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Sec. 41. Disclosures for Changes in Accounting Estimates.

The required disclosures


for changes in accounting estimates are as follows:
a. the nature and amount of a change in an accounting estimate that has an effect in the
current period or is expected to have an effect on future periods, except for the
disclosure of the effect on future periods when it is impracticable to estimate that
effect (Par. 44, PPSAS 3); and
b. if the amount of the effect in future periods is not disclosed because estimating it is
impracticable, the entity shall disclose that fact. (Par. 45, PPSAS 3)

Sec. 42. Errors. Errors can arise in respect of the recognition, measurement,
presentation, or disclosure of elements of financial statements. Errors include the effects of
mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations
of facts, and fraud. Financial statements do not comply with PPSASs if they contain either
material errors, or immaterial errors made intentionally to achieve a particular presentation of an
entitys Statement of Financial Position, Statement of Financial Performance, or Statement of
Cash Flows.
a. Errors may be classified as current period errors and prior period errors.
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1. Current period errors are errors committed and discovered within the same
period. It shall be corrected by an adjusting entry, within the same year before
the financial statements are authorized for issue.
2. Prior period errors are omissions from, and misstatements in, the entities
financial statements for one or more prior periods arising from failure to use, or
misuse of reliable information that:
i. was available when financial statements for those periods were authorized for
issue; and
ii. could reasonably be expected to have been obtained and taken into account in
the preparation and presentation of those financial statements.
b. An entity shall correct material prior period errors retrospectively in the first set of

financial statements authorized for issue after their discovery by:


1. restating the comparative amounts for prior period(s) presented in which the error
occurred; or
2. if the error occurred before the earliest prior period presented, restating the
opening balances of assets, liabilities and net assets/equity for the earliest prior
period presented. (Par. 47, PPSAS 3)
c. The correction of a prior period error is excluded from the computation of income
and expense for the period in which the error is discovered. (Par. PPSAS 3)

Sec. 43. Limitations of Retrospective Restatement of Prior Period Errors. The


limitations of retrospective restatement of prior period errors are as follows:
a. A prior period error shall be corrected by retrospective restatement, except to the
extent that it is impracticable to determine either the period specific effects or the
cumulative effect of the error. (Par. 48, PPSAS 3)
b. When it is impracticable to determine the period-specific effects of an error on
comparative information for one or more prior periods presented, the entity shall
restate the opening balances of assets, liabilities, and net assets/equity for the earliest
period for which retrospective restatement is practicable (which may be the current
period). (Par. 49, PPSAS 3)
c. When it is impracticable to determine the cumulative effect, at the beginning of the
current period, of an error on all prior periods, the entity shall restate the comparative
information to correct the error prospectively from the earliest date practicable.
(Par. 50, PPSAS 3)

Sec. 44. Disclosure of Prior Period Errors. An entity shall disclose the following:
a. the nature of the prior period error;
b. for each prior period presented, to the extent practicable, the amount of the correction
for each financial statements line item affected;
c. the amount of the correction at the beginning of the earliest prior period presented;

and
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d. if retrospective restatement is impracticable for a particular prior period, the
circumstances that led to the existence of that condition and a description of how and
from when the error has been corrected.
Financial statements of subsequent periods need not repeat these disclosures. (Par. 54,
PPSAS 3)

Sec. 45. Retrospective Restatement of Errors. The following is an sample illustration


of retrospective restatement of errors:
Entity ABC discovered in 2015 that the revenue recognized in 2014 has been
inadvertently omitted in the amount of P6,200,000.
The entitys Statement of Financial Performance and Statement of Changes in Net
Assets/Equity before adjustment of the error for 2014 and 2015 are as follows:
Entity ABC
Statement of Financial Performance

a. Before adjustment
Particular 2015 2014
Revenue P 50,000,000 P 40,500,000
Other Operating Revenue 20,100,000 18,000,000
Total Revenue 70,100,000 58,500,000
Expenses (55,000,000) (45,000,000)
Surplus P 15,100,000 P 13,500,000
Entity ABC
Statement of Changes in Net Assets/Equity
Particular 2015 2014
Opening accumulated surpluses P 103,500,000 P 90,000,000
Surplus for the period 15,100,000 13,500,000

Closing accumulated surplus P 118,600,000 P 103,500,000

b. The entity shall make the following adjustments:


1. Prepare adjusting entry to recognize the adjustment of the 2014 revenue in 2015;
Account Title Account Code Debit Credit
Accounts Receivables (or
applicable account) 10301010 P6,200,000
Accumulated Surplus/(Deficit) 3 0 1 0 1 0 1 0 P 6 ,200,000
To correct the revenue inadvertently omitted in 2014
2. Restate in the comparative financial statements the amounts for prior period/s to
reflect the change; and
3. Restate the opening balances of assets, liabilities and equity for 2015.
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Entity ABC
Statement of Financial Performance

c. After adjustment
Particular 2015 2014 As Restated
Revenue P 50,000,000 P 46,700,000
Other Operating Revenue 20,100,000 18,000,000
Total Revenue 70,100,000 64,700,000
Expenses (55,000,000) (45,000,000)
Surplus P 15,100,000 P 19,700,000

d. Notice that the Revenue, Total Revenue and the Surplus figures presented in 2014 are
already the adjusted amounts. Statement of Changes in Net Assets/Equity are as
follows:
Entity ABC
Statement of Changes in Net Assets/Equity
Particular 2015 2014 As Restated
Opening Accumulated Surplus/(Deficit) as

previously reported
P 103,500,000 P 90,000,000
Correction of error 6,200,000 Opening Accumulated Surplus/(Deficit) as
restated 109,700,000 90,000,000
Surplus for the period 15,100,000 19,700,000
Closing Accumulated Surplus/(Deficit) P 124,800,000 P 109,700,000

e. Surplus for the period for 2014 are already adjusted, while the opening Accumulated
Surpluses in 2015 is restated.

f. Extracts from Notes to the Financial Statements in 2015


Business and Operating Income of P6,200,000 was inadvertently omitted from
the financial statements of 2014. The financial statements of 2014 have been restated
to correct this error. The effect of the restatement on those financial statements is
summarized below. There is no effect in 2015 Statement of Financial Performance.
Effect on 2014 Statement of Financial Performance
Particular Amount
Increase in Business and Operating Income P6,200,000
Increase in Net Income P6,200,000
Effect on 2015 Statement of Financial Position
Particular Amount
Increase in Accounts Receivables P6,200,000
Increase in Net Asset/Equity P6,200,000
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Sec. 46. Interim Financial Statements. Financial statements that are required to be
prepared at any given period or at a financial reporting period without closing the books of
accounts. The following interim financial statements shall be prepared and submitted whenever
needed:
a. Statement of Financial Position;

b. Statement of Financial Performance;


c. Statement of Cash Flows;
d. Statement of Changes in Net Assets/Equity;
e. Statement of Comparison of Budget and Actual Amount; and
f. Notes to Financial Statements.
The interim financial statements shall be prepared employing the same accounting
principles used for annual reports. Adjusting and closing journal entries shall be prepared.
However, only the adjusting journal entries are recognized in the books of accounts. To facilitate
the preparation of the interim financial statements, the use of the worksheet is recommended.

Sec. 47. Preparation and Submission of Other Reports. In addition to the set of
financial statements enumerated in Section 5 of this Chapter, the following reports/
schedules/statements shall be submitted to GAS, COA:
a. Pre-Closing Trial Balances
b. Post-Closing
c. Other schedules
1. Regional Breakdown of Income
2. Regional Breakdown of Expenses

Sec. 48. Trial Balance. Trial Balance (TB) is a list of all the GL accounts and their
balances at a given time. The accounts are listed in the order in which they appear in the RCA,
with the debit balances in the left column and the credit balances in the right column.
a. The TB shows the equality of debit and credit balances of all GL accounts as at a
given period. It is prepared and submitted monthly, quarterly and annually. At the
end of the fiscal year, the pre-closing and the post-closing trial balances shall be
prepared.
b. The TB is prepared to:
1. Prove the mathematical equality of the debits and credits after posting;
2. Check the accuracy of the postings;

3. Uncover errors in journalizing and posting; and


4. Serve as basis for the preparation of the financial statements.
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Sec. 49. Pre-Closing Trial Balance. The Pre-Closing Trial Balance shall be prepared
after posting the AJE in the GJ and the same to the GL. It shows the adjusted balances of all
accounts as at a given period. This is also described/termed as the Adjusted Trial Balance. The
TB shall be supported with the schedule of SL balances of the controlling accounts.

Sec. 50. Adjusting Journal Entries. Adjusting journal entries are made at the end of an
accounting period to allocate revenue and expenses to the period in which they actually occurred.
AJEs are required every time a financial statement is prepared to make the statement truly
reflective of the financial condition of the entity at a given period. Adjustments are of two main
types:
a. Accrued items
b. Deferred items

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