Chapter 1 - The regulatory framework and presentation of financial statements

Abstract

This chapter contains the key elements in a set of financial statements and defines the regulatory framework for the presentation of financial statements. Various measurement bases are employed to different degrees and in various combinations in financial statements, which include historic cost, current cost, realizable value, and present value. The most popular basis is historic cost but it is usually combined with other bases such as inventories at the lower of cost and net realizable value, marketable securities at market value, and pension liabilities at present value. The Framework was published in late 1989 has set out the concepts that underlie the preparation and presentation of financial statements for external users and its objectives are assisting the IASB in developing future IFRSs and reviewing existing IFRSs, assisting the IASB to promote harmonization and assisting users in interpreting information in financial statements. The objective of IAS 1 is to prescribe the basis for the presentation of general purpose financial statements in accordance with IFRS. According to this framework, the financial statements should comprise of balance sheet, income statement, statement of changes in equity, or statement of nonowner changes in equity, cash flow statement, and explanatory notes including a summary of significant accounting policies. IAS 1 encourages the management to include a review of the financial performance and position of the enterprise and to discuss the principal uncertainties that it faces. The review includes a discussion of dividend policy, changes in the operating environment, funding and risk management policies.