The statement of changes in equity explains movements in an entity’s equity over an accounting period, connecting the statement of profit or loss with the statement of financial position.
Purpose
- Connects the statement of profit or loss with the statement of financial position by explaining movements in equity.
- Shows capital contributions, profit retention, dividend policy, and capital withdrawals not visible in the other statements.
- Helps shareholders, investors, and management assess capital management and financial stability.
Factors Affecting Equity
- Profits earned during the period increase equity.
- Losses incurred decrease equity.
- Dividends declared and paid decrease equity.
- Issue of new shares increases equity.
- Share buybacks and redemptions decrease equity.
- Changes in asset fair value booked directly to reserves increase or decrease equity depending on the direction of revaluation.