Chapter 1: Introduction, Objective and Scope

Introduction

IAS 1 guides the overall structure of financial statements, including minimum requirements for each primary statement (statement of financial position, statement of profit or loss and other comprehensive income, statement of changes in equity, and statement of cash flows) and notes to the financial statements. Other accounting standards’ requirements supplement the IAS 1 requirements.

Objective

IAS 1 applies to all general-purpose financial statements prepared under IFRS. General-purpose financial statements are those intended to meet the needs of users who are not in a position to require an entity to provide information directly to them. IAS 1 applies to all types of entities and both to consolidated financial statements by IFRS 10 and to separate financial statements by IAS 27.

IAS 1 does not govern the structure and content of condensed interim financial information prepared under IAS 34. The ‘overall considerations’ set out in IAS 1 apply to both annual financial statements and interim financial reports.

These paragraphs deal with matters including fair presentation and compliance with IFRS standards, going concerned, accruals basis of accounting, materiality, and aggregation and offsetting – being the overall principles for preparing and presenting financial information, derived largely from the Board’s ‘Conceptual framework for financial reporting’.

IAS 1 uses terminology suitable for profit-oriented entities, including public sector business entities. IAS 1 is intended to be sufficiently flexible for it to be used by all entities. Still, some non-profit entities might have to amend the descriptions used for the line items or the financial statements themselves.

The presentation of members’ or unitholders’ interests in the financial statements is adapted for entities that do not have equity, as defined in IAS 32, or whose share capital is not equity.

Scope – interim financial reports

IAS 1 does not apply to the structure and content of condensed interim financial statements prepared by IAS 34. But IAS 1 applies to such interim reports.

The requirements in IAS 1 deal with fair presentation and compliance with IFRS Standards, going concern, accruals accounting, materiality aggregation, and offsetting.

Purpose of financial statements

The objective of 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. Financial statements also show the results of management’s stewardship of the resources entrusted to it. The objective is met by providing information on:

• assets,
• liabilities,
• equity,
• income and expenses (including gains and losses),
• contributions by (and distributions to) owners in their capacity as owners, and
• cash flows.

This information can help predict the amount, timing, and certainty of future cash flows.

Note that entities are not required to use the titles for financial statements as listed in IAS 1. IAS 1 specifically permits the use of other titles for the statements.

Therefore, for example, it is acceptable to use the term ‘balance sheet’ to describe the statement of financial position. Equally, it is acceptable to use the title ‘statement of comprehensive income’ instead of ‘statement of profit or loss and other comprehensive income’.