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Icaew financial accounting and reporting study manual pdf free download |
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Troubleshooting FAQs on these pages cover everything from basic how-tos to technical issues, including:. N Owner changes in equity arise from transactions with owners in their capacity as owners, eg dividends paid and issues of share capital. These are presented in the statement of changes in equity. O Non-owner changes in equity known as 'comprehensive income' include: 1 The profit or loss for the period 2 Income or expenditure recognised directly in equity known as 'other comprehensive income'.
TI These are presented in the statement of profit or loss and other comprehensive income. Summary EC IAS 1 Profit or loss for period Statement of profit or loss and other Non-owner transactions recognised directly in equity comprehensive income Owner transactions Statement of changes in equity SP Presentation of comparatives IAS 1 requires disclosure of comparative information in respect of the previous period.
In effect this will result in the presentation of three statements of financial position when there is a prior period adjustment. Total comprehensive income is the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners.
It includes all components of profit or loss and of 'other comprehensive income'. Other comprehensive income includes income and expenses that are not recognised in profit or loss, IN but instead recognised directly in equity.
P T Background E R The blurring of distinctions between different items in OCI is the result of an underlying general lack of agreement among users and preparers about which items should be presented in OCI and which should be part of the profit or loss section. For instance, a common misunderstanding is that the split 1 between profit or loss and OCI is on the basis of realised versus unrealised gains.
This is not, and has never been, the case. This lack of a consistent basis for determining how items should be presented has led to the somewhat PY inconsistent use of OCI in financial statements. Change Entities are required to group items presented in other comprehensive income OCI on the basis of whether they would be reclassified to recycled through profit or loss at a later date, when specified conditions are met.
O The amendment does not address which items are presented in other comprehensive income or which items need to be reclassified. C Income tax IAS 1 requires an entity to disclose income tax relating to each component of other comprehensive income. This is because these items often have tax rates different from those applied to profit or loss. Presentation TI IAS 1 allows comprehensive income to be presented in two ways: 1 A single statement of profit or loss and other comprehensive income, or 2 A statement displaying components of profit or loss plus a second statement beginning with profit EC or loss and displaying components of other comprehensive income statement of profit or loss and other comprehensive income.
Tutorial note: Throughout this text, income and expense items which are included in the 'top half' of the statement of EC profit or loss and other comprehensive income are referred to as recognised in profit or loss, or recognised in the income statement.
Income and expense items included in the 'bottom half' of the statement of profit or loss and other comprehensive income are referred to as recognised in other comprehensive income. Non-owner transactions are not permitted to be shown in the statement of changes in equity other than in aggregate. Definitions Interim period: A financial reporting period shorter than a full financial year.
Interim financial report: A financial report containing either a complete set of financial statements as described in IAS 1 or a set of condensed financial statements as described in this Standard for an interim period. The IASB does, however, strongly recommend to governments, and regulators, that interim financial reporting should be a requirement for companies whose equity or debt securities are publicly traded.
Thus, a company with a year ending 31 December would be required as a minimum to prepare an PY interim report for the half year to 30 June and this report should be available before the end of August. The rationale for requiring only condensed statements and selected note disclosures is that entities need not duplicate information in their interim report that is contained in their report for the previous EC financial year.
Interim statements should focus more on new events, activities and circumstances. SP The condensed statement of financial position should include, as a minimum, each of the major components of assets, liabilities and equity as were in the statement of financial position at the end of the previous financial year, thus providing a summary of the economic resources of the entity and its financial structure.
The condensed statement of profit or loss and other comprehensive income should include, as a IN minimum, each of the component items of total comprehensive income as were shown in the statement of profit or loss and other comprehensive income for the previous financial year, together with the earnings per share and diluted earnings per share.
The condensed statement of cash flows should show, as a minimum, the three major sub-totals of cash flow as required in statements of cash flows by IAS 7, namely: cash flows from operating activities, cash flows from investing activities and cash flows from financing activities. The condensed statement of changes in equity should include, as a minimum, each of the major components of equity as were contained in the statement of changes in equity for the previous financial year of the entity.
However, the notes to an interim report should include the following A unless the information is contained elsewhere in the report. If not, the R nature of the differences and their effect should be described. The accounting policies for preparing the interim report should only differ from those used for the previous annual accounts in a situation where there has been a change in accounting policy since the end of the previous 1 financial year, and the new policy will be applied for the annual accounts of the current financial period.
For PY example, if a company earns most of its annual profits in the first half of the year, because sales are much higher in the first six months, the interim report for the first half of the year should explain this fact.
TI The standard requires the entity to provide explanatory comments about seasonality or cyclicality relating to the interim financial statements. EC Changes in the business environment such as changes in price, costs, demand, market share and prospects for the full year should be discussed in the management discussion and analysis of the financial review. The entity should also disclose the fact that the interim report has been produced in compliance with IAS 34 on interim financial reporting.
SP Worked example: Disclosure Requirement Give some examples of the type of disclosures required according to the above list of explanatory notes. It should be recognised that interim measurements rely to a greater extent on estimates than annual financial data.
The guiding principle is that an entity should use the same recognition and EC measurement principles in its interim statements as it does in its annual financial statements. This means, for example, that a cost that would not be regarded as an asset in the year-end statement of financial position should not be regarded as an asset in the statement of financial position for an interim period.
Similarly, an accrual for an item of income or expense for a transaction that has not yet occurred or a deferral of an item of income or expense for a transaction that has already occurred is inappropriate for interim reporting, just as it is for year-end reporting. SP Applying this principle of recognition and measurement may result, in a subsequent interim period or at the year-end, in a remeasurement of amounts that were reported in a financial statement for a previous interim period.
The nature and amount of any significant remeasurements should be disclosed. IN Revenues received occasionally, seasonally or cyclically Revenue that is received as an occasional item, or within a seasonal or cyclical pattern, should not be anticipated or deferred in interim financial statements, if it would be inappropriate to anticipate or defer the revenue for the annual financial statements.
In other words, the principles of revenue recognition should be applied consistently to the interim reports and year-end reports. Costs incurred unevenly during the financial year These should only be anticipated or deferred ie treated as accruals or prepayments if it would be appropriate to anticipate or defer the expense in the annual financial statements. C H The standard goes on, in an appendix, to deal with specific applications of the recognition and A measurement principle.
Some of these examples are explained below, by way of explanation and P illustration. T E R Payroll taxes or insurance contributions paid by employers In some countries these are assessed on an annual basis, but paid at an uneven rate during the course of 1 the year, with a large proportion of the taxes being paid in the early part of the year, and a much smaller proportion paid later on in the year.
In this situation, it would be appropriate to use an estimated average annual tax rate for the year in an interim statement, not the actual tax paid. This treatment is appropriate because it reflects the fact that the taxes are assessed on an annual basis, even PY though the payment pattern is uneven. Cost of a planned major periodic maintenance or overhaul The cost of such an event later in the year must not be anticipated in an interim financial statement unless there is a legal or constructive obligation to carry out this work.
The fact that a maintenance or O overhaul is planned and is carried out annually is not of itself sufficient to justify anticipating the cost in an interim financial report. C Other planned but irregularly-occurring costs Similarly, these costs such as charitable donations or employee training costs, should not be accrued in an interim report. These costs, even if they occur regularly and are planned, are nevertheless N discretionary. Year-end bonus O A year-end bonus should not be provided for in an interim financial statement unless there is a constructive obligation to pay a year-end bonus eg a contractual obligation, or a regular past practice and the size of the bonus can be reliably measured.
TI Worked example: Bonus An entity's accounting year ends on 31 December each year and it is currently preparing interim EC financial statements for the half year to 30 June 20X4.
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