03-11-2009, 06:29 PM
Rafay,
I think if you study the "Introduction" paragraphs (regarding revision of IAS-1), the questions should get answered automatically.
However, I provide you some explanation. The revision of IAS-1 is a major step to achieve convergence with US reporting standards. This is part of a long process where standard setters were endeavoring to reach the closest conclusions across the globe on the matter of accounting principles i.e recognition, initial and subsequent measurements, derecognition, presentation and disclosures etc. We can understand that accounting on similar principles and conventions increases the level of understanding across the borders and would be helpful for cross border offerings.
Since IAS-1 is primarily regarding presentation, certain changes have been made to bring it closer to US requirements. Accordingly the names of financial statements components have been changed. Balance sheet is re-designated as Statement of Financial Position and Cash flow statement is renamed as statement of cash flows.
Besides this, it has stipulated that Statement of Changes in Equity should reflect only those changes in equity which arise from direct transaction with owners. The examples of such changes could be issuance of further share capital, redemption of share capital, net profit or loss available to owners and non-controlling shareholders (minority), and payment of dividends etc.
The non-owner changs in equity cannot be reflected in Statement of Changes in Equity. These will be taken to Statement of Comprehensive Income and {will be shown in statement of changes in equity as reconciliation for various components from the opening balance to the closing balance}. (don't give a stressful thought to the words in {} bracket. These are not that complex as they look).
The income statement (profit and loss account) was not previously supposed to include certain transactions which we were required to present in statement of changes in equity. Now such changes (non-owner changes in equity) will be routed through Comprehensive Statement of Income and the eventual net balance of profit or loss attributed to owners will be taken to statement of changes in equity.
The revised IAS-1 has further provided an option either to prepare only the Comprehensive Statement of Income and to include all incomes and expenses in it or to prepare "income statement" and Comprehensive Income Statement" seprately.
In a single-statement presentation, all items of income and expense are presented together.
In case these are prepared separately, the first statement (âincome statementâ) will present income and expenses recognised in profit or loss and the second statement (âstatement of comprehensive incomeâ) will begin with profit or loss and present, in addition, items of income and expense that IFRSs require or permit to be recognised outside profit or loss. Such items include, for example, translation differences related to foreign operations and gains or losses on available-for-sale financial assets. The revaluation of assets to the extent of loss previously charged in P/L account, and gains / losses on cash flow hedges are other examples. The incremental depreciation on revlaued asset previously taken to statement of changes in equity will also be taken to statement of comprehensive income.
There had been certain dissenting opinions from among the approving board on providing two statements option by revised IAS-1.
The statement of comprehensive income does not include transactions with owners in their capacity as owners. Such transactions are presented in the statement of changes in equity.
As regards to your query at point 6; IAS 1 now requires an entity to present a statement of financial position as at the beginning of the earliest comparative period in a complete set of financial statements when the entity applies an accounting policy retrospectively or makes a retrospective restatement, as defined in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, or when the entity reclassifies items in the financial statements.
Previously, a disclosure was required along with revision of comparative information starting from the earliest period presented i.e. the opening balance of retained earnings in statement of changes in equity, the comparitive results in P/L account (and statement of changes in equity) and current results. Disclousre was to be made about financial impact on profit, equity and EPS etc.
All these requirements are included in revised IAS-1. However, there has been added a new requirement to show the revised balance sheet (statement of financial position) of earliest period assuming to have such adjustments been made in that relevant period.
I am not clear about whether such additional balance sheet would be shown in notes to the accounts or as a separate component of financial statements. The paragraph 10 of revised IAS-1 however suggests that it would be a separate component.
Please also note that the names of components of financial statements suggested by IAS-1 are not mandatorily to be used. It's paragraph 10 allows to use titles other than what has been used in IAS-1.
I am short of time, so this post has been written partially at various timings and may lack some conceptual continuety. However, I guess this will help you. Further, now IAS-1 is among the most important standards, so I must advise you study it in depth. I mean from A to Z.
Regards,
KAMRAN.
I think if you study the "Introduction" paragraphs (regarding revision of IAS-1), the questions should get answered automatically.
However, I provide you some explanation. The revision of IAS-1 is a major step to achieve convergence with US reporting standards. This is part of a long process where standard setters were endeavoring to reach the closest conclusions across the globe on the matter of accounting principles i.e recognition, initial and subsequent measurements, derecognition, presentation and disclosures etc. We can understand that accounting on similar principles and conventions increases the level of understanding across the borders and would be helpful for cross border offerings.
Since IAS-1 is primarily regarding presentation, certain changes have been made to bring it closer to US requirements. Accordingly the names of financial statements components have been changed. Balance sheet is re-designated as Statement of Financial Position and Cash flow statement is renamed as statement of cash flows.
Besides this, it has stipulated that Statement of Changes in Equity should reflect only those changes in equity which arise from direct transaction with owners. The examples of such changes could be issuance of further share capital, redemption of share capital, net profit or loss available to owners and non-controlling shareholders (minority), and payment of dividends etc.
The non-owner changs in equity cannot be reflected in Statement of Changes in Equity. These will be taken to Statement of Comprehensive Income and {will be shown in statement of changes in equity as reconciliation for various components from the opening balance to the closing balance}. (don't give a stressful thought to the words in {} bracket. These are not that complex as they look).
The income statement (profit and loss account) was not previously supposed to include certain transactions which we were required to present in statement of changes in equity. Now such changes (non-owner changes in equity) will be routed through Comprehensive Statement of Income and the eventual net balance of profit or loss attributed to owners will be taken to statement of changes in equity.
The revised IAS-1 has further provided an option either to prepare only the Comprehensive Statement of Income and to include all incomes and expenses in it or to prepare "income statement" and Comprehensive Income Statement" seprately.
In a single-statement presentation, all items of income and expense are presented together.
In case these are prepared separately, the first statement (âincome statementâ) will present income and expenses recognised in profit or loss and the second statement (âstatement of comprehensive incomeâ) will begin with profit or loss and present, in addition, items of income and expense that IFRSs require or permit to be recognised outside profit or loss. Such items include, for example, translation differences related to foreign operations and gains or losses on available-for-sale financial assets. The revaluation of assets to the extent of loss previously charged in P/L account, and gains / losses on cash flow hedges are other examples. The incremental depreciation on revlaued asset previously taken to statement of changes in equity will also be taken to statement of comprehensive income.
There had been certain dissenting opinions from among the approving board on providing two statements option by revised IAS-1.
The statement of comprehensive income does not include transactions with owners in their capacity as owners. Such transactions are presented in the statement of changes in equity.
As regards to your query at point 6; IAS 1 now requires an entity to present a statement of financial position as at the beginning of the earliest comparative period in a complete set of financial statements when the entity applies an accounting policy retrospectively or makes a retrospective restatement, as defined in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, or when the entity reclassifies items in the financial statements.
Previously, a disclosure was required along with revision of comparative information starting from the earliest period presented i.e. the opening balance of retained earnings in statement of changes in equity, the comparitive results in P/L account (and statement of changes in equity) and current results. Disclousre was to be made about financial impact on profit, equity and EPS etc.
All these requirements are included in revised IAS-1. However, there has been added a new requirement to show the revised balance sheet (statement of financial position) of earliest period assuming to have such adjustments been made in that relevant period.
I am not clear about whether such additional balance sheet would be shown in notes to the accounts or as a separate component of financial statements. The paragraph 10 of revised IAS-1 however suggests that it would be a separate component.
Please also note that the names of components of financial statements suggested by IAS-1 are not mandatorily to be used. It's paragraph 10 allows to use titles other than what has been used in IAS-1.
I am short of time, so this post has been written partially at various timings and may lack some conceptual continuety. However, I guess this will help you. Further, now IAS-1 is among the most important standards, so I must advise you study it in depth. I mean from A to Z.
Regards,
KAMRAN.
