A Primer on IAS I - Presentation of Financial Statements
By TJ Leary
IAS 1 is the cornerstone of the framework developed by the International Accounting Standards Board. It sets out the basis for the preparation of corporate financial statements, specifying the minimum required information. The overriding objective is not only to ensure comparability from one period (financial year) to the next but also between different entities. The idea is that this will improve the transparency of corporate reporting and help users to readily understand any company’s financial statements.
Key terms
Fair presentation: The financial statements should give a true and fair view of the company’s financial position, performance and cash flows.
Materiality: An item is material if omitting or misstating it would mean that the financial statements would not give a fair and true view of the company’s position. This is a relative rather than an objective term and depends on a series of factors.
Aggregation: Items that are dissimilar should be presented separately in the financial statements.
Offsetting: Assets and liabilities and income and expenses cannot be offset unless expressly permitted or required by another standard.
Key items
While not actually mandating a specific format for the financial statements, all companies subject to the International Accounting Standards must nevertheless prepare the following items:
- A statement of financial position (formerly called the balance sheet) at the end of the period. This details the company’s assets on one hand and its equity and liabilities on the other. The assets and liabilities must be classified as current (short-term) and non-current (long-term).
- A statement of comprehensive income (formerly called the income statement) at the end of the period. This provides a detailed breakdown of the various income and expense items over the course of the period.
- A statement of changes in equity for the period.
- A statement of cash flows.
- Notes to the financial statements. The notes must not only provide information about the basis of preparation of the financial statements but also contain a summary of the various accounting policies applied. They must also set out the disclosures and information required under other standards as well as any information not presented on the face of the various statements that is felt relevant to their understanding.
Within the constraints of the above, IAS 1 nevertheless offers significant flexibility allowing each company to tailor the various statements to reflect the realities of their activities. IAS 1 also requires comparative information be provided in respect of the previous period.
This primer was prepared on behalf of Stranslations.com, the corporate translation specialist. Stranslations offers premium language translation and recruitment services in English, French, Spanish, German and other major European languages.
