Fair Presentation and Compliance with IFRS

6.1 Fair Presentation and Compliance with IFRS

6.1.1 “Fair presentation” implies that the financial statements “present fairly” (or alternatively, in some jurisdictions [countries], present a “true and fair” view) of the financial position, financial performance, and cash flows of an entity.

6.1.2 “Fair presentation” requires faithful representation of the effects of transactions and other events and conditions in accordance with the definitions and recognition criteria for assets, liabili-

ties, income, and expenses laid down in the IASB’s Framework. The application of IFRS, with ad- ditional disclosure where required, is expected to result in financial statements that achieve a “fair presentation.”

6.1.3 Under IAS 1, entities are required to make an explicit statement of compliance with IFRS in their notes if their financial statements comply with IFRS.

6.1.4 By disclosure of the accounting policies used or notes or explanatory material, an entity cannot correct inappropriate accounting policies.

Practical Insight

In practice, some entities believe that even if an inappropriate accounting policy were used in presenting the financial statements (say, use of “cash basis” as opposed to the “accrual basis” to account for certain expenses), as long as it is disclosed by the entity in notes to the financial statements, the problem would be rectified. Recognizing this tendency, IAS 1 categorically prohibits such shortcut methods from being employed by entities presenting financial state- ments under IFRS.

Chapter 3 / Presentation of Financial Statements (IAS 1)

6.1.5 In extremely rare circumstances, if management believes that compliance with a particular requirement of the IFRS will be so misleading that it would conflict with the objectives of the fi- nancial statements as laid down in the IASB’s Framework, then the entity is allowed to depart from that requirement (of the IFRS), provided the relevant regulatory framework does not prohibit such

a departure. This is referred to as “true and fair override” in some jurisdictions. In such circum- stances, it is incumbent upon the entity that departs from a requirement of IFRS to disclose

(a) That management has concluded that the financial statements present fairly the entity’s financial position, financial performance, and cash flows (b) That it has complied with all applicable Standards and Interpretations except that it has de- parted from a particular requirement to achieve fair presentation (c) The title of the Standard or the Interpretation from which the entity has departed, the nature of the departure, including the treatment that the Standard or Interpretation would require, the reason why that treatment would be misleading in the circumstances that it would con- flict with the objective of the financial statements set out in the Framework, and the treat- ment adopted

(d) The financial impact on each item in the financial statements of such a departure for each period presented

6.1.6 Furthermore, in the extremely rare circumstances when management concludes that com- pliance with the requirements in a Standard or Interpretation would be so misleading that it would conflict with the IASB’s Framework but where the relevant regulatory framework prohibits such departure, the entity shall, to the maximum extent possible, reduce the perceived misleading as- pects of compliance by disclosing: the title of the Standard or Interpretation in question, the nature of the requirement, and the reason why management has concluded that complying with that re- quirement is so misleading that it conflicts with the IASB’s Framework, and, for each period pre- sented, the adjustments to each item in the financial statements that management has concluded would be necessary to achieve a fair presentation.