Finacial Statements Essay

4061 words - 16 pages

CHAPTER TWOPRESENTATION OF FINANCIAL STATEMENTS AND ACCOUNTING POLICIESLearning Outcomes:Understand about the first time adoption of SLFRSExplain the purpose and composition of corporate financial statements;Describe selection, application and changes in accounting policies of companies; andAssess implications of accounting policy choices made by companies.2.1 IntroductionLKAS-1 sets out overall requirements for the presentation of general purpose financial statements, prescribes guidelines for their structure, and lays out the minimum requirements for their content and disclosure.2.2 Objectives of Financial StatementsThe objective of financial statements is to provide useful information about the financial position financial performance and cash flows of an entity that is useful in making economic decisions. The objectives of LKAS-1 are to ensure comparability of presentation of that information with the entity's financial statements of previous periods and with the financial statements of other entities. Financial statements are 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. An entity prepares its financial statements, except for cash flow information, under theaccrual basis of accounting.Traditionally, a complete set of financial statements consist of a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, and explanatory notes (including accounting policies). However, with the recent amendment to LKAS-1 some of the titles of the components of the financial statements have been changed. For instance, a balance sheet may now be referred to as a statement of financial position. Furthermore, the revised LKAS- 1 has also introduced a new statement, the statement of comprehensive income.2.3 Complete Set of Financial StatementsThe components of a complete set of financial statements areA statement of financial position at the end of the period;A statement of comprehensive income for the period (presented as either a single statement or an income statement with a statement of recognized gains and losses);A statement of changes in equity for the period;A statement of cash flows for the period;Notes, including a summary of significant accounting policies and other explanatory information; andA statement of financial position at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements.2.4 General Requirements of LKAS-1Financial statements shall present fairly the financial position, financial performance, and cash flows of an entity.An entity whose financial statements comply with SLFRS shall make an explicit and unreserved statement of such compliance in the notes.An entity cannot rectify inappropriate accounting policies either by disclosure of the accounting policies used or by...

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