Stating compliance with IFRS in the notes
When a client's notes may say the statements comply with IFRS, why partial compliance does not count, and where the rule sits after IFRS 18.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
The basis of preparation note is the paragraph nobody reads closely, including, too often, the people who sign it. It is usually carried forward from last year: "The financial statements have been prepared in accordance with International Financial Reporting Standards." Yet that sentence is a claim about every page that follows. If the client has not measured its leases under IFRS 16, has skipped a required disclosure, or has kept an old policy the standards no longer permit, the sentence is untrue.
IAS 1 treats this claim seriously, and so should preparers in South Africa, Nigeria and Kenya. This article covers what the standard requires, why "mostly compliant" is not an option, where the requirement moves under IFRS 18, and how to check the wording before sign-off.
The explicit and unreserved statement IAS 1 requires
Under IAS 1, an entity whose financial statements comply with IFRS Standards must make an explicit and unreserved statement of such compliance in the notes. Both adjectives matter.
- Explicit means the statement must actually be made, in words, not implied by the format of the statements or the use of IFRS terminology.
- Unreserved means it cannot be qualified. A statement that the accounts comply "in all material respects", "substantially" or "except for" is not unreserved.
The obligation runs one way. Statements that comply must say so. Statements that do not comply must not claim to.
Why partial compliance cannot be described as compliance
IAS 1 is direct about the second half: an entity must not describe financial statements as complying with IFRS Standards unless they comply with all the requirements of the Standards.
This closes a door preparers are sometimes tempted to open. A client that has not applied one standard, perhaps because the work was too costly or the information unavailable, cannot describe its statements as prepared "in accordance with IFRS except for IFRS 16". The exception destroys the claim. The firm's options are to make the statements comply, or to describe the basis of preparation accurately without claiming IFRS compliance, with the consequences that has for the engagement and any report the firm issues on the statements.
The same discipline applies to a statement of compliance with the IFRS for SMEs Accounting Standard; check that standard's own requirement for the wording. A statement of compliance should name the framework the client actually applies, and only that one.
Where the requirement lives once IFRS 18 moves it to IAS 8
IFRS 18 replaces IAS 1 for annual reporting periods beginning on or after 1 January 2027. In developing it, the IASB retained some paragraphs from IAS 1 in IFRS 18 and moved others to IAS 8 and to IFRS 7.
The compliance requirement is among those that moved. The IFRS Foundation states that when IFRS 18 replaced IAS 1, the IASB moved to IAS 8 the concepts of fair presentation and compliance with IFRS Accounting Standards, whether an entity is a going concern, the accrual basis of accounting, and disclosure of an entity's selection and application of accounting policies. IAS 8 was retitled Basis of Preparation of Financial Statements to reflect its wider role.
For the preparer, the substance of the obligation does not change because its home has. What changes is the reference. Basis-of-preparation notes, working paper checklists and policy wording that cite IAS 1 for these points will need updating for years under IFRS 18. A broader map of where IAS 1's content went is in where IAS 1 requirements moved.
Checking the basis-of-preparation wording before sign-off
Treat the compliance statement as a conclusion the file must support, not a sentence to carry forward. Before sign-off:
- Confirm which framework the client applies, and that the statement names it correctly.
- Check that the statement is explicit and carries no reservation.
- Review the list of standards relevant to the client's transactions and confirm each has been applied in full, including disclosures.
- Check that no policy describes an option the framework does not allow.
- Where any requirement has not been met, change the statements or change the wording; do not leave both as they are.
- Make sure the going concern and accrual basis statements in the same note are also supported.
Achekam's Studio includes standard accounting policy wording based on IFRS for SMEs, labelled for review before issue, and staff can write the client's own policies. For a full IFRS client, the basis-of-preparation wording must refer to full IFRS, so review or rewrite the standard text rather than accepting it. Where an AI key is set up, AI can draft narrative text such as note wording, labelled "AI draft - review before issue", with figures coming from code. There is no separate accept step per paragraph; the safeguard is the firm's review stages and the partner's signature. The compliance statement is one paragraph where that review must be deliberate.
What the automated review and validation checks will and will not catch
Staff can run an automated review of a draft, which lists findings for a person to accept, resolve or dismiss. It is advice only and does not block signing. Separately, the Validation & Math Engine runs fixed, non-AI checks such as double entry and note ties.
These help. A note that does not tie to the statements, or a draft the automated review finds incomplete, is a signal that the compliance claim may not be supported. But neither tool can establish that the statements comply with every requirement of a framework. That conclusion depends on judgements the preparer and reviewer make about measurement, presentation and disclosure, and it rests with the engagement partner who signs. How the two checks fit into a firm's review is covered in validation and automated review, and the wider structure of the policies note in accounting policies and notes.
The IFRS Foundation's IAS 1 page summarises the standard's requirements for the presentation and content of financial statements, including this one. Read the client's basis-of-preparation note aloud at the final review; a sentence spoken is harder to wave through than one skimmed.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
