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Wiley IFRS: Practical Implementation Guide and Workbook
but also on the "nature" of the item). For instance, in some cases, transactions with "related
parties" (as defined under lAS 24), although not material when the size of the transactions is
considered, may be considered "materia l" because they are with related parties (This is where
the "qualitative" aspect of the definition of the term "materia l" comes into play). Materiality is
therefore a very subjec tive concept.
4. PURPOSE OF FINANCIAL STATEMENTS
Financial statements provide stakeholders with information about the entity' s financial
positron,
financial performance, and cash flows by providing information about its assets, liabilities, equity,
income and expenses, other changes in equity, and cash flows.
5. COMPONENTS OF FINANCIAL STATEMENTS
Income and
expenses
All changes in
equity or changes
other than those
with equ ity holders
Cash inflows
&
outflows from
c-----<.~
operating, financi ng,
and investi ng
activities
Signifi cant
I----~
accounting policies
&
explanatory notes
Notes
Income Statement
Statement of Changesf-_ _
--.j
in Equity
Components of
Financial Statements
6. OVERALL CONSIDERAnONS
6.1 Fair Presentation and Compliance with IFRS
6.1.1 "Fair presentation" implies that the financial statements "present fairly" (or alternatively, in
some juri sdictions [countries], present a "true and fair" view) of the financial position, financial
performance, and cash flows of an entity.
6.1.2 "Fair presentation" requires
f aithf ul representation
of the effects of transactions and other
events and conditions in accordance with the definitions and recognition criteria for assets, liabili–
ties, income, and expenses laid down in the IASB' s
Framework.
The application ofiFRS, with ad–
ditional disclosure where required, is expected to result in financial statements that achieve a "fair
presentation."
6.1.3 Under lAS I, entities are required to make an
explicit statement of compliance with [FRS
in
their notes if their financial statements comply with IFRS.
6.1.4 By disclosure of the accounting policies used or notes or expl anatory material, an entity
cannot correct inappropriate accounting policies.
Practical In sight
In practice, some entities believe that even if an inappropriate accounting policy were used in
presenting the financial statements (say, use of "cash basis" as opposed to the "accrual basis"
to account for certain expenses), as long as it is disclosed by the entity in notes to the financial
statements, the problem would be rectified. Recognizing this tendency, lAS
1
categorically
prohibits such shortcut methods from being employed by entities presenting financial state–
ments under IFRS.