CHAPTER 1 : Presentation of Financial  Does not apply to the structure and content

Statements of condensed interim financial statements

prepared in PAS 34, Interim Financial
Reporting
1.1 Philippine Accounting Standards
 Does not deal with recognition,
measurement, and disclosure of specific
Philippine Accounting Standards (PAS1)
transaction and other events
- Presentation of Financial Statements
 Uses terminology that is suitable for profit-
outlines the provisions and requirements in
oriented entities, including public sector
preparing and presenting financial
bus. Entities
statements. PAS 1 applies to all business
 In the event activities with not-for-profit-
regardless of their form of organization and
oriented activities in the private sector,
nature of operation.
public sector or government seek to apply
PAS 1, they may need to amend the
- The Financial Reporting Standards Council
descriptions used for particular line itmes in
(FRSC), the successor of the Accounting
financial statements and for financial
Standards Council (ASC), has approved the
statements themselves.
adoption of the International Financial
Reporting Standards (IFRS) 1, Presentation
1.2 Financial Statements
of Financial Statements, issued by the
International Accounting Standards Board
Financial Statements – structured representation of
(IASB) as the Philippine Financial Reporting
the financial position, financial performance and
Standards (PFRS).
cash flow of an entity . It also includes notes.
(contains definition of item, measurement or
OBJECTIVES OF PAS 1
valuation procedures and disclosure requirements).
 Proper Presentation
OBJECTIVE OF FINANCIAL STATEMENTS
 Comparability
 Structure and minimum Requirements
 Provide information about the :
 Financial Position
SCOPE OF PAS 1
 Financial Performance
 Cash Flow
 Entities that prepare and present general-
 Management stewardship of resources
purpose financial statements in accordance
with IFRS
*the info provided assists users in predicting future
 Entities that prepare consolidated or
cash flow, in particular its timing and certainty.
separate financial statements
Predicting the earning potentials and financial
capabiblities .
General-Purpose Financial Statements
-are those intended to meet the needs oof userss
COMPONENTS OF FINANCIAL STATEMENTS
wwwho are not in a position to demand reports
Complete set of financial statements consist of ff:
tailored to meet their particular information needs.
1. Statement of financial position
FEATURES OF PAS 1 that will help attain the
2. Statement of comprehensive income
OBJECTIVES:
3. Statement of changes in equity
4. Statement of cash flow
 Does not apply to special-purpose financial
5. Notes comprising a summary of
reports.
significant accounting policies and other
explanatory notes
1.3 Fair Presentation
- Financial statements are fairly presented
when they include all necessary information
that will influence the decision of economic
users.
- Financial statements are still considered
fairly presented even when some
information are not included therein and
the decision of the users is not influenced by
such exclusion.
SALIENT FEATURES OF FAIR PRESENTATION
 Fair presentation requires the faithful
representation of the effects of transactions,
other events and conditions in accordance
with the recognition criteria for assets,
liabilities, income and expenses.
 An application of PRFS with additional
disclosure when necessary
 An entity whose financial statements comply
with PRFS shall make an explicit and
unreserved statement of such compliance in
notes
 Financial statement shall not be described
as complying with PRFS unless they comply
with all requirements of PRFS
INDICATORS OF COMPLIANCE WITH FAIR
PRESENTATION
 The entity adheres completely with PFRS
 The entity applies accounting policies
 The entity provides information in a manner
that provides relevant, reliable, comparable
and understandable information.
 The entity provides additional disclosures
when compliance with specific requirements
in PRFS insufficient to enable users to
understand the impact of particular
transactions. Inappropriate accounting
policies are not rectified either by disclosure
of the accounting policies used or by notes
or explanatory materials.
1.4 Departure to Compliance with PRFS
The business shall perform one of the ff procedures
in case the management concludes that compliance
with a requirement in prfs would be misleading or
in conflict with the objective of financial statements
as set out in the framework:
 Depart from that requirement if the relevant
regulatory framework does not prohibit
such departure
 Reduce the misleading aspects of
compliance if the relevant regulatory
framework prohibits departure
*an item information would conflict with the
objectives of financial statements when it does
not represent faithfully the transactions. It
would likely influence economic decisions made
by users of fs. Therefore departure from the
requirements of Standard is only allowed if no
prohibition is made.
FRAMEWORK DOES NOT PROHIBIT DEPARTURE
When an entity departs from the requirements
of the Standard because compliance with them
would be in conflict with the objectives of fs and
the regularoty framework does not prohibit
departure, the ENTITY SHALL DISCLOSE THE FF:
 The management has concluded that
the financial statements present fairly
 The entity has complied with the
applicable Standard or Interpretation
 The title of the Standard of
Interpretation from which the entity has
departed, the nature of the departure
including the treatment that that
Standard or Interpretation would
require, the reason why the treatment
would be misleading.
 The financial impact of the departure on
each itme in the fs that would have been
reported in complying with the
requirement.
FRAMEWORK PROHIBITS DEPARTURE
When an entity departs from a requirement of the
Standard because compliance with it would result in
conflict with the objectives of fs, and the regulatory
framework prohibits departure, the management
shall reduce and perceived misleading aspect of
compliace by DISCLOSING the ff:
 The title of standard in question, the nature
of requirement, and the reason why
management has concluded that complying
with the req. Is so misleading
 The adjustments to each item in each fs
MANAGEMENT CONSIDERATION
 Why the objective of fs is not achieved in
the particular circumstances
 How the entity’s circumstances differ from
those of other entities.
1.5 Going Concern and Accrual Basis
Going Concern assumption – the business shall
continue to operate indefinitely unless otherwise
proven.
Presentation of FS relative to Going Concern
 Make an assestment of the entity’s ability to
continue as a going concern
 Uncertainties ralated to events , conditions
that may doubt the ability to continue as
going concern shall be disclosed.
 Management shall take into account all
available information
 Going concern basis of accounting is
appropriate without detailed analysis
 Considers the ff:
a. Current and expected profitability
b. Debt repayment schedules
c. Potential sources of replacement
financing
Accrual Basis- the effects of transactions and events
are recognized as they occur and not as cash is
received or paid.
FS prepared on accrual basis infrom users not only
of past transactions involving the payment and
receipt of cash but also of obligations to pay cash in
the future and of resources that represent cash to
be received in the future.
1.6 Consistency of Presentation
The principle of consistency- requires the
classification and presentation of items in FS shall
be retained from one period to the next.
INSTANCES TO CHANGE STATEMENT PRESENTATION
The bus. may abandon the principle of consistency
when:
 It is apparent, following a significant change
in the nature of entity’s operations , that
another presentation or classification would
be more appropriatein criteria and
accounting policies
 A Standard or an Interpretation requires a
change in presentation
CONDITION FOR CHANGE IN PRESENTATION
 When the changed presentation provides
information that is reliable and is more
relevant to users of FS
 When the revised structure is likely to
continue, so that comparability is not
impaired
1.7 Materiality and Aggregation
Materiality- item is considered material when its
presence or absence in financial statements will
influence the decision of the users.
GUIDELINES IN MATERIALITY AND AGGREGATION
 Ommission and mistatement of items are
material if they coul individually or
collectively, influence the economic decision
 Materialityy depends on the size and nature
of the omission.
 Each material class of similar items shall be
presented separately in FS
  An item that is not sufficiently material to
warrant seperate presentation on FS may
nevertheless be sufficiently material to be
presented in note
 Specific disclosure requirement in standard
need to be satisfied if the information is not
material
1.8 Offsetting
Offsetting – process of deducting the balance of one
account from another related account.
The concept of offsetting does not refer to
measuring assets net of valuation allowances as in
the process of deducting obsolences allowance on
inventories or doubtful account on receibales.
1.9 Comparative Information
The basic objective of comparability- is to assist
users of FS in making economic decision by allowing
assessment of trends in financial information for
predictive purposes.
In applying concept of comparability ff should be
observed:
 Comparison shall be included for narrative
and descriptive information of current
period FS
 Comparative information shall be disclosed
except whem a Standard or Interpretation
permits or requires otherwise
 When FS is amended, comparative amounts
shall be reclassifies unless the
reclassification is impraticable.
 When comparative amounts are reclassified,
an entity shall disclose (a) nature of
reclassification (b) amount of each item or
class of items that is reclassified (c) reason
for reclassification
 When it is impracticable to reclassify, entity
shall disclose (a) reason for not reclassifying
amounts (b) nature of adjustments that
would have been made if amounts had been
reclassified
1.10 Reporting Period
Financial statements shall be presented at least
annually.
But when the date of an entity changes and annual
changes are presented longer or shorter that one
year, the entity shall disclose ff:
 The reason for using longer/shorter period
 The fact that comparative amounts for the
FS and related notes are not entirely
comparable
1.11 Accounting Policies
Accounting Policies- specific principles, bases,
conventions, rules and practices applied by an
entity in preparing and presenting FS.
DISCLOSURE OF ACCOUNTING POLICIES
PAS 8, Accounting Policies, Changes in Accounting
Estimates and Errors. PAS 8 is intended to enhance
the relevance and reliability of an entity’s FS and
the comparability.
A disclosure is additional information attached to
an entity's financial statements, usually as
explanation for activities which have significantly
influenced the entity's financial results.
AN ENTITY SHALL DISCLOSE IN THE SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
 The measurement basis (bases) used in
preparing financial statements
 Other accounting policies used that are
relevant to understanding FS
Measurement bases are historical cost, current cost,
net realizable value and fair or recoverable value.
SELECTION AND APPLICATION OF ACCOUNTING
POLICIES

When a Standard or an Interpretation specifically
applies to a transaction, the accounting policies
applied to that item shall be determined by
applying thye Standard or Interpretation
considering Implementation Guidance issued by
FRSC.
In absence of a Standard or an Interpretation, the
management shall use its judgement.
FACTORS TO CONSIDER IN ABSENCE OF A STANDARD
 Adopt accounting policy that is relevant in
economic decision making of users
 Apply accounting policy that is reliable in FS:
FS are reliable when;
a. Represent faithful financial position,
performance and cash flow
b. Reflect the economic substance of
transactions
c. Neutral and free from bias
d. Prudent
e. Complete in all material respects
 Considers the applicability of ff sources;
a. Requirement and guidance in Standards
dealing with similar and related issues
b. Definition, recognition, criteria,
measurement concept of asset,liabilities,
income and expenses in the framework
 Consider the most recent pronouncement of
other standard-setting bodies that use
similar conceptual framework
CHANGES IN ACCOUNTING POLICIES
 entity shall change accounting policy if it is
required by Standard
 the change results in FS providing reliable
and more relevant information about the
transactions.
APPLICATION OF CHANGES IN ACCOUNTING
POLICIES
Guidelines shall be observed when an entity chang
its accounting policies:
 the entity shall account for change
 the entity shall apply the change
retrospectively. Retrospective Application
means applying new accounting policy as if
that policy has always been applied
 the entity shall adjust the opening balance
of each affected component in equity
LIMITATION OF RETROSPECTIVE APPLICATION
 when it is impracticable to determine the
period-specific on comparative information
 when it is impracticable to determine the
cumulative effect at the beginning of the
current period to all periods
1.12 Accounting Estimates
A change in accounting estimates- is an adjustment
of carrying amount of an asset or liability or the
amount of the periodic consumption of an asset
that results from the assessment of the present
status and the xpected future benefits and
obligations associated with assets and liabilities.
Change in accounting estimates results from new
information/new development not a correction of
errors.
Estimates may be required on determination of
 Bad debts
 Inventory obsolescence
 Fair value of financial assets or financial
liabilities
 Useful lives of depreciable assets
 Warranty obligations
TREATMENT OF CHANGE IN ACCOUNTING
ESTIMATES
 The period of change if the change affects
that period only
 The period of the change and future periods
if the change affects both
Prospective Application- recognizing the
effect of the change in the accounting
 estimate in the current and future periods
affected by the change.
DISCLOSURE OF CHANGE IN ACCOUNTING
ESTIMATES
An entity shall disclose the nature and amount of
change in an accounting estimates that has an
effect on the current or expected to have effect on
future period. Except when it is impracticable . If
the amount of effect in future period is not
disclosed because estimating it is impracticable, an
entity shall disclose the fact.
1.13 Accounting Errors
Accounting errors- include the effect of
mathematical mistakes, mistakes in applying
accounting policies, oversights or misinterpretations
of facts and fraud.
Prior period errors- ommission on, and
misstatement in, the entity’s FS for one or more
prior periods.
Accounting errors can arise in respect of the
recognition, measure and presentation or
disclosure of elements of financial statements.
TREATMENT OF ERRORS
An entity shall correct errors after their discovery
by;
 Restating the comparative amount
presented in which error occured
 Restating the balances of assets, liabilitie
and equity for the earliest prior period
presented.
Retrospective Restatement- is correcting the
recognition, measurement and disclosure of
amounts of elements of financial statements as if a
prior period error has never occurred.
LIMITATION OF RETROSPECTIVE RESTATEMENT
Prior-period error shall be corrected by
retrospective restatement except;
 When it is applicable to determine the
period-specific effect
 When it is impracticable to determine the
cumulative effect of error
DISCLOSURE OF PRIOR PERIOD ERROR
The entity shall disclode the ff;
 Nature of prior period errors
 Amount of correction for each error
 Financial statement line item affected
 Basic and diluted earnings per share if
applicable
 Amount of correction at the beginning of
earlier prior period presented
 If retrospective restatement is impracticable
for a particular period, the circumstances
that led to the existence of that condition
and description on how it has been
corrected
IMPRACTICABILITY OF RETROSPECTIVE
RESTATEMENT OF PRIOR PERIOD ERRORS
The ff. Indicated the impracticability to adjust
comparative information for one or more prior
period to achieve comparability with the current
period
 Data may not have been collected in
prior periods in away that allows either
retrospective application of a new
accounting policy or retrospective
restatement to correct prior period.
 The entity makes estimates in applying
an accounting policy to elements of
financial statements recognized or
disclosed in respect of transactions and
other events or conditions
It is required that the information is;
 Provides evidence of circumstances that
existed on the date it occurred
 Would have been available when FS for that
prior period authorized for issue.