Chapter 8 Report Presentation Overview AASB 101 sets

Chapter 8 Report Presentation

Overview AASB 101 sets the basic requirements for the presentation of general-purpose financial reports. Financial reports comprise: Statement of comprehensive income Statement of financial position Statement of cash flows Statement of changes in equity Notes

Notes to the Financial Statements would usually be arranged in the following order: Summary of significant accounting policies Supporting notes for items in the financial statement. Each item should be cross-referenced. Other disclosures not appearing in the financial statement such as: Contingent liabilities Contractual commitments

Other AASB Standards Requiring Specific Disclosures Other standards also require specific disclosures to be made in the financial reports including: AASB AASB 108 110 118 114 124

8. 1 Accounting Policies

Accounting Policies Accounting policies are the specific principles, bases, conventions, rules and practices applied by a company in preparing and presenting financial reports.

Accounting Policies Continued If accounting standards are not specifically applicable, or a choice is available, management can use their own judgment to adopt accounting policies. Guidelines for exercising this judgement are contained in AASB 108.

AASB 108 Guidelines Factors to be considered • Meeting user needs • Reliability of resulting financial statements • Applicability of the International Equivalent AASB Standards Framework • Applicability of Australian Accounting Standards • Accepted industry practice • Accounting literature • Other standard setting institutions’ framework

8. 2 Comparative Information

Comparative Information AASB 101 requires comparative amounts for the previous period be given in the financial reports including: the balance sheet, income statement, statement of changes in equity, statement of cash flows and the notes thereto.

Comparative Information Continued Specific instances where comparatives might be changed include: Change to accounting policies (AASB 101 & 108) Changes to accounting estimates affecting assets, liabilities or equity in prior periods (AASB 108 & 110). Corrections of errors in prior periods (AASB 108 & 110)

8. 3 Statement of Comprehensive Income

Statement of Comprehensive Income An entity is required to prepare either one complete Statement of Comprehensive Income or two separate statements: ‘traditional’ Income Statement and a short-form Statement of Comprehensive Income. The Statement of Comprehensive Income includes income and expense items in equity.

Statement of Comprehensive Income Additional line items, headings and subtotals may be added if it would assist in understanding the financial performance of the company.

Suggested Comprehensive Income Statement Format

Suggested Statement of Comprehensive Income Format Continued

Disclosure Requirements Summary

Description of Requirements: Revenues AASB 118 The amount of each significant category of revenue recognised during the period. Disclosures required include: • Sale of goods • Rendering of services • Interest • Royalties • Dividends

Description of Requirements: Expense Analysis AASB 101 Under AASB 101 presentation of expenses may be: By their nature (such as occupancy costs and employee benefits By their function depending on what is more reliable and relevant.

Example of Expense Analysis Disclosure by Function

Description of Requirements: Material Items AASB 101 Requires separate disclosure of the nature and amount of material income and expense items. “Material” is defined as items that could individually or collectively influence the economic decisions of users of the financial report.

Examples of Material Items Material write-downs of inventory or property, plant and equipment. Material disposals of property, plant and equipment or investments. Legal settlements.

Description of Requirements: Income Taxes AASB 112 Requires disclosure of how the taxation calculation was affected by permanent differences.

8. 4 Statement of Changes in Equity

AASB 101 Statement of Changes in Equity. This statement shows all changes in equity arising from transactions with owners in their capacity as owners. Must show: Statement of changes in equity must show: • Total comprehensive income • The effect of revised accounting standards for components of equity • Amounts of transactions with owners • Reconciliation between the opening and closing balances of components of equity

Suggested Format

8. 5 Statement of Financial Position

Statement of Financial Position AASB 101 contains specific requirements: Assets and Liabilities are to be classified as current or non-current - except when a presentation based on liquidity is more reliable and relevant.

Current / Non-Current Presentation

Liquidity Presentation If the liquidity method is used, these classifications would be shown: Assets and liabilities are to be classified within these classifications in the order of liquidity.

Definitions Current asset. The definition is based on intention to use. • Expected to be consumed during an operating cycle, or • Held primarily to be traded, or • Expected to be realised within twelve months from the reporting date, or • Cash or cash equivalent Non-current asset. All non-current assets, including deferred tax assets.

Definitions Current liabilities Expected to be settled during an operating cycle, or Held primarily to be traded, or Expected to be settled within twelve months from the reporting date, or There is no unconditional right to defer settlement beyond twelve months. Non-current liabilities All liabilities not current liabilities, including deferred tax liabilities (always non-current).

Operating Cycle assuming credit sales and credit purchases Inventory Accounts Payable Cash Sales Accounts Receivable Operating cycle is the time between the acquisition of inventory and its realisation in cash or cash equivalents (sales receipts).

Operating Cycle Continued If a company’s operating cycle is longer than twelve months, assets expected to realise after twelve months from the reporting date can be classified as current.

Liquidity or Current / Non-Current Choice Separate classification of current and noncurrent assets is required in all cases where companies work within an operating cycle. The liquidity option is more relevant to those companies without a definable operating cycle.

Reporting and Disclosure of Assets Items required to be listed as assets are: • • • Cash and cash equivalents Trade and other receivables Investments in associates Available-for-sale investments Other financial assets Inventories • • • Property plant and equipment Investment property Goodwill Other intangible assets Biological assets Deferred tax assets

Reporting and Disclosure of Liabilities Items required for liabilities are:

Reporting and Disclosure of Equity Line items required for equity are:

8. 6 Other Disclosure Requirements

Operating Segments: AASB 8 Report separate information for each operating segment: • • • Segment revenue Segment expenses Segment proit or loss Segment assets Segment liabilities A reconciliation of segment profit, assets and liabilities to corresponding whole-entity amounts A reportable segment is a component of business whose results are independently reviewed by the entity’s management.

Related Party Disclosures: AASB 124 Disclosures required include: The parent of the company and, if applicable, the ultimate parent. Key management personnel compensation in benefits and shares The names of: • Key management personnel during the reporting period. • Directors required to prepare the financial report (specified directors). Details of transactions with existing and former related parties

Suggested Related Party Compensation Note

Commitments The disclosure must include details of amounts payable: Within 12 months Between 12 months and 5 years Later than 5 years

Contingent Liabilities Contingencies are potential assets or liabilities not recognised in the balance sheet. Such as: • A loan guarantee that will only result in a liability if a default occurs. • A law suit is pending resolution and the settlement cannot be estimated.

Contingent Liabilities Disclosure requires a description of its nature and where possible, an estimate of the financial effect and its timing. Such as:

Non-Current Assets Held For Sale and Discontinued Operations : AASB 5 requires that discontinued operations and other assets held for sale be presented separately. Disposal group liabilities must also be presented separately.

In Addition The following must be disclosed for discontinued operations: 1. A single amount on the face of the Income Statement comprising the post tax profit or loss of the discontinued operation 2. The post tax gain or loss on restatement to fair value of the discontinued operation less costs to sell 3. An analysis of the single amount in ( 1 ) and (2 ) above into: 1. Revenue, expenses and pre tax profit 2. Related income tax expense

Definitions Held for Sale • If the carrying value of a non-current asset will be recovered through a sale transaction rather than through its continued use it is classified as a “held for sale” asset. Discontinued Operations • A separate component of a company’s business that has either been sold or is classified as held for sale.