Setting Expectations

In a perfect world every aspect of the performance of a business would be reflected in a single performance statement, and consequentially this would reconcile the opening and closing balance sheets. This is often referred to as the all inclusive concept and remains a goal of the accounting community. However, the production of such a statement requires some significant changes to a wide range of legislation and accounting guidance already in existence, and hence financial statements include supplementary statements that allow users to view all significant activities in the accounting period, and these effectively complement what most non-accountants view as the cornerstones of the accounts, namely

• Balance sheet

• Profit and loss account/income statement

• Cash flow statement.

When these additional statements are considered a prerequisite to the accounts giving a true and fair view they are said to be a primary statement.

Under UK GAAP there is one additional primary statement known as The Statement of Total Recognized Gains and Losses, but it is complemented by additional disclosures that many view as of equal significance.

International GAAP also has one additional primary statement known as The Statement of Changes in Equity which serves a similar purpose. However, companies are allowed an alternative disclosure statement known as a Statement of Recognized Income and Expense which excludes transactions with equity holders. It is not permissible to include both of these statements in the same published accounts.

The UK disclosure requirements derive from FRS 3 Reporting Financial Performance which also addresses...