Philippine Accounting Standard (PAS) 1 Presentation of Financial Statements

prescribes the basis for the presentation of general purpose financial

statements, the guidelines for their structure. And the minimum
requirements for their content to ensure comparability.

Types of comparability

a. Intra-comparability (horizontal or inter-period) refers to the

comparability of financial statements of the same entity but from one
period to another.

b. Inter-comparability (dimensional) refers to the comparability of

financial statements between different entities.

Comparability requires consistency in the adoption and application of

accounting policies and in the presentation of financial statements, e.g., the
use of line-item descriptions and account titles, either within a single entity
from one period tou another or across different entities.

PAS 1 applies to the preparation and presentation of general purpose

financial statements. The recognition, measurement and disclosure
requirements for specific transactions and other events are set out in other
PFRSs.

The terminology used In PAS 1 is suitable for profit- oriented entities. If non-
profit organizations apply PAS 1, they may need to amend the line-item and
financial statement descriptions.

Financial Statements

Financial statements are the “structured representation of an entity’s

financial position and results of its operations.” (PAS 1.9) Financial
statements are the end product of the financial reporting process and the
means by which the information gathered and processed is periodically
communicated to users The financial statements of an entity pertain only to
that entity and not to the industry where the entity belongs or the economy
as a whole.
General purpose financial statements (‘financial statements’) are “those
intended to meet the needs of users who are not in a position to require an
entity to prepare reports tailored to their particular information needs.” (PAS
1.7)

General purpose financial statements cater to most of the common needs of

a wide range of external users. General purpose financial statements are the
subject matter of the Conceptual Framework and the PFRSs.

Purpose of financial statements

1. Primary objective: To provide information about the findin position,

financial performance, and cash flows of an entity that is useful to a
wide range of users in making economic decisions.

2. Secondary objective: To show the results of management’s stewardship

over the entity’s resources.

To meet the objective, financial statements provide information about an

entity’s:

a. Assets (economic resources);

b. Liabilities (economic obligations);

c. Equity:

d. Income:

e. Expenses,

1. Contributions by, and distributions to, owners; and

G Cash flows.
This information, along with other information in the notes, helps users
assess the entity’s prospects for future net cash inflows.

Complete set of financial statements

A complete set of financial statements consist of:

1. Statement of financial position,

2. Statement of profit or loss and other comprehensive income,

3. Statement of changes in equity;

4. Statement of cash flows;

5. Notes: (5a) Comparative information, and

6. Additional statement of financial position (required only when certain

instances occur).

An entity may use other titles for the statements. For example, an entity may
use the title “balance sheet” in lieu of “statement of financial position” or
“statement of comprehensive income” instead of “statement of profit or loss
and other comprehensive income.”

However, an “income statement is different from a “statement of profit or

loss and other comprehensive income” or a “statement of comprehensive
income.” We will elaborate on this later.

Reports that are presented outside of the financial statements, such as

financial reviews by management, environmental reports and value added
statements, ate outside the scope of PERS

General Features of financial statements

Fair Presentation and Compliance with PFRSs Forstatifully representing, in the
financial statements the effects of transactions and other events in
accontarer with the denicutone and recognition ecriteria for assets habilities
income and expenses set out in the Conccpyqun Framework

Compliance with the FFRSs is presumed to result in falzly presented financial

statements

Fair presentation aho requires the proper selection and application of

accounting policies, proper presentation of mformation, and provision of
additional disclosures whenever relevant to the understanding of the
financial statements.

Inappropriate accounting policies cannot be rectified by mere disclosure.

PAS 1 requires an entity whose financial statements comply with PFRSs to

make an explicit and unreserved statement of such complience in the notes.
However, an entity shall not make such statement unless it complies with all
the requirements of PERS

Illustration: Excerpt from a note to financial statement

Statement of Compliance with Philippine Financial Reporting Standards

The financial statements of the Bank have been prepared in accordance with
Philippine Financial Reporting Standards (PFRSs) which are adopted by the
Financial and Sustainability Reporting Standards Council (FSRSC) from the
pronouncements issued by the International Accounting Standards Board
(IASB).

There may be cases wherein an entity’s management concludes that

compliance with a PFRS requirement is misleading. In such cases, PAS 1
permits a departure from a PFRS requirement if the relevant regulatory
framework requires or allows such a departure.

Relevant regulatory framework refers to the accounting principles and other

financial reporting requirements prescribed by a government regulatory
body. For example, banks in the Philippines are regulated by the Bangko
Sentral ng Pilipinas (BSP). Therefore, in addition to the PFRSs, banks must
also comply with the requirements of the BSP. Accounting principles
prescribed by a regulatory body are sometimes referred to as “Regulatory
Accounting Principles” (RAP). In practice, banks commonly refer to the
financial reporting required by the BSP as “FRP” or Financial Reporting
Package.

When an entity departs from a PFRS requirement, it shall disclose the

management’s conclusion as to the fair presentation of the financial
statements; that all other requirements of the PFRSs are complied with; the
title of the PFRS from which the entity has departed; and the financial effect
of the departure. Can you identify these disclosures in the excerpt below??

Illustration: Departure from a PFRS requirement

Statement of Compliance The financial statements of the Bank have been

prepared in compliance with Philippine Financial Reporting Standards (PFRS),
except for the deferral of losses on sale of nonperforming assets (NPAs) to
special purpose vehicles (SPVs), non-recognition of allowance for credit
losses on subordinated notes issued by the SPV, and the non-consolidation of
the SPV that acquired the NPAs sold in 20x5, and 20x4, as discussed in Note
8.

PFRS 9 Financial Instruments and the Conceptual Framework require that the
losses be charged to current operations and that the accounts of SPVs be
consolidated into the Bank’s accounts. Had the losses on the sale of NPAs
been charged to current operations, equity as of December 31, 2015 and
20x4 would have decreased by P86.6 million and P87.3 million, respectively,
and profits for the years ended. December 30, 20x5 and 20x4 would have
decreased by 171.3 million, P72.3 million, respectively.

In accordance with the BSP Memorandum dated February 16, 20x4.

Accounting Guidelines on the Sale on NPAs to Special Purpose Vehicles, the
allowance for credit losses previously provided for the NPAs sold to SPVs was
relised to cover additional allowance for credit losses required for other
existing NPAs and other risk assets of the Bank.

All other requirements of the PFRSs have been complied with except those
described above. Management concludes that the financial statements
present fairly the Bank’s financial position, financial performance and cash
flows
 2. Going Concern

Financial statements are normally prepared on a going concern basis unless

the entity has an intention to liquidate or has no other alternative but to do
so.

When preparing financial statements, management shall assess the entity’s

ability to continue as a going concern, taking into account all available
information about the future, which is at least, but not limited to, 12 months
from the reporting date.

If the entity has a history of profitable operations and ready access to

financial resources, management may conclude that the entity is a going
concern without detailed analysis.

If there are material uncertainties on the entity’s ability to continue as a

going concern, those uncertainties shall be disclosed.

If the entity is not a going concern, its financial statements shall be prepared
using another basis. This fact shall be disclosed, including the basis used,
and the reason why the entity is not regarded as a going concern.

3. Accrual Basis of Accounting

All financial statements shall be prepared using the accrual basis of

accounting except for the statement of cash flows. Which is prepared using
cash basis.

4. Materiality and Aggregation

Each material class of similar items is presented separately. A class of similar

items is called a “line item.” Dissimilar items are presented separately unless
they are immaterial. Individually immaterial items are aggregated with other
items.

5. Offsetting

Assets and liabilities or income and expenses are presented separately and
are not offset, unless offsetting is required or permitted by a PFRS.
Offsetting is permitted when it reflects the substance

Of the transaction. Examples of offsetting:

a. Presenting gains or losses from sales of assets net of the related selling
expenses.

b. Presenting at net amount the unrealized gains and losses arising from
trading securities and from translation of foreign currency
denominated assets and liabilities, except if they are material.

c. Presenting a loss from a provision net of a reimbursement from a third

party.

Measuring assets net of valuation allowances is not offsetting. For example,

deducting allowance for doubtful accounts from accounts receivables or
deducting accumulated depreciation from a building account is not
offsetting.

6. Frequency of reporting Financial statements are prepared at least

annually. If an entity changes its reporting period to a period longer or
shorter than one year, it shall disclose the following:

a. The period covered by the financial statements

b. The reason for using a longer or shorter period, and

c. The fact that amounts presented in the financial statements are
not entirely comparable.

7. Comparative Information

PAS 1 requires an entity to present comparative information in respect of the

preceding period for all amounts reported in the current period’s financial
statements, unless another PFRS requires otherwise

As a minimum, an entity presents two of each of the statements and related

notes. For example, when an entity presents its 20x2 current year financial
statements, the 20x1 preceding year financial statements shall also be
presented as comparative information.

PAS 1 permits entities to provide comparative information in addition to the

minimum requirement. For example, an entity may provide a third statement
of comprehensive income. In this case, however, the entity need not provide
a third statement for the other financial statements, but must to provide the
related notes for that additional statement of comprehensive income.

Additional Statement of financial position.

As mentioned earlier, a complete set of financial statements includes an

additional statement of financial position when certain instances occur.
Those instances are as follows:

a. The entity applies an accounting policy retrospectively, makes a

retrospective restatement of items in its financial statements, or
reclassifies items in its financial statements; and

b. The instance in (a) has a material effect on the information in the

statement of financial position at the beginning of the preceding period.

For example, if any of the instances above occur, the entity shall present
three statements of financial position as follows:

Statement of financial position

Date

1. Current year

➤ As at December 31, 20x2

2. Preceding year

As at December 31, 20x1

(comparative information)

3. Additional
As at January 1, 20x1

The opening (additional) statement of financial position is dated as at the

beginning of the preceding period even if the entity presents comparative
information for earlier periods. The entity need not present the related notes
to the opening statement of financial position.

Consistency of presentation

The presentation and classification of items in the financial statements is

retained from one period to the next unless a change in presentation:

A. Is required by a PFRS; or

b. Results in information that is reliable and more relevant.

A change in presentation requires the reclassification of items in the

comparative information. If the effect of a reclassification is material, the
entity shall provide the “additional statement of financial position” discussed
earlier.

Summary: General Features

1. Fair presentation & Compliance with PFRSs

2. Going Concem
3. Accrual Basis
4. Materiality & aggregation
5. Offsetting
6. Frequency of reporting period
7. Comparative information
8. Consistency of presentation

Structure and content of financial statements Each of the financial

statements shall be presented with equal Prominence and shall be clearly
identified and distinguished from other information in the same published
document. For example, financial statements are usually included in an
annual report, which also contains other information. The PFRSs apply only to
the financial statements and not necessarily to the other information.

The following information shall be displayed prominently and repeatedly

whenever relevant to the understanding of the

Information presented:

a. The name of the reporting entity

b. Whether the statements are for the individual entity or for a group of
entities
c. The date of the end of the reporting period or the period covered by
the financial statements
d. The presentation currency
e. The level of rounding used (e.g., thousands, millions, etc.)

The statement of financial position is dated as at the end of the reporting

period while the other financial statements are dated for the period that they
cover.

PAS 1 requires particular disclosures to be presented either in the notes or on

the face of the other financial statements (eg. Footnote disclosures). Other
disclosures are addressed by other PFRSs.

Management’s Responsibility over Financial Statements

The management is responsible for an entity’s financial statements. The

responsibility encompasses:

a. The preparation and fair presentation of financial statements in

accordance with PFRSs,

b. Internal control over financial reporting:

c. Going concern assessment;

d. oversight over the financial reporting process; and

e. review and approval of financial statements.

The responsibilities are expressly stated in a document called “Statement
of Management’s Responsibility for Financial Statements, which is
attached to the financial statements as a cover letter. This document is
signed by the entity’s

a) Chairman of the Board (or equivalent),

b) Chief Executive Officer (or equivalent), and
c) Chief Financial Officer (or equivalent)

Statement of Financial Position

The statement of financial position shows the entity’s financial condition

(ie., status of assets, liabilities and equity) as at a certain date. It includes
line items that present the following amounts:

a) Property, plant and equipment;

b) Investment property;

c) Intangible assets;

d) Financial assets (excluding e, (h) and (i));

e) Investments accounted for using the equity method;

f) Biological assets;

g) Inventories;

h) Trade and other receivables;

i) Cash and cash equivalents;

j) Assets held for sale, including disposal groups;

k) Trade and other payables;

l) Provisions;

m) Financial liabilities (excluding (k) and (l));

n) Current tax liabilities and current tax assets;

o) Deferred tax liabilities and deferred tax assets;

p) Liabilities included in disposal groups;

q) Non-controlling interests; and

r) Issued capital and reserves attributable to owners of the parent.

PAS I does not prescribe the order or format of presenting items in the
statement of financial position. The foregoing is simply a list of items
that are sufficiently different in nature or function to warrant separate
presentation.

Accordingly, an entity may modify the descriptions used and the

sequence of their presentation to suit the nature of the entity and its
transactions. Moreover, additional line items may be presented
whenever relevant to the understanding of the entity’s financial
position.

Presentation of statement of financial position

A statement of financial position may be presented in a “classified”

Or an “unclassified” manner.

a. A classified presentation shows distinctions between current and

noncurrent assets and current and noncurrent liabilities.

b. An unclassified presentation (also called “based on liquidity’)

shows no distinction between current and noncurrent items.

A classified presentation shall be used except when an unclassified

presentation provides information that is reliable and more relevant.
When that exception applies, assets and liabilities are presented in
 order of liquidity (this is normally the case for banks and other financial
institutions).

PAS 1 also permits a mixed presentation, Le, presenting some assets

and liabilities using a current/non-current classification and others in
order of liquidity. This may be appropriate when the entity has diverse
operations.

Whichever method is used, PAS 1 requires the disclosure of items that

are expected to be recovered or settled (a) within 12 months and (b)
beyond 12 months, after the reporting period.

A classified presentation highlights an entity’s working capital and

facilitates the computation of liquidity and solvency ratios.

➤ Working capital=Current Assets-Current Liabilities

Current assets and Current liabilities

Current Assets

- Are assets that are:

a. Expected to be realized, sold, or consumed in the entity’s normal

operating cycle;

b. Held primarily for trading;

c. Expected to be realized within 12 months after the reporting period;

or
d. Cash or cash equivalent, unless restricted from being exchanged or
used to settle a liability for at least twelve months after the
reporting period.

Current Liabilities

Are liabilities that are:

 a. Expected to be settled in the entity’s normal operating cycle;

b. Held primarily for trading;

c. Due to be settled within 12 months after the reporting period; or

d. D. The entity does not have the right at the end of the reporting period
to defer settlement of the liability for at least twelve months after the
reporting period.

All other assets and liabilities are classified as noncurrent.

“The operating cycle of an entity is the time between the acquisition of

assets for processing and their realization in cash or cash equivalents. When
the entity’s normal operating cycle is not dearly identifiable, it is assumed to
be 12 months.” (PA5168)

Assets and liabilities that are realized or settled as part of the entity’s normal
operating cycle (eg, trade receivables, inventory, trade payables, and some
accruals for employee and other operating costs) are presented as current,
even if they are expected to be realized or settled beyond 12 months after
the reporting period.

Assets and liabilities that do not form part of the entity’s normal operating
cycle (e.g., non-operating assets and liabilities) are presented as current only
when they are expected to be realized or settled within 12 months after the
reporting period.

Deferred tax assets and liabilities are always presented as noncurrent items
in a classified statement of financial position, regardless of their expected
dates of reversal.
Refinancing agreement

A long-term obligation that is maturing within 12 months after the reporting

period is classified as current, even if a refinancing agreement to reschedule
payments on a long-term basis is completed after the reporting period and
before the financial statements are authorized for issue.

However, the obligation is classified as noncurrent if the entity has the right,
at the end of the reporting period, to roll over the obligation for at least
twelve months after the reporting period under an existing loan facility.
Without such right, the entity does not consider the potential to refinance the
obligation and classifies the obligation as current