COMPONENTS OF FINANCIAL STATEMENTS

A complete set of financial statements comprises:

• a statement of financial position as at the end of the period;
• a statement of profit or loss and other comprehensive income for the period;
• a statement of changes in equity for the period;
• a statement of cash flows for the period;
• notes, comprising significant accounting policies and other explanatory information;
• comparative information in respect of the preceding period
• a statement of financial position as at the beginning of the preceding period when
an entity applies an accounting policy retrospectively or makes a retrospective
restatement of items in its financial statements, or when it reclassifies items in its
financial statements

Statement of Financial Position

A statement of financial position presents the assets, liabilities, and equity.

Assets
An entity must normally present a classified statement of financial position, separating
current and noncurrent assets and liabilities. Only if a presentation based on liquidity provides
information that is reliable and more relevant may the current/noncurrent split be omitted. An entity
shall classify an asset as current when:
• It expects to realize the asset, or intends to sell or consume it, in its normal operating
cycle
• It holds the asset primarily for the purpose of trading
• It expects to realize the asset within twelve months after the reporting period
• The asset is cash or a cash equivalent (as defined in IAS 7) unless the asset is
restricted from being exchanged or used to settle a liability for at least twelve months
after the reporting period.

Normal Operating Cycle – The time between the acquisition of assets for processing and their
realization cash or cash equivalents. When the entity’s normal operating cycle is not clearly
identifiable, its duration is assumed to be twelve months.

Line items under current assets are

• Cash and cash equivalents
• Trade and other receivables
• Financial asset at Fair Value through Profit of Loss
• Inventories
• Prepaid expenses

The caption “noncurrent assets” is a residual definition. PAS 1 provides that an entity shall classify
all other assets as non-current.

The following are examples of non-current assets:

• Property, plant, and equipment
• Intangible assets
• Investment property
• Financial assets that are not expected to be realized in cash in the entity’s normal
operating cycle or within twelve months after the reporting period
Liabilities
An entity shall classify a liability as current when:
• It expects to settle the liability in its normal operating cycle
• It holds the liability primarily for the purpose of trading
• The liability is due to be settled within twelve months after the reporting period
• The entity does not have an unconditional right to defer settlement of the liability for
at least twelve months after the reporting period

Current liabilities include

• Trade and other payables
• Current provisions
• Short-term borrowings
• Current portion of long-term debt
• Current tax liability

An entity shall classify all other liabilities as non-current, such as:

• Long term notes payable that are due beyond 12 months from the end of the
reporting period
• Bonds payable that are due beyond twelve months after the reporting period
• Long-term notes payable that are due within twelve months after the reporting
period, but which terms is extended on a long-term basis and negotiation has been
competed before the end of the reporting period.

An entity classifies its financial liabilities as current when they are due to be settled within
twelve months after the end of the reporting period, even if:
• The original term was for a period longer than twelve months; and
• The intention is supported by an agreement to refinance, or reschedule the
payments, on a long-term basis is completed after the end of the reporting period
and completed before the financial statements are authorized for issue.
If the entity has the discretion to refinance, or to roll over the obligation for at least twelve
months after the end of the reporting period under an existing loan facility, it classifies the
obligation as non-current, even if it would be due within a shorter period.
If a liability has become payable on demand because an entity has breached an
undertaking under a long-term loan agreement on or before the end of the reporting period, the
liability is current, even if the lender has agreed, after the end of the reporting period and before
the authorization of the financial statements for issue, not to demand payment as a consequence
of the breach. However, the liability is classified as non-current if the lender agreed by the end of
the reporting period to provide a period of grace ending at least 12 months after the end of the
reporting period, within which the entity can rectify the breach and during which the lender cannot
demand immediate repayment.

Equity
Equity is the residual interest in the assets of the entity after deducting all the liabilities.
Simply put, equity means net asset or total assets minus total liabilities.

The account name in reporting the equity of an entity depends on the form of the business
organization:
Sole proprietorship Owner’s equity
Partnership Partner’s equity
Corporation Stockholders’ equity or shareholders’ equity
Forms of the Statement of Financial Position
A statement of financial position may be prepared using any of the following formats:
• Account form, which looks like a T account, where assets are listed on the left side
of the statement while liabilities and equity are listed on the right side
• Report form presents the assets, liabilities, and equity in a continuous format.
Liabilities are presented after total assets and equity accounts are listed after the
liabilities section
• Financial position form emphasizes working capital of the firm. In this format, net
assets are equal to the equity.

Statement of Comprehensive Income

Comprehensive income is the change of equity during a period other than changes
resulting from transactions with owners in their capacity as such. Comprehensive income includes
profit or loss and other comprehensive income.
Profit and Loss is the total income less expenses excluding the components of other
comprehensive income. It shall include line items that present the following amounts for the
period:
• revenue, presenting separately interest revenue calculated using the effective
interest method and insurance revenue
• gains and losses arising from the derecognition of financial assets measured at
amortized cost
• insurance service expenses from contracts issued within the scope of IFRS 17
• income or expenses from reinsurance contracts held
• finance costs
• impairment losses (including reversals of impairment losses or impairment gains)
determined in accordance with Section 5.5 of IFRS 9
• insurance finance income or expenses from contracts issued within the scope of
IFRS 17
• finance income or expenses from reinsurance contracts held
• share of the profit or loss of associates and joint ventures accounted for using the
equity method
• if a financial asset is reclassified out of the amortized cost measurement category
so that it is measured at fair value through profit or loss, any gain or loss arising from
a difference between the previous amortized cost of the financial asset and its fair
value at the reclassification date (as defined in IFRS 9)
• if a financial asset is reclassified out of the fair value through other comprehensive
income measurement category so that it is measured at fair value through profit or
loss, any cumulative gain or loss previously recognized in other comprehensive
income that is reclassified to profit or loss;
• tax expense
• a single amount for the total of discontinued operations

Other comprehensive income comprises Items of income and expenses including

reclassification adjustments that are not included in Profit and Loss as required by a standard or
interpretation. There are two types of OCI items, those that are reclassified to profit or loss and
those that are reclassified to Retained Earnings. OCI includes the following Components of OCI
that will be reclassified subsequently to profit, or loss include the following:
• Unrealized gain or loss on debt investments measured at fair value through other
comprehensive income
• Unrealized gain or loss from derivative contracts designated as cash flow hedge
 • Translation gains and losses of foreign operations

Components of OCI that will be reclassified subsequently to retained earnings include

the following:
• Unrealized gain or loss on equity investments measured at fair value through other
comprehensive income
• Change in Revaluation Surplus
• Remeasurement gains and losses for defined benefit plans
• Change in fair value arising from credit risk for financial liabilities measured at fair
value through profit or loss

An entity shall disclose the following items in the statement of comprehensive income as
allocations of profit or loss for the period:
• Profit or loss for the period attributable to Minority interest and Owners of the parent.
• Total comprehensive income for the period attributable to Minority interest and
Owners of the parent.

Statement of comprehensive income present income and expense for a given reporting
period. An entity shall present all items of income and expense recognized in a period:
• In a single statement of comprehensive income, or
• In two statements: a statement displaying components of profit or loss (separate
income statement) and a second statement beginning with profit or loss and
displaying components of other comprehensive income (statement of
comprehensive income).

An entity shall present either an analysis of expenses using a classification based on either
the nature of expenses or their function within the entity, whichever provides information that is
reliable and more relevant.

Nature of expense method – Expenses are aggregated in the income statement according
to their nature and are not reallocated among various functions within the entity.
Revenue X
Other income X
Changes in inventories of finished goods and work in progress X
Raw materials and consumables used X
Employee benefit costs X
Depreciation and amortization X
Other expense X
Total expense (X)
Profit X

Function of expense or cost of sales method – Classifies expenses according to their

function as part of cost of sales or, for example, the cost of distribution or administrative activities.
Revenue X
Cost of sales (X)
Gross profit X
Other income X
Distribution costs (X)
Administrative expenses (X)
 Other expenses (X)
Income before tax X
Income tax expense (X)
Net income X

An entity classifying expenses by function shall disclose additional information on the

nature of expenses, including depreciation and amortization expense and employee benefits
expense. An entity shall not present any items of income and expense as extraordinary items,
either on the face of the income statement or in the notes

Statement of Changes in Equity

An entity shall present a statement of changes in equity showing in the statement:
• Total comprehensive income for the period, showing separately the total amounts
attributable to owners of the parent and to non‑controlling interests
• For each component of equity, the effects of retrospective application or
retrospective restatement recognized in accordance with PAS 8
• For each component of equity, a reconciliation between the carrying amount at the
beginning and the end of the period, separately (as a minimum) disclosing changes
resulting from:
– profit or loss;
– other comprehensive income; and
– transactions with owners in their capacity as owners, showing separately
contributions by and distributions to owners and changes in ownership
interests in subsidiaries that do not result in a loss of control.

An entity shall present, either in the statement of changes in equity or in the notes, the
amount of dividends recognized as distributions to owners during the period, and the related
amount per share.

Statement of Cash Flows

Cash flow information provides users of financial statements with a basis to assess the
ability of the entity to generate cash and cash equivalents and the needs of the entity to utilize
those cash flows.

Classification
The statement of cash flows presents information on the inflows and outflows of cash and
cash equivalent classified into operating activities, investing activities, and financing activities.
Cash flows from operating activities are primarily derived from the principal
revenue‑producing activities of the entity. Examples of cash flows from operating activities are:
• cash receipts from the sale of goods and the rendering of services;
• cash receipts from royalties, fees, commissions and other revenue;
• cash payments to suppliers for goods and services;
• cash payments to and on behalf of employees;
• cash payments or refunds of income taxes unless they can be specifically identified
with financing and investing activities; and
• cash receipts and payments from contracts held for dealing or trading purposes.

An entity may hold securities and loans for dealing or trading purposes, in which case they
are similar to inventory acquired specifically for resale. Therefore, cash flows arising from the
purchase and sale of dealing or trading securities are classified as operating activities. Similarly,
cash advances and loans made by financial institutions are usually classified as operating
activities since they relate to the main revenue‑producing activity of that entity.
Investing activities are the cash flows derived from the acquisition and disposal of long-
term assets and other investment not included in cash equivalents. Only expenditures that result
in a recognized asset in the statement of financial position are eligible for classification as
investing activities. Examples of cash flows arising from investing activities are:
• cash payments to acquire property, plant and equipment, intangibles and other
long‑term assets. These payments include those relating to capitalized development
costs and self‑constructed property, plant and equipment;
• cash receipts from sales of property, plant and equipment, intangibles and other
long‑term assets;
• cash payments to acquire equity or debt instruments of other entities and interests in
joint ventures (other than payments for those instruments considered to be cash
equivalents or those held for dealing or trading purposes);
• cash receipts from sales of equity or debt instruments of other entities and interests
in joint ventures (other than receipts for those instruments considered to be cash
equivalents and those held for dealing or trading purposes);
• cash advances and loans made to other parties (other than advances and loans made
by a financial institution);
• cash receipts from the repayment of advances and loans made to other parties (other
than advances and loans of a financial institution);
• cash payments for futures contracts, forward contracts, option contracts and swap
contracts except when the contracts are held for dealing or trading purposes, or the
payments are classified as financing activities; and
• cash receipts from futures contracts, forward contracts, option contracts and swap
contracts except when the contracts are held for dealing or trading purposes, or the
receipts are classified as financing activities.

Financing activities include cash transactions affecting non-trade liabilities, and

shareholders’ equity. Examples of cash flows arising from financing activities are:
• cash proceeds from issuing shares or other equity instruments;
• cash payments to owners to acquire or redeem the entity’s shares;
• cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other
short-term or long‑term borrowings;
• cash repayments of amounts borrowed; and
• cash payments by a lessee for the reduction of the outstanding liability relating to a
lease.

Interest and dividends

Cash flows from interest and dividends received and paid shall each be disclosed
separately. Each shall be classified in a consistent manner from period to period as either
operating, investing or financing activities.
Interest paid and interest and dividends received may be classified as operating cash flows
because they enter into the determination of profit or loss. Alternatively, interest paid and interest
and dividends received may be classified as financing cash flows and investing cash flows
respectively, because they are costs of obtaining financial resources or returns on investments.
Dividends paid may be classified as a financing cash flow because they are a cost of
obtaining financial resources. Alternatively, dividends paid may be classified as a component of
cash flows from operating activities in order to assist users to determine the ability of an entity to
pay dividends out of operating cash flows.
 Received Paid
Interest Operating (or Investing) Operating (or Financing)
Dividends Operating (or Investing) Financing (or Operating)

Taxes on income
Cash flows arising from taxes on income shall be separately disclosed and shall be
classified as cash flows from operating activities unless they can be specifically identified with
financing and investing activities.

Presentation of Cash Flows

An entity shall report cash flows from operating activities using either:
• the direct method, whereby major classes of gross cash receipts and gross cash
payments are disclosed; or
• the indirect method whereby profit or loss is adjusted for the effects of transactions of
a non‑cash nature, any deferrals or accruals of past or future operating cash receipts
or payments, and items of income or expense associated with investing or financing
cash flows.

Under the direct method, information about major classes of gross cash receipts and gross
cash payments may be obtained either:
• from the accounting records of the entity; or
• by adjusting sales, cost of sales (interest and similar income and interest expense and
similar charges for a financial institution) and other items in the statement of
comprehensive income for:
– changes during the period in inventories and operating receivables and
payables;
– other non‑cash items; and
– other items for which the cash effects are investing or financing cash flows.

Under the indirect method, the net cash flow from operating activities is determined by
adjusting profit or loss for the effects of:
• changes during the period in inventories and operating receivables and payables;
• non‑cash items such as depreciation, provisions, deferred taxes, unrealized foreign
currency gains and losses, and undistributed profits of associates; and
• all other items for which the cash effects are investing or financing cash flows.

Based on the foregoing, the following guidelines may be used in adjusting accrual basis
net income to the cash basis net income under the indirect method:
Net Income
+ Depreciation, amortization, and other noncash expenses
- All increases in trade noncash current assets
+ All decreases in trade noncash current assets
+ All increases in trade current liabilities
- All decreases in trade current liabilities
- Gain on disposal of property
+ Loss on disposal of property
 Investing and financing activities are presented using direct method, separating major
classes of gross cash receipts and gross cash payments arising from these activities.

Notes to the Financial Statements

The notes must:
• Present information about the basis of preparation of the financial statements and the
specific accounting policies used;
• Disclose any information required by PFRSs that is not presented on the face of the
statement of financial position, income statement, statement of changes in equity, or
statement of cash flows
• Provide additional information that is not presented on the face of the statement of
financial position, income statement, statement of changes in equity, or statement of
cash flows that is deemed relevant to an understanding of any of them.

Notes should be cross-referenced from the face of the financial statements to the relevant
note. The notes should normally be presented in the following order:
• A statement of compliance with PFRSs
• A summary of significant accounting policies applied, including:
– The measurement basis (or bases) used in preparing the financial
statements; and
– The other accounting policies used that are relevant to an understanding of
the financial statements.
• Supporting information for items presented on the face of the statement of financial
position, income statement, statement of changes in equity, and statement of ash
flows, in the order in which each statement and each line item is presented.
• Other disclosures, including:
– Contingent liabilities and unrecognized contractual commitments
– Non-financial disclosures, such as the entity's financial risk management
objectives and policies.
Disclosure of judgments - an entity must disclose, in the summary of significant accounting
policies or other notes, the judgments, apart from those involving estimations, that management
has made in the process of applying the entity's accounting policies that have the most significant
effect on the amounts recognized in the financial statements.

HIERARCHY IN THE FORMATION OF ACCOUNTING POLICIES

When an IFRS specifically applies to a transaction, other event or condition, the
accounting policy or policies applied to that item shall be determined by applying the IFRS.
In the absence of an IFRS that specifically applies to a transaction, other event or
condition, management shall use its judgement in developing and applying an accounting policy
that results in information that is:
• relevant to the economic decision‑making needs of users; and
• reliable, in that the financial statements:
– represent faithfully the financial position, financial performance and cash
flows of the entity;
– reflect the economic substance of transactions, other events and conditions,
and not merely the legal form;
– are neutral, free from bias;
– are prudent; and
– are complete in all material respects.
 In making the judgement described above, management shall refer to, and consider the
applicability of, the following sources in descending order:
• the requirements in IFRSs dealing with similar and related issues; And
• the definitions, recognition criteria and measurement concepts for assets, liabilities,
income and expenses in the Conceptual Framework for Financial Reporting
(Conceptual Framework).
Management may also consider the most recent pronouncements of other
standard‑setting bodies that use a similar conceptual framework to develop accounting standards,
other accounting literature and accepted industry practices, to the extent that these do not conflict
with the sources mentioned above.

GENERAL FEATURES IN THE PRESENTATION OF THE FINANCIAL STATEMENTS

Fair presentation and compliance with PFRS

Financial statements shall present fairly the financial position, financial performance and
cash flows of an entity. In virtually all circumstances, an entity achieves a fair presentation by
compliance with applicable IFRSs.
An entity whose financial statements comply with IFRSs shall make an explicit and
unreserved statement of such compliance in the notes. An entity shall not describe financial
statements as complying with IFRSs unless they comply with all the requirements of IFRSs.
Fair presentation requires the faithful representation of the effects of transactions, other
events and conditions in accordance with the definitions and recognition criteria for assets,
liabilities, income and expenses set out in the Conceptual Framework for Financial Reporting
(Conceptual Framework). A fair presentation also requires an entity:
• to select and apply accounting policies in accordance with IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors. IAS 8 sets out a hierarchy of
authoritative guidance that management considers in the absence of an IFRS that
specifically applies to an item.
• to present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information.
• to provide additional disclosures when compliance with the specific requirements in
IFRSs is insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the entity’s financial position and
financial performance.
An entity cannot rectify inappropriate accounting policies either by disclosure of the
accounting policies used or by notes or explanatory material.
PAS 1 acknowledges that, in extremely rare circumstances, management may conclude
that compliance with an PFRS requirement would be so misleading that it would conflict with the
objective of financial statements set out in the Framework. In such a case, the entity is required
to depart from the PFRS requirement, with detailed disclosure of the nature, reasons, and impact
of the departure.

Going concern
An entity shall prepare financial statements on a going concern basis unless management
either intends to liquidate the entity or to cease trading or has no realistic alternative but to do so.
An entity preparing PFRS financial statements is presumed to be a going concern. Going concern
means that the accounting entity is viewed as continuing in operation indefinitely in the absence
of evidence to the contrary.
 When management is aware, in making its assessment, of material uncertainties related
to events or conditions that may cast significant doubt upon the entity’s ability to continue as a
going concern, the entity shall disclose those uncertainties.
When an entity does not prepare financial statements on a going concern basis, it shall
disclose that fact, together with the basis on which it prepared the financial statements and the
reason why the entity is not regarded as a going concern.

Accrual basis
An entity shall prepare its financial statements, except for cash flow information, using the
accrual basis of accounting. When the accrual basis of accounting is used, an entity recognizes
items as assets, liabilities, equity, income and expenses (the elements of financial statements)
when they satisfy the definitions and recognition criteria for those elements in the Conceptual
Framework.

Materiality and aggregation

An entity shall present separately each material class of similar items. An entity shall
present separately items of a dissimilar nature or function unless they are immaterial. If a line item
is not individually material, it is aggregated with other items either in those statements or in the
notes. An item that is not sufficiently material to warrant separate presentation in those statements
may warrant separate presentation in the notes. But if the resulting disclosure is not material, an
entity need not provide a specific disclosure even if required by PFRS.

Offsetting
An entity shall not offset assets and liabilities or income and expenses, unless required or
permitted by an IFRS. An entity reports separately both assets and liabilities, and income and
expenses. Measuring assets net of valuation allowances—for example, obsolescence allowances
on inventories and doubtful debts allowances on receivables—is not offsetting.

Frequency of reporting
An entity shall present a complete set of financial statements (including comparative
information) at least annually. When an entity changes the end of its reporting period and presents
financial statements for a period longer or shorter than one year, an entity shall disclose, in
addition to the period covered by the financial statements:
• the reason for using a longer or shorter period, and
• the fact that amounts presented in the financial statements are not entirely
comparable.
Normally, an entity consistently prepares financial statements for a one‑year period.
However, for practical reasons, some entities prefer to report, for example, for a 52‑week period.
This Standard does not preclude this practice.

Comparative information
Minimum Comparative Information
Except when IFRSs permit or require otherwise, an entity shall present comparative
information in respect of the preceding period for all amounts reported in the current period’s
financial statements.
An entity shall present, as a minimum, two statements of financial position, two statements
of profit or loss and other comprehensive income, two separate statements of profit or loss (if
presented), two statements of cash flows and two statements of changes in equity, and related
notes.
 An entity shall include comparative information for narrative and descriptive information if
it is relevant to understanding the current period’s financial statements. In some cases, narrative
information provided in the financial statements for the preceding period(s) continues to be
relevant in the current period. For example, an entity discloses in the current period details of a
legal dispute, the outcome of which was uncertain at the end of the preceding period and is yet to
be resolved. Users may benefit from the disclosure of information that the uncertainty existed at
the end of the preceding period and from the disclosure of information about the steps that have
been taken during the period to resolve the uncertainty.

Additional comparative information

An entity may present comparative information may consist of one or more statements but
need not comprise a complete set of financial statements. For example, an entity may present a
third statement of profit or loss and other comprehensive income (thereby presenting the current
period, the preceding period and one additional comparative period). However, the entity is not
required to present a third statement of financial position, a third statement of cash flows or a third
statement of changes in equity (i.e. an additional financial statement comparative). The entity is
required to present, in the notes to the financial statements, the comparative information related
to that additional statement of profit or loss and other comprehensive income.

When third statement of financial position is required

An entity shall present a third statement of financial position as at the beginning of the
preceding period in addition to the minimum comparative financial statements if:
• it applies an accounting policy retrospectively, makes a retrospective restatement of
items in its financial statements or reclassifies items in its financial statements; and
• the retrospective application, retrospective restatement or
• the reclassification has a material effect on the information in the statement of financial
position at the beginning of the preceding period.
Under these circumstances, an entity shall present three statements of financial position
as at:
• the end of the current period;
• the end of the preceding period; and
• the beginning of the preceding period.

Consistency of presentation
An entity shall retain the presentation and classification of items in the financial statements
from one accounting period to the next. Change is allowed under the following circumstances:
• it is apparent, following a significant change in the nature of the entity’s 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 in IAS 8; or
• an IFRS requires a change in presentation.

LIMITATIONS OF THE FINANCIAL STATEMENTS

Common limitations on the use financial statements are
• Use of different measurement bases. Elements recognized in financial statements are
quantified in monetary terms. Consideration of the qualitative characteristics of useful
financial information and of the cost constraint is likely to result in the selection of
different measurement bases for different assets, liabilities, income and expenses.
 • Inflationary effects. Assets measured at historical costs reflect the level of purchasing
power when those assets are acquired at different dates. Such purchase costs albeit
at different dates are the basis of the presentation of these assets in the statement of
financial position and of the computation of depreciation expenses in the statement of
comprehensive income. If the inflation rate is relatively high, the amounts reported in
the financial statements will appear inordinately low since under the cost model, the
assets are not adjusted for inflation. Hence, the amounts reflected in the financial
statements are mixture of pesos with different levels of purchasing power.
• Measurement uncertainty. The use of reasonable estimates is an essential part of the
preparation of financial information. In some cases, the level of uncertainty involved
in estimating a measure of an asset or liability may be so high that it may be
questionable whether the estimate would provide a sufficiently faithful representation
of that asset or liability and of any resulting income, expenses or changes in equity.
• Now always comparable across companies. Different companies may apply different
accounting policies and use different accounting periods. While accounting policies
are disclosed in the financial statements, the users of financial statements can hardly
adjust the reported figures in the financial statements for comparability. Any one
period may vary from the normal operating results of a business due to seasonality
effects.
• Non-financial information is not reported. The notes to financial statements provide
textual description of what was reported in the face of the financial statements.
However, the financial statements do not report the level of corporate governance of
the company, the moral and efficiency of company personnel or business ethics, the
effect of the business to the environment, or the company’s contribution to the local
community. Financial statements may report high net income but fail to indicate its
degrading effect to the environment.
• No predictive value. The financial statements report past events, but they do not
provide any value that predict what will happen in the future. A company may report
billions of incomes in the preceding years, yet a newly elected president of the country
cancels its contract on which it was relying.

FUNCTION OF THE SECURITIES AND EXCHANGE COMMISSIONS (SEC)

The Commission shall have the powers and functions provided by the Securities
Regulation Code, Presidential Decree No. 902-A, as amended, the Corporation Code, the
Investment Houses Law, the Financing Company Act, and other existing laws. Under Section 5
of the Securities Regulation Code, Rep. Act. 8799, the Commission shall have, among others,
the following powers and functions:
(a) Have jurisdiction and supervision over all corporations, partnerships or associations who
are the grantees of primary franchises and/or a license or permit issued by the
Government;
(b) Formulate policies and recommendations on issues concerning the securities market,
advise Congress and other government agencies on all aspects of the securities market
and propose legislation and amendments thereto;
(c) Approve, reject, suspend, revoke or require amendments to registration statements, and
registration and licensing applications;
(d) Regulate, investigate or supervise the activities of persons to ensure compliance;
(e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies
and other SROs;
(f) Impose sanctions for the violation of laws and the rules, regulations and orders issued
pursuant thereto;
 (g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and
provide guidance on and supervise compliance with such rules, regulations and orders;
(h) Enlist the aid and support of and/or deputize any and all enforcement agencies of the
Government, civil or military as well as any private institution, corporation, firm, association
or person in the implementation of its powers and functions under this Code;
(i) Issue cease and desist orders to prevent fraud or injury to the investing public;
(j) Punish for contempt of the Commission, both direct and indirect, in accordance with the
pertinent provisions of and penalties prescribed by the Rules of Court;
(k) Compel the officers of any registered corporation or association to call meetings of
stockholders or members thereof under its supervision;
(l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the
Commission and in appropriate cases, order the examination, search and seizure of all
documents, papers, files and records, tax returns, and books of accounts of any entity or
person under investigation as may be necessary for the proper disposition of the cases
before it, subject to the provisions of existing laws;
(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of
registration of corporations, partnerships or associations, upon any of the grounds
provided by law; and
(n) Exercise such other powers as may be provided by law as well as those which may be
implied from, or which are necessary or incidental to the carrying out of, the express
powers granted the Commission to achieve the objectives and purposes of these laws.

Under Section 5.2 of the Securities Regulation Code, the Commission’s jurisdiction over
all cases enumerated under Section 5 of PD 902-A has been transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court. The Commission shall retain jurisdiction over
pending cases involving intra-corporate disputes submitted for final resolution which should be
resolved within one (1) year from the enactment of the Code. The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000
until finally disposed.
Considering that only Sections 2, 4, and 8 of PD 902-A, as amended, have been expressly
repealed by the Securities Regulation Code, the Commission retains the powers enumerated in
Section 6 of said Decree, unless these are inconsistent with any provision of the Code.

PHILIPPINE FINANCIAL REPORTING FRAMEWORKS AND THE REPORTING ENTITIES

Financial reporting frameworks applicable to different reporting entities are as follows:
Reporting Entities Financial Reporting Frameworks
Large and/or publicly accountable entities Full PFRS/IFRS
Medium-sized entities PFRS for Small and Medium-Sized Entities
(PFRS/IFRS for SMEs)
Small entities PFRS for Small Entities
Micro entities Income tax Reporting

Large and/or publicly accountable entities

Large entities are those with total assets of more than P350 million or total liabilities of more than
P250 million. Public entities are those that meet any of the following criteria:
• Holders of secondary licenses issues by regulatory agencies
• Required to file financial statements under Part II of SRC Rule 68
• In the process of filing their financial statements for the purpose of issuing any class
of instrument in a public market
• Imbued with public interest as the SEC may consider in the future
 Large and/or public interest entities shall use the PFRS, as adopted by the Commission,
as their financial reporting framework. However, a set of financial reporting framework other than
the full PFRS may be allowed by the Commission for certain sub-class (e.g., banks, insurance
companies) of these entities upon consideration of the pronouncements or interpretations.

Medium-sized entities
Medium-sized entities are those that meet all of the following criteria:
• Total assets of more than P100 million to P350 million or total liabilities of more than
P100 million to P250 million. If the entity is a parent company, the said amounts shall
be based on the consolidated figures.
• Not required to file financial statements under Part II of SRC Rule 68
• Not in the process of filing their financial statements for the purpose of issuing any
class of instrument in a public market
• Not holders of secondary licenses issues by regulatory agencies

Medium-sized entities shall use as their financial reporting framework the PFRS for SMEs
as adopted by the SEC. However, the following medium-sized entities shall be exempt from the
mandatory adoption of the PFRS for SME’s and may instead apply, at their option, the full PFRS:
• An SME which is a subsidiary of a foreign parent company reporting under the full
PFRS
• An SME which is a subsidiary of a foreign parent company which will be moving
towards International Financial Reporting Standards pursuant to the foreign country’s
published convergence plan
• An SME either as a significant joint venture or associate, which is part of a group that
is reporting under the full PFRS
• An SME which is a branch office or regional operating headquarter of a foreign
company reporting under the full PFRS
• An SME which has a subsidiary that is mandated to report under the full PFRS
• An SME which has a short-term projection that shows that it will breach the
quantitative thresholds set in the criteria for an SME. The breach is expected to be
significant and continuing due to its long-term effect on the company’s asset or liability
size
• An SME which has c concrete plan to conduct an initial public offering within the next
two years
• An SME which has been preparing financial statements using full PFRS and has
decided to liquidate
• Such other cases that the Commission may consider as valid exceptions from the
mandatory adoption of PFRS for SMEs

Small entities
Small entities are those that meet all of the following criteria:
• Total assets of between P3 million to P100 million or total liabilities between P3 million
to P100 million. If the entity is a parent company, the said amounts shall be based on
the consolidated figures.
• Are not required to file financial statements under Part II of SRC Rule 68
• Are not in the process of filing their financial statements for the purpose of issuing any
class of instruments in a public market
• Are not holders of secondary licenses issues by regulatory agencies
 Small entities shall use their financial reporting framework the PFRS for SEs as
adopted by the Commission. However, entities who have operations or investments that
are based or conducted in a different country with different functional currency shall not
apply this framework and should instead apply the full PFRS or PFRS for SMEs.
The following small entities shall also be exempt from the mandatory adoption of
the PFRS for SEs and may instead apply, as appropriate, the full PFRS or PFRS for
SMEs:
• A small entity which is a subsidiary of a foreign parent company reporting under
the full PFRS or PFRS for SMEs
• A small entity which is a subsidiary of a foreign parent company which will be
moving towards International Financial Reporting Standards or IFRS for SMEs
pursuant to the foreign country’s published convergence plan
• A small entity either as a significant joint venture or associate, which is part of a
group that is reporting under the full PFRS or PFRS for SMEs
• A small entity which is a branch office or regional operating headquarter of a
foreign company reporting under the full PFRS or PFRS for SMEs
• A small entity which has a subsidiary that is mandated to report under the full
PFRS or PFRS for SMEs
• A small entity which has a short-term projection that shows that it will breach the
quantitative thresholds set in the criteria for a small entity. The breach is
expected to be significant and continuing due to its long-term effect on the
company’s asset size
• A small entity which has been preparing financial statements using full PFRS or
PFRS for SMEs and has decided to liquidate
• Such other cases that the Commission may consider as valid exceptions from
the mandatory adoption of PFRS for SMs

Micro entities
Micro entities are those that meet all of the following criteria:
• Total assets and liabilities are below P3 million
• Are not required to file financial statements under Part II of SRC Rule 68
• Are not in the process of filing their financial statements for the purpose of
issuing any class of instruments in a public market
• Are not holders of secondary licenses issues by regulatory agencies

Micro entities have the option to use as their financial reporting framework either
the income tax basis or PFRS for SEs, provided however, that the financial statements
shall at least consist of the Statement of Management’s Responsibility (SMR), Auditor’s
Report, Statement of Financial Position, Statement of Income and Notes to Financial
Statements, all of which cover the 2-year comparative periods, if applicable.
In the event where an entity breaches the prescribed threshold in terms of total assets or total
liabilities and thus it falls within a different classification, the Audited Financial Statements of said
entity shall be prepared in accordance with the higher framework