by Neil Stein
16 May 2003
This article looks at the other elements of financial statements required by FRS 3, Reporting Financial Performance and IAS 1, Presentation of Financial Statements other than the income statement/profit and loss account.
We'll look first at the UK requirements:
- statement of total recognised gains and losses
- note of historical cost profits and losses
- reconciliation of movements in shareholders' funds.
Statement of total recognised gains and losses
FRS 3 argues that the profit and loss account is not sufficient on its own as a report of a company's financial performance. The statement of total recognised gains and losses (STRGL) is an attempt to present details of the other elements making up a company's total performance.
The STRGL presents:
- profit for the financial year before dividends
- unrealised gains and losses on revaluation of assets
- currency translation differences
- prior year adjustments.
The profit for the year is, of course, the figure in the profit and loss account. This will already include any realised gains or losses arising on the disposal of assets. That leaves the unrealised gains and losses to be disclosed as the second item in the STRGL. As this article is addressed primarily to candidates taking Paper F3, we'll ignore the currency translation differences.
Finally, the STRGL presents prior year adjustments (something in the current period that affects the previous period) eg the discovery of a fundamental error or a change in accounting policy.
There are two ways we could deal with these. We could include them in the current period's profit and loss account or we could adjust the opening balance of profit brought forward so that the correction does not affect the current year's figures. UK standards require the latter treatment - adjustment on the opening balance of profit brought forward.
This means that the adjustment does not appear in the current profit and loss account, but it does feature in the STRGL and, as we shall see, in another statement - the reconciliation of movements in shareholders' funds.
Please refer to Figure 1 for the format of the Statement, slightly simplified from FRS 3.