CHAPTER 8: Presentation of Financial Position misleading.

In such cases, PAS 1 permits departure from a

PFRS requirement if the relevant regulatory framework
PAS 1: Presentation of Financial Statements
requires or allows such departure.
➢ Prescribes the basis for the presentation of general- ➢ When an entity departs from a PFRS requirement, it shall
purpose financial statements, the guidelines for their disclose the management’s:
structure, and the minimum requirements for their a. conclusion as to fair presentation of the financial
content to ensure comparability. statements
➢ Types of Comparability b. that all other requirements of the PFRS are
a. Intra-comparability – comparing two FS of the complied with
same company but of a different time period. c. the title of the PFRS from which the entity has
b. Inter-comparability – comparing FS of two departed; and
unrelated companies for a specific period. d. the financial effect of the departure.

Financial Statements 2. Going Concern

➢ Financial statements are normally prepared on a going
➢ Financial statements are the structured representation of
concern basis unless the entity has an intention to
an entity’s financial position and results of its operations
liquidate or has no other alternative but to do so.
➢ General purpose financial statements are those intended
➢ The assessment is at least, but not limited, to 12 months
to meet the needs of users who are not in a position to
from the reporting date.
require an entity to prepare reports tailored to their
➢ If the entity is not a going concern, its financial statements
particular information needs. They are the subject matter
shall be prepared using another basis. This fact shall be
of the conceptual framework and PFRS.
disclosed, including the basis used, and the reason why
Purpose of Financial Statements the entity is not regarded as a going concern.

➢ Primary objective: to provide information about the 3. Accrual Basis of Accounting

financial position, financial performance and cash flows of ➢ All financial statements shall be prepared using the
an entity that is useful to a wide range of users in making accrual basis of accounting except for the statement of
economic decisions cash flows, which is prepared using the cash basis.
➢ Secondary objective: to show the results of management’s
stewardship over the entity’s resources 4. Materiality and aggregation
Complete set of Financial Statements ➢ Each material class of similar items is presented
separately. A class of similar items is called a “line item”.
1. Statement of financial position Dissimilar items are presented separately unless they are
2. Statement of profit or loss and other comprehensive immaterial. Individually immaterial items are aggregated
income with other items.
3. Statement of changes in equity
4. Statement of cash flows 5. Offsetting
5. Notes ➢ Assets and liabilities or income and expenses are
6. Additional statement of financial position presented separately and are not offset, unless offsetting
is required or permitted by PFRS.
General Features of Financial Statements
➢ Offsetting is permitted when it reflects the substance of
1. Fair Presentation and Compliance with PFRS the transaction. examples of offsetting:
➢ Fair presentation is faithfully representing, in the financial a. Presenting of gains and losses from sales of
statements, the effects of transactions and other events in assets net of the related selling expenses.
accordance with the definitions and recognition criteria b. Presenting at net amount the unrealized gains
for assets, liabilities, income and expenses set out in the and losses arising from trading securities and
conceptual framework. from translation of foreign currency denominates
➢ Pas 1 requires an entity whose financial statements assets and liabilities, except if they are material.
comply with PFRS to make an explicit and unreserved c. Presenting a loss from a provision net of a
statement of such compliance in the notes. However, an reimbursement from a third party.
entity shall not make such a statement unless it complies
with all the requirements of PFRS.
➢ There may be cases wherein an entity’s management
concludes that compliance with a PFRS requirement is
6. Frequency of reporting STATEMENT OF FINANCIAL POSITION
➢ Financial statements are presented at least annually. If an
entity changes its reporting period to a period longer or ➢ Shows the entity’s financial condition (i.e., the status
shorter than one year, it shall disclose the following: of assets, liabilities, and equity) as at a certain date.
a. The period covered by the financial statements.
b. The reason for using a longer of shorter period.
c. The fact that amounts presented in the financial
statements are not entirely comparable.

7. Comparative information
➢ Pas 1 requires an entity to present comparative
information in respect of the preceding period for all
amounts reported in the current period’s financial
statements, unless another PFRS requires otherwise.
➢ Additional statement of financial position
a. The entity applies an accounting policy
retrospectively, makes a retrospective
restatement of items in its financial statements,
or reclassifies items in its financial statements;
and
b. The instance in (a) has a material effect on the
information in the statement of financial position Presentation of the Statement of Financial Position
at the beginning of the preceding period.
1. Classified presentation shows distinctions
between current and noncurrent assets and
current and noncurrent liabilities.
2. Unclassified presentation (also called ‘based on
liquidity’) shows no distinction between current
and noncurrent items.
➢ A classified presentation shall be used except when
8. Consistency of presentation an unclassified presentation information that is
➢ The presentation and classification of items in the reliable and more relevant. When that exception
financial statements is retained from one period to the applies, assets and liabilities are presented in the
next unless a change in presentation: order of liquidity.
a. Is required by a PFRS. ➢ Whichever method is used, PAS 1 requires the
b. Results in information that is reliable and more disclosure of items that are expected to be
relevant. recovered or settled (a) within 12 months and (b)
➢ A change in presentation requires the reclassification of beyond 12 months, after the reporting period.
items in the comparative information.
Current assets and Current liabilities Definition
Management’s Responsibility over Financial Statements

➢ The management is responsible for an entity’s

financial statements. The responsibility
encompasses:
a. The preparation and fair presentation of
financial statements in accordance with
PFRS.
b. Internal control over financial reporting
c. Going concern assessment
d. Oversight over the financial reporting
process
e. Review and approval of financial statements
1. Statement of Profit and Loss
➢ Profit or loss is income less expenses, excluding the
components of other comprehensive income
➢ Transaction approach
➢ Income and expenses are usually recognized in profit or
loss unless:
1. They are items of other comprehensive income; or
2. They are required by other PFRSs to be recognized
outside of profit or loss.
➢ The following are not included in determining the
profit and loss during the period.

Refinancing Agreement

1. Refinancing refers to the replacement of an existing

debt with a new one but with different terms.
2. Troubled Debt Restructuring - refinancing where the
debtor is under financial distress.
➢ A long-term obligation that is maturing within 12 months
after the reporting period is classified as current, even if a
refinancing agreement to reschedule payments on a long-
term basis is completed after the reporting period and
before the financial statements are authorized for issue.
➢ However, the obligation is classified as non-current if the
entity has the right, at the end of the reporting period, to ➢ Line items of Profit and Loss
roll over the obligation for at least 12 months after the a. Revenue, presenting separately interest revenue;
reporting period under an existing loan facility. b. Finance cost;
c. Gains and losses arising from the derecognition
Liabilities Payable in Demand
of financial assets measured at amortized cost;
➢ A long-term obligation may become payable on demand d. Impairment losses and impairment gains on
as a result of a breach of a loan provision. Such an financial assets;
obligation is classified as current even if the lender e. Gains and losses on reclassifications of financial
agreed, after the reporting period and before the assets from amortized cost or fvoci to fvpl
authorization of the financial statements for issue, not to f. Share in the profit or loss of associates and joint
demand payment. ventures
➢ However, the liability is noncurrent if the lender provides g. Tax expense
the entity by the end of the reporting period (e.g., on or h. Result of discontinued operations
before December 31) a grace period ending at least 12
Circumstances that would give rise to the separate disclosure
months after the reporting period, within which the entity
of items of income and expense include:
can rectify the breach and during which the lender cannot
demand immediate payment. 1. Write-downs of inventories to net realizable
value or of property, plant and equipment to
CHAPTER 9: INCOME STATEMENT AND STATEMENT OF
recoverable amount, as well as reversals of such
OWNERS EQUITY,
write-downs;
➢ PAS 1 prohibits the presentation of extraordinary 2. Restructurings of the activities of an entity and
items in the statement of Profit and Loss and Other reversals of any provisions of restructuring costs;
Comprehensive Income. 3. Disposals of items of ppe
4. Disposals of investments
5. Discontinued operations
6. Litigation settlements
7. Other reversals of provisions
Presentation of Expenses 8. Changes in the value of the forward elements of
forward contracts when separating the forward
a. Nature of Expense Method element and spot element of a forward contract
➢ Under this method, expenses are aggregated and designating as the hedging instrument only
according to their nature (e.g., depreciation, the changes in the spot element, and changes in
purchases of materials, transport costs, employee the value of the foreign currency basis spread of
benefits and advertising cost) a financial instrument when excluding it from the
designation of that financial instrument as the
b. Function of Expense Method hedging instrument.
➢ Under this method, an entity classifies expenses Reclassification Adjustments
according to their function (e.g., cost of sales,
distribution costs, administrative expenses, and other ➢ Reclassification adjustments - are amounts
functional classifications). At a minimum, cost of sales reclassified to profit or loss in the current period that
shall be presented separately from other expenses. were recognized in other comprehensive income in
➢ If the function of expense is used, additional the current or previous periods
disclosures on the nature of expenses shall be ➢ Reclassification adjustments arise from the following:
provided. a. On disposal of foreign operations
b. Derecognition of debt instruments measured at
fvoci
c. When cash flow hedge becomes ineffective or
affects profit or loss

➢ A reclassification adjustment for a gain is a deduction

in OCI and an addition to profit or loss
➢ A reclassification adjustment for a loss is an addition
to OCI and a deduction from profit or loss

➢ Reclassification adjustments do not arise on changes

2. Other Comprehensive Income in revaluation surplus, derecognition of equity
➢ Comprises items of income and expense (including instruments designated at fvoci, and remeasurements
reclassification adjustments) that are not recognized of the net defined benefit liability (asset). On
in profit or loss as required or permitted by other derecognition, the cumulative gains and losses that
PFRSs. were accumulated in equity on these items are
➢ Amounts recognized in OCI are usually accumulated transferred directly to retained earnings, rather than
as separate components of equity. to profit or loss as a reclassification adjustment.
➢ The components of OCI include the following:
Presentation of OCI
1. changes in revaluation surplus
➢ The other comprehensive income section shall
2. remeasurements of the net defined benefit liability group items of oci into the following:
(assets) a. Those for which reclassification adjustment is
allowed; and
3. gains and losses on investments designated or
b. Those for which reclassification adjustment is not
measured at fvoci
allowed.
4. gains and losses arising from translating the financial
statements of a foreign operation

5. effective portion of gains and losses on hedging

instruments in a cash flow hedge

6. changes in fair value of financial liability designated

fvpl that are attributable to changes in credit risk.

7. Changes in the time value of option when the

option’s intrinsic value and time value are separated
and only the changes in the intrinsic value is
designated as the hedging instrument
Total Comprehensive Income Operating Activities
➢ Total Comprehensive Income is a change in ➢ Operating activities are the cash flows
equity during a period resulting from derived primarily from the principle revenue
transactions and other events, other than those producing activities of the entity
resulting from transactions with owners in their
capacity as owners.
➢ Total comprehensive income is the sum of profit
or loss and other comprehensive income.

3. STATEMENT OF CHANGES IN EQUITY

➢ The statement of changes in equity shows the

following information
Investing Activities
a. Effects of change in accounting policy
(retrospective application) or correction of prior ➢ Investing activities are the cash flows derived
period error (retrospective restatement) from the acquisition and disposal of long-
b. Total comprehensive income for the period; and
term assets and other investments not
c. For each component of equity, a reconciliation
included in cash equivalents.
between the carrying amount at the beginning
and the end of the period showing separately
changes resulting from:
1. Profit or loss
2. Other comprehensive income
3. Transaction with owners, e.g., contributions
by and distributions to owners
➢ Retrospective adjustments and retrospective
restatements are presented in the statement of
changes in equity as adjustments to the opening
balance of retained earnings rather than as changes Financing Activities
in equity during the period.
➢ Pas 1 allows the disclosure of dividends, and the ➢ Financing activities are the cash flows
related amount per share, either in the statement of derived from the equity capital and
changes in equity or in the notes borrowings of the entity
a. Between the entity and the owners
Chapter 10: Statement of Cash Flows
– equity financing
➢ Is a component of financial statements summarizing b. Between the entity and the creditors
the operating, investing and financing activities of an
entity – debt financing
➢ The statement of cash flows provides information
about the cash receipts and cash payments of the
entity during the period.

Cash Equivalents

➢ The statement of cash flows is designed to

provide information about the change in an
entity’s cash and cash equivalents. NonCash Transactions

➢ Cash comprises cash on hand and demand ➢ Noncash investing and financing transactions
deposit. shall be disclosed only either in the notes to
financial statements or in a separate schedule or
➢ Cash equivalents are short-term highly liquid in a way that provides all relevant information
investments that are readily convertible to about these transactions.
known amount of cash and which are subject to
an insignificant risk of change in value.
Interest Paid ang Interest Received
Changes in Accounting Policies
➢ PaAS 7 provides that interest paid and interest
➢ Pas 8 requires the consistent selection and
received shall be classified as operating cash flows
application of accounting policies
because such items enter into the determination of
➢ Pas 8 permits a change in accounting policy only
net income or loss
if the change:
➢ Alternatively, interest paid may be classified as
➢ Is required by a pfrs; or
financing cash flow because it is a cost of obtaining
➢ Results in reliable and more relevant information.
financial resources.

➢ Alternatively, interest received may be classified as

investing cash flow because it is a return on
investment.
➢ For a financial institution, interest paid and interest
received are usually classified as operating cash flows

Dividends Received and Paid

➢ Pas 7 provides that dividend received shall be

classified as operating cash flow because it enters
into the determination of net income.
➢ Alternatively, dividend received may be classified as
investing cash flow because it is a return on
investment. Accounting for Changes in Accounting Policies

➢ Pas 7 provides that dividend paid shall be classified as ➢ Changes in accounting policies are accounted for
financing cash flow because it is a cost of obtaining using the following order of priority
financial resources. 1. Transitional provision in pfrs, if any
➢ Alternatively, dividend paid may be classified as 2. Retrospective application, in the absence of
operating cash flow in order to assist users to transitional provision
determine the ability of the entity to pay dividends 3. Prospective application, if retrospective
out of operating cash flows application is impracticable
➢ Impracticable means it cannot be done after making
CHAPTER 11: ACCOUTNING POLICIES, CHANGES IN every reasonable effort to do so
ACCOUNTING ESTIMATES , AND ERRORS
Retrospective Application
1. Accounting policies
➢ Retrospective application means adjusting the
➢ These are the specific principles, bases, conventions, opening balance “of each affected component of
rules and practices applied by an entity in preparing equity (e.g., retained earnings) for the earliest prior
and presenting financial statements. period presented and the other comparative amounts
➢ When selecting and applying accounting policies, an disclosed for each prior period presented as if the
entity shall refer to the hierarchy guidance new accounting policy had always been applied.
summarized below: ➢ A voluntary change in accounting policy is accounted
for by retrospective application. An early application
of a PFRS is not a voluntary change in accounting
policy
2.Changes in Accounting Estimates ➢ Under prospective application, the beginning balance
of retained earnings and the previous financial
Estimates
statements are not restated
➢ Many items in the financial statements cannot be
3. Errors
measured with precision but only through estimation
because of uncertainties inherent in business ➢ Errors include misapplication of accounting policies,
activities. mathematical mistakes, oversights or
➢ The use of reasonable estimates therefore is misinterpretation of facts and fraud
necessary in order to provide relevant information.
➢ Financial statements do not comply with PFRSs if they
➢ Estimates are an essential part of financial reporting
contain either material errors or immaterial errors
and do not undermine the reliability of financial
made intentionally to achieve a particular
reports.
presentation of an entity’s financial position, financial
➢ For example, the following requires estimation:
performance or cash flows.
a. Net realizable value of inventories
b. Depreciation ➢ Errors can be errors of commission or omission
c. Bad debts
d. Fair value of financial assets or financial liabilities Types of Errors According to the period of Occurrence
e. Provisions
a. Current period errors – are errors in the current
➢ Estimates need to be revised when there is a change
period that were discovered either during the current
in circumstances such that new information or more
period or after the current period but before the
experience is obtained
financial statements were authorized for issue. These
are corrected simply by correcting entries
Changes
b. Prior period errors - are errors in one or more prior
➢ A change in accounting estimate is “an adjustment of periods that were only discovered either during the
the carrying amount of an asset or a liability, or the current period or after the current period but before
amount of the periodic consumption of an asset, that the financial statements were authorized for issue.
results from the assessment of the present status of, These are corrected by retrospective restatement.
and expected future benefits and obligations
Retrospective Restatement
associated with, assets and liabilities
➢ Changes in accounting estimate result from new ➢ Restating the comparative amounts for the prior
information or new developments and, accordingly, period(s) presented in which the error occurred; or
are not corrections of errors
➢ If a change is difficult to distinguish between change ➢ If the error occurred before the earliest prior period
in accounting policy and change in accounting presented, restating the opening balances of assets,
estimate, the change is treated as a change in liabilities, and equity for the earliest prior period
accounting estimate presented

➢ Just like retrospective application, retrospective

restatement shall be made as far back as practicable.
If it is impracticable to determine the cumulative
effect of a prior period error at the beginning of the
current period the entity is allowed to correct the
error prospectively from the earliest date practicable

Accounting CHAPTER 12: EVENTS AFTER REPORTING PERIOD

➢ Changes are accounted for by prospective PAS 10
application. Prospective application means
recognizing the effects of change in profit or loss, ➢ Prescribes the accounting for, and disclosures of,
either in: events after the reporting period, including
a. The period of change; or disclosures regarding the date when the financial
b. The period of change and future periods, if statements were authorized for issue.
both are affected
Events after the reporting period CHAPTER 13: RELATED PARTIES DISCLOSURE

➢ Are those events, favorable and unfavorable, that Related parties

occur between the end of the reporting period and
➢ parties are related if one party has the ability to affect
the date when the financial statements are
the financial and operating decisions of the other
authorized for issue
party through control, significant influence or joint
➢ The date of authorization of the financial statements
control.
is the date when management authorizes the
financial statements for issue regardless of whether
such authorization is final or subject to further
approval

Types of Events after the Reporting period

a. Adjusting events after the reporting period – are

events that provide evidence of conditions that
existed at the end of the reporting period. They
require adjustments of amounts in the financial
statements.

Other Related Parties

1. Key management personnel are those persons having

authority and responsibility for planning, directing,
and controlling the activities of the entity, directly or
indirectly including any director (whether executive
or otherwise) of that entity
2. Close family member Is one who may be expected to
influence or be influenced by, the person in his/her
dealings with the reporting entity. It includes the
person’s spouse, their children, and their dependents.

b. Non-adjusting events after the reporting period – are

events that are indicative of conditions that arose
after the reporting period.

Disclosure

1. Relationship between Parents and Subsidiaries

a. A parent-subsidiary relationship is disclosed
even if there have been no transactions
between them during the period
b. A subsidiary discloses the name of its parent,
and if different, the name of the ultimate
parent. If neither of these two prepares
consolidated financial statements for public ➢ A government-related entity discloses the following if
use, the subsidiary discloses the name of the there have been related party transactions with the
next most senior parent that does so. government:
2. Key management Personnel Compensation a. Name of the government and the nature of the
a. An entity discloses the total key relationship
management personnel compensation as b. Nature and amount of each individually
follows: significant transaction
i. Short-term employee benefits c. Other transactions that are collectively significant
ii. Post-employment benefits but are individually insignificant
iii. Other long-term benefits
iv. Termination benefits
v. Share-based payment

Related Parties Transactions

➢ Related party transaction is a transfer of resources,

services or obligations between a reporting entity and
a related party regardless of whether a price is
charged

➢ The following are disclosed when there are related

party transactions during the periods covered by the
financial statements:

a. Nature of the related party relationship

b. Nature, terms and amount of the

transaction and outstanding balances

c. Doubtful debts recognized on the

outstanding balances.

➢ Related party transactions and their outstanding

balances are disclosed in an entity’s separate or
individual financial statements. These, however, are
eliminated in the group’s consolidated financial
statements

➢ Disclosures that related party transactions were on

arm’s length basis are not made unless this can be
substantiated

Government-Related Entities

➢ A government-related entity is “an entity that is

controlled, jointly controlled or significantly
influenced by a government”