6.1 Statement of Financial Position (IFRS 18) Structure & Preparation

6.1 Statement of Financial Position (IFRS 18) Structure & Preparation

Introduction to IFRS 18 Presentation and Disclosure in Financial Statements

IFRS 18 Presentation and Disclosure in Financial Statements was issued on 9 April 2024 and is effective for annual periods beginning on or after 1 January 2026 (earlier application permitted). It supersedes IAS 1 Presentation of Financial Statements. ACCA has confirmed that, from the September 2025 to August 2026 syllabus, the formats for all financial statements (including the statement of cash flows) under IFRS 18 are examinable and IAS 1 is no longer examinable; Management-defined Performance Measures (MPMs) are not examined at FA level. IFRS 18 sets out the overall requirements for the presentation of financial statements, guidelines for their structure, and minimum line items for their content. The primary objective is to ensure comparability both with the entity's financial statements of previous periods and with the financial statements of other entities.

General Principles of IFRS 18

To achieve its objective, IFRS 18 lays down several fundamental principles that must be adhered to when preparing and presenting financial statements:

1. Fair Presentation and Compliance with IFRS: Financial statements must present fairly the financial position, financial performance, and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events, and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income, and expenses set out in the Conceptual Framework. Compliance with IFRSs is presumed to result in fair presentation.
2. Going Concern: When preparing financial statements, management must make an assessment of an entity's ability to continue as a going concern. Financial statements are prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.
3. Accrual Basis of Accounting: An entity prepares its financial statements, except for cash flow information, using the accrual basis of accounting. This means that transactions and events are recognized when they occur (and not as cash or its equivalent is received or paid).
4. Materiality and Aggregation: An entity must present separately each material class of similar items. Items of a dissimilar nature or function must be presented separately unless they are immaterial. Information is material if omitting, misstating, or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements.
5. Offsetting: Assets and liabilities, and income and expenses, must not be offset unless required or permitted by an IFRS. Offsetting detracts from the ability of users both to understand the transactions, other events and conditions that have occurred and to assess the entity's future cash flows.
6. Frequency of Reporting: An entity must present a complete set of financial statements (including comparative information) at least annually.
7. Comparative Information: Except when IFRSs permit or require otherwise, an entity must present comparative information in respect of the preceding period for all amounts reported in the current period's financial statements.
8. Consistency of Presentation: The presentation and classification of items in the financial statements must be retained from one period to the next unless a change is justified either by a change in circumstances or a requirement of a new IFRS.

The Statement of Financial Position (SOFP)

The Statement of Financial Position, formerly known as the balance sheet, provides a snapshot of an entity's financial health at a specific point in time. It lists the entity's assets, liabilities, and equity, strictly adhering to the accounting equation: Assets = Equity + Liabilities.

Current vs. Non-Current Classification

IFRS 18 requires an entity to present current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position, except when a presentation based on liquidity provides information that is reliable and more relevant.

Current Assets: An entity shall classify an asset as current when:

• It expects to realize the asset, or intends to sell or consume it, in its normal operating cycle.
• It holds the asset primarily for the purpose of trading.
• It expects to realize the asset within twelve months after the reporting period.
• The asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

All other assets are classified as non-current. Non-current assets include tangible, intangible, and financial assets of a long-term nature.

Current Liabilities: An entity shall classify a liability as current when:

• It expects to settle the liability in its normal operating cycle.
• It holds the liability primarily for the purpose of trading.
• The liability is due to be settled within twelve months after the reporting period.
• It does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.

All other liabilities are classified as non-current.

Detailed Components of the SOFP

Non-Current Assets

• Property, Plant, and Equipment (PPE): Tangible assets held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and are expected to be used during more than one period (regulated by IAS 16). Examples include land, buildings, machinery, and vehicles.
• Intangible Assets: Identifiable non-monetary assets without physical substance, such as patents, trademarks, copyrights, and development costs (regulated by IAS 38). Goodwill is also presented here but is subject to different rules (IFRS 3).
• Investments: Long-term investments in shares or bonds of other entities.

Current Assets

• Inventories: Assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process (regulated by IAS 2).
• Trade and Other Receivables: Amounts owed by customers for goods sold or services performed on credit (trade receivables), minus any allowance for receivables. Prepayments (expenses paid in advance) are also included here.
• Cash and Cash Equivalents: Cash on hand, demand deposits, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Equity

• Share Capital: The nominal (par) value of shares issued to shareholders.
• Share Premium: The amount received by the company from shareholders in excess of the nominal value of the shares issued.
• Revaluation Surplus: Gains arising from the revaluation of non-current assets (such as land and buildings under the IAS 16 revaluation model).
• Retained Earnings: The accumulated profits of the entity that have not been distributed as dividends to shareholders.

Non-Current Liabilities

• Long-term Borrowings: Bank loans, debentures, or bonds payable that are due for repayment after more than twelve months from the reporting date.
• Deferred Tax Liabilities: Amounts of income taxes payable in future periods in respect of taxable temporary differences.
• Provisions: Liabilities of uncertain timing or amount (regulated by IAS 37) that are expected to be settled after more than twelve months.

Current Liabilities

• Trade and Other Payables: Amounts owed to suppliers for goods or services received on credit (trade payables). Accruals (expenses incurred but not yet paid) are also included here.
• Short-term Borrowings: Loans due for repayment within twelve months.
• Bank Overdraft: A negative bank balance, representing a short-term liability to the bank.
• Current Tax Payable: The amount of income tax payable in respect of the taxable profit for the current or past periods.
• Provisions (Short-term): Provisions expected to be settled within twelve months, such as a provision for warranties on goods sold this year.

Full Proforma Statement of Financial Position

Below is a comprehensive proforma Statement of Financial Position in accordance with IFRS 18 requirements. Note how the classifications provide a clear, structured view of the entity's financial standing.

Preparing the SOFP requires careful extraction of balances from the trial balance, making necessary period-end adjustments (such as depreciation, accruals, prepayments, and closing inventory), and slotting them into this strict framework. Mastery of this layout is absolutely non-negotiable for success in the ACCA FA exam.