4.2.1: Disclosure Requirements

IFRS (IAS 1) and ASPE (section 1521) identify the disclosure requirements for SFP/BS, which are quite similar. Listed below are summary points for some of the more commonly required disclosures for both standards:

• The application of the standards is required, with additional disclosures when necessary, so that the SFP/BS will be relevant and faithfully representative. Relevance means that the information in the SFP/BS can make a difference in decision-making. Faithfully representative means that the statement is complete, neutral, and free from errors.
• Any material uncertainties about a company's ability to continue as a going concern are to be disclosed.
• Company name, name of the financial statement, and date must be provided.
• The SFP/BS is to report assets and liabilities separately in many cases. The schedule below lists many of the more common assets and liabilities that are to be separately reported.

  In addition, any material classes of similar items are to be separately disclosed in either the statement or in the notes to the financial statements (e.g., items of property, plant, and equipment, types of inventories, or classes of equity share capital).

• When preparing the SFP/BS, assets are not to be netted with liabilities. This does not apply to contra accounts.
• Assets and liabilities are to be separated into current and non-current (long-term). Some companies further report assets in order of their liquidity.
• The measurement basis used for each line item in the statement is to be disclosed. Examples would be whether the company applied fair value, fair value less costs to sell, cost, amortized cost, net realizable value, or lower of cost and net realizable value (LCNRV) when preparing the statement.
• Due dates and interest rates for any financial instruments payable such as loans, notes, mortgages, and bonds payable, as well as details about any security required for the loan are to be disclosed.
• Cross-reference note disclosures to the related line items in the statement.

Below are the basic classifications for some of the more common reporting line items and accounts. The focus is mainly IFRS for simplicity, though ASPE is substantially similar. The required supplemental disclosures below focus on the measurement basis of the various assets, the due dates, interest rates, and security conditions for non-current liabilities; and the structure for each class of share capital in shareholders' equity when preparing a SFP/BS. These will be discussed in more detail in the chapters that follow in the next intermediate accounting course.

SFP/BS – Classifications and Reporting Requirements

Classification	Report Line Items	Includes	Measurement Basis and
			Other Required
			Disclosures at Each
			Reporting Date
Current assets – assets realized within one year from the reporting date or the operating cycle, whichever is longer	Cash and cash equivalents (unrestricted)	Currency, coin, bank accounts, petty cash, treasury bills maturing within three months at acquisition	Fair value, stated in local currency. Restricted cash and compensating balances are reported separately as a current or long-term asset, as appropriate.
	Investments – trading	Equity investments such as shares purchased to sell within a short time	Usually fair value
	Accounts receivable	Trade receivables net of allowance for doubtful account (AFDA)	Net realizable value as a fair value measure
	Related party receivables	Amounts owing by related parties	Carrying amount or exchange amount
	Notes receivable	Notes receivable within one year	Net realizable value
	Inventories	Raw materials, work-in-process, finished goods held for sale, or goods held for resale	Lower of cost and net realizable value (LCNRV) using FIFO, weighted average cost or specific identification
	Supplies on hand	Supplies that are expected to be consumed within one year	Usually invoice cost
	Prepaid expenses	Cash paid items where the expense is to be incurred within one year of the reporting date	Usually invoice cost
	Assets held for sale	Land, buildings, and equipment no longer used to generate income	If criteria met (ASPE), lower of carrying less costs to sell
	Income taxes receivable	Income taxes receivable based on current taxable loss	Based on tax rate
	Deferred income tax assets	Current portion of deferred income taxes avoided/saved arising from differences between accounting income/loss and taxable income/loss	ASPE only Under IFRS, all deferred tax is non-current
Non-current / long-term assets	Investments – non-strategic	Debt and equity investments such as held to maturity to collect principal and interest (AC), fair value through OCI to collect principal and interest and to sell (FVOCI), and FVNI for all else	AC – cost, amortized cost FVOCI – fair value through OCI (IFRS only) FVNI – fair value through net income - debt or equity investments not classified as FVOCI (IFRS), or equity investments in active markets (ASPE)
	Investments – strategic	Associate/Significant Influence equity investments in shares	IFRS – equity method ASPE – equity method, cost method, or FVNI
	Joint-ventures and subsidiaries	Equity investments of greater than 50% of the investee company's outstanding shares	Partial or full consolidation
	Investment property	Land or building held as an investment	Usually fair value
	Biological assets	Dairy cattle, pigs, sheep, farmed fish, trees for timber, trees or vines for fruit	IFRS – fair value less costs to sell ASPE – N/A
	Property, plant, and equipment	Tangible assets used to generate income such as land, buildings, machinery, equipment, furniture	Land – cost All else – amortized cost IFRS also allows fair value (revaluation); accumulated depreciation disclosed separately
	Intangible assets	Copyrights, customer lists, franchises, patents, trademarks, trade names	Finite life and indefinite life – initially cost, and subsequently cost less accumulated amortization (finite life only) net of accumulated impairment losses (both) Accumulated amortization disclosed separately
	Goodwill	Purchased goodwill	Goodwill – excess of purchase price over fair values of net identifiable assets and tested annually for impairment
	Deferred income tax assets	Non-current portion of deferred income taxes avoided/saved arising from differences between accounting income/loss and taxable income/loss	IFRS and ASPE
Current liabilities – obligations due within one year from the reporting date or the operating cycle, whichever is longer	Bank indebtedness or bank overdraft	Amounts owing to the bank that cannot be offset by a same-bank positive balance, amount, and is payable on demand	Fair value or contract amount stated in local currency
	Accounts payable	Trade payables, such as suppliers' invoices owing for goods and services received	Invoice cost, net of realized discounts
	Notes and loans payable	Notes and loans due within one year	Also includes principal portion of long-term debt obligation due within one year of the reporting date
	Accrued liabilities	Adjusting entries for various types of expenses incurred but not paid such as salaries, benefits, interest, property taxes, non-trade payables	Invoice or contract cost
	Unearned revenue	Cash received in advance for goods and services not yet provided to customer	Consideration amount received
	Income taxes payable	Income taxes payable based on current taxable income	Based on taxable income at the current tax rate
	Deferred income tax liabilities	Current portion of deferred income taxes expected to be owed and arising from differences between accounting income/loss and taxable income/loss	ASPE only
Non-current/long-term liabilities	Long-term debt payable	Long-term mortgages, bonds, notes, loans, capital leases net of current portions, long-term construction obligations	Each item is reported separately Measurement basis varies – amortized cost, fair value, discounted present value, estimated construction obligation, and so on Reporting requirements include the amortization period, due date, interest rate and security conditions
	Employee pension benefits payable	Employer pension obligations for the shortfall between the defined benefit obligation (DBO) and the plan assets both of which are held and reported through a separate trust	The net defined benefit liability/asset is determined by deducting the fair value of the plan assets from the present value of the defined benefit obligation
	Deferred income tax liabilities	Non-current portion of deferred income taxes expected to be owed arising from differences between accounting income/loss and taxable income/loss	IFRS and ASPE
Equity – a company's net assets, which is equal to total assets minus total liabilities Represents the ownership interest	Share capital	Preferred shares and common shares of various classes are each separately reported	The exchanged value (transaction price less any transaction costs) of issued shares The dividend amount, characteristics of each share class, as well as the number of shares authorized, issued, and outstanding for each class of share
	Contributed surplus	Gains from certain shares transactions, donated assets by a shareholder, redemption or conversion of shares
	Retained earnings/(deficit)	Undistributed accumulated net income If a negative number, label as a "deficit"
	Accumulated other comprehensive income (AOCI)	Accumulated gains or losses reported in other comprehensive income (OCI) each reporting period that are closed to AOCI at the end of that reporting period	IFRS only
Non-controlling interest/minority interest	Minority interest	An equity claim for the portion of a subsidiary corporation's net assets that are not owned by the parent corporation (third-party investors)

Note that in addition to the measurement basis identified for each asset category in the chart above, many assets' valuations can be subsequently adjusted, depending on the circumstances. Below are examples of some of the common valuation adjustments made to various asset accounts that will be discussed in later chapters.

Cash and cash equivalents	Foreign exchange adjustments for foreign currencies
Investments – trading	Adjust to fair values, therefore no subsequent adjustment for impairment
Accounts receivable and AFDA	AFDA adjustments at each reporting date are the basis for reporting accounts receivable at NRV
Related party receivables	Adjust for impairment
Notes receivable	Adjust for impairment
Inventory	Adjust for cost of goods sold, shrinkage, obsolescence, damage; reported at lower of cost and net realizable value (LCNRV)
Supplies/office supplies	Adjust for usage, shrinkage, obsolescence, damage
Assets held for sale	Adjust to fair values, therefore no subsequent adjustment for impairment
Investments	Adjust to either fair value or for impairment, depending on classification of investment (refer to classification schedule above for details)
Biological assets	Adjust to fair values, therefore no subsequent adjustment for impairment
Property, plant, and equipment	Adjust for impairment
Intangible assets	Adjust for impairment

Disclosures such as those listed in the classification schedule above may be presented in parentheses beside the line item within the body of the SFP/BS, if the disclosure is not lengthy. Otherwise, the disclosure is to be included in the notes to the financial statements and cross-referenced to the corresponding line item in the SFP/BS.

Using parentheses tends to be more common for ASPE companies with simpler disclosure requirements. IFRS companies and larger ASPE companies extensively use the cross-referencing method because of the more complex and lengthy notes disclosures required.

Below is an example of a Statement if Financial Position. Recall that a classified SFP/BS reports groupings of similar line items together as either current or non-current (long-term) assets and liabilities.

ABC Company Ltd.
Statement of Financial Position
December 31, 2020
Assets
Current assets
Cash								$	250,000
Investments (fair value)
Accounts receivable					$	180,000
Allowance for doubtful accounts						(2,000)			178,000
Note receivable (NRV)									15,000
Inventory (at lower of FIFO cost and NRV)									500,000
Prepaid expenses									15,000
Total current assets									958,000
Long term investments (fair value									25,000
Property, plant and equipment
Land						75,000
Building		$	325,000
Accumulated depreciation			(120,000)			205,000
Equipment			100,000
Accumulated depreciation			(66,000)			34,000			314,000
Intangible assets (net of accumulated
amortization for $25,000)									55,000
Goodwill									35,000
Total assets								$	1,387,000
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable					$	75,000
Accrued interest payable						15,000
Accrued other liabilities						5,000
Income taxes payable						44,000
Unearned revenue						125,000
Total current liabilities								$	264,000
Long-term bonds payable (20-year
5% bonds, due June 20, 2029)									200,000
Total liabilities									464,000
Shareholders' equity
Paid in capital
Preferred, ($2, cumulative, participating
– authorized, 30,000 shares; issued
and outstanding, 15,000 shares)		$	150,000
Common (authorized, 400,000 shares;
issued and outstanding 250,000 shares)			750,000
Contributed surplus			15,000			915,000
Retained earnings						8,000			923,000
Total liabilities and shareholders' equity								$	1,387,000

Note that the measurement basis disclosures are in parenthesis for any assets where a measurement other than cost is possible. Also note the interest rate and due date parenthetical disclosure for the long-term liability. In the equity section, the class, authorized, and outstanding shares are disclosed.

Taking a closer look at this statement, ASPE Company reports $1,387,000 in total assets and $464,000 in corresponding obligations against those assets owing to suppliers and other creditors.

On the topic of debt reporting, the current portion of long-term debt is a reported as a current liability. The current portion of the long-term debt is the amount of principal that will be paid within one year of the SFP/BS date.

For example, on December 31, 2019, ASPE Company signed a three-year, 2%, note. Payments of $137,733 are payable each December 31. If the market rate was 2.75%, the present value of the note would be $391,473 at the time of signing on December 31, 2019. Below is the payments schedule of the note using the effective interest method.

If the SFP/BS date is December 31, 2020, the current portion of the long-term debt to report as a current liability would be $130,459 from the note payable payments schedule above. Note that this amount comes from the year following the 2020 reporting year to correspond with the principal amount owing within one year of the current reporting date (December 31, 2020). The total amount owing as at December 31, 2020 is $264,506; therefore, the long-term portion of $134,047 would be the amount owing net of the current portion of $130,459. Below is how it would be reported in the SFP/BS at December 31, 2020:

Current Liabilities
Current portion of long-term note payable			$130,459
Long-term Liabilities
Note payable, 2%, three-year, due date Dec 31, 2022			$134,047
(balance owing Dec 31, 2020, of )

If the current portion of the long-term debt is not reported as a current liability, there will be a material reporting misstatement that would affect the assessment of the company's liquidity and solvency.

Total equity of $923,000 represents the remaining assets financed by the company shareholders. Ranking first are the preferred shareholders capital investors of $150,000. They are usually reported before the common shares because they are senior to common shares in terms of both dividend payouts and claims to resources if a company liquidates. However, this is not a reporting requirement. The contributed surplus of $15,000 is additional paid-in capital from shareholders. Examples of transactions that recognize contributed surplus include:

• stock options such as an employee stock option plan, or other share-based compensation plan and issuance of convertible debentures
• for certain share re-purchase transactions where the purchase proceeds are lower than the assigned value of the shares
• donated assets by shareholders
• defaulted shares subscriptions
• certain related party transactions (ASPE)

If there are more line items than simply common shares, a paid-in capital subtotal is also required for IFRS companies. Paid-in capital is the total amount "paid in" by shareholders and therefore not resulting from ongoing operations. It is comprised of all classes of share capital plus contributed surplus, if any. Finally, the retained earnings line item is the total net income accumulated by the company since its inception that has not been distributed in dividends to the shareholders.

Below are other reporting requirements:

• The statement can be prepared on a consolidated basis. This means that there are subsidiaries included where the reporting company is the parent company. Subsidiaries are investments in the shares of another company where the shares purchased are greater than 50%. In this case, there will be a line item called "non-controlling interest" that must be included for the portion of the subsidiary owned by other third-party investors.
• The presentation currency is stated as Canadian dollars and the level of rounding can be to the nearest thousand dollars or million dollars, depending on the size of the company.
• The financial data is to include the previous year (an IFRS disclosure requirement).
• An accumulated other comprehensive income/loss (AOCI) is an equity account used only by IFRS companies to accumulate items reported in OCI in the statement of comprehensive income. AOCI. Recall from the previous chapter that an example of an OCI transaction would be the unrealized gains or losses from fair value adjustments while holding certain FVOCI investments. FVOCI investments and AOCI will be covered in detail later in this course. For now, note the position of the AOCI account in the equity section.

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