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IAS 21 — The Effects of Changes in Foreign Exchange Rates
Summary of IAS 21
Objective of IAS 21
The objective of IAS 21 is to prescribe how to include foreign currency transactions and foreign
operations in the financial statements of an entity and how to translate financial statements into a
presentation currency. [IAS 21.1] The principal issues are which exchange rate(s) to use and how to
report the effects of changes in exchange rates in the financial statements. [IAS 21.2]
Key definitions [IAS 21.8]
Functional currency: the currency of the primary economic environment in which the entity
operates. (The term 'functional currency' was used in the 2003 revision of IAS 21 in place of
'measurement currency' but with essentially the same meaning.)
Presentation currency: the currency in which financial statements are presented.
Exchange difference: the difference resulting from translating a given number of units of one
currency into another currency at different exchange rates.
Foreign operation: a subsidiary, associate, joint venture, or branch whose activities are based in a
country or currency other than that of the reporting entity.
Basic steps for translating foreign currency amounts into the functional currency
Steps apply to a stand-alone entity, an entity with foreign operations (such as a parent with foreign
subsidiaries), or a foreign operation (such as a foreign subsidiary or branch).
1. the reporting entity determines its functional currency
2. the entity translates all foreign currency items into its functional currency
3. the entity reports the effects of such translation in accordance with paragraphs 20-37 [reporting
foreign currency transactions in the functional currency] and 50 [reporting the tax effects of
exchange differences].
Foreign currency transactions
A foreign currency transaction should be recorded initially at the rate of exchange at the date of the
transaction (use of averages is permitted if they are a reasonable approximation of actual). [IAS
21.21-22]
At each subsequent balance sheet date: [IAS 21.23]
o

foreign currency monetary amounts should be reported using the closing rate


o

non-monetary items carried at historical cost should be reported using the exchange rate at
the date of the transaction

o

non-monetary items carried at fair value should be reported at the rate that existed when
the fair values were determined

Exchange differences arising when monetary items are settled or when monetary items are
translated at rates different from those at which they were translated when initially recognised or in
previous financial statements are reported in profit or loss in the period, with one exception. [IAS
21.28] The exception is that exchange differences arising on monetary items that form part of the
reporting entity's net investment in a foreign operation are recognised, in the consolidated financial
statements that include the foreign operation, in other comprehensive income; they will be
recognised in profit or loss on disposal of the net investment. [IAS 21.32]
As regards a monetary item that forms part of an entity's investment in a foreign operation, the
accounting treatment in consolidated financial statements should not be dependent on the currency
of the monetary item. [IAS 21.33] Also, the accounting should not depend on which entity within the
group conducts a transaction with the foreign operation. [IAS 21.15A] If a gain or loss on a nonmonetary item is recognised in other comprehensive income (for example, a property revaluation
under IAS 16), any foreign exchange component of that gain or loss is also recognised in other
comprehensive income. [IAS 21.30]
Translation from the functional currency to the presentation currency
The results and financial position of an entity whose functional currency is not the currency of a
hyperinflationary economy are translated into a different presentation currency using the following
procedures: [IAS 21.39]

o

assets and liabilities for each balance sheet presented (including comparatives) are
translated at the closing rate at the date of that balance sheet. This would include any
goodwill arising on the acquisition of a foreign operation and any fair value adjustments to
the carrying amounts of assets and liabilities arising on the acquisition of that foreign
operation are treated as part of the assets and liabilities of the foreign operation [IAS 21.47];

o

income and expenses for each income statement (including comparatives) are translated at
exchange rates at the dates of the transactions; and

o

all resulting exchange differences are recognised in other comprehensive income.

Special rules apply for translating the results and financial position of an entity whose functional
currency is the currency of a hyperinflationary economy into a different presentation currency. [IAS
21.42-43]
Where the foreign entity reports in the currency of a hyperinflationary economy, the financial
statements of the foreign entity should be restated as required by IAS 29 Financial Reporting in
Hyperinflationary Economies, before translation into the reporting currency. [IAS 21.36]
The requirements of IAS 21 regarding transactions and translation of financial statements should be
strictly applied in the changeover of the national currencies of participating Member States of the


European Union to the Euro – monetary assets and liabilities should continue to be translated the
closing rate, cumulative exchange differences should remain in equity and exchange differences
resulting from the translation of liabilities denominated in participating currencies should not be

included in the carrying amount of related assets. [SIC-7]
Disposal of a foreign operation
When a foreign operation is disposed of, the cumulative amount of the exchange differences
recognised in other comprehensive income and accumulated in the separate component of equity
relating to that foreign operation shall be recognised in profit or loss when the gain or loss on
disposal is recognised. [IAS 21.48]
Tax effects of exchange differences
These must be accounted for using IAS 12 Income Taxes.
Disclosure
o

The amount of exchange differences recognised in profit or loss (excluding differences arising
on financial instruments measured at fair value through profit or loss in accordance with IAS
39) [IAS 21.52(a)]

o

Net exchange differences recognised in other comprehensive income and accumulated in a
separate component of equity, and a reconciliation of the amount of such exchange
differences at the beginning and end of the period [IAS 21.52(b)]

o

When the presentation currency is different from the functional currency, disclose that fact
together with the functional currency and the reason for using a different presentation
currency [IAS 21.53]

o

A change in the functional currency of either the reporting entity or a significant foreign

operation and the reason therefor [IAS 21.54]

When an entity presents its financial statements in a currency that is different from its functional
currency, it may describe those financial statements as complying with IFRS only if they comply with
all the requirements of each applicable Standard (including IAS 21) and each applicable
Interpretation. [IAS 21.55]
Convenience translations
Sometimes, an entity displays its financial statements or other financial information in a currency
that is different from either its functional currency or its presentation currency simply by translating
all amounts at end-of-period exchange rates. This is sometimes called a convenience translation. A
result of making a convenience translation is that the resulting financial information does not comply
with all IFRS, particularly IAS 21. In this case, the following disclosures are required: [IAS 21.57]
o

Clearly identify the information as supplementary information to distinguish it from the
information that complies with IFRS

o

Disclose the currency in which the supplementary information is displayed


o

Disclose the entity's functional currency and the method of translation used to determine
the supplementary information

IAS 1 — Presentation of Financial Statements
Summary of IAS 1
Objective of IAS 1

The objective of IAS 1 (2007) is 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. IAS 1 sets out the overall requirements for the
presentation of financial statements, guidelines for their structure and minimum requirements for
their content. [IAS 1.1] Standards for recognising, measuring, and disclosing specific transactions are
addressed in other Standards and Interpretations. [IAS 1.3]
Scope
IAS 1 applies to all general purpose financial statements that are prepared and presented in
accordance with International Financial Reporting Standards (IFRSs). [IAS 1.2]
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
The objective of general purpose financial statements is 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, assists users of financial statements in
predicting the entity's 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
International Financial Reporting Standards, International Accounting Standards, 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
Each material class of similar items must be presented separately in the financial statements.

Dissimilar items may be aggregated only if the 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]*
* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
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 assetsare 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 liabilitiesare 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 an unconditional right to defer settlement beyond 12
months (settlement by the issue of equity instruments does not impact classification).

Other liabilities are non-current.
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]
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]
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 shown 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 shown under (k) and (l))

(n)

current tax liabilities and current tax assets, as defined in IAS 12

(o)

deferred tax liabilities and deferred tax assets, as defined in 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]
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]*
* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
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 noncurrent 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]
Statement of profit or loss and other comprehensive income


Concepts of profit or loss and comprehensive income
Profit or loss is defined as "the total of income less expenses, excluding the components of other
comprehensive income". Other comprehensive income is defined as comprising "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 is defined 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". [IAS 1.7]

=

Profit
or loss

+

Other
comprehensive income

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 Equi

•

Remeasurements of a net defined benefit liability or asset recognised in accordance with IAS 19 Employee B

•

Exchange differences from translating functional currencies into presentation currency in accordance with I

•

Gains and losses on remeasuring available-for-sale financial assets in accordance with IAS 39 Financial Instr

•

The effective portion of gains and losses on hedging instruments in a cash flow hedge under IAS 39 or IFRS 9

•

Gains and losses on remeasuring an investment in equity instruments where the entity has elected to prese

•

The effects of changes in the credit risk of a financial liability designated as at fair value through profit and l


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:
o

a separate statement of profit or loss

o

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 noncontrolling 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]*
* Clarified by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
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]*
* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
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:
o

profit or loss


o

other comprehensive income*

o

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]
o

the measurement basis (or bases) used in preparing the financial statements


o

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:
o

contingent liabilities (see IAS 37) and unrecognised contractual commitments

o

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>
o

description of capital it manages

o

nature of external capital requirements, if any

o

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 10 — Events After the Reporting Period
Summary of IAS 10
Key definitions
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
o

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]

o

Do not adjust for non-adjusting events - events or conditions that arose after the end of the
reporting period. [IAS 10.10]

o

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]

IAS 8 — Accounting Policies, Changes in Accounting Estimates
and Errors
Summary of IAS 8
Key definitions [IAS 8.5]
•

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 Standardsare standards and interpretations adopted by
the International Accounting Standards Board (IASB). They comprise:
o

International Financial Reporting Standards (IFRSs)

o

International Accounting Standards (IASs)

o

Interpretations developed by the International Financial Reporting Interpretations
Committee (IFRIC) or the former Standing Interpretations Committee (SIC) and
approved by the IASB.

•

Materiality. Omissions or misstatements of items are material if they could, by their size or
nature, individually or collectively, influence the economic decisions of users taken on the
basis of the financial statements.

•

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 transaction, other event or condition,
the accounting policy or 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
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.
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]

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