Ind AS 1, Presentation of Financial Statements
1. Objectives of Ind AS 1
Ind AS 1 prescribes 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. It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.
2. Scope of Ind AS 1
- This standard applies to all types of entities including those that present
a. consolidated financial statements in accordance with Ind AS 110 ‘Consolidated Financial Statements’; and
b. separate financial statements in accordance with Ind AS 27 ‘Separate Financial Statements’.
- This standard does not apply to structure and content of condensed interim financial statements prepared in accordance with IndAS 34 except for para 15 to 35 of Ind AS 1.
- This Standard uses terminology that is suitable for profit-oriented entities, including public sector business entities.
- If entities with notfor-profit activities in the private sector or the public sector apply this Standard, they may need to amend the descriptions used for particular line items in the financial statements and for the financial statements themselves.
- Similarly, entities that do not have equity as defined in IAS 32 Financial Instruments: Presentation (eg. some mutual funds) and entities whose share capital is not equity (eg. some co-operative entities) may need to adapt the financial statement presentation of members’ or unitholders’ interests.
3. Complete Set of Financial Statements
a balance sheet as at the end of the period;
a statement of profit and loss for the period;
statement of changes in equity for the period;
a statement of cash flows for the period;
notes, comprising significant accounting policies and other explanatory information;
comparative information in respect of the preceding period;
a balance sheet as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatements of items in its financial statements, or when it reclassifies items in its financial statements.
An entity shall present a single statement of profit and loss, with profit or loss and other comprehensive income presented in two sections. The sections shall be presented together, with the profit or loss section presented first followed directly by the other comprehensive income section.
Many entities present reports and statements such as financial reviews by management, environmental reports, and value added statements that are outside the financial statements. Such reports and statements that are outside the financial statements are outside the scope of Ind ASs.
4. General Features of Financial Statements
4.1. Presentation of True and Fair View and compliance with Ind ASs
- The financial statements must present a true and fair view of the financial position, financial performance and cash flows of an entity. Presentation of true and fair view 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 Ind ASs, with additional disclosure when necessary, is presumed to result in financial statements that present a true and fair view.
- An entity whose financial statements comply with Ind AS is required to make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with Ind AS unless they comply with all the requirements of Ind ASs.
- It is not permissible for an entity to rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory material.
Following exception has been given in the Standard where an entity can depart from requirement of an Ind AS:
- In extremely rare circumstances, management may conclude that compliance with an Ind AS requirement would be so misleading that it would conflict with the objective of financial statements set out in the Framework. In such circumstances, the entity should depart from the Ind AS, if the relevant regulatory framework requires, or otherwise does not prohibit, such a departure. In that case disclosures as required by the Standard should be made.
- The Standard further provides that in the extremely rare circumstances in which management concludes that compliance with a requirement in an Ind AS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, but the relevant regulatory framework prohibits departure from the requirement, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by making certain disclosures.
4.2. Going concern
An entity shall prepare financial statements on a going concern basis unless management
- intends to liquidate the entity or
- to cease trading, or
- has no realistic alternative but to do so.
When management has significant doubt upon the entity’s ability to continue as a going concern, the entity shall disclose
- the basis on which it prepared the financial statements and
- the reason why the entity is not regarded as a going concern.
To assess going concern basis, management may need to consider a wide range of factors like
- current and expected profitability,
- debt repayment schedules and
- potential sources of replacement financing.
4.3. Accrual basis of accounting
- An entity shall prepare its financial statements, except for cash flow information, using the accrual basis of accounting.
- When the accrual basis of accounting is used, an entity recognises items as assets, liabilities, equity, income and expenses.
4.4. Materiality and aggregation
- Present separately each material class of similar items.
- Present separately items of a dissimilar nature or function only if it is material or required by law (even if it is immaterial).
- If a line item is not individually material, it is aggregated with other items either in those statements or in the notes.
- Do not reduce the understandability of its financial statements by
→ obscuring material information with immaterial information; or
→ aggregating material items that have different natures or functions.
Offsetting of assets and liabilities or income and expenses is not allowed unless required or permitted by an Ind AS or except when offsetting reflects the substance of the transaction or other event.
4.6. Frequency of reporting
An entity shall present a complete set of financial statements (including comparative information) at least annually.
4.7. Comparative information
An entity should present comparative information in respect of the preceeding period for all amounts reported in the current period’s financial statements except when Ind ASs permit or require otherwise. Comparative information for narrative and descriptive information should be included if it is relevant to understand the current period’s financial statements.
An entity should present, as a minimum, two balance sheets, two statements of profit and loss, two statements of cash flows and two statements of changes in equity, and related notes.
Additional comparative information
An entity may present comparative information in addition to the minimum comparative financial statements required by Ind ASs, as long as that information is prepared in accordance with Ind ASs. This comparative information may consist of one or more statements referred in ‘Complete set of financial statements’ but need not comprise a complete set of financial statements.
4.8. Change in accounting policy, retrospective restatement or reclassification
When an entity reclassifies comparative amounts, it shall disclose (including as at the beginning of the preceding period):
- the nature of the reclassification;
- the amount of each item or class of items that is reclassified; and
- the reason for the reclassification.
When it is impracticable to reclassify comparative amounts, an entity shall disclose:
- the reason for not reclassifying the amounts, and
- the nature of the adjustments that would have been made if the amounts had been reclassified.
4.9. Consistency of presentation
An entity shall retain the presentation and classification of items in the financial statements from one period to the next unless:
- presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies in Ind AS 8; or
- an Ind AS requires a change in presentation.
5. Structure and Content
An entity shall clearly identify each financial statement and the notes.
It shall display prominently:
- the name of the reporting entity or other means of identification, and any change in that information from the end of the preceding reporting period;
- whether the financial statements are of an individual entity or a group of entities;
- the date of the end of the reporting period or the period covered by the set of financial statements or notes;
- the presentation currency; and
- the level of rounding used in presenting amounts in the financial statements. The rounding off is acceptable as long as the entity discloses it and does not omit material information.
5.1. Information to be presented in the balance sheet
The balance sheet shall present line items and additional line items (including by disaggregating the line items listed in paragraph 54), headings and subtotals.
Presents current and non-current assets, and current and non-current liabilities, as separate classifications in its balance sheet.
It shall not classify deferred tax assets (liabilities) as current assets (liabilities).
An entity may present all assets and liabilities in order of liquidity but shall disclose the amount expected to be recovered or settled
- no more than twelve months after the reporting period, and
- more than twelve months after the reporting period.
An entity is permitted to present some of its assets and liabilities using a current/noncurrent classification and others in order of liquidity when this provides information that is reliable and more relevant.
5.2. Current assets
Classify an asset as current when:
- it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;
- it holds the asset primarily for the purpose of trading;
- it expects to realise the asset within twelve months after the reporting period; or
- the asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
Classify all other assets as non-current. Note: The term ‘non-current’ includes tangible, intangible and financial assets of a long-term nature.
5.3. Operating cycle
It is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents.
When the entity’s normal operating cycle is not clearly identifiable, it is assumed to be twelve months.
The same normal operating cycle applies to the classification of an entity’s assets and liabilities.
5.4. Current liabilities
An entity shall classify a liability as current when:
- it expects to settle the liability in its normal operating cycle;
- it holds the liability primarily for the purpose of trading;
- the liability is due to be settled within twelve months after the reporting period; or
- it does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.
An entity shall classify all other liabilities as non-current.
An entity classifies some operating items like trade payables and some accruals for employee and other operating costs (part of the working capital) as current liabilities even if they are due to be settled more than twelve months after the reporting period.
Where there is a breach of a material provision of a long-term loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand on the reporting date, the entity does not classify the liability as current, if the lender agreed, after the reporting period and before the approval of the financial statements for issue, not to demand payment as a consequence of the breach.
5.5. Information to be presented either in the balance sheet or in the notes
Disclose sub-classifications of the line items presented, classified in a manner appropriate to the entity’s operations.
5.6. Statement of Profit and Loss
The statement of profit and loss shall present, in addition to the profit or loss and other comprehensive income sections:
- profit or loss;
- total other comprehensive income;
- comprehensive income for the period, being the total of profit or loss and other comprehensive income.
An entity shall not present any items of income or expense as extraordinary items.
An entity shall present an analysis of expenses recognised in profit or loss using a classification based on the nature of expense method.
An entity shall present additional line items, headings and subtotals in the statement of profit and loss, when such presentation is relevant to an understanding of the entity’s financial performance.
5.7. Information to be presented in the other comprehensive income (OCI) section
Present line items for the amounts for the period of:
- items of OCI classified by nature and grouped into those that:
(i). will not be reclassified subsequently to profit or loss; and
(ii). will be reclassified subsequently to profit or loss when specific conditions are met.
- the share of OCI of associates and joint ventures accounted for using the equity method, separated into the share of items that:
(i). will not be reclassified subsequently to profit or loss; and
(ii). will be reclassified subsequently to profit or loss when specific conditions are met.
Disclose the amount of income tax relating to each item of OCI, including reclassification adjustments, either in the statement of profit and loss or in the notes.
Present items of OCI either
- net of related tax effects, or
- before related tax effects with one amount shown for the aggregate amount of income tax relating to those items.
If an entity elects alternative (b), it shall allocate the tax between the items that might be reclassified subsequently to the profit or loss section and those that will not be reclassified subsequently to the profit or loss section.
5.8. Reclassification adjustment
When amounts previously recognised in other comprehensive income are reclassified to profit or loss they are referred as reclassification adjustments.
It is included with the related component of other comprehensive income in the period that the adjustment is reclassified to profit or loss.
These amounts may have been recognised in OCI as unrealised gains in the current or previous periods.
Those unrealised gains must be deducted from OCI in the period in which the realised gains are reclassified to profit or loss to avoid including them in total comprehensive income twice.
An entity may present reclassification adjustments in the statement of profit and loss or in the notes.
An entity presenting reclassification adjustments in the notes presents the items of OCI after any related reclassification adjustments.
Reclassification adjustments do not arise on changes in revaluation surplus or on reameasurements of defined benefit plans since they are recognised in OCI and are not reclassified to profit or loss in subsequent periods. Changes in revaluation surplus may be transferred to retained earnings in subsequent periods as the asset is used or when it is derecognised.
Reclassification adjustments do not arise if a cash flow hedge or the accounting for the time value of an option (or the forward element of a forward contract or the foreign currency basis spread of a financial instrument) result in amounts that are removed from the cash flow hedge reserve or a separate component of equity, respectively, and included directly in the initial cost or other carrying amount of an asset or a liability. These amounts are directly transferred to assets or liabilities.
5.9. Information to be presented in the statement of changes in equity (SOCE)
SOCE includes the following information:
- total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests;
- for each component of equity, the effects of retrospective application or retrospective restatement;
- for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately (as a minimum) disclosing changes resulting from:
(i). profit or loss;
(ii). other comprehensive income;
(iii). transactions with owners in their capacity as 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; and
(iv). any item recognised directly in equity such as amount recognised directly in equity as capital reserve.
5.10. Information to be presented in the statement of changes in equity (SOCE) or in the notes
Present, either in SOCE or in the notes, the amount of dividends recognised as distributions to owners during the period, and the related amount of dividends per share.
Changes in an entity’s equity between the beginning and the end of the reporting period reflect the increase or decrease in its net assets during the period except for changes resulting from transactions with owners in their capacity as owners (such as equity contributions, reacquisitions of the entity’s own equity instruments and dividends) and transaction costs directly related to such transactions.
Retrospective adjustments and retrospective restatements are not changes in equity but they are adjustments to the opening balance of retained earnings, except when an Ind AS requires retrospective adjustment of another component of equity.
Standard requires disclosure in the statement of changes in equity of the total adjustment to each component of equity resulting from changes in accounting policies and, separately, from corrections of errors.
These adjustments are disclosed for each prior period and the beginning of the period.
5.11. Notes -Structure
The notes shall:
- resent information about the basis of preparation of the financial statements and the specific accounting policies;
- disclose the information required by Ind ASs that is not presented elsewhere in the financial statements; and
- provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any of them.
Present notes in a systematic manner
Cross-reference each item in the balance sheet and in the statement of profit and loss, and in the statements of changes in equity and of cash flows to any related information in the notes.
5.12. Notes – Disclosure of accounting policies
An entity shall disclose its significant accounting policies comprising:
- the measurement basis (or bases) used in preparing the financial statements; and
- the other accounting policies used that are relevant to an understanding of the financial statements.
Additionally, it shall disclose, the judgements, apart from those involving estimations, that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Disclosure of an accounting policy may be significant because of the nature of the entity’s operations even if amounts for current and prior periods are not material.
5.13. Notes-Sources of estimation uncertainty
An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of:
- their nature, and
- their carrying amount as at the end of the reporting period.