Preparation and Presentation of Financial Statements According to International Standards (IAS 1): The Complete Guide
Preparation of Financial Statements according to IAS 1: The Complete Guide to Structure, Presentation, and Notes
If you want to prepare financial statements in a way that makes them understandable, comparable, and useful for management and investors’ decisions— then IAS 1 is the “Presentation Rulebook” that defines the report structure, components, and how key information and notes are presented. This guide summarizes the requirements clearly, providing a practical path to convert Closing Accounts and the Trial Balance into Audited Financial Statements.
- What IAS 1 covers and what it does not.
- The required components of financial statements and how they interrelate.
- Key general presentation principles: Comparability, Consistency, Aggregation, No Offsetting, Classification bases.
- Practical steps to convert the Trial Balance into ready statements + a pre-approval checklist.
- A ready-to-use Disclosure/Note template you can copy and edit quickly.
1) What is IAS 1 and its Scope?
IAS 1 is a “Presentation” standard, not a “Measurement” standard. Meaning: It defines how financial statements are presented as a package (structure, components, comparisons, consistency, classification), but it does not set detailed rules for every item (like Inventory or Fixed Assets)—those are covered by other standards.
When do you really need IAS 1?
- When preparing Audited Financial Statements or statements for official approval.
- When building a unified internal reporting template to reduce differences between periods.
- When preparing a Closing Pack that facilitates review and governance.
2) Why is Quality Preparation Important?
In practice, the quality of Financial Reports manifests in three axes: Comparability, Traceability, and Clarity of Disclosure. These axes reduce audit time, increase funder confidence, and help management make accurate decisions.
- Reducing Misinterpretation Risks: The same numbers might be misunderstood if presentation is inconsistent or notes are weak.
- Speeding up Audit: “Well-presented” statements reduce inquiries and last-minute adjustments.
- Improving Governance: Standardized presentation makes review easier for committees (Audit Committee / Board).
Because good presentation starts with clear policies linking measurement, presentation, estimates, and error correction: Expand: Accounting Policies
3) Components of Financial Statements (IAS 1)
Financial statements are not a “single list”. Under IAS 1, they are a complete set; each statement explains a different angle of performance, position, or cash, and integrates with the Notes to interpret the numbers.
| Component | What does it answer? | Common Presentation Notes |
|---|---|---|
| Statement of Financial Position | Where do we stand? (Assets/Liabilities/Equity) | Current/Non-current or Liquidity classification |
| Statement of Profit or Loss and OCI | How did we perform? (Result + OCI items) | Expenses by Nature or Function |
| Statement of Changes in Equity | How did Equity move? | Adjustments, Dividends, Share Issues, OCI… |
| Statement of Cash Flows | What happened to Cash? | Operating/Investing/Financing |
| Notes | Why are numbers like this? What are the risks? | Policies, judgments & estimates, breakdown of items |
If you need details on structure, liquidity order, and current vs. non-current difference: Detailed Guide: Statement of Financial Position
Because the quality of notes is the difference between “numbers” and an “understandable report”: Related Topic: Notes to Financial Statements
4) General Presentation Principles: Unchangeable Rules
These principles are the backbone of Preparing Financial Statements under IAS 1:
- Fair Presentation: Faithfully representing the economic reality with honesty and sufficient disclosure.
- Going Concern: Assuming the entity will continue unless there are strong indicators otherwise.
- Accrual Basis: Recognizing revenues/expenses when incurred, not when cash moves (except for Cash Flows).
- Materiality and Aggregation: Do not clutter with immaterial details, and do not hide material items in aggregated groups.
- No Offsetting: Do not offset assets against liabilities or income against expenses unless a specific standard permits.
- Comparative Information: Present comparison for at least one prior period for every amount shown.
- Consistency: Keeping presentation and classification consistent between periods unless justified.
5) Classification: Current/Non-current or Liquidity?
General Rule: Present assets and liabilities as Current/Non-current. However, in some sectors (especially financial institutions), presentation based on liquidity may be more appropriate if it provides better information.
6) Statement of Profit or Loss and OCI
In preparing financial statements under IAS 1, you will often decide: Should expenses be presented by Nature (salaries, depreciation…) or by Function (cost of sales, selling, admin…)? The choice depends on what is more relevant to the business nature, provided sufficient disclosure is made.
Disclosure Checklist - Excel File
Quick Point on Other Comprehensive Income (OCI)
- Not all gains/losses go through Profit or Loss.
- Some items appear in OCI and may or may not be reclassified later (depending on the standard).
- Key: Clear presentation + Note explaining “Why did this not go to Profit?”.
Because many questions arise from linking Profitability to Cash: Read Next: Preparing Statement of Cash Flows
7) Notes: How to Write Them Smartly?
Notes are not “filler”; they are where you explain: What are the policies? What are the critical judgments? What are the risks? Why did numbers change? In audited statements, note quality is measured by how well they answer user questions without guessing.
Practical Structure for Notes (Proposed)
- Basis of Preparation: Standards framework, currency, reporting period, going concern.
- Significant Accounting Policies: Revenue recognition, inventory measurement, depreciation…
- Critical Judgments and Estimates: Where was professional judgment influential?
- Breakdown of Key Items: Movement schedules, aging, reconciliations.
- Risks and Commitments: Covenants, contingent liabilities, subsequent events…
8) From Trial Balance to Statements: Practical Path
This workflow suits accounting and closing teams, transforming Closing Accounts into adoptable statements:
| Phase | Goal | Clear Outputs |
|---|---|---|
| 1) Closing + Initial Reviews | Clean basic errors before shaping | Stable Trial Balance + Documented Adjusting Entries |
| 2) Reclass / Accruals | Correct classification & proper recognition | Adjustment Log + Brief explanation for each entry |
| 3) Mapping | Link accounts to FS line items | FS Mapping + Tie-outs |
| 4) Drafting Notes | Interpret numbers & risks | Numbered Notes + Cross-references |
| 5) Pre-approval Review | Minimize last-minute edits | Checklist + Review Sign-offs |
To speed up the Mapping phase and reduce line item errors: Template for Mapping Accounts to Statements
To reduce “Lack of Disclosure” or “Inconsistency” risks before issuing statements: Use Final Review Checklist & Sign-off Before Approval
9) Sensitive Disclosures: Subsequent Events & Related Parties
The most sensitive audit areas are usually not “Statement Format” but disclosures that change user perception of risk or continuity. Two examples always under the microscope: Subsequent Events and Related Parties.
When to adjust statements vs when to disclose only: Read Next: Subsequent Events
How to identify and disclose them under IAS 24: Deep Dive: Related Parties
If preparing quarterly/half-yearly reports differing from annuals in sensitive points: Deep Dive: Interim Financial Reports
10) Tools and Templates (Ready to Use)
If your goal is producing statements quickly with consistent quality, use “Templates” to reduce randomness and increase consistency. Here are internal links to tools directly related to Financial Statement Preparation:
- Download Ready-to-Approve Financial Statements Template
- Ready Excel Financial Statements Generator
- Template for Mapping Accounts to Statements
- Use Final Review Checklist & Sign-off Before Approval
- Accountant Handover Protocol Template
Template “Statement Preparation Memo” (Copy & Edit Quickly)
Use the following template as a draft inside your Closing Pack to document presentation decisions, consistency, and comparisons:
11) Frequently Asked Questions
What does IAS 1 specifically cover?
IAS 1 sets out the overall requirements for the presentation of financial statements: structure, general principles, comparability, consistency, classification, and content to ensure they are understandable and comparable.
What are the components of financial statements under IAS 1?
They typically include: Statement of Financial Position, Statement of Profit or Loss and Other Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows, and Notes (comprising significant accounting policies and other explanatory information).
Is comparative information required?
Yes, comparative information for at least one preceding period must be disclosed for all amounts reported in the financial statements, as well as narrative information when relevant.
When do we use Current/Non-current classification?
The Current/Non-current distinction is the general rule, unless a presentation based on liquidity provides information that is reliable and more relevant (e.g., for financial institutions).
What are the most sensitive notes in audited statements?
Typically: Basis of preparation, significant accounting policies, critical judgments and estimates, risks and liabilities, related parties, and events after the reporting period.
How do I convert the Trial Balance into ready statements?
Start by closing temporary accounts, creating adjusting entries, then mapping accounts to line items, checking tie-outs and notes, and finally performing a review checklist before approval.
12) Conclusion
Preparing Financial Statements under IAS 1 means: a cohesive set of statements, consistent presentation, clear comparisons, and notes that make figures understandable and reviewable. If you apply a practical path from Trial Balance to Mapping, then Notes, and a pre-approval checklist—you will reduce late adjustments, increase the quality of Financial Reports, and produce statements closer to approval and audit readiness.