2.5.1 Identification of financial statements

It is commonly the case that financial statements will form only part of a larger annual report, regulatory filing or other document. As IFRS only applies to financial statements, it is important that the financial statements are clearly identified so that users of the report can distinguish information that is prepared using IFRS from other information that may be useful but is not the subject of those requirements. [IAS 1.49‑50].

This requirement will be particularly important in those instances in which standards allow for disclosure of information required by IFRS outside the financial statements.

As well as requiring that the financial statements be clearly distinguished, IAS 1 also requires that each financial statement and the notes be identified clearly. Furthermore, the following is required to be displayed prominently, and repeated when that is necessary for the information presented to be understandable:

1. the name of the reporting entity or other means of identification, and any change in that information from the end of the preceding period;
2. whether the financial statements are of an individual entity or a group of entities;
3. the date of the end of the reporting period or the period covered by the set of financial statements or the notes (presumably whichever is appropriate to that component of the financial statements);
4. the presentation currency, as defined in IAS 21 – The Effects of Changes in Foreign Exchange Rates (discussed in Chapter 15 at 3); and
5. the level of rounding used in presenting amounts in the financial statements. [IAS 1.51].

These requirements are met by the use of appropriate headings for pages, statements, notes, and columns etc. The standard notes that judgement is required in determining the best way of presenting such information. For example, when the financial statements are presented electronically, separate pages are not always used; the above items then need to be presented to ensure that the information included in the financial statements can be understood. [IAS 1.52]. IAS 1 considers that financial statements are often made more understandable by presenting information in thousands or millions of units of the presentation currency. It considers this acceptable as long as the level of rounding in presentation is disclosed and material information is not omitted. [IAS 1.53].

2.5.2 Statement of compliance with IFRS

As well as identifying which particular part of any larger document constitutes the financial statements, IAS 1 also requires that financial statements complying with IFRS make an explicit and unreserved statement of such compliance in the notes. [IAS 1.16]. As this statement itself is required for full compliance, its absence would render the whole financial statements non-compliant, even if there was otherwise full compliance. The standard goes on to say that ‘an entity shall not describe financial statements as complying with IFRSs unless they comply with all the requirements of IFRSs.’ [IAS 1.16].

The note containing this statement of compliance is also usually where entities provide any other compliance statement required by local regulation. For example, entities required to comply with IFRS as adopted for use in the EU would typically state compliance with that requirement alongside the statement of compliance with IFRS itself (assuming, of course, that the financial statements were in full compliance with both).

3.1.1 The distinction between current/non-current assets and liabilities

In most situations (but see the exception discussed below, and the treatment of non-current assets held for sale discussed in Chapter 4 at 2.2.4) IAS 1 requires statements of financial position to distinguish current assets and liabilities from non-current ones. [IAS 1.60]. The standard uses the term ‘non-current’ to include tangible, intangible and financial assets of a long-term nature. It does not prohibit the use of alternative descriptions as long as the meaning is clear. [IAS 1.67].

The standard explains the requirement to present current and non-current items separately by observing that when an entity supplies goods or services within a clearly identifiable operating cycle, separate classification of current and non-current assets and liabilities on the face of the statement of financial position will provide useful information by distinguishing the net assets that are continuously circulating as working capital from those used in long-term operations. Furthermore, the analysis will also highlight assets that are expected to be realised within the current operating cycle, and liabilities that are due for settlement within the same period. [IAS 1.62]. The distinction between current and non-current items therefore depends on the length of the entity's operating cycle. The standard states that the operating cycle of an entity is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. However, when the entity's normal operating cycle is not clearly identifiable, it is assumed to be twelve months. [IAS 1.68, 70]. The standard does not provide any guidance on how to determine if an entity's operating cycle is ‘clearly identifiable’. In some businesses the time involved in producing goods or providing services varies significantly from one customer project to another. In such cases, it may be difficult to determine what the normal operating cycle is. In the end, management must consider all facts and circumstances and judgment to determine whether it is appropriate to consider that the operating cycle is clearly identifiable, or whether the twelve months default is to be used.

Once assets have been classified as non-current they should not normally be reclassified as current assets until they meet the criteria to be classified as held for sale in accordance with IFRS 5 (see Chapter 4 at 2.1). However, an entity which routinely sells items of property plant and equipment previously held for rental should transfer such items to inventory when they cease to be rented and become held for sale. [IAS 16.68A]. Assets of a class that an entity would normally regard as non-current that are acquired exclusively with a view to resale also should not be classified as current unless they meet the criteria in IFRS 5. [IFRS 5.3].

The basic requirement of the standard is that current and non-current assets, and current and non-current liabilities, should be presented as separate classifications on the face of the statement of financial position. [IAS 1.60]. The standard defines current assets and current liabilities (discussed at 3.1.3 and 3.1.4 below), with the non-current category being the residual. [IAS 1.66, 69]. Example 3.2 at 3.1.7 below provides an illustration of a statement of financial position presenting this classification.

An exception to this requirement is when a presentation based on liquidity provides information that is reliable and is more relevant. When that exception applies, all assets and liabilities are required to be presented broadly in order of liquidity. [IAS 1.60]. The reason for this exception given by the standard is that some entities (such as financial institutions) do not supply goods or services within a clearly identifiable operating cycle, and for these entities a presentation of assets and liabilities in increasing or decreasing order of liquidity provides information that is reliable and more relevant than a current/non-current presentation. [IAS 1.63].

The standard also makes clear that an entity 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 reliable and more relevant. It goes on to observe that the need for a mixed basis of presentation might arise when an entity has diverse operations. [IAS 1.64].

Whichever method of presentation is adopted, IAS 1 requires for each asset and liability line item that combines amounts expected to be recovered or settled:

1. no more than twelve months after the reporting period; and
2. more than twelve months after the reporting period;

disclosure of the amount expected to be recovered or settled after more than twelve months. [IAS 1.61].

The standard explains this requirement by noting that information about expected dates of realisation of assets and liabilities is useful in assessing the liquidity and solvency of an entity. In this vein, IAS 1 asserts that IFRS 7 – Financial Instruments: Disclosures – requires disclosure of the maturity dates of financial assets (including trade and other receivables) and financial liabilities (including trade and other payables). This assertion in IAS 1 is not strictly correct, as IFRS 7 in fact only requires a maturity analysis (rather than maturity dates) and only requires this for financial liabilities (see Chapter 54 at 5.4.2). Similarly, IAS 1 views information on the expected date of recovery and settlement of non-monetary assets and liabilities such as inventories and provisions as also useful, whether assets and liabilities are classified as current or as non-current. An example of this given by the standard is that an entity should disclose the amount of inventories that are expected to be recovered more than twelve months after the reporting period. [IAS 1.65].

3.1.2 Non-current assets and disposal groups held for sale or distribution

The general requirement to classify items as current or non-current (or present them broadly in order of liquidity) is overlaid with further requirements by IFRS 5 regarding non-current assets and disposal groups held for sale or distribution (discussed in Chapter 4 at 3). The aim of IFRS 5 is that entities should present and disclose information that enables users of the financial statements to evaluate the financial effects of disposals of non-current assets (or disposal groups). [IFRS 5.30]. In pursuit of this aim, IFRS 5 requires:

• non-current assets and the assets of a disposal group classified as held for sale or distribution to be presented separately from other assets in the statement of financial position; and
• the liabilities of a disposal group classified as held for sale or distribution to be presented separately from other liabilities in the statement of financial position.

These assets and liabilities should not be offset and presented as a single amount. In addition:

1. major classes of assets and liabilities classified as held for sale or distribution should generally be separately disclosed either on the face of the statement of financial position or in the notes (see 3.1.6 below). However, this is not necessary for a disposal group if it is a subsidiary that met the criteria to be classified as held for sale or distribution on acquisition; and
2. any cumulative income or expense recognised in other comprehensive income relating to a non-current asset (or disposal group) classified as held for sale or distribution should be presented separately. [IFRS 5.38‑39].

3.1.3 Current assets

IAS 1 requires an asset to be classified as current when it satisfies any of the following criteria, with all other assets classified as non-current. The criteria are:

1. it is expected to be realised in, or is intended for sale or consumption in, the entity's normal operating cycle (discussed at 3.1.1 above);
2. it is held primarily for the purpose of trading;
3. it is expected to be realised within twelve months after the end of the reporting period; or
4. it is cash or a cash equivalent (as defined in IAS 7, see Chapter 40 at 1.1) unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the end of the reporting period. [IAS 1.66].

As an exception to this, deferred tax assets are never allowed to be classified as current. [IAS 1.56].

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 being traded, for example, some financial assets that meet the definition of held for trading in IFRS 9 – Financial Instruments – and the current portion of non-current financial assets. [IAS 1.68].

3.1.4 Current liabilities

IAS 1 requires a liability to be classified as current when it satisfies any of the following criteria, with all other liabilities classified as non-current. The criteria for classifying a liability as current are:

1. it is expected to be settled in the entity's normal operating cycle (discussed at 3.1.1 above);
2. it is held primarily for the purpose of trading;
3. it is due to be settled within twelve months after the end of the reporting period; or
4. the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the end of the reporting period. 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. [IAS 1.69].

The requirements at (d) above are discussed by the IASB in its Basis for Conclusions which can be summarised as follows. According to the Conceptual Framework, conversion of a liability into equity is a form of settlement. The Board concluded, as part of its improvements project in 2007, that classifying a liability on the basis of the requirements to transfer cash or other assets rather than on settlement better reflects the liquidity and solvency position of an entity. In response to comments received, the Board decided to clarify that the exception to the unconditional right to defer settlement of a liability for at least twelve months criterion in (d) above only applies to the classification of a liability that can, at the option of the counterparty, be settled by the issuance of the entity's equity instruments. Thus the exception does not apply to all liabilities that may be settled by the issuance of equity. [IAS 1.BC 38L-P].

Notwithstanding the foregoing, deferred tax liabilities are never allowed to be classified as current. [IAS 1.56].

In an agenda decision of November 2010 the Interpretations Committee reconfirmed (d) above by stating that a debt scheduled for repayment after more than a year which is, however, payable on demand of the lender is a current liability.

The standard notes that 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 entity's normal operating cycle. Such operating items are classified as current liabilities even if they are due to be settled more than twelve months after the end of the reporting period. [IAS 1.70].

However, neither IAS 19 – Employee Benefits – nor IAS 1 specifies where in the statement of financial position an asset or liability in respect of a defined benefit plan should be presented, nor whether such balances should be shown separately on the face of the statement or only in the notes – this is left to the judgement of the reporting entity (see 3.1.5 below). When the format of the statement of financial position distinguishes current assets and liabilities from non-current ones, the question arises as to whether this split needs also to be made for defined benefit plan balances. IAS 19 does not specify whether such a split should be made, on the grounds that it may sometimes be arbitrary. [IAS 19.133, BC200]. In practice few, if any, entities make this split.

Some current liabilities are not settled as part of the normal operating cycle, but are due for settlement within twelve months after the end of the reporting period or held primarily for the purpose of being traded. Examples given by the standard are some (but not necessarily all) financial liabilities that meet the definition of held for trading in accordance with IFRS 9, bank overdrafts, and the current portion of non-current financial liabilities, dividends payable, income taxes and other non-trade payables. Financial liabilities that provide financing on a long-term basis (and are not, therefore, part of the working capital used in the entity's normal operating cycle) and are not due for settlement within twelve months after the end of the reporting period are non-current liabilities. [IAS 1.71].

The assessment of a liability as current or non-current is applied very strictly in IAS 1. In particular, a liability should be classified as current:

1. when it is due to be settled within twelve months after the end of the reporting period, even if:
   1. the original term was for a period longer than twelve months; and
   2. an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the period end and before the financial statements are authorised for issue (although disclosure of the post period end refinancing would be required); [IAS 1.72, 76] or
2. when an entity breaches a provision of a long-term loan arrangement on or before the period end with the effect that the liability becomes payable on demand. This is the case even if the lender agreed, after the period end and before the authorisation of the financial statements for issue, not to demand payment as a consequence of the breach (although the post period end agreement would be disclosed). The meaning of the term ‘authorised for issue’ is discussed in Chapter 38 at 2.1.1. The standard explains that the liability should be classified as current because, at the period end, the entity does not have an unconditional right to defer its settlement for at least twelve months after that date. [IAS 1.74, 76]. However, the liability would be classified as non-current if the lender agreed by the period end to provide a period of grace ending at least twelve months after the reporting period, within which the entity can rectify the breach and during which the lender cannot demand immediate repayment. [IAS 1.75].

The key point here is that for a liability to be classified as non-current requires that the entity has at the end of the reporting period an unconditional right to defer its settlement for at least twelve months thereafter. Accordingly, the standard explains that liabilities would be non-current if an entity expects, and has the discretion, to refinance or roll over an obligation for at least twelve months after the period end under an existing loan facility, 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 entity the obligation is classified as current. [IAS 1.73].

Some common scenarios involving debt covenants are illustrated in the following example.

3.1.5 Information required on the face of the statement of financial position

IAS 1 does not contain a prescriptive format or order for the statement of financial position. [IAS 1.57]. Rather, it contains two mechanisms which require certain information to be shown on the face of the statement. First, it contains a list of specific items for which this is required, on the basis that they are sufficiently different in nature or function to warrant separate presentation. [IAS 1.54, 57]. Second, it stipulates that: additional line items (including the disaggregation of those items specifically required), headings and subtotals should be presented on the face of the statement of financial position when such presentation is relevant to an understanding of the entity's financial position. [IAS 1.55]. Clearly this is a highly judgemental decision for entities to make when preparing a statement of financial position, and allows a wide variety of possible presentations. The judgement as to whether additional items should be presented separately is based on an assessment of:

1. the nature and liquidity of assets;
2. the function of assets within the entity; and
3. the amounts, nature and timing of liabilities. [IAS 1.58].

IAS 1 indicates that the use of different measurement bases for different classes of assets suggests that their nature or function differs and, therefore, that they should be presented as separate line items. For example, different classes of property, plant and equipment can be carried at cost or revalued amounts in accordance with IAS 16 – Property, Plant and Equipment. [IAS 1.59].

The face of the statement of financial position should include line items that present the following amounts: [IAS 1.54]

1. property, plant and equipment;
2. investment property;
3. intangible assets;
4. financial assets (excluding amounts shown under (f), (i) and (j));
5. groups of contracts within the scope of IFRS 17 – Insurance Contracts – that are assets arising from each of:
   1. insurance contracts; and
   2. reinsurance contracts;
6. investments accounted for using the equity method;
7. biological assets;
8. inventories;
9. trade and other receivables;
10. cash and cash equivalents;
11. the total of assets classified as held for sale and assets included in disposal groups classified as held for sale in accordance with IFRS 5;
12. trade and other payables;
13. provisions;
14. groups of contracts within the scope of IFRS 17 that are liabilities arising from each of:
    1. insurance contracts; and
    2. reinsurance contracts;
15. financial liabilities (excluding amounts shown under (l) and (m));
16. liabilities and assets for current tax, as defined in IAS 12;
17. deferred tax liabilities and deferred tax assets, as defined in IAS 12;
18. liabilities included in disposal groups classified as held for sale in accordance with IFRS 5;
19. non-controlling interests, presented within equity; and
20. issued capital and reserves attributable to owners of the parent.

The standard notes that items above represent a list of items that are sufficiently different in nature or function to warrant separate presentation on the face of the statement of financial position. In addition:

1. line items should be 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 entity's financial position; and
2. the descriptions used and the ordering of items or aggregation of similar items may be amended according to the nature of the entity and its transactions, to provide information that is relevant to an understanding of the entity'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. [IAS 1.57].

As noted above, when relevant to an understanding of financial position, additional line items and subtotals should be presented. Regarding subtotals, IAS 1 requires that they should:

1. be comprised of line items made up of amounts recognised and measured in accordance with IFRS;
2. be presented and labelled in a manner that makes the line items that constitute the subtotal clear and understandable;
3. be consistent from period to period (see 4.1.4 below); and
4. not be displayed with more prominence than the subtotals and totals required in IFRS for the statement of financial position. [IAS 1.55A, BC38G].

The distinction between trade and financial liabilities in certain supplier finance arrangements is discussed in Chapter 52 at 6.5.

3.1.6 Information required either on the face of the statement of financial position or in the notes

IAS 1 requires further sub-classifications of the line items shown on the face of the statement of financial position to be presented either on the face of the statement or in the notes. The requirements for these further sub-classifications are approached by the standard in a similar manner to those for line items on the face of the statement of financial position. There is a prescriptive list of items required (see below) and also a more general requirement that the sub-classifications should be made in a manner appropriate to the entity's operations. [IAS 1.77]. The standard notes that the detail provided in sub-classifications depends on the requirements of IFRSs (as numerous disclosures are required by other standards) and on the size, nature and function of the amounts involved. [IAS 1.78].

Aside of the specific requirements, deciding what level of detailed disclosure is necessary is clearly a judgemental exercise. As is the case for items on the face of the statement of financial position, IAS 1 requires that the judgement as to whether additional items should be presented separately should be based on an assessment of:

1. the nature and liquidity of assets;
2. the function of assets within the entity; and
3. the amounts, nature and timing of liabilities. [IAS 1.58, 78].

The disclosures will also vary for each item, examples given by the standard are:

1. items of property, plant and equipment are disaggregated into classes in accordance with IAS 16;
2. receivables are disaggregated into amounts receivable from trade customers, receivables from related parties, prepayments and other amounts;
3. inventories are disaggregated, in accordance with IAS 2 – Inventories, into classifications such as merchandise, production supplies, materials, work in progress and finished goods;
4. provisions are disaggregated into provisions for employee benefits and other items; and
5. equity capital and reserves are disaggregated into various classes, such as paid-in capital, share premium and reserves. [IAS 1.78].

IAS 1 specifically requires the following information regarding equity and share capital to be shown either on the face of the statement of financial position or in the notes:

1. for each class of share capital:
   1. the number of shares authorised;
   2. the number of shares issued and fully paid, and issued but not fully paid;
   3. par value per share, or that the shares have no par value;
   4. a reconciliation of the number of shares outstanding at the beginning and at the end of the period;
   5. the rights, preferences and restrictions attaching to that class including restrictions on the distribution of dividends and the repayment of capital;
   6. shares in the entity held by the entity or by its subsidiaries or associates; and
   7. shares reserved for issue under options and contracts for the sale of shares, including the terms and amounts; and
2. a description of the nature and purpose of each reserve within equity. [IAS 1.79].

An entity without share capital (such as a partnership or trust) should disclose information equivalent to that required by (a) above, showing changes during the period in each category of equity interest, and the rights, preferences and restrictions attaching to each category of equity interest. [IAS 1.80].

IAS 32 – Financial Instruments: Presentation – allows two specific classes of liabilities to be reported as equity. These are:

• puttable financial instruments; and
• instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation.

Both terms are defined and discussed at length in IAS 32 (see Chapter 47 at 4.6).

If an entity reclassifies one of these items between financial liabilities and equity, IAS 1 requires disclosure of:

• the amount reclassified into and out of each category (financial liabilities or equity); and
• the timing and reason for that reclassification. [IAS 1.80A].

3.1.7 Illustrative statements of financial position

The implementation guidance accompanying IAS 1 provides an illustration of a statement of financial position presented to distinguish current and non-current items. It makes clear that other formats may be equally appropriate, as long as the distinction is clear. [IAS 1.IG3]. As discussed in Chapter 4 at 2.2.4, IFRS 5 provides further guidance relating to the presentation of non-current assets and disposal groups held for sale. [IAS 1.IG Part I].

3.2.1 Profit and loss and comprehensive income

The IASB regards all changes in net assets (other than the introduction and return of capital) and not just more traditional realised profits, as ‘performance’ in its widest sense. Accordingly, IAS 1 requires a performance statement showing such changes and calls it a statement of comprehensive income.

Total comprehensive income is defined by IAS 1 as the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners. It comprises all components of ‘profit or loss’ and of ‘other comprehensive income’. These two terms are defined as follows:

• profit or loss is the total of income less expenses, excluding the components of other comprehensive income; and
• other comprehensive income comprises items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by other IFRSs. [IAS 1.7].

What this means is that profit and loss is the default category – all comprehensive income is part of profit and loss unless a provision of IFRS requires or permits it to be ‘other’ comprehensive income. [IAS 1.88].

The use of a variety of terminology is recognised by IAS 1 which notes the following. ‘Although this Standard uses the terms “other comprehensive income”, “profit or loss” and “total comprehensive income”, an entity may use other terms to describe the totals as long as the meaning is clear. For example, an entity may use the term “net income” to describe profit or loss.’ [IAS 1.8].

IAS 1 sets out the following items which are included in other comprehensive income:

1. changes in revaluation surplus relating to property, plant and equipment and intangible assets;
2. remeasurements on defined benefit plans in accordance with IAS 19;
3. gains and losses arising from translating the financial statements of a foreign operation;
4. gains and losses from investments in equity instruments designated at fair value through other comprehensive income;
5. gains and losses on financial assets measured at fair value through other comprehensive income;
6. the effective portion of gains and losses on hedging instruments in a cash flow hedge and the gains and losses on hedging instruments that hedge investments in equity instruments measured at fair value through other comprehensive income;
7. for particular liabilities designated as at fair value through profit and loss, the amount of the fair value changes attributable to changes in the liability's credit risk;
8. changes in the value of the time value of options when separating the intrinsic value and time value of an option contract and designating as the hedging instrument only the changes in the intrinsic value;
9. changes in the value of the forward elements of forward contracts when separating the forward element and spot element of a forward contract and designating as the hedging instrument only the changes in the spot element, and changes in the value of the foreign currency basis spread of a financial instrument when excluding it from the designation of that financial instrument as the hedging instrument; and
10. insurance finance income and expenses related to insurance or reinsurance contracts which is excluded from profit or loss in certain circumstances in accordance with IFRS 17. [IAS 1.7].

IAS requires that all items of income and expense be presented either:

1. in a single statement of profit or loss and other comprehensive income (with a separate section for each in the order stated); or
2. in two separate statements:
   1. a statement of profit or loss; and
   2. a statement of comprehensive income beginning with profit and loss and containing components of other comprehensive income. [IAS 1.10A].

If the approach in (b) is followed, the statement of profit or loss must be displayed immediately before the statement of comprehensive income. [IAS 1.10A].

In addition to this choice, IAS 1 provides that different titles may be used for these statements. [IAS 1.10].

Many entities continue to present a separate statement of profit or loss (often titled ‘income statement’), and this section is structured in these terms. However, the requirements are the same whether total comprehensive income is presented in one or two statements.

IAS 1 adopts an essentially permissive approach to the format of the statement of profit or loss and statement of comprehensive income. It observes that, because the effects of an entity'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 performance. [IAS 1.86]. In other words, some analysis of the make-up of net profit and other comprehensive income is needed, but a wide variety of presentations would all be acceptable.

IAS 1 requires certain specific items to appear on the face of the statement(s) and then supplements this with a more general requirement that:

• additional line items be presented (including the disaggregation of those specifically required) on the face of the statement(s); and
• the descriptions used and the ordering of items be amended;

when this is relevant to an understanding of the entity's financial performance. [IAS 1.85‑86].

The standard explains that additional line items should be included, and the descriptions used and the ordering of items amended when this is necessary to explain the elements of financial performance. Factors to be considered would include materiality and the nature and function of the items of income and expense. An example of this is that a financial institution may amend the descriptions to provide information that is relevant to the operations of a financial institution. [IAS 1.86].

When additional subtotals are presented, line items should be given that reconcile those subtotals with the subtotals or totals required in IFRS. [IAS 1.85B].

When such additional subtotals are presented, they should:

1. be comprised of line items made up of amounts recognised and measured in accordance with IFRS;
2. be presented and labelled in a manner that makes the line items that constitute the subtotal clear and understandable;
3. be consistent from period to period (see 4.1.4 below); and
4. not be displayed with more prominence than the subtotals and totals required in IFRS for the statement(s) presenting profit or loss and other comprehensive income. [IAS 1.85A].

3.2.2 Information required on the face of the statement of profit or loss

As is the case for the statement of financial position, IAS 1 sets out certain items which must appear on the face of the statement of profit or loss and other required disclosures which may be made either on the face or in the notes.

The face of the statement of profit or loss should include, in addition to items required by other IFRSs, line items that present the following amounts (although as noted above, the order and description of the items should be amended as necessary): [IAS 1.82]

1. revenue, presenting separately:
   1. interest revenue calculated using the effective interest method; and
   2. insurance revenue under IFRS 17;
2. gains and losses from the derecognition of financial assets measured at amortised cost;
3. insurance service expenses from contracts issued in accordance with of IFRS 17;
4. income or expenses from reinsurance contracts held in accordance with of IFRS 17;
5. finance costs;
6. impairment losses (including reversals of impairment losses or impairment gains) determined under IFRS 9;
7. insurance finance income or expenses from contracts issued in accordance with of IFRS 17;
8. finance income or expenses from reinsurance contracts held in accordance with of IFRS 17;
9. share of the profit or loss of associates and joint ventures accounted for using the equity method;
10. any difference between fair value and the previous carrying amount at the date of reclassification when a financial asset is reclassified out of the amortised cost category to be measured at fair value through profit or loss;
11. any accumulated gain or loss previously recognised in other comprehensive income that is reclassified to profit or loss when a financial asset is reclassified out of the fair value through other comprehensive income category so that it is measured at fair value through profit or loss;
12. tax expense;
13. a single amount comprising the total of:
    1. the post-tax profit or loss of discontinued operations; and
    2. the post-tax gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operation; [IFRS 5.33(a)(ii)]
14. profit or loss; [IAS 1.81A] and
15. the following as allocations of profit or loss for the period:
    1. profit or loss attributable to non-controlling interests; and
    2. profit or loss attributable to owners of the parent. [IAS 1.81B].

It should be noted that (with the exception of (n) above) this provision of the standard does not require a single line item for each of the above. Indeed, in some circumstances a single line item may not be possible.

As discussed at 3.2.3 below, an analysis of expenses is required based either on their nature or their function. IAS 1 encourages, but does not require this to be shown on the face of the statement of profit or loss. [IAS 1.99‑100]. The specific items listed above essentially identify the results of transactions by their nature (that is to say, not by their function in the business). Accordingly, those entities categorising expenses by function and also following the ‘encouragement’ to display this on the face of the statement could be required to present one or more of the above in more than one place within the statement. This may be particularly relevant to entities choosing to differentiate between ‘operating’ items and other items in the statement of profit or loss (which is a quite common practice and one acknowledged by the IASB – discussed at 3.2.2.A below) as some items in the list above may contain the results of transactions from operating and non-operating activities. By way of example, items (g) and (j) above could encompass both operating and non-operating items.

In practice judgement will be required when applying these provisions of the standard along with the more general requirements on: additional line items and subtotals; and, the ordering and description of line items, discussed at 3.2.1 above.

The implementation guidance accompanying the standard provides an illustrative example of a statement of profit or loss (see Example 3.4 at 3.2.3.A below).

3.2.3 Classification of expenses recognised in profit or loss by nature or function

IAS 1 states that components of financial performance may differ in terms of frequency, potential for gain or loss and predictability, and requires that expenses should be sub-classified to highlight this. [IAS 1.101]. To achieve this, the standard requires the presentation of an analysis of expenses (but only those recognised in profit or loss) using a classification based on either their nature or their function within the entity, whichever provides information that is reliable and more relevant. [IAS 1.99]. It is because each method of presentation has merit for different types of entities, that the standard requires management to make this selection. [IAS 1.105]. As noted at 3.2.2 above IAS 1 encourages, but does not require the chosen analysis to be shown on the face of the statement of profit or loss. [IAS 1.100]. This means that entities are permitted to disclose the classification on the face on a mixed basis, as long as the required classification is provided in the notes. Indeed, the IASB itself produces an example of such a statement of profit or loss in an illustrative example to IAS 7. [IAS 7.IE A].

The standard also notes that the choice between the function of expense method and the nature of expense method will depend on historical and industry factors and the nature of the entity. Both methods provide an indication of those costs that might vary, directly or indirectly, with the level of sales or production of the entity. However, because information on the nature of expenses is useful in predicting future cash flows, additional disclosure is required when the function of expense classification is used (see 3.2.3.B below). [IAS 1.105].

3.2.4 The statement of comprehensive income

3.2.5 Discontinued operations

As discussed in Chapter 4 at 3.2, IFRS 5 requires the presentation of a single amount on the face of the statement of profit or loss relating to discontinued operations, with further analysis either on the face of the statement or in the notes.

3.2.6 Material and extraordinary items

4.1.1 Fair presentation

4.1.2 Going concern

When preparing financial statements, IAS 1 requires management to make an assessment of an entity's ability to continue as a going concern. This term is not defined, but its meaning is implicit in the requirement of the standard that financial statements should be prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. The standard goes on to require that when management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity's ability to continue as a going concern, those uncertainties should be disclosed. Beyond requiring disclosure of the uncertainties, the standard does not specify more precisely what information should be disclosed. The Interpretations Committee recommended, in January 2013, that the IASB make a narrow-scope amendment to IAS 1 that would address when these disclosures should be made and what information should be disclosed. Although the IASB acknowledged that more prescriptive requirements would lead to useful information to investors and creditors, it also had the expectation that such requirements may result in ‘boilerplate’ disclosures that would obscure relevant disclosures about going concern and thus would contribute to disclosure overload. It also observed that this is a topic that is better handled through local regulator or audit guidance.¹

When financial statements are not prepared on a going concern basis, that fact should be disclosed, together with the basis on which the financial statements are prepared and the reason why the entity is not regarded as a going concern. [IAS 1.25].

In assessing whether the going concern assumption is appropriate, the standard requires that all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period should be taken into account. The degree of consideration required will depend on the facts in each case. When an entity has a history of profitable operations and ready access to financial resources, a conclusion that the going concern basis of accounting is appropriate may be reached 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. [IAS 1.26].

There is no guidance in the standard concerning what impact there should be on the financial statements if it is determined that the going concern basis is not appropriate. Accordingly, entities will need to consider carefully their individual circumstances to arrive at an appropriate basis.

4.1.3 The accrual basis of accounting

IAS 1 requires that financial statements be prepared, except for cash flow information, using the accrual basis of accounting. [IAS 1.27]. No definition of this is given by the standard, but an explanation is presented that ‘When the accrual basis of accounting is used, items are recognised 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 Conceptual Framework.’ [IAS 1.28].

The Conceptual Framework explains the accruals basis as follows. ‘Accrual accounting depicts the effects of transactions and other events and circumstances on a reporting entity's economic resources and claims in the periods in which those effects occur, even if the resulting cash receipts and payments occur in a different period. This is important because information about a reporting entity's economic resources and claims and changes in its economic resources and claims during a period provides a better basis for assessing the entity's past and future performance than information solely about cash receipts and payments during that period.’ [CF 1.17].

The requirements of the Conceptual Framework are discussed in more detail in Chapter 2.

4.1.4 Consistency

As noted at 1.1 and 1.2 above, one of the objectives of both IAS 1 and IAS 8 is to ensure the comparability of financial statements with those of previous periods. To this end, each standard addresses the principle of consistency.

IAS 1 requires that the ‘presentation and classification’ of items in the financial statements be retained from one period to the next unless:

1. it is apparent, following a significant change in the nature of the entity'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 IAS 8 (see 4.3 below); or
2. an IFRS requires a change in presentation. [IAS 1.45].

The standard goes on to amplify this by explaining that 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 entity should change the presentation of its financial statements only if the changed presentation provides information that is reliable and is 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 entity will need to reclassify its comparative information as discussed at 2.4 above. [IAS 1.46].

IAS 8 addresses consistency of accounting policies and observes that users of financial statements need to be able to compare the financial statements of an entity over time to identify trends in its financial position, financial performance and cash flows. For this reason, the same accounting policies need to be applied within each period and from one period to the next unless a change in accounting policy meets certain criteria (changes in accounting policy are discussed at 4.4 below). [IAS 8.15]. Accordingly, the standard requires that accounting policies be selected and applied consistently for similar transactions, other events and conditions, unless an IFRS specifically requires or permits categorisation of items for which different policies may be appropriate. If an IFRS requires or permits such categorisation, an appropriate accounting policy should be selected and applied consistently to each category. [IAS 8.13].

4.1.5 Materiality, aggregation and offset

4.1.6 Profit or loss for the period

The final provision of IAS 1 which we term a general principle is a very important one. It is that, unless an IFRS requires or permits otherwise, all items of income and expense recognised in a period should be included in profit or loss. [IAS 1.88]. This is the case whether one combined statement of comprehensive income is presented or whether a separate statement of profit or loss is presented (discussed at 3.2.1 above).

Income and expense are not defined by the standard, but they are defined by the Conceptual Framework as follows:

1. income is increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims; and
2. expenses are decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims. [CF 4.68, 4.49].

Strictly speaking, the two definitions above apply for accounting periods beginning on or after 1 January 2020 as a result of the revisions to the Framework published in 2018 (discussed in Chapter 2). [IAS 1.139S]. However, the definitions are essentially the same as those in the earlier version (which are not further discussed here).

These definitions clearly suggest that the terms do not have what many would consider their natural meaning, as they encompass all gains and losses (for example, capital appreciation in a non-current asset like property). There is a somewhat awkward compromise with various gains and losses either required or permitted to bypass profit or loss and be reported instead in ‘other comprehensive income’. Importantly, as discussed at 3.2.1 above, profit and loss, and other comprehensive income may each be reported as a separate statement.

IAS 1 notes that some IFRSs specify circumstances when an entity recognises particular items outside profit or loss, including the effect of changes in accounting policies and error corrections (discussed at 4.4 and 4.6 below). [IAS 1.89]. Other IFRSs deal with items that may meet the Framework's definitions of income or expense but are usually excluded from profit or loss. Examples given by IAS 1 are shown at 3.2.4.A above.

4.1.7 Practice Statement 2 – Making Materiality Judgements

In September 2017 the IASB published Practice Statement 2 – Making Materiality Judgements (Statement 2). This is a non-mandatory statement and does not form part of IFRS, its application is not, therefore, required to state compliance with IFRS. [PS 2.2].

Notwithstanding the above, preparers of financial statements may wish to consider the practice statement and an overview of it is given below.

Statement 2 addresses three main areas:

• the general characteristics of materiality;
• a four-step process that may be applied in making materiality judgements when preparing financial statements (the ‘materiality process’); and
• guidance on how to make materiality judgements in relation to the following:
  • prior period information,
  • errors,
  • information about covenants; and
  • interim reporting.

There is also a discussion of the interaction between the materiality and local laws and regulations. Local laws and regulations may specify additional requirements that can affect the information included in the financial statements. IFRS permits the disclosure of such additional information in order to meet local legal or regulatory requirements, although not material from an IFRS perspective, as long as it does not obscure information that is material (see 4.1.5.A above). [PS 2.28, IAS 1.30A, BC13L, BC30F].

4.7.1 Impracticability of restatement for a change in accounting policy

When retrospective application of a change in accounting policy is required, the change in policy should be applied retrospectively except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the change. [IAS 8.23]. When an entity applies a new accounting policy retrospectively, the standard requires it to be applied to comparative information for prior periods as far back as is practicable. Retrospective application to a prior period is not practicable for these purposes unless it is practicable to determine the cumulative effect on the amounts in both the opening and closing statement of financial position for that period. [IAS 8.26].

When it is impracticable to determine the period-specific effects of changing an accounting policy on comparative information for one or more prior periods presented:

• the new accounting policy should be applied to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable; and
• a corresponding adjustment to the opening balance of each affected component of equity for that period should be made.

The standard notes that this may be the current period. [IAS 8.24].

When it is impracticable to determine the cumulative effect, at the beginning of the current period, of applying a new accounting policy to all prior periods, the standard requires an adjustment to the comparative information to apply the new accounting policy prospectively from the earliest date practicable. [IAS 8.25]. Prospective application is defined by the standard as applying the new accounting policy to transactions, other events and conditions occurring after the date as at which the policy is changed. [IAS 8.5]. This means that the portion of the cumulative adjustment to assets, liabilities and equity arising before that date is disregarded. Changing an accounting policy is permitted by IAS 8 even if it is impracticable to apply the policy prospectively for any prior period. [IAS 8.27].

The implementation guidance accompanying the standard illustrates the prospective application of a change in accounting policy as follows: [IAS 8.IG3]

4.7.2 Impracticability of restatement for a material error

IAS 8 requires that a prior period error should be corrected by retrospective restatement except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the error. [IAS 8.43].

When it is impracticable to determine the period-specific effects of an error on comparative information for one or more prior periods presented, the opening balances of assets, liabilities and equity should be restated for the earliest period for which retrospective restatement is practicable (which the standard notes may be the current period). [IAS 8.44].

When it is impracticable to determine the cumulative effect, at the beginning of the current period, of an error on all prior periods, the comparative information should be restated to correct the error prospectively from the earliest date practicable. [IAS 8.45]. The standard explains that this will mean disregarding the portion of the cumulative restatement of assets, liabilities and equity arising before that date. [IAS 8.47].

5.1.1 Disclosure of accounting policies

5.1.2 Disclosure of changes in accounting policies

IAS 8 distinguishes between accounting policy changes made pursuant to the initial application of an IFRS and voluntary changes in accounting policy (discussed at 4.4 above). It sets out different disclosure requirements for each, as set out in 5.1.2.A and 5.1.2.B below. Also, if an IFRS is in issue but is not yet effective and has not been applied certain disclosures of its likely impact are required. These are set out in 5.1.2.C below.

5.2.1 Sources of estimation uncertainty

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. Examples given by IAS 1 are that (in the absence of fair values in an active market for identical items used to measure them) the following assets and liabilities require future-oriented estimates to measure them:

• the recoverable amount of classes of property, plant and equipment;
• 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 risk adjustment to cash flows or discount rates used, future changes in salaries and future changes in prices affecting other costs. [IAS 1.126].

In light of this, IAS 1 requires disclosure of information about the assumptions concerning 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 must include details of:

1. their nature; and
2. their carrying amount as at the end of the reporting period. [IAS 1.125].

IAS 1 goes on to observe that these assumptions and other sources of estimation uncertainty 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. [IAS 1.127].

The disclosures are required to be presented in a manner that helps users of financial statements to understand the judgements management makes about the future and about other key sources of estimation uncertainty. The nature and extent of the information provided will vary according to the nature of the assumption and other circumstances. Examples given by the standard of the types of disclosures to be made are:

1. the nature of the assumption or other estimation uncertainty;
2. the sensitivity of carrying amounts to the methods, assumptions and estimates underlying their calculation, including the reasons for the sensitivity;
3. 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
4. an explanation of changes made to past assumptions concerning those assets and liabilities, if the uncertainty remains unresolved. [IAS 1.129].

The disclosure of some of these key assumptions is required by other standards. IAS 1 notes the following examples:

• IAS 37 requires disclosure, in specified circumstances, of major assumptions concerning future events affecting classes of provisions; and
• IFRS 13 – Fair Value Measurement – requires disclosure of significant assumptions (including the valuation technique(s) and inputs) used when measuring the fair values of assets and liabilities (not just financial ones) that are carried at fair value. [IAS 1.133].

Other examples would include:

• IAS 19 requires disclosure of actuarial assumptions;
• IFRS 2 – Share-based Payment – requires disclosure, in certain circumstances, of: the option pricing model used, and the method used and the assumptions made to incorporate the effects of early exercise; and
• IAS 36 – Impairment of Assets – requires disclosure, in certain circumstances, of each key assumption on which management has based its cash flow projections.

These assumptions and other sources of estimation uncertainty are not required to be disclosed 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 a quoted price in an active market for an identical asset or liability. [IAS 1.128].

Also, it is not necessary to disclose budget information or forecasts in making the disclosures. [IAS 1.130]. Furthermore, the disclosures of particular judgements management made in the process of applying the entity's accounting policies (discussed at 5.1.1.B above) do not relate to the disclosures of sources of estimation uncertainty. [IAS 1.132].

When 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, the entity should disclose that it is reasonably possible, based on existing knowledge, that outcomes within the next financial year that are different from assumptions could require a material adjustment to the carrying amount of the asset or liability affected. In all cases, the entity should disclose the nature and carrying amount of the specific asset or liability (or class of assets or liabilities) affected by the assumption. [IAS 1.131].

In our view, these requirements of IAS 1 represent potentially highly onerous disclosures. The extensive judgements required in deciding the level of detail to be given has resulted in a wide variety of disclosure in practice. The Basis for Conclusions to the standard reveals that the Board was aware that the requirement could potentially require quite extensive disclosures and explains its attempt to limit this as follows. ‘IAS 1 limits the scope of the disclosures to items that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. The longer the future period to which the disclosures relate, the greater the range of items that would qualify for disclosure, and the less specific are the disclosures that could be made about particular assets or liabilities. A period longer than the next financial year might obscure the most relevant information with other disclosures.’ [IAS 1.BC84]. Careful judgement will be required to provide useful and compliant information without reducing the understandability of the financial statement by obscuring material information with immaterial information.

5.2.2 Changes in accounting estimates

IAS 8 requires disclosure of the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods, except for the disclosure of the effect on future periods when it is impracticable to estimate that effect. [IAS 8.39]. If the amount of the effect in future periods is not disclosed because estimating it is impracticable, that fact should be disclosed. [IAS 8.40].

5.4.1 General capital disclosures

The IASB believes that the level of an entity's capital and how it manages it are important factors for users to consider in assessing the risk profile of an entity and its ability to withstand unexpected adverse events. Furthermore, the level of capital might also affect the entity's ability to pay dividends. [IAS 1.BC86]. For these reasons, IAS 1 requires disclosure of information that enables users of financial statements to evaluate an entity's objectives, policies and processes for managing capital. [IAS 1.134].

To achieve this, IAS 1 requires disclosure of the following, which should be based on the information provided internally to the entity's key management personnel: [IAS 1.135]

1. qualitative information about its objectives, policies and processes for managing capital, including:
   1. a description of what it manages as capital;
   2. when an entity is subject to externally imposed capital requirements, the nature of those requirements and how those requirements are incorporated into the management of capital; and
   3. how it is meeting its objectives for managing capital;
2. summary quantitative data about what it manages as capital;

   Some entities regard some financial liabilities (for example, some forms of subordinated debt) as part of capital. Other entities regard capital as excluding some components of equity (for example, components arising from cash flow hedges);

3. any changes in (a) and (b) from the previous period;
4. whether during the period it complied with any externally imposed capital requirements to which it is subject; and
5. when the entity has not complied with such externally imposed capital requirements, the consequences of such non-compliance.

IAS 1 observes that capital may be managed in a number of ways and be subject to a number of different capital requirements. For example, a conglomerate may include entities that undertake insurance activities and banking activities, and those entities may also 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 entity's capital resources, the standard requires disclosure of separate information for each capital requirement to which the entity is subject. [IAS 1.136].

Examples 3.12 and 3.13 below are based on the illustrative examples of capital disclosures contained in the implementation guidance accompanying IAS 1. [IAS 1.IG10‑11].

5.4.2 Puttable financial instruments classified as equity

IAS 32 allows certain liabilities called ‘puttable financial instruments’ to be classified as equity. Puttable financial instrument is a term defined and discussed at length in IAS 32 (see Chapter 47 at 4.6). The IASB observes that ‘Financial instruments classified as equity usually do not include any obligation for the entity to deliver a financial asset to another party. Therefore, the Board concluded that additional disclosures are needed in these circumstances.’ [IAS 1.BC100B].

The required disclosure for puttable financial instruments classified as equity instruments is as follows:

1. summary quantitative data about the amount classified as equity;
2. its objectives, policies and processes for managing its obligation to repurchase or redeem the instruments when required to do so by the instrument holders, including any changes from the previous period;
3. the expected cash outflow on redemption or repurchase of that class of financial instruments; and
4. information about how the expected cash outflow on redemption or repurchase was determined. [IAS 1.136A].

6.1.1 Management commentary

In November 2017, the Board added a project to its agenda to revise and update IFRS Practice Statement 1 – Management Commentary – issued in 2010 (see 2.3 above). In undertaking the project, the Board will consider how broader financial reporting could complement and support IFRS financial statements. To support the Board's work on updating the Practice Statement, the Board established the Management Commentary Consultative Group.

The Board expects to publish an Exposure Draft in the first half of 2020.⁵

6.1.2 Primary financial statements

The IASB is developing what it describes as ‘improvements to the structure and content of the primary financial statements, with a focus on the statement(s) of financial performance’.

At the time of writing the website of the IASB states that: ‘The staff is preparing an exposure draft for balloting. The Board plans to publish an exposure draft at the end of 2019.’⁶

6.2.1 Distinction between a change in an accounting policy and a change in an accounting estimate

The IASB is considering amending IAS 8 to clarify the existing distinction between a change in accounting policy and a change in accounting estimate.

The Exposure Draft Accounting Policies and Accounting Estimates was published in September 2017. At the time of writing the IASB last discussed this project in an educational session held in April 2019 where it considered the preliminary views of its staff on the responses to the Exposure Draft. The Board's website indicates that the next milestone is to ‘decide project direction’ which is intended to happen in by the end of 2019.

6.2.2 Accounting policy changes (amendments to IAS 8)

The IASB has tentatively decided to amend IAS 8 to lower the ‘impracticability’ threshold regarding retrospective application of voluntary changes in accounting policies that result from agenda decisions taken by the Interpretations Committee. The proposed threshold would include a consideration of the benefits and costs of applying the change retrospectively. The Board published an exposure draft in March of 2018 and considered the feedback to it at its meeting in December 2018.⁷ At that meeting the board tentatively decided not to amend IAS 8 to specify when entities should apply accounting policy changes resulting from agenda decisions published by the Interpretations Committee. Other aspects of the project will be discussed in future meetings.

6.2.3 Proposed clarifications to the classification of liabilities

In February 2015 the IASB published Exposure Draft ED/2015/1 Classification of Liabilities. The aim of the proposal is to clarify the criteria for the classification of a liability as current or non-current. To do this, the exposure draft:

• clarifies that the rights which are relevant to the determination are those in existence at the end of the reporting period; and
• proposes limited word changes to make the terminology used in the guidance consistent throughout.

The proposals also contain a clarification of the link between the settlement of a liability and the outflow of resources.

The comment period expired in June 2015. At the time of writing, the website of the IASB indicates that the Board ‘is now considering comments received on its proposals and aims to finalise the amendments in 2019’.

6.2.4 Disclosure initiative – accounting policies

In July 2018, the Board added a project to its agenda to develop guidance and examples to help entities apply materiality judgements to accounting policy disclosure.

The Board is developing amendments to IAS 1 to require entities to disclose their material accounting policies rather than their significant accounting policies (see 5.1.1 above). To support this amendment the Board is also developing guidance and examples to explain and demonstrate the application of the ‘four-step materiality process’ described in Practice Statement 2 (discussed at 4.1.7 above) to accounting policy disclosures. An Exposure Draft of proposed amendments was published on 1 August 2019.⁸ Comments are requested by 29 November 2019.

6.2.5 Disclosure Initiative – Targeted Standards-level Review of Disclosures

On 21 March 2018, the Board added a project to its agenda to perform a targeted standards-level review of disclosure requirements.

The Board is:

• developing guidance for it to use when developing and drafting disclosure requirements; and
• testing that guidance by applying it to the disclosure requirements in IAS 19 and IFRS 13 (discussed respectively in Chapters 35 and 14).

At the time of writing, the website of the IASB states ‘the Board will continue its discussions throughout 2019 with a view to publishing an Exposure Draft of amendments to the disclosure sections of IAS 19 and IFRS 13.’