03-16-2009, 06:31 PM
Dear Rafay,
I would like to draw your attention to particular words "it must also present a statement of financial position as at the beginning of the earliest comparative period".
The more emphasis should be on "as at the beginning of the earliest comparative period". Of course we cannot go beyond the earliest comparative period presented.
Now, you can understand that while drafting financials as at 31 December 2008 what could be the earliest comparative period. In balance sheet, P/L and Cashflow the earliest comparative is always the last year. However statement of changes in equity is the component where earliest comparative period is not merely the last year. Rather, it starts from the beginning of the last year (or you can say end of the year prior to the last year).
In your example the balance sheet, P/L and cashflow of 31 December 2008 the comparative earliest period would be the year ending on 31 December 2007. However, the statement of changes in equity is not supposed to start from 31 December 2007. Rather, it starts from 01 January 2007 (or you can say 31 December 2006).
As far as changes in policies are concerned, their effect has to be given to the figures of the earliest presented comparative period. We cannot go beyond this period. As at 31 December 2008 if two policies are changed, we cannot make a choice to give the effect of one change from a particular year i.e. 2006,and the effect of other change from another year i.e. 2005.
All such policies changes have to be considered retrospectively as these were in vogue since all the times and accordingly there would be no choice except to take their effect from the earliest comparative period presented i.e.
⢠the effect of such change to the results and balances until 31 December 2006, will be taken in statement of changes in equity affecting the opening balances retained earnings or other equity components of 01 January 2007,
⢠the effect on the comparative P/L and Cash flow will be taken in the results for the year ended 31 December 2007 and
⢠the effect on current year's P/L and cash flow will be taken in current year's financials. Balance sheet of each date would automatically be revised.
Upto this point there is no conceptual change from the previous version of IAS-1.
Now, the additional disclosure requirement is to draft a balance sheet of the earliest comparative period (i.e. as at 31 December 2006 or 01 January 2007) to show the impact of such changes on the earliest period presented.
Yet, there is no conceptual change except for this additional disclosure requirement which in my view has been necessitated for the reason that as per previous version of IAS-1 we used to change the figures of retained earnings of 01 January 2007 (31 December 2006) and take the corresponding affect to other accounts that may be of assets or liabilities. Although the corresponding accounts were revised but the balances of those other accounts could not shown as at 01 Janaury 2007 (31 December 2006). This was because the balance sheet was to be drafted as at 31 December 2008 with comparative of 31 December 2007. Now after this change, when we will show the impact on retained earnings/ equity, we will also be showing its impact on corresponding accounts as of the same date, by preparaing an additional balance sheet. This will come up with more clarity as to how those changes affected all the concerning balances on that particular date.
I hope this will be helpful.
Regards,
KAMRAN.
I would like to draw your attention to particular words "it must also present a statement of financial position as at the beginning of the earliest comparative period".
The more emphasis should be on "as at the beginning of the earliest comparative period". Of course we cannot go beyond the earliest comparative period presented.
Now, you can understand that while drafting financials as at 31 December 2008 what could be the earliest comparative period. In balance sheet, P/L and Cashflow the earliest comparative is always the last year. However statement of changes in equity is the component where earliest comparative period is not merely the last year. Rather, it starts from the beginning of the last year (or you can say end of the year prior to the last year).
In your example the balance sheet, P/L and cashflow of 31 December 2008 the comparative earliest period would be the year ending on 31 December 2007. However, the statement of changes in equity is not supposed to start from 31 December 2007. Rather, it starts from 01 January 2007 (or you can say 31 December 2006).
As far as changes in policies are concerned, their effect has to be given to the figures of the earliest presented comparative period. We cannot go beyond this period. As at 31 December 2008 if two policies are changed, we cannot make a choice to give the effect of one change from a particular year i.e. 2006,and the effect of other change from another year i.e. 2005.
All such policies changes have to be considered retrospectively as these were in vogue since all the times and accordingly there would be no choice except to take their effect from the earliest comparative period presented i.e.
⢠the effect of such change to the results and balances until 31 December 2006, will be taken in statement of changes in equity affecting the opening balances retained earnings or other equity components of 01 January 2007,
⢠the effect on the comparative P/L and Cash flow will be taken in the results for the year ended 31 December 2007 and
⢠the effect on current year's P/L and cash flow will be taken in current year's financials. Balance sheet of each date would automatically be revised.
Upto this point there is no conceptual change from the previous version of IAS-1.
Now, the additional disclosure requirement is to draft a balance sheet of the earliest comparative period (i.e. as at 31 December 2006 or 01 January 2007) to show the impact of such changes on the earliest period presented.
Yet, there is no conceptual change except for this additional disclosure requirement which in my view has been necessitated for the reason that as per previous version of IAS-1 we used to change the figures of retained earnings of 01 January 2007 (31 December 2006) and take the corresponding affect to other accounts that may be of assets or liabilities. Although the corresponding accounts were revised but the balances of those other accounts could not shown as at 01 Janaury 2007 (31 December 2006). This was because the balance sheet was to be drafted as at 31 December 2008 with comparative of 31 December 2007. Now after this change, when we will show the impact on retained earnings/ equity, we will also be showing its impact on corresponding accounts as of the same date, by preparaing an additional balance sheet. This will come up with more clarity as to how those changes affected all the concerning balances on that particular date.
I hope this will be helpful.
Regards,
KAMRAN.
