The income statement (the statement of profit or loss, in IFRS wording) lists the income earned and the expenses incurred over a period and shows the result for the period. A corporate recipient usually asks for this statement for a qualification assessment or for credit analysis.
Period information
The period wording in the heading of the statement is decisive. A full-year period, a nine-month interim period and a three-month quarter call for different readings. The start and end dates of the period are carried over in full in the translation; writing the year alone is not enough.
The revenue line
Net revenue is arrived at by deducting returns and discounts from sales revenue. The distinction between gross and net revenue has to be preserved. Reducing these two items to a single expression of income pulls an assessment that looks at a turnover threshold to the wrong side.
Cost and gross profit
Cost of sales varies according to the items it includes. In manufacturing entities, direct labour and production overheads are inside this item. If the composition of cost is explained in the notes, that explanation is part of the translation.
Operating expenses
Marketing, general administrative and research and development expenses are shown on separate lines. Preserving this breakdown is necessary for reading the entity's expense structure. Summarising by merging the lines makes the statement impossible to analyse.
Finance income and finance costs
Foreign exchange differences, interest expense and interest income are shown outside the main operations. The item in which foreign exchange differences are reported may vary from entity to entity and is explained in the notes. In companies with foreign currency debt, this explanation is the most decisive part of the statement.
The tax line
Current tax expense and deferred tax are separate items, and together they make up the tax line. The equivalent for the concept of deferred tax is kept fixed in the translation; if it appears with two different equivalents, the reader takes them for two separate items.
Earnings per share
The statements of publicly traded companies contain an earnings per share line, and the diluted amount is shown separately. Confusing these two values misrepresents the company's performance. The number of shares used in the calculation is given in the notes and is carried over as well.
Other comprehensive income
Some gains and losses are recorded not in profit for the period but in other comprehensive income. Revaluation differences and remeasurement gains on defined benefit plans fall into this section. Leaving this section out leads to total comprehensive income being taken to be the same as profit for the period.
The distinction between main operations and other operations
Income from outside the main operations consists of items that do not come from the entity's core business. Showing one-off gains within main operations makes repeatable profitability look higher than it is. Shifting the line headings in translation produces exactly this misreading.
Comparative presentation and reclassification
The prior period figures may have been reclassified so that they are comparable with the current period. This is disclosed in the notes and the disclosure is translated. If it is not carried over, the same line in the same company's reports for two different years appears contradictory.
Segment reporting
Companies with more than one line of business present revenue and profit broken down by segment. The segment names must be the same as in the annual report. If the same segment goes by different names in the two documents, the reader cannot match them and the analysis comes to a halt.