Also: annual accounts, balance sheet, income statement, statement of financial position, profit and loss account, three statements
Financial statements are the structured report of an entity's financial position, performance and cash movements over a period; under IFRS the complete set is a statement of financial position, a profit or loss and comprehensive income statement, a statement of changes in equity, a cash flow statement and notes.
Our take. Read the notes first. The primary statements are the summary; accounting policies, judgements and the reconciliations behind company-specific measures live in the notes, and that is where two businesses with the same headline profit turn out to be different. The layout is changing too, because IFRS 18 gives the income statement defined subtotals for periods beginning on or after 1 January 2027.
Statement of financial position, the balance sheet: assets, liabilities and equity at the reporting date.
Statement of profit or loss and other comprehensive income: performance over the period, which IAS 1 allowed as one combined statement or two.
Statement of changes in equity: how the owners' interest moved, including dividends and share issues.
Statement of cash flows: receipts and payments grouped as operating, investing and financing under IAS 7.
Notes: accounting policies, estimates and the detail behind each line, with comparative figures for the prior year.
How the statements lock together
They are one model seen from several sides, not separate reports. Profit for the year flows into retained earnings in the statement of changes in equity, which closes into the equity section of the balance sheet. The cash line on the balance sheet is the closing figure of the cash flow statement, and the indirect method under IAS 7 starts from profit and works back to cash by reversing non-cash items and movements in working capital. An analyst building a three-statement model is reconstructing exactly those links, which is why financial analysis and modelling begins with the published set, and why the accruals posted during accounting and bookkeeping matter to anyone reading them later.
IFRS 18 replaces IAS 1 for annual periods beginning on or after 1 January 2027, with earlier application allowed. It sorts income and expenses into operating, investing and financing categories, requires two new subtotals, operating profit and profit before financing and income taxes, and obliges companies to explain in the notes the management-defined performance measures they use in public communications. Those are the company-specific subtotals, often some flavour of adjusted EBITDA, that investors have long had to reconcile by hand from press releases.
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