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 &
Proper
Minimum
Presentation
Requirements

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. Statement of Financial Position

2. Statement of Comprehensive Income
3. Statement of Changes in Equity
4. Statement of Cash Flows
5. 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. Faithful representation of effects of
transactions
2. Application of the Philippine Financial
Reporting Standards
3. Shall make an explicit and unreserved
statement of compliance to PFRS
4. Shall not described as complying unless
they comply with all requirements
 Indications of Compliance
1. Applies all applicable PFRS
2. Entity selects and applies accounting policies in
accordance with standards
3. Entity presents an information, including
accounting policies in a manner that provides
relevant, reliable, comparable and
understandable information
4. 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 non-
compliance 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.