Framework for Preparation and Presentation of Financial Statements
Ind AS 1 is a basic standard, which prescribes the overall requirements for the presentation of financial statements and guidelines for their structure, i.e., components of financial statements, viz., balance sheet, statement of profit and loss (including other comprehensive income), statement of cash flows and notes comprising significant accounting policies, etc. Further, the standard prescribes the minimum disclosures that are to be made in the financial statements and explains the general features of the financial statements. The presentation requirements prescribed in the standard are supplemented by the recognition, measurement and disclosure requirements set out in other Ind AS for specific transactions and other events
OBJECTIVE
This standard prescribes the basis for presentation of general purpose financial statements to ensure comparability
a) with the entity’s financial statements of previous periods and
b) with the financial statements of other entities.
It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.
SCOPE
· This standard applies to all types of entities includingthose that present
(a) consolidated financial statements in accordance with Ind AS 110 ‘Consolidated Financial Statements’; and
(b) separate financial statements in accordance with Ind AS 27 ‘Separate Financial Statements’.
· This standard does not apply to structure and content of condensed interim financial statements prepared in accordance with Ind AS 34 except for para 15 to 35 of Ind AS 1.
· This Standard uses terminology that is suitable for profit-oriented entities, including public sector business entities.
· If entities with not for-profit activities in the private sector or the public sector apply this Standard, they may need to amend the descriptions used for particular line items in the financial statements and for the financial statements themselves.
· Similarly, entities that do not have equity as defined in IAS 32 Financial Instruments: Presentation (eg. some mutual funds) and entities whose share capital is not equity (eg. some co‑operative entities) may need to adapt the financial statement presentation of members’ or unitholders’ interests.
PURPOSE OF FINANCIAL STATEMENTS
The objective of general purpose financial statements is to provide information about the financial position, financial performance, and cash flows of an entity that is useful to a wide range of users in making economic decisions. To meet the objective, financial statements provide information about an entity’s:
· assets;
· liabilities;
· equity;
· income and expenses, including gains and losses;
· contributions by and distributions to owners in their capacity as owners; and
· cash flows.
Information, along with other information in the notes, assists users of financial statements in predicting the entity’s future cash flows and, in particular, their timing and certainty.
COMPLETE SET OF FINANCIAL
STATEMENTS
A complete set of financial statements comprises:
· a balance sheet as at the end of the period;
· a statementof profit and loss for the period;
· statement of changes in equity for the period;
· a statement of cash flows for the period;
· notes, comprising significant accounting policies and other explanatory information;
· comparative information in respect of the preceding period;
· a balance sheet as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatements of items in its financial statements, or when it reclassifies items in its financial statements.
An entity shall present a single statement of profit and loss, with profit or loss and other comprehensive income presented in two sections. The sections shall be presented together, with the profit or loss section presented first followed directly by the other comprehensive income section.
Many entities present reports and statements such as financial reviews by management, environmental reports, and value added statements that are outside the financial statements. Such reports and statements that are outside the financial statements are outside the scope of Ind AS.
Presentation of True and Fair View and compliance with Ind AS
Financial statements shall present a true and fair view of the financial position, financial performance and cash flows of an entity. Presentation of true and fair view requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework. The application of Ind AS, with additional disclosure when necessary, is presumed to result in financial statements that present a true and fair view.
An explicit and unreserved statement
An entity whose financial statements comply with Ind AS shall make an explicit and unreserved statement of such compliance in the notes.
An entity shall not describe financial statements as complying with Ind AS unless they comply with all the requirements of Ind AS. In virtually all circumstances, presentation of a true and fair view is achieved by compliance with applicable Ind AS. Presentation of a true and fair view also requires an entity:
(a) to select and apply accounting policies in accordance with Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Ind AS 8 sets out a hierarchy of authoritative guidance that management considers in the absence of an Ind AS that specifically applies to an item.
(b) to present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information.
(c) to provide additional disclosures when compliance with the specific requirements in Ind AS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.
Inappropriate Accounting Policies
An entity cannot rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory material.
Departure from the Requirements of an Ind AS — Whether Permissible?
In the extremely rare circumstances in which management concludes that compliance with a requirement in an Ind AS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, the entity shall depart from that requirement if the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.
When an entity departs from a requirement of an Ind AS, it shall disclose:
(a) that management has concluded that the financial statements present a true and fair view of the entity’s financial position, financial performance and cash flows;
(b) that it has complied with applicable Ind AS, except that it has departed from a particular requirement to present a true and fair view;
(c) the title of the Ind AS from which the entity has departed, the nature of the departure, including the treatment that the Ind AS would require, the reason why that treatment would be so misleading in the circumstances that it would conflict with the objective of financial statements set out in the Framework, and the treatment adopted; and
(d) for each period presented, the financial effect of the departure on each item in the financial statementsthat would have been reported in complying with the requirement.
When an entity has departed from a requirement of an Ind AS in a prior period, and that departure affects the amounts recognised in the financial statements for the current period, it shall make the disclosures given above. Paragraph 21 applies, for example, when an entity departed in a prior period from a requirement in an Ind AS for the measurement of assets or liabilities and that departure affects the measurement of changes in assets and liabilities recognised in the current period’s financial statements.
In the extremely rare circumstances in which management concludes that compliance with a requirement in an Ind AS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, but the relevant regulatory framework prohibits departure from the requirement, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing:
(a) the title of the Ind AS in question, the nature of the requirement, and the reason why management has concluded that complying with that requirement is so misleading in the circumstances that it conflicts with the objective of financial statements set out in the Framework; and
(b) for each period presented, the adjustments to each item in the financial statements that management has concluded would be necessary to present a true and fair view.
Illustration 1
| An entity prepares its financial statements that contain an explicit and unreserved statement of compliance with Ind AS. However, the auditor’s report on those financial statements contains a qualification because of disagreement on application of one Accounting Standard. In such case, is it acceptable for the entity to make an explicit |
Solution
Yes, it is possible for an entity to make an unreserved and explicit statement of compliance with Ind AS, even though the auditor’s report contains a qualification because of disagreement on application of Accounting Standard(s), as the preparation of financial statements is the responsibility of the entity’s management and not the auditors. In case the management has a bonafide reason to believe that it has complied with all Ind AS, it can make an explicit and unreserved statement of compliance with Ind AS.
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