IAS 1 Components, General Features and the Statement of Financial Position

Before an entity can show anything, it must decide what a complete set of financial statements contains, which principles lie behind every one of them, and how assets and liabilities are sorted so that a reader can see what falls due soon and what does not. International Accounting Standard (IAS) 1 Presentation of Financial Statements sets these out.

It is still the standard in force for periods up to 2026; International Financial Reporting Standard (IFRS) 18 replaces it from 2027, and the last topic in this group covers the change. This topic covers the components of a complete set of statements, the general features such as fair presentation, going concern and offsetting, the classification of assets and liabilities as current or non-current, and the contents of the statement of financial position.

The next topic covers the statement of profit or loss, changes in equity and the notes.

The topic is examined directly. In November Diet, 2023, Question 7(b) asked for five minimum line items on the face of the statement of financial position (5 marks), and the compulsory accounts question in every diet requires a statement of financial position in correct format. Read accounting policies, changes in estimates and errors first.

A complete set of financial statements

1. A statement of financial position at the end of the period, showing assets, liabilities and equity.
2. A statement of profit or loss and other comprehensive income for the period, which may be one statement or two (a statement of profit or loss, followed by a statement showing other comprehensive income).
3. A statement of changes in equity, showing the movements in each component of equity.
4. A statement of cash flows, showing cash inflows and outflows from operating, investing and financing activities.
5. Notes, comprising a summary of significant accounting policies and other explanatory information.

Comparative information in respect of the preceding period is presented for all amounts, and for narrative information if it is relevant. An entity also presents a third statement of financial position at the start of the earliest comparative period if it applies a policy retrospectively, restates items retrospectively or reclassifies items, and the effect is material.

Entities may use other titles for the statements, and other reports such as a directors’ report sit outside the financial statements.

General features

• Fair presentation and compliance with IFRS. Financial statements present fairly the financial position, performance and cash flows of an entity. Applying the Standards, with additional disclosure where needed, is presumed to give a fair presentation. An entity whose statements comply with the Standards makes an explicit and unreserved statement of compliance. Departing from a Standard is allowed only in the extremely rare circumstances where compliance would be so misleading that it would conflict with the objective of the statements, and then the departure is disclosed.
• Going concern. Management assesses the entity’s ability to continue as a going concern, looking at least twelve months from the end of the reporting period. If it intends to liquidate or has no realistic alternative, the statements are prepared on another basis. Material uncertainties are disclosed.
• Accrual basis. Except for the cash flow information, statements are prepared on the accrual basis: items are recognised when they meet the definitions and recognition criteria, not when cash moves.
• Materiality and aggregation. Each material class of similar items is presented separately. Items of a dissimilar nature or function are presented separately unless immaterial. Immaterial items may be aggregated, and a specific disclosure need not be given if the information is not material.
• Offsetting. Assets and liabilities, and income and expenses, are not offset unless a Standard requires or permits it. Netting a gain on the disposal of an asset against its carrying amount is not offsetting in this sense.
• Frequency of reporting. A complete set is presented at least annually. If the period changes to a length other than a year, the entity discloses the reason and that the amounts are not entirely comparable.
• Comparative information. At least one comparative period is shown for all numerical information, unless a Standard says otherwise.
• Consistency of presentation. The presentation and classification of items is retained from one period to the next, unless a significant change in operations or a review shows a more appropriate presentation, or a Standard requires a change.

Current and non-current classification

An entity presents current and non-current assets, and current and non-current liabilities, as separate classifications on the face of the statement of financial position, unless a presentation based on liquidity gives reliable and more relevant information (as for a bank). Deferred tax is always non-current.

Current assets

An asset is current when the entity expects to realise it, or intends to sell or consume it, in its normal operating cycle; holds it primarily for the purpose of trading; expects to realise it within twelve months after the reporting period; or it is cash or a cash equivalent (unless restricted for at least twelve months). All other assets are non-current.

Inventory sold in a business whose operating cycle is fourteen months is current even if it will not be sold for thirteen months.

Current liabilities

A liability is current when the entity expects to settle it in its normal operating cycle; holds it primarily for trading; it is due to be settled within twelve months after the reporting period; or the entity does not have the right, at the end of the reporting period, to defer settlement for at least twelve months after the reporting period.

All other liabilities are non-current. The current portion of a long-term loan is current: a loan of ₦12,000,000 repayable in three equal annual instalments shows ₦4,000,000 as current and ₦8,000,000 as non-current. A bank overdraft repayable on demand is current.

The right to defer must have substance and exist at the end of the reporting period. For a loan subject to covenants, only covenants that the entity must comply with on or before the reporting date affect the classification, even if they are tested after it.

Covenants that must be complied with only after the reporting date do not affect classification. But the entity discloses information about them, such as their nature, the carrying amount of the related liability and facts that indicate it may have difficulty complying within the twelve months.

A liability that the counterparty may settle by transferring the entity’s own equity instruments is classified without regard to that option if the option is itself recognised as equity.

The statement of financial position

The face of the statement includes, as a minimum, line items for: 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; assets held for sale; trade and other payables; provisions; financial liabilities; liabilities and assets for current tax; deferred tax liabilities and assets; liabilities included in disposal groups; non-controlling interests within equity; and issued capital and reserves attributable to owners of the parent.

Further line items, headings and subtotals are added when relevant to understanding the position. Analysis of items, such as classes of property, plant and equipment, inventories and share capital, is in the notes or on the face.

For example, an entity at the year end has property, plant and equipment of ₦120,000,000, intangible assets of ₦15,000,000, inventories of ₦40,000,000, receivables of ₦35,000,000 and cash of ₦10,000,000, a total of ₦220,000,000. Its equity is share capital of ₦80,000,000 and retained earnings of ₦45,000,000 (₦125,000,000); a loan of ₦50,000,000 and deferred tax of ₦5,000,000 are non-current liabilities (₦55,000,000); and payables of ₦30,000,000 and current tax of ₦10,000,000 are current liabilities (₦40,000,000). Equity and liabilities total ₦125m + ₦55m + ₦40m = ₦220,000,000.

The ideas in more depth

Why classification matters

A reader uses current assets and current liabilities to judge whether the entity can pay what is due in the next year. If a loan repayable in six months were shown as non-current, the picture of liquidity would be wrong. That is why the test looks at the right to defer at the reporting date.

Why fair presentation can override a rule

The aim is a faithful picture. In the extremely rare case where following a Standard would mislead, the entity departs and explains why. For most entities, applying the Standards and giving the notes needed to understand them is fair presentation.

Sources and references

• IAS 1 Presentation of Financial Statements: components, general features, classification of assets and liabilities, and the statement of financial position, including the amendments on classification of liabilities as current or non-current.

These points are stated as at 5 November 2026.

Worked examples

1. (a) ₦4,000,000 current; ₦8,000,000 non-current.
2. (b) Current.
3. (c) Non-current, always.
4. (d) Current.

1. Test. No covenant had to be met on or before 31 December, so the entity has the right to defer settlement at that date.
2. Classification. Non-current.
3. Disclosure. The nature of the covenant, the carrying amount and facts that suggest difficulty in complying are disclosed.

1. Non-current assets.
   ₦120m + ₦15m = ₦135m.
   Current assets. ₦40m + ₦35m + ₦10m = ₦85m.
   Total assets ₦220m.
2. Equity. ₦125m. Non-current liabilities. ₦55m. Current liabilities. ₦40m.
3. Total equity and liabilities. ₦220m, which equals total assets.

How to answer in the exam

• List the components in order, and say the notes include policies.
• Give each general feature in one line with a short example. Eight features is the usual set.
• Classify by the test. Operating cycle, twelve months, right to defer at the reporting date.
• Set out the statement in order with subtotals, and check that both sides agree.

Common mistakes in the exam

• Showing the current portion of a long-term loan as non-current.
• Offsetting a receivable against a payable without a right to do so.
• Classifying deferred tax as current.
• Forgetting the third statement of financial position after a retrospective change.
• Treating a covenant that applies only after the reporting date as a reason to make the loan current.
• Mixing the minimum line items for the statement of financial position with those of the statement of profit or loss.

Quick revision

• Five components, comparatives, third statement of financial position for retrospective changes.
• Features: fair presentation, going concern (at least 12 months), accrual, materiality, offsetting, frequency, comparatives, consistency.
• Current: operating cycle, held for trading, within 12 months, cash. Liability current if no right to defer for 12 months at the reporting date.
• Deferred tax is non-current. Minimum line items include property, plant and equipment, inventories, receivables, cash, payables, provisions, issued capital.

Practice questions

These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.

Recall check: multiple choice

Section B style: written questions

A further written question

Model answers

Spotted a mistake? Tell us and we will check it.