Presentation of financial statements is the process of summarising, presenting and reporting financial information of an entity. Financial statements report information about the entity’s financial position, financial performance and cash flows to the primary users of the financial statements.
Recall that entities prepare the general purpose financial statements for primary users. Primary users are those not in the position to access financial information of an entity for their specific purposes. In addition, general purpose financial statements are not able to provide financial information for all users. Instead, general purpose financial statements focus on the common financial information needs of the primary users. Objectives and Users of the General Purpose Financial Statements has covered this aspect in great length.
This round, we bring to you the comparison of the financial reporting requirements for the presentation of financial statements. For this, we compare the requirements in MPSAS 1 to MFRS 101 and MPERS. Unlike MPSAS 1 and MFRS 101, MPERS segregates the requirements for presentation of financial statements into five sections as follows:
- First, Section 3 Financial Statement Presentation
- Second, Section 4 Statement of Financial Position
- Third, Section 5 Statement of Comprehensive Income and Income Statement
- Fourth, Section 6 Statement of Changes in Equity and Statement of Income and Retained Earnings
- Lastly, Section 8 Notes to the Financial Statements
This article, however, does not mean to discuss all differences between MPSAS, MFRS and MPERS. Instead, we highlight the significant differences in the requirements of the three frameworks. Additionally, if you are wondering which accounting framework should an entity use, head out to Financial Reporting Frameworks in Malaysia to get the answer.
Let us now dive into the details.
Components of financial statements
First, let’s talk about the components of financial statements. Under MPSAS 1, a complete set of financial statements comprises:
- First, a statement of financial position.
- Second, a statement of financial performance.
- Third, a statement of changes in net asset/equity.
- Fourth, a cash flow statement.
- Fifth, a comparison of budget and actual amount, if an entity makes publicly available its approved budget.
- Lastly, notes to the financial statements.
MFRS 101 and Section 3 of MPERS has similar requirements to MPSAS 1 regarding a complete set of financial statements. Of course, in MPSAS 101 and Section 3 of MPERS, there is no requirement to prepare a comparison of budget and actual amount. The comparison statement is specific to public sector entities. The comparison arises from stewardship of public sector entities in dealing with public monies and how they utilise the monies.
MPSAS 1, however, does not explicitly state that comparative information and opening statement of financial position as part of the complete set of financial statements, unlike MFRS 101. This, however, does not mean that entities do not need to present comparative information. In fact, entities must also present comparative information under MPSAS 1 unless when an MPSAS permits or requires otherwise. This requirement is included in other parts of MPSAS 1.
Structure and content for the presentation of financial statements
Next, we will see the significant differences in the structure and content for the presentation of financial statements. For this, we note the significant differences in the requirements relating to the following:
Statement of financial position
There are three significant differences in relation to the presentation of the statement of financial position:
#1. Disclosure of amount expected to be recovered no more than 12 months and more than 12 months
All three frameworks require entities to segregate their assets and liabilities into current and non-current classification. An exception applies if presentation based on liquidity provides information that is reliable and and more relevant.
Regardless of the presentation choice, both MPSAS 1 and MFRS 101 require entities to disclose the amount expected to be recovered or settled after more than 12 months. This is the case when asset and liability line item combines amounts expected to be recovered or settled more than 12 month and no more than 12 months after the reporting date. Section 4 of MPERS, however, does not explicitly require the disclosure of this information in the financial statements.
#2: Mixed basis for classification of assets and liabilities
Both MPSAS 1 and MFRS 101 allow entities to present some of their assets and liabilities using a current/non-current classification and others in order of liquidity. This means entities can use mixed basis in the preparation of statement of financial position. The requirement is, however, not available in MPERS.
#3. Classification of held for sale
Lastly, note that MFRS 101 requires entities to present total assets and liabilities classified as held for sale and disposal groups as a separate line item in the statement of financial position as current assets. This presentation is, however, not available in MPSAS 1 and Section 4 of MPERS.
Statement of financial performance
As for the statement of financial performance, we note four significant differences in the financial reporting requirements as follows:
#1: Other comprehensive income component
In MPSAS 1, entities recognise all items of revenue and expenses for the period in surplus or deficit, unless permitted otherwise. Unlike MFRS 101 and Section 5 of MPERS, MPSAS 1 does not have the comprehensive income component. All revenue and expenses items either go to surplus or deficit (i.e. profit or loss) or recognise directly in net asset/equity.
Naturally, as MPSAS 1 does not have the comprehensive income component, there is no requirement to segregate items that will subsequently reclassified to profit or loss and items that will not subsequently reclassified to profit or loss, unlike MFRS 101 and Section 5 of MPERS.
#2: Minimum items in the statement of financial performance
Secondly, MPSAS 1 does not explicitly require entities to present the following items on the face of statement of financial performance, unlike MFRS 101:
- Gains and losses arising from the derecognition of financial assets measured at amortised cost.
- Impairment losses, including reversals of impairment losses or impairment gains.
- If a financial asset is re-classified out of the amortised cost to fair value through profit or loss, any gain or loss arising from a difference between the previous amortised cost and its fair value at the reclassification date.
- If a financial asset is re-classified out of the fair value through other comprehensive income to fair value through profit or loss, any cumulative gain or loss that is reclassified to profit or loss.
MPERS also does not require the presentation of the above items in the statement of financial performance.
#3: Presentation of extraordinary items
Third difference is in relation to the presentation of extraordinary items. MPSAS 1 does not explicitly prohibits entities to disclose an item of revenue or expense as extraordinary item. This is however, explicitly prohibited in MFRS 101 and Section 5 of MPERS.
#4: Gain or loss on discontinued operations
Another key difference is that MPSAS 1 requires the presentation of pre-tax gain or loss on the disposal of assets or settlement of liabilities attributable to discontinuing operations. MFRS 101 and Section 5 of MPERS, however, require the presentation of post-tax gain or loss on the disposal of assets from discontinuing operations.
Statement of changes in net asset/equity
Note that Section 6 of MPERS allows entities to present statement of changes in equity or to omit this statement. Entities can omit such statement and present a combined statement of income and retained earnings when they meet the specified conditions. Entities may elect to present the combined statement if the only changes to its equity during the period arises from profit or loss, payment of dividends, corrections of prior period errors and changes in accounting policy. This election is, however, not available in MPSAS 1 and MFRS 101.
The items to be presented in the statement of changes in net asset/equity are generally the same between the three standards. MPSAS 1, however, requires additional item which is the summary of Government Trust Account balances.
Notes to the financial statements
The general requirements governing the presentation in the notes to the financial statements are generally the same for the three standards. However, we note some differences as follows:
- Firstly, the disclosure of accounting policies – MPSAS 1 requires entities to specifically disclose the extent to which the entities have applied any transitional provisions in any MPSAS. The requirement is, however, not available in MFRS 101 and Section 8 of MPERS.
- Secondly, capital management disclosure – Both MPSAS 1 and MFRS 101 require entities to disclose information relating to the entities’ capital management. It includes the objectives, policies and processes for managing capital. The information is, however, not required to be disclosed under MPERS.
Conclusion
The above sums up the comparison between MPSAS, MFRS and MPERS regarding the presentation of financial statements. At the international level, the International Public Sector Accounting Standards Board (“IPSASB”) has revised IPSAS 1 Presentation of Financial Statements. This is yet to be adopted in Malaysia. You can refer to 2021 Handbook International Public Sector Accounting Pronouncements for the updated standard on IPSAS 1.
We will continue to bring you comparisons for other standards in our future articles. In the meantime, you can read other relevant articles in the Financial Accounting section.