Conceptual principles of financial reporting

Covaliov Georgeta,

auditor, CIPA

IAS 1 Presentation of Financial Statements

Objective: To establish requirements for the presentation of a common set of financial statements and to ensure comparability between periods and entities.

Statement of the financial statements:

  1. Statement of financial position (balance sheet)
  2. Statement of comprehensive income (SCI)
  3. Statement of changes in equity (SCE)
  4. Statement of cash flows (CFS)
  5. Notes (including accounting policies)

Basic principles:

  • Going concern
  • Accrual basis
  • Consistency of presentation
  • Comparability of information
  • Materiality and aggregation
  • Prohibition of offsetting assets and liabilities, income and expenses
  • Separate disclosure of material items

Changes in Equity:

  • Results for the period
  • Other comprehensive income
  • Contributions/distributions to owners

Other comprehensive income (OCI):

  • Revaluation reserve (IAS 16, IAS 38)
  • Actuarial gains/losses (IAS 19)
  • Financial instruments through OCI (IFRS 9)
  • Cash flow hedges (IFRS 9)

IAS 7 Statement of Cash Flows

Objective: To disclose information about an entity’s cash flows to assess its ability to generate cash flows.

Classification of Flows:

Type of Activity Examples
Operating (O) receiving and paying out cash from core activities (revenue, expenses, interest, taxes)
Investment (I) purchase/sale of fixed assets, intangible assets, investments
Financial (F) issuance of shares, loans, payments Dividends

Methods:

  1. Direct — cash flow by item (receipts, payments);
  2. Indirect — net income ± adjustments (non-cash items, changes in working capital).

Interest and dividends:

Interest paid — O/F

Interest received — O/F

Dividends paid — F

Dividends received — I