Lecture 1 Financial Reporting entity · PDF fileØ Annual consolidated gross operating revenue: < $25 million ... § Corporations Act Chapter 2M - Companies preparing a...

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Lecture1FinancialReportingTopic1Legislativerequirements,generalpurposefinancialreportsandthereporting

entityObjectiveCh.1Natureandregulationofcompanies• discussthedifferenttypesofcompanieswhichmaybeformedundertheCorporationsAct

• describethecurrentarrangementsforestablishingaccountingstandardsinAustralia

• discusstherolesplayedbytheAustralianSecuritiesandInvestmentsCommission(ASIC),the

AustralianSecuritiesExchangeLimited(ASX)

• analysetheconceptsofgeneral-purposefinancialreportingandthereportingentity(important)

CompanyReporting• Acompanyisalegalentity,

Ø incorporatedviaregistrationbyAustralianSecuritiesandInvestmentsCommission(ASIC),Ø subjecttorequirementsofCorporationsAct2001.

• ProprietarycompaniesØ Mayormaynotneedtopreparefinancialreports.

• PubliccompaniesØ CanlistonAustralianSecuritiesExchange(ASX).

Ø Mustprepare/publishauditedfinancialstatements.

14.2Annualreportingrequirements14.2.1Legislativerequirementsforpreparingannualfinancialreports• Chapter2MoftheCorporationsActrequiresALL

Ø disclosingentities

Ø publiccompanies

Ø largeproprietarycompanies

Ø registeredschemes

prepareafinancialreportandadirectors’reportforeachfinancialyear.• Specialrulesapplytosmallproprietarycompanies.

• Componentsofanannualfinancialreport(s295(1)):1. Thefinancialstatementsfortheyear2. Thenotestothefinancialstatements

3. Thedirectors’declarationaboutthestatementsandnotes

Large/smalltest• Proprietarycompanies–classifyaslargeorsmallforreportingpurposes.• Smallproprietarycompaniesmustsatisfyatleasttwoofthefollowingcriteria:

Ø Annualconsolidatedgrossoperatingrevenue:<$25millionØ Consolidatedgrossassets:<$12.5millionØ Numberofemployees:<50

• Entitiesthatdonotsatisfythecriteriaforclassificationasasmallproprietarycompanyare

classifiedaslarge.

14.2.2Annualfinancialreport(includes:financialstatements,notes,adirectors’

declaration)1. FinancialStatements

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§ Annualfinancialreportmustincludefinancialstatementsasrequiredbyaccountingstandards.

§ Consolidatedfinancialstatementsarealsotobepreparedifrequiredbyaccountingstandards.

§ AASB101–requirespresentationanddisclosures:

- Statementoffinancialposition(asattheendoftheyear)- Statementofprofitorlossandothercomprehensiveincome- Statementofchangesinequity

§ AASB107StatementofCashFlows–requirementsfor:

- Statementofcashflows§ AASB12DisclosureofInterestsinOtherEntities

- Setsoutthedisclosurerequirementsforconsolidatedfinancialstatements.2. Thenotestothefinancialstatements

§ Thenotesmustprovidealldisclosuresrequiredbycorporateregulationsandaccounting

standards.

§ Thenotesmustalsocontainadditionalinformationnecessarysothatthefinancial

statementsandnotesfortheyearprovideatrueandfairviewof:- thefinancialpositionandperformanceofthecompany

- consolidatedentity.

3. Thedirectors’declarationaboutthestatementsandnotes§ Thisdeclarationmuststatewhether,inthedirectors’opinion:

- Therearereasonablegroundstobelievethatthecompanyissolvent—thatis,able

topayitsdebtsasandwhentheybecomedueandpayable;

- ThefinancialstatementsandnotesareinaccordancewiththeCorporationsAct

includings.296(complywithaccountingstandards)ands.297(giveatrueandfair

view).

§ AcompanywhosefinancialstatementscomplywithIFRSs(InternationalFinancial

ReportingStandards)shall

- makeanexplicitandunreservedstatementofcompliancewithIFRSsinthenotes

- Director’sdeclarationshalldrawattentiontothisnote.

§ Specialrulesforlistedcompanies(CEOandCFOdeclarations)

4. Compliancewithaccountingstandards§ CorporationsActChapter2M

- Companiespreparingafinancialreportmustensurecompliance.

- Someexceptionsforsmallproprietarycompanies.

§ ReduceddisclosureregimeunderAASB1053ApplicationofTiersofAustralianAccounting

Standardsisrelevant.

- EachstandardnowidentifiestheentitiestowhichitappliesandforTier2entities

(e.g.not-for-profitprivatesectorentities)thedisclosurerequirementsfromwhich

theyareexempt.

§ Merecompliancedoesnotensureatrueandfairview.

- Section297seesthetrueandfairviewasanoverridingcriterion.

- Additionaldisclosurestothoserequiredmustbeprovidedwherecompliancedoes

notprovideatrueandfairview.

5. Thetrueandfairviewoffinancialpositionandperformance§ Whatisthemeaning‘trueandfair’,‘financialposition’and‘financialperformance’?

- NotdefinedintheActorinAASB101

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- FinancialpositionandperformancearediscussedintheFramework

§ AASB101–adoptsthe‘presentfairly’approach

- Isthisthesamethingas‘trueandfairview’?

6. Comparativeinformation§ AASB101(para.38)requiresinfinancialstatementsandnotes.

- Comparativeinformationfrompreviousfinancialyearshallbepresentedalongside

thecurrentyearinformation.

14.2.3Annualdirector’sreport• AnnualfinancialreportmustbeaccompaniedbyaDirector’sReport.

• Twomainparts:

Ø GeneralinformationaboutoperationsandactivitiesTheannualdirectors’reportmustpresentandanalysethemattersthatmembersneedto

knowiftheyaretounderstandtheoverallfinancialperformanceandfinancialpositionof

thecompany.Theinformationmustinclude:

- areviewofoperationsandtheresultsofthoseoperations

- detailsofsignificantchangesintheentity’sstateofaffairsduringtheyearorafter

reportingdate

- likelyfuturedevelopmentsintheentity’soperations

- entity’sperformanceinenvironmentalregulations

Ø Specificinformation- Informationaboutdividends,directors,optionsandindemnities,unissuedshares

14.2.4Annualauditor’sreport• Acompanyshallhavethefinancialreportauditedandobtainanauditreport(s301ofCorps

Act2001).

• Theauditormustformanopinionaboutthefollowingmatters:

Ø WhetherthefinancialreportisinaccordancewithCorporationsActandAASBaccounting

standards.

Ø Whetherthefinancialreportgivesatrueandfairview.

Ø Ifadditionalinformationwasprovidedtogiveatrueandfairview,whetheritwas

necessary.

Ø Auditorhasbeengivenallnecessaryinformationandexplanations.

Ø Whetherthecompanyhaskeptfinancialrecordssufficienttoenableafinancialreportto

bepreparedandaudited.

Ø WhetherthecompanyhaskeptregistersandrecordsrequiredbytheCorporationsAct.

1.9GeneralpurposefinancialreportsandtheReportingEntity(importantGObjectiveofGeneralPurposeFinancialReporting• Toprovidefinancialinformation(financialposition,performance,cashflow)aboutthe

reportingentitythatisuseful(relevant,reliable,understandable)toexistingandpotentialinvestors,lendersandothercreditorsinmakingdecisionsaboutprovidingresourcestotheentity.

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1.9.2Generalpurposefinancialreports(GPFRs)• GPFRs:Afinancialreportintendedtomeettheinformationneedscommontouserswhoare

unabletocommandthepreparationofreportstailoredsoastosatisfy,specifically,alloftheir

informationneeds.

Ø i.e.areportfor‘dependent’users• SAC1–GPFRsshouldapplyallAASBaccountingstandards.

• IfnotaGPFR,itisaSpecialPurposeFinancialreport(SPFR).

1.9.3Thereportingentityconcept• SAC1(para.40)–areportingentityisanentityforwhich

Ø itisreasonabletoexpecttheexistenceofusers

Ø whorelyongeneral-purposefinancialreports

Ø forinformationusefulformakingandevaluatingdecisions

Ø abouttheallocationofscarceresources

• Whoaretheusers?

Ø SAC2(nowwithdrawn)identifiedmanyusers

• IASB/FASBCFProjectPhaseA–narrowstheusersidentified

Ø Existingandpotentialinvestors

Ø Lendersandothercreditors

1.7RegulatorsoffinancialreportinginAustraliap.141.7.4Currentstandard-settingarrangements

1.7.2FinancialReportingCouncil(FRC)• RoleoftheFRCincludes:

Ø Overseesstandardsettingprocesses–AASB&AUASB

Ø Determinesbroadstrategicdirections,monitorprioritiesandappointmembers.

Ø Monitorsdevelopmentofinternationalaccountingstandards.

Ø Assessescontinuedrelevanceandeffectivenessofaccountingandauditingstandards.

Ø EnsuresAASBstandardsareinharmonywithinternationalstandards.

• TheFRCcannotdirecttheAASBorAUASBinrelationtoaparticularstandardandcannotvetoa

standard.

1.7.3AustralianAccountingStandardsBoard(AASB)

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• UnderASICAct2001s.227(1),AASBisrequiredto:

Ø developaconceptualframework

Ø makeaccountingstandardsforpurposesoftheCorporationsAct

Ø formulateaccountingstandardsforotherpurposes

- (e.g.non-companies,thepublicsectorandthenot-for-profitsector)

Ø participateinthedevelopmentofasinglesetofaccountingstandardsforworldwideuse

Ø promotethemainobjectivesofdevelopingaccountingstandards

• AASBAccountingStandardsTheASICAct2001specifiesthreeobjectivesofdevelopingaccountingstandards:1. Financialinformationobjective

- Users&Directors

- Qualitativecharacteristics

2. FacilitatetheAustralianeconomyobjective

- Reducecostofcapital

- EnhancetheinternationalcompetivenessofAustralianentities

- Standardwillbeclearlystatedandeasilyunderstood

3. Maintaininvestorconfidenceobjective

- Intheeconomyandincapitalmarkets

• AASBstandardsandinterpretationsAASBnowdealsdirectlywithinterpretationsissuedbyIFRSInterpretationsCommittee(IFRIC)

Ø AdvisoryPanelsareformedasrequired(UIGnowdefunct)

• Insummary,AASB

1) AdoptsIASBstandards&interpretations

2) Publicandnot-for-profitsectors

- InsertsAUSparagraphs

- Provideslocalstandards&interpretations

3) IsamemberofASAFoftheIASB

- AccountingStandardsAdvisoryForum

1.8.1AustralianSecuritiesandInvestmentsCommission(ASIC)• Independentgovernmentbodythatadministersandenforces

Ø CorporationsAct(investigateandprosecutebreaches)

Ø Financialserviceslawstoprotectconsumers,investorsandcreditors

• ASICAct2001requirementsofASICinclude

Ø Maintain/improvefinancialsystem

Ø Promoteconfident/informedparticipationbyinvestorsandconsumers

Ø Administerlawswithminimal‘redtape’

Ø Monitor/promotemarketintegrityandconsumerprotection

• Since2010ASICisresponsibleforsupervisionofsecuritiesmarkets

Ø Supervisereal-timetradingandprosecutemisconduct

1.8.2AustralianSecuritiesExchange(ASX)• ApubliccompanythatoperatesAustralia’ssharemarkets

• Priorto2010ithadasupervisoryrole

• ImprovesinformationdisclosureviaitsListingRules

• PlayedamajorroleininfluencingthemovetowardstheAASBsadoptionofIASBstandards

Topic2AccountingPoliciesObjectiveTopic2-4Ch.14Disclosure:legalrequirementsandaccountingpolicies

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• describehowaccountingpoliciesandchangestoaccountingpoliciesaredisclosed(important)• describehowchangesinaccountingestimatesareaccountedforanddisclosed• describehowpriorperioderrorsarise,andhowtheyareaccountedforanddisclosed• explainthedifferencebetweentypesofeventsoccurringaftertheendofthereportingperiod

andhowtheyaretobetreatedinthefinancialstatements(important)

14.4AccountingPolicies• Accountingpoliciesaretheprinciples,basesorrulesadoptedbyacompanyinpreparingand

presentingitsfinancialreports.• Accountingpolicychoicesapplytorecognition,measurement(includingsubsequent

accountingforsuchitems)anddisclosures.

• AccountingPolicies,ChangesinAccountingEstimatesandErrorsprovidesprinciplesinrelationto:

Ø Selectingaccountingpolicies(ahierarchyisprovided)

- Particularlyimportantwhennorelevantaccountingstandardinplace

- Choiceshouldprovideinformationthatisrelevanttousersandreliable

- Reliablemeansitrepresentsfaithfullytheposition,performanceandcashflows,is

basedoneconomicsubstance,isneutral(freefrombias),prudentandcompletein

allmaterialrespects

Ø Changingaccountingpolicies

• Accountingpolicies–RelevanceØ Relevantinformationiscapableofmakingadifferenceinthedecisionsmadebyusers.

Ø Ithelpsusersto:

- Makepredictionsorformexpectationsaboutthefutureperformanceofanentity.

- Confirmorchangespastevaluations.

Ø Toberelevant,informationmustbetimelyandunderstandable.

• AccountingPolicies–ReliabilityandFaithfulRepresentationØ Reliableinformationisthatwhichisfreefrommaterialerrorandbiasandcanbe

dependeduponbyuserstorepresentfaithfullythatwhichitpurportstorepresent.

Ø FaithfulRepresentationrequiresanydepictionofaneventtobe

- Complete;NeutralandFreefromerror

• SubstanceoverformandPrudencewerecomponentsoftheformerReliabilitycharacteristic

Ø Substanceoverform–isnowconsideredaninherentpartoffaithfulrepresentation

Ø Prudence–isnowconsideredinconsistentwithneutrality

14.4.1Disclosureofaccountingpolicies• Thecontentsofthe‘Summaryofsignificantaccountingpolicies’note(usuallyNote1or2),is

Ø BroadlysetoutinAASB101(para.117)

• However,thedetailsofthenote

Ø maybeprescribedbyotheraccountingstandards,or

Ø beamatterformanagementjudgement.

• Theaccountingpoliciesnotewillgenerallydiscloseinformationinnote1or2ofthefinancial

statementsinformation.

1. AstatementthatthefinancialstatementsareGPFS;inaddition,thenotediscloses:

Ø Identificationofthestatutorybasisorotherreportingframeworkthatunderpinstheir

preparation.

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Ø Whethertheentityisfor-profitornot-for-profit(AASB1054AustralianAdditional

Disclosures).

Ø Astatementthatthestatementsarepreparedinaccordancewith:

- accountingstandards

- interpretationsofaccountingstandards

2. Themeasurementbasisorbasesusedinpreparingthefinancialstatements.

3. Adescriptionofaccountingpolicies.

Ø AASB101statesthattheinformationprovidedshouldallowuserstounderstandhow

transactionsandothereventsarereflectedinthereportedfinancialperformanceand

position.

Ø Inmanycasesotheraccountingstandardsprescribetheinformationtobedisclosedabout

accountingpolicies.

- E.g.AASB102Inventoriesrequiresdisclosureoftheaccountingpoliciesadoptedin

measuringinventoriesincludingthecostformulaused.

Ø Howmuchdetailtoproviderequiresjudgementbymanagement

- Istheaccountingpolicyrequiredbyastandardorvoluntary?

- Werealternativepoliciesconsidered?

4. Significantjudgements

Ø Judgements

- apartfromthoseinvolvingestimations

- thatmanagementhasmadeintheprocessofapplyingtheentity’saccounting

policies

- thathavethemostsignificanteffectontheamountsrecognisedinthefinancial

statements

Ø Forexample:AASB12DisclosureofInterestsinOtherEntities

- Disclosethejudgmentsandassumptionsmadeindeterminingthattheentitydoes

notcontrolanotherentityeventhoughitholdsgreaterthanhalfthevotingrightsin

thatentity.

5. Criticalassumptionsandestimations

Ø Informationaboutassumptionsmadeconcerningthefuture.

Ø Majorsourcesofestimationuncertainty:

- thathaveasignificantriskofcausingamaterialadjustmenttothecarryingamounts

ofassetsandliabilitieswithinthenextfinancialyear.

Ø Examplesofdifficult,subjectiveorcomplexjudgements:

- Provisionssubjecttothefutureoutcomeoflitigationinprogress

- Long-termemployeebenefitssuchassuperannuationobligations

- Recoverableamountofspecialisedclassesofproperty,plantandequipment

Ø Thesedisclosuresdonotapplytoassetsandliabilitiescarriedatfairvalue(AASB101

para.128)RefertoFigure14.1ExampleofNote1

14.4.2Disclosuresofchangesinaccountingpolicies

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Adoptionofaneworrevisedstandard• Ifachangeinpolicyismade,resultingfromneworrevisedstandards,AASB108requires

disclosureof

Ø Thetitleofthestandard

Ø Whetherthechangeisinaccordancewithtransitionalprovisions,thenatureofthose

provisionsandtheireffectonfutureperiods

Ø Thenatureofthechangeinaccountingpolicy

Ø Totheextentpracticable,theamountoftheadjustmentforthecurrentandprevious

periodstoeachfinancialstatementlineitemaffected

Ø Whethercomparativevalueshavebeenrestatedornot(ifnot,whynot)

Voluntarychangesinaccountingpolicies• Ifapolicychangewasvoluntary,AASB108requiresdisclosureof:

Ø thenatureofthechange

Ø thereasonsthatapplyingthenewpolicyprovidesmorereliableandrelevantinformation

Ø totheextentpracticable,theamountoftheadjustmentforthecurrentandprevious

periodstoeachfinancialstatementlineitemaffected

Ø theamountofanyadjustmenttoperiodspriortothosepresentedtotheextent

practicable

ChangesinaccountingPolicies• Comparabilityrequiresconsistentapplicationofaccountingpoliciesovertime.

• AASB108–Accountingpoliciescanonlybechangedinthefollowingcircumstances:

Ø Requiredbyanaccountingstandard

Ø Thechangewillprovidereliableandmorerelevantinformation

• Adoptinganexistingstandardduetochangesinoperationsisnotachangeinaccountingpolicy

• Itisimportanttodistinguish

Ø Changesinaccountingpolicy,from

Ø Changesinaccountingmethods(whichshouldbeconsideredachangeinanaccountingestimate)

14.5Changesinaccountingestimates• Accountingestimatesoftenchangeasnewinformationarises

• Suchchangesrequireprospectiveapplication• Disclosureofthenatureandamountofthechangethataffectedfinancialpositionor

performanceisrequired

Example• Partwaythroughitsusefullife,adepreciablePPEassetisreassesseddueto

technologicaldevelopments.

Ø Shorterusefullifeandlowerresidualvalue

• Depreciationexpense-Refertoexample14.1

Ø Recognisedinpriorperiodsisnotchanged

Ø Theremainingdepreciableamountoftheassetiswrittenoffoveritsremaining(shorter)

usefullife

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• Disclosuresareprovidedregardingtheimpactofthechanges.

Test:AccountingPolicyorAccountingEstimate?• Theusefullifeofdepreciableplantisdeterminedasbeing5years.E

• DogLtddepreciatesnon-currentassets.P

• DogLtdusesstraight-linedepreciation.P

• DogLtddeterminesthatitwillcalculateitswarrantyprovisionusingpastexperienceof

productsreturnedforrepairunderwarranty.P

• Thecurrentyear’swarrantyprovisioniscalculatedbyprovidingfor1%ofcurrentyearsales,

basedonlastyear’swarrantyclaimedamountingto1%ofsales.E

Topic3–14.8Materiality• AASB101statesthatmaterialitydependson

Ø Thesizeandthenatureoftheomissionormisstatementjudgedinthesurroundingcircumstances.

• AASB1031(nowwithdrawnbytheAASB)providedguidelinesusing%ofbasevalue.

Ø >=10%ismaterial

Ø <5%isimmaterial

Ø Between5%and10%useprofessionaljudgement

• ThequantitativeguidelinesinAASB1031arenotincludedinthe2013versionofthisstandard.

• AASB108(para.5)statesthat

Ø Omissionsormisstatementsofitemsarematerialiftheycould,individuallyorcollectively,

influencetheeconomicdecisionsthatusersmakeonthebasisofthefinancialstatements.

• Materialityassessmentsrequireprofessionaljudgement

Ø Whatismaterialforoneentitymightnotbematerialforanother

Ø Considerboththesizeandthenaturetogether

Ø Althoughitispossiblethatanitemcouldbematerialbasedpurelyonitssizeoritsnature

Topic4–14.9Eventsoccurringaftertheendofthereportingperiod• Financialstatementsarepreparedtopresentthefinancialpositionofacompanyoranentity

atacertaindateandtorecordtheresultsofitsoperationsforthefinancialyearendedonthat

date.

• Thefinancialstatementsaretobepreparedonthebasisofconditionswhichexistattheendofthereportingperiod,buttherecanbeeventsafterthatdatewhichidentifyorclarifysuchconditions.

• Materialeventsoccurringaftertheendofthereportingperiodprovidingadditionalinformationaboutconditionsexistingattheendofthereportingperiodrequireadjustingjournalentriestobeprepared.

• EventafterReportingDaterefertothoseeventsthatoccurbetween:Ø theendofthereportingperiodandthedatewhenthefinancialstatementsare

authorisedforissue(i.e.thedaythedirectors’declarationissigned).

• Ifaneventaffectsthegoingconcernbasis,theaccountswillneedtoberedrafted.

• Themajorityofeventsoccurringwithinthistimeperiodrelatetothecurrentaccounting

periodbutsomerelatebacktothepreviousperiod.

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• Sucheventsareclassifiedintotwotypes:

Ø Adjustingevents

Ø Non-adjustingevents

Adjustingevents• Thosethatprovideevidenceofconditionsthatexistedattheendofthereportingperiod.• Examples:

Ø settlementofalawsuitwhichhadbeeninprocessatreportingdate.

Ø bankruptcyofacustomeraftertheendofthereportingperiod(thisconfirmsthataloss

alreadyexistedattheendofthereportingperiod).

• AASB110requires

Ø Anadjustmenttothefinancialstatementsbeforetheirpublicationforthefinancialeffectoftheevent.

Ø Thiscouldinvolverecogniseanamount,adjustanexistingbalance,reclassifyanitemor

changeadisclosurenote.

Non-adjustingevent• Thosethatareindicativeofeventsthataroseaftertheendofthereportingperiod.• Examples:

Ø floodaftertheendofthereportingperiodthatdestroysacompany’sbuildingsandplant

Ø amajorbusinesscombinationaftertheendofthereportingperiod

• Generally,sucheventsrelatetofutureoperations/results.• Non-adjustingeventsmustbedisclosedbywayofnotetothefinancialstatements.

• AASB110requires:

Ø Notedisclosuresregardingthenatureoftheeventandanestimateofitsfinancialeffect

(ifpossible).

Ø Para.21appliesamaterialitytestfornon-adjustingevents

Example1. On17July2017,thecompanysettledandpaidapersonalinjuryclaimfromaformeremployee

arisingoutofanaccidentthatoccurredinSeptember2016.Damagesamountedto$65000.

Adjusting2017June30DrCompensationExpenses65000

CrClaimsPayable65000

(Damagespayableunderinjuryclaimtoformeremployee)

2. On31August2017,astormseverelydamagedabuildingownedbythecompany.Uninsured

damagesamountedto$150000.Non-adjusting3. On17September2017,thecompanyissued200000fullypaidsharesatanissuepriceof$1.50

eachtoacquirethenetassetsofJMCPtyLtd.Non-adjusting

Topic5PresentationoftheStatementofFinancialPositionandtheStatementofP/Land

OCIObjectiveCh.15Disclosure:presentationoffinancialstatements• describewhatconstitutesacompletesetoffinancialstatements• preparethestatementoffinancialpositionanddescribetheinformationtobepresented

eitherinthestatementorinthenotes(important)

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• preparethestatementofprofitorlossandothercomprehensiveincomeanddescribethe

informationtobepresentedeitherinthestatementorinthenotes(important)• describetheinformationtobepresentedeitherinthestatementofchangesinequityorinthe

notes

RecallObjectivesofGPFRs• Preparedforuserswhodependonreportsforinformationtoenablethemtomakedecisions

abouttheallocationofscarceresources.Ø Accountabilityforuseofresourcesbydirectors/managementisasecondaryaim.

• IASBConceptualFrameworkidentifiesusersandtheircommoninformationneeds:

Ø FinancialPosition(StatementofFinancialPositionB/S)

Ø FinancialPerformance(StatementofProfitorLossI/SandOtherComprehensiveIncome)

Ø CashFlows(CashFlowsStatement)

15.1Acompletesetoffinancialstatements• PerAASB101,acompletesetoffinancialstatementscomprises:

a) astatementoffinancialpositionasattheendoftheperiod;b) astatementofprofitorlossandothercomprehensiveincomefortheperiod;c) astatementofchangesinequityfortheperiod;d) astatementofcashflowsfortheperiod;e) notes,comprisingasummaryofsignificantaccountingpoliciesandotherexplanatory

information;

f) comparativeinformation

g) astatementoffinancialpositionasatthebeginningoftheprecedingperiod,whencertainretrospectiveadjustmentsandreclassificationsaremade.

Details:whenanentity

- appliesanaccountingpolicyretrospectivelyor,

- makesaretrospectiverestatementofitemsinitsfinancialstatements,or

- Whenitreclassifiesitemsinitsfinancialstatementsinaccordancewithparagraphs

40A–40D.

15.2Generalfeaturesofacompletesetoffinancialstatementsp.738-740• AASB101outlineseightgeneralfeaturesofacompletesetoffinancial:

1) fairpresentationandcompliancewithAustralianAccountingStandards2) goingconcern�Ù×à

- Financialstatementsforanentityarepreparedonagoingconcernbasis,unlessmanagementintendstoliquidatetheentityorceasetrading,orhasnorealistic

alternativebuttodoso.

- Ifmanagementisawareofmaterialuncertaintiesthatmaycastsignificantdoubton

theentity’sabilitytocontinueasagoingconcern,theseuncertaintiesmustbe

disclosed.

3) accrualbasisofaccounting- Financialstatementsaretobepreparedusingtheaccrualbasisofaccounting,except

forcashflowinformation.

4) materialityandaggregationąä�K? andE�

- Eachmaterialclassofsimilaritemsmustbepresentedseparatelyinthefinancialstatements.

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- Itemsofadissimilarnatureorfunctionaretobepresentedseparately,unlessthey

areimmaterial.

5) offsetting- Assetsandliabilities,andincomeandexpenses,arenottobeoffsetunlessrequired

orpermittedbyanAustralianaccountingstandard.

- Offsettingdetractsfromtheabilityofuserstounderstandtheentity’stransactions

andtoassesstheentity’sfuturecashflows.

6) frequencyofreporting- Anentitytopresentacompletesetoffinancialstatements(includingcomparative

information)atleastannually.

7) comparativeinformation- Disclosureofcomparativefinancialinformationinrespectofthepreviousreporting

periodforallamountsrequiredtobereportedinthecurrentperiod’sfinancial

statements.

- Ifthepresentationorclassificationofitemsinthefinancialstatementsischanged,comparativeinformationmustalsobereclassifiedandthenature,amountofand

reasonforthereclassificationmustbedisclosed.

8) consistencyofpresentation- Theremustbeconsistencyofpresentationandclassificationofitemsinthefinancial

statementsfromoneperiodtothenextunless:

*therehasbeenasignificantchangeintheentity’soperations,or

*areviewofitsfinancialstatementsindicatesachangeinpresentationor

classificationiswarrantedtoprovidemorerelevantinformation,or

*achangeinpresentationorclassificationisrequiredbyanotheraccounting

standard.

15.3StatementofFinancialPosition(SOFP)B/SExplaintheinformationtobepresentedeitherinthestatementoffinancialpositionorinthe

notes.

15.3.1InformationtobepresentedintheSOFPP.1319• TheSOFPprovidesinformationaboutanentity’sfinancialposition

Ø AssetsØ LiabilitiesØ Equity

• AASB101doesnotprescribeaparticularformatororderofpresentation.

• Itdoesrequiredetaileddisclosuresofassetandliabilitycategoriesandsub-categories.• AASB101para.54requirestheselineitemsasaminimum:

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• AASB101para.55requires:

Ø Inclusionofadditionallineitems,headingsandsubtotalsintheSOPF,ifrelevanttothe

assessmentoffinancialposition.

Ø Whethertopresentadditionalitemsseparatelyisbasedonanassessmentof:

- thenatureandliquidityofassets

- Thefunctionofassetswithintheentity

- Theamounts,natureandtimingofliabilities

15.3.2Current/non-currentdistinctionp.742• AASB101Para.60requirespresentationofassetsandliabilitiestobe

Ø classifiedascurrentornon-current,Ø unlessaliquiditypresentationisappropriatetoprovidemorerelevantandreliable

information.

- Forsomeentities,suchasfinancialinstitutions(e.g.banks),assetsandliabilitiesmay

bepresentedinincreasingordecreasingorderofliquidityifthisprovidesinformation

thatisreliableandmorerelevantthanacurrent/non-currentpresentation,because

theseentitiesdonotsupplygoodsandserviceswithinanoperatingcycle.• Currentassetsarethoserealisedorconsumedwithinanentity’soperatingcycle.

Currentliabilitiesarethoseexpectedtobesettledwithinanentity’soperatingcycle.• Operatingcycleisthetimetakenfromacquisitionofgoodstothereceiptofcashorcash

equivalentsandcanbegreaterthan12months.Ø i.e.short-term,highlyliquidinvestmentsreadilyconvertibletoknownamountsofcash

andsubjecttoaninsignificantriskofchangesinvalue.

Ø Theoperatingcycleisusually12monthsbutitmaybelongerthan12monthsafterthe

reportingperiod.

Ø Ex.currentliabilitiesmayincludeamountstobesettled12monthsormoreafterthe

reportingperiodprovidedthesettlementiswithintheentity’snormaloperatingcycle.

• Whicheverpresentationmethodisused,assetandliabilitylineitemsintheSOFPwillreporta

totalfigureconsistingof:

Ø amountstoberecovered/settledinlessthan12months,and

Ø amountstoberecovered/settledafter12months.

• Forsuchlineitems:

Ø Additionaldisclosuresarerequiredtoprovidethesesubtotals.

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• Conditionsatbalancedatedetermineifliabilitiesareclassifiedcurrent/non-current.

15.3.3Illustrativestatementoffinancialposition• Figure15.2–illustrativepresentationofthestatementoffinancialposition,including

comparativeamountsfromIAS1

Ø Current/Non-currentpresentation

Ø Inaccordancewiththestatementoffinancialpositionformatillustratedintheguidance

toIAS1,acompany’sstatementoffinancialpositionshowstheaccountingequationin

theform:TotalAssets=TotalLiabilities+TotalEquity

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• Figure15.3–HarveyNormanHoldingsLtd

Ø Current/Non-currentpresentation

Ø TotalAssets–TotalLiabilities=NetAsset=Equity

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• Figure15.4–AustraliaandNewZealandBankingGroupLtd–Statementoffinancialpositionof

afinancialinstitutionpresentingassetsandliabilitiesaccordingtoliquidityØ LiquidityorderØ TotalAssets–TotalLiabilities=NetAsset=Equity