAS 8; or financial statements.
2. an IFRS requires a change in
presentation

 For example, a significant Identification of Financial

acquisition or disposal, or a review Statement
of the presentation of the financial
statements, might suggest that the An entity shall clearly identify the
financial statements need to be financial statements and distinguish
presented differently. An entity them from other information in the same
changes the presentation of its published document.
financial statements only if the
changed presentation provides IFRSs apply only to financial
information that is reliable and statements and not necessarily to
more relevant to users of the other information presented in an annual
financial statements and the report, a regulatory filing, or another
revised structure is likely to document. This distinction ensures clarity
continue so that comparability is for users.
not impaired. When making such
changes in presentation, an entity An entity shall identify its financial
reclassifies its comparative statements and notes, displaying
information following paragraphs key information prominently and
41 and 42. repeating it as needed to be
understandable
STRUCTURE AND CONTENT
1. Name of the entity (or any
Introduction changes from the end of reporting
period).
IAS 1 requires particular disclosure in 2. Whether the statements are for
the statement of financial position or the an individual entity or a group
statement(s) of profit or loss and other 3. Date of the end of the reporting
comprehensive income, or in the period
statement of changes in equity and 4. Presentation currency ( IAS 21).
requires disclosure of other line items 5. Level of rounding used in
either in those statements or in the presenting amount.
notes.
An entity meets the requirements by
IAS 7 Statement of Cash Flows. sets using appropriate headings for pages,
out requirements for the presentation of statements, and notes. When
cash flow information presenting financial statements
electronically, items are organized to
“disclosure” is used broad sense, ensure the information is easily
encompassing items in the financial understood.
Conceptual Framework and Accounting Standards
Lesson #1

Presenting financial statement 13.1 portfolios of contracts within

information in thousands or millions is the scope of IFRS 17 that are
acceptable if the entity discloses the liabilities, disaggregated as
level of rounding and includes all required by paragraph 78 of
material information. IFRS 17;
14. liabilities and assets for
current tax, as defined in IAS 12
Income Taxes;
15. deferred tax liabilities and
deferred tax assets, as defined
Statement of Financial Position in IAS 12;
16. liabilities included in disposal
Information to be presented in the groups classified as held for sale
statement of financial position. The per IFRS 5;
statement of financial position shall 17. non-controlling interests,
include line items that present the presented within equity; and
following amounts: 18. issued capital and reserves
1. property, plant, and equipment; attributable to owners of the
2. investment property; parent.
3. intangible assets;
4. financial assets (excluding An entity must include additional line
amounts shown under (e), (h) items (including by disaggregating the
and (i)); line items listed in paragraph 54),
4.1 portfolios of contracts within headings, and subtotals in the statement
the scope of IFRS 17 that are of financial position if they are necessary
assets, dis-aggregated as for understanding its financial position.
required by paragraph 78 of
IFRS 17; When an entity presents subtotals
5. investments accounted for using following paragraph 55, those
the equity method; subtotals shall:
6. biological assets within the 1. consist of line items recognized
scope of IAS 41 Agriculture; and measured per IFRS;
7. inventories; 2. presented and labeled clearly and
8. trade and other receivables; understandably;
9. cash and cash equivalents; 3. consistent from period to period;
10. the total of assets classified 4. not be displayed with more
as held for sale and assets prominence than the subtotals and
included in disposal groups totals required in IFRS for the
classified as held for sale by statement of financial position.
IFRS 5 Non-current Assets Held
for Sale and Discontinued When an entity separates current and
Operations; non-current assets and liabilities in its
11. trade and other payables; statement of financial position, it shall
12. provisions; not classify deferred tax assets or
13. financial liabilities (excluding liabilities as current assets or liabilities.
amounts shown under (k) and
(l));
Conceptual Framework and Accounting Standards
Lesson #1

This Standard does not prescribe the item that combines amounts expected to
order or format in which an entity be settled:
presents items. It lists items that
should be presented separately 1. no more than twelve months after
based on their nature or function. In the reporting period, and
addition: 2. more than twelve months after the
reporting period.
1. Separate presentation is required
for line items that are significant in When an entity supplies goods or
size, nature, or function; and services within a defined operating cycle,
2. Descriptions and orders can be separating current and non-current
adjusted based on the entity's assets and liabilities in the financial
nature and transactions to provide position statement provides useful
relevant information, such as for a information. It distinguishes working
financial institution's operations. capital from long-term assets and
liabilities, highlighting those expected to
An entity makes the judgment about be realized or settled within the current
whether to present additional items operating cycle.
separately based on an assessment
of: For some entities, like financial
1. the nature and liquidity of assets; institutions, presenting assets and
2. the function of assets within the liabilities in order of liquidity is more
entity; and relevant than a current/non-current
3. the amounts, nature, and timing of classification since they don’t operate
liabilities. within a clearly defined cycle.

The use of different measurement bases Entities can use a mixed presentation
for different classes of assets suggests approach, classifying some assets and
that their nature or function differs and, liabilities as current/non-current and
therefore, an entity presents them as others in order of liquidity when it
separate line items. provides more relevant and reliable
information, especially in diverse
Current/non-current distinction operations.

An entity must separate current and non- Information about the expected dates of
current assets and liabilities in its realization of assets and liabilities is
statement of financial position, except useful in assessing the liquidity and
when a presentation based on liquidity solvency of an entity. IFRS 7 requires
provides information that is reliable and disclosure of maturity dates for financial
more relevant, in which case all assets assets and liabilities, including trade
and liabilities can be shown in order of receivables and payables. Information
liquidity. about the expected recovery of non-
monetary assets, like inventories, and
Whichever method of presentation is the settlement of liabilities, such as
adopted, an entity shall disclose the provisions, is also important regardless of
expected recovery or settlement their classification.
amounts for each asset and liability line
Conceptual Framework and Accounting Standards
Lesson #1

Current assets 1. settle the liability in its normal

operating cycle
An entity shall classify an asset as 2. has the purpose of trading
current when: 3. to be settled within twelve
months after the reporting
1. it expects to realize the asset, or period
intends to sell or consume it, in its 4. does not have the right at the
normal operating cycle; end of the reporting period to
2. it holds the asset primarily for defer settlement of the liability
trading; for a least twelve months after
3. it expects to realize the asset the reporting period.
within twelve months after the
reporting period; or An entity shall classify all other
4. the asset is cash or a cash liabilities as non-current.
equivalent (as defined in IAS 7)
unless the asset is restricted from Normal Operating Cycle
being exchanged or used to settle
a liability for at least twelve Current liabilities like trade payables and
months after the reporting period. some accruals for employee and
operating costs are part of the working
An entity shall classify all other capital in the entity's normal operating
assets as non-current. cycle. It is classified as current liabilities,
even if the due is settled more than
"Non-current" it encompasses tangible, twelve months. If the operating cycle is
intangible, and long-term financial not clearly identifiable, it is assumed to
assets, allowing for alternative be twelve months.
descriptions if the meaning is clear.
Held Primarily for Trading or Due Within
The operating cycle is the time between Twelve Months
acquiring assets for processing and
realizing them in cash or cash Current liabilities not settled in the
equivalents. If the operating cycle isn't normal operating cycle but due within
identifiable, it is assumed to be twelve twelve months include financial liabilities
months. Current assets include those held for trading, bank overdrafts, current
sold, consumed, or realized in the normal portions of non-current liabilities,
operating cycle, even if they are not dividends payable, and income taxes.
expected to be realized within twelve Long-term financial liabilities not due
months. Current assets also consist of within twelve months are classified as
assets held primarily for trading, non-current.
including some financial assets defined
as held for trading and the current An entity classifies its financial liabilities
portion of non-current financial assets. as current when they are due to be
settled within twelve months after the
Current liabilities reporting period, even if:

An entity shall classify a liability as

current when:
Conceptual Framework and Accounting Standards
Lesson #1

1. the original term was for a The classification of liability remains non-
period longer than twelve current if it meets the criteria in
months, and paragraph 69, regardless of
2. an agreement to refinance, or to management's intentions to settle it
reschedule payments, on a long- within twelve months or if it is settled
term basis is completed after before the financial statements are
the reporting period and before authorized. However, the entity may
the financial statements are need to disclose information about the
authorized for issue. timing of the settlement to help users
understand its financial position.
Right to Defer Settlement for at Least
Twelve Months (Paragraph 69(d)) If the following events occur between the
end of the reporting period and the date
An entity right to defer liability the financial statements are authorized
settlement for at least twelve months for issue, they are disclosed as non-
after the reporting period, which must adjusting events under IAS 10 Events
exist at the end of the reporting period. If after the Reporting Period:
complying with conditions is required,
the entity must meet them at the end of 1. refinancing a liability classified
the reporting period. as current on a long-term basis
(see paragraph 72);
If an entity has the right to extend an 2. rectification of a breach of a
obligation under an existing loan for at long-term loan arrangement
least twelve months, it classifies that classified as current (see
obligation as non-current, even if it would paragraph 74);
otherwise be due within a shorter period. 3. granting of a period of grace by
If no such right exists, the obligation is the lender to rectify a breach of
classified as current without considering a long-term loan arrangement
potential refinancing. classified as current (see
paragraph 75);
If an entity breaches a long-term loan 4. settlement of a liability
arrangement by the end of the reporting classified as non-current (see
period, making the liability payable on paragraph 75A).
demand, it classifies the liability as
current, even if the lender later agreed Settlement (paragraphs 69(a), 69(c) and
not to demand payment. This is because 69(d))
the entity does not have the right to
defer settlement for at least twelve For classifying a liability as current or
months after that date. non-current, settlement refers to a
transfer to the counterparty that
The entity classifies the liability as non- extinguishes the liability. This transfer
current if the lender agrees by the end of could be:
the reporting period to a grace period of
at least twelve months which the entity 1. cash or other economic
can rectify the breach. resources, such as goods or
services;
Conceptual Framework and Accounting Standards
Lesson #1

2. the entity’s own equity 4. provisions should be divided into

instruments. provisions for employee benefits
and other categories.
Terms of a liability allowing the 5. equity capital and reserves should
counterparty to settle it with the entity’s be differentiated into various
own equity instruments do not affect its classes, such as paid-in capital,
classification as current or non-current if share premium, and reserves.
the entity classifies the option as an
equity instrument, recognizing it Further disclosures required include
separately from the liability as an equity 1. For each class of share capital:
component of a compound financial i. The number of shares
instrument. authorized.
ii. The number of shares issued,
fully paid, and not fully paid.
iii. The par value per share or an
indication that shares have
no par value.
iv. A reconciliation of the
number of shares
Information to be presented outstanding at the beginning
either in the Statement of and end of the period.
Financial Position or in the Notes v. The rights, preferences, and
restrictions related to that
The entities must disclose detailed class, including limitations on
subclassifications of line items in their dividends and capital
financial statements or accompanying repayment.
notes, tailored to their operational vi. Shares held by the entity or
context. IFRS requirements and the by its subsidiaries or
nature of the amounts involved associates.
determine the extent of detail in these vii. Shares reserved for future
subclassifications. issuance under options and
contracts, including terms
Key examples include: and amounts.
1. property, plant, and equipment
items should be categorized per 2. A description of the nature and
IAS 16. purpose of each reserve within
2. receivables must be broken down equity.
into amounts from trade
customers, related parties, The disclosure requirements for entities
prepayments, and other amounts. without share capital, such as
3. inventories must be classified, as partnerships or trusts, must provide
per IAS 2, into categories such as information comparable to that required
merchandise, production supplies, for share capital entities. This includes
materials, work in progress, and reporting changes in each category of
finished goods. equity interest and detailing the rights,
preferences, and restrictions associated
with these interests.
Conceptual Framework and Accounting Standards
Lesson #1

If an entity reclassifies: If profit or loss is presented separately, it

1. a puttable financial instrument must be included in the statement
previously classified as an equity accordingly.
instrument or
2. an instrument that obligates the Information to be presented in
entity to deliver a pro-rata share of the profit or loss section or the
net assets only on liquidation and statement of profit or loss
classified as an equity instrument,
it must disclose the amounts The mandatory items to be included in
reclassified in and out of financial the profit or loss section or statement of
liabilities and equity, along with the profit or loss, as required by IFRS include:
timing and reasons for the 1. revenue
reclassification. i. Interest revenue using the
effective interest method
ii. Insurance revenue by IFRS 17
1.1 arising from the derecognition of
financial assets measured at
amortized cost
1.2 insurance service expenses from
STATEMENT OF PROFIT OR LOSS contracts under IAS 17
AND OTHER COMPREHENSIVE 1.3 income or expense from
INCOME reinsurance contracts under IAS 17
2. finance costs
PAS 1 requires an entity to present 2.1 including reversals, as per IFRS 19
information on the following: 2.2 insurance finance income or
1. profit or loss; expense for contracts under 17
2. total other comprehensive income; 2.3 from reinsurance contracts (IFRS
3. comprehensive income for the 17)
period (total of profit or loss and 3. share of profit or loss from
total other comprehensive income) associates and joint ventures
3.1 out of the amortized cost
If a separate profit or loss statement is measurement category, any gain or
provided, it does not need to repeat the loss
profit or loss section in the 3.2 out of OCI, recognized as profit or
comprehensive income statement. loss
4. tax expense
Entities must also present items in 5. a single amount reflecting the total
addition to profit or loss and other for discontinued operations per
comprehensive income, including IFRS 5
allocations for:
a. Profit or loss i. non- Information to be presented in the
for the period controlling other comprehensive income section
b. Comprehensiv interests,
e income for and a. items of other i. will not be
the period ii. owners of comprehensiv reclassifie
the parent e income d to profit
Conceptual Framework and Accounting Standards
Lesson #1

classified by or loss Profit or loss for the period

nature and ii. will be
grouped as reclassifie This section mandates that:
per IFRS: d under An entity must recognize all income and
b. share of other specific expenses for a period in the profit or loss
comprehensiv conditions section unless an IFRS requires or allows
e income otherwise.
relating to
associates and Specific IFRSs, outline cases where items
joint ventures are recognized outside of profit or loss.
using the These cases include:
equity  Correction of errors
method, also  Effects of changes in accounting
separated policies
into:
Other IFRSs may require or permit
Entities may present further line items, certain components of other
headings, and subtotals that provide a comprehensive income to be excluded
clearer understanding of their financial from profit or loss if they align with the
performance. Conceptual framework’s definitions of
Subtotals presentation: income and expense.
1. should consist of items recognized
and measured according to IFRS. Profit or loss generally captures all
2. must be clear, labeled, and income and expenses unless specific
understandable IFRSs allow for exceptions.
3. should be consistent across periods
4. should not overshadow mandatory Other comprehensive income for the
IFRS totals period

Line items should reconcile with any Focusing on how entities must handle the
subtotals and totals. disclosure of income tax, reclassification
adjustments, and presentation options:
 The entity should present all
components of financial Entities must disclose income tax related
performance to provide to each OCI item, including
transparency for users in reclassification adjustments, in either the
understanding past and future profit or loss statement notes. An entity
financial performance. can present OCI items if:
 Descriptions and ordering of items 1. Net of tax effects, or
may be adjusted for clarity, 2. Before-tax effects, showing a single
considering materiality and the aggregate tax amount for all OCI
function of income and expense items
If option b is selected, the tax should be
No items of income or expense should be allocated between items reclassified to
presented as extraordinary in profit or profit or loss and those that will not be
loss, comprehensive income, or notes. reclassified.
Conceptual Framework and Accounting Standards
Lesson #1

RECLASSIFICATION ADJUSTMENTS
- An entity must disclose  This must be included in the SP/SL,
reclassification adjustments OCI, or notes, depending on what
related to OCI components provides the clearest insight into
- Occur when items previously the entity’s financial situations.
recognized in OCI are later
reclassified to profit or loss when This is how entities should present an
realized, ensuring they aren’t analysis of expenses in the statement of
counted twice in comprehensive profit or loss.
income. The expenses should be classified based
RECLASSIFICATI RECLASSIFICATI on either their nature (what they are) or
ON ON their function (what they do within the
ADJUSTMENTS ADJUSTMENTS entity). The goal is to provide reliable
ARISE DO NOT ARISE and relevant financial information.
For example, on changes in
disposal of a revaluation surplus
foreign operation (IAS 16, IAS 38),
or when hedged remeasurements
forecast cash of defined benefit
flows affect profit plans (IAS 19), or NATURE OF FUNCTION OF
or loss (IAS 21 and specific hedging EXPENSE EXPENSE
IFRS 9) instruments (IFRS METHOD METHOD
9)

This section clarifies how entities should

handle tax effects and reclassifications
for OCI items, ensuring proper disclosure
and preventing double-counting in
financial events. This groups This classifies
expenses by their expenses by their
Information to be presented in nature, such as function, such as
the Statement of Profit or Loss depreciation, raw cost of sales or
and Other Comprehensive Income materials, and administrative
or Notes employee costs. It's
benefits. It doesn’t considered more
Requirement for entities to disclose items allocate these relevant because
of income and expenses separately when costs to different it relates expenses
they are material. This is important for functions, which directly to their
providing clarity on the financial makes it simpler purchase.
performance of an entity. to apply. However, it
1. Write-downs of inventories or PPE requires more
2. restructuring activities complex
3. disposals of assets allocations and
4. disposals of investments judgments.
5. discontinued operations
6. litigation settlements Both methods have advantages
7. other reversals of provisions depending on the entity's operations,
Conceptual Framework and Accounting Standards
Lesson #1

and management is expected to choose

the most relevant presentation.  The overall changes in equity
Examples of each method's format are during a period represent the
provided, showing how they differ in total amount of income and
organizing and presenting financial expenses, including gains and
performance. losses, generated by the entity’s
activities during that period.
additional information must be disclosed,
particularly details on the nature of  Retrospective adjustments and
expenses such as depreciation, retrospective restatements are not
amortization, and employee benefits. changes in equity but they are
adjustments to the opening
Paragraph 105 explains that the choice balance of retained earnings,
between the function of expense and the except when IFRS requires the
nature of expense methods depends on retrospective adjustments of
historical and industry factors, as well as another changes in equity.
the nature of the entity itself. Both
methods provide insight into costs that
may vary with sales or production levels.
Each method has merit depending on the
entity's operations, and management
must choose the one that delivers the STATEMENT OF CASH FLOWS
most reliable and relevant information.
However, when using the function of Provide users of financial statements
expense classification, additional with a basis to asses the ability of the
disclosure on the nature of expenses is entity to generate cash and cash
required since it helps predict future cash equivalents and the needs of the entity
flows. The term "employee benefits" to utilize those cash flows.
follows the definition provided in IAS 19.
NOTES AND STRUCTURES
STATEMENT OF CHANGES IN
EQUITY 1. Present information about the
Entity shall present a statement of basis of preparation of the
changes in equity as required: financial statements and the
 Each component of equity, effects specific amounting policies used.
of retrospective application or 2. Disclosed the information
retrospective restatement required by IFRSs that is not
recognized in accordance with IAS presented elsewhere in the
18. financial statements.
3. Provide information that is not
 A reconciliation between the presented in the financial
carrying amount of the end of the statements, but relevant to an
period, separately ( as a minimum) understanding of any of them.
disclosing changes resulting from;
1. Profit or Loss  Entity shall present notes in a
2. Other comprehensive systematic manner.
income
Conceptual Framework and Accounting Standards
Lesson #1

 Entity shall consider the effects on  Accounting policy information that

the understandability and focuses on how an entity has
comparability of it’s financial applied the requirements of the
statements . IFRSs to its own circumstances
provides entity-specific information
Disclosure of Accounting Policy that is more useful to users of
Information financial statements than
standardized information, or
Entity shall disclose material information that only duplicates or
accounting policy information. summarizes the requirements of
Accounting policy information is material the IFRSs.
if considered together with other
information included in an entity’s  An entity shall disclose, along with
financial statements. material accounting policy
 Entity shall disclose material information or other notes, the
accounting policy information. judgements, apart from those
Accounting policy information is involving estimations
material if considered together
with other information included in Sources of Estimation Uncertainty
an entity’s financial statements.
 Entity shall disclose information
 Not all accounting policy about the assumptions it makes
information relating to material about the future, and other major
transactions is itself material. sources of estimation uncertainty
at the end of the reporting period,
 Accounting policy information is that have a significant risk of
expected to be material if users of resulting in a material adjustment
an entity’s financial statements to the carrying amounts of assets
would need it to understand other and liabilities within the next
material information in the financial year.
financial statements. 1. Their nature, and
1. Entity changed its accounting 2. Their carrying amount as at
policy during the reporting the end of the reporting
period and this resulted in period.
material changes to the
information in the financial  Determining the carrying amounts
statements; of some assets and liabilities
2. Entity choose the accounting requires estimation of the effects of
policy from one of more uncertain future events on those
options permitted to IFRS. assets and liabilities at the end of
3. Accounting policy was the reporting period.
developed in accordance
with IAS 8 in the absence of  The number of variables and
an IFRS that specifically assumptions affecting the possible
applies; future resolution of the
uncertainties increases, those
judgements become more
Conceptual Framework and Accounting Standards
Lesson #1

subjective and complex, and the processes for managing

potential for a consequential capital, including:
material adjustment to the carrying i. Description of what it
amounts of assets and liabilities manages as capital;
normally increases accordingly. ii. When an entity is
subject to externally
 Fair values might change imposed capital
materially within the next financial requirements, the
year but these changes would not nature of those
arise from assumptions or other requirements and how
sources of estimation uncertainty those requirements are
at the end of the reporting period. incorporated into the
management of capital;
 Examples of the types of iii. how it is meeting its
disclosures an entity makes are: objectives for
1. the nature of the assumption managing capital
or other estimation 2. summary quantitative data
uncertainty; about what it manages as
2. the sensitivity of carrying capital. Some entities regard
amounts to the methods, some financial liabilities (e.g.
assumptions and estimates some forms of subordinated
underlying their calculation, debt) as part of capital.
including the reasons for the 3. Any changes in (1.) and (2.)
sensitivity; from the previous period.
3. the expected resolution of an 4. When the entity has not
uncertainty and the range of complied with such
reasonably possible externally imposed capital
outcomes within the next requirements, the
financial year in respect of consequences of such non-
the carrying amounts of the compliance.
assets and liabilities affected; 5. An entity may manage
and capital in a number of ways
4. an explanation of changes and be subject to a number
made to past assumptions of different capital
concerning those assets and requirements.
liabilities, if the uncertainty
remains unresolved Puttable Financial Instruments
classified as Equity
Capital
Puttable financial instruments classified
 Entity shall disclose information as equity instruments, an entity shall
that enables users of its financial disclose:
statements to evaluate the entity’s 1. Summary quantitative data about
objectives, policies and processes the amount classified as equity
for managing capital. 2. its objectives, policies and
1. Qualitative information about processes for managing its
its objectives, policies and obligation to repurchase or redeem
Conceptual Framework and Accounting Standards
Lesson #1

the instruments when required to

do so by the instrument holders,
including any changes from the
previous period;
3. The expected cash outflow on
redemption or repurchase of that
class of financial instruments;
4. information about how the
expected cash outflow on
redemption or repurchase was
determined. Puttable Financial Instruments
Classified as Equity
OTHER DISCLOSURES Entity shall disclose to the extent
not disclosed elsewhere:
 Entity shall disclose in the notes: a. Quantitative Data-summary of the
1. the amount of dividends amount classified as equity
proposed or declared before the b. Management of Obligations-
financial statements were objectives, policies, and processes
authorized for issue but not for managing
recognized as a distribution to repurchase/redemption obligations
owners during the period, and c. Expected Cash Outflows -
the related amount per share; information about the expected
and cash outflow on redemption or
2. The amount of any cumulative repurchase
preference dividends not d. Dividents-disclosure of dividends
recognized. proposed or declared but not yet
recognized
 An entity shall disclose the Cumulative Preference Dividends -
following, if not disclosed disclosure of cumulative preference
elsewhere in information published dividends not recognized
with the financial statements: Entity Information - information about
1. the domicile and legal form how the expected cash outflow on
of the entity, its country of redemption or repurchase was
incorporation and the determined
address of its registered
office (or principal place of Entity shall disclose in the notes:
business, if different from the a) The amount of dividends proposed or
registered office) declared before the financial statements
2. a description of the nature of were authorized for issue but not
the entity’s operations and recognized as a distribution to owners
its principal activities; the during the period, and the related
3. name of the parent and the amount per share,
ultimate parent of the group; b) The amount of any cumulative
and preference dividends is not recognized.
4. if it is a limited life entity,
information regarding the Entity shall disclose the following, if
length of its life. not disclose in information
Conceptual Framework and Accounting Standards
Lesson #1

published with the financial Amendments to IFRS 10, IFRS 12 & IFRS
statements: 13-issued in May 2011, and their
a) The domicile and legal form of the applicability for annual periods beginning
entity, its country of incorporation, and on or after July 1, 2012.
the address of its registered office.
b) A description of the nature of the Amendments to IFRS 15 Revenue from
entity's operations and its principal Contracts with Consumers issued in May
activities. 2014, and their applicability for annual
c) The name of the parent and ultimate periods beginning on or after May 1,
parent of the group. 2014.
d) If it is a limited life entity, information
regarding the length of its life. Presentation of items of Other
Comprehensive Income (Amendments to
TRANSITION AND EFFECTIVE DATE IAS 1)-issued in June 2011, for annual
periods beginning on or after July 1,
Entity must apply the standard for annual 2012. If an entity applies the amendment
periods beginning on or after January 1, for earlier period, it must disclose that
2009. if an entity adopts the standard for fact.
an earlier period, it must disclose that
fact Employee Benefits (Amendments to IAS
19)-issued in June 2011, an entity shall
Amendments to IAS 27 (2008) -for annual apply other comprehensive income in
periods beginning on or after july 1, paragraph 7 & 96.
2007. If an entity applies the amendment
for an earlier period, it must disclose that Annual Improvements 2009-2011 Cycle-
fact, issued in May 2012, entity shall apply
amendment retrospectively in
Puttable Financial instruments and accordance with IAS 8 Accounting
Obligations Arising in Liquidation Policies, Changes in Accounting
(Amendments to IAS 32 and IAS 1)- Estimates and Errors for annual periods
issued in February 2008, and their beginning on or after January 1, 2013.
applicability for annual periods beginning
on or after January 1, 2009. Disclosure Initiative (Amendments to IAS
1)- issued in December 2014, entity shall
Amendments to paragraph 68 & 71- apply those amendments for annual
amended by improvements to IFRS periods beginning on or after January 1,
Issued in May 2008. These applies for 2016. If an entity applies the amendment
annual periods beginning on or after for an earlier period, entities are not
January 1, 2009. required to disclosed that fact.

Amendments to paragraph 106 & 107- Amendments to IFRS 16 Leases-issued in

added by improvements to IFRS Issued in January 2016, and their applicability for
May 2010, and their applicability for annual periods beginning on or after
annual periods beginning on or after January 1, 2016.
January 1, 2011.
Amendments to IFRS 17-Issued in May
2017, and their applicability for annual
Conceptual Framework and Accounting Standards
Lesson #1

periods beginning on or after January 1, Hans-Georg Bruns

2020. Anthony T. Cope Philippe Danjou
Jan Engstrom Robert P. Garnett
Amendments to IFRS 17-issued in June Gilbert Gerald Jarnes L. Lesenring
2020, and their applicability for annual Warren McGregor Patricia L. O'Malley
periods beginning on or after January 1, John T. Smith
2020. Tatsumi Yamada

Amendments to the Conceptual

Framework in IFRS Standards-issued in
2018, and their applicability for annual
periods beginning on or after lanuary 1,
2020.

Definition of Material (Amendments to

IAS 1 & IAS 8)-issued in October 2018,
and their applicability for annual periods
beginning on or after January 1, 2020.

Classification of Liabilities as Current or

Non-Current-issued in January 2020,
entity shall apply those amendments for
annual reporting periods beginning on or
after January 1, 2023. If an entity applies
that amendment for an earlier period, it
must disclose that fact.

Disclosure of Accounting Policles (also

amended IFRS Practice Statement 2
Making Materiality Judgements)-issued in
February 2021, entity shall apply
amendments to IAS1 for
annußalreporting periods beginning on or
after January 1. 2023. If an entity applies
those amendmerits for an earlier period,
it shall disclose that fact.

Withdrawal of IAS 1 (revised 2003)

This Standard supersedes IAS 1
Presentation of Financial Statements
revised in 2003, as amended in 2005.
Approval by the Board of IAS 1 issued in
September 2007
Sir David Tweedie Chairman
Thomas E. Jones Vice-Chairman
MEMBERS
Mary E. Barth