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ANNEX

INTERNATIONAL ACCOUNTING STANDARD IAS 1(REVISED 1997)

Presentation of financial statements

OVERALL CONSIDERATIONS
Fair presentation and compliance with international accounting standards
10. Financial statements should present fairly the financial position, financial performance and cash flows of an enterprise. The appropriate application of International Accounting Standards, with additional disclosure when necessary, results, in virtually all circumstances, in financial statements that achieve a fair presentation.
11. An enterprise whose financial statements comply with International Accounting Standards should disclose that fact. Financial statements should not be described as complying with International Accounting Standards unless they comply with all the requirements of each applicable Standard and each applicable interpretation of the Standing Interpretations Committee(1).
12. Inappropriate accounting treatments are not rectified either by disclosure of the accounting policies used or by notes or explanatory material.
13. In the extremely rare circumstances when management concludes that compliance with a requirement in a Standard would be misleading, and therefore that departure from a requirement is necessary to achieve a fair presentation, an enterprise should disclose:
(a)

that management has concluded that the financial statements fairly present the enterprise's financial position, financial performance and cash flows;

(b)

that it has complied in all material respects with applicable International Accounting Standards except that it has departed from a Standard in order to achieve a fair presentation;

(c)

the Standard from which the enterprise has departed, the nature of the departure, including the treatment that the Standard would require, the reason why that treatment would be misleading in the circumstances and the treatment adopted; and

(d)

the financial impact of the departure on the enterprise's net profit or loss, assets, liabilities, equity and cash flows for each period presented.

14.Financial statements have sometimes been described as being ‘based on’ or ‘complying with the significant requirements of’ or ‘in compliance with the accounting requirements of’ International Accounting Standards. Often there is no further information, although it is clear that significant disclosure requirements, if not accounting requirements, are not met. Such statements are misleading because they detract from the reliability and understandability of the financial statements. In order to ensure that financial statements that state compliance with International Accounting Standards will meet the standard required by users internationally, this Standard includes an overall requirement that financial statements should give a fair presentation, guidance on how the fair presentation requirement is met, and further guidance for determining the extremely rare circumstances when a departure is necessary. It also requires prominent disclosure of the circumstances surrounding a departure. The existence of conflicting national requirements is not, in itself, sufficient to justify a departure in financial statements prepared using International Accounting Standards.
15.In virtually all circumstances, a fair presentation is achieved by compliance in all material respects with applicable International Accounting Standards. A fair presentation requires:
(a)

selecting and applying accounting policies in accordance with paragraph 20;

(b)

presenting information, including accounting policies, in a manner which provides relevant, reliable, comparable and understandable information; and

(c)

providing additional disclosures when the requirements in International Accounting Standards are insufficient to enable users to understand the impact of particular transactions or events on the enterprise's financial position and financial performance.

16.In extremely rare circumstances, application of a specific requirement in an International Accounting Standard might result in misleading financial statements. This will be the case only when the treatment required by the Standard is clearly inappropriate and thus a fair presentation cannot be achieved either by applying the Standard or through additional disclosure alone. Departure is not appropriate simply because another treatment would also give a fair presentation.
17.When assessing whether a departure from a specific requirement in International Accounting Standards is necessary, consideration is given to:
(a)

the objective of the requirement and why that objective is not achieved or is not relevant in the particular circumstances; and

(b)

the way in which the enterprise's circumstances differ from those of other enterprises which follow the requirement.

18.Because the circumstances requiring a departure are expected to be extremely rare and the need for a departure will be a matter for considerable debate and subjective judgement, it is important that users are aware that the enterprise has not complied in all material respects with International Accounting Standards. It is also important that they are given sufficient information to enable them to make an informed judgement on whether the departure is necessary and to calculate the adjustments that would be required to comply with the Standard. IASC will monitor instances of non-compliance that are brought to its attention (by enterprises, their auditors and regulators, for example) and will consider the need for clarification through interpretations or amendments to Standards, as appropriate, to ensure that departures remain necessary only in extremely rare circumstances.
19. When, in accordance with specific provisions in that Standard, an International Accounting Standard is applied before its effective date, that fact should be disclosed.
(1)

See also SIC-8: first-time application of IASs as the primary basis of accounting.