IAS 1 — Presentation of Financial Statements
assists users of financial statements in predicting the entity's
 sets out the overall requirements for financial
statements, including how they should be structured,
the minimum requirements for their content and
overriding concepts such as going concern, the
accrual basis of accounting and the current/non-
current distinction
 requires a complete set of financial statements to
comprise a statement of financial position, a
statement of profit or loss and other comprehensive
income, a statement of changes in equity and a
statement of cash flows.
Objective of IAS 1
 to prescribe the basis for presentation of general
purpose financial statements
 to ensure comparability both with the entity's financial
statements of previous periods and with the financial
statements of other entities
 sets out the overall requirements for the presentation
of financial statements, guidelines for their structure
and minimum requirements for their content.
Scope
 applies to all general purpose financial statements
that are prepared and presented in accordance with
International Financial Reporting Standards (IFRSs).
General purpose financial statements are those intended to
serve users who are not in a position to require financial
reports tailored to their particular information needs. [IAS 1.7]
Objective of financial statements
 to provide information about the financial position,
financial performance, and cash flows of an entity that
is useful to a wide range of users in making economic
decisions.
 To meet that objective, financial statements provide
information about an entity's: [IAS 1.9]
 assets
 liabilities
 equity
 income and expenses, including gains and
losses
 contributions by and distributions to owners (in
their capacity as owners)
 cash flows.
That information, along with other information in the notes,
future cash flows and, in particular, their timing and certainty.
Components of financial statements
A complete set of financial statements includes: [IAS 1.10]
 a statement of financial position (balance sheet) at the
end of the period
 a statement of profit or loss and other comprehensive
income for the period (presented as a single
statement, or by presenting the profit or loss section
in a separate statement of profit or loss, immediately
followed by a statement presenting comprehensive
income beginning with profit or loss)
 a statement of changes in equity for the period
 a statement of cash flows for the period
 notes, comprising a summary of significant
accounting policies and other explanatory notes
 comparative information prescribed by the standard.
An entity may use titles for the statements other than those
stated above.  All financial statements are required to be
presented with equal prominence. [IAS 1.10] 
When an entity applies an accounting policy retrospectively or
makes a retrospective restatement of items in its financial
statements, or when it reclassifies items in its financial
statements, it must also present a statement of financial
position (balance sheet) as at the beginning of the earliest
comparative period.
Reports that are presented outside of the financial statements
– including financial reviews by management, environmental
reports, and value added statements – are outside the scope
of IFRSs. [IAS 1.14]
Fair presentation and compliance with IFRSs
 The financial statements must "present fairly" the
financial position, financial performance and cash
flows of an entity.
 Fair presentation requires the faithful representation
of the effects of transactions, other events, and
conditions in accordance with the definitions and
recognition criteria for assets, liabilities, income and
expenses set out in the Framework.
 The application of IFRSs, with additional disclosure
when necessary, is presumed to result in financial
statements that achieve a fair presentation. [IAS 1.15]
IAS 1 requires an entity whose financial statements comply
with IFRSs to make an explicit and unreserved statement of
such compliance in the notes. Financial statements cannot be
described as complying with IFRSs unless they comply with all
the requirements of IFRSs (which includes IFRS, IAS, IFRIC
Interpretations and SIC Interpretations). [IAS 1.16]
Inappropriate accounting policies are not rectified either by
disclosure of the accounting policies used or by notes or
explanatory material. [IAS 1.18]
IAS 1 acknowledges that, in extremely rare circumstances,
management may conclude that compliance with an IFRS
requirement would be so misleading that it would conflict with
the objective of financial statements set out in the Framework.
In such a case, the entity is required to depart from the IFRS
requirement, with detailed disclosure of the nature, reasons,
and impact of the departure. [IAS 1.19-21]
Going concern
The Conceptual Framework notes that financial statements are
normally prepared assuming the entity is a going concern and
will continue in operation for the foreseeable future.
[Conceptual Framework, paragraph 4.1]
IAS 1 requires management to make an assessment of an
entity's ability to continue as a going concern.  If management
has significant concerns about the entity's ability to continue as
a going concern, the uncertainties must be disclosed. If
management concludes that the entity is not a going concern,
the financial statements should not be prepared on a going
concern basis, in which case IAS 1 requires a series of
disclosures. [IAS 1.25]
Accrual basis of accounting
IAS 1 requires that an entity prepare its financial statements,
except for cash flow information, using the accrual basis of
accounting. [IAS 1.27]
Consistency of presentation
The presentation and classification of items in the financial
statements shall be retained from one period to the next unless
a change is justified either by a change in circumstances or a
requirement of a new IFRS. [IAS 1.45]
Materiality and aggregation
Information is material if omitting, misstating or obscuring it
could reasonably be expected to influence decisions that the
primary users of general purpose financial statements make on
the basis of those financial statements, which provide financial
information about a specific reporting entity. [IAS 1.7]*
Each material class of similar items must be presented
separately in the financial statements. Dissimilar items may be
aggregated only if they are individually immaterial. [IAS 1.29]
However, information should not be obscured by aggregating
or by providing immaterial information, materiality
considerations apply to the all parts of the financial statements,
and even when a standard requires a specific disclosure,
materiality considerations do apply. [IAS 1.30A-31]
Offsetting
Assets and liabilities, and income and expenses, may not be
offset unless required or permitted by an IFRS. [IAS 1.32]
Comparative information
IAS 1 requires that comparative information to be disclosed in
respect of the previous period for all amounts reported in the
financial statements, both on the face of the financial
statements and in the notes, unless another Standard requires
otherwise. Comparative information is provided for narrative
and descriptive where it is relevant to understanding the
financial statements of the current period. [IAS 1.38]
An entity is required to present at least two of each of the
following primary financial statements: [IAS 1.38A]
 statement of financial position*
 statement of profit or loss and other comprehensive
income
 separate statements of profit or loss (where
presented)
 statement of cash flows
 statement of changes in equity
 related notes for each of the above items.
* A third statement of financial position is required to be
presented if the entity retrospectively applies an accounting
policy, restates items, or reclassifies items, and those
adjustments had a material effect on the information in the
statement of financial position at the beginning of the
comparative period. [IAS 1.40A]
Where comparative amounts are changed or reclassified,
various disclosures are required. [IAS 1.41]
Structure and content of financial statements in general
IAS 1 requires an entity to clearly identify: [IAS 1.49-51]
 the financial statements, which must be distinguished
from other information in a published document
 each financial statement and the notes to the financial
statements.
In addition, the following information must be displayed
prominently, and repeated as necessary: [IAS 1.51]
 the name of the reporting entity and any change in the
name
 whether the financial statements are a group of
entities or an individual entity
 information about the reporting period
 the presentation currency (as defined by IAS 21 The
Effects of Changes in Foreign Exchange Rates)
 the level of rounding used (e.g. thousands, millions).
Reporting period
There is a presumption that financial statements will be
prepared at least annually. If the annual reporting period
changes and financial statements are prepared for a different
period, the entity must disclose the reason for the change and
state that amounts are not entirely comparable. [IAS 1.36]
STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)
Current and non-current classification
An entity must normally present a classified statement of
financial position, separating current and non-current assets
and liabilities, unless presentation based on liquidity provides
information that is reliable. [IAS 1.60] In either case, if an asset
(liability) category combines amounts that will be received
(settled) after 12 months with assets (liabilities) that will be
received (settled) within 12 months, note disclosure is required
that separates the longer-term amounts from the 12-month
amounts. [IAS 1.61]
Current assets are assets that are: [IAS 1.66]
 expected to be realised in the entity's normal
operating cycle
 held primarily for the purpose of trading
 expected to be realised within 12 months after the
reporting period
 cash and cash equivalents (unless restricted).
All other assets are non-current. [IAS 1.66]
Current liabilities are those: [IAS 1.69]
 expected to be settled within the entity's normal
operating cycle
 held for purpose of trading
 due to be settled within 12 months
 for which the entity does not have the right at the end
of the reporting period to defer settlement beyond 12
months.
Other liabilities are non-current.
o When a long-term debt is expected to be refinanced
under an existing loan facility, and the entity has the
discretion to do so, the debt is classified as non-
current, even if the liability would otherwise be due
within 12 months. [IAS 1.73]
o If a liability has become payable on demand because
an entity has breached an undertaking under a long-
term loan agreement on or before the reporting date,
the liability is current, even if the lender has agreed,
after the reporting date and before the authorisation of
the financial statements for issue, not to demand
payment as a consequence of the breach. [IAS 1.74]
However, the liability is classified as non-current if the
lender agreed by the reporting date to provide a
period of grace ending at least 12 months after the
end of the reporting period, within which the entity can
rectify the breach and during which the lender cannot
demand immediate repayment. [IAS 1.75]
Settlement by the issue of equity instruments does not impact
classification. [IAS 1.76B]
Line items
The line items to be included on the face of the statement of
financial position are: [IAS 1.54]
(a) property, plant and equipment
(b) investment property
(c) intangible assets
(d) financial assets (excluding amounts under (e), (h), and (i))
(e) investments accounted for using the equity method
(f) biological assets
(g) inventories
(h) trade and other receivables
(i) cash and cash equivalents
(j) assets held for sale
(k) trade and other payables
(l) provisions
(m)financial liabilities (excluding amounts under (k) and (l))
(n) current tax liabilities and current tax assets (IAS 12)
(o) deferred tax liabilities and deferred tax assets (IAS 12)
(p) liabilities included in disposal groups
(q) non-controlling interests, presented within equity
(r) issued capital and reserves attributable to owners of the parent.
*Additional line items, headings and subtotals may be needed to
fairly present the entity's financial position. [IAS 1.55]  STATEMENT OF PROFIT OR LOSS AND OTHER
When an entity presents subtotals, those subtotals shall be
comprised of line items made up of amounts recognised and
measured in accordance with IFRS; be presented and labelled
in a clear and understandable manner; be consistent from
period to period; and not be displayed with more prominence
than the required subtotals and totals. [IAS 1.55A]*
Further sub-classifications of line items presented are made in
the statement or in the notes, for example: [IAS 1.77-78]:
 classes of property, plant and equipment
 disaggregation of receivables
 disaggregation of inventories in accordance
with IAS 2 Inventories
 disaggregation of provisions into employee benefits
and other items
 classes of equity and reserves.
Format of statement
IAS 1 does not prescribe the format of the statement of
financial position. Assets can be presented current then non-
current, or vice versa, and liabilities and equity can be
presented current then non-current then equity, or vice versa.
A net asset presentation (assets minus liabilities) is allowed .
The long-term financing approach used in UK and elsewhere –
fixed assets + current assets - short term payables = long-term
debt plus equity – is also acceptable.
Share capital and reserves
Regarding issued share capital and reserves, the following
disclosures are required: [IAS 1.79]
 numbers of shares authorised, issued and fully paid,
and issued but not fully paid
 par value (or that shares do not have a par value)
 a reconciliation of the number of shares outstanding
at the beginning and the end of the period
 description of rights, preferences, and restrictions
 treasury shares, including shares held by subsidiaries
and associates
 shares reserved for issuance under options and
contracts
 a description of the nature and purpose of each
reserve within equity.
*Additional disclosures are required in respect of entities without
share capital and where an entity has reclassified puttable financial
instruments.  [IAS 1.80-80A]
COMPREHENSIVE INCOME
Concepts of profit or loss and comprehensive income
 Profit or loss - "the total of income less expenses,
excluding the components of other comprehensive
income"
 Other comprehensive income - "items of income and
expense (including reclassification adjustments) that
are not recognised in profit or loss as required or
permitted by other IFRSs". 
 Total comprehensive income - "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".
[IAS 1.7]
Comprehensive Income Profit or
= + OCI
for the period Loss
All items of income and expense recognised in a period must
be included in profit or loss unless a Standard or an
Interpretation requires otherwise. [IAS 1.88] Some IFRSs
require or permit that some components to be excluded from
profit or loss and instead to be included in other
comprehensive income.
Examples of items recognised outside of profit or loss
 Changes in revaluation surplus where the revaluation
method is used under IAS 16 Property, Plant and
Equipment and IAS 38 Intangible Assets
 Remeasurements of a net defined benefit liability or asset
recognised in accordance with IAS 19 Employee
Benefits (2011)
 Exchange differences from translating functional currencies
into presentation currency in accordance with IAS 21 The
Effects of Changes in Foreign Exchange Rates
 Gains and losses on remeasuring available-for-sale
financial assets in accordance with IAS 39 Financial
Instruments: Recognition and Measurement
 The effective portion of gains and losses on hedging

instruments in a cash flow hedge under IAS 39
or IFRS 9 Financial Instruments
 Gains and losses on remeasuring an investment in equity
instruments where the entity has elected to present them in
other comprehensive income in accordance with IFRS 9
 The effects of changes in the credit risk of a financial
liability designated as at fair value through profit and loss
under IFRS 9.
In addition, IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors requires the correction of errors and the
effect of changes in accounting policies to be recognised
outside profit or loss for the current period. [IAS 1.89]
Choice in presentation and basic requirements
An entity has a choice of presenting:
 a single statement of profit or loss and other
comprehensive income, with profit or loss and other
comprehensive income presented in two sections, or
 two statements:
 a separate statement of profit or loss
 a statement of comprehensive
income, immediately following the statement
of profit or loss and beginning with profit or
loss [IAS 1.10A]
The statement(s) must present: [IAS 1.81A]
 profit or loss
 total other comprehensive income
 comprehensive income for the period
 an allocation of profit or loss and comprehensive
income for the period between non-controlling
interests and owners of the parent.
Profit or loss section or statement
The following minimum line items must be presented in the
profit or loss section (or separate statement of profit or loss, if
presented): [IAS 1.82-82A]
 revenue
 gains and losses from the derecognition of financial
assets measured at amortised cost
 finance costs
 share of the profit or loss of associates and joint
ventures accounted for using the equity method
 certain gains or losses associated with the
reclassification of financial assets
 tax expense
 a single amount for the total of discontinued items
Expenses recognised in profit or loss should be analysed
either by nature (raw materials, staffing costs, depreciation,
etc.) or by function (cost of sales, selling, administrative, etc).
[IAS 1.99] If an entity categorises by function, then additional
information on the nature of expenses – at a minimum
depreciation, amortisation and employee benefits expense –
must be disclosed. [IAS 1.104]
Other comprehensive income section
The other comprehensive income section is required to present
line items which are classified by their nature, and grouped
between those items that will or will not be reclassified to profit
and loss in subsequent periods. [IAS 1.82A]
An entity's share of OCI of equity-accounted associates and
joint ventures is presented in aggregate as single line items
based on whether or not it will subsequently be reclassified to
profit or loss. [IAS 1.82A]*
When an entity presents subtotals, those subtotals shall be
comprised of line items made up of amounts recognised and
measured in accordance with IFRS; be presented and labelled
in a clear and understandable manner; be consistent from
period to period; not be displayed with more prominence than
the required subtotals and totals; and reconciled with the
subtotals or totals required in IFRS. [IAS 1.85A-85B]*
Other requirements
Additional line items may be needed to fairly present the
entity's results of operations. [IAS 1.85]
Items cannot be presented as 'extraordinary items' in the
financial statements or in the notes. [IAS 1.87]
Certain items must be disclosed separately either in the
statement of comprehensive income or in the notes, if material,
including: [IAS 1.98]
 write-downs of inventories to net realisable value or of
property, plant and equipment to recoverable amount,
as well as reversals of such write-downs
 restructurings of the activities of an entity and
reversals of any provisions for the costs of
restructuring
 disposals of items of property, plant and equipment
 disposals of investments
 discontinuing operations
 litigation settlements
 other reversals of provisions
STATEMENT OF CASH FLOWS
Rather than setting out separate requirements for presentation
of the statement of cash flows, IAS 1.111 refers
to IAS 7 Statement of Cash Flows.
STATEMENT OF CHANGES IN EQUITY
IAS 1 requires an entity to present a separate statement of
changes in equity. The statement must show: [IAS 1.106]
 total comprehensive income for the period, showing
separately amounts attributable to owners of the
parent and to non-controlling interests
 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
 reconciliations between the carrying amounts at the
beginning and the end of the period for each
component of equity, separately disclosing:
 profit or loss
 other comprehensive income*
 transactions with owners, showing separately
contributions by and distributions to owners
and changes in ownership interests in
subsidiaries that do not result in a loss of
control
* An analysis of other comprehensive income by item is
required to be presented either in the statement or in the notes.
[IAS 1.106A]
The following amounts may also be presented on the face of
the statement of changes in equity, or they may be presented
in the notes: [IAS 1.107]
 amount of dividends recognised as distributions
 the related amount per share.
NOTES TO THE FINANCIAL STATEMENTS
The notes must: [IAS 1.112]
 present information about the basis of preparation of
the financial statements and the specific accounting
policies used
 disclose any information required by IFRSs that is not
presented elsewhere in the financial statements and
 provide additional information that is not presented
elsewhere in the financial statements but is relevant
to an understanding of any of them
Notes are presented in a systematic manner and cross-
referenced from the face of the financial statements to the
relevant note. [IAS 1.113]
IAS 1.114 suggests that the notes should normally be
presented in the following order:*
 a statement of compliance with IFRSs
 a summary of significant accounting policies applied,
including: [IAS 1.117]
 the measurement basis (or bases) used in
preparing the financial statements
 the other accounting policies used that are
relevant to an understanding of the financial
statements
 supporting information for items presented on the face
of the statement of financial position (balance sheet),
statement(s) of profit or loss and other comprehensive
income, statement of changes in equity and statement
of cash flows, in the order in which each statement
and each line item is presented
 other disclosures, including:
 contingent liabilities (see IAS 37) and
unrecognised contractual commitments
 non-financial disclosures, such as the entity's
financial risk management objectives and
policies (see IFRS 7 Financial Instruments:
Disclosures)
* Disclosure Initiative (Amendments to IAS 1), effective 1
January 2016, clarifies this order just to be an example of how
notes can be ordered and adds additional examples of
possible ways of ordering the notes to clarify that
understandability and comparability should be considered
when determining the order of the notes.
OTHER DISCLOSURES
Judgements and key assumptions
An entity must disclose, in the summary of significant
accounting policies or other notes, the judgements, apart from
those involving estimations, that management has made in the
process of applying the entity's accounting policies that have
the most significant effect on the amounts recognised in the
financial statements. [IAS 1.122]
Examples cited in IAS 1.123 include management's
judgements in determining:
 when substantially all the significant risks and rewards
of ownership of financial assets and lease assets are
transferred to other entities
 whether, in substance, particular sales of goods are
financing arrangements and therefore do not give rise
to revenue.
An entity must also disclose, in the notes, information about
the key assumptions concerning the future, and other key
sources of estimation uncertainty at the end of the reporting
period, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities
within the next financial year. [IAS 1.125] These disclosures do
not involve disclosing budgets or forecasts. [IAS 1.130]
Dividends
In addition to the distributions information in the statement of
changes in equity (see above), the following must be disclosed
in the notes: [IAS 1.137]
 the amount of dividends proposed or declared before
the financial statements were authorised for issue but
which were not recognised as a distribution to owners
during the period, and the related amount per share
 the amount of any cumulative preference dividends
not recognised.
Capital disclosures
An entity discloses information about its objectives, policies
and processes for managing capital. [IAS 1.134] To comply
with this, the disclosures include: [IAS 1.135]
 qualitative information about the entity's objectives,
policies and processes for managing capital,
including:
 description of capital it manages
 nature of external capital requirements, if any
 how it is meeting its objectives
 quantitative data about what the entity regards as
capital
 changes from one period to another
 whether the entity has complied with any external
capital requirements and
 if it has not complied, the consequences of such non-
compliance.
Puttable financial instruments
IAS 1.136A requires the following additional disclosures if an
entity has a puttable instrument that is classified as an equity
instrument:
 summary quantitative data about the amount
classified as equity
 the entity's objectives, policies and processes for
managing its obligation to repurchase or redeem the
instruments when required to do so by the instrument
holders, including any changes from the previous
period
 the expected cash outflow on redemption or
repurchase of that class of financial instruments and
 information about how the expected cash outflow on
redemption or repurchase was determined.
Other information
The following other note disclosures are required by IAS 1 if
not disclosed elsewhere in information published with the
financial statements: [IAS 1.138]
 domicile and legal form of the entity
 country of incorporation
 address of registered office or principal place of
business
 description of the entity's operations and principal
activities
 if it is part of a group, the name of its parent and the
ultimate parent of the group
 if it is a limited life entity, information regarding the
length of the life
Terminology
The 2007 comprehensive revision to IAS 1 introduced some
new terminology. Consequential amendments were made at
that time to all of the other existing IFRSs, and the new
terminology has been used in subsequent IFRSs including
amendments.
IAS 1.8 states: "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." Also, IAS 1.57(b) states: "The
descriptions used and the ordering of items or aggregation of
similar items may be amended according to the nature of the
entity and its transactions, to provide information that is
relevant to an understanding of the entity's financial position."
 IAS 7 — Statement of Cash Flow
 requires an entity to present a statement of cash flows
Term before 2007 Term as amended by IAS 1
as an integral part of its primary financial statements.
revision of IAS 1 (2007)
 Cash flows are classified and presented into
operating activities (either using the 'direct' or 'indirect'
balance sheet statement of financial position
method), investing activities or financing activities,
with the latter two categories generally presented on a
cash flow statement statement of cash flows
gross basis.
income statement statement of comprehensive
Objective of IAS 7
income (income statement is
 require the presentation of information about the
retained in case of a two-
historical changes in cash and cash equivalents of an
statement approach)
entity by means of a statement of cash flows, which
classifies cash flows during the period according to
recognised in the recognised in profit or loss operating, investing, and financing activities.
income statement
Fundamental principle in IAS 7
recognised [directly] in recognised in other  All entities that prepare financial statements in
equity (only for OCI comprehensive income conformity with IFRSs are required to present a
components) statement of cash flows. [IAS 7.1]
recognised [directly] in recognised outside profit or loss
 The statement of cash flows analyses changes in
equity (for recognition (either in OCI or equity)
cash and cash equivalents during a period.
both in OCI and equity)
 Cash and cash equivalents comprise cash on hand
and demand deposits, together with short-term, highly
removed from equity reclassified from equity to profit
liquid investments that are readily convertible to a
and recognised in profit or loss as a reclassification
known amount of cash, and that are subject to an
or loss ('recycling') adjustment
insignificant risk of changes in value.
Standard or/and IFRSs  Guidance notes indicate that an investment normally
Interpretation meets the definition of a cash equivalent when it has
a maturity of three months or less from the date of
on the face of in acquisition.
 Equity investments are normally excluded, unless
equity holders owners (exception for 'ordinary they are in substance a cash equivalent (e.g.
equity holders') preferred shares acquired within three months of their
specified redemption date).
balance sheet date end of the reporting period  Bank overdrafts which are repayable on demand and
which form an integral part of an entity's cash
reporting date end of the reporting period management are also included as a component of
cash and cash equivalents. [IAS 7.7-8]
after the balance sheet after the reporting period
date Presentation of the Statement of Cash Flows
 Cash flows must be analysed between operating,
investing and financing activities. [IAS 7.10]

Key principles specified by IAS 7 for the preparation of a

statement of cash flows are as follows:

 operating activities - are the main revenue-producing

activities of the entity that are not investing or
financing activities
- operating cash flows include cash received
from customers and cash paid to suppliers
and employees [IAS 7.14]
  investing activities - are the acquisition and disposal
of long-term assets and other investments that are not
considered to be cash equivalents [IAS 7.6]
 financing activities - activities that alter the equity
capital and borrowing structure of the entity [IAS 7.6]
 Interest and dividends received and paid may be classified
as operating, investing, or financing cash flows, provided
that they are classified consistently from period to period
[IAS 7.31]
 Cash flows arising from taxes on income are normally
classified as operating, unless they can be specifically
identified with financing or investing activities [IAS 7.35]
 For operating cash flows, the direct method of presentation
is encouraged, but the indirect method is acceptable [IAS
7.18]
The direct method shows each major class of gross cash
receipts and gross cash payments. The operating cash flows
section of the statement of cash flows under the direct method
would appear something like this:
Cash receipts from customers xx,xxx
Cash paid to suppliers xx,xxx
Cash paid to employees xx,xxx
Cash paid for other operating expenses xx,xxx
Interest paid xx,xxx
Income taxes paid xx,xxx
Net cash from operating activities xx,xxx
The indirect method adjusts accrual basis net profit or loss for
the effects of non-cash transactions. The operating cash flows
section of the statement of cash flows under the indirect
method would appear something like this:
Profit before interest and income xx,xxx
taxes
Add back depreciation xx,xxx
Add back impairment of assets xx,xxx
Increase in receivables xx,xxx
Less Interest accrued but not yet paid xx,xxx
Interest paid xx,xxx
Income taxes paid xx,xxx
Net cash from operating activities xx,xxx
 The exchange rate used for translation of transactions
denominated in a foreign currency should be the rate in
effect at the date of the cash flows [IAS 7.25] 
 Cash flows of foreign subsidiaries should be translated at
the exchange rates prevailing when the cash flows took
place [IAS 7.26] 
 As regards the cash flows of associates, joint ventures,
and subsidiaries, where the equity or cost method is
used, the statement of cash flows should report only cash
flows between the investor and the investee; where
proportionate consolidation is used, the cash flow
statement should include the venturer's share of the cash
flows of the investee [IAS 7.37] 
 Aggregate cash flows relating to acquisitions and
disposals of subsidiaries and other business units should
be presented separately and classified as investing
activities, with specified additional disclosures. [IAS 7.39]
The aggregate cash paid or received as consideration
should be reported net of cash and cash equivalents
acquired or disposed of [IAS 7.42] 
 Cash flows from investing and financing activities should
be reported gross by major class of cash receipts and
major class of cash payments except for the following
cases, which may be reported on a net basis: [IAS 7.22-
24]
 cash receipts and payments on behalf of
customers (for example, receipt and repayment of
demand deposits by banks, and receipts collected
on behalf of and paid over to the owner of a
property)
 cash receipts and payments for items in which the
turnover is quick, the amounts are large, and the
maturities are short, generally less than three
months (for example, charges and collections from
credit card customers, and purchase and sale of
investments)
 cash receipts and payments relating to deposits by
financial institutions
 cash advances and loans made to customers and
repayments thereof

Decrease in inventories xx,xxx  Investing and financing transactions which do not

require the use of cash should be excluded from the
Increase in trade payables xx,xxx statement of cash flows, but they should be
separately disclosed elsewhere in the financial
Interest expense xx,xxx statements [IAS 7.43] 
  Entities shall provide disclosures that enable users of
financial statements to evaluate changes in liabilities
arising from financing activities [IAS 7.44A-44E]
 The components of cash and cash equivalents should
be disclosed, and a reconciliation presented to
amounts reported in the statement of financial
position [IAS 7.45]  transaction, other event or condition, the accounting policy or
 The amount of cash and cash equivalents held by the
entity that is not available for use by the group should
be disclosed, together with a commentary by
management [IAS 7.48]
IAS 8 — Accounting Policies, Changes in
Accounting Estimates and Errors
 applied in selecting and applying accounting policies,
accounting for changes in estimates and reflecting
corrections of prior period errors.
 requires compliance with any specific IFRS applying
to a transaction, event or condition, and provides
guidance on developing accounting policies for other
items that result in relevant and reliable information.
Changes in accounting policies and corrections of
errors are generally retrospectively accounted for,
whereas changes in accounting estimates are
generally accounted for on a prospective basis.
 Accounting policies are the specific principles, bases,
conventions, rules and practices applied by an entity in
preparing and presenting financial statements.
 A change in accounting estimate is an adjustment of the
carrying amount of an asset or liability, or related expense,
resulting from reassessing the expected future benefits and
obligations associated with that asset or liability.
 International Financial Reporting Standards are standards
and interpretations adopted by the International Accounting
Standards Board (IASB). They comprise:
 International Financial Reporting Standards
(IFRSs)
 International Accounting Standards (IASs)
 Interpretations developed by the International
Financial Reporting Interpretations Committee
(IFRIC) or the former Standing Interpretations
Committee (SIC) and approved by the IASB.
 Materiality. Information is material if omitting, misstating or
obscuring it could reasonably be expected to influence
decisions that the primary users of general purpose
financial statements make on the basis of those financial
statements, which provide financial information about a
specific reporting entity.
 Prior period errors are omissions from, and misstatements
in, an entity's financial statements for one or more prior
periods arising from a failure to use, or misuse of, reliable
information that was available and could reasonably be
expected to have been obtained and taken into account in
preparing those statements. Such errors result from
mathematical mistakes, mistakes in applying accounting
policies, oversights or misinterpretations of facts, and fraud.
Selection and application of accounting policies
When a Standard or an Interpretation specifically applies to a
policies applied to that item must be determined by applying
the Standard or Interpretation and considering any relevant
Implementation Guidance issued by the IASB for the Standard
or Interpretation. [IAS 8.7]
In the absence of a Standard or an Interpretation that
specifically applies to a transaction, other event or condition,
management must use its judgement in developing and
applying an accounting policy that results in information that is
relevant and reliable. [IAS 8.10].
In making that judgement, management must refer to, and
consider the applicability of, the following sources in
descending order:
 the requirements and guidance in IASB standards
and interpretations dealing with similar and related
issues; and
 the definitions, recognition criteria and measurement
concepts for assets, liabilities, income and expenses
in the Framework. [IAS 8.11]
Management may also consider the most recent
pronouncements of other standard-setting bodies that use a
similar conceptual framework to develop accounting standards,
other accounting literature and accepted industry practices, to
the extent that these do not conflict with the sources in
paragraph 11. [IAS 8.12]
Consistency of accounting policies
An entity shall select and apply its accounting policies
consistently for similar transactions, other events and
conditions, unless a Standard or an Interpretation specifically
requires or permits categorisation of items for which different
policies may be appropriate. If a Standard or an Interpretation
requires or permits such categorisation, an appropriate
accounting policy shall be selected and applied consistently to
each category. [IAS 8.13]
CHANGES IN ACCOUNTING POLICIES
An entity is permitted to change an accounting policy only if the
change:
 is required by a standard or interpretation; or
 results in the financial statements providing reliable
and more relevant information about the effects of
transactions, other events or conditions on the entity's
financial position, financial performance, or cash
flows. [IAS 8.14]
Note that changes in accounting policies do not include
applying an accounting policy to a kind of transaction or event
that did not occur previously or were immaterial. [IAS 8.16]
If a change in accounting policy is required by a new IASB
standard or interpretation, the change is accounted for as
required by that new pronouncement or, if the new
pronouncement does not include specific transition provisions,
then the change in accounting policy is applied retrospectively.
[IAS 8.19]
 Retrospective application means adjusting the opening
balance of each affected component of equity for the
earliest prior period presented and the other comparative
amounts disclosed for each prior period presented as if the
new accounting policy had always been applied. [IAS 8.22]
 However, if it is impracticable to determine either the
period-specific effects or the cumulative effect of the
change for one or more prior periods presented, the
entity shall apply the new accounting policy to the
carrying amounts of assets and liabilities as at the
beginning of the earliest period for which retrospective
application is practicable, which may be the current
period, and shall make a corresponding adjustment to
the opening balance of each affected component of
equity for that period. [IAS 8.24]
 Also, if it is impracticable to determine the cumulative
effect, at the beginning of the current period, of
applying a new accounting policy to all prior periods,
the entity shall adjust the comparative information to
apply the new accounting policy prospectively from
the earliest date practicable. [IAS 8.25]
Disclosures relating to changes in accounting policies
a) Disclosures relating to changes in accounting policy
caused by a new standard or interpretation include: [IAS
8.28]
 the title of the standard or interpretation causing the
change
 the nature of the change in accounting policy
 a description of the transitional provisions, including
those that might have an effect on future periods
 for the current period and each prior period
presented, to the extent practicable, the amount of the
adjustment:
o for each financial statement line item
affected, and
o for basic and diluted earnings per share
(only if the entity is applying IAS 33)
 the amount of the adjustment relating to periods
before those presented, to the extent practicable
 if retrospective application is impracticable, an
explanation and description of how the change in
accounting policy was applied.
Financial statements of subsequent periods need not repeat
these disclosures.
b) Disclosures relating to voluntary changes in accounting
policy include: [IAS 8.29]
 the nature of the change in accounting policy
 the reasons why applying the new accounting policy
provides reliable and more relevant information
 for the current period and each prior period
presented, to the extent practicable, the amount of the
adjustment:
o for each financial statement line item
affected, and
o for basic and diluted earnings per share
(only if the entity is applying IAS 33)
 the amount of the adjustment relating to periods
before those presented, to the extent practicable
 if retrospective application is impracticable, an
explanation and description of how the change in
accounting policy was applied.
Financial statements of subsequent periods need not repeat
these disclosures.
If an entity has not applied a new standard or interpretation
that has been issued but is not yet effective, the entity must
disclose that fact and any and known or reasonably estimable
information relevant to assessing the possible impact that the
new pronouncement will have in the year it is applied. [IAS
8.30]
CHANGES IN ACCOUNTING ESTIMATES
The effect of a change in an accounting estimate shall be
recognised prospectively by including it in profit or loss in : [IAS
8.36]
 the period of the change, if the change affects that
period only, or
 the period of the change and future periods, if the
change affects both.
However, to the extent that a change in an accounting estimate
gives rise to changes in assets and liabilities, or relates to an
item of equity, it is recognised by adjusting the carrying amount
of the related asset, liability, or equity item in the period of the
change. [IAS 8.37]
Disclosures relating to changes in accounting estimates
Disclose:
 the nature and amount of a change in an accounting
estimate that has an effect in the current period or is
expected to have an effect in future periods
 if the amount of the effect in future periods is not
disclosed because estimating it is impracticable, an
entity shall disclose that fact. [IAS 8.39-40]
PRIOR PERIOD ERRORS
The general principle in IAS 8 is that an entity must correct all
material prior period errors retrospectively in the first set of
financial statements authorised for issue after their discovery
by: [IAS 8.42]
 restating the comparative amounts for the prior
period(s) presented in which the error occurred; or

 if the error occurred before the earliest prior period
presented, restating the opening balances of assets,
liabilities and equity for the earliest prior period
presented.
However, if it is impracticable to determine the period-specific
effects of an error on comparative information for one or more
prior periods presented, the entity must restate the opening
balances of assets, liabilities, and equity for the earliest period
for which retrospective restatement is practicable (which may
be the current period). [IAS 8.44]
Further, if it is impracticable to determine the cumulative effect,
at the beginning of the current period, of an error on all prior
periods, the entity must restate the comparative information to
correct the error prospectively from the earliest date
practicable. [IAS 8.45]
Disclosures relating to prior period errors
Disclosures relating to prior period errors include: [IAS 8.49]
 the nature of the prior period error
 for each prior period presented, to the extent
practicable, the amount of the correction:
o for each financial statement line item
affected, and
o for basic and diluted earnings per share
(only if the entity is applying IAS 33)
 the amount of the correction at the beginning of the
earliest prior period presented
 if retrospective restatement is impracticable, an
explanation and description of how the error has been
corrected.
IAS 10 — Events After the Reporting Period
 contains requirements for when events after the end
of the reporting period should be adjusted in the
financial statements.
 Event after the reporting period: An event, which could be
favourable or unfavourable, that occurs between the end of
the reporting period and the date that the financial
statements are authorised for issue. [IAS 10.3]
 Adjusting event: An event after the reporting period that
provides further evidence of conditions that existed at the
end of the reporting period, including an event that
indicates that the going concern assumption in relation to
the whole or part of the enterprise is not appropriate. [IAS
10.3]
 Non-adjusting event: An event after the reporting period
that is indicative of a condition that arose after the end of
the reporting period. [IAS 10.3]
Accounting
 Adjust financial statements for adjusting events -
events after the balance sheet date that provide
further evidence of conditions that existed at the end
of the reporting period, including events that indicate
that the going concern assumption in relation to the
whole or part of the enterprise is not appropriate. [IAS
10.8]
 Do not adjust for non-adjusting events - events or
conditions that arose after the end of the reporting
period. [IAS 10.10]
 If an entity declares dividends after the reporting
period, the entity shall not recognise those dividends
as a liability at the end of the reporting period. That is
a non-adjusting event. [IAS 10.12]
Going concern issues arising after end of the reporting period
An entity shall not prepare its financial statements on a going
concern basis if management determines after the end of the
reporting period either that it intends to liquidate the entity or to
cease trading, or that it has no realistic alternative but to do so.
[IAS 10.14]
Disclosure
Non-adjusting events should be disclosed if they are of such
importance that non-disclosure would affect the ability of users
to make proper evaluations and decisions. The required
disclosure is (a) the nature of the event and (b) an estimate of
its financial effect or a statement that a reasonable estimate of
the effect cannot be made. [IAS 10.21]
A company should update disclosures that relate to conditions
that existed at the end of the reporting period to reflect any
new information that it receives after the reporting period about
those conditions. [IAS 10.19]

Companies must disclose the date when the financial
statements were authorised for issue and who gave that
authorisation. If the enterprise's owners or others have the
power to amend the financial statements after issuance, the
enterprise must disclose that fact. [IAS 10.17]
 Initiation of a major litigation against the company
arising out of events that occurred after the reporting
period.
 Major losses suffered as a result of a natural disaster
occurring after the end of reporting period.

Examples of Adjusting Events include:

 Settlement of litigation against the entity after the reporting
date, in respect of events that occurred before the end of
reporting period, may provide evidence of the existence
and amount of liability at the reporting date. A liability in
respect of the litigation may be recorded in the financial
statements if not recognized initially or the amount of
liability may be adjusted in accordance with IAS 37
Provisions, Contingent Liabilities and Contingent Assets.

 Declaration of bankruptcy by a long outstanding receivable

after the reporting date may provide evidence that the
receivable was impaired at the reporting date. Impairment
may be recognized in the financial statements by reducing
the amount of receivable to its recoverable amount, if any.

 Detection of fraud or errors after the reporting period may

indicate that the financial statements are misstated.
Financial statements may be adjusted to reflect accounting
for those errors or frauds that relate to the present or prior
reporting periods in accordance with IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors.

Examples of Non-Adjusting Events include:

 Declaration of dividends after the reporting date does
not indicate existence of liability to pay dividends at the
reporting date and shall not therefore trigger the
recognition of liability in financial statements in
accordance with IAS 37 Provisions, Contingent Liabilities
and Contingent Assets.
 Destruction of assets of the entity by floods occurring
after the reporting period does not indicate that the assets
of the entity were impaired at the end of reporting period.
Hence, the financial statements should not be adjusted to
account for the impairment loss that arose after the end
of reporting period.
 Initiation of litigation against the company arising out
of events that occurred after the reporting period does not
indicate the existence of liability at the reporting date and
shall not therefore trigger the recognition of liability in the
financial statements in accordance with IAS
37 Provisions, Contingent Liabilities and Contingent
Assets.

Examples of material non-adjusting events include:

 Management’s plan to discontinue or significantly
curtail its activities in major geographic segments.