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HKAS 1 Presentation of Financial Statements

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Objective

 

This Standard prescribes the basis for presentation of general purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods and 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. (HKAS 1.1)

 

Scope

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An entity shall apply this Standard in preparing and presenting general purpose financial statements in accordance with Hong Kong Financial Reporting Standards (HKFRSs). (HKAS 1.2)

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This Standard does not apply to the structure and content of condensed interim financial statements prepared in accordance with HKAS 34 Interim Financial Reporting. However, paragraphs 15–35 apply to such financial statements. This Standard applies equally to all entities, including those that present consolidated financial statements in accordance with HKFRS 10 Consolidated Financial Statements and those that present separate financial statements in accordance with HKAS 27 Separate Financial Statements. (HKAS 1.4)

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Definitions (HKAS 1.7)

 

General purpose financial statements (referred to as ‘financial statements’) are those intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs.

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Material Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor.

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Complete set of financial statements

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A complete set of financial statements comprises: (HKAS 1.10)

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  • a statement of financial position as at the end of the period;

  • a statement of profit or loss and other comprehensive income for the period;

  • a 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 as specified in paragraphs 38 and 38A; and

  • a statement of financial position as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements in accordance with paragraphs 40A - 40D.

 

An entity may present a single statement of profit or loss and other comprehensive income, 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. An entity may present the profit or loss section in a separate statement of profit or loss. If so, the separate statement of profit or loss shall immediately precede the statement presenting comprehensive income, which shall begin with profit or loss. (HKAS 1.10A)

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General features​

 

True and fair view and compliance with HKFRSs
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Financial statements shall present a true and fair view of the financial position, financial performance and cash flows of an entity. 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 HKFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a true and fair view. (HKAS 1.15)

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An entity whose financial statements comply with HKFRSs shall make an explicit and unreserved statement of such compliance in the notes. An entity shall not describe financial statements as complying with HKFRSs unless they comply with all the requirements of HKFRSs. (HKAS 1.16)

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Going concern

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When preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern. An entity shall prepare financial statements 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. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability 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 disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern. (HKAS 1.25)

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In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. The degree of consideration depends on the facts in each case. When an entity has a history of profitable operations and ready access to financial resources, the entity may reach a conclusion that the going concern basis of accounting is appropriate without detailed analysis. In other cases, management may need to consider a wide range of factors relating to current and expected profitability, debt repayment schedules and potential sources of replacement financing before it can satisfy itself that the going concern basis is appropriate. (HKAS 1.26)

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Accrual basis of accounting

 

An entity shall prepare its financial statements, except for cash flow information, using the accrual basis of accounting. (HKAS 1.27)

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When the accrual basis of accounting is used, an entity recognises items as assets, liabilities, equity, income and expenses (the elements of financial statements) when they satisfy the definitions and recognition criteria for those elements in the Framework. (HKAS 1.28)

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Materiality and aggregation

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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. (HKAS 1.29)

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When applying this and other HKFRSs an entity shall decide, taking into consideration all relevant facts and 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. (HKAS 1.30A)

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Some HKFRSs specify information that is required to be included in the financial statements, which include the notes. An entity need not provide a specific disclosure required by a HKFRS if the information resulting from that disclosure is not material. This is the case even if the HKFRS contains a list of specific requirements or describes them as minimum requirements. An entity shall also consider whether to provide additional disclosures when compliance with the specific requirements in HKFRS is insufficient to enable users of financial statements to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. (HKAS 1.31)

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Offsetting

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An entity shall not offset assets and liabilities or income and expenses, unless required or permitted by an HKFRS. (HKAS 1.32)

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An entity reports separately both assets and liabilities, and income and expenses. Offsetting in the statement(s) of profit or loss and other comprehensive income or financial position, except when offsetting reflects the substance of the transaction or other event, detracts from the ability of users both to understand the transactions, other events and conditions that have occurred and to assess the entity’s future cash flows. Measuring assets net of valuation allowances—for example, obsolescence allowances on inventories and doubtful debts allowances on receivables—is not offsetting. (HKAS 1.33)

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HKAS 18 Revenue defines revenue and requires an entity to measure it at the fair value of the consideration received or receivable, taking into account the amount of any trade discounts and volume rebates the entity allows. An entity undertakes, in the course of its ordinary activities, other transactions that do not generate revenue but are incidental to the main revenue-generating activities. An entity presents the results of such transactions, when this presentation reflects the substance of the transaction or other event, by netting any income with related expenses arising on the same transaction. For example: (HKAS 1.34)

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  • an entity presents gains and losses on the disposal of non-current assets, including investments and operating assets, by deducting from the proceeds on disposal the carrying amount of the asset and related selling expenses; and

  • an entity may net expenditure related to a provision that is recognised in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets and reimbursed under a contractual arrangement with a third party (for example, a supplier’s warranty agreement) against the related reimbursement.

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In addition, an entity presents on a net basis gains and losses arising from a group of similar transactions, for example, foreign exchange gains and losses or gains and losses arising on financial instruments held for trading. However, an entity presents such gains and losses separately if they are material. (HKAS 1.35)

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Frequency of reporting

 

An entity shall present a complete set of financial statements (including comparative information) at least annually. When an entity changes the end of its reporting period and presents financial statements for a period longer or shorter than one year, an entity shall disclose, in addition to the period covered by the financial statements: (HKAS 1.36)

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  • the reason for using a longer or shorter period, and

  • the fact that amounts presented in the financial statements are not entirely comparable.

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Comparative information
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Minimum comparative information

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Except when HKFRSs permit or require otherwise, an entity shall present comparative information in respect of the preceding period for all amounts reported in the current period’s financial statements. An entity shall include comparative information for narrative and descriptive information if it is relevant to an understanding of the current period’s financial statements.

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An entity shall present, as a 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 and two statements of changes in equity, and related notes. (HKAS 1.38A)

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Change in accounting policy, retrospective restatement or reclassification

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An entity shall present a third statement of financial position as at the beginning of the preceding period in addition to the minimum comparative financial statements required in paragraph 38A if: (HKAS 1.40A)

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  • it applies an accounting policy retrospectively, makes a retrospective restatement of items in its financial statements or reclassifies items in its financial statements; and

  • the retrospective application, retrospective restatement or the reclassification has a material effect on the information in the statement of financial position at the beginning of the preceding period.

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In the circumstances described in paragraph 40A, an entity shall present three statements of financial position as at: (HKAS 1. 40B)

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  • the end of the current period;

  • the end of the preceding period; and

  • the beginning of the preceding period.

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If an entity changes the presentation or classification of items in its financial statements, it shall reclassify comparative amounts unless reclassification is impracticable. When an entity reclassifies comparative amounts, it shall disclose (including as at the beginning of the preceding period): (HKAS 1. 41)

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  • the nature of the reclassification;

  • the amount of each item or class of items that is reclassified; and

  • the reason for the reclassification.

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Consistency of presentation

 

An entity shall retain the presentation and classification of items in the financial statements from one period to the next unless: (HKAS 1.45)

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  • 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 HKAS 8; or

  • an HKFRS requires a change in presentation.

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Structure and content

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Identification of the financial statements

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An entity shall clearly identify the financial statements and distinguish them from other information in the same published document. (HKAS 1.49)

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An entity shall clearly identify each financial statement and the notes. In addition, an entity shall display the following information prominently, and repeat it when necessary for the information presented to be understandable: (HKAS 1.51)

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  • the name of the reporting entity or other means of identification, and any change in that information from the end of the preceding reporting period;

  • whether the financial statements are of an individual entity or a group of entities;

  • the date of the end of the reporting period or the period covered by the set of financial statements or notes;

  • the presentation currency, as defined in HKAS 21; and

  • the level of rounding used in presenting amounts in the financial statements.

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Statement of financial position

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Information to be presented in the statement of financial position

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The statement of financial position shall include line items that present the following amounts: (HKAS 1.54)

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  • property, plant and equipment;

  • investment property;

  • intangible assets;

  • financial assets;

  • investments accounted for using the equity method;

  • biological assets;

  • inventories;

  • trade and other receivables;

  • cash and cash equivalents;

  • the total of assets classified as held for sale and assets included in disposal groups classified as held for sale in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations;

  • trade and other payables;

  • provisions;

  • financial liabilities;

  • liabilities and assets for current tax, as defined in HKAS 12 Income Taxes;

  • deferred tax liabilities and deferred tax assets, as defined in HKAS 12;

  • liabilities included in disposal groups classified as held for sale in accordance with HKFRS 5;

  • non-controlling interests, presented within equity; and

  • issued capital and reserves attributable to owners of the parent.

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An entity shall present additional line items (including by disaggregating the line items listed in paragraph 54), headings and subtotals in the statement of financial position when such presentation is relevant to an understanding of the entity’s financial position. (HKAS 1.55)

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When an entity presents subtotals in accordance with paragraph 55, those subtotals shall: (HKAS 1.55A)

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  • be comprised of line items made up of amounts recognised and measured in accordance with HKFRS;

  • be presented and labelled in a manner that makes the line items that constitute the subtotal clear and understandable;

  • be consistent from period to period, in accordance with paragraph 45; and

  • not be displayed with more prominence than the subtotals and totals required in HKFRS for the statement of financial position.

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When an entity presents current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position, it shall not classify deferred tax assets (liabilities) as current assets (liabilities). (HKAS 1.56)

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Current/non-current distinction

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An entity shall present current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position in accordance with paragraphs 66–76 except when a presentation based on liquidity provides information that is reliable and more relevant. When that exception applies, an entity shall present all assets and liabilities in order of liquidity. (HKAS 1.60)

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Whichever method of presentation is adopted, an entity shall disclose the amount expected to be recovered or settled after more than twelve months for each asset and liability line item that combines amounts expected to be recovered or settled: (HKAS 1.61)

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  • no more than twelve months after the reporting period, and

  • more than twelve months after the reporting period.

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Current assets

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An entity shall classify an asset as current when: (HKAS 1.66)

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  • it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;

  • it holds the asset primarily for the purpose of trading;

  • it expects to realise the asset within twelve months after the reporting period; or

  • the asset is cash or a cash equivalent (as defined in HKAS 7) unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

 

An entity shall classify all other assets as non-current.

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The operating cycle of an entity is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. When the entity’s normal operating cycle is not clearly identifiable, it is assumed to be twelve months. Current assets include assets (such as inventories and trade receivables) that are sold, consumed or realised as part of the normal operating cycle even when they are not expected to be realised within twelve months after the reporting period. Current assets also include assets held primarily for the purpose of trading (examples include some financial assets classified as held for trading in accordance with HKAS 39) and the current portion of non-current financial assets. (HKAS 1.68)

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Current liabilities

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An entity shall classify a liability as current when: (HKAS 1.69)

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  • it expects to settle the liability in its normal operating cycle;

  • it holds the liability primarily for the purpose of trading;

  • the liability is due to be settled within twelve months after the reporting period; or

  • it does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period (see paragraph 73). Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

 

An entity shall classify all other liabilities as non-current.

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Statement of profit or loss and other comprehensive income

 

The statement of profit or loss and other comprehensive income (statement of comprehensive income) shall present, in addition to the profit or loss and other comprehensive income sections: (HKAS 1. 81A)

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  • profit or loss;

  • total other comprehensive income;

  • comprehensive income for the period, being the total of profit or loss and other comprehensive income.

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If an entity presents a separate statement of profit or loss it does not present the profit or loss section in the statement presenting comprehensive income.

 

An entity shall present the following items, in addition to the profit or loss and other comprehensive income sections, as allocation of profit or loss and other comprehensive income for the period: (HKAS 1.81B)

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(a) profit or loss for the period attributable to:

  • ​non-controlling interests, and

  • owners of the parent.​

​(b) comprehensive income for the period attributable to:

  • ​non-controlling interests, and

  • owners of the parent.

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If an entity presents profit or loss in a separate statement it shall present (a) in that statement.

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Information to be presented in the statement of profit or loss section or the statement of profit or loss

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In addition to items required by other HKFRSs, the profit or loss section or the statement of profit or loss shall include line items that present the following amounts for the period: (HKAS 1.82)

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  • revenue;

  • finance costs;

  • share of the profit or loss of associates and joint ventures accounted for using the equity method;

  • tax expense;

  • a single amount for the total of discontinued operations (see HKFRS 5).

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Information to be presented in the other comprehensive income section
 

The other comprehensive income section shall present line items for the amounts for the period of: (HKAS 1.82A)

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(a) items of other comprehensive income (excluding amounts in paragraph (b)), classified by nature and grouped into those that, in accordance with other HKFRSs:

  • will not be reclassified subsequently to profit or loss; and

  • will be reclassified subsequently to profit or loss when specific conditions are met.

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(b) the share of the other comprehensive income of associates and joint ventures accounted for using the equity method, separated into the share of items that, in accordance with other HKFRSs:

  • will not be reclassified subsequently to profit or loss; and

  • will be reclassified subsequently to profit or loss when specific conditions are met.

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Other comprehensive income for the period

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An entity may present items of other comprehensive income either: (HKAS 1.91)

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  • net of related tax effects, or

  • before related tax effects with one amount shown for the aggregate amount of income tax relating to those items.

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If an entity elects alternative (b), it shall allocate the tax between the items that might be reclassified subsequently to the profit or loss section and those that will not be reclassified subsequently to the profit or loss section.

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Statement of changes in equity
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Information to be presented in the statement of changes in equity
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An entity shall present a statement of changes in equity as required by paragraph 10. The statement of changes in equity includes the following information: (HKAS 1.106)

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  • total comprehensive income for the period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests;

  • for each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with HKAS 8; and

  • for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from:

    • profit or loss;

    • other comprehensive income; and

    • transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.

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Information to be presented in the statement of changes in equity or in the notes

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For each component of equity an entity shall present, either in the statement of changes in equity or in the notes, an analysis of other comprehensive income by item. (HKAS 1.106A)

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Statement of cash flows

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Cash flow information provides users of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents and the needs of the entity to utilise those cash flows. HKAS 7 sets out requirements for the presentation and disclosure of cash flow information. (HKAS 1.111)

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Notes

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Structure

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The notes shall: (HKAS 1.112)

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  • present information about the basis of preparation of the financial statements and the specific accounting policies used in accordance with paragraphs 117–124;

  • disclose the information required by HKFRSs that is not presented elsewhere in the financial statements; and

  • provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any of them.

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An entity shall, as far as practicable, present notes in a systematic manner. In determining a systematic manner, the entity shall consider the effect on the understandability and comparability of its financial statements. An entity shall cross-reference each item in the statements of financial position and in the statement(s) of profit or loss and other comprehensive income, and in the statements of changes in equity and of cash flows to any related information in the notes. (HKAS 1.113)

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Examples of systematic ordering or grouping of the notes include: (HKAS 1.114)

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  • giving prominence to the areas of its activities that the entity considers to be most relevant to an understanding of its financial performance and financial position, such as grouping together information about particular operating activities;

  • grouping together information about items measured similarly such as assets measured at fair value; or

  • following the order of the line items in the statement(s) of profit or loss and other comprehensive income and the statement of financial position, such as:

    1. ​statement of compliance with HKFRSs (see paragraph 16);

    2. significant accounting policies applied (see paragraph 117);

    3. supporting information for items presented in the statements of financial position and in the statement(s) of profit or loss and other comprehensive income, and in the statements of changes in equity and of cash flows, in the order in which each statement and each line item is presented; and

    4. other disclosures, including:​

    • contingent liabilities (see HKAS 37) and unrecognised contractual commitments; and

    • non-financial disclosures, eg the entity's financial risk management objectives and policies (see HKFRS 7).

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Disclosure of accounting policies
 

An entity shall disclose its significant accounting policies comprising: (HKAS 1.117)

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  • the measurement basis (or bases) used in preparing the financial statements; and

  • the other accounting policies used that are relevant to an understanding of the financial statements.

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An entity shall disclose, along with its significant accounting policies or other notes, the judgements, apart from those involving estimations (see paragraph 125), that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. (HKAS 1.122)

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Sources of estimation uncertainty
 

An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of: (HKAS 1.125)

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  • their nature, and

  • their carrying amount as at the end of the reporting period.

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Determining the carrying amounts of some assets and liabilities requires estimation of the effects of uncertain future events on those assets and liabilities at the end of the reporting period. For example, in the absence of recently observed market prices, future-oriented estimates are necessary to measure the recoverable amount of classes of property, plant and equipment, the effect of technological obsolescence on inventories, provisions subject to the future outcome of litigation in progress, and long-term employee benefit liabilities such as pension obligations. These estimates involve assumptions about such items as the risk adjustment to cash flows or discount rates, future changes in salaries and future changes in prices affecting other costs. (HKAS 1.126)

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Other HKFRSs require the disclosure of some of the assumptions that would otherwise be required in accordance with paragraph 125. For example, HKAS 37 requires disclosure, in specified circumstances, of major assumptions concerning future events affecting classes of provisions. HKFRS 13 Fair Value Measurement requires disclosure of significant assumptions (including the valuation technique(s) and inputs) the entity uses when measuring the fair values of assets and liabilities that are carried at fair value. (HKAS 1.133)

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Capital

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An entity shall disclose information that enables users of its financial statements to evaluate the entity’s objectives, policies and processes for managing capital. (HKKAS 1.134)

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To comply with paragraph 134, the entity discloses the following: (HKAS 1.135)

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  • qualitative information about its objectives, policies and processes for managing capital, including:

    • a description of what it manages as capital;

    • when an entity is subject to externally imposed capital requirements, the nature of those requirements and how those requirements are incorporated into the management of capital; and

    • how it is meeting its objectives for managing capital.

  • ​summary quantitative data about what it manages as capital. Some entities regard some financial liabilities (eg some forms of subordinated debt) as part of capital. Other entities regard capital as excluding some components of equity (eg components arising from cash flow hedges)

  • any changes in the foregoing from the previous period

  • whether during the period it complied with any externally imposed capital requirements to which it is subject.

  • when the entity has not complied with such externally imposed capital requirements, the consequences of such non-compliance.

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The entity bases these disclosures on the information provided internally to key management personnel.

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Other disclosures
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An entity shall disclose the following, if not disclosed elsewhere in information published with the financial statements: (HKAS 1.138)

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

  • a description of the nature of the entity’s operations and its principal activities;

  • the name of the parent and the ultimate parent of the group; and

  • ​if it is a limited life entity, information regarding the length of its life.

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