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Lynchpin’s IFRS Learning Series
In continuation with the Lynchpin’s committment to share knowledge, the below article forms part of Lynchpin’s IFRS Learning Series. The IAS 1 – Presentation of Financial Statements serves as foundation whien it comes to preparing the financial satements. Have a read and do share your feedback with us at firstname.lastname@example.org
Objective of IAS 1
The objective of IAS 1 (2007) is to prescribe the basis for presentation of general purpose financial statements, to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities. IAS 1 sets out the overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content. [IAS 1.1] Standards for recognising, measuring, and disclosing specific transactions are addressed in other Standards and Interpretations. [IAS 1.3]
Applies to all general purpose financial statements based on International Financial Reporting Standards. [IAS 1.2]
General purpose financial statements are those intended to serve users who are not in a position to require financial reports tailored to their particular information needs. [IAS 1.7]
Objective of financial statements
The objective of general purpose financial statements is to provide information about the financial position, financial performance, and cash flows of an entity that is useful to a wide range of users in making economic decisions. To meet that objective, financial statements provide information about an entity’s: [IAS 1.9]
- income and expenses, including gains and losses
- contributions by and distributions to owners
- cash flows
That information, along with other information in the notes, assists users of financial statements in predicting the entity’s future cash flows and, in particular, their timing and certainty.
Components of financial statements
A complete set of financial statements should include: [IAS 1.10]
- a statement of financial position (balance sheet) at the end of the period
- a statement of comprehensive income for the period (or an income statement and a statement of comprehensive income)
- a statement of changes in equity for the period
- a statement of cash flows for the period
- notes, comprising a summary of accounting policies and other explanatory notes
When an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements, it must also present a statement of financial position (balance sheet) as at the beginning of the earliest comparative period.
An entity may use titles for the statements other than those stated above.
Reports that are presented outside of the financial statements – including financial reviews by management, environmental reports, and value added statements – are outside the scope of IFRSs. [IAS 1.14]
Fair presentation and compliance with IFRSs
The financial statements must “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 Framework. The application of IFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation. [IAS 1.15]
IAS 1 requires that an entity whose financial statements comply with IFRSs make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with IFRSs unless they comply with all the requirements of IFRSs (including Interpretations). [IAS 1.16]
Inappropriate accounting policies are not rectified either by disclosure of the accounting policies used or by notes or explanatory material. [IAS 1.16]
IAS 1 acknowledges that, in extremely rare circumstances, management may conclude that compliance with an IFRS requirement would be so misleading that it would conflict with the objective of financial statements set out in the Framework. In such a case, the entity is required to depart from the IFRS requirement, with detailed disclosure of the nature, reasons, and impact of the departure. [IAS 1.19-20]
An entity preparing IFRS financial statements is presumed to be a going concern. If management has significant concerns about the entity’s ability to continue as a going concern, the uncertainties must be disclosed. If management concludes that the entity is not a going concern, the financial statements should not be prepared on a going concern basis, in which case IAS 1 requires a series of disclosures. [IAS 1.25]
Accrual basis of accounting
IAS 1 requires that an entity prepare its financial statements, except for cash flow information, using the accrual basis of accounting. [IAS 1.27]
Consistency of presentation
The presentation and classification of items in the financial statements shall be retained from one period to the next unless a change is justified either by a change in circumstances or a requirement of a new IFRS. [IAS 1.45]
Materiality and aggregation
Each material class of similar items must be presented separately in the financial statements. Dissimilar items may be aggregated only if the are individually immaterial. [IAS 1.29]
Assets and liabilities, and income and expenses, may not be offset unless required or permitted by an IFRS. [IAS 1.32]
IAS 1 requires that comparative information shall be disclosed in respect of the previous period for all amounts reported in the financial statements, both face of financial statements and notes, unless another Standard requires otherwise. [IAS 1.38]
If comparative amounts are changed or reclassified, various disclosures are required. [IAS 1.41]
Structure and content of financial statements in general
Clearly identify: [IAS 1.50]
- the financial statements
- the reporting enterprise
- whether the statements are for the enterprise or for a group
- the date or period covered
- the presentation currency
- the level of precision (thousands, millions, etc.)
There is a presumption that financial statements will be prepared at least annually. If the annual reporting period changes and financial statements are prepared for a different period, the entity must disclose the reason for the change and a warning about problems of comparability. [IAS 1.36]
Statement of Financial Position (Balance Sheet)
An entity must normally present a classified statement of financial position, separating current and non-current assets and liabilities. Only if a presentation based on liquidity provides information that is reliable and more relevant may the current/non-current split be omitted. [IAS 1.60] In either case, if an asset (liability) category combines amounts that will be received (settled) after 12 months with assets (liabilities) that will be received (settled) within 12 months, note disclosure is required that separates the longer-term amounts from the 12-month amounts. [IAS 1.61]
Current assets are cash; cash equivalent; assets held for collection, sale, or consumption within the entity’s normal operating cycle; or assets held for trading within the next 12 months. All other assets are non-current. [IAS 1.66]
Current liabilities are those expected to be settled within the entity’s normal operating cycle or due within 12 months, or those held for trading, or those for which the entity does not have an unconditional right to defer payment beyond 12 months. Other liabilities are non-current. [IAS 1.69]
When a long-term debt is expected to be refinanced under an existing loan facility and the entity has the discretion the debt is classified as non-current, even if due within 12 months. [IAS 1.73]
If a liability has become payable on demand because an entity has breached an undertaking under a long-term loan agreement on or before the reporting date, the liability is current, even if the lender has agreed, after the reporting date and before the authorisation of the financial statements for issue, not to demand payment as a consequence of the breach. [IAS 1.74] However, the liability is classified as non-current if the lender agreed by the reporting date to provide a period of grace ending at least 12 months after the end of the reporting period, within which the entity can rectify the breach and during which the lender cannot demand immediate repayment. [IAS 1.75]
Minimum items on the face of the statement of financial position [IAS 1.54]
Additional line items may be needed to fairly present the entity’s financial position. [IAS 1.54]
IAS 1 does not prescribe the format of the balance sheet. Assets can be presented current then non-current, or vice versa, and liabilities and equity can be presented current then non-current then equity, or vice versa. A net asset presentation (assets minus liabilities) is allowed. The long-term financing approach used in UK and elsewhere – fixed assets + current assets – short term payables = long-term debt plus equity – is also acceptable.
Regarding issued share capital and reserves, the following disclosures are required: [IAS 1.79]
- numbers of shares authorised, issued and fully paid, and issued but not fully paid
- par value
- reconciliation of shares outstanding at the beginning and the end of the period
- description of rights, preferences, and restrictions
- treasury shares, including shares held by subsidiaries and associates
- shares reserved for issuance under options and contracts
- a description of the nature and purpose of each reserve within equity
Statement of Comprehensive Income
Comprehensive income for a period includes profit or loss for that period plus other comprehensive income recognised in that period. As a result of the 2003 revision to IAS 1, the Standard is now using ‘profit or loss’ rather than ‘net profit or loss’ as the descriptive term for the bottom line of the income statement.
All items of income and expense recognised in a period must be included in profit or loss unless a Standard or an Interpretation requires otherwise. [IAS 1.88] Some IFRSs require or permit that some components to be excluded from profit or loss and instead to be included in other comprehensive income. [IAS 1.89]
The components of other comprehensive income include:
- changes in revaluation surplus (IAS 16 and IAS 38)
- actuarial gains and losses on defined benefit plans recognised in accordance with IAS 19
- gains and losses arising from translating the financial statements of a foreign operation (IAS 21)
- gains and losses on remeasuring available-for-sale financial assets (IAS 39)
- the effective portion of gains and losses on hedging instruments in a cash flow hedge (IAS 39).
- An entity has a choice of presenting:
- a single statement of comprehensive income or
- two statements:
- an income statement displaying components of profit or loss and
- a statement of comprehensive income that begins with profit or loss (bottom line of the income statement) and displays components of other comprehensive income [IAS 1.81]
- Minimum items on the face of the statement of comprehensive income should include: [IAS 1.82]
- finance costs
- share of the profit or loss of associates and joint ventures accounted for using the equity method
- tax expense
- a single amount comprising the total of (i) the post-tax profit or loss of discontinued operations and (ii) the post-tax gain or loss recognised on the disposal of the assets or disposal group(s) constituting the discontinued operation
- profit or loss
- each component of other comprehensive income classified by nature
- share of the other comprehensive income of associates and joint ventures accounted for using the equity method
- total comprehensive income
- The following items must also be disclosed in the statement of comprehensive income as allocations for the period: [IAS 1.83]
- profit or loss for the period attributable to non-controlling interests and owners of the parent
- total comprehensive income attributable to non-controlling interests and owners of the parent
Additional line items may be needed to fairly present the entity’s results of operations. [IAS 1.85]
No items may be presented in the statement of comprehensive income (or in the income statement, if separately presented) or in the notes as ‘extraordinary items’. [IAS 1.87]
Certain items must be disclosed separately either in the statement of comprehensive income or in the notes, if material, including: [IAS 1.98]
- write-downs of inventories to net realisable value or of property, plant and equipment to recoverable amount, as well as reversals of such write-downs
- restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring
- disposals of items of property, plant and equipment
- disposals of investments
- discontinuing operations
- litigation settlements
- other reversals of provisions
Expenses recognised in profit or loss should be analysed either by nature (raw materials, staffing costs, depreciation, etc.) or by function (cost of sales, selling, administrative, etc). [IAS 1.99] If an entity categorises by function, then additional information on the nature of expenses – at a minimum depreciation, amortisation and employee benefits expense – must be disclosed. [IAS 1.104]
Statement of Cash Flows
Rather than setting out separate standards for presenting the cash flow statement, IAS 1.111 refers to IAS 7 Statement of Cash Flows
Statement of Changes in Equity
IAS 1 requires an entity to present a statement of changes in equity as a separate component of the financial statements. The statement must show: [IAS 1.106]
- total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to non-controlling interests
- the effects of retrospective application, when applicable, for each component
- reconciliations between the carrying amounts at the beginning and the end of the period for each component of equity, separately disclosing:
- profit or loss
- each item of other comprehensive income
- transactions with owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control
- The following amounts may also be presented on the face of the statement of changes in equity, or they may be presented in the notes: [IAS 1.107]
- amount of dividends recognised as distributions, and
- the related amount per share
Notes to the financial statements
The notes must: [IAS 1.112]
- present information about the basis of preparation of the financial statements and the specific accounting policies used
- disclose any information required by IFRSs that is not presented elsewhere in the financial statements and
- provide additional information that is not presented elsewhere in the financial statements but is relevant to an understanding of any of them
Notes should be cross-referenced from the face of the financial statements to the relevant note. [IAS 1.113]
IAS 1.114 suggests that the notes should normally be presented in the following order:
- a statement of compliance with IFRSs
- a summary of significant accounting policies applied, including: [IAS 1.117]
- the measurement basis (or bases) used in preparing the financial statements
- the other accounting policies used that are relevant to an understanding of the financial statements
- supporting information for items presented on the face of the statement of financial position (balance sheet), statement of comprehensive income (and income statement, if presented), statement of changes in equity and statement of cash flows, in the order in which each statement and each line item is presented
- other disclosures, including:
- contingent liabilities (see IAS 37) and unrecognised contractual commitments
- non-financial disclosures, such as the entity’s financial risk management objectives and policies (see IFRS 7)
Disclosure of judgements. New in the 2003 revision to IAS 1, an entity must disclose, in the summary of significant accounting policies or other notes, the judgements, apart from those involving estimations, that management has made in the process of applying the entity’s accounting policies that have the most significant effect on the amounts recognised in the financial statements. [IAS 1.122]
Examples cited in IAS 1.123 include management’s judgements in determining:
- whether financial assets are held-to-maturity investments
- when substantially all the significant risks and rewards of ownership of financial assets and lease assets are transferred to other entities
- whether, in substance, particular sales of goods are financing arrangements and therefore do not give rise to revenue; and
- whether the substance of the relationship between the entity and a special purpose entity indicates control
Disclosure of key sources of estimation uncertainty. Also new in the 2003 revision to IAS 1, an entity must disclose, in the notes, information about the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. [IAS 1.125] These disclosures do not involve disclosing budgets or forecasts. [IAS 1.130]
The following other note disclosures are required by IAS 1.126 if not disclosed elsewhere in information published with the financial statements:
- domicile and legal form of the entity
- country of incorporation
- address of registered office or principal place of business
- description of the entity’s operations and principal activities
- if it is part of a group, the name of its parent and the ultimate parent of the group
- if it is a limited life entity, information regarding the length of the life
Disclosures about dividends
In addition to the distributions information in the statement of changes in equity (see above), the following must be disclosed in the notes: [IAS 1.137] ” the amount of dividends proposed or declared before the financial statements were authorised for issue but not recognised as a distribution to owners during the period, and the related amount per share and ” the amount of any cumulative preference dividends not recognised.
An entity should disclose information about its objectives, policies and processes for managing capital. [IAS 1.134] To comply with this, the disclosures include: [IAS 1.135]
- qualitative information about the entity’s objectives, policies and processes for managing capital, including>
- description of capital it manages
- nature of external capital requirements, if any
- how it is meeting its objectives
- quantitative data about what the entity regards as capital
- changes from one period to another
- whether the entity has complied with any external capital requirements and
- if it has not complied, the consequences of such non-compliance.
Disclosures about puttable financial instruments
IAS 1.136A requires the following additional disclosures if an entity has a puttable instrument that is classified as an equity instrument:
- summary quantitative data about the amount classified as equity
- the entity’s objectives, policies and processes for managing its obligation to repurchase or redeem the instruments when required to do so by the instrument holders, including any changes from the previous period
- the expected cash outflow on redemption or repurchase of that class of financial instruments and
- information about how the expected cash outflow on redemption or repurchase was determined.
The 2007 comprehensive revision to IAS 1 introduced some new terminology. Consequential amendments were made at that time to all of the other existing IFRSs, and the new terminology has been used in subsequent IFRSs including amendments. IAS 1.8 states: “Although this Standard uses the terms ‘other comprehensive income’, ‘profit or loss’ and ‘total comprehensive income’, an entity may use other terms to describe the totals as long as the meaning is clear. For example, an entity may use the term ‘net income’ to describe profit or loss.” Also, IAS 1.57(b) states: “The descriptions used and the ordering of items or aggregation of similar items may be amended according to the nature of the entity and its transactions, to provide information that is relevant to an understanding of the entity’s financial position.”
|Term before 2007 revision of IAS 1||Term as amended by IAS 1 (2007)|
|balance sheet||statement of financial position|
|cash flow statement||statement of cash flows|
|income statement||statement of comprehensive income (income statement is retained in case of a two-statement approach)|
|recognised in the income statement||recognised in profit or loss|
|recognised [directly] in equity (only for OCI components)||recognised in other comprehensive income|
|recognised [directly] in equity (for recognition both in OCI and equity)||recognised outside profit or loss (either in OCI or equity)|
|removed from equity and recognised in profit or loss (‘recycling’)||reclassified from equity to profit or loss as a reclassification adjustment|
|Standard or/and Interpretation||IFRSs|
|on the face of||in|
|equity holders||owners (exception for ‘ordinary equity holders’)|
|balance sheet date||end of the reporting period|
|reporting date||end of the reporting period|
|after the balance sheet date||after the reporting period|
June 2011: IASB issued amendments to IAS 1
On 16 June 2011, the IASB published amendments to IAS 1 Presentation of Financial Statements. The amendments to IAS 1 retain the ‘one or two statement’ approach at the option of the entity and only revise the way other comprehensive income is presented: requiring separate subtotals for those elements which may be ‘recycled’ (e.g. cash-flow hedging, foreign currency translation), and those elements that will not (e.g. fair value through OCI items under IFRS 9).
|Amendments to IAS 1 Presentation of Financial Statements
Purpose and status of the Framework
The IFRS Framework describes the basic concepts that underlie the preparation and presentation of financial statements for external users. The IFRS Framework serves as a guide to the Board in developing future IFRSs and as a guide to resolving accounting issues that are not addressed directly in an International Accounting Standard or International Financial Reporting Standard or Interpretation.
In the absence of a Standard or an Interpretation that specifically applies to a transaction, management must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. In making that judgement, IAS 8.11 requires management to consider the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the IFRS Framework. This elevation of the importance of the [IFRS] Framework was added in the 2003 revisions to IAS 8.
The IFRS Framework
The IFRS Framework addresses:
- the objective of financial reporting
- the qualitative characteristics of useful financial information
- the reporting entity
- the definition, recognition and measurement of the elements from which financial statements are constructed
- concepts of capital and capital maintenance
The Objective of general purpose financial reporting
The primary users of general purpose financial reporting are present and potential investors, lenders and other creditors, who use that information to make decisions about buying, selling or holding equity or debt instruments and providing or settling loans or other forms of credit. [F OB2]
The primary users need information about the resources of the entity not only to assess an entity’s prospects for future net cash inflows but also how effectively and efficiently management has discharged their responsibilities to use the entity’s existing resources (i.e., stewardship). [F OB4]
The IFRS Framework notes that general purpose financial reports cannot provide all the information that users may need to make economic decisions. They will need to consider pertinent information from other sources as well. [F OB6]
The IFRS Framework notes that other parties, including prudential and market regulators, may find general purpose financial reports useful. However, the Board considered that the objectives of general purpose financial reporting and the objectives of financial regulation may not be consistent. Hence, regulators are not considered a primary user and general purpose financial reports are not primarily directed to regulators or other parties. [F OB10 and F BC1.20-BC 1.23]
Information about a reporting entity’s economic resources, claims, and changes in resources and claims
Economic resources and claims
Information about the nature and amounts of a reporting entity’s economic resources and claims assists users to assess that entity’s financial strengths and weaknesses; to assess liquidity and solvency, and its need and ability to obtain financing. Information about the claims and payment requirements assists users to predict how future cash flows will be distributed among those with a claim on the reporting entity. [F OB13]
A reporting entity’s economic resources and claims are reported in the statement of financial position. [See IAS 1.54-80A]
Changes in economic resources and claims
Changes in a reporting entity’s economic resources and claims result from that entity’s performance and from other events or transactions such as issuing debt or equity instruments. Users need to be able to distinguish between both of these changes. [F OB15]
Financial performance reflected by accrual accounting
Information about a reporting entity’s financial performance during a period, representing changes in economic resources and claims other than those obtained directly from investors and creditors, is useful in assessing the entity’s past and future ability to generate net cash inflows. Such information may also indicate the extent to which general economic events have changed the entity’s ability to generate future cash inflows. [F OB18-OB19]
The changes in an entity’s economic resources and claims are presented in the statement of comprehensive income. [See IAS 1.81-105]
Financial performance reflected by past cash flows
Information about a reporting entity’s cash flows during the reporting period also assists users to assess the entity’s ability to generate future net cash inflows. This information indicates how the entity obtains and spends cash, including information about its borrowing and repayment of debt, cash dividends to shareholders, etc. [F OB20]
The changes in the entity’s cash flows are presented in the statement of cash flows. [See IAS 7]
Changes in economic resources and claims not resulting from financial performance
Information about changes in an entity’s economic resources and claims resulting from events and transactions other than financial performance, such as the issue of equity instruments or distributions of cash or other assets to shareholders is necessary to complete the picture of the total change in the entity’s economic resources and claims. [F OB21]
The changes in an entity’s economic resources and claims not resulting from financial performance is presented in the statement of changes in equity. [See IAS 1.106-110]
Qualitative characteristics of useful financial information
The qualitative characteristics of useful financial reporting identify the types of information are likely to be most useful to users in making decisions about the reporting entity on the basis of information in its financial report. The qualitative characteristics apply equally to financial information in general purpose financial reports as well as to financial information provided in other ways. [F QC1, QC3]
Financial information is useful when it is relevant and represents faithfully what it purports to represent. The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable. [F QC4]
Fundamental qualitative characteristics
Relevance and faithful representation are the fundamental qualitative characteristics of useful financial information. [F QC5]
Relevant financial information is capable of making a difference in the decisions made by users. Financial information is capable of making a difference in decisions if it has predictive value, confirmatory value, or both. The predictive value and confirmatory value of financial information are interrelated. [F QC6-QC10]
Materiality is an entity-specific aspect of relevance based on the nature or magnitude (or both) of the items to which the information relates in the context of an individual entity’s financial report. [F QC11]
General purpose financial reports represent economic phenomena in words and numbers, To be useful, financial information must not only be relevant, it must also represent faithfully the phenomena it purports to represent. This fundamental characteristic seeks to maximise the underlying characteristics of completeness, neutrality and freedom from error. [F QC12] Information must be both relevant and faithfully represented if it is to be useful. [F QC17]
Enhancing qualitative characteristics
Comparability, verifiability, timeliness and understandability are qualitative characteristics that enhance the usefulness of information that is relevant and faithfully represented. [F QC19]
Information about a reporting entity is more useful if it can be compared with a similar information about other entities and with similar information about the same entity for another period or another date. Comparability enables users to identify and understand similarities in, and differences among, items. [F QC20-QC21]
Verifiability helps to assure users that information represents faithfully the economic phenomena it purports to represent. Verifiability means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation. [F QC26]
Timeliness means that information is available to decision-makers in time to be capable of influencing their decisions. [F QC29]
Classifying, characterising and presenting information clearly and concisely makes it understandable. While some phenomena are inherently complex and cannot be made easy to understand, to exclude such information would make financial reports incomplete and potentially misleading. Financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyse the information with diligence. [F QC30-QC32]
Applying the enhancing qualitative characteristics
Enhancing qualitative characteristics should be maximised to the extent necessary. However, enhancing qualitative characteristics (either individually or collectively) render information useful if that information is irrelevant or not represented faithfully. [F QC33]
The cost constraint on useful financial reporting
Cost is a pervasive constraint on the information that can be provided by general purpose financial reporting. Reporting such information imposes costs and those costs should be justified by the benefits of reporting that information. The IASB assesses costs and benefits in relation to financial reporting generally, and not solely in relation to individual reporting entities. The IASB will consider whether different sizes of entities and other factors justify different reporting requirements in certain situations. [F QC35-QC39]
The Framework; Underlying assumption
The IFRS Framework states that the going concern assumption is an underlying assumption. Thus, the financial statements presume that an entity will continue in operation indefinitely or, if that presumption is not valid, disclosure and a different basis of reporting are required. [F 4.1]
The elements of financial statements
Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. These broad classes are termed the elements of financial statements.
The elements directly related to financial position (balance sheet) are: [F 4.4]
The elements directly related to performance (income statement) are: [F 4.25]
The cash flow statement reflects both income statement elements and some changes in balance sheet elements.
Definitions of the elements relating to financial position
- An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. [F 4.4(a)]
- A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. [F 4.4(b)]
- Equity is the residual interest in the assets of the entity after deducting all its liabilities. [F 4.4(c)]
- Definitions of the elements relating to performance
- Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. [F 4.25(a)]
- Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. [F 4.25(b)]
The definition of income encompasses both revenue and gains. Revenue arises in the course of the ordinary activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividends, royalties and rent. Gains represent other items that meet the definition of income and may, or may not, arise in the course of the ordinary activities of an entity. Gains represent increases in economic benefits and as such are no different in nature from revenue. Hence, they are not regarded as constituting a separate element in the IFRS Framework. [F 4.29 and F 4.30]
The definition of expenses encompasses losses as well as those expenses that arise in the course of the ordinary activities of the entity. Expenses that arise in the course of the ordinary activities of the entity include, for example, cost of sales, wages and depreciation. They usually take the form of an outflow or depletion of assets such as cash and cash equivalents, inventory, property, plant and equipment. Losses represent other items that meet the definition of expenses and may, or may not, arise in the course of the ordinary activities of the entity. Losses represent decreases in economic benefits and as such they are no different in nature from other expenses. Hence, they are not regarded as a separate element in this Framework. [F 4.33 and F 4.34]
Recognition of the elements of financial statements
Recognition is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the following criteria for recognition: [F 4.37 and F 4.38]
- It is probable that any future economic benefit associated with the item will flow to or from the entity; and
- The item’s cost or value can be measured with reliability.
Based on these general criteria:
- An assetis recognised in the balance sheet when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. [F 4.44]
- A liabilityis recognised in the balance sheet when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably. [F 4.46]
- Incomeis recognised in the income statement when an increase in future economic benefits related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably. This means, in effect, that recognition of income occurs simultaneously with the recognition of increases in assets or decreases in liabilities (for example, the net increase in assets arising on a sale of goods or services or the decrease in liabilities arising from the waiver of a debt payable). [F 4.47]
- Expensesare recognised when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably. This means, in effect, that recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a decrease in assets (for example, the accrual of employee entitlements or the depreciation of equipment). [F 4.49]
Measurement of the elements of financial statements
Measurement involves assigning monetary amounts at which the elements of the financial statements are to be recognised and reported. [F 4.54]
The IFRS Framework acknowledges that a variety of measurement bases are used today to different degrees and in varying combinations in financial statements, including: [F 4.55]
- Historical cost
- Current cost
- Net realisable (settlement) value
- Present value (discounted)
Historical cost is the measurement basis most commonly used today, but it is usually combined with other measurement bases. [F. 4.56] The IFRS Framework does not include concepts or principles for selecting which measurement basis should be used for particular elements of financial statements or in particular circumstances. Individual standards and interpretations do provide this guidance, however.
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When it comes to choose an Accountancy career, nothing beats the choice of ACCA as an investment in your child’s future. The ACCA qualification syllabus is broad enough to offer them flexible career options.
Which Level Should Your Child Start ACCA?
With ACCA’s flexible entry routes, no matter whatever your child’s education is, he/she can start ACCA at any age from as early as completing the high school.
If any one does not have the minimum entry requirements to start at the ACCA qualification, which means no formal education, he/she can start studying ACCA at the Foundation Level. Foundation in Accountancy includes certificate and a diploma that can be achieved along the way.
The ACCA Qualification
In case if your son/daughter meet the minimum education requirement i.e. equivalent to three GCSEs and two A-levels in five separate subjects including maths and English, they can start their ACCA journey right away. The ACCA qualification contains 14 papers and it will take approximately 2 years to complete to pass all the exams. If anyone starts ACCA after completing graduation, he/she can get exemption from certain papers. This means even faster completion of ACCA. A key part of gaining ACCA membership is getting three years’ relevant practical experiencience in the workplace. However all exams can be completed even before starting the practical experience. A professional ethics module (online) is also required to equip the future professional with a range of ethical ideas so that they will act professionally in the workplace.
Preparing for ACCA Exams
While there is no mandatory requirement for coaching classes for ACCA, however it is preferred by many students to join a professional training provider to obtain exam focused coaching classes. This minimizes the failure chances and ensures that the student is preparing for the exams with a structured approach.
Get BSc. degree from Oxford Brookes along with ACCA
If anyone is not a graduate, the ACCA qualification gives your child the opportunity to achieve a BSc degree from a UK university. All they have to complete is a report as well as their ACCA exams – it’s as simple as that. So they will be awarded a degree by Oxford Brookes University without doubling their workload.
With ACCA’s flexible study options and rewarding career prospects, it is a career of choice by many young professionals. You can start ACCA at any point in time as the initial few papers are computer based and can be given any time. Lynchpin Training is also one of the authorized ACCA Computer Based Examination centre in Dubai and Abu Dhabi.
Now a days we can hear a lot about professional certifications related to accounting, finance, risk management, audit. These might be locally and internationally recognized and have certain criteria to attain. Which certification is suitable for you, always it is a difficult but important decision to take?
Here are lot of choices like ACCA, CFA, CMA, CPA, CIA, FRM, CIMA, IFRS and list continues but you need to choose one. These are not only different letters but different structure as well. Some certifications have 2 exams, 3 exams, 4 exams and even 14 or 15 exams. Some has no educational requirements to enter but some have surely like a university degree in specific majors.
Why is decision important?
- A lot of money at stake – both your expenses and your future earnings.
- This is a long term decision – it will be with you forever.
- Almost passing exams or almost completing certification is not your destination but need to fully pass and gain certification.
Things to consider:
- What have you done – your qualification background, work experience (if any) and what you enjoyed most to do, your knowledge about the course?
- What are you doing – working or studying in which field? What you can do well? What you can do and can’t do? What set of skills already you have? What you likes/dislikes in current job?
- What do you want to do – your future destination and expectation from this certification? What are the jobs or position that you want to have after 5 years? What are the skills that you need to get your dream job/career?
- What you can do – be realistic about time and funds required, commitment level to pass exams.
Top-Demand Accounting/Finance Certifications:
Financial Accounting & Reporting:
Here we have 2 top-demand qualification: ACCA (UK) and CPA (USA)
ACCA qualification is UK based quite flexible certification. There are total 14 exams to pass in ACCA which can take 2 years on average. It has no entry barriers and may allow upto 9 exemptions on the basis of previous qualification. Upon completion of Fundamental level of ACCA, candidates can apply to get BSc (Hons) degree from Oxford Brooks University. ACCA qualified works in Reporting, Auditing, Financial and Cost Accounting departments.
CPA is an American certification with total 4 exams to pass. It puts some entry restrictions to interested candidates like a University degree in Accounting/Business and credit hours in specified areas of study. It allows 18 months to complete after passing first exams. Exams can be taken in 4 windows throughout the year at Prometric center. CPAs are good to work in Auditing, Financial Accounting & Reporting.
While talking about management accounting, we finds CMA (USA), CIMA (UK) qualifications in demand.
CMA – Certified Management Accountant is short but rewarding qualification recognized across the globe. There are only 2 exams and available at Prometric centre in Jan-Feb, May-Jun, Sep-Oct every year. It prepares candidates to handle financial & performance management, budgeting, decision making and corporate finance matters. Bachelor’s degree is must to gain CMA title.
CIMA – Chartered Institute of Management Accountants qualification is flexible but a longer course with total 15 exams to pass. Its entry is flexible and exams are available in computer-based and paper-based formats. Candidates study vast Management accounting areas and receive different awards after completion of each stage.
Finance & Investment:
Thinking about finance & investment qualification? Certainly a name comes in mind is CFA (USA)
CFA – Charter Financial Analyst certification is truly leader in professional qualifications. It is highly in-demand and maximum rewarding program. If you would like to work in finance domain as business analyst, financial analyst and want to work for Investment banks, Assets management companies then the CFA designation would be beneficial – particularly for those who lack work experience and formal training in finance. There are 3 exams to pass; a Bachelors degree or 4 years work experience allows candidates to enter for exams.
Planning career in Audit? Here are 2 options; internal and external audit. ACCA, CPA, ICAEW are most suitable for external audits while CIA (USA) is only available certification specialized in Internal Audit.
CIA – Certified Internal Auditor is flexible to join either with 4 years post-secondary qualification or 7 years internal Audit work experience or combination of both. It is short but well in demand qualification with only 3 exams to pass. Exams are tested on computer and can be taken any time in 365 days. Candidates must complete it with 4 years. Candidates learn Internal Audit Basics, Practices and Knowledge in CIA qualification.
Considering risk management certification comes up with various short and mid-length options i.e. PMI-RMP, CRM, CRMA, FRM etc. But most recognized and accepted qualification is FRM (USA) currently.
FRM – Financial Risk Manager is USA based qualification suitable for those who even don’t have university degree but quickly want to enter in Risk Management profession. Certified FRMs have achieved positions such as Chief Risk Officer, Senior Risk Analyst, Head of Operational Risk, and Director of Investment Risk Management, to name a few. There are 2 parts and anyone can complete it in less than a year.
Financial Reporting Standards:
Learning Financial standards is much important as world is going to adopt IFRS fully from 2016. Different professional bodies offer IFRS certificate and diploma training program. ACCA’s IFRS qualification are widely accepted by employers.
CertIFR – Certificate in IFRS is a short term training with flexible exams availability. It gives overall understanding of reporting standards and how it works.
DipIFR – Diploma IFRS is training with manual exams available only in June and December every year. It helps to understand and explain the structure of the framework of international accounting, identify and apply disclosure requirements for companies in financial reports and notes & to prepare group financial statement.
Surely the qualifications with more number of exams gives more or in-depth knowledge but be clear that if you cannot complete a longer certification with 14 or 15 exams, partial completion will not pay you back really. You will have to complete all and meet further requirements also like work experience to achieve final title.
Why Professional Qualification?
Are you caught up in a dilemma and can’t decide which study program to go for? Confused between professional and academic qualifications? Let us help you with sorting it all out!
Among many available options for professional qualifications, the finance and accounting qualifications are most-in-demand specially in Dubai & Abu Dhabi. read more…
Facts about CFA
Are you exploring the world of financial education? Interested in a professional qualification? If yes, let’s go through a few FAQs about Chartered Financial Analyst (CFA) Program. By far CFA is the most-in-demand Finance qualification if youa re working in in Dubai or Abu Dhabi.
Which body offers the CFA Charter?
The CFA Charter is offered by CFA Institute. CFA Institute was formed in 1947 when four financial analyst societies – Philadelphia, New York, Chicago and Boston – came together and formed collaboration among themselves to create more opportunities for financial analysts! read more…
Almost 120 countries now require or allow the use of International Financial Reporting Standards (IFRS) and all major economies have established timelines to converge with or adopt IFRS in the near future. In UAE most of Financial Statements are prepared under IFRS. Hence IFRS Certified Professionals are in demand especially in Dubai and Abu Dhabi.
Those who produce and use financial statements need to understand IFRS, or may need formal recognition for existing skills and knowledge. When you look for a specialized certification in IFRS from a globally acceptable professional body, you find very few options. ACCA’s Certification in IFRS (CertIFR) is a fast, cost-effective, efficient and on-demand solution to meet these needs. read more…
Sunil & Aikta are colleagues and work in finance department of a bank in Dubai, UAE. Both are at different stages of their career, Sunil has just finished his bachelor degree while Aikta is an experienced professional but without any formal university qualification. Both of them are feeling need of a professional qualification to further excel in their career. After comparing few globally respected professional qualifications both of them read more…
The Only 3 Requirements for ACCA
Did you know that the much acclaimed, professional qualification, ACCA, doesn’t require you to have any prior qualifications? Yes, no requirements whatsoever.
You may be a school drop-out, a high school graduate or a trained nurse – none of it matters to the folks at ACCA. The only touchstone they use to test you is the collection of 14 examinations. read more…
ACCA is in UAE Air!
Every year August brings with it the college fever. Students are all set to start a fresh college year with their degree programs early September. But most universities require you to apply for registrations months ago. For those who are not able to make the decision until the last moment, the doors of ACCA are always open. ACCA is the most in demand Chartered Accountancy qualification in UAE. Dubai, ABu Dhabi & Sharjah account for most number of ACCA student in UAE. read more…
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