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2
Accounting Standard (AS) 1 (Revised)1
Presentation of Financial Statements
Following is the Exposure Draft of the revised Accounting Standard (AS) 1,
Presentation of Financial Statements, issued by the Accounting Standards Board of
the Institute of Chartered Accountants of India, for comments. The Board invites
comments on any aspect of this Exposure Draft. Comments are most helpful if they
indicate the specific paragraph or group of paragraphs to which they relate, contain a
clear rationale and, where applicable, provide a suggestion for alternative wording.
Comments should be submitted in writing to the Secretary, Accounting Standards
Board, The Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No.
7100, Indraprastha Marg, New Delhi 110 002, so as to be received not later than
September 02, 2013. Comments can also be sent by e-mail at asb@icai.in.
(This Accounting Standard includes paragraphs set in bold type and plain type, which have
equal authority. Paragraphs in bold type indicate the main principles. This Standard should
be read in the context of the Preface to the Statements of Accounting Standards issued by
the Institute of Chartered Accountants of India).
.
Objective
1 This Standard prescribes the basis for presentation of general purpose financial
statements to ensure comparability both with the enterprise's financial
statements of previous periods and with the financial statements of other
enterprises. It sets out overall requirements for the presentation of financial
statements, guidelines for their structure and minimum requirements for their
content.
Scope
2 An enterprise should apply this Standard in preparing and presenting
general purpose financial statements in accordance with Accounting
Standards.
3 Other ASs set out the recognition, measurement and disclosure requirements for
specific transactions and other events.
4 This Standard does not apply to the structure and content of condensed interim
financial statements prepared in accordance with AS 25 Interim Financial
Reporting. However, paragraphs 14-28 apply to such financial statements. This
Standard applies equally to all enterprises, including those that present
consolidated financial statements as defined in AS 21 Consolidated Financial
Statements and those that present separate financial statements.
1
Appendix I to this revised AS 1 contains the objective of the revision of and comparison with
the existing AS 1.
3
5 This Standard uses terminology that is suitable for profit-oriented enterprises. If
enterprises with not-for-profit activities in the private sector or the Government
sector apply this Standard, they may need to amend the descriptions used for
particular line items in the financial statements and for the financial statements
themselves.
6 Similarly, enterprises that do not have equity instruments (e.g. Mutual Funds,
Partnership Firms) and enterprises whose share capital is not equity (e.g. some
cooperative enterprises), may need to adapt the descriptions in financial
statement presentation to faithfully represent the interests of members, partners
or unit-holders.
Definitions
7 The following terms are used in this Standard with the meanings
specified:
General purpose financial statements (referred to as `financial statements')
are those intended to meet the needs of users who are not in a position to
require an enterprise to prepare reports tailored to their particular
information needs.
Equity is the residual interest in the assets of an enterprise after deducting
all liabilities.
Impracticable Applying a requirement is impracticable when the enterprise
cannot apply it after making every reasonable effort to do so.
Accounting Standards (ASs) are Standards prescribed under the
Companies Act or the Accounting Standards issued by the Institute of
Chartered Accountants of India, whichever are applicable to the enterprise.
Material Omissions or misstatements of items are material if they could,
individually or collectively, influence the economic decisions that users
make on the basis of the financial statements. Materiality depends on the
size and nature of the omission or misstatement judged in the surrounding
circumstances. The size or nature of the item, or a combination of both,
could be the determining factor.
Assessing whether an omission or misstatement could influence economic
decisions of users, and so be material, requires consideration of the
characteristics of those users. The Framework for the Preparation and
Presentation of Financial Statements issued by the Institute of Chartered
Accountants of India states in paragraph 26 that `it is assumed that users have
a reasonable knowledge of business and economic activities and accounting and
study the information with reasonable diligence.' Therefore, the assessment
needs to take into account how users with such attributes could reasonably be
expected to be influenced in making economic decisions.
Notes contain information in addition to that presented in the balance
sheet, statement of profit and loss and statement of cash flows. Notes
provide narrative descriptions or disaggregations of items presented in
4
those statements and information about items that do not qualify for
recognition in those statements.
Owners are holders of instruments classified as equity.
Profit or loss is the total of income less expenses.
Reclassification adjustments are amounts reclassified to the statement of
profit and loss in the current period that were recognised in reserves in the
current or previous periods.
Financial statements
Purpose of financial statements
8 Financial statements are a structured representation of the financial position and
financial performance of an enterprise. The objective of financial statements is to
provide information about the financial position, financial performance and cash
flows of an enterprise that is useful to a wide range of users in making economic
decisions. Financial statements also show the results of the management's
stewardship of the resources entrusted to it. To meet this objective, financial
statements provide information about an enterprise's:
(a) assets;
(b) liabilities;
(c) equity;
(d) income and expenses, including gains and losses;
(e) contributions by and distributions to owners in their capacity as owners;
and
(f) cash flows.
Financial Statements also provide information about contributions by and
distributions to owners in their capacity as owners.
This information, along with other information in the notes, assists users of
financial statements in predicting the enterprise's future cash flows and, in
particular, their timing and certainty.
Complete set of financial statements
9 A complete set of financial statements comprises:
(a) a balance sheet as at the end of the period;
(b) a statement of profit and loss for the period;
(c) a statement of cash flows for the period, wherever applicable;
(d) notes, comprising a summary of significant accounting policies and
other explanatory information; and
10 An enterprise should present with equal prominence all of the financial
statements in a complete set of financial statements.
5
11 As per paragraphs 69-73, an enterprise should present the components of profit
or loss in a statement of profit and loss.
12 Many enterprises present, outside the financial statements, a financial review by
management that describes and explains the main features of the enterprise's
financial performance and financial position, and the principal uncertainties it
faces. Such a report may include a review of:
(a) the main factors and influences determining financial performance,
including changes in the environment in which the enterprise operates,
the enterprise's response to those changes and their effect, and the
enterprise's policy for investment to maintain and enhance financial
performance, including its dividend policy;
(b) the enterprise's sources of funding and its targeted ratio of liabilities to
equity; and
(c) the enterprise's resources not recognised in the balance sheet in
accordance with ASs.
13 Many enterprises also present, outside the financial statements, reports and
statements such as environmental reports and value added statements,
particularly in industries in which environmental factors are significant and when
employees are regarded as an important user group. Reports and statements
presented outside financial statements are outside the scope of ASs.
General features
Presentation of True and Fair View and compliance with ASs
14 Financial statements should present a true and fair view of the financial
position, financial performance and cash flows of an enterprise.
Presentation of true and fair view 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 ASs, with
additional disclosure when necessary, is presumed to result in financial
statements that present a true and fair view.
15 An enterprise whose financial statements comply with ASs should make
an explicit and unreserved statement of such compliance in the notes. An
enterprise should not describe financial statements as complying with
ASs unless they comply with all the requirements of ASs.
16 In virtually all circumstances, presentation of a true and fair view is achieved by
compliance with applicable ASs. Presentation of a true and fair view also
requires an enterprise:
(a) to select and apply accounting policies in accordance with AS 5
Accounting Policies, Changes in Accounting Estimates and Errors. AS 5
sets out a hierarchy of authoritative guidance that management considers
in the absence of an AS that specifically applies to an item.
6
(b) to present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information.
(c) to provide additional disclosures when compliance with the specific
requirements in ASs is insufficient to enable users to understand the impact
of particular transactions, other events and conditions on the enterprise's
financial position and financial performance.
17 An enterprise cannot rectify inappropriate accounting policies either by
disclosure of the accounting policies used or by notes or explanatory
material.
Going concern
18 When preparing financial statements, management should make an
assessment of an enterprise's ability to continue as a going concern. An
enterprise should prepare financial statements on a going concern basis
unless management either intends to liquidate the enterprise or to cease
trading, or has no realistic alternative but to do so. When management is
aware, in making its assessment, of material uncertainties related to
events or conditions that may cast significant doubt upon the enterprise's
ability to continue as a going concern, the enterprise should disclose
those uncertainties. When an enterprise does not prepare financial
statements on a going concern basis, it should disclose that fact, together
with the basis on which it prepared the financial statements and the
reason why the enterprise is not regarded as a going concern.
19 In assessing whether the going concern assumption is appropriate,
management takes into account all available information about the future, which
is at least, but is not limited to, twelve months from the end of the reporting
period. The degree of consideration depends on the facts in each case. When
an enterprise has a history of profitable operations and ready access to financial
resources, the enterprise may reach a conclusion that the going concern basis
of accounting is appropriate without detailed analysis. In other cases,
management may need to consider a wide range of factors relating to current
and expected profitability, debt repayment schedules and potential sources of
replacement financing before it can satisfy itself that the going concern basis is
appropriate.
Accrual basis of accounting
20 An enterprise should prepare its financial statements, except for cash
flow information, using the accrual basis of accounting.
21 When the accrual basis of accounting is used, an enterprise recognises items
as assets, liabilities, equity, income and expenses (the elements of financial
statements) when they satisfy the definitions and recognition criteria for those
elements in the Framework.
7
Materiality and aggregation
22 An enterprise should present separately each material class of similar
items. An enterprise should present separately items of a dissimilar
nature unless they are immaterial except when required by law.
23 Financial statements result from processing large numbers of transactions or
other events that are aggregated into classes according to their nature. The
final stage in the process of aggregation and classification is the presentation of
condensed and classified data, which form line items in the financial
statements. If a line item is not individually material, it is aggregated with other
items either in those statements or in the notes. An item that is not sufficiently
material to warrant separate presentation in those statements may warrant
separate presentation in the notes.
24 An enterprise need not provide a specific disclosure required by an AS if the
information is not material except when required by law.
Offsetting
25 An enterprise should not offset assets and liabilities or income and
expenses, unless required or permitted by an AS.
26 An enterprise reports separately both assets and liabilities, and income and
expenses. Offsetting in the statements of profit and loss or balance sheet,
except when offsetting reflects the substance of the transaction or other event,
detracts from the ability of users both to understand the transactions, other
events and conditions that have occurred and to assess the enterprise's future
cash flows. Measuring assets net of valuation allowances--for example,
obsolescence allowances on inventories and doubtful debts allowances on
receivables--is not offsetting.
27 AS 9 Revenue Recognition defines revenue and requires an enterprise to
measure it taking into account the amount of any trade discounts and volume
rebates the enterprise allows. An enterprise undertakes, in the course of its
ordinary activities, other transactions that do not generate revenue but are
incidental to the main revenue-generating activities. An enterprise presents the
results of such transactions, when this presentation reflects the substance of
the transaction or other event, by netting any income with related expenses
arising on the same transaction. For example:
(a) an enterprise presents gains and losses on the disposal of non-current
assets, including investments and operating assets, by deducting from the
proceeds on disposal the carrying amount of the asset and related selling
expenses; and
(b) an enterprise may net expenditure related to a provision that is recognised
in accordance with AS 29 Provisions, Contingent Liabilities and
Contingent Assets and reimbursed under a contractual arrangement with
a third party (for example, a supplier's warranty agreement) against the
related reimbursement.
28 In addition, an enterprise presents on a net basis gains and losses arising from
a group of similar transactions, for example, foreign exchange gains and losses.
8
However, an enterprise presents such gains and losses separately if they are
material.
Frequency of reporting
29 An enterprise should present a complete set of financial statements
(including comparative information) at least annually. When an enterprise
changes the end of its reporting period and presents financial statements
for a period longer or shorter than one year, an enterprise should
disclose, in addition to the period covered by the financial statements:
(a) the reason for using a longer or shorter period, and
(b) the fact that amounts presented in the financial statements are not
entirely comparable.
Comparative information
30 Except when ASs permit or require otherwise, an enterprise should
disclose comparative information in respect of the previous period for all
amounts reported in the current period's financial statements. An
enterprise should include comparative information for narrative and
descriptive information when it is relevant to an understanding of the
current period's financial statements.
31 In some cases, narrative information provided in the financial statements for the
previous period(s) continues to be relevant in the current period. For example,
an enterprise discloses in the current period details of a legal dispute whose
outcome was uncertain at the end of the immediately preceding reporting period
and that is yet to be resolved. Users benefit from information that the
uncertainty existed at the end of the immediately preceding reporting period,
and about the steps that have been taken during the period to resolve the
uncertainty.
32 When the enterprise changes the presentation or classification of items in
its financial statements, the enterprise should reclassify comparative
amounts unless reclassification is impracticable. When the enterprise
reclassifies comparative amounts, the enterprise should disclose:
(a) the nature of the reclassification;
(b) the amount of each item or class of items that is reclassified; and
(c) the reason for the reclassification.
33 When it is impracticable to reclassify comparative amounts, an enterprise
should disclose:
(a) the reason for not reclassifying the amounts, and
(b) the nature of the adjustments that would have been made if the
amounts had been reclassified.
9
34 Enhancing the inter-period comparability of information assists users in making
economic decisions, especially by allowing the assessment of trends in financial
information for predictive purposes. In some circumstances, it is impracticable
to reclassify comparative information for a particular prior period to achieve
comparability with the current period. For example, an enterprise may not have
collected data in the prior period(s) in a way that allows reclassification, and it
may be impracticable to recreate the information.
Consistency of presentation
35 An enterprise should retain the presentation and classification of items in
the financial statements from one period to the next unless:
(a) it is apparent, following a significant change in the nature of the
enterprise's operations or a review of its financial statements, that
another presentation or classification would be more appropriate
having regard to the criteria for the selection and application of
accounting policies in AS 5; or
(b) an AS requires a change in presentation; or
(c ) a law requires a change in presentation.
36 For example, a significant acquisition or disposal, or a review of the
presentation of the financial statements, might suggest that the financial
statements need to be presented differently. An enterprise changes the
presentation of its financial statements only if the changed presentation
provides information that is reliable and more relevant to users of the financial
statements and the revised structure is likely to continue, so that comparability
is not impaired. When making such changes in presentation, an enterprise
reclassifies its comparative information in accordance with paragraph 32 and
33.
Structure and content
Introduction
37 This Standard requires particular disclosures in the balance sheet (or in the
statement of profit and loss and requires disclosure of other line items either in
those statements or in the notes. AS 3, Cash Flow Statements sets out
requirements for the presentation of cash flow information.
38 This Standard sometimes uses the term `disclosure' in a broad sense,
encompassing items presented in the financial statements. Disclosures are also
required by other ASs. Unless specified to the contrary elsewhere in this
Standard or in another AS, such disclosures may be made in the financial
statements.
Identification of the financial statements
39 An enterprise should clearly identify the financial statements and
distinguish them from other information in the same published document.
10
40 ASs apply only to financial statements, and not necessarily to other information
presented in an annual report, a regulatory filing, or another document.
Therefore, it is important that users can distinguish information that is prepared
using ASs from other information that may be useful to users but is not the
subject of those requirements.
41 An enterprise should clearly identify each financial statement and the
notes. In addition, an enterprise should display the following information
prominently, and repeat it when necessary for the information presented
to be understandable:
(a) the name of the reporting enterprise or other means of identification,
and any change in that information from the end of the preceding
reporting period;
(b) whether the financial statements are of an individual enterprise or a
group of enterprises;
(c) the date of the end of the reporting period or the period covered by
the set of financial statements or notes;
(d) the reporting currency, as defined in AS 11; and
(e) the level of rounding used in presenting amounts in the financial
statements.
42 An enterprise meets the requirements in paragraph 41 by presenting
appropriate headings for pages, statements, notes, columns and the like.
Judgement is required in determining the best way of presenting such
information. For example, when an enterprise presents the financial statements
electronically, separate pages are not always used; an enterprise then
presents the above items to ensure that the information included in the
financial statements can be understood.
43 An enterprise often makes financial statements more understandable by
presenting information in thousands, lakhs, millions or crores of units of the
reporting currency. This is acceptable as long as the enterprise discloses the
level of rounding and does not omit material information.
Balance Sheet
Information to be presented in the balance sheet
44 As a minimum, the balance sheet should include line items that present
the following amounts:
(a) tangible fixed assets;
(b) intangible assets;
(c) investments ;
(d) inventories;
(e) trade and other receivables;
(f) cash and cash equivalents;
11
(g) trade and other payables;
(h) provisions;
(i) liabilities and assets for current tax, as defined in AS 22
Accounting for Taxes on Income;
(j) deferred tax liabilities and deferred tax assets, as defined in AS 22;
(k) minority interests; and
(l) issued capital and reserves attributable to owners of the parent.
45 An enterprise should present additional line items, headings and
subtotals in the balance sheet when such presentation is relevant to an
understanding of the enterprise's financial position.
46 When an enterprise presents current and non-current assets, and current
and non-current liabilities, as separate classifications in its balance sheet,
it should not classify deferred tax assets (liabilities) as current assets
(liabilities).
47 This Standard does not prescribe the order or format in which an enterprise
presents items. Paragraph 44 simply lists items that are sufficiently different in
nature or function to warrant separate presentation in the balance sheet. In
addition:
(a) line items are included when the size, nature or function of an item or
aggregation of similar items is such that separate presentation is relevant
to an understanding of the enterprise's financial position; and
(b) the descriptions used and the ordering of items or aggregation of similar
items may be amended according to the nature of the enterprise and its
transactions, to provide information that is relevant to an understanding of
the enterprise's financial position. For example, a financial institution may
amend the above descriptions to provide information that is relevant to the
operations of a financial institution.
48 An enterprise makes the judgement about whether to present additional items
separately on the basis of an assessment of:
(a) the nature and liquidity of assets;
(b) the function of assets within the enterprise; and
(c) the amounts, nature and timing of liabilities.
49 The use of different measurement bases for different classes of assets
suggests that their nature or function differs and, therefore, that an enterprise
presents them as separate line items. For example, different classes of tangible
fixed assets can be carried at cost or at revalued amounts in accordance with
AS 10.
12
Current/non-current distinction
50 An enterprise should present current and non-current assets, and current
and non-current liabilities, as separate classifications in its balance sheet
in accordance with paragraphs 54-64.
51 An enterprise should disclose the amount expected to be recovered or
settled after more than twelve months for each asset and liability line item
that combines amounts expected to be recovered or settled:
(a) no more than twelve months after the reporting period, and
(b) more than twelve months after the reporting period.
52 When an enterprise supplies goods or services within a clearly identifiable
operating cycle, separate classification of current and non-current assets and
liabilities in the balance sheet provides useful information by distinguishing the
net assets that are continuously circulating as working capital from those used
in the enterprise's long-term operations. It also highlights assets that are
expected to be realised within the current operating cycle, and liabilities that are
due for settlement within the same period.
53 Information about expected dates of realisation of assets and liabilities is useful
in assessing the liquidity and solvency of an enterprise. Information on the
expected date of recovery of non-monetary assets such as inventories and
expected date of settlement for liabilities such as provisions is also useful,
whether assets and liabilities are classified as current or as non-current. For
example, an enterprise discloses the amount of inventories that are expected to
be recovered more than twelve months after the reporting period.
Current assets
54 An enterprise should classify an asset as current when:
(a) it expects to realise the asset, or intends to sell or consume it, in its
normal operating cycle;
(b) it holds the asset primarily for the purpose of trading;
(c) it expects to realise the asset within twelve months after the reporting
period; or
(d) the asset is cash or a cash equivalent (as defined in AS 3) unless the
asset is restricted from being exchanged or used to settle a liability
for at least twelve months after the reporting period.
An enterprise should classify all other assets as non-current.
55 This Standard uses the term `non-current' to include tangible, intangible and
other assets of a long-term nature. It does not prohibit the use of alternative
descriptions as long as the meaning is clear.
56 The operating cycle of an enterprise is the time between the acquisition of
assets for processing and their realisation in cash or cash equivalents. When
the enterprise's normal operating cycle is not clearly identifiable, it is assumed
13
to be twelve months. Current assets include assets (such as inventories and
trade receivables) that are sold, consumed or realised as part of the normal
operating cycle even when they are not expected to be realised within twelve
months after the reporting period. Current assets also include assets held
primarily for the purpose of trading and the current portion of non-current loans
and advances.
Current liabilities
57 An enterprise should classify a liability as current when:
(a) it expects to settle the liability in its normal operating cycle;
(b) it holds the liability primarily for the purpose of trading;
(c) the liability is due to be settled within twelve months after the
reporting period; or
(d) it does not have an unconditional right to defer settlement of the
liability for at least twelve months after the reporting period (see
paragraph 61). Terms of a liability that could, at the option of the
counterparty, result in its settlement by the issue of equity
instruments do not affect its classification.
An enterprise should classify all other liabilities as non-current.
58 Some current liabilities, such as trade payables and some accruals for
employee and other operating costs, are part of the working capital used in the
enterprise's normal operating cycle. An enterprise classifies such operating
items as current liabilities even if they are due to be settled more than twelve
months after the reporting period. The same normal operating cycle applies to
the classification of an enterprise's assets and liabilities. When the enterprise's
normal operating cycle is not clearly identifiable, it is assumed to be twelve
months.
59 Other current liabilities are not settled as part of the normal operating cycle, but
are due for settlement within twelve months after the reporting period or held
primarily for the purpose of trading. Examples are bank overdrafts, and the
current portion of non-current loans, dividends payable, income taxes and other
non-trade payables. Liabilities that provide financing on a long-term basis (ie
are not part of the working capital used in the enterprise's normal operating
cycle) and are not due for settlement within twelve months after the reporting
period are non-current liabilities, subject to paragraphs 62 and 63.
60 An enterprise classifies its liabilities that are of financial in nature as current
when they are due to be settled within twelve months after the reporting period,
even if:
(a) the original term was for a period longer than twelve months, and
(b) an agreement to refinance, or to reschedule payments, on a long-term
basis is completed after the reporting period and before the financial
statements are approved for issue.
14
61 If an enterprise expects, and has the discretion, to refinance or roll over an
obligation for at least twelve months after the reporting period under an existing
loan facility, it classifies the obligation as non-current, even if it would otherwise
be due within a shorter period. However, when refinancing or rolling over the
obligation is not at the discretion of the enterprise (for example, there is no
arrangement for refinancing), the enterprise does not consider the potential to
refinance the obligation and classifies the obligation as current.
62 When an enterprise breaches a provision of a long-term loan arrangement on
or before the end of the reporting period with the effect that the liability becomes
payable on demand, it classifies the liability as current, even if the lender
agreed, after the reporting period and before the approval of the financial
statements for issue, not to demand payment as a consequence of the breach,
unless in substance it is a technical breach of the nature that does not result in
payment on demand based on the past experience of the enterprise, in which
case it should make an appropriate disclosure in this regard in the notes. An
enterprise classifies the liability as current because, at the end of the reporting
period, it does not have an unconditional right to defer its settlement for at least
twelve months after that date.
63 However, an enterprise classifies the liability as non-current if the lender agreed
by the end of the reporting period to provide a period of grace ending at least
twelve months after the reporting period, within which the enterprise can rectify
the breach and during which the lender cannot demand immediate repayment.
64 In respect of loans classified as current liabilities, if the following events occur
between the end of the reporting period and the date the financial statements
are approved for issue, those events are disclosed as non-adjusting events in
accordance with AS 4 Events Occurring after the Balance Sheet Date :
(a) refinancing on a long-term basis;
(b) rectification of a breach of a long-term loan arrangement; and
(c) the granting by the lender of a period of grace to rectify a breach of a long-
term loan arrangement ending at least twelve months after the reporting
period.
Information to be presented either in the balance sheet or in the
notes
65 An enterprise should disclose, either in the balance sheet or in the
notes, further subclassifications of the line items presented, classified in
a manner appropriate to the enterprise's operations.
66 The detail provided in sub-classifications depends on the requirements of ASs
and on the size, nature and function of the amounts involved. An enterprise also
uses the factors set out in paragraph 48 to decide the basis of sub-
classification. The disclosures vary for each item, for example:
(a) sub-classification of current and long term investments in accordance with
AS 13;
(b) inventories are disaggregated, in accordance with AS 2 Valuation of
Inventories, into classifications such as raw materials and components,
work in progress, finished goods, stores and spares and loose tools;
15
(c) provisions are disaggregated into provisions for employee benefits and
other items; and
(d) equity capital and reserves are disaggregated into various classes, such as
paid-up capital, share premium and reserves.
67 An enterprise should disclose the following, either in the balance sheet or
in the notes:
(a) for each class of share capital:
(i) the number of shares authorised;
(ii) the number of shares issued and fully paid, and issued but not
fully paid;
(iii) par value per share, or that the shares have no par value;
(iv) a reconciliation of the number of shares outstanding at the
beginning and at the end of the period;
(v) the rights, preferences and restrictions attaching to that class
including restrictions on the distribution of dividends and the
repayment of capital;
(vi) shares in the enterprise held by its subsidiaries or associates;
and
(vii) shares reserved for issue under options and contracts for the
sale of shares, including terms and amounts; and
(b) a description of the nature and purpose of each reserve.
68 An enterprise whose capital is not limited by shares e.g., a company
limited by guarantee, should disclose information equivalent to that
required by paragraph 67(a), showing changes during the period in each
category of equity interest, and the rights, preferences and restrictions
attaching to each category of equity interest.
Statement of Profit and Loss
69 An enterprise should present all items of income and expense
recognised in a period in the statement of profit and loss.
Information to be presented in the statement of profit and loss
70 As a minimum, the statement of profit and loss should include line items
that present the following amounts for the period:
(a) revenue;
(b) finance costs;
(c) share of the profit or loss of associates using the equity method;
(d) tax expense;
(e) profit or loss;
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71 An enterprise should disclose the profit or loss for the period in the
statement of profit and loss as allocations for the period attributable to:
(i) minority interests, and
(ii) owners of the parent.
72 An enterprise should present additional line items, headings and
subtotals in the statement of profit and loss, when such presentation is
relevant to an understanding of the enterprise's financial performance.
73 Because the effects of an enterprise's various activities, transactions and other
events differ in frequency, potential for gain or loss and predictability, disclosing
the components of financial performance assists users in understanding the
financial performance achieved and in making projections of future financial
performance. An enterprise includes additional line items in the statement of
profit and loss, and it amends the descriptions used and the ordering of items
when this is necessary to explain the elements of financial performance. An
enterprise considers factors including materiality and the nature of the items of
income and expense. For example, a financial institution may amend the
descriptions to provide information that is relevant to the operations of a
financial institution. An enterprise does not offset income and expense items
unless the criteria in paragraph 25 are met.
Profit or loss for the period
74 An enterprise should recognise all items of income and expense in a
period in the statement of profit and loss unless an AS requires or permits
otherwise.
75 Some ASs specify circumstances when an enterprise recognises particular
items outside the statement of profit and loss in the current period. AS 5
specifies two such circumstances: the correction of errors and the effect of
changes in accounting policies. Other ASs require or permit certain items to be
recognised directly in reserves even if they meet the Framework's definition of
income or expense to be excluded from the statement of profit and loss.
Reclassification adjustments
76 An enterprise should disclose the amount of income tax relating to each
item of reclassification adjustments, either in the statement of profit and
loss or in the notes.
77 An enterprise should disclose reclassification adjustments in the
statement of profit and loss.
78 Other ASs specify whether and when amounts previously recognised in
reserves are reclassified in the statement of profit and loss. Such
reclassifications are referred to in this Standard as reclassification adjustments.
A reclassification adjustment is included in the period in which the adjustment is
reclassified to statement of profit and loss. For example, AS 11 requires
recognition as income or expense of foreign currency translation reserve on
disposal of net investment in non-integral foreign operation.
.
17
Information to be presented in the statement of profit and loss or in
the notes
79 When items of income or expense are material, an enterprise should
disclose their nature and amount separately as exceptional items.
80 Circumstances that would give rise to the separate disclosure of items of
income and expense include:
(a) 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;
(b) restructurings of the activities of an enterprise and reversals of any
provisions for the costs of restructuring;
(c) disposals of items of tangible fixed assets;
(d) disposals of long term investments;
(e) discontinuing operations;
(f) litigation settlements; and
(g) legislative changes having retrospective application;
(h) other reversals of provisions.
81 An enterprise should present an analysis of expenses recognised in the
statement of profit and loss using a classification based on the nature of
expense method.
82 Enterprises are encouraged to present the analysis in paragraph 81 in the
statement of profit and loss.
83 Expenses are sub-classified to highlight components of financial performance
that may differ in terms of frequency, potential for gain or loss and
predictability. This analysis is provided in the form as described in paragraph
84.
84 In the analysis based on the `nature of expense' method, an enterprise
aggregates expenses within the statement of profit and loss according to their
nature (for example, depreciation, purchases of materials, transport costs,
employee benefits and advertising costs), and does not reallocate them among
functions within the enterprise. This method is simple to apply because no
allocations of expenses to functional classifications are necessary. An example
of a classification using the nature of expense method is as follows:
Revenue X
Other income X
Changes in inventories of finished goods and work
in progress X
Raw materials and consumables used X
Employee benefits expense X
Depreciation and amortisation expense X
Other expenses X
Total expenses (X)
Profit before tax X
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Movements in Components of Equity
85 An enterprise should present movements in various components of
equity, e.g., reserves and surplus, appearing in the balance sheet
including the following information:
(a) for each component of equity, the effects of retrospective application
recognised in accordance with AS 5;
(b) for each component of equity, a reconciliation between the carrying
amount at the beginning and the end of the period, separately
disclosing each changes resulting from:
(i) profit or loss;
(ii) each reserve ;
(iii) transactions with owners in their capacity as 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; and
(iv) any item recognised directly in equity such as amount
recognised directly in equity as capital reserve.
86 An enterprise should present, the amount of dividends recognised as
distributions to owners during the period, and the related amount of
dividends per share.
87 In paragraph 85, the components of equity include, for example, each class of
share capital, securities premium account, and reserves .
88 Changes in an enterprise's equity between the beginning and the end of the
reporting period reflect the increase or decrease in its net assets during the
period. Except for changes resulting from transactions with owners in their
capacity as owners (such as equity contributions, reacquisitions of the
enterprise's own equity instruments and dividends), the overall change in
equity during a period represents the total amount of income and expense,
including gains and losses, generated by the enterprise's activities during that
period.
89 AS 5 requires retrospective adjustments to effect changes in accounting
policies, to the extent practicable, except when the transition provisions in
another AS require otherwise. Retrospective adjustments are not changes in
equity but they are adjustments to the opening balance of reserves, except
when an AS requires retrospective adjustment of another component of equity.
Paragraph 85(b) requires disclosure of the total adjustment to each component
of equity resulting from changes in accounting policies and, separately, from
corrections of errors.
Statement of cash flows
90 Cash flow information provides users of financial statements with a basis to
assess the ability of the enterprise to generate cash and cash equivalents and
the needs of the enterprise to utilise those cash flows. AS 3 sets out
requirements for the presentation and disclosure of cash flow information.
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Notes
Structure
91 The notes should:
(a) present information about the basis of preparation of the
financial statements and the specific accounting policies used in
accordance with paragraphs 96-102;
(b) disclose the information required by ASs that is not presented
elsewhere in the financial statements; and
(c) provide information that is not presented elsewhere in the
financial statements, but is relevant to an understanding of any
of them.
92 An enterprise should present notes in a systematic manner. An
enterprise should cross-reference each item in the balance sheet in the
statement of profit and loss, and statement of cash flows to any related
information in the notes.
93 An enterprise normally presents notes in the following order, to assist users to
understand the financial statements and to compare them with financial
statements of other enterprises:
(a) statement of compliance with ASs (see paragraph 15);
(b) summary of significant accounting policies applied (see paragraph 96);
(c) supporting information for items presented in the balance sheet, in the
statement of profit and loss, and statement of cash flows, in the order in
which each statement and each line item is presented; and
(d) other disclosures, including:
(i) contingent liabilities (see AS 29) and unrecognised contractual
commitments, and
(ii) non-financial disclosures, eg the names of the related paries that
control the enterprise (see AS 18).
94 In some circumstances, it may be necessary or desirable to vary the order of
specific items within the notes.. Nevertheless, an enterprise retains a
systematic structure for the notes as far as practicable.
95 An enterprise may present notes providing information about the basis of
preparation of the financial statements and specific accounting policies as a
separate section of the financial statements.
Disclosure of accounting policies
96 An enterprise should disclose in the summary of significant accounting
policies:
(a) the measurement basis (or bases) used in preparing the financial
statements, and
20
(b) the other accounting policies used that are relevant to an
understanding of the financial statements.
97 It is important for an enterprise to inform users of the measurement basis or
bases used in the financial statements (for example, historical cost, current
cost, net realisable value, fair value or recoverable amount) because the basis
on which an enterprise prepares the financial statements significantly affects
users' analysis. When an enterprise uses more than one measurement basis
in the financial statements, for example when particular classes of assets are
revalued, it is sufficient to provide an indication of the categories of assets and
liabilities to which each measurement basis is applied.
98 In deciding whether a particular accounting policy should be disclosed,
management considers whether disclosure would assist users in
understanding how transactions, other events and conditions are reflected in
reported financial performance and financial position. Disclosure of particular
accounting policies is especially useful to users when those policies are
selected from alternatives allowed in ASs. Some ASs specifically require
disclosure of particular accounting policies, including choices made by
management between different policies they allow. For example, AS 2 requires
disclosure of the cost formula used for valuation of inventories.
99 Each enterprise considers the nature of its operations and the policies that the
users of its financial statements would expect to be disclosed for that type of
enterprise. For example, users would expect an enterprise subject to income
taxes to disclose its accounting policies for income taxes, including those
applicable to deferred tax liabilities and assets. When an enterprise has
significant foreign operations or transactions in foreign currencies, users would
expect disclosure of accounting policies for the recognition of foreign
exchange gains and losses.
100 An accounting policy may be significant because of the nature of the
enterprise's operations even if amounts for current and prior periods are not
material. It is also appropriate to disclose each significant accounting policy
that is not specifically required by ASs but the enterprise selects and applies in
accordance with AS 5.
101 An enterprise should disclose, in the summary of significant
accounting policies or other notes, the judgements, apart from those
involving estimations (see paragraph 103), that management has made
in the process of applying the enterprise's accounting policies and that
have the most significant effect on the amounts recognised in the
financial statements.
102 In the process of applying the enterprise's accounting policies, management
makes various judgements, apart from those involving estimations, that can
significantly affect the amounts it recognises in the financial statements. For
example, management makes judgements in determining:
(a) when substantially all the significant risks and rewards of ownership of
financial assets and lease assets are transferred to other enterprises
(see AS 19); and
21
(b) when substantially all risks and rewards of ownership on sale of goods
are transferred for the purpose of recognition of revenue (see AS 9)
Sources of estimation uncertainty
103 An enterprise should disclose information about the assumptions it
makes about the future, and other major sources of estimation
uncertainty at the end of the reporting period, that have a significant risk
of resulting in a material adjustment to the carrying amounts of assets
and liabilities within the next financial year. In respect of those assets
and liabilities, the notes should include details of:
(a) their nature, and
(b) their carrying amount as at the end of the reporting period.
104 Determining the carrying amounts of some assets and liabilities requires
estimation of the effects of uncertain future events on those assets and liabilities
at the end of the reporting period. For example, the effect of technological
obsolescence on inventories, provisions subject to the future outcome of litigation
in progress, and long-term employee benefit liabilities such as pension
obligations. These estimates involve assumptions about such items as the
discount rates, future changes in salaries and future changes in prices affecting
other costs.
105 The assumptions and other sources of estimation uncertainty disclosed in
accordance with paragraph 103 relate to the estimates that require
management's most difficult, subjective or complex judgements. As the number
of variables and assumptions affecting the possible future resolution of the
uncertainties increases, those judgements become more subjective and
complex, and the potential for a consequential material adjustment to the
carrying amounts of assets and liabilities normally increases accordingly.
106 The disclosures in paragraph 103 are not required for assets and liabilities with a
significant risk that their carrying amounts might change materially within the
next financial year if, at the end of the reporting period, they are measured at fair
value based on recently observed market prices. Such fair values might change
materially within the next financial year but these changes would not arise from
assumptions or other sources of estimation uncertainty at the end of the
reporting period.
107 An enterprise presents the disclosures in paragraph 103 in a manner that helps
users of financial statements to understand the judgements that management
makes about the future and about other sources of estimation uncertainty. The
nature and extent of the information provided vary according to the nature of
the assumption and other circumstances. Examples of the types of disclosures
an enterprise makes are:
(a) the nature of the assumption or other estimation uncertainty;
22
(b) the expected resolution of an uncertainty and the range of reasonably
possible outcomes within the next financial year in respect of the carrying
amounts of the assets and liabilities affected; and
(c) an explanation of changes made to past assumptions concerning those
assets and liabilities, if the uncertainty remains unresolved.
108 This Standard does not require an enterprise to disclose budget information or
forecasts in making the disclosures in paragraph103.
109 Sometimes it is impracticable to disclose the extent of the possible effects of
an assumption or another source of estimation uncertainty at the end of the
reporting period. In such cases, the enterprise discloses that it is reasonably
possible, on the basis of existing knowledge, that outcomes within the next
financial year that are different from the assumption could require a material
adjustment to the carrying amount of the asset or liability affected. In all cases,
the enterprise discloses the nature and carrying amount of the specific asset
or liability (or class of assets or liabilities) affected by the assumption.
110 The disclosures in paragraph 101 of particular judgements that management
made in the process of applying the enterprise's accounting policies do not
relate to the disclosures of sources of estimation uncertainty in paragraph103.
111 Other ASs require the disclosure of some of the assumptions that would
otherwise be required in accordance with paragraph103. For example, AS 29
requires disclosure, in specified circumstances, of major assumptions
concerning future events affecting classes of provisions.
Capital
112 An enterprise should disclose information that enables users of its
financial statements to evaluate the enterprise's objectives, policies and
processes for managing capital.
113 To comply with paragraph112, the enterprise discloses the following:
(a) qualitative information about its objectives, policies and processes for
managing capital, including:
(i) a description of what it manages as capital;
(ii) when an enterprise is subject to externally imposed capital
requirements, the nature of those requirements and how those
requirements are incorporated into the management of capital;
and
(iii) how it is meeting its objectives for managing capital.
(b) summary quantitative data about what it manages as capital. Some
enterprises regard some financial liabilities (eg some forms of
subordinated debt) as part of capital. Other enterprises regard capital
as excluding some components of equity (eg deferred tax assets and
liabilities by banks).
(c) any changes in (a) and (b) from the previous period.
23
(d) whether during the period it complied with any externally imposed
capital requirements to which it is subject.
(e) when the enterprise has not complied with such externally imposed
capital requirements, the consequences of such non-compliance.
The enterprise bases these disclosures on the information provided internally
to key management personnel.
114 An enterprise may manage capital in a number of ways and be subject to a
number of different capital requirements. For example, a conglomerate may
include enterprises that undertake insurance activities and banking activities
and those enterprises may operate in several jurisdictions. When an aggregate
disclosure of capital requirements and how capital is managed would not
provide useful information or distorts a financial statement user's
understanding of an enterprise's capital resources, the enterprise should
disclose separate information for each capital requirement to which the
enterprise is subject.
Other disclosures
115 An enterprise should disclose in the notes:
(a) the amount of dividends proposed or declared before the financial
statements were approved for issue but not recognised as a
distribution to owners during the period, and the related amount per
share; and
(b) the amount of any cumulative preference dividends not
recognised.
116 An enterprise should disclose the following, if not disclosed elsewhere
in information published with the financial statements:
(a) the domicile and legal form of the enterprise, its country of
incorporation and the address of its registered office (or principal
place of business, if different from the registered office);
(b) a description of the nature of the enterprise's operations and its
principal activities; and
(c) the name of the parent and the ultimate parent of the group.
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Appendix I
The objective of the revision of and comparison with the existing AS
1 (issued 1979), Disclosure of Accounting Policies
Objective of the revision of the existing AS 1: Disclosure of Accounting
Policies
The Institute of Chartered Accountants of India had issued Accounting Standard (AS)
1, Disclosure Accounting Policies, in 1979 based on the then International
Accounting Standard (IAS) 1, Disclosure of Accounting Policies. Since then
significant developments in accounting have taken place including the recent revision
of Schedule VI to the Companies Act, 1956, requiring current/non-current
classification of assets and liabilities. Further, the International Accounting Standard
(IAS) 1 has also undergone significant changes including its scope which now
comprises presentation of financial statements including disclosure of accounting
policies. Recognising the aforesaid developments, the objective of the revision of the
existing AS 1 is to bring about changes in the Standard commensurate with the
requirements of the existing law and the existing notified Accounting Standards.
Thus, while the Indian Accounting Standard (Ind AS) 1, Presentation of Financial
Statements, which was placed by the Ministry of Corporate Affairs on its website in
2011, is based on the framework of the Indian Accounting Standards and the
expected changes in the relevant provisions of law, revision of the existing AS 1 does
not contain various requirements included in Ind AS 1 such as the concepts of `other
comprehensive income', statement of changes in equity, permission to depart from
the requirements of the Accounting Standards in extremely rare circumstances where
it is felt that the adoption of the requirement of an AS would be so misleading to
conflict with the objective of financial statements and presentation of comparative
information in minimum two balance sheets where restatement of changes in
accounting policies or correction of errors is required and requirements pertaining to
presentation of puttable financial instruments.
Comparison with the existing AS 1: Disclosure of Financial Instruments
AS 1 (revised) generally deals with presentation of financial statements, whereas the
existing AS 1 (issued 1979) deals only with the disclosure of accounting policies. The
scope of AS 1 (revised) is thus much wider and line by line comparison of the
difference with the present standard is not practicable. However, the major
requirements as laid down in AS 1 (revised) are as follows:
(i) An enterprise shall make an explicit statement in the financial statements of
compliance with all the Accounting Standards.
(ii) AS 1 (revised) requires presentation and provides criteria for classification of
Current / Non- Current assets / liabilities.
(iii) AS 1 (revised) requires disclosure of judgments made by management while
framing of accounting policies. Also, it requires disclosure of key assumptions
about the future and other sources of measurement uncertainty that have
25
significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities within next financial year.
(iv) AS 1 (revised) requires classification of expenses to be presented in the
statement of profit and loss based on nature of expenses.
(v) In respect of reclassification of items, AS 1 (revised) besides requiring disclosure
of reclassification adjustments in the statement of profit and loss also requires
disclosure of nature, amount and reason for reclassification in the notes to
financial statements.
(vi) AS 1 (revised) requires the financial statements to include Movements in Equity
to be shown as a part of the balance sheet which, inter alia, includes
reconciliation between opening and closing balance for each component of
equity.
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