CHAPTER 34: NOTES TO FINANCIAL STATEMENTS [ACCOUNTING STANDARD REFERENCE(S): fas 1 — Presentation of Financial Statements Outline: > Information Provided by the Notes to Financial Statements > Purpose of Notes to Financial Statements > Order of Presentation of the Notes to Financial Statements jided b Financi > Notes to financial statements provide a narrative description or disaggregatc " \gregation of items presented in the financial statements, as well as information about items that do not qualify for recognition. > Notes provide additional information on the items presented in the statement of ive income, statement of changes in financial position, statement of comprehensi equity, and statement of cash flows to enhance the Understandabilty of these reports. > Anentity shall present notes in a systematic manner as far as practicable. tements financial statements is to provide the necessary jal reporting standards. Pr Notes to Financial > The purpose of notes to disclosures required by financi > The notes to financial statements shall: TP present information about the basis of preparation of the financial statements and the specific accounting policies. ion required by financial reporting standards that are not in any of the financial statements. Provide additional information that is not presented in the financial statements but is relevant to the understanding of the financial statements. to Financ jer Y Disclose the informati presented elsewhere i e Presentation of th > In order to help users understand the financial stat compare them with the financial statements of other present the notes in the following order: 1. Statement of compliance with IFRS. inting policies used. fine items presented in the fi entities, an entity shal 2. Summary of significant accou' 3. Supporting information or computation for statements. unrecognized contractual 4. Other disclosures, such as contingent abilities, commitments, and nonfinancial ds inancialComprchensine Hecounting Reviewor Series tne Fre hetg tt pg ‘Statement of Compliance with IFRS > Anentity whose financial statements comply with all the provisions of, +” shall make an explit and unreserved statement of such compliance in ee, me | [ Note: An entity shail not describe financial statements as complying with FAS px> they comply with all the requirements of each JERS. neg Summary of Significant Accounting Policies > This portion shall disclose the following: ¥ The measurement basis used. The accounting policies used. ‘Note: > Disclosure of measurer necessary for the user's ul ment basis (i.€., historical cost, current. value) i inderstanding of the financial statements. | > Whether a particular accounting policy should be disclosed, the manageres Shall consider whether the disclosure would help users understand the information contained in the financial statements. | > In addition to the above disclosures, an entity shall | JP *tisclose in the summary of significant accounting polices the judgmens that management has made in the process of applying ‘accounting poles | icant effect on the amounts presented in the and that have a signifi statements. disclose information about the estimations it sources of uncertainty at the end of reporting peri risk of resulting in a material adjustment to the carryin and liabilities within the next reporting period. -000- makes and other map| ‘od that have a significant | 9 amount of assets | 1472Chapter 24: Motes to Financial State EXERCISES Nature of Notes to Financial Statements ‘Notes to financial statements: 4 AON re an integral part of financial statements. B, are irrelevant and immaterial facts. ._ contains non-presentable information. 1D. document the source of financial statement figures. resentation of the notes to financial statements in a systematic manner: The aa the industry where the entity belongs. A. Depends on B._Is voluntary on the part of the entity. C. Is required. D. Is required, as far as practicable. 3. Which of the fol it a ‘A. Notes to financial statements provide narrative description of items presented in the financial statements, as well as information about items that do not qualify for recognition. B. Notes to financial statements provide disaggregation of items presented in the financial statements, as well as information about items that do not qualify for recognition. C. Notes provide additional information on the items presented in the statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows to enhance the understandability of these reports. D. All of these are true about notes to financial statements. Purpose of Notes to Financial Statements 4. What is the purpose of the information presented in the notes to financial statements? A To Present management respense to auctor comments . To provide the necessary disclosu i «sti ry res required by financial reporting To correct improper presentation in the financial state 7 ments. D. To provide recognition of amounts not included in the financial statements. 5. me ie to financial statements shall: ‘Present information about the basis of prepat i : ine te baa Preparation of the financial statements 4 ree the information Fequired by financial reporting standards that is not cam sewhere in any of the financial statements. ‘onal information that is not presented in the financial statements but is i D. aller treseant © the understanding of the financial statements. 1473Comprchensive Accounting Reviewer Series Uoluma 1: Financial lccouuting and Reporting oon ee new Ams Rt Seay Boa ereeete corect order of presenting the notes to financial statements) 1. Other disclosures, such as contingent lables, unrecognized conta. commitments, and non-financial disclosures. II, Statement of compliance with PFRS. TI. Supporting information or computation for ine ftems presented inthe fran statements. 1V. Summary of significant accounting policies used. A. IL, UL, NT B. IV, 01,1 c NL D. 0, 0L11V 7. An entity shall disclose in the summary of significant accounting policies; A. The measurement basis used in preparing the financial statements, B. All the measurement bases irrespective of whether used by the entity, C. The measurement basis used in preparing the financial statements and the accounting policies used. D. All the measurement bases and the accounting policy choices available tothe entity regardless of whether used or not, 8. Which of the following is nota required disclosure of accounting polices? A. The measurement basis used, B. Disclosures required by financial reporting standards. C. The nature of operations and the policies that the users of the finan statements would expect to be disclosed, D. Key management personnel involved in drafting the summary of significant _ accounting policies, 9. [The standard of adequate discosure is best described by which ofthe folowing? ‘A. Information about each account balance appearing in the financial statemen’s is included in the notes to financial ‘statements. Enough information should be disclosed in the financial statements in ore — Prospective investor can make a wise decision. parsineke ea fay yfrancal facts significant enough to influence the judgme"” All information related to : _ pte financial statements, Operating objectives must be disclosed 10. Which of the following is a method is i d hagas: f disclosing relevant financial information B. cutee i a ae C. Cross referer D. All or ise ara ‘methods Of disclosure, Sas -000- 1474ey ee rk oe Chapter 34: Mates to Fiuanctal Statements SUGGESTED KEY ANSWERS AND EXPLANATIONS | (S| so}o0|ss]on}un|-n foo|r] | Q|o|0\q|=/o\e/o]o|>| Explanation: The notes to financial statements is a component of a complete It provides additional information on set of financial statements. n the items presented in the statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows to enhance the understandability of these reports. PAS 1, paragraph 113, provides that an entity shall, as far as practicable, present notes in a systematic manner. Hence, each item on the face of the financial statement shall be cross- | referenced to any related information in the notes. Ttem: Key Answer: 3 D Notes to financial statements provide narrative description or disaggregation of items presented in the financial statements and information about items that do not qualify for recognition. It contains information in addition to that presented in the financial statements that does not fit into the body of the statement in order to enhance the understanding of the statements. Hence, it helps clarify the items presented in the financial statements. its is to provide | The purpose of the notes to fina the necessary disclosures required by Philippine Financial Reporting Standards. Specifically, PAS 1, provides that the notes to the financial statements of an entity shall: 1. Present information about the basis of preparation of the financial statements and the specific accounting | policies used. 2. Disclose the information required by Philippine Financial Reporting Standards that is not presented elsewhere in the financial statements. 3. Provide additional information that is not presented on the face of the financial statements but is necessary for a fair presentation. See no. 4.7Conpechansioe Auzoudting Restower Sees PAS 1 provides that notes are normally Presented Typ following order: . 1. statement of compliance with PFRS 2. Summary of significant accounting policies useg | 3. Supporting information or computation for jing it presented in the financial statements, rt 4, Other disclosures, such as contingent lables unrecognized, contractual commitments, nonfinancial disclosures. | | The summary of significant accounting policies shal Goss pet following: | 1. The measurement basis used in Preparing the financia) statements such as historical cost, current Os, realizable value and present value. 2. The accounting policies used that are relevant to an understanding of the financial statements, | Paragraph 117 of TAS 1 requires an entity to disclose mateia ‘accounting policy information. | ‘Accounting policy information relating to Immater ansactons other events, or conditions needs not to be losed, -End of Chapter- 1476