Structure of IFRS for SMEs Financial Statements
According to Section 3.17 of the IFRS for SMEs Accounting Standard, a complete set of financial statements includes:
- a Statement of Financial Position;
- a Statement of Comprehensive Income, or an Income Statement and a separate Statement of Comprehensive Income;
- a Statement of Changes in Equity;
- a Statement of Cash Flows;
- Notes to the Financial Statements.
References
Statement of Financial Position
The Statement of Financial Position presents an entity’s assets, liabilities and equity at the reporting date.
Assets and liabilities are generally classified as current or non-current. An asset is normally classified as current when it is expected to be realised, sold or consumed during the normal operating cycle, is held for trading, or is expected to be realised within twelve months after the reporting date.
A liability is normally classified as current when it is expected to be settled during the normal operating cycle, is held for trading, or is due to be settled within twelve months after the reporting date.
When a presentation based on liquidity provides more reliable and relevant information, assets and liabilities may instead be presented in order of liquidity.
Income statement
The income statement is the representation of the profit and loss account and is classified according to the by nature of expense method.
The classification by nature is one of the options available from the IFRS for SMEs, and since it is the simplest and most flexible for different business realities, it was decided to implement this approach.
The concept is that costs are aggregated according to their nature, such as depreciation, purchases of materials, transportation costs, etc.
There is also the classification by cost destination, where costs are distinguished between cost of goods sold and other costs, which provides more meaningful information but requires a considerable degree of discretion on the part of the financial statement preparer.
Statement of changes in equity
The statement of changes in the equity of a company between two financial years reflects the variations in the net equity due to the increase or decrease of its net assets for the period or the wealth generated, based on the specific valuation criteria implemented and indicated in the financial statements.
Statement of Cash Flows
The IFRS for SMEs stipulates that entities must categorize their transactions into three distinct activities:
- Operating
- Investing
- Financing.
It further permits entities to present their operating cash flows using either the direct or indirect method. Ultimately, the framework’s goal is to furnish decision-useful information to users, aiding them in making informed economic choices.
Notes
The notes to the financial statements represent a fundamental part of financial reporting under IFRS for SMEs. They provide additional and detailed information that integrates and explains the data presented in the main financial statements.
Furthermore, they play a crucial role in ensuring the transparency and completeness of financial reporting, allowing users of the financial statements to fully understand the company's financial position, performance, and cash flows.
In conclusion, the notes to the financial statements are therefore an essential tool for improving the transparency and comparability of financial reporting at an international level.