Chapter 4: Structure and content

Some required disclosures are made on the face of the primary statements; other required disclosures can be made in the notes or on the face of the financial statements unless another standard specifies otherwise.

Identification of Financial Statements

Financial statements should be identified and distinguished from other information in the same published document. Users of financial statements need to understand the information that is presented by IFRS, and other information that is supplementary to those financial statements.

IFRS-compliant financial statements should be distinguished from other information that might or might not comply with IFRS. The use of alternative measures of performance, often referred to as ‘non-GAAP measures’, has been of concern to regulators.

Entities should exercise care, when presenting alternative performance measures in their published documents, to ensure that they are distinguished from the measures that are defined or specified in IFRS.

Information required to describe financial statements

An entity should identify each financial statement and the notes. An entity should display the following information prominently, and repeat it when necessary for the information presented to be understandable:

1. the entity’s name or other means of identification, and any change in it since the previous period end;
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 financial statements or notes;
4. the presentation currency, as defined in IAS 21; and
5. the level of rounding used.

The above requirements are usually met by presenting appropriate headings for items, such as pages, statements, and columns; but, where financial statements are presented electronically, a different approach might be required.

Amounts may be rounded to enhance understandability

Financial statements may be made more understandable by presenting information in thousands or millions of units of the presentation currency. This is acceptable as long as the level of rounding is disclosed and material information is not omitted.

Different levels of rounding are appropriate for different disclosures in financial statements

Different levels of rounding may be appropriate for different disclosures in financial statements.

For example, while it may be appropriate to disclose line items in the statements of financial position and comprehensive income in millions of units of the presentation currency for a very large group, a greater level of detail is likely to be necessary for disclosure of management remuneration and some other related party transactions.

In all cases, the level of rounding should be disclosed and care should be exercised to ensure that no material disclosures are omitted.

Entities can make their financial statements clearer by presenting the information in thousands or millions of presentation currency. This is permitted, provided that the level of rounding is stated and material information is not omitted.

Statement of financial position (balance sheet)

The face of the balance sheet:

Most entities preparing IFRS financial statements are required to present the face of the balance sheet, differentiating between current and non-current assets and between current and non-current liabilities. The order or format in which such items are presented is not prescribed.

Entities can present a total for net assets and show this as equal to the total of capital and reserves and non-controlling interest. Many entities show assets equal, in total, to liabilities plus capital and reserves.

The line items set out above, form the minimum content for the face of the balance sheet.

Entities should insert additional line items, where required to do so by IFRS or where the size, nature, or function of an item or aggregation of similar items is such that a separate presentation is relevant to an understanding of an entity’s financial position.

The descriptions of the line items, and the order in which they are shown, can be adapted according to the entity’s nature and its transactions.

Financial institutions, for example, would amend the descriptions of line items to provide information that is relevant to the operations of financial institutions.

Management should consider the following factors to determine the most appropriate form of presentation and whether additional line items are shown separately:

• The nature and liquidity of the assets. For example, because of the difference in their nature, goodwill and other intangible assets would normally be presented separately on the face of the balance sheet.
• The function of the assets.
• The nature, timing, and amounts of liabilities.

In most cases, this will lead, for example, to the separate presentation of interest-bearing and non-interest-bearing liabilities.

Any sub-totals that the entity presents should:

1. be comprised of line items made up of amounts recognized and measured under IFRS;
2. be presented and labeled in a manner that makes the line items that constitute the sub-total clear and understandable;
3. be consistent from period to period; and
4. not be displayed with more prominence than the sub-totals and totals required by IFRS.

An entity should also evaluate any additional line items or subtotals to determine if they are alternative performance measures and whether its regulators impose any restrictions or additional requirements on reporting such items.

The use of different measurement bases for assets or liabilities suggests a difference in their nature or function. Items that are different or function should be presented as separate line items.

For example, some classes of property, plant, and equipment might be carried at cost while others are carried at revalued amounts.

Current/non-current classification

An entity presents current and non-current assets, and current and non-current liabilities, as separate classifications on the face of the balance sheet, unless a presentation based on liquidity provides information that is reliable and is more relevant.

All assets and liabilities should be presented broadly in order of liquidity when the presentation is driven by liquidity.

For some entities, such as financial institutions, a ‘liquidity-based balance sheet’ will be more relevant. This is because the entity does not supply goods or services within an identifiable operating cycle.

A separate classification of current and non-current assets and liabilities is useful where an entity supplies goods or services within an identifiable operating cycle. It distinguishes the net assets that are continuously circulating as working capital from those used in the entity’s long-term operations.

An operating cycle is a time between the acquisition of assets for processing and their realization in cash or cash equivalents. Where the normal operating cycle cannot be identified, it is assumed to have a duration of 12 months. Whether an entity presents a current/non-current classified balance sheet is largely dependent on the industry in which it operates.

Selection of balance sheet classification Entities need to determine whether the most relevant presentation is a current/non-current classified balance sheet or a liquidity presentation. Most industrial and retail entities would present a current/non-current classified balance sheet, because significant amounts of their assets and liabilities would be realised or settled within a relatively short period. Property developers might be less likely to use a current/non-current classified balance sheet (as their assets and liabilities might be realised or settled over a long period, sometimes over several years), unless a clearly identifiable operating cycle exists. It is common practice to consider a normal operating cycle to be a year but the period of one year after the end of the reporting period is not an inflexible cut-off point for determining the current/non-current status of assets and liabilities. An asset recoverable within the normal operating cycle of more than one year is still a current asset; a liability to be settled within the normal operating cycle of more than one year is a current liability. A liquidity presentation might be more appropriate where the operating assets and liabilities are recovered or settled over very long periods. For example, while a property development entity might have a clearly identifiable operating cycle, in some cases it might not be sensible to present development properties (held as inventory) and debtors as current assets if the development properties are only likely to be realised several years after the end of the reporting period. A current/non-current classified balance sheet might not be the most useful form of presentation even where assets and liabilities are readily realisable or capable of immediate settlement, for example, investment companies typically have such assets and liabilities, but the timing of their realisation or settlement is dependent not just on their liquidity, but also on investment managers’ judgements on, for example, expected movements in market prices. The distinction between current and non-current items is not particularly meaningful in such cases.

Information to be disclosed about the expected realization dates of assets and liabilities

An entity is required to make additional disclosures in respect of each asset and liability line item that combines amounts expected to be recovered or settled within 12 months with those expected to be recovered or settled after more than 12 months. This applies to both liquidity and current/non-current classifications.

The entity discloses the amounts that are expected to be recovered or settled within 12 months of the reporting period and the amounts expected to be recovered or settled after more than 12 months.

IAS 1 uses the terms ‘current’ and ‘non-current’ but permits the use of alternative descriptions, provided that the meaning is clear.

It might be appropriate for some entities to present some of their assets and liabilities using the current/non-current classification and other assets and liabilities in order of liquidity.

Although the standard states that this mixed basis of presentation might arise where an entity has diverse operations, no guidance is given on how this mixed presentation might be adopted.

Presentation of employee benefits

No requirement to distinguish between current and non-current portions of post-employment benefits

When an entity uses a current/non-current distinction to present the statement of financial position (i.e., rather than a liquidity presentation), it is not required to analyze assets and liabilities arising from post-employment benefits accounted for under IAS 19 between current and non-current, either in the statement of financial position or in the notes.

IAS 19 states that the Standard does not specify whether an entity should distinguish current and non-current portions of assets and liabilities arising from post-employment benefits.

IAS 19 states that the International Accounting Standards Committee (predecessor to the International Accounting Standards Board) decided not to specify whether an entity should distinguish between the current and non-current portions of such assets and liabilities because such a distinction may sometimes be arbitrary.

Although IAS 1 has not been modified to reflect this exemption, the more specific references of IAS 19 apply.

Similarly, IAS 1 is not considered to require separate disclosure of the portions of the employment benefit assets and liabilities that are expected to be recovered or settled before and after 12 months from the end of the reporting period because the concepts of ‘recovery’ and ‘settlement’ for such assets and liabilities are unclear.

IAS 19 requires the disclosure of the employer’s best estimate of contributions expected to be paid to defined benefit plans during the annual period beginning after the reporting period, as soon as that information can reasonably be determined.

Requirement to distinguish between current and non-current portions of other employee benefits

The exemption in IAS 19 applies only to post-employment benefits. There is no exemption from the requirements in IAS 1 for short-term and other long-term employee benefit liabilities such as annual leave, long-term disability leave, and long-service leave. In respect of such benefits:

• to the extent that employees are entitled to take their annual/long-service leave in the next 12 months, whether they are expected to take it or not, the liability should be presented as a ‘current’ liability. The entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period;
• to the extent that employees are not entitled to take a portion of their annual/long-service leave during the next 12 months because, for example, additional years of service must first be rendered (i.e., the leave has not yet vested), and the employer is not expected to allow such leave to be taken early, that portion should be presented as a ‘non-current’ liability; and
• employees do not have an unconditional right to long-term disability benefits. Those rights arise when employees fall ill. IAS 19 requires the measurement for long-term disability benefits to reflect the probability of payment/right arising. Consistent with this is a split between ‘current’ and ‘non-current’ based on the expected payment profile at the end of the reporting period.

Classification of employee benefits – relationship to current/non-current distinction

The definitions of short-term and ‘other long-term’ employee benefits set out in IAS 19 are as follows (emphasis added).

• Short-term employee benefits are “employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service”.
• Other long-term employee benefits are “all employee benefits other than short-term employee benefits, post-employment benefits, and termination benefits”.

Therefore, the focus in IAS 19 is on the timing of the expected settlement, rather than on when the benefits are due to be settled. Classification on this basis is different from the basis for presentation as current and non-current under IAS 1.

This difference will not have any effect when a benefit cannot be carried forward beyond 12 months from the end of the annual period in which it is earned (both the ‘expected’ and the ‘due’ settlement dates are within 12 months).

It will have an effect when employees are entitled to carry forward a benefit beyond 12 months from the end of the annual period in which it is earned (e.g., in some cases, unused holiday entitlement) and some employees are expected to do so, but the employees are also entitled to immediate settlement (e.g., if they were to leave the entity’s employment).

Under IAS 19, such a benefit is classified as another long-term employee benefit even though, under IAS 1, it is presented entirely as a current liability.

Presentation of deferred tax assets and liabilities

When current and non-current assets and current and non-current liabilities are presented as separate classifications in the statement of financial position, deferred tax should not be classified as a current asset or a current liability.

Disclosure required for deferred tax under IAS 1

Given that IAS 1 does not require deferred tax assets or liabilities to be analyzed as current, it follows that an entity is not required to disclose under IAS 1 the number of deferred tax assets (liabilities) that are expected to be recovered (settled) within 12 months after the reporting period. Such a disclosure requirement would negate the relief provided in IAS 1(although such information may be presented if the entity wishes to do so).

Presentation of contract assets and contract liabilities recognized under IFRS 15 as current or non-current

Contract assets and contract liabilities arising from contracts with customers. Often such contract assets and liabilities will be presented as current in the statement of financial position because they will be realised or settled in the entity’s normal operating cycle.

In other cases, it may be determined that a contract with a customer extends beyond the entity’s normal operating cycle. In such cases, contract assets and contract liabilities should be analyzed between current and non-current elements, by applying the guidance in IAS 1.

Presentation of the asset arising from incremental costs to obtain a contract or costs to fulfill a contract

IFRS 15 requires entities to capitalize certain incremental costs of obtaining a contract with a customer, subject to a practical expedient permitting such costs to be expensed if they would otherwise have been amortized over one year or less.

IFRS 15 requires entities to capitalize certain costs incurred to fulfill a contract.

Assets recognized in respect of such capitalized costs are classified as current or non-current by the guidance in IAS 1. It is acceptable to analyze such assets between a current element and a non-current element in the statement of financial position.

Alternatively, similar to intangible assets and property, plant and equipment, incremental costs to obtain a contract or costs to fulfill a contract that has been capitalized under IFRS 5, respectively, may be treated as a single unit of account classified entirely as either a current or non-current asset based on the guidance in IAS 1.