Presentation of financial statements (IAS 1) - Components an...

Learning Outcomes

After completing this article, you will be able to outline the mandatory components of a complete set of financial statements according to IAS 1, describe the required structure and content of the key primary statements, explain the distinction between profit or loss and other comprehensive income, and understand equity presentation. This knowledge is critical for accurate preparation and analysis of published accounts in the ACCA FR exam.

ACCA Financial Reporting (FR) Syllabus

For ACCA Financial Reporting (FR), you are required to understand how to prepare, structure, and present a complete set of financial statements in accordance with IAS 1. This article focuses your revision on:

• The requirements of IAS 1 Presentation of Financial Statements
• The mandatory components of a complete set of financial statements
• The required structure and minimum line items for each primary statement (Statement of Financial Position, Statement of Profit or Loss and Other Comprehensive Income, Statement of Changes in Equity, and Statement of Cash Flows)
• The purpose and typical content of each primary statement
• The distinction between profit or loss and other comprehensive income
• Equity presentation and disclosure requirements

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. According to IAS 1, which of the following is not a required component of a complete set of financial statements?
   1. Notes to the accounts
   2. Statement of financial position
   3. Statement of changes in equity
   4. Auditor’s report

2. Which two primary statements provide a summary of financial performance and changes in equity over a period?

3. True or false? Other comprehensive income includes all gains and losses recognised directly in equity.

4. Briefly state when an item should be presented as a separate line in the statement of profit or loss.

5. In the equity section, which elements are required to be presented separately according to IAS 1?

Introduction

IAS 1, Presentation of Financial Statements, sets the international standard for the format and content of general purpose financial statements. Its objective is to ensure comparability, clarity, and consistency across entities and periods. As an ACCA FR candidate, understanding how to present a full set of financial statements is fundamental for preparing and interpreting published accounts.

Key Term: financial statements
A structured representation of the financial position and financial performance of an entity, consisting of defined components as required by IAS 1.

Components of a Complete Set of Financial Statements

IAS 1 requires that a complete set of financial statements comprises:

• Statement of financial position (as at the reporting date)
• Statement of profit or loss and other comprehensive income (for the period)
• Statement of changes in equity (for the period)
• Statement of cash flows (for the period)
• Notes, comprising a summary of significant accounting policies and other explanatory information

Some entities may also include a separate statement of profit or loss and a statement showing other comprehensive income. The above titles are not strictly required under IAS 1, but their use is recommended for clarity.

Key Term: statement of financial position
A statement showing the assets, liabilities, and equity of an entity at a specific point in time.

Key Term: statement of profit or loss and other comprehensive income
A statement reporting the financial performance of an entity, split between profit or loss and items of other comprehensive income, over a period.

Key Term: statement of changes in equity
A statement displaying the movements in equity components, such as share capital, reserves, and retained earnings, during a period.

Key Term: statement of cash flows
A statement summarising the cash inflows and outflows from operating, investing, and financing activities during a period.

Key Term: notes to the accounts
Explanatory notes and accounting policy disclosures, providing detail and clarity for the figures presented in the primary statements.

Structure and Content of Primary Statements

Statement of Financial Position

• Assets and liabilities must be classified as current or non-current according to clear criteria.
• Minimum line items required include property, plant and equipment; intangible assets; investment property; inventory; trade and other receivables; cash and cash equivalents; trade and other payables; provisions; and each class of equity.
• Subtotals and additional line items should be presented when material.

Key Term: current asset
An asset expected to be realised within the entity’s operating cycle, held for trading, or expected to be realised within twelve months of the reporting date.

Key Term: non-current liability
A liability not due for settlement within twelve months or the operating cycle, whichever is longer.

Statement of Profit or Loss and Other Comprehensive Income

• May be presented as a single statement, or split into a statement of profit or loss and a statement of other comprehensive income.
• Minimum line items required include revenue, finance costs, tax expense, profit or loss, each class of other comprehensive income, and total comprehensive income.
• ‘Profit or loss’ includes income and expenses recognised in the period, except for those classified as other comprehensive income.

Key Term: other comprehensive income (OCI)
Items of income and expense not recognised in profit or loss as required by other IFRSs, such as revaluation gains, actuarial gains and losses, or certain financial instrument movements.

Statement of Changes in Equity

• Must show total comprehensive income for the period, effects of changes in accounting policy and correction of errors, as well as amounts of transactions with owners (e.g., dividends, share issues).
• Each component of equity (share capital, reserves, retained earnings, etc.) must be presented and reconciled from opening to closing balances.

Statement of Cash Flows

• Required in accordance with IAS 7, presented using the indirect method as standard for ACCA FR. (See separate chapter for format detail.)
• Summarises inflows and outflows from operating, investing, and financing activities.

Notes to the Accounts

• Must include a summary of significant accounting policies, supporting information for line items, and further disclosures required by IFRS.

Worked Example 1.1

Durham Ltd is preparing its annual report. Its directors want to omit the statement of changes in equity, arguing that the movements can be explained in the notes.

Question:
Is Durham Ltd allowed to omit the statement of changes in equity if all movements are covered in the notes, per IAS 1?

Answer:
No. IAS 1 explicitly requires a statement of changes in equity as one of the primary statements. The entity cannot substitute this with note disclosures; a full reconciliation is required as a primary statement for transparency and comparability.

Worked Example 1.2

Minster plc is preparing its statement of profit or loss and other comprehensive income. During the year, it made a gain on revaluation of property, plant and equipment ($200,000) and has a profit after tax of $600,000.

Question:
How should Minster plc present these items?

Answer:
The revaluation gain must appear in other comprehensive income, not profit for the period. The statement will show profit for the year: $600,000, other comprehensive income: $200,000, total comprehensive income: $800,000.

Exam Warning

In the exam, do not confuse profit for the year (bottom line of profit or loss) with total comprehensive income (profit for the year plus OCI). Presentation marks are frequently lost for this mistake.

Revision Tip

Always learn and practise the standard layouts for each statement, including the minimum line items required by IAS 1. Watch for materiality and aggregation: combine immaterial items, but never obscure material balances.

Summary

IAS 1 sets strict rules for the form and content of published financial statements. A complete set comprises five components: statement of financial position, statement of profit or loss and other comprehensive income, statement of changes in equity, statement of cash flows, and notes. Each primary statement has minimum required line items, and the statement of changes in equity cannot be replaced by note disclosure. Distinguishing between profit or loss and other comprehensive income is essential for accurate reporting and exam success.

Key Point Checklist

This article has covered the following key knowledge points:

• List each of the five components required for a complete set of financial statements under IAS 1
• Explain the required structure and content of each primary statement
• Define current/non-current classifications for assets and liabilities
• Distinguish between profit or loss and other comprehensive income
• State the required presentation and reconciliation of equity components
• Recognise the role and mandatory content of the notes to the accounts

Key Terms and Concepts

• financial statements
• statement of financial position
• statement of profit or loss and other comprehensive income
• statement of changes in equity
• statement of cash flows
• notes to the accounts
• current asset
• non-current liability
• other comprehensive income (OCI)