CHAPTER 3

Notes to financial statements

Definition
Ang notes to financial statements ay nagpo-provide ng narrative description
regarding sa mga items na presented sa financial statements and lahat ng
information na hindi nag-qualify for recognition.
Ang notes to financial statements ay additional information na nag-rereport ngdetails
na hindi ni-report sa statement of financial position at income statements. Ang notes
to financial statement ay ginagawa for clarification of any applicable policies,
adjustments and any other disclosures.
PAS 1, paragraph 113, provides na ang isang entity is dapat, as far as practicable,
ipresent ang notes in a systematic manner, dapat organized.
Each item na presented sa statement of financial position, income statement,
statement of comprehensive income, statement of changes in equity and statement
of cash flows ay dapat cross-reference sa information na nasa notes, in short kung
ano ang naka-indicate sa financial statements ay kaugnay ng nasa notes.
Dapat detailed ang nasa notes to the financial statements, precise or accurate, exact
at free from errors, complete at madaling maintindihan ng readers.

Purpose of notes to financial statements

Ang purpose ng notes to financial statements ay magprovide ng necessary disclosures
na nire-required ng PFRS.
Mga dapat tandaan sa pag-present ng note to financial statements:
a. Presentation about the basis sa preparation ng financial statements such as
consistency and accrual basis or cash basis of accounting and specific
accounting policies such as the rules and practices of the entity.
b. Disclosure ng information ng ni-rerequire ng PFRS na hindi presented sa
financial statements kagaya ng measurements na ginagamit for recognition ng
assets and liabilities.
c. Pagpo-provide ng additional information na di presented sa financial statements
na mahalaga at appropriate upang mas maintindihan ang financial statements.
 Order of presenting the notes
PAS 1, paragraph 114 provide na ang entity shall normally present note in the
financial statements in the following order para ma-assist ang readers na
maintindihan ng malinaw ang financial statements at mai-compare nila ito with
other entitys financial statements.
a. Statements of compliance with PFRS
b. Summary of significant accounting policies used.
c. Supporting information or computation for line items presented in the
financial statements.
d. Other disclosures, such as contingent liabilities, unrecognized contractual
commitments and nonfinancial disclosures.
In some circumstances ay maaari nilang ibahin ang order ng specific items sa
notes to financial statements as long as mare-retain nila na organized ang
kanilang presentation and ang structure ng notes as far as practicable.

o Compliance with PFRS

Sabi sa PAS 1, paragraph 16, ang entity na ang financial statements ay nagco-
comply sa PFRS ay dapat magbigay ng malinaw at not limited na statement with
regards sa compliance nito sa NOTES.
Di pwedeng sabihin ng entity na nagco-comply sila sa PFRS unless nagcomply
sila sa lahat ng requirements na applicable sa PFRS.
Example:
Note1- Compliance with PFRS
The financial statements have been prepared in compliance with the Philippine
Financial Reporting Standards and the rules and regulations of the Philippine
Securities and Exchange Commission.
 o Accounting policies
Ang accounting policies ay mga specific principles, rules and procedures,
bases and practices na implemented and adopted ng entitys
management team sa preparation ng financial statements. Example ng
accounting policies ay methods, measurement systems at procedures sa
presentation ng disclosures.
Ang accouting policies ay set ng standards used to deal with complicated
practices in the entity such as the computations and recognition of
goodwill and receivable valuations.
Ang accounting standards ay nag-set out ng requirements sa recognition
at measurement ng principles na dapat sundin ng isang business entity sa
pagpe-prepare ng financial statements.

o Significant accounting policies

The summary of significant accounting policies shall disclose the
following:
a. Measurement basis na ginamit sa pagpe-prepare ng financial
statements.
b. Accounting policies na ginamit relevant para mas maintindihan ang
financial statements.
Example:
Note 2- Significant accounting policies
Measurement basis- the financial statements have been prepared on the basis of
historical cost, and except where stated, do not take into account changing prices
and current cost of noncurrent assets.
Inventories- Inventories are measured at the lower of FIFO cost and net
realizable value.
 o Disclosure of measurement basis
Mahalaga na ma-inform or mai-disclose sa financial users ang measurent basis
na ginagamit ng entity sa pagpe-prepare ng financial statements dahil
nakakaapekto sa kanilang analysis when making decisions ang ginagamitnilang
measurement basis.
Ang mga example ng measurement basis ay historical cost, current cost,
realizable value at fair value. Ang pinaka-common na ginagamit ay ang
historical cost.

o Disclosure of accounting policies

Sa paged-decide kung ang isang accounting policy ay pwedeng i-disclose, kailangang i-
consider ng entity whether yung disclosure na iyon ba ay maiintindihan ng users.
Ang disclosure ng accounting policies ay useful sa ating mga users when those
policiesay selected mula saalternative na allowed ng PFRS.

o Disclosure of judgments
PAS 1, paragraph 122 provides na ang entity ay dapat mag-disclose sa summary ng
significant accounting policies ng judgments na ginawa ng management in the process
of applying theaccounting policies na may significant effect sa amounts na ni-
recognized sa financial statements.
Ang accounting judgment involves decision in accounting treatment kagaya ng going
concern vs liquidation basis at accrual vs cash basis. It is also important na i-discuss
ang reason behind that judgment.
Specifically, the management makes judgments in determining the following:
a. Whether ang financial assets ay measured at fair value or at amortized cost.
b. Whether substantially all the significant risks and rewards of ownership of the
leased asset are transferred to the lease.
c. Whether in substance particular sales of goods is product financing arrangement
or therefore do not give rise to revenue.
 o Disclosure of estimation uncertainty
PAS 1, paragraph 25 provides na entity ay dapat na i-disclose ang information about sa
assumptions it makes in the future and other major sources ng uncertainty at the end of
the reporting period na may malaking effect at maaring makapagbigay ng napakalaking
adjusments sa carrying amount ng assets and liabilities sa susunod na accounting
period.
With respect to those assets and liabilities, the notes shall include the nature and
carrying amount of the assets and liabilities at the end of the reporting period.
Significant judgment ay required sa paged-decide ng nature and extent to be made
regarding sa estimation ng uncertainty sa financial statements.
o Summary ng findings mula sa survey ng estimation uncertainty
disclosures parasa sample of companies reporting under PFRS
o Observations sa reporting practices ng entitys surveyed and suggestions
on how to improve disclosures about estimation uncertainty.

o Other disclosures
PAS 1, paragraph 138, provides that the entity shalldisclose the following:
a. The domicile (the place you live) and legal form ng entity, country of
incorporation and address of the registered office or principal place of business.
b. Description of nature of the entitys operations and its principal activities.
- Klase ng business at anong activities within their operations
c. Name of the parent and the ultimate parent of thegroup
- In case na maysubsidiaries and associates ay name ng parent company
For example, there is a Group of companies of A, B, C, and D. A is the parent
company and B, C, D are their sister company.
Paragraph 137 provides that an entity shall disclose the following;
a. Amount ng dividends na proposed at dineclared bago pa man na-authorized para
i-issue ang financial statements pero di ni-recognized as distribution during the
period at ang related amount per share.
b. The amount of any cumulative preference dividends not recognized.