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PRESENTATION OF

FINANCIAL STATEMENTS
Chapter 1

Introduction to PAS
What is PAS?
It simply means Philippine Accounting
Standards.

Philippine Accounting
Standards
The Philippine Financial Reporting Standards
(PFRS)/Philippine Accounting Standards (PAS)
are the new set of Generally Accepted
Accounting Principles (GAAP) issued by the
Accounting Standards Council (ASC) to
govern the preparation of financial
statements.

Introduction to PAS
What are its Objectives?
1.To prescribe a basis for presentation of
general purpose financial statements

General Purpose Financial


Statements

Are those intended to meet the needs of


users who are not in a position to demand
reports tailored to meet their particular
information needs
A set of general-purpose financial
statements includes a balance sheet,
income statement, statement of owner's
equity/retained earnings, and statement of
cash flows.

Introduction to PAS
What are its Objectives?
2. To ensure comparability both with the
entitys financial statements of previous
periods and with the financial statements
of other entities

Comparability

Comparability is one of the key qualities


which accounting information must possess.
Accounting information is comparable when
accounting standards and policies are
applied consistently from one period to
another and from one region to another.

Introduction to PAS
What are its Objectives?
3. To set out overall requirements for the
presentation of financial statements,
guidelines for their structure and
minimum requirements for their content

Overview
Comparability
Structure &
Minimum
Requirements

Proper
Presentation

PAS 1
Objectives

Introduction to PAS 1
Its Scope:
The standard shall be applied by:
1. Entities that prepare and present
general purpose financial statements in
accordance with Philippine Financial
Reporting Standards

Introduction to PAS 1
Its Scope:
The standard shall be applied by:
2. Entities whether or not they need to
prepare consolidated financial
statements or separate financial
statements

Introduction to PAS 1
It does not apply to:
1.Special purpose function reports
2.Structure and content of condensed
interim financial statements prepared in
accordance with PAS 34

Introduction to PAS 1
It does not deal with
1.Recognition, measurement and
disclosure of specific transactions and
other events

Introduction to PAS 1
It uses
1.Terminology that is suitable for profit
oriented entities, including public sector
business entities

Introduction to PAS 1
In the event that the entities with not for
profit activities in private sector, public
sector or government seek to apply PAS
1, there may need to ament descriptions
used for particular line items in the
financial statements for the FS
themselves.

Financial Statements
- Are structured representation of the
financial position, financial performance
and cash flows of an entity. It also
includes the notes.

Financial Statements

Notes to Financial Statements


Contains

additional information like


definition of the item, measurement or
valuation procedures and disclosure
requirements.

Purpose of Financial
Statements

To provide information about the ff:


Financial

position
Financial performance
Cash flows; and
Management and stewardship of
resources

Purpose of Financial
Statements
To assist in predicting the entitys cash
flows and in particular, their timing and
certainty.

Components of Financial
Statements
1.
2.
3.
4.
5.

Statement of Financial Position


Statement of Comprehensive Income
Statement of Changes in Equity
Statement of Cash Flows
Notes

Fair Presentation
The Standard requires that the Financial
Statements shall present fairly the
financial position, financial performance,
and cash flows of an entity.

When are financial statements


presented fairly?
When they include all necessary
information that will influence the
decision of economic users.

When are financial statements


presented fairly?
Example:
Jenny Merchandising failed to include in its
the inventory the goods in transit amounting to
P50,000. The exclusion of the merchandise in
the financial statement does not, however,
materially affect and influence the decision of
users.

Salient Features of Fair


Presentation
1.

2.

3.

4.

Faithful representation of effects of


transactions
Application of the Philippine Financial
Reporting Standards
Shall make an explicit and unreserved
statement of compliance to PFRS
Shall not described as complying unless
they comply with all requirements

Indications of Compliance
1.
2.

3.

4.

Applies all applicable PFRS


Entity selects and applies accounting policies in
accordance with standards
Entity presents an information, including
accounting policies in a manner that provides
relevant, reliable, comparable and
understandable information
An entity provides additional disclosure when
information is insufficient

Departure from Compliance

When compliance with the standards


becomes misleading that it would
conflict with the objective of the
Financial Statements noncompliance is allowed

Departure from Compliance


In Case of Conflict:
1.Depart from that requirement when
such standard does not prohibit the
departure
2.Reduce the misleading aspects of
compliance if the standards prohibits the
departure

Departure from Compliance


Query: What indicates a conflict between
compliance requirements of PFRS and
the objective of financial statements?

Departure from Compliance


Answer: When it does not represent
faithfully the transactions, other events
and conditions that it either purports to
represent or could reasonably be
expected to represent and, consequently,
it would be likely to influence economic
decisions made by users of financial
statements.

Going Concern and Accrual


Going Concern assumption
- Dictates that the business shall
continue to operate indefinitely unless
otherwise proven to be otherwise.

Guidelines to be observed
1.The

management shall make an


assessment of an entity's ability to
continue as a going concern.s
2.When management is aware, in making
its assessment, of material uncertainties
related to events or conditions that may
cast a significant doubt upon the entity's
ability to continue as a going concern,
those uncertainties shall be disclosed.

Guidelines to be observed
When financial statements are not
prepared on a going concern basis, that
fact shall be disclosed, together with the
basis on which the financial statements
are prepared and the reason why the
entity is not regarded as a going concern.
The management shall take into
account all available information about
the future in assessing whether the going
concern assumption is appropriate.

Guidelines to be observed
When

an entity has a history of


profitable operation and ready access to
financial resources in times of need, a
conclusion that the going concern
assumption is appropriate without
detailed analysis.

Guidelines to be observed
The

management before it can satisfy


itself that the going concern assumption
is appropriate, in other cases, should
consider the following wide range of
factors relating to:

Current and expected profitability


Debt repayment schedules; and
Potential sources of replacement
financing

Accrual Basis

An entity shall prepare its financial


statements, except for cash flow
information, using the accrual basis of
accounting.

Accrual Basis

Under this basis, the effects of


transactions and other events are
recognized when they occur and not
as cash is received or paid and they
are recorded in the accounting records
and reported in the financial
statements of the periods to which
they relate.

Accrual Basis

It provides information about past


transactions and also about future
payments to obligations and
receivable cash receipts.

Consistency of Presentation

The principle of consistency requires


that the presentation and classification
of items in the financial statements
shall be retained from one period to the
next.
Change in presentation and
classification is allowed only subject to
some terms and conditions

Consistency of Presentation

Instances to Change Statement


Presentation
It

is apparent, following a significant


change in the nature of the entitys
operations or a review of its financial
statements, that another presentation or
classification would be more appropriate
having regard to the criteria for the selection
and application of accounting policies.

Consistency of Presentation

Instances to Change Statement


Presentation
A

Standard or interpretation requires a


change in presentation

Consistency of Presentation

Conditions for change in presentation


The

changed presentation provides


information that is reliable and is more
relevant to users of the financial statement.
The revised structure is likely to continue,
so that comparability is not impaired.

Materiality and Aggregation

Materiality is a constraint in the


presentation of financial information.
An information is material if its
absence or presence affects the
decision of users.

Materiality and Aggregation


Guidelines

Omission or misstatement of items are


material if they could, individually or
collectively influence the economic
decision of users taken on the basis of
the financial statements.

Materiality and Aggregation


Guidelines

Materiality depends on the size and


nature of the omission or
misstatement judged in the
surrounding circumstances. The size
or nature of the item, or a combination
of both, could be a determining factor.

Materiality and Aggregation


Guidelines

Each material class of similar items


shall be presented separately in the
financial statements. Items of a
dissimilar nature or function shall be
presented separately unless they are
immaterial.

Materiality and Aggregation


Guidelines

If a line item is not individually


material, it is aggregated with other
items either on the face of financial
statements or in the notes.

Materiality and Aggregation


Guidelines

An item that is not sufficiently material


to warrant separate presentation on
the face of the financial statements
may nevertheless be sufficiently
material for it to be presented
separately in the note.

Materiality and Aggregation


Guidelines

The specific disclosure requirement in


a Standard need not be satisfied if
information is not material.

Offsetting

Simply refers to the process of


deducting the balance of one account
from another related account.

It is important that assets and liabilities


and income and expenses are reported
separately. They shall not be offset
unless permitted or required by a
standard.

Comparative Information
The information provided on the face of
the financial statements will provide
greater value to the users if it possesses
the element of comparability.

Comparative Information
The basic objective of comparability is to
assist users of financial statements in
making economic decisions by allowing
trends in the assessment of trends in
financial information for predictive
purposes.

Requirements for Comparative


Information

Comparison shall be included for


narrative and descriptive information
when it is relevant to an understanding
of the current periods financial
statements.

Requirements for Comparative


Information

Comparative information shall be


disclosed in respect of the previous
period for all amounts reported in the
financial statements except when
standards permit or require.

Requirements for Comparative


Information

When the presentation or classification


of items in the financial statements is
amended, comparative amounts shall
be reclassified unless the
reclassification is impracticable.

Requirements for Comparative


Information

When the comparative amounts are


reclassified an entity shall disclose:
The

nature of reclassification
The amount of each item or class of items
that is reclassified
The reason for the reclassification

Requirements for Comparative


Information

When it is impracticable to reclassify


comparative amounts, an entity shall
disclose.
The

reason for not reclassifying the


amounts; and
The nature of the adjustments that would
have been made if the amounts had been
reclassified.

Reporting Period
Financial statements shall be presented
at least annually.

Reporting Period
When the date of the financial statement
changes, or when a period shorter or
longer is presented, an entity shall
disclose:
a.The

reason for using a longer or shorter period


b.The fact that comparative amounts for the
income statement, statement of changes in
equity, cash flow statement and related notes
are not entirely comparable.