Section 2: Financial Statement Presentation (AASB1061_04-26)

This section explains fair presentation of financial statements, what compliance with this Standard requires and what a complete set of financial statements is.

Financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition (recording) criteria for assets, liabilities, income and expenses set out in the Conceptual Framework for Financial Reporting (as identified in AASB 1048 Interpretation of Standards) (Conceptual Framework). The application of the recording, measurement, presentation and disclosure requirements in this Standard, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation of the financial position, financial performance and cash flows of Tier 3 entities. The additional disclosures referred to above are necessary when compliance with the specific requirements in this Standard is insufficient to enable users of the financial statements to understand the effects of particular transactions, other events and conditions on the entity’s financial position, financial performance and cash flows.

An entity whose financial statements comply with the recording, measurement, presentation and disclosure requirements in this Standard shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with this Standard unless they comply with all these requirements.

An entity shall disclose in the notes: 

(a) the statutory basis or other reporting framework, if any, under which the financial statements are prepared; and 

(b) that it is a not-for-profit entity.

Even if an entity’s management considers that compliance with a requirement in this Standard would be misleading, entities applying this Standard shall not depart from any of its requirements. In the extremely rare circumstances in which management concludes that compliance with a requirement in this Standard would be so misleading that it would conflict with the objective of financial statements set out in the Conceptual Framework, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing: 

(a) the nature of the requirement in this Standard 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 Conceptual Framework; and 

(b) for each period presented, the adjustments to each item in the financial statements that management has concluded would be necessary to achieve a fair presentation.

When preparing financial statements, an entity’s management shall assess the entity’s ability and willingness to continue as a going concern. An entity is a going concern unless management either intends to liquidate the entity or to cease its operations, or has no realistic alternative to doing so. In assessing whether the going concern assumption is appropriate, management takes into account all information available about the future, looking forward at least twelve months from the end of the reporting period. 

When management is aware of material uncertainties about future events or conditions that might cast significant doubt upon the entity’s ability or willingness to continue as a going concern, the entity shall disclose those uncertainties. When an entity does not prepare financial statements on a going concern basis, it shall also disclose: 

(a) that fact, together with the reason(s) why it is not regarded as a going concern; and 

(b) the basis on which the financial statements were prepared.

The effect of a change in an entity’s ability to continue as a going concern on the amounts of the entity’s assets and liabilities at the end of the reporting period will depend upon the entity’s particular circumstances. For example, that effect will depend upon whether operations are to be transferred to another entity, sold in an orderly manner or liquidated in a rushed sale. Judgement is required in determining whether a change in the carrying amounts of assets and liabilities is required. It is also necessary to consider whether the change in circumstances leads to additional liabilities or triggers clauses in debt contracts that will lead to the reclassification of those debts as current liabilities.

An entity shall present a complete set of financial statements (including comparative information – see paragraph 2.12) at least annually. When the end of an entity’s reporting period changes and the annual financial statements are presented for a period longer or shorter than one year, the entity shall disclose the following: 

(a) that fact; 

(b) the reason for using a longer or shorter period; and 

(c) the fact that comparative amounts presented in the financial statements (including the related notes) are not entirely comparable.

An entity shall retain the presentation and classification of items in the financial statements from one period to the next unless: 

(a) 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 Section 9; or 

(b) this Standard requires a change in presentation or classification.

When the presentation or classification of items in the financial statements is changed, an entity shall reclassify comparative amounts unless the reclassification is impracticable.

Except when this Standard permits or requires otherwise, an entity shall disclose comparative information for the previous comparable period for all amounts presented in the current period’s financial statements. An entity shall include comparative information for narrative and descriptive information when it is relevant to an understanding of the current period’s financial statements.

An entity shall present separately each material class of similar items. An entity shall present separately items of a dissimilar nature or function unless they are immaterial.

When applying this Standard an entity shall decide, having regard to its circumstances, how it aggregates information in the financial statements, which include the notes. An entity shall not reduce the understandability of its financial statements by obscuring material information with immaterial information or by aggregating material items that have different natures or functions.

Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. Materiality depends on the nature or magnitude of information, or both. An entity assesses whether information, either individually or in combination with other information, is material in the context of its financial statements taken as a whole.

This Standard specifies information that is required to be included in the financial statements, which include the notes. An entity need not provide a specific disclosure if the information resulting from that disclosure is not material. This is the case even if this Standard contains a list of specific requirements or describes them as minimum requirements.

Users of financial statements should be given as much relevant information as possible about an entity’s transactions and balances. Therefore, unless required or permitted to do so by this Standard, an entity shall not offset (net off) assets and liabilities or income and expenses. 

The following practices do not involve offsetting: 

(a) measuring assets net of valuation adjustments such as obsolescence or impairment write-downs of items of inventory or property, plant and equipment; 

(b) netting amounts due from and payable to the same counterparty if the entity is legally entitled to settle the amounts on a net basis; 

(c) presenting a gain or loss on the sale of an item of property, plant and equipment or investment by deducting from the asset’s sale consideration the asset’s carrying amount and related selling expenses; and 

(d) presenting on a net basis gains and losses arising from transactions or other events of a similar nature (eg foreign exchange gains and losses).

A complete set of financial statements includes: 

(a) a statement of financial position as at the reporting date; 

(b) a statement (or statements) of financial performance for the reporting period, presented as either: 

(i) a single statement with profit or loss and other comprehensive income presented in two sections. If this option is chosen, the profit or loss section is presented first, followed directly by the other comprehensive income section; or 

(ii) a statement of profit or loss and a separate statement of comprehensive income. If this option is chosen, the statement of comprehensive income begins with profit or loss, followed by the items of other comprehensive income; 

(c) a statement of changes in equity for the reporting period; 

(d) a statement of cash flows for the reporting period; and 

(e) notes, comprising material accounting policy information and other explanatory information.

If the only changes to equity during the periods for which financial statements are presented arise from profit or loss, corrections of prior period errors and changes in accounting policy, the entity may present a single statement of income and retained earnings in place of the statement(s) of financial performance and statement of changes in equity (see paragraph 5.4).

If an entity has no items of other comprehensive income in any of the periods for which financial statements are presented, it may present only a statement of profit or loss or it may present a statement(s) of financial performance in which the ‘bottom line’ is labelled ‘profit or loss’.

Because paragraph 2.12 requires comparative amounts in respect of the previous period for all amounts presented in the financial statements, a complete set of financial statements means that an entity shall present, as a minimum, two of each of the required financial statements and related notes.

In a complete set of financial statements, an entity shall present each financial statement with equal prominence.

An entity may use titles for the financial statements other than those used in this Standard as long as they are not misleading. For example, an entity may use ‘statement of surplus or deficit’ instead of ‘statement of profit or loss’.

An entity shall clearly identify each of the financial statements and the notes and distinguish them from other information in the same document. In addition, an entity shall display the following information prominently and repeat it when necessary for an understanding of the information presented:

(a) the name of the reporting entity and any change in its name since the end of the preceding reporting period; 

(b) whether the financial statements cover the individual entity or a group of entities; 

(c) the reporting date and the period covered by the financial statements; 

(d) that the amounts in the financial statements are presented in Australian dollars; and 

(e) the level of rounding, if any, used in presenting amounts in the financial statements.

An entity shall disclose the following, if not disclosed elsewhere in information published with the financial statements: 

(a) the domicile and legal form of the entity, its country of incorporation and the address of its registered office (or principal place of operations, if different from the registered office); and 

(b) a description of the entity’s primary purpose or mission and the nature of the entity’s primary operations or activities.