HKAS 1 - Presentation of Financial Statements

HKAS 1 - Presentation of Financial Statements

OBJECTIVE AND SCOPE

Objective (Paragraph 1)

HKAS 1 prescribes the basis for presentation of general purpose financial statements to ensure comparability both with:

The entity's financial statements of previous periods

The financial statements of other entities

The Standard sets out:

Overall requirements for the presentation of financial statements

Guidelines for their structure

Minimum requirements for their content

Scope (Paragraphs 2-6)

Applicability:

All entities preparing general purpose financial statements in accordance with HKFRSs

Includes entities presenting consolidated financial statements (HKFRS 10) and separate financial statements (HKAS 27)

Does NOT apply to condensed interim financial statements (HKAS 34), though paragraphs 15-35 apply to such statements

Terminology:

Uses terminology suitable for profit-oriented entities

Not-for-profit entities may need to amend descriptions

Entities without equity (e.g., mutual funds) may need to adapt presentation

DEFINITIONS (Paragraphs 7-8A)

Key Terms Defined:

Term	Definition
General purpose financial statements	Those intended to meet needs of users who cannot require entity-specific reports
Impracticable	Cannot apply a requirement after making every reasonable effort
Material	Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions of primary users
Notes	Information additional to that presented in the primary statements
Other comprehensive income (OCI)	Items of income and expense not recognised in profit or loss as required/permitted by other HKFRSs
Owners	Holders of instruments classified as equity
Profit or loss	Total income less expenses, excluding OCI components
Reclassification adjustments	Amounts reclassified to profit or loss in current period that were recognised in OCI in current or prior periods
Total comprehensive income	Change in equity during a period from transactions and other events, excluding owner changes

Components of Other Comprehensive Income (Paragraph 7):

OCI includes:

Changes in revaluation surplus (HKAS 16, HKAS 38)

Remeasurements of defined benefit plans (HKAS 19)

Foreign currency translation gains/losses (HKAS 21)

Gains/losses on equity instruments designated at FVOCI (HKFRS 9)

Gains/losses on debt instruments measured at FVOCI (HKFRS 9)

Effective portion of cash flow hedges (HKFRS 9)

Changes in fair value attributable to credit risk for liabilities designated at FVTPL (HKFRS 9)

Changes in time value of options (when separating intrinsic value)

Changes in forward elements of forward contracts

Insurance finance income/expenses (HKFRS 17)

Materiality Definition (Paragraph 7):

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.

Examples of obscuring information:

Vague or unclear language

Information scattered throughout financial statements

Inappropriate aggregation of dissimilar items

Inappropriate disaggregation of similar items

Material information hidden by immaterial information

FINANCIAL STATEMENTS

Purpose of Financial Statements (Paragraph 9)

Financial statements provide information about:

Assets

Liabilities

Equity

Income and expenses (including gains and losses)

Contributions by and distributions to owners

Cash flows

This information assists users in predicting the entity's future cash flows, their timing and certainty.

Complete Set of Financial Statements (Paragraph 10)

A complete set includes:

Statement of financial position as at the end of the period

Statement of profit or loss and other comprehensive income for the period

Statement of changes in equity for the period

Statement of cash flows for the period

Notes (comprising material accounting policy information and other explanatory information)

Comparative information as specified in paragraphs 38 and 38A

Statement of financial position as at the beginning of the preceding period when:

Entity applies an accounting policy retrospectively

Makes a retrospective restatement

Reclassifies items in its financial statements

Presentation Options (Paragraph 10A)

An entity may present:

Single statement approach: One statement of profit or loss and other comprehensive income (profit or loss section first, then OCI section)

Two statement approach: Separate statement of profit or loss (immediately preceding the statement of comprehensive income, which begins with profit or loss)

All financial statements in a complete set shall be presented with equal prominence. (Paragraph 11)

Reports Outside Financial Statements (Paragraphs 13-14)

Entities may present outside financial statements:

Financial review by management

Environmental reports

Value added statements

These are outside the scope of HKFRSs.

GENERAL FEATURES

True and Fair View and Compliance with HKFRSs (Paragraphs 15-24)

Core Principle (Paragraph 15):

Financial statements shall present a true and fair view of the financial position, financial performance and cash flows of an entity.

Compliance Statement (Paragraph 16):

Explicit and unreserved statement of compliance required in notes

Cannot describe as complying with HKFRSs unless all requirements are met

Achieving True and Fair View (Paragraph 17):

Select and apply accounting policies per HKAS 8

Present information in a relevant, reliable, comparable and understandable manner

Provide additional disclosures when necessary

Departure from HKFRSs (Paragraphs 19-24):

Only in extremely rare circumstances

When compliance would be so misleading it conflicts with the objective of financial statements

Must disclose:

That management concluded financial statements present fairly

That entity has complied except for the departure

Title of HKFRS departed from, nature of departure, treatment required vs. adopted

Financial effect of departure for each period presented

Going Concern (Paragraphs 25-26)

Management shall assess an entity's ability to continue as a going concern. Financial statements shall be prepared on a going concern basis unless management intends to liquidate or cease trading, or has no realistic alternative.

Key Requirements:

Assessment covers at least 12 months from end of reporting period

Disclose material uncertainties that may cast significant doubt on going concern

If not prepared on going concern basis, disclose that fact, basis used, and reason

Accrual Basis of Accounting (Paragraphs 27-28)

Financial statements, except for cash flow information, shall be prepared using the accrual basis of accounting.

Materiality and Aggregation (Paragraphs 29-31)

Key Principles:

Present separately each material class of similar items

Present separately items of dissimilar nature or function unless immaterial

Do not reduce understandability by obscuring material information with immaterial information

Need not provide specific disclosure if information is not material (even if HKFRS describes as minimum requirement)

Offsetting (Paragraphs 32-35)

An entity shall not offset assets and liabilities or income and expenses, unless required or permitted by a HKFRS.

Not Offsetting:

Measuring assets net of valuation allowances (e.g., obsolescence allowances, doubtful debts allowances)

Permitted Netting:

Gains/losses on disposal of non-current assets (consideration less carrying amount and selling expenses)

Expenditure related to a provision reimbursed under contractual arrangement

Gains and losses from a group of similar transactions (e.g., foreign exchange gains/losses)

Frequency of Reporting (Paragraphs 36-37)

A complete set of financial statements shall be presented at least annually.

If reporting period changes (longer or shorter than one year), disclose:

Reason for using longer or shorter period

That amounts are not entirely comparable

Comparative Information (Paragraphs 38-44)

Minimum Comparative Information (Paragraph 38A):

Present at minimum:

Two statements of financial position

Two statements of profit or loss and other comprehensive income

Two separate statements of profit or loss (if presented)

Two statements of cash flows

Two statements of changes in equity

Related notes

Additional Comparative Information (Paragraphs 38C-38D):

May present additional comparative information prepared in accordance with HKFRSs

Need not comprise a complete set

Must present related note information for additional statements

Third Statement of Financial Position (Paragraphs 40A-40D):

Required when entity:

Applies an accounting policy retrospectively

Makes a retrospective restatement

Reclassifies items in its financial statements

AND the change has a material effect on the statement of financial position at the beginning of the preceding period

Must present three statements of financial position:

End of current period

End of preceding period

Beginning of preceding period

Reclassification of Comparative Amounts (Paragraphs 41-42):

Reclassify comparative amounts unless impracticable

Disclose nature, amount, and reason for reclassification

If impracticable, disclose reason and nature of adjustments that would have been made

Consistency of Presentation (Paragraphs 45-46)

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

(a) A significant change in operations or review suggests another presentation is more appropriate

(b) A HKFRS requires a change in presentation

STRUCTURE AND CONTENT

Identification of the Financial Statements (Paragraphs 49-53)

Required Disclosures:

Name of reporting entity and any change from preceding period

Whether financial statements are of an individual entity or a group

Date of end of reporting period or period covered

Presentation currency (as defined in HKAS 21)

Level of rounding used

Statement of Financial Position (Paragraphs 54-80)

Information to be Presented (Paragraph 54)

Minimum line items:

Assets	Liabilities	Equity
Property, plant and equipment	Trade and other payables	Non-controlling interests
Investment property	Provisions	Issued capital and reserves attributable to owners of parent
Intangible assets	Financial liabilities (excluding trade payables and provisions)
Financial assets (excluding certain categories)	Portfolios of contracts within HKFRS 17 (liabilities)
Portfolios of contracts within HKFRS 17 (assets)	Current tax liabilities
Investments accounted for using equity method	Deferred tax liabilities
Biological assets	Liabilities in disposal groups classified as held for sale
Inventories
Trade and other receivables
Cash and cash equivalents
Assets classified as held for sale
Current tax assets
Deferred tax assets

Additional Line Items (Paragraph 55):

Present additional line items, headings, and subtotals when relevant to understanding financial position.

Subtotal Requirements (Paragraph 55A):

Comprised of line items recognised and measured per HKFRS

Presented and labelled clearly

Consistent from period to period

Not displayed with more prominence than required subtotals and totals

Deferred Tax (Paragraph 56):

When presenting current and non-current classifications, deferred tax assets (liabilities) shall not be classified as current assets (liabilities).

Current/Non-current Distinction (Paragraphs 60-76)

General Rule (Paragraph 60):

Present current and non-current assets and liabilities as separate classifications unless a liquidity-based presentation provides more reliable and relevant information.

Current Assets (Paragraph 66):

An asset is current when it meets ANY of these criteria:

Expected to be realised, sold, or consumed in the normal operating cycle

Held primarily for trading

Expected to be realised within 12 months after reporting period

Cash or cash equivalent (unless restricted for at least 12 months)

Operating Cycle (Paragraph 68):

Time between acquisition of assets for processing and their realisation in cash or cash equivalents

If not clearly identifiable, assumed to be 12 months

Current Liabilities (Paragraph 69):

A liability is current when it meets ANY of these criteria:

Expected to be settled in the normal operating cycle

Held primarily for trading

Due to be settled within 12 months after reporting period

Does not have an unconditional right to defer settlement for at least 12 months

Key Classification Rules:

Scenario	Classification
Trade payables due >12 months but part of operating cycle	Current
Liability due within 12 months, refinanced after reporting period but before authorisation	Current
Entity has discretion to refinance/roll over for ≥12 months under existing facility	Non-current
Breach of loan covenant at reporting date, lender grants grace period after reporting period	Current (unless grace period agreed by end of reporting period)
Lender agrees period of grace by end of reporting period to rectify breach (≥12 months)	Non-current

Events After Reporting Period (Paragraph 76):

The following are non-adjusting events (HKAS 10):

Refinancing on a long-term basis

Rectification of breach of long-term loan arrangement

Granting of period of grace by lender

Information in Statement of Financial Position or Notes (Paragraphs 77-80A)

Subclassifications (Paragraph 77):

Disclose further subclassifications of line items, e.g.:

Property, plant and equipment by class (HKAS 16)

Receivables: trade, related parties, prepayments

Inventories: merchandise, supplies, materials, WIP, finished goods

Provisions: employee benefits, other items

Equity: paid-in capital, share premium, reserves

Share Capital Disclosures (Paragraph 79):

For each class of share capital:

Number of shares authorised

Number issued and fully paid, and issued but not fully paid

Par value per share (or no par value)

Reconciliation of shares outstanding

Rights, preferences, and restrictions

Shares held by entity or subsidiaries/associates

Shares reserved for issue under options and contracts

Reserves (Paragraph 79(b)):

Description of nature and purpose of each reserve within equity.

Puttable Financial Instruments (Paragraph 80A):

If reclassified between financial liabilities and equity, disclose:

Amount reclassified into and out of each category

Timing and reason for reclassification

Statement of Profit or Loss and Other Comprehensive Income (Paragraphs 81A-105)

Structure (Paragraph 81A)

The statement shall present:

Profit or loss

Total other comprehensive income

Comprehensive income for the period (total of profit or loss and OCI)

Allocation (Paragraph 81B):

Present allocation of profit or loss and OCI to:

Non-controlling interests

Owners of the parent

Information in Profit or Loss Section (Paragraph 82)

Minimum line items:

Revenue (separately showing interest revenue using effective interest method and insurance revenue)

Gains/losses from derecognition of financial assets at amortised cost

Insurance service expenses (HKFRS 17)

Income/expenses from reinsurance contracts held

Finance costs

Impairment losses (HKFRS 9 Section 5.5)

Insurance finance income/expenses (HKFRS 17)

Finance income/expenses from reinsurance contracts held

Share of profit or loss of associates and joint ventures (equity method)

Gains/losses on reclassification of financial assets

Tax expense

Single amount for total of discontinued operations

Information in Other Comprehensive Income Section (Paragraph 82A)

OCI items shall be grouped into:

Items that will not be reclassified subsequently to profit or loss

Items that will be reclassified subsequently to profit or loss when specific conditions are met

Also present share of OCI of associates and joint ventures, separated into the same two categories.

Additional Line Items and Subtotals (Paragraphs 85-85B)

Requirements for Subtotals:

Comprised of amounts recognised and measured per HKFRS

Presented and labelled clearly

Consistent from period to period

Not displayed with more prominence than required subtotals and totals

Must reconcile with required subtotals or totals

Prohibition on Extraordinary Items (Paragraph 87)

An entity shall not present any items of income or expense as extraordinary items.

Profit or Loss for the Period (Paragraphs 88-89)

All items of income and expense shall be recognised in profit or loss unless a HKFRS requires or permits otherwise.

Other Comprehensive Income for the Period (Paragraphs 90-96)

Tax Effects (Paragraphs 90-91):

Disclose income tax relating to each OCI item, either:

In the statement of comprehensive income, or

In the notes

OCI may be presented:

Net of related tax effects, OR

Before tax with one amount for aggregate tax (allocate tax between items that may/may not be reclassified)

Reclassification Adjustments (Paragraphs 92-96):

An entity shall disclose reclassification adjustments relating to components of OCI.

Reclassification adjustments arise when amounts previously recognised in OCI are reclassified to profit or loss (e.g., on disposal of foreign operation, when hedged forecast cash flows affect profit or loss).

No Reclassification Adjustments for:

Changes in revaluation surplus (HKAS 16, HKAS 38)

Remeasurements of defined benefit plans (HKAS 19)

Expense Analysis (Paragraphs 99-105)

Two methods permitted:

1. Nature of Expense Method:

Aggregates expenses by nature (depreciation, purchases, transport, employee benefits, advertising)

Example:

Revenue                                    X
Other income                               X
Changes in inventories                     X
Raw materials and consumables used         X
Employee benefits expense                  X
Depreciation and amortisation expense      X
Other expenses                             X
Total expenses                            (X)
Profit before tax                          X

2. Function of Expense (Cost of Sales) Method:

Classifies expenses by function (cost of sales, distribution, administration)

Example:

Revenue                                    X
Cost of sales                             (X)
Gross profit                               X
Other income                               X
Distribution costs                        (X)
Administrative expenses                   (X)
Other expenses                            (X)
Profit before tax                          X

If using function of expense method, must disclose additional information on nature of expenses (depreciation, amortisation, employee benefits).

Statement of Changes in Equity (Paragraphs 106-110)

Information to be Presented (Paragraph 106)

The statement includes:

Total comprehensive income for the period (separately attributable to owners of parent and non-controlling interests)

Effects of retrospective application or restatement for each component of equity

Reconciliation for each component of equity between beginning and end of period, showing:

Profit or loss

Other comprehensive income

Transactions with owners (contributions, distributions, changes in ownership interests in subsidiaries without loss of control)

Information in Statement or Notes (Paragraphs 106A-107)

Analysis of OCI by item for each component of equity (in statement or notes)

Amount of dividends recognised as distributions to owners and related per share amount (in statement or notes)

Statement of Cash Flows (Paragraph 111)

Cash flow information provides basis to assess:

Entity's ability to generate cash and cash equivalents

Entity's needs to utilise those cash flows

HKAS 7 sets out requirements for presentation and disclosure.

Notes (Paragraphs 112-138)

Structure (Paragraphs 112-116)

Notes shall:

Present information about basis of preparation and specific accounting policies

Disclose information required by HKFRSs not presented elsewhere

Provide information relevant to understanding any statement

Systematic Manner:

Cross-reference each item in primary statements to related note information

Consider understandability and comparability

Examples of Ordering:

Prominence to areas most relevant to understanding performance and position

Grouping items measured similarly

Following order of line items in primary statements

Disclosure of Accounting Policy Information (Paragraphs 117-117E)

Materiality Approach:

An entity shall disclose material accounting policy information.

When Accounting Policy Information is Material:

Entity changed accounting policy during period with material effect

Entity chose from options permitted by HKFRSs

Policy developed in absence of specific HKFRS (per HKAS 8)

Policy relates to area requiring significant judgements or assumptions

Accounting required is complex

Entity-Specific Information:

Accounting policy information that focuses on how an entity has applied HKFRSs to its own circumstances provides more useful information than standardised information or duplication of HKFRS requirements.

Immaterial Information:

Immaterial accounting policy information need not be disclosed

If disclosed, shall not obscure material accounting policy information

Judgements (Paragraphs 122-124)

Disclose judgements (apart from estimations) that management has made in applying accounting policies that have the most significant effect on amounts recognised.

Examples:

Whether substantially all risks and rewards of ownership are transferred

Whether sales are financing arrangements

Whether contractual terms give rise to SPPI cash flows

Sources of Estimation Uncertainty (Paragraphs 125-133)

Disclose assumptions about the future and other major sources of estimation uncertainty at end of reporting period that have a significant risk of causing material adjustment to carrying amounts within next financial year.

Required Disclosures:

Nature of assumptions/estimation uncertainty

Carrying amount of affected assets and liabilities

Not Required For:

Assets/liabilities measured at fair value based on quoted price in active market for identical item

Capital Disclosures (Paragraphs 134-136)

Required Information:

Qualitative information about objectives, policies, and processes for managing capital

Summary quantitative data about what is managed as capital

Changes from previous period

Compliance with externally imposed capital requirements

Consequences of non-compliance

Basis: Disclosures based on information provided internally to key management personnel.

Puttable Financial Instruments Classified as Equity (Paragraph 136A)

Disclose:

Summary quantitative data about amount classified as equity

Objectives, policies, and processes for managing repurchase/redeem obligation

Expected cash outflow on redemption/repurchase

How expected cash outflow was determined

Other Disclosures (Paragraphs 137-138)

Dividends proposed or declared before authorisation but not recognised

Cumulative preference dividends not recognised

Domicile and legal form, country of incorporation, registered office address

Nature of operations and principal activities

Name of parent and ultimate parent

If limited life entity, information about length of life

收入                                    X
其他收入                               X
存貨變動                               X
所用原材料及消耗品                     X
僱員福利費用                           X
折舊及攤銷費用                         X
其他費用                               X
費用總額                              (X)
稅前利潤                              X

收入                                    X
銷售成本                              (X)
毛利                                    X
其他收入                               X
分銷費用                              (X)
行政費用                              (X)
其他費用                              (X)
稅前利潤                              X

TRANSITION AND EFFECTIVE DATE (Paragraphs 139-139V)

Original Effective Date: Annual periods beginning on or after 1 January 2009

Key Amendments:

HKAS 27 (2008): Amended paragraph 106 - effective 1 July 2009

Puttable Financial Instruments (June 2008): Effective 1 January 2009

Improvements to HKFRSs (October 2008): Effective 1 January 2009

Improvements to HKFRSs (May 2009): Effective 1 January 2010

Improvements to HKFRSs (May 2010): Effective 1 January 2011

Presentation of Items of OCI (July 2011): Effective 1 July 2012

Annual Improvements 2009-2011 Cycle (June 2012): Effective 1 January 2013

Disclosure Initiative (January 2015): Effective 1 January 2016

Definition of Material (January 2019): Effective 1 January 2020

Amendments to References to Conceptual Framework (2018): Effective 1 January 2020

Disclosure of Accounting Policies (April 2021): Effective 1 January 2023

KEY TAKEAWAYS SUMMARY

Topic	Key Point
Objective	Ensure comparability of financial statements across periods and entities
Complete set	4 statements + notes + comparative information + third SOFP when applicable
True and fair view	Presumed by compliance with HKFRSs; departure only in extremely rare circumstances
Going concern	Assess for at least 12 months; disclose material uncertainties
Materiality	Based on nature or magnitude; information can be obscured by vague language, scattering, inappropriate aggregation/disaggregation
Offsetting	Generally prohibited unless required/permitted by HKFRS
Comparative information	Minimum 2 of each statement; third SOFP when retrospective application/restatement/reclassification
Current assets	Operating cycle, trading, 12-month rule, cash/cash equivalents
Current liabilities	Operating cycle, trading, 12-month rule, no unconditional right to defer
OCI presentation	Two groups: will not be reclassified / will be reclassified
Expense analysis	Nature or function method; function method requires additional nature disclosures
Accounting policies	Disclose material policy information; entity-specific information more useful than standardised
Judgements	Disclose most significant judgements in applying policies
Estimation uncertainty	Disclose assumptions with significant risk of material adjustment
Capital disclosures	Objectives, policies, processes, quantitative data, compliance