Ias 1 financial presentation lecture notes

IAS 1: Presentation of Financial Statements

ACCA F7/FR Lectures

Updated: July 2025

Introduction to IAS 1

Purpose

IAS 1 Presentation of Financial Statementssets out the

structure, content, and principles for preparing and

presenting financial statements, ensuringtransparencyand

comparability

• Core IFRS standard for ACCA F7/FR syllabus

• Covers form, content, and disclosures of financial

statements

• Includes VAS comparisons for context

Components of Financial Statements

IAS 1 Requirements

A complete set of financial statements includes:

1 Statement of Financial Position(SOFP)

2 Statement of Profit or Loss and OCI(PL and OCI)

3 Statement of Changes in Equity(SCE)

4 Statement of Cash Flows

5 Notesto the financial statements

• Exam Tip: List all components in answers

Identification Requirements

IAS 1 Display Information

Financial statements and notes must clearly show:

1 Name of thereporting entity

2 Whether statements are for anindividual entityorgroup

3 Reporting perioddate or period covered

4 Presentation currency

5 Level of roundingused (e.g., thousands, millions)

• Practical Scenario: Annual reports label entity and

currency

Overall Considerations: Overview

Fair Presentation and IFRS Compliance

Principle

Financial statements must achievefair presentationby

complying withIFRS, reflecting the entity’s financial position,performance, and cash flows

• Departure from IFRS allowed only inextremely rarecasesfor fairer presentation

• Practical Scenario: Full IFRS adoption ensures global

comparability

• Exam Tip: Emphasize IFRS compliance unless exceptionapplies

Going Concern

Principle

Financial statements are prepared assuming the entity is a

going concern, expected to continue operations without

liquidating assets or ceasing operations

• Management assesses ability to continue for at least 12months

• Practical Scenario: Insolvency risks trigger disclosures

• Exam Tip: Discuss going concern in liquidity-related

questions

Accrual Basis

Principle

Financial statements (except cash flows) are prepared on an

accrual basis, recognizing transactions when they occur, notwhen cash changes hands

• Example: Revenue recognized when earned, not received

• Practical Scenario: Credit sales recorded as receivables

• Exam Tip: Contrast with cash basis in cash flow questions

Materiality and Aggregation

Principle

Presentmaterialitems separately; aggregate immaterial itemswith similar nature/function Materiality depends on

size/nature of item

• Example: Significant PPE impairment shown separately

• Practical Scenario: Minor expenses aggregated as “otherexpenses.”

• Exam Tip: Justify materiality in presentation choices

Frequency, Offsetting, Comparability, Consistency

Principles

• Frequency: At least annual reporting.

• Offsetting: Prohibited unless permitted by IFRS (e.g.,

Statement of Financial Position: Overview

IAS 1 Requirement

TheStatement of Financial Position(SOFP) presents assets,

liabilities, and equity at the reporting date

• Classify assets/liabilities ascurrentornon-current,

unless liquidity-based presentation is more relevant

• Practical Scenario: Banks use liquidity order for relevance.

• Exam Tip: Specify classification basis in answers

Current vs Non-Current Assets

IAS 1 Criteria

Current Assetsare:

1 Expected to be realized in normal operating cycle

2 Held for trading

3 Realized within 12 months

4 Cash or cash equivalents without restrictions

• All other assets arenon-current

• Example: Inventory (current), PPE (non-current)

Current vs Non-Current Liabilities

IAS 1 Criteria

Current Liabilitiesare:

1 Expected to be settled in normal operating cycle

2 Held for trading

3 Due within 12 months

4 No right to defer settlement for 12 months

• All other liabilities arenon-current

• Example: Trade payables (current), bonds due in 5 years(non-current)

Liquidity-Based Presentation

Exception

Useliquidity-based presentationif more relevant/reliable

(e.g., financial institutions)

• All assets/liabilities presented in order ofliquidity

• Example: Cash (most liquid), PPE (least liquid)

• Practical Scenario: Banks prioritize liquidity for

decision-making

• Exam Tip: Justify liquidity presentation when used

SOFP Example

Scenario (X Co, 31.12.20X8)

Assets: Cash $50,000, Inventory $200,000, PPE $1,000,000

Liabilities: Payables $150,000, Loan due 20X9 $300,000, Loandue 20Y2 $500,000

• Current Assets: Cash $50,000, Inventory $200,000

• Non-Current Assets: PPE $1,000,000

• Current Liabilities: Payables $150,000, Loan $300,000

• Non-Current Liabilities: Loan $500,000

• Exam Tip: Classify based on IAS 1 criteria

Statement of Profit or Loss and OCI: Overview

IAS 1 Options

Present income/expenses in:

• Asingle statementof profit or loss and OCI, or

• Two statements: Profit or loss and OCI separately

• All items included in profit or loss unless IFRS specifiesOCI

• Exam Tip: Specify presentation choice in answers.

Profit or Loss Section

• Example: Revenue, cost of sales, operating expenses

• Practical Scenario: Impairment losses in profit or loss

• Exam Tip: Emphasize EPS exclusion for OCI

Other Comprehensive Income (OCI)

IAS 1 Requirement

OCIincludes items not in profit or loss, as specified by IFRS

(e.g., revaluation gains, certain foreign exchange differences)

• Tax on OCI shown separately or netted with components(disclosed in notes)

• Example: PPE revaluation surplus (IAS 16)

• Exam Tip: Identify IFRS standards allowing OCI

Expense Analysis

IAS 1 Requirement

Analyze expenses in profit or loss by:

• Nature(e.g., depreciation, salaries), or

• Function(e.g., cost of sales, administrative)

• Present in statement or notes

• Practical Scenario: Retail firms use function for clarity

• Exam Tip: Specify analysis method in answers.

PL and OCI Example

Scenario (Y Co, 20X8)

Revenue: $2M, Cost of Sales: $1.2M, Salaries: $300,000, PPE

Revaluation Gain: $100,000, Tax on Revaluation: $30,000

• Profit or Loss: Revenue $2M, Expenses $1.5M, Profit

$500,000

• OCI: Revaluation $100,000, Tax $30,000, Net OCI $70,000

• Total Comprehensive Income:$570,000

• Exam Tip: Show OCI tax treatment clearly

Exclusions from Profit or Loss

IAS 8 Exceptions

Items excluded from current year’s profit or loss:

• Correction of errors

• Changes in accounting policies

• Adjusted retrospectively via equity (retained earnings)

• Example: Prior period error correction reduces opening

equity

• Exam Tip: Reference IAS 8 for exclusions

Statement of Changes in Equity: Overview

IAS 1 Requirement

TheStatement of Changes in Equity(SCE) shows movements

in equity components

• Includes share capital, retained earnings, reserves

• Practical Scenario: Tracks dividends, profits, revaluations

• Exam Tip: Link to total comprehensive income

SCE Components

IAS 1 Requirements

SCE must show:

1 Total comprehensive income(parent and NCI)

2 Retrospective adjustments(IAS 8)

3 Reconciliationof opening to closing equity components

4 OCI analysisby component

• Exam Tip: Include NCI in consolidated SCE

Statement of Cash Flows

IAS 1 and IAS 7

TheStatement of Cash Flowsreports cash inflows/outflows

from operating, investing, and financing activities

• Governed byIAS 7; IAS 1 requires its inclusion

• Practical Scenario: Shows liquidity from sales,

investments, loans

• Exam Tip: Reference IAS 7 for details in IAS 1 answers

Notes to Financial Statements

IAS 1 Requirement

Notesprovide additional information, including:

• Accounting policies.

• Detailed breakdowns of line items

• Disclosures required by IFRS

• Example: PPE depreciation methods, contingent

liabilities

• Exam Tip: Notes complement statement disclosures

• Prohibited: Disclosures in commentaries/reports.

• Practical Scenario: Revenue disaggregation in notes.

• Exam Tip: Specify disclosure location (statement or

notes)

Specific Disclosures: Dividends

IAS 1 Requirement

Disclosedividends paidduring the period in:

• Statement of Changes in Equity, or

• Notes

• Example: $100,000 dividends in SCE or note.

• Practical Scenario: Annual reports detail dividend

policies

• Exam Tip: Include dividend disclosure in SCE answers

Specific Disclosures: Judgements

IAS 1 Requirement

Disclosemanagement judgementsin applying accounting

policies with significant impact on recognized amounts

• Example: Impairment assumptions for goodwill

• Practical Scenario: Judgements on lease terms affect

liabilities

• Exam Tip: Link judgements to financial statement impacts

Specific Disclosures: Assumptions

IAS 1 Requirement

Disclosekey assumptionsandmeasurement uncertainties

with significant risk of material adjustment within the next

year

• Example: Future cash flows for impairment tests

• Practical Scenario: Economic volatility affects provisions

• Exam Tip: Focus on forward-looking risks in disclosures

IAS 1 vs VAS

Key Differences

• OCI Presentation: IAS 1 allows single/two statements; VAS

may mandate single statement

• Disclosures: IAS 1 requires detailed

judgements/assumptions; VAS simpler

• Offsetting: IAS 1 strictly limits; VAS may be less

Practical Applications

Real-World Scenarios

• SOFP: Classifying loans as current/non-current for banks.

• PL and OCI: Reporting revaluation gains for property

firms

• SCE: Tracking dividends and NCI in consolidated entities.

• Notes: Disclosing lease assumptions for retailers.

• Exam Tip: Link scenarios to IAS 1 requirements

Exam Scenario Analysis

Approach

1 Identifystatement components(SOFP, PL, SCE, etc.)

2 ApplyIAS 1 principles(e.g., materiality, accrual basis)

3 Classifycurrent/non-currentorprofit/OCIitems

4 Specifydisclosure locations(statement or notes)

5 Justify withIFRS references(e.g., IAS 1, IAS 8)

• Exam Tip: Structure answers with clear steps

Common Exam Pitfalls

Avoid These Mistakes

• Misclassifying current/non-current items (e.g., loans due

in 13 months)

• Including OCI items in EPS calculations

• Omitting comparative figures or consistency

• Placing disclosures in commentaries, not notes.

• Ignoring judgements/assumptions disclosures

• Exam Tip: Cross-check classifications and disclosures

Key Takeaways

IAS 1ensurestransparencyandcomparabilityin financial

statements through defined components, principles, and

disclosures

• Components: SOFP, PL and OCI, SCE, Cash Flows, Notes

• Principles: Fair presentation, going concern, materiality,etc

• Disclosures: Line items, notes, judgements, assumptions

• Exam Focus: Apply principles, classify correctly, discloseappropriately