The financial statements shall be identified clearly, and distinguished from other information in the same document. Users must be able to distinguish information that is prepared using IFRSs, from other information that is not the subject of those requirements.
Survey of income statements IFRS News
April 2007
The financial statements of 2,800 companies were surveyed, specifically looking at the additional income measures companies included in their financial statements beyond the minimum required by IFRS.
The survey also examined how companies present these non-GAAP measures in their income statements.
“Investors tell us that additional income measures are useful and that they take
them into account when making investment decisions,” says Leandro van
Dam, PwC partner in the Netherlands and co-sponsor of the survey.
“They are also looking for non-GAAP measures that management uses to run the business. They want consistency of information over time and comparability among companies.” Debate on the use of non-GAAP measures is gathering interest.
Some highlights from the report are summarised below.
A bridge from old to IFRS
Companies have aligned their choice and presentation of non-GAAP measures under IFRS as much as possible with what they reported under national GAAP.
This has allowed users to compare non-GAAP measures calculated using IFRS recognition and measurement principles with the measures calculated on the previous basis.
No evidence of cherry-picking
Companies do not appear to have cherry-picked additional income measures to show their results in a more positive light; the overall trends (rise or fall) for the alternative income measures reported were similar to the trends for net profit under IFRS.
Companies generally met IFRS presentation requirements for the income statement.
Industry variations
Industry variations in EBITDA and similar measures are consistent between 2004 reporting under national GAAP and 2005 IFRS reporting. Companies already appear to be responding to investor demands for international comparability within industry sectors.
National trends are still strong
Countries that have historically reported certain non-GAAP measures still do so under IFRS; those that did not report specific non-GAAP measures did not start to do so.
International comparability of non-GAAP reporting in the first year of application was unlikely to arise spontaneously. Management had little opportunity to
compare reporting practices with their peers and limited experience of IFRS-related discussions with investors, regulators and other parties.
Many conferences and industry sessions focused on recognition and measurement and paid little attention to format requirements and options for additional line items in the income statement.
There was therefore was no real platform for development of market norms.
Companies may find the research useful in deciding what to communicate to the
market in next year’s IFRS financial statements.
“This research should enable management to look at what peers are doing,” says Leandro, “and consider whether current diversity of non-GAAP measurement and presentation holds any clues for better ways of communicating with investors in future.”
Download the PDF from pwc.com/ifrs
Each component of the financial statements shall be identified clearly. In addition, the following information shall be displayed prominently (and repeated when it is necessary), for a proper understanding of the information presented:
(i) the name of the reporting undertaking, and any change from the preceding end of the reporting period;
(ii) whether the financial statements cover the individual undertaking, or a group;
(iii) the date of the end of the reporting period, or the period covered by the financial statements, whichever is appropriate to that component of the financial statements;
(iv) the presentation currency,
(v) the level of rounding used in presenting amounts in the financial statements.
These requirements are normally met by presenting page headings, and abbreviated column headings, on each page of the financial statements. Judgement is required in determining the best presentation.
When the financial statements are presented electronically, separate pages are not always used; the above items are then presented frequently enough to ensure a proper understanding of the information.
Financial statements are often made more understandable by presenting information in thousands (or millions) of units of the presentation currency. This is acceptable if the level of rounding in presentation is disclosed, and material information is not omitted.
12. Frequency of Reporting
Financial statements shall be presented at least annually.
When the end of the reporting period changes, and the annual financial statements are presented for a period longer (or shorter) than one year, an undertaking shall disclose, (in addition to the period covered):
(i) the reason for using a longer (or shorter) period; and
(ii) the fact that comparative amounts for the financial statements are not entirely comparable.
EXAMPLE- change of end of the reporting period
Your firm has just been purchased by an investor, who wishes to change your year-end from June to December. Your first set of financial statements (under the new regime) will be for a 6 month period, and will not be comparable with prior periods. The above disclosures will need to be made.
Normally, financial statements are consistently prepared covering a one-year period. Some undertakings prefer to report for a 52-week period. IAS 1 does not preclude this practice, because the financial statements are unlikely to be materially different from those that would be presented for one year.
EXAMPLE-52-week period
You operate department stores. Your period is 52 weeks, so that you can end the period on a Sunday, and count inventory on a Monday.
13. Statement of financial position
Current/Non-current Distinction
An undertaking shall present current and non-current assets, and current and non-current liabilities, as separate classifications on the face of its statement of financial position, except when a presentation based on liquidity provides information that is more relevant.
When that exception applies, all assets and liabilities shall be presented broadly in order of liquidity.
EXAMPLE-Financial Institutions
Your firm is a financial institution, and you present your statement of financial position items broadly in order of liquidity (see IFRS 7 workbook).
For each asset and liability line item that combines amounts expected to be recovered (or settled)
no more than twelve months after the end of the reporting period, and
more than twelve months after the end of the reporting period,
an undertaking shall disclose the amount expected to be recovered (or settled) after more than twelve months.
When an undertaking supplies goods (or services) within a clearly identifiable operating cycle, separate classification of current and non-current assets (and liabilities) provides useful information, by distinguishing the net assets that are continuously circulating as working capital, from those used in long-term operations.
EXAMPLE-Current and non-current distinction based on operating cycle
Issue
An asset that satisfies any of the following criteria shall be classified as a current asset:
a) its realisation, sale or consumption is expected to occur in the undertaking’s normal operating cycle;
b) it is held for sale;
c) its realisation is expected to occur within twelve months after the date of the end of the reporting period; or
d) it is unrestricted cash or a cash equivalent.
Can an undertaking classify a receivable that it does not expect to realise within twelve months as a current asset in its statement of financial position?
Background
Undertaking A builds airplanes for national airlines. The average operating cycle is 15 months, based on the length of time it takes to build a plane. A’s management presents a classified balance sheet to distinguish its current and non-current assets and liabilities. The undertaking carries accounts receivable that it expects to realise in 15 months.
Solution
Yes, A should classify the receivable as a current asset, as it expects to realise the receivable in the normal course of its 15-month operating cycle.
The undertaking’s accounting policy note should describe the policy on classification of current and non-current items.
It also highlights assets that are expected to be converted into cash within the current operating cycle, and liabilities that are due for settlement within the same period.
An undertaking is permitted to present some of its assets and liabilities using a current/non-current classification, and others in order of liquidity, when this provides information that is more relevant.
The need for a mixed basis of presentation might arise when an undertaking has diverse operations.
Information about expected dates of conversion into cash of assets and liabilities is useful in assessing the liquidity, and solvency, of an undertaking. IFRS 7 requires disclosure of the maturity dates of financial assets, and financial liabilities.
Financial assets include trade and other receivables, and financial liabilities include trade and other payables.
Information on the expected date of recovery and settlement of non-monetary assets and liabilities, such as inventories and provisions, is also useful, whether or not assets and liabilities are classified as current or non-current.
An undertaking discloses the amount of inventories that are expected to be sold more than twelve months after the end of the reporting period.
No comments:
Post a Comment