 Hello and welcome to this session. This is Professor Farhad and this session we're going to be looking at the presentation of financial statements, which is the IFRS 1. This topic is covered in an international accounting course as well as the CPA exam. As always, I would like to remind my viewers to connect with me on a professional level the yelling then if you don't have a LinkedIn account. I strongly suggest you create one. It's very important for your professional image and networking capability. If you haven't subscribed to my YouTube, please do so. I have over 1500 lectures, accounting, auditing and taxation. Also, please like my lectures if you like them, share them, put them in the playlist, let the world know about them. If you benefit from my YouTube, there are other people out there who might benefit as well. Please share the wealth. This is my Instagram account. I'm trying to grow my Instagram account. This is my Facebook handle and I do have a website and some premium material on Gumroad. So let's talk about the presentation of financial statements or IFRS 1. In September of 2007, the IASB published revised IAS 1. So hold on a second. Am I talking about IAS 1 or IFRS 1? Well, every time you hear the word IFRS, it means this is coming from the IASB, the International Accounting Standard Board. Every time you hear the term IAS, it's International Accounting Standard Committee. Now remember, the IASB replaced the IASC. Therefore, when something is revised and they either revise it or they accept IAS, it becomes IFRS. So if I say IFRS 1 or IAS 1, it really means the same thing. But the proper terminology now, the current term is IFRS 1. So this IFRS 1 provides guidance in the following area. First, it tells you what's the purpose of the financial statement. And simply, what is the purpose of the financial statements is to provide information for decision makers. Who are the decision makers, creditors, investors, suppliers, government entities, anyone who's interested in your information? It talks about the components of financial statements. It talks about the overriding principle of fair presentation. What's considered fair presentation? Accounting policies, basic principles and assumptions, as well as structure and content of financial statements. So as always, when I have a list, I'm going to go over each component of this list. The first component is pretty straightforward. What's the purpose of the financial statements to provide information for decision making? The second component is the component of financial statements. What is considered a complete set of financial statements? Well, think about it. When you think of financial statements, what do you have to have? Well, we have to have a balance sheet. We have to have an income statement, statement of cash flow, statements of changes in equity. And remember, we need the notes because the notes, they will explain what's in the financial statement, explain the numerical figures. Also in the notes, we have a summary of significant accounting policies and other assumptions, any judgment we use to prepare the financial statements. So this is considered a complete set of financial statements. So you cannot skip any of these components or they might have some components, for example, comprehensive income. Just want to make sure you are aware. So this is what's considered a complete set of financial statement. What are the overriding principle of fair presentation? Well, in other words, when should the financial statements be considered fairly presented? Well, financial statements shall present fairly with the financial position, which is the balance sheet, financial performance, which is income statement and cash flow of an entity. Fair presentation requires faithful representation. What does it mean, faithful representation? It means truthful. It's actually what happened. It shows the effect of the event and the condition in accordance with the definition and recognition criteria for assets and liabilities. And income and expenses set out in the framework. Now, we have not covered the framework. We're going to be covering the framework in the next session where we define assets. How is assets defined? How is liabilities defined? But what we're trying to say here is without knowing what the framework is, the presentation of the numbers should be in compliance with the framework. If this is the definition of an asset, what we're looking for is an actual asset, not something else. It represents the actual event. If this is a revenue transaction, it's actually a revenue according to the framework. But generally speaking, as long as we are in compliance with IFRS, that's considered fair presentation. So simply put, what's considered fair presentation? Be in compliance with the IFRS, which is also you have to be in compliance with the framework as well. Now, an extreme situation in rare circumstances when management conclude that compliance with the requirement or standard might be misleading. That is, it would conflict with the objective of financial statement set out in the framework, which is to provide information. You can depart from the requirement, but you have to have extensive disclosure. So let's assume you are treating a transaction a little bit different than what the IFRS is asking you to do. If you happen to do so, and there must be a really, really good reason to deviate from the framework, to deviate from the IFRS. If that's the case, you have to give disclosure. Also, if the local regulatory framework, if there's a local regulatory framework, for example, in the US, we do have our own framework, will not allow departing from a requirement. If that's the case, disclosure must be made to reduce the misleading aspect with the compliance with the requirement. So simply put, if for any reason you have a local rule that's not allowing you to comply with IFRS, you want to depart from the requirements, that's fine, as long as you disclose. Again, there must be a good reason. Not because you chose to, it must be a good reason why you are not complying with IFRS. Accounting policies, what are the accounting policies? Remember who selects accounting policies management. So management should select and apply. Management should select and apply. Accounting policies, again, in compliance with the IAS standard and all applicable interpretation. So what does that mean? It means when you select a policy, make sure it's in compliance with the IASV standard and interpretation. Now let's assume a guidance is lacking on a specific issue. So what should you do? Well, you should look for guidance and other IASV standard dealing with similar issues. So maybe you should contact the advisory board of the IFRS. Just to ask them, you know, this is a new issue. I'm not really sure how to comply with this issue. Do you have any additional guidance? You can contact the IFRS interpretation committee and ask them, you know, how should I deal with this because there is no really clear guidance. So as long as you refer to the IFRS, you should be in good shape. Also you could look at the definition, recognition and measurement criteria in the framework for the assets, liabilities, income and expense. So the item that you are dealing with, it could be an asset, a liability, an income or an expense. Look at the framework. And how would you interpret the framework? IASV framework. Now you might be saying, you keep mentioning this framework. What is this framework? You're going to see it in the next session. It basically sets out the basic definitions of the financial statements, elements, the qualitative characteristic of financial information, which we'll see this next. So you could look at the framework. Your third option is pronouncement of other standard-setting bodies and accepted industry practices to the extent, but only to the extent that they don't conflict with A and B. So A is the IASV standard. B is the framework. So you could look at maybe your local standard, but as long as they don't conflict with the IASV standard or the framework. Now bear in mind, this is not a hierarchy, but usually this is how it should be. IASV first. And within IASV, you could say IASC because they go together. Then if that's the case, if you cannot find your answer, you could look at the framework. Then you could look at maybe interpretation, the interpretation committee. Then you could look at the other standard-setting bodies and accepted industry practices. Please note that individual country gap may be used also to fill in the blanks as long as they consist with the IASV standard and the framework. So if I'm in the U.S., well, I can use U.S. gap as long as U.S. gap don't conflict with the IASV and the framework. The next thing we're going to look at, basic principles and assumptions. Basically, what accounting principle do we use? Well, hopefully we know this. We're going to be using a cruel basis of accounting, not cash basis. What is a cruel basis? A cruel basis means you recognize revenue when you actually earn it, that when you receive the cash and you recognize expense when it is incurred, not when you pay it. So you're not using the cash basis. Also, we have the going concern assumption. What's the going concern assumption? The going concern assumption means that we assume that companies will exist forever. And that's why we have, we look at a long-term perspective for the company. That's why we depreciate asset. That's why we amortize premium. That's why we amortize discount because we assume the company is a going concern. We assume the company is going to be there. Also, we have to be consistent, consistency. We're going to look at these concepts a little bit more in the framework. Consistency means we have to use the same information and we have to provide comparative information principles found in the framework. Basically, consistency and comparability goes hand in hand. If you are consistent in applying the same principle, then your financial statements are most likely comparable. Why? Because you are using the same concept. You are comparing apples to apples from year to year. Also, another assumption, immaterial items should be aggregated. If we have immaterial items, we can add them all together. Assets and liabilities, income and expenses should not be offset and reported in air amounts. There is no such thing as offsetting. We don't offset them. What's going to happen? We're going to list them unless it's specifically permitted by the standard, which is, it's a rarity. So simply put, no offsetting is allowed. No offsetting is allowed. The structure and content of the financial statements, the IAS one provide guidance with respect to current, noncurrent distinction. So basically you have to have current liabilities, noncurrent liabilities, current assets, noncurrent assets, except when the presentation based on liquidity information. What does it mean when the presentation is based on liquidity information? It means the company is going out of business and we are liquidating. Therefore, this classification does not make any sense. But on a day-to-day business, we have to report the current assets, current liabilities, long-term assets, noncurrent assets and noncurrent liabilities. It also tells us what items need to be presented on the face of the financial statements. And we'll learn about these items as we go throughout the course. What needs to be on the face, exactly on the presented on the face of the financial statements. What are the minimum requirement disclosure? What are the minimum requirement disclosure that we have to put in the financial statements? On the income statement, profit before tax must reflect either the nature of expense format, which is the one that's used in Europe or a function of expense format, the one that's mostly used in Anglo countries. So either way, either method is good the way we present profit before taxes. Also, IAS 1, exclude something called extraordinary items. Simply put, I know in the US, we used to have extraordinary item as an item on the income statement. IFRS don't use extraordinary item. Simply put, we don't use it. It's executed. It's FYI, something you want to know about. So this is basically a brief overview of IFRS 1. Now, the next thing I'm going to look at is the IASB framework, which will kind of fill in the blanks. What is the framework every time they refer to this framework? And as we go along the course, this IFRS 1, because it's basically an overview of the financial statements, things will start to make sense. What is required to be disclosed? What's not required? What's minimally required to be disclosed? If you have any questions about this topic, please email me. If you happen to visit my website for additional lectures, please consider donating. If you're studying for your CPA exam, as always, study hard. It's worth it.