The financial statements are a structured means through which business entities (and even not-for-profit institutions) report to users who rely on financial information to make decisions regarding their financial position and operating results.
Accounting standards – and accordingly, the process of preparing financial statements – are applied on two primary levels:
a. Recognition and measurement – how transactions, other events, and conditions are recognized as elements of the financial statements (assets, liabilities, equity, income, and expenses) and measured in the financial statements.
b. Presentation and disclosure – how the various elements are presented in the financial statements and what additional information is required regarding those elements and other information.
Generally, accounting standards focus on recognition and measurement of transactions, events, and circumstances related to the topic within their scope. Often, they also include disclosure requirements (and even presentation requirements) regarding that specific topic. However, they do not usually provide comprehensive guidance on the overall presentation of the financial statements.
A structured presentation of the financial statements and the establishment of guiding principles in this area are critical to achieving the objective of the financial statements, as defined in the Conceptual Framework for Financial Reporting.
In accordance with this objective, financial information should be presented in a way that is useful to a wide range of users in making economic decisions. Establishing a basis for presenting the financial statements enables proper disclosure and enhances the comparability of the information provided — both to similar information of other entities and to previous periods of the same reporting entity. As such, proper presentation significantly improves the usefulness of financial statements and supports their purpose.
Although, as noted, nearly every IFRS contains disclosure requirements, and in some cases specific presentation requirements within the financial statements, the core requirements relating to the form, content, and structure of the financial statements are found in three separate financial reporting standards:
a. IAS 1 – Presentation of Financial Statements
b. IAS 7 – Statement of Cash Flows
c. IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations
IAS 1 (hereinafter: “the Standard”) requires the preparation of financial statements at least annually and establishes rules regarding the structure of the financial statements and minimum requirements regarding their content.
The Standard includes, among other things, the following requirements and provisions:
a. A requirement that the financial statements comply with IFRS, including full disclosure requirements.
b. A provision that only in rare circumstances may an entity depart from the requirements of IFRS or other professional literature.
c. Explicit requirements regarding the structure of the financial statements, including minimum requirements for each primary statement, accounting policies, notes, and relevant appendices.
d. Practical applications (based on the Conceptual Framework for Financial Reporting) regarding topics such as materiality, going concern, consistency, and presentation of comparative figures.
Although the Standard sets minimum disclosure requirements, it does not mandate a specific format for presentation, allowing flexibility in application across different industries.
In addition, the Standard allows significant flexibility in presenting additional items and subtotals beyond the minimum requirements within the financial statements, to ensure a fair presentation.
It should be noted that some entities are also required to comply with additional regulatory presentation rules.
Experience from the implementation of IFRS worldwide shows that companies often consider the presentation format used by other companies in the same industry and the customary format in the country in which they operate.
The Standard applies to the following types of financial statements prepared by the reporting entity:
Individual Financial Statements
Individual financial statements are the financial statements of a reporting entity that does not own one or more subsidiaries.
If the reporting entity holds an investment in an associate accounted for using the equity method and not classified as held for sale (or included in a disposal group classified as held for sale), the equity method should be applied in the individual financial statements in accordance with IAS 28 – Investments in Associates and Joint Ventures.
Consolidated Financial Statements
Consolidated financial statements are the financial statements of a reporting entity that include the consolidation of the financial statements of at least one subsidiary, in accordance with IFRS 10 – Consolidated Financial Statements.
If the reporting entity also holds investments in associates or joint ventures, the equity method is applied in the consolidated financial statements.
Separate Financial Statements
In separate financial statements, as defined in IAS 27 – Separate Financial Statements, all investments in subsidiaries, joint ventures, or associates that are not classified as held for sale (or included in a disposal group classified as held for sale), are accounted for using either:
the cost method,
the equity method, or
in accordance with IFRS 9 – Financial Instruments.
IAS 27 further requires that the same accounting treatment be applied consistently to each category of investment.
Separate financial statements (“solo”) are prepared in one of the following two cases:
a. Financial statements of a reporting entity that are presented alongside the consolidated financial statements but do not include the consolidation of subsidiaries.
b. Financial statements of a reporting entity that owns subsidiaries, joint ventures, or associates but does not apply consolidation or the equity method due to an explicit exception provided in the relevant IFRS.
The Standard does not apply to interim financial statements, which are typically prepared in a condensed format in accordance with IAS 34 – Interim Financial Reporting.
Unlike IAS 1, IAS 34 does not require the preparation of interim financial statements but rather defines the format they should follow when they are prepared — whether due to legal requirements or at the entity’s discretion.
The condensed format applies primarily to disclosure requirements, while the main body of the interim financial statements is generally consistent with that of the latest annual financial statements.
As a result, the presentation requirements in IAS 1 for the body of the financial statements affect interim financial statements as well.
However, the disclosure requirements for interim financial statements prepared in condensed format are covered by IAS 34, and therefore, the disclosure requirements in IAS 1 and other IFRSs do not apply to interim financial statements.
It is important to distinguish between financial statements prepared for general purpose use (intended for a wide range of users) and financial statements prepared to meet the specific information needs of certain users (special purpose financial statements).
IAS 1 applies to all general-purpose financial statements prepared in accordance with IFRS, but it does not apply to special purpose financial statements.
The Standard applies to all types of reporting entities under IFRS, including banks and insurance companies.
Although the Standard does not explicitly exclude not-for-profit institutions — whether private or governmental — it is primarily focused on profit-oriented entities.