Common financial statement errors

07 October 2021

We have summarized some of the recurring disclosure deficiencies – based on examples of national and international companies’ financial statements prepared in accordance with IFRSs.

Topic	Common financial statement error	IFRS reference	Illustrative disclosures (BDO Illustrative Financial Statements Year Ended 31 December 2020)
General – Financial statements	Notes are not presented in a systematic manner and/or cross referenced.	IAS 1:113	Financial statements (pg 9-34)
General – Accounting policies	The disclosure is missing or insufficient regarding new standards, interpretations and amendments effective/not yet effective in accordance with IAS 8.	IAS 8:28 IAS 8:30-31	Basis of preparation (pg 38-44)
Statement of Cash Flows	Presentation of cash flows from taxes on income is not in line with IAS 7 requirements. In accordance with IAS 7, cash flows from taxes on income shall be presented as operating activities - unless they can be separately identified with financing and investing activities.	IAS 7:35	Consolidated statement of cash flows (pg 23-26)
Statement of Cash Flows	Presentation of cash flows from interest and dividends is not in line with IAS 7 requirements. In accordance with IAS 7, cash flows from interest and dividends shall be presented as either operating, investing or financing activities (must be consistent year-on-year).	IAS 7:31	Consolidated statement of cash flows (pg 23-26)
Statement of Cash Flows	The presentation of the effect of unrealised exchange rate gains or losses on cash balances is missing. Under IAS 7:28, unrealised gains and losses arising from changes in foreign currency exchange rates are not cash flows. However, the effect of exchange rate changes on cash and cash equivalents held or due in a foreign currency is reported in the statement of cash flows in order to reconcile cash and cash equivalents at the beginning and the end of the period. This amount is presented separately from cash flows from operating, investing and financing activities and includes the differences, if any, had those cash flows been reported at end of period exchange rates.	IAS 7:28	Consolidated statement of cash flows (pg 23-26)
Investments in associates and/or joint ventures	The notes to the financial statements do not include summarised financial information for each joint venture and associate that is material/individually not material to the reporting entity. Under IFRS 12:21 an entity shall disclose: for each joint venture and associate that is material to the reporting entity: (i) summarised financial information about the joint venture or associate as specified in paragraphs B12 and B13.E2 financial information as specified in paragraph B16 about the entity’s investments in joint ventures and associates that are not individually material: (i)in aggregate for all individually immaterial joint ventures and, separately, (ii)in aggregate for all individually immaterial associates.	IFRS 12:21 (b) (c) IFRS 12:B12 IFRS 12:B13	Note 21 Investments in associates (151-152. oldal) Note 22 Joint ventures (pg 153-155)
Investments in associates and/or joint ventures	The notes to the financial statements do not include the disclosures as required by IFRS 12.7-9 & 21 of the significant judgements and assumptions made in accordance with the requirements of IAS 28.5-6 when determining that the entity does have significant influence over its investment.	IFRS 12:7-9 IFRS 12:21 IAS 28:5-6	Note 21 Investments in associates (pg 151-152)
Impairment of assets - goodwill	No information has been disclosed about how the recoverable amount of goodwill has been determined therefore IAS 36 disclosure requirements has not been met.	IAS 36.130(a)-(e) & (g) IAS 36.134(a)-(d) & (f)	Note 18 Goodwill and impairment (pg 143-146)
Fair value measurement	The notes to the financial statements do not include the minimum required disclosures in accordance with IFRS 13. For example, revaluations of property, plant and equipment will generally be a level 3 measurement in the fair value hierarchy. As this is a recurring fair value measurement subsequent to the initial recognition of the items, IFRS 13.93(a)-(i) applies, and the entity must disclose significant information about the fair value measurement.	IFRS 13:93 (a)-(i)	Note 3 Financial instruments - risk management IFRS 13 Fair value measurement disclosures (pg 53-56)
Financial instruments – Risk management – Credit risk	The explanation of the entity’s credit risk management practices and how they relate to the recognition and measurement of expected credit losses is missing or insufficient.	IFRS 7:35F	Note 3 Financial instruments - risk management Credit risk (pg 57-58)
Financial instruments – Risk management – Market risk	Disclosures around sensitivity analysis is missing or insufficient. Under IFRS 7, disclosure shall be provided: A sensitivity analysis for reasonably possible changes in significant risk variables (profit or loss, and equity) The methods and assumptions used in preparing the sensitivity analysis Changes from the previous period in the methods and assumptions used, and reasons for such changes	IFRS 7:40, IG36 IFRS 7.B17-B28	Note 3 Financial instruments - risk management Market risk (pg 59-69)
Financial instruments – Risk management – Liquidity risk	A maturity analysis of derivative and non-derivative financial liabilities as required by (IFRS 7.39(a) and (b)) is missing. Also, the narrative section about liquity risk management is often insufficient.	IFRS 7:39 IFRS 7:B10A IFRS 7:B11D	Note 3 Financial instruments - risk management Liquidity risk (pg 70)
Financial instruments – Impairment of financial assets, forward-looking information	Explanation is missing or insufficient how forward‑looking information has been incorporated into the determination of expected credit losses, including the use of macroeconomic information.	IFRS 7:35G (b)	Note 27 Trade and other payables (pg 169-178)
Revenue from contracts with customers	Revenue has only been disaggregated into ‘revenue from sales and services’, ‘other income’ and ‘extraordinary income’. Under IFRS 15:114, an entity shall disaggregate revenue recognised from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. An entity shall apply the guidance in paragraphs B87⁠–⁠B89 when selecting the categories to use to disaggregate revenue.	IFRS 15:114	Note 4 Revenue from contracts with customers (pg 73-81)
Leases	The notes to the financial statements does not include maturity analysis of lease liabilities or it is not separately disclosed from the maturity analyses of other financial liabilities.	IFRS 16:58 IFRS 7:39 IFRS 7:B11	Note 15 Leases (pg 125-136) Note 3 Financial instruments - risk management Liquidity risk (pg 69-70)

The full version of BDO Illustrative Financial Statements Year Ended 31 December 2020 may be accessed using the following link: A Layout (International) Group Plc (bdo.global)

This IFRS publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. This IFRS publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact your respective BDO member firm to discuss these matters in the context of your particular circumstances. Neither BDO IFR Advisory Limited, Brussels Worldwide Services BV, BDO International Limited and/or BDO member firms, nor their respective partners, employees and/or agents accept or assume any liability or duty of care for any loss arising from action taken or not taken by anyone in reliance on the information in this IFRS publication or for any decision based on it.

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