Financial position report. Composition of financial statements according to IFRS

LECTURE 2. STANDARDS ON ACCOUNTING FORMS, SPECIAL DISCLOSURES, FAIR VALUE ESTIMATIONS, ACCOUNTING POLICIES AND ERRORS

Question 1 IAS 1 Presentation of Financial Statements

The standard describes the basic requirements for the presentation of general purpose financial statements 1, provides recommendations on their structure 2 and minimum requirements for their content 3.

Specific rules recognition, measurement and disclosure individual transactions and events are dealt with in other IFRSs.

Because the purpose of financial statements is to provide information about financial position, financial performance and cash flows that is useful to a wide range of users in making economic decisions, they should contain information about, at a minimum, the following performance indicators:

1. assets;

2. obligations;

3. capital;

4. income and expenses, including profits and losses;

5. contributions and distributions to owners acting in their capacity as owners;

6. cash flow.

6. A complete set of financial statements includes the following components:

1. statement of financial position as of the end of the period;

2. statement of comprehensive income for the period;

3. statement of changes in capital for the period;

4. cash flow statement;

5. notes, consisting of a summary of significant accounting policies and other explanatory information;

6. the statement of financial position at the beginning of the earliest comparative period if the entity applies accounting policies retrospectively or restates items retrospectively in its financial statements, or if it reclassifies items in its financial statements.

Reports and official bulletins presented other than financial statements are not within the scope of IFRS.

Financial statements should reliably present the financial position, financial results and cash flows.

Reliability is the presentation of information about the consequences of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the IFRS conceptual framework.

Financial statements should be prepared on the basis of three fundamental assumptions:

1. going concern assumptions;

2. based on the accrual principle, with the exception of information on cash flows;

3. the materiality of the presentation of information for each class of similar items, except for cases when they are immaterial.

Assets and Liabilities Not must be offset unless required or permitted by other IFRSs.

Items of income and expenses can offset (presented on a net basis, as the difference between income and expenses) by:

1. operations related to the main activity that generate revenue;
2. for immaterial groups of related transactions (for example: positive and negative exchange rate differences or profits and losses arising on financial instruments intended for trading.

The reporting must clearly provide the following information:

1. name of the reporting organization; any changes compared to the previous reporting period;

2. whether the financial statements relate to a single entity or a group;

3. the end date of the reporting period or the period covered by the financial statements or notes;

4. presentation currency as defined in IAS 21;

5. the degree of rounding used when presenting amounts.

Financial statements must be presented, at a minimum, annually.

STATEMENT OF FINANCIAL POSITION

The statement of financial position should, as a minimum, include the following items:

1. fixed assets;

2. investment property;

3. intangible assets;

4. financial assets, with the exception of clauses 5, 8, 9 of this list;

5. investments accounted for using the equity method;

6. biological assets

7. stocks;

8. trade and other receivables;

9. cash and cash equivalents;

10. the total amount of assets classified in accordance with IFRS 5 “Non-current assets held for sale and discontinued operations”;

11. trade and other accounts payable;

12. reserves;

13. financial obligations, with the exception of clauses 11, 12 of this list;

14. current tax liabilities and assets in accordance with IFRS 12 “Income Taxes”;

15. liabilities included in disposal groups classified in accordance with IFRS 5;

16. non-controlling interests represented in capital;

17. issued capital and reserves attributable to the owners of the parent organization.

However, the standard Not describes the order or format in which articles are presented. They are included in the report if the amount, nature and function of the individual item or aggregation of similar items are such that they are relevant to an understanding of the financial position of the entity. For the same purpose (relevance), their names and order of indication may be changed. Additional articles are presented on the basis of professional judgment based on the assessment of:

1. the nature and liquidity of assets;

2. functions of assets in the organization;

3. amounts, nature and timing of repayment of obligations.

The asset must be classified as negotiable (short-term), If:

1. it is expected to be sold, or it is held for sale or use, during the normal operating cycle of the organization;

2. it is held primarily for the purpose of trading;

3. it is expected to be sold within twelve months after the end of the reporting period;

4. exists in the form of cash or cash equivalents that have no restrictions on use.

All other assets should be classified as long-term.

The liability should be classified as short-term obligation if:

1. it is expected to be paid during the normal operating cycle of the organization;

2. it holds the liability primarily for trading purposes

3. it must be executed within twelve months after the end of the reporting period.

4. he does not have the unconditional right to postpone the repayment of the obligation for as long as

at least twelve months after the end of the reporting period

All other liabilities should be classified as long-term.

Operating items are classified as current liabilities even if they are due no earlier than twelve months after the end of the reporting period.

For example, trade payables; certain accruals of labor costs that are part of working capital used during the normal operating cycle.

International Financial Reporting Standards (IFRS) standard IAS 1 Presentation of Financial Statements uses the term “statement of financial position”, which is equivalent to the term “balance sheet”. Below we will use these terms interchangeably.

In accordance with IAS 1 Presentation of Financial Statements, a complete set of IFRS financial statements includes:

• (A) the statement of financial position as at the end of the period;
• (B) the statement of profit or loss and other comprehensive income for the period;
• (C) statement of changes in equity for the period;
• (D) statement of cash flows for the period;
• (E)notes, which include a summary of significant accounting policies and other explanations.

IFRS standards do not require the use of specific reporting templates, so the IFRS balance sheet can be in the form in which the organization itself chooses. At the same time, the presentation and classification of items in the financial statements should be consistent from period to period, except for the following cases:

• it is obvious that another representation or classification would be more reliable. The criteria for selecting and applying accounting policies are specified in IAS 8 “Accounting Policies, Changes in Accounting Estimates, Errors”. This may occur, for example, after a significant change in the nature of the entity's activities or an analysis of IFRS reporting.
• mandatory change - IFRS requires a change in presentation if the standard has changed.

The main elements - “building materials” - of the IFRS balance sheet are assets, liabilities and capital.

An asset is a resource under a company's control as a result of past events that will result in an influx of economic benefit. A liability is a present debt that has arisen as a result of past events and will result in an outflow of economic benefit. Capital is the share in the company's assets after the repayment of liabilities, i.e. assets minus liabilities.

According to IFRS standards, the assets of an enterprise in the IFRS balance sheet are classified into current (current) and non-current, and liabilities into short-term and long-term. Except in cases where the balance sheet is prepared according to the liquidity principle: if this type of IFRS balance sheet is applied, then assets and liabilities must be presented as a whole in order of their liquidity.

Current assets include assets that are held for trading and are consumed or sold within 12 months of the reporting period or during the normal operating cycle (for example, inventories and trade receivables). A company's operating cycle is the time between acquiring assets and selling them for cash or cash equivalents. When the cycle cannot be clearly determined, its duration is taken as 12 months.

Non-current assets include the following IFRS balance sheet items: fixed assets, intangible assets, investments in associates, deferred assets, financial assets, leased assets, long-term receivables, investment property, etc.

Some liabilities, such as trade payables and some personnel and other operating expenses, are classified as current liabilities even if they fall due more than 12 months after the reporting date.

Long-term liabilities may include the following IFRS balance sheet items: preferred shares, long-term loans and borrowings, deferred tax liabilities, defined benefit plan obligations (employee benefits under pension plans), share-based payment obligations, etc.

Whether individual items or groups of items should be disclosed separately in the financial statements or in the notes depends on their materiality. The decisive factor is whether the omission or misstatement will affect the economic decisions that users of the statements can make on the basis of the financial statements. Preparers of IFRS statements tend to disclose too much detail than is necessary. However, the IASB has emphasized that too much irrelevant information can obscure useful information and should therefore be avoided.

Typically, the balance sheet must be provided as of the reporting date and the end date of the previous reporting period (comparative). If an organization has changed its accounting policy, then such change should be applied retrospectively, that is, taken into account in past comparative periods. In this case, the balance sheet must be provided for three dates: the reporting date, the end and the beginning of the previous comparative period.

Below is the IFRS balance sheet (example):

Table 1. Balance sheet according to IFRS (sample)

In a software product "WA: Financier: Management Accounting and IFRS" Four reporting forms according to IFRS were created with all the necessary interpretations. In this case, a consolidated report can be built on a selected list of organizations.

To create an IFRS balance sheet in the program, the user needs to specify “Period”, “Organizations”, “Chart of Accounts”, “Currency”. The report is filled out automatically using the built-in algorithms of the system based on data on the IFRS chart of accounts (accounting according to IFRS is maintained in the program on a separate chart of accounts). For each section of the report, transcripts are provided: non-current assets, current assets, capital, long-term liabilities, short-term liabilities.

Figure 1. Drawing up a balance sheet according to IFRS example. Fragment of the IFRS balance sheet in the “WA: Financier” program.

The statement of financial position (balance sheet) is the main document, the content of which reflects the financial position of the company at the reporting date.

IFRS 1 does not contain a mandatory balance sheet format, but does include an illustrative example of a financial statement format. According to IFRS 1, a company must present at least the following information in the balance sheet (line items):

* fixed assets;

* investment property;

* intangible assets;

* financial assets;

* investments accounted for using the equity method;

* biological assets;

* trade and other receivables;

* cash and cash equivalents;

* the total amount of assets classified as held for sale and assets included in disposal groups classified as held for sale in accordance with IFRS 5 Non-current assets held for sale and discontinued operations;

* trade and other accounts payable;

* reserves;

* financial obligations;

* current tax liabilities and assets as defined in IAS 12 Income Taxes;

* deferred tax liabilities and deferred tax assets as defined in IAS 12;

* liabilities included in disposal groups classified as held for sale in accordance with IFRS 5;

* non-controlling interests represented in equity

* issued capital and reserves attributable to the owners of the parent enterprise).

The above list is not exhaustive. If you have certain transactions, you can include other items.

Where necessary (as required by other standards), either the balance sheet itself or the notes thereto should disclose the subclasses of each of the listed items classified according to the company's operations.

An entity shall present current and non-current assets and current and non-current liabilities as separate sections in its statement of financial position unless presentation based on liquidity provides reliable and more relevant information. If this exception applies, an entity must present all assets and liabilities in order of its liquidity. This must be noted in the accounting policy.

The term “short-term” must be considered from a liquidity and operating cycle perspective.

Operating cycle - the period of time between the acquisition of materials used in the production process and their sale in exchange for cash or tools that are easily convertible into cash.

The classification of assets and liabilities as current or non-current should reflect the relative level of liquidity of the company, i.e. its ability to realize its assets without encountering financial difficulties. Classification focused on a company's operating cycle helps identify assets and liabilities that constantly circulate. In this case, the criterion is that the asset can be used or the liability can be settled within the normal operating cycle of the company.

IFRS 1 requires information to be presented either in the statement of financial position or in the notes to the financial statements as subclasses of each of the line items of the balance sheet, grouped according to the company's operations (by nature; by amounts of receivables and payables of the parent company; related subsidiaries, associates companies and other related parties). The level of detail of such information depends on the requirements of other standards, as well as on the volume, nature, and functions of these quantities. For example, fixed assets should be classified in accordance with IFRS 16, inventories - in accordance with IFRS 2, etc.

IFRS does not contain mandatory financial reporting forms. Organizations develop individual reporting forms independently, taking into account the requirements of the standards.

The balance sheet is the main report in a set of financial statements. Other reports serve, in essence, as transcripts to balance sheet items. Nevertheless, such transcripts are so important that without them it is impossible to assess the financial position of the organization, make an economic decision, or evaluate management efficiency.

IFRS does not prescribe a specific form of balance sheet, but there are requirements for the order of presentation of items and disclosure of information.

The names of linear articles given in the Standard ( IAS 1), are not mandatory. Organizations independently establish the names of articles, their order of presentation in reporting, and details.

The information to be presented in the balance sheet must include at a minimum the following line items.

Conventional names of line items that should be presented in the balance sheet, if relevant information is available

The procedure for presenting items in reporting and its detailing is determined by organizations independently. IFRS does not prescribe the order in which items should be presented on the balance sheet. The order of presentation and titles of articles may be designed according to the nature of the organization and its operations. Each item must be disclosed in the balance sheet or in a note to it. When dividing articles into subclasses, it is necessary to take into account the principle of materiality. At a minimum, each item should be divided into subclasses according to the nature and amounts of accounts payable and receivable of parent, subsidiaries and other companies. For example, for equity, the balance sheet or notes should show the following information: the number of shares authorized for issue; the number of shares issued or fully paid, as well as issued but not fully paid; par value of shares; reconciliation of the number of shares outstanding at the beginning and end of the year; rights and privileges by type of shares, restrictions and distribution of dividends; number of shares, types owned by parent and subsidiary companies; shares reserved for issue under option agreements; a description of each securities reserve; dividends accrued but not paid; other information. Companies that are not joint stock companies must provide information equivalent to the above requirements.

Assets and liabilities that are different in nature are subject to measurement on different basis. For example, certain types of assets by subclasses can be valued at actual cost or replacement cost. The use of different measurement bases suggests that they differ in nature and should therefore be presented as separate line items. Inventories can be presented in the form of goods, materials, work in progress, or as a single item - “Inventories”. An entity shall disclose in the balance sheet or in a note thereto further subclassifications of each of the line items presented, classified according to the entity's operations. For example, by type of goods, materials, raw materials, etc.

The standard does not prescribe a specific order or format in which items should be presented on the balance sheet. Items can be presented depending on changes in liquidity or the division of assets into short-term and long-term.

Liquidity (from Latin liquidus - liquid, flowing) is the ability of assets to be converted (by sale) into cash. Cash has absolute liquidity. Other assets range from high to low liquidity.

The statement of financial position, also known as the balance sheet, shows the financial position of a company as of a specific date. Its structure is represented by three main sections: assets, liabilities and equity.

For users of financial statements, the balance sheet is useful because it allows you to evaluate the financial position of a company in terms of liquidity risk, financial risk and business risk.

Classification of the balance sheet structure

Assets

The “Assets” section reflects the company’s property, which it uses to obtain economic benefits. In the balance sheet, assets are divided into current ( English Current Assets) and long-term ( English Non-current Assets), depending on their useful life, during which economic benefits are expected to be realized. Long-term assets have a significant useful life, and current assets are completely consumed within a year from the moment they are listed on the balance sheet.

The balance sheet also classifies assets based on their nature:

• Long-term tangible and intangible assets. Tangible long-term assets include fixed assets, while intangible assets (not having a physical substance) include computer software, copyrights, patents, licenses, import quotas, franchises, goodwill, etc.
• Material reserves. This item includes raw materials, work in progress, finished goods and goods held for resale in the ordinary course of business.
• Accounts receivable. This column reflects the amount to be received from buyers for sales made on credit. Accounts receivable are reflected in the balance sheet after deducting the provision for bad debts ( English Allowance for Doubtful Accounts).
• Cash and cash equivalents. Represents cash on hand, money in bank accounts, and any short-term investments that can be easily converted into cash.

An example of an asset structure in English with translation

Liabilities

Liabilities are debts a company owes to someone, the repayment of which involves the transfer of cash or other valuables. The balance sheet classifies liabilities into current and long-term, depending on the period within which the company intends to repay them. Obligations that mature in more than one year are classified as long-term, and those that must be repaid within a year are called current.

Also, obligations are structured depending on the nature of their occurrence:

• Trade and other receivables. This item reflects the current debt to suppliers for goods, works and services provided on credit.
• Short-term loans. This column usually reflects the current debt on bank overdrafts and loans, the payment schedule of which does not exceed 12 months.
• Long-term loans. They are long-term debt obligations that must be repaid over a period exceeding one year. The current portion of long-term borrowings includes payments that are to be made within 12 months from the date of the report.
• Current tax due. Typically presented as a separate line item on the statement of financial position because it represents a material amount.

An example of the structure of obligations in English with translation

Equity

Equity represents the liabilities of a business to its owners. According to the balance sheet formula, equity is the difference between total assets and liabilities. Therefore, they represent a business owned by its owners.

The structure of equity in the statement of financial position usually looks like this:

• Share capital. The amount invested by the owners in the company is displayed.
• retained earnings. It includes all accumulated net profit or net loss remaining with the enterprise after the distribution of dividends to the owners.
• Revaluation reserve. Includes the net surplus from the revaluation of fixed assets recorded directly in equity.

Example of equity structure in English with translation

Why does the balance sheet always add up?

The statement of financial position is structured so that the sum of a business's assets equals the sum of its liabilities and shareholders' equity. In general, the equation can be represented as follows.

The reason for this equilibrium is that a company's assets can be financed either from internal sources (such as share capital or profits) or from external sources (such as bank loans or credit purchases). Therefore, the value of the company's assets must be equal to the sum of the capital invested by the owners (in the form of share capital and retained earnings) and liabilities.

Purpose and importance of the statement of financial position

The statement of financial position helps users of financial statements evaluate the financial condition of a company. Moreover, comparison of data for a successive series of reporting periods allows us to identify trends in changes in the financial condition of the company. This is particularly useful in assessing liquidity risk, credit risk and business risk. When the balance sheet is used in conjunction with other financial statements of the business and financial statements of competitors, it helps to find connections and trends that show current problems or areas for further improvement. Consequently, analysis of the statement of financial position helps the company's management predict the amount, timing and volatility of future earnings.