income statement format under ifrs - company reporting · pdf fileincome statement format...

CR Common Practices Income statement format under IFRS

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© Company Reporting, HMS President, Victoria Embankment, London, EC4Y 0HJ, UK

Published on 25 January 2012. For more information, please email [email protected]

Introduction

Under International Financial Reporting Standards (IFRS), the presentation of the income statement is governed by IAS 1 “Presentation of financial statements”. Under IAS 1 a company is required to present either a single statement of comprehensive income or two separate statements one displaying components of profit and loss (separate income statement) and a second beginning with profit and loss showing components of other comprehensive income (statement of comprehensive income) (para 81). This report establishes through an analysis of the financial statements of 30 large global listed companies which approach is the most popular. It then goes on to examine the format and content of the profit and loss information presented considering whether expenses recognised in the calculation of profit and loss are more commonly presented using a classification based on their nature or function within the entity (para 99). Whichever format is followed companies are encouraged to present an analysis of expenses in the statement of comprehensive income or the separate income statement (para 100).

This report will also consider the presentation of mandatory items. On the face of the income statement, in the calculation of profit as a minimum a company shall include line items which represent: revenue; finance costs; share of the profit or loss of associates and joint ventures accounted for using the equity method; tax expense; and the total result from discontinued operations (para 82). Revenue is defined by IAS 18 “Revenue” as the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants (para 7). Under IAS 18 revenue excludes sales and other similar taxes and takes into account the amount of any trade discounts and volume rebates allowed by the entity.

In addition, a company shall disclose in the income statement as allocation for the period: profit or loss for the period attributable to non-controlling interests and owners of the parent (para 83(a)). Lastly, under IAS 33 “Earnings per share”, a company is required to present in the statement of comprehensive income basic and diluted earnings per share for profit or loss from continuing operations attributable to the ordinary equity holders of the parent entity (para 66).

Key observations include the following. The separate income statement and other comprehensive income statement

presentation format is favoured by 87% of companies. The primary analysis of expenses is by function rather than

nature for 77% of companies. Some form of expense breakdown is given on the face of the income statement by 87%

of companies. A gross finance costs figure is presented on the face of the income statement by 70% of companies. Of

those companies with evidence of equity accounted investments 83% present a separate line on the face of the

income statement. Of those companies with discontinued operations in the current year 88% disclose discontinued

profit separately on the face of the income statement. A clear allocation of profit between controlling and non-

controlling interests is presented by 90% of companies. Basic and diluted earnings per share are clearly disclosed on

the face of the income statement by 97% of companies.

Companies under examination

Our sample consists of 30 large global listed companies that prepare IFRS financial statements with period ends between 31 December 2011 and 30 September 2012. The sample is drawn from a globally diverse range of countries and includes an array of companies from different industries. The companies of which the accounts have been analysed are as follows:

Company Period End Auditors Country Industry Classification

African Rainbow Minerals

30 June 2012 Ernst & Young South Africa Mining






AGL Energy 30 June 2012 Deloitte Touche Tohmatsu Australia Multiutilities

Air China 31 December 2011 Ernst & Young China Airline

Americana Latina Logistica

31 December 2011 Ernst & Young Brazil Transportation Services

Amvig Holdings 31 December 2011 RSM Nelson Wheeler Hong Kong Containers & Packaging

Anglo American Platinum

31 December 2011 Deloitte & Touche South Africa Mining

Arcelor Mittal South Africa

31 December 2011 Deloitte & Touche South Africa Iron & Steel

Aspen Pharmacare Holdings

30 June 2012 Pricewaterhouse Coopers South Africa Pharmaceuticals

Associated British Foods

15 September 2012 KPMG UK Food Products

Axiata Group Berhad 31 December 2011 PricewaterhouseCoopers Malaysia Mobile Telecommunications

B2W Compnhia Global do Varejo

31 December 2011 PricewaterhouseCoopers Brazil Broadline Retailers

Bombardier 31 December 2011 Ernst & Young Canada Aerospace

Brazil Foods 31 December 2011 KPMG Brazil Food Products

British Sky Broadcasting

30 June 2012 Deloitte UK Broadcasting & Entertainment

CGI Group 30 September 2012 Ernst & Young Canada Computer Services

Genting Malaysia Berhad

31 December 2011 PricewaterhouseCoopers Malaysia Hotels

Imperial Tobacco 30 September 2012 PricewaterhouseCoopers UK Tobacco

Infineon Technologies

30 September 2012 KPMG Germany Semiconductors

JBS 31 December 2011 KPMG Brazil Food Products

Nexen 31 December 2011 Deloitte & Touche Canada Exploration & Production

Orica 30 September 2012 KPMG Australia Specialty Chemicals

Pernod Ricard 30 June 2012 Deloitte, Mazars France Distillers & Vintners

Shaw Communications

31 August 2012 Ernst & Young Canada Broadcasting & Entertainment

Siemens 30 September 2012 Ernst & Young Germany Electronic Equipment

Sky City 30 June 2012 PricewaterhouseCoopers New Zealand Hotels

Sky Network Television

30 June 2012 PricewaterhouseCoopers New Zealand Broadcasting & Entertainment

Smiths 31 July 2012 PricewaterhouseCoopers UK Diversified Industrial






Sodexo

31 August 2012 PricewaterhouseCoopers, KPMG

France Restaurants & Bars

ThyssenKrupp 30 September 2012 KPMG Germany Iron & Steel

Wolseley 31 July 2012 PricewaterhouseCoopers UK Industrial Supplier

Analysis

Income statement: presentation format

Our analysis shows that, it is more common for companies to present separate income and other comprehensive

income statements with 87% of companies including Pernod Ricard (Extract 1) favouring such an approach and 13%

of companies including Aspen Pharmacare (Extract 2) instead choosing to present a single statement of

comprehensive income. Four sample companies present a single statement of comprehensive income including three

of the four based in South Africa with the only other company to do so coming from Malaysia. In a presentation format

which falls short of IAS 1 Brazilian company Americana Latina Logistica includes its statement of other comprehensive

income in a note to the accounts rather than as a primary statement (para 10).

A second choice that companies have is whether the primary analysis of expenses presented is based on nature or

function. Our findings are that 77% of companies including Amvig Holdings (Extract 3) present the primary analysis of

expenses based on function with 23% of companies including Orica (Extract 4) instead opting for an expense

breakdown by nature. Seven companies adopt the latter approach including three of the four based in Australasia.

Company

Single Statement of Comprehensive

Income

Separate Income Statement and Other

Comprehensive Income Expenses by Nature Expenses by Function

Pernod Ricard

British Sky Broadcasting

Wolseley


AGL Energy

Americana Latina Logistica

Amvig Holdings

B2W Compnhia global do Varejo

Bombardier

Brazil Foods

CGI Group

Genting Malaysia






Imperial Tobacco

Infineon Technologies

JBS

Associated British Foods

Shaw Communications

Siemens

Smiths

Sodexo

ThyssenKrupp

Air-China

Nexen

Orica

Sky City

Sky Network Television

Anglo American Platinum

Aspen Pharmacare

Arcelor Mittal South Africa

Axiata

Income statement: line items

All companies in our sample include a revenue line on the face of the income statement with seven describing the

figure reflected as net. All of the Brazilian companies in our sample including B2W Compnhia global do Varejo (Extract

5) plus Pernod Ricard, Nexen and ThyssenKrupp describe the revenue figure presented as net. The Brazilian

companies give a detailed breakdown in a note to the accounts. Two companies Genting Malaysia and African

Rainbow Minerals in a practice that separates them from other sample companies include investment or interest

income as part of revenue.

A second item which should be included as a minimum is finance costs. IAS 1 does not define whether the figure

expressed should be net of finance income but in the absence of any reference to finance income in our view the

gross figure should be presented. Of the companies in our sample 70% present a gross finance costs figure with the

remainder employing some form of netting. Canada is the only geography covered by our sample where all

companies disclose a gross figure. Of the UK companies in our sample only 40% present a gross figure.

Of the companies in our sample, 80% have evidence of equity accounted investments. Of these 83% include a line on

the face of the income statement showing a share of the results of equity accounted investments. Of the four






companies not to include such a line two are Brazil based. Genting Malaysia (Extract 6) in a presentation that goes

beyond the minimum requirements discloses its share of the results of associates and jointly controlled entities in two

separate lines.

A further item that companies should include as a minimum is taxation. IAS 12 “Income taxes” defines the tax expense

as the aggregate amount included in the determination of profit or loss in the period in respect of current tax and

deferred tax. Current tax represents the amount of income taxes payable in respect of the taxable profit for a period

and deferred tax represents income tax payable or recoverable in future periods (para 5). Of the sample companies

87% include a separate line item which relates specifically to income taxes. Three of the four Brazil based companies

in the sample do not include a specific income tax line. These companies aggregate income tax with social

contributions that represent an amount levied by the Brazilian government. Such contributions can only be used to

fund a series of guarantees provided in Brazilian legislation such as the universal right to social security and health of

workers. A fourth company not to include a standalone income tax line is Malaysian company Axiata which combines

income tax and zakat. Zakat forms one of the five pillars of Islam and represents a giving of a set proportion of wealth

to charity.

A final item that should be included as a minimum is the amount of profit that is generated from discontinued

operations. Of the sample companies 27% have evidence of discontinued operations in the current year. Of these

eight companies seven include a separate line item representing discontinued operations on the face of the income

statement with African Rainbow Minerals the only company not to do so.

While not mandatory IAS 1 encourages companies to include an analysis of expenses on the face of the income

statement. Of the sample, 87% of companies give some form of expense breakdown on the face of the income

statement. Of the four companies which do not give any breakdown two are from the UK and one each from Canada

and Australia. British Sky Broadcasting (Extract 7) presents no analysis of its expenses on the face of the income

statement including a single line labelled operating expense.

Two further items companies are required to include under IFRS are an allocation of profit between that which relates

to controlling and non controlling interests and basic and diluted earnings per share. Of the sample companies 90%

present a clear allocation of profit between controlling and non-controlling interests. Of the three companies not to do

so two are Brazilian and the third is Canadian company CGI Group (Extract 8). In respect of earnings per share 97%

of companies clearly disclose basic and diluted earnings per share figures. The only exception is Brazilian company is

B2W Compnhia global do Varejo (Extract 9).

The following table is ordered in such a way that those companies that according to our analysis are performing the

best are placed at the top. The ranking attributed does not penalise companies for the non presentation of non

applicable items with position based solely on the percentage of applicable items presented.

Company Minimum Line Items

Analysis of

Expenses on Face

Profit Controlling/Non-

Controlling

Earnings per

Share

Revenue Finance

Costs

Equity Accounted

Investments Tax Discontinued Operations






Infineon Technology

ThyssenKrupp

Pernod Ricard N/A

Amvig Holdings N/A

Anglo American Platinum N/A

Orica N/A

Sodexo N/A

Air-China N/A

Genting Malaysia N/A

Sky Network Television N/A N/A

Nexen N/A

Smiths

Siemens

Associated British Foods N/A

Shaw Communication N/A

AGL Energy N/A

Wolseley N/A

Aspen Pharmacare N/A

Arcelor Mittal South Africa N/A

Sky City N/A

Imperial Tobacco N/A

Bombardier N/A


CGI Group N/A

JBS N/A N/A

British Sky Broadcasting N/A

Brazil Foods N/A

Axiata N/A

Americana N/A






Latina Logistica

B2W Compnhia global do Varejo N/A N/A N/A = A non applicable item of which the company has no evidence.

Summary - Conclusion

Our principal conclusions are that:

The separate income statement and other comprehensive income statement presentation format is favoured

by 26 (87%) companies.

The primary analysis of expenses is by function rather than nature for 23 (77%) companies.

Some form of expense breakdown is given on the face of the income statement by 26 (87%) companies.

A gross finance costs figure is presented on the face of the income statement by 21 (70%) companies.

Of those 24 companies with equity accounted investments 20 (83%) include a separate line item on the face

of the income statement.

Of those 8 companies with discontinued operations in the current year 7 (88%) disclose discontinued profit

separately on the face of the income statement.

A clear allocation of profit between controlling and non-controlling interests is presented by 27 (90%)

companies.

Basic and diluted earnings per share are clearly disclosed on the face of the income statement by 29 (97%)

companies.






Extracts

Pernod Ricard: Separate income statement and statement of comprehensive income (Extract 1).






Aspen Pharmacare: Statement of comprehensive income (Extract 2).






Amvig Holdings: Income statement expenses presented by function (Extract 3).






Orica: Income statement expenses presented by nature (Extract 4).






B2W Compnhia global do Varejo: Revenue labelled as net in income statement explained in a note (Extract 5).






Genting Malaysia: Share of associate results shown separately from share of jointly controlled entities

(Extract 6).






British Sky Broadcasting: Subsumes all expenses within a single line on the face of the income statement

(Extract 7).






CGI Group: No clear allocation of profit between controlling and non-controlling interests (Extract 8).






B2W Compnhia global do Varejo: No clear disclosure of basic and diluted earnings per share (Extract 9).

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