3.

2 The statement of comprehensive income and the statement of profit or loss

3.2.1 Profit and loss and comprehensive income
 The IASB regards all changes in net assets (other than the introduction and
return of capital) and not just more traditional realized profits, as ‘performance’ in
its widest sense. Accordingly, IAS 1 requires a performance statement showing
such changes and calls it a statement of comprehensive income.
 Total comprehensive income is defined by IAS 1 as the change in equity during a
period resulting from transactions and other events, other than those changes
resulting from transactions with owners in their capacity as owners.
 It comprises all components of ‘profit or loss’ and of ‘other comprehensive
income’. These two terms are defined as follows:
1. Profit or loss is the total of income less expenses, excluding the
components of other comprehensive income; and
2. Other comprehensive income comprises items of income and expense
(including reclassification adjustments) that are not recognized in profit
or loss as required or permitted by other IFRSs. [IAS 1.7].
 The use of a variety of terminology is recognized by IAS 1 which notes the
following. ‘Although this Standard uses the terms “other comprehensive income”,
“profit or loss” and “total comprehensive income”, an entity may use other terms
to describe the totals as long as the meaning is clear. For example, an entity may
use the term “net income” to describe profit or loss.’ [IAS 1.8]. What this means is
that profit and loss is the default category – all comprehensive income is part of
profit and loss unless a provision of IFRS say it is or may be ‘other’
comprehensive income. [IAS 1.88].
 IAS 1 sets out the following items which are included in other comprehensive
income:
(a) changes in revaluation surplus relating to property, plant and equipment and
intangible assets;
(b) re-measurements on defined benefit plans in accordance with IAS 19;
(c) gains and losses arising from translating the financial statements of a foreign
operation;
(d) gains and losses on re-measuring available-for-sale financial assets;3
(e) the effective portion of gains and losses on hedging instruments in a cash
flow hedge; and
(f) for periods beginning on or after 1 January 2018 or earlier if IFRS 9 is adopted
early, for liabilities designated as at fair value through profit and loss, fair value
changes attributable to changes in the liability’s credit risk. [IAS 1.7].
 IAS requires that all items of income and expense be presented either:
(a) in a single statement of profit or loss and other comprehensive income
(with a separate section for each in the order stated); or

(b) in two separate statements:

 (i) a statement of profit or loss; and
(ii) a statement of comprehensive income beginning with profit and
loss and containing components of other comprehensive income.
[IAS 1.10A].
 If the approach in (b) is followed, the statement of profit or loss must be displayed
immediately before the statement of comprehensive income. [IAS 1.10A].
 In addition to this choice, IAS 1 provides that different titles may be used for
these statements. [IAS 1.10]. Many entities continue to present a separate
statement of profit or loss (often titled ‘income statement’), and this section is
structured in these terms. However, the requirements are the same whether total
comprehensive income is presented in one or two statements.
 IAS 1 adopts an essentially permissive approach to the format of the statement
of profit or loss and statement of comprehensive income. It observes that,
because the effects of an entity’s various activities, transactions and other events
differ in frequency, potential for gain or loss and predictability, disclosing the
components of financial performance assists users in understanding the financial
performance achieved and in making projections of future performance. [IAS
1.86]. In other words, some analysis of the make-up of net profit and other
comprehensive income is needed, but a wide variety of presentations would all
be acceptable.
 Whether one or two statements are presented, IAS 1 requires certain specific
items to appear on the face of the statement(s) and then supplements this with a
more general requirement that:
1. additional line items be presented (including the disaggregation of those
specifically required) on the face of the statement(s); and
2. the descriptions used and the ordering of items be amended; when this is
relevant to an understanding of the entity’s financial performance. [IAS 1.85-
86].
 The standard explains that additional line items should be included, and the
descriptions used and the ordering of items amended when this is necessary to
explain the elements of financial performance. Factors to be considered would
include materiality and the nature and function of the items of income and
expense. An example of this is that a financial institution may amend the
descriptions to provide information that is relevant to the operations of a financial
institution. [IAS 1.86].
 When additional subtotals are presented, line items should be given that
reconcile those subtotals with the subtotals or totals required in IFRS. [IAS
1.85B]. Such additional subtotals are presented, they should:
(a) be comprised of line items made up of amounts recognized and
measured in accordance with IFRS;
(b) be presented and labelled in a manner that makes the line items that
constitute the subtotal clear and understandable;
(c) be consistent from period to period; and
 (d) not be displayed with more prominence than the subtotals and totals
required in IFRS for the statement(s) presenting profit or loss and other
comprehensive income. [IAS 1.85A].
3.2.2 Information required on the face of the statement of profit or loss
 As is the case for the statement of financial position, IAS 1 sets out certain items
which must appear on the face of the statement of profit or loss and other
required disclosures which may be made either on the face or in the notes. As a
minimum, the face of the statement of profit or loss should include line items that
present the following amounts (although as noted above, the order and
description of the items should be amended as necessary):
(a) revenue;
(b) gains and losses from the derecognition of financial assets measured
at amortized cost;
(c) finance costs;
(d) share of the profit or loss of associates and joint ventures accounted
for using the equity method;
(e) any difference between fair value and the previous carrying amount at
the date of reclassification when a financial asset is reclassified to be
measured at fair value;
(f) tax expense;
(g) a single amount comprising the total of:
(i) the post-tax profit or loss of discontinued operations; and
(ii) the post-tax gain or loss recognized on the measurement to fair
value less costs to sell or on the disposal of the assets or disposal
group(s) constituting the discontinued operation; [IFRS 5.33(a)(ii)]
(h) profit or loss; [IAS 1.81A, 82] and
(i) the following as allocations of profit or loss for the period:
(i) profit or loss attributable to non-controlling interests; and
(ii) profit or loss attributable to owners of the parent. [IAS 1.81B].
 Items (b) and (e) above are required once an entity applies IFRS 9 (that is
periods beginning on or after 1 January 2018),
 An analysis of expenses is required based either on their nature or their function.
IAS 1 encourages, but does not require this to be shown on the face of the
statement of profit or loss. [IAS 1.99-100].
 The current IAS 1 has omitted the requirement in the 1997 version to disclose the
results of operating activities as a line item on the face of the statement of profit
or loss. The reason given for this in the Basis for Conclusions to the standard is
that ‘Operating activities’ are not defined in the standard, and the Board decided
not to require disclosure of an undefined item. [IAS 1.BC55].
 The Basis for Conclusions to IAS 1 goes on to state that ‘The Board recognizes
that an entity may elect to disclose the results of operating activities, or a similar
line item, even though this term is not defined. In such cases, the Board notes
that the entity should ensure the amount disclosed is representative of activities
 that would normally be considered to be “operating”. ‘In the Board’s view, it would
be misleading and would impair the comparability of financial statements if items
of an operating nature were excluded from the results of operating activities,
even if that had been industry practice.
 For example, it would be inappropriate to exclude items clearly related to
operations (such as inventory write-downs and restructuring and relocation
expenses) because they occur irregularly or infrequently or are unusual in
amount. Similarly, it would be inappropriate to exclude items on the grounds that
they do not involve cash flows, such as depreciation and amortization expenses.’
[IAS 1.BC56].
 IAS 1 requires the face of the statement of profit or loss to show the share of the
profit or loss of associates and joint ventures accounted for using the equity
method. For entities presenting a measure of operating profit, in our view it is
acceptable for an entity to determine which such investments form part of its
operating activities and include their results in that measure, with the results of
non-operating investments excluded from it.
 Another acceptable alternative would be to exclude the results of all associates
and joint ventures from operating profit.

3.2.3 Classification of expenses recognized in profit or loss by nature or function

 IAS 1 states that components of financial performance may differ in terms of

frequency, potential for gain or loss and predictability, and requires that expenses
should be sub-classified to highlight this. [IAS 1.101].
 To achieve this, the standard requires the presentation of an analysis of
expenses (but only those recognized in profit or loss) using a classification based
on either their nature or their function within the entity, whichever provides
information that is reliable and more relevant. [IAS 1.99].
 It is because each method of presentation has merit for different types of entities,
that the standard requires management to make this selection. [IAS 1.105].
 As noted at 3.2.2 above IAS 1 encourages, but does not require the chosen
analysis to be shown on the face of the statement of profit or loss. [IAS 1.100].
This means that entities are permitted to disclose the classification on the face on
a mixed basis, as long as the required classification is provided in the notes.
Indeed, the IASB itself produces an example of such a statement of profit or loss
in an illustrative example to IAS 7. [IAS 7.IE A].
 The standard also notes that the choice between the function of expense method
and the nature of expense method will depend on historical and industry factors
and the nature of the entity. Both methods provide an indication of those costs
that might vary, directly or indirectly, with the level of sales or production of the
entity. However, because information on the nature of expenses is useful in
predicting future cash flows, additional disclosure is required when the function of
expense classification is used. [IAS 1.105].
 3.2.3.A Analysis of expenses by nature For some entities, ‘reliable and more
relevant information’ may be achieved by aggregating expenses for display in
profit or loss according to their nature (for example, depreciation, purchases of
 materials, transport costs, employee benefits and advertising costs), and not
reallocating them among various functions within the entity.
 IAS 1 observes that this method may be simple to apply because no allocations
of expenses to functional classifications are necessary. The standard illustrates a
classification using the nature of expense method as follows:
Revenue XX
Other income XX
Changes in inventories of finished goods and work in progress XX
Raw materials and consumables used XX
Employee benefits expense XX
Depreciation and amortization expense XX
Other expenses XX
Total expenses (XX)
Profit before tax XX

 The implementation guidance accompanying the standard provides a further

example of a statement of profit or loss analyzing expenses by nature. Whilst
very similar to the above, it is expanded to show further captions as follows:
Illustrative statement of profit or loss with expenses classified by nature
XYZ GROUP
STATEMENT OF PROFIT OR LOSS
FOR THE YEAR ENDED 31 DECEMBER 2016
(in thousands of Euros)

2016 2015

Revenue 390,000 355,000

Other income 20,667 11,300
Changes in inventories of finished goods and work in progress (115,100) (107,900)
Work performed by the entity and capitalized 16,000 15,000
Raw material and consumables used (96,000) (92,000)
Employee benefits expense (45,000) (43,000)
Depreciation and amortization expense (19,000) (17,000)
Impairment of property, plant and equipment (4,000) –
Other expenses (6,000) (5,500)
Finance costs (15,000) (18,000)
Share of profit of associates 35,100 30,100
Profit before tax 161,667 128,000
Income tax expense (40,417) (32,000)
Profit for the year from continuing operations 121,250 96,000
Loss for the year from discontinued operations – (30,500)
Profit for the year 121,250 65,500
Profit attributable to:
Owners of the parent 97,000 52,400
Non-controlling interests 24,250 13,100
121,250 65,500

Earnings per share (€) Basic and diluted 0.46 0.30

  A footnote to the illustrative examples explains that ‘share of profits of associates’
means share of the profit attributable to the owners of the associates and hence
is after tax and non-controlling interests.

3.2.3.B Analysis of expenses by function

 For some entities, ‘reliable and more relevant information’ may be achieved by
aggregating expenses for display purposes according to their function for
example, as part of cost of sales, the costs of distribution or administrative
activities.
 Under this method, IAS 1 requires as a minimum, disclosure of cost of sales
separately from other expenses. The standard observes that this method can
provide more relevant information to users than the classification of expenses by
nature, but that allocating costs to functions may require arbitrary allocations and
involve considerable judgement.
 Example of classification of expenses by function [IAS 1.103]
Revenue xx
Cost of sales (xx)
Gross profit xx
Other income xx
Distribution costs (xx)
Administrative expenses (xx)
Other expenses (xx)
Profit before tax xx
 Entities classifying expenses by function are required by IAS 1 to disclose
additional information on the nature of expenses, and this must include
depreciation and amortization expense and employee benefits expense. [IAS
1.104]. This requirement of IAS 1 strikes us as unnecessary as the disclosure of
these items (broken down into their components) is specifically required by IAS
16, IAS 19 and IAS 38 – Intangible Assets. The standard gives another
illustration of expenses classified by function in the profit and loss section of the
single statement of comprehensive income

3.2.4 The statement of comprehensive income

3.2.4.A The face of the statement of comprehensive income
 Whether presented as a separate statement or as a section of a combined
statement, the face of the statement of comprehensive income should set out the
items below. The items in (b) and, separately, the items in (c) should be
presented in two groups, one including items which may subsequently be
 reclassified into profit or loss and another including items which will not: [IAS
1.81A-82A]
(a) profit or loss (if two statements are presented this will be a single line item);
(b) each item of comprehensive income, classified by nature, which include:
(i) changes in revaluation surplus relating to property, plant and equipment
and intangible assets;
(ii) re-measurements on defined benefit plans in accordance with IAS 19;
(iii) gains and losses arising from translating the financial statements of a
foreign operation;
(iv) gains and losses on re-measuring available-for-sale financial assets;4
(v) the effective portion of gains and losses on hedging instruments in a
cash flow hedge;
(vi) for periods beginning on or after 1 January 2018 or earlier if IFRS 9 is
adopted early, for liabilities designated as at fair value through profit and
loss, fair value changes attributable to changes in the liability’s credit risk;
[IAS 1.7] and
(vii) the aggregate amount of tax relating to components of comprehensive
income, unless the components are shown individually net of tax . Tax
should be allocated between the two groups mentioned above. [IAS 1.91].
(c) share of the items of other comprehensive income of associates and joint
ventures accounted for using the equity method;
(d) reclassification adjustments, unless the components of comprehensive
income are shown after any related reclassification adjustments (see B below);
[IAS 1.94] and
(e) total comprehensive income. In a separate statement of other comprehensive
income IAS 1 also requires an analysis of total comprehensive income for the
period between that attributable to:
(a) non-controlling interests, and
(b) owners of the parent. [IAS 1.81B].

 In a combined statement of total comprehensive income, the equivalent analysis

of profit and loss would also be required as would earnings per share disclosures
 When two separate statements are presented, these would appear on the
statement of profit or loss. [IAS 33.67A].

Presentation of comprehensive income in one statement and the classification of

expenses by function [IAS 1 Part I]

XYZ Group
Statement of profit or loss and other comprehensive income
for the year ended 31 December 2016
(in thousands of currency units)
 2016 2015
Revenue 390,000 355,000
Cost of sales (245,000) (230,000)
Gross profit 145,000 125,000
Other income 20,667 11,300
Distribution costs (9,000) (8,700)
Administrative expenses (20,000) (21,000)
Other expenses (2,100) (1,200)
Finance costs (8,000) (7,500)
Share of profit of associates(1) 35,100 30,100
Profit before tax 161,667 128,000
Income tax expense (40,417) (32,000)
Profit for the year from continuing operations 121,250 96,000
Loss for the year from discontinued operations – (30,500)
PROFIT FOR THE YEAR 121,250 65,500
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Gains on property revaluation 933 3,367
Re-measurements of defined benefit pension plans (667) 1,333
Share of other comprehensive income of associates (2) 400 (700)
Income tax relating to items that will not be re-classified (3) (166) (1,000)
500 3,000

Items that may be reclassified subsequently to profit or loss:

Exchange differences on translating foreign operations (4) 5,334 10,667
Available-for-sale financial assets (4)(5) (24,000) 26,667
Cash flow hedges (4) (667) (4,000)
Income tax relating to items that may be reclassified (3) 4,833 (8,334)
(14,500) 25,000

Other comprehensive income for the year, net of tax (14,000) 28,000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 107,250 93,500

Profit attributable to: Owners of the parent 97,000 52,400

Non-controlling interests 24,250 13,100
121,250 65,500
Total comprehensive income attributable to:
Owners of the parent 85,800 74,800
Non-controlling interests 21,450 18,700
107,250 93,500
Earnings per share (in currency units):
Basic and diluted 0.46 0.30

Alternatively, items of other comprehensive income could be presented in the statement

of profit or loss and other comprehensive income net of tax.

Other comprehensive income for the year, after tax: 2016 2015
Items that will not be reclassified to profit or loss:
Gains on property revaluation 600 2,700
Re-measurements of defined benefit pension plans (500) 1,000
Share of other comprehensive income of associates (2) 400 (700)
500 3,000
Items that may be reclassified subsequently to profit or loss:
 Exchange differences on translating foreign operations 4,000 8,000
Available-for-sale financial assets (18,000) 20,000
Cash flow hedges (500) (3,000)
(14,500) 25,000
Other comprehensive income for the year, net of tax(3) (14,000) 28,000

(1) This means the share of associates’ profit attributable to owners of the associates,
i.e. it is after tax and non-controlling interests in the associates.

(2) This means the share of associates’ other comprehensive income attributable to
owners of the associates, i.e. it is after tax and non-controlling interests in the
associates. In this example, the other comprehensive income of associates consists
only of items that will not be subsequently reclassified to profit or loss. Entities whose
associates’ other comprehensive income includes items that may be subsequently
reclassified to profit or loss are required to present that amount in a separate line.

(3) The income tax relating to each item of other comprehensive income is disclosed in
the notes.

(4) This illustrates the aggregated presentation, with disclosure of the current year gain
or loss and reclassification adjustment presented in the notes. Alternatively, a gross
presentation can be used.

(5) Once IFRS 9 is applied (at the latest, for periods beginning on or after 1 January
2018) this becomes a reference to ‘investments in equity instruments’. The caption is
also moved to the section for items that will not be reclassified to profit or loss to reflect
the different requirement of IFRS 9.

The illustrative examples in the standard all use the option, which is discussed at
3.2.4.B below, to present components of other comprehensive income net of related
reclassification adjustments. The disclosure of those reclassification adjustments in a
note is reproduced in Example 3.7 below. This note also demonstrates a reclassification
adjustment not to profit and loss but to the statement of financial position. Whilst not
addressed explicitly by the standard, evidently these items (like reclassifications to profit
or loss) need not be shown on the face of the statement.

3.2.4.B Reclassification adjustments ‘

 Reclassification adjustments’ are items recognized in profit or loss which were
previously recognized in other comprehensive income (commonly referred to as
‘recycling’) and IAS 1 requires their disclosure. [IAS 1.7, 92-93, 95].
 Examples include adjustments arising in relation to:
1. the disposal of a foreign operation;
2. the de-recognition of available-for-sale financial assets;5 and
3. hedged forecast transactions affecting profit or loss.
  The standard allows a choice of how reclassification adjustments are presented.
They may either be presented ‘gross’ on the face of the statement, or
alternatively shown in the notes. In the latter case, components of
comprehensive income on the face of the statement are shown net of any related
reclassification adjustments. [IAS 1.94].

IAS 1 illustrates this requirement as follows:

Note disclosure of components of other comprehensive income [IAS 1 IG Part 1]
XYZ Group
Disclosure of components of other comprehensive income (1)
Notes – Year ended 31 December 2016
(in thousands of currency units) 2016 2015

Other comprehensive income

Exchange differences on translating foreign operations (2) 5,334 10,667
Available-for-sale financial assets:6
Gains arising during the year 1,333 30,667
Less: reclassification adjustments for gains
included in profit or loss (25,333) (24,000) (4,000) 26,667
Cash flow hedges:
Gains (losses) arising during the year (4,667) (4,000)
Less: reclassification adjustments for gains (losses)
included in profit or loss 3,333 –
Less: adjustments for amounts transferred to
initial carrying of hedged items 667 (667) – (4,000)

Gains on property revaluation 933 3,367

Re-measurements of defined benefit pension plans (667) 1,333
Share of other comprehensive income of associates 400 (700)
Other comprehensive income (18,667) 37,334
Income tax relating to components of other comprehensive income (3) 4,667 9,334)
Other comprehensive income for the year (14,000) 28,000

(1) When an entity chooses an aggregated presentation in the statement of comprehensive income, the
amounts for reclassification adjustments and current year gain or loss are presented in the notes.

(2) There was no disposal of a foreign operation. Therefore, there is no reclassification adjustment for the
years presented.

(3) The income tax relating to each component of other comprehensive income is disclosed in the notes.

Some IFRSs require that gains and losses recognized in other comprehensive income should not be
‘recycled’ to profit and loss, and hence will not give rise to reclassification adjustments. IAS 1 gives the
following examples:
(a) revaluation surpluses for revalued property, plant and equipment, and intangible assets;
(b) re-measurements on defined benefit plans.

The standard observes that whilst items in (a) are not reclassified to profit or loss they may be transferred
to retained earnings as the assets concerned are used or derecognised. [IAS 1.96]. This is illustrated in
Example 3.9 below.
3.2.4.C Tax on items of other comprehensive income

 IAS 1 requires disclosure of the amount of income tax relating to each item of
other comprehensive income, including reclassification adjustments, either on the
face of the statement or in the notes. [IAS 1.90]. This may be done by presenting
the items of other comprehensive income either(a) net of related tax effects; or
(b) before related tax effects with one amount shown for the aggregate amount of
income tax relating to those items.
 If the alternative at (b) is selected, the tax should be allocated between the items
that might be reclassified subsequently to profit and loss and those that will not.
[IAS 1.91]. The reference to reclassification adjustments here and in the
definition of other comprehensive income (see 3.2.1 above) seems to suggest
that such adjustments are themselves ‘components’ of other comprehensive
income. That would mean that the standard requires disclosure of tax related to
reclassification adjustments. The implementation guidance, however, suggests
this is not required because the note illustrating the presentation in (b) above
allocates tax only to items of comprehensive income themselves net of related
reclassification adjustments.
 IAS 1 provides an illustration of both approaches in its implementation guidance.
The statement of comprehensive income and related note analyzing tax are
illustrated in Example 3.8 below (the related separate statement of profit or loss
is shown in Example 3.4 above).
 Statement of comprehensive income illustrating the presentation of comprehensive income in two
statements with note disclosure of the tax effects relating to components of other comprehensive
income [IAS 1 IG Part I]

XYZ Group – Statement of profit or loss and other comprehensive income

for the year ended 31 December 2016
(in thousands of currency units)

2016 2015
Profit for the year 121,250 65,500
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Gains on property revaluation 933 3,367
Remeasurements of defined benefit pension plans (667) 1,333
Share of other comprehensive income of associates(1) 400 (700)
Income tax relating to items that will not be reclassified(2) (166) (1,000) 500 3,000
Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign
operations 5,334 10,667 Available-for-sale financial assets(3) (24,000) 26,667 Cash flow hedges (667)
(4,000) Income tax relating to items that may be reclassified(2) 4,833 (8,334) (14,500) 25,000 Other
comprehensive income for the year, net of tax (14,000) 28,000 TOTAL COMPREHENSIVE INCOME
FOR THE YEAR 107,250 93,500 Total comprehensive income attributable to: Owners of the parent
85,800 74,800 Non-controlling interests 21,450 18,700 107,250 93,500