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International Financial reporting standards (IFRS) is the current trending subject in the finance field. The purpose of preparation of financial statement not only to know the results of the business and also to check, identify, analysis, monitor and take correct decision for various stakeholders. But different stakeholders are having different approach to the financial statements presented by a company. Example shareholders look the profit/loss of the business, bankers looks for the company`s capacity to pay their interest and payback their loans. Vendors/customers look the company`s capacity to give the business to them. So each stakeholder has different purpose on looking financial statements. The way a company preparing and presenting the financial statement should satisfy all stakeholders’ purpose. For preparing financials, the accounting policy will differ from company to company, however the formats and presentation methods and disclosure requirements are described by the companies’ act of the relevant country.

Under globalization scenario, business are crossed the boundaries of the country and the level of stakeholders are also spread across the world. So the requirement of presenting the financial statement in common platform is an inevitable business requirement to satisfy all the stakeholders. The IFRSs are the standards which helps to prepare & present the financial statements under globally accepted by the various stakeholders.  This article discussing about the basics of the financial statements under IFRSs and what it contains and how it should presented.

Financial statement: Under normal scenario, the financial statement contains the Profit & Loss A/c, Balance sheet along with the required notes to accounts and cash flow. Under IFRS, International Accounting  Standard (IAS)-1 deals with the presentation of financial statements and the below are the different names in the financials statement under IFRS

Normal name

Under IAS-1

Balance Sheet

Statement of Financial Position (SOFP)

Profit & Loss Account

Statement of Comprehensive income (SOCI)

Statement of Changes in equity (SOCIE)

Cash flow statement

Statement of Cash flows (SOCF)

Notes

 

In addition to the above under IAS-1, we should prepare one more statement called “Statement of changes in equity”.

Concepts of preparation of financials:  As like regular financials statement preparation, under IAS-1 also has concepts such as Materiality, going concern, accrual, consistency, matching, aggregation, offsetting & comparatives concept etc. to present the financial statement.

Frequency of reporting: IAS -1 requires preparation and presentation of financials at least annually incase not then need to disclose the reason for the same.

Statement of financial position (SOFP):   SOFP is the balance sheet which contains the assets such as cash, receivables, inventory, fixed assets & intangibles & liabilities such as payables, loans, provisions and equity, non controlling interests. In addition to that IAS-1 requires presenting the liabilities and assets as current and noncurrent nature.

Statement of comprehensive income statement (SOCI): It is nothing but profit & loss account and which contains revenue, cost and tax expenses.

Statement of changes in equity (SOCIE):  IAS-1 requires to present a separate statement of changes in equity and it will contains

a. Total comprehensive income for the period, showing separately amounts attributable to owners of parent and non-controlling interests.

b. The effects of any retrospective application of accounting policies or restatements made in accordance with IAS-8, separately for each component of other comprehensive income

c. Reconciliations between the carrying amounts at the beginning and the end of the period each component of equity, separately disclosing

i. Profit or loss

ii. Other comprehensive income

iii. Transactions with owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in loss of control.

Statement of Cash flows ( SOCF): Cash flow statement needs to prepare as per the IAS-7 to comply the IFRS requirements.

Notes to the financial statements: Notes  to the financials are the information which require to understand the financial and disclose the other relevant information to the financials. As per IAS-1 the notes to financials must contains the

a. Present information about the basis of preparation of the financial statements and the specific accounting policies,

b. Disclose any information required by IFRSs that is not presented elsewhere in the financial statements and

Provide addition information that is not presented elsewhere in the financial statement but is relevant to an understanding of any of them.

c. Notes are presented in a systematic manner and cross-referenced from the face of the financial statements the relevant note.  


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Category Accounts, Other Articles by - CMA Ramesh Krishnan 



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