Presentation of Financial Statements

Hierarchy in the Formation of Financial (c)​ may also consider the most recent
Statements pronouncements of other standard‑setting
bodies; and
Accounting Policies
(d)​ other accounting literature and accepted
Are specific principles, bases, conventions, rules, and
industry practices
practices applied by an entity in preparing and
presenting financial statements.
General Features in the Presentation of
An accounting policy applied to a transaction or Financial Statements
event must be determined by applying an IFRS, Fair Presentation and Compliance with PFRS
interpretation, and guidance. Financial statements shall present fairly the financial
position, financial performance and cash flows of an
In the absence of an IFRS that specifically applies to entity.
a transaction, other event, or condition,
management shall use its judgment in developing Fair presentation requires the faithful
and applying an accounting policy that results in representation of the effects of transactions, other
information that is: events, and conditions in accordance with the
(a)​ relevant to the economic decision-making definitions and recognition criteria for assets,
needs of users; and liabilities, income, and expenses set out in the
(b)​ reliable, in that the financial statements: Conceptual Framework for Financial Reporting
(i)​ represent faithfully the financial (Conceptual Framework).
position, financial performance
and cash flows of the entity; The application of IFRSs, with additional disclosure
(ii)​ reflect the economic substance of when necessary, is presumed to result in financial
transactions, other events and statements that achieve a fair presentation.
conditions, and not merely the
legal form; Example:
(iii)​ are neutral, free from bias; Consider a company that reports its assets
(iv)​ are prudent; and inaccurately. If the company has undervalued its
(v)​ are complete in all material assets in the financial statements, it would mislead
respects. stakeholders by presenting a weaker financial
position than what exists. Conversely, overvaluing
In making the judgment described above, assets could wrongly suggest financial stability. Both
management shall refer to, and consider the scenarios are breaches of fair presentation as they do
applicability of, the following sources in descending not accurately depict the company's true financial
order: status.
(a)​ the requirements in IFRSs dealing with
similar and related issues; An entity whose financial statements comply with
(b)​ the definitions, recognition criteria and IFRSs shall make an explicit and unreserved
IFRS
Conceptual Framework
measurement concepts for assets, liabilities, statement of such compliance in the notes. An entity
Other standard-setting body income and expenses in the Conceptual shall not describe financial statements as complying
Accounting practices
Framework; with IFRSs unless they comply with all the
requirements of IFRSs.
compliance with IFRS = compliance in the notes
 Presentation of Financial Statements
In virtually all circumstances, an entity achieves a would conflict with the objective of
fair presentation by compliance with applicable financial statements set out in the
IFRSs. A fair presentation also requires an entity: Conceptual Framework, and the treatment
(a) to select and apply accounting policies in adopted.
accordance with IAS 8 Accounting Policies, (d) the financial effect of the departure on
Changes in Accounting Estimates and each item for all presented periods.
Errors. DEPARTURE BUT PROHIBITED
(b) to present information, including When an entity has departed from an IFRS in a
accounting policies, in a manner that prior period, and that departure affects the current
provides relevant, reliable, comparable, and period’s financial statements, it must disclose the
understandable information. details outlined in paragraphs (c) and (d).
(c) to provide additional disclosures if IFRS
compliance alone doesn't allow users to In extremely rare circumstances where compliance
understand the impact of transactions, with an IFRS would be misleading and conflict with
events, or conditions on financial position the objective of financial statements in the
and performance. Conceptual Framework, but regulations prohibit
departure, the entity must reduce misleading aspects
An entity cannot rectify inappropriate accounting by disclosing:
policies either by: (a)​ the IFRS title, the requirement’s nature,
●​ disclosure of the accounting policies used and why management believes compliance
or; would be misleading and conflicting with
●​ by notes or explanatory material. the objective of financial statements.
DEPARTURE (b)​ for each period presented, the adjustments
In rare cases where compliance with a PFRS is to each item in the financial statements that
misleading and conflicts with the objective of management considers necessary for a fair
financial statements set out in the Framework, the presentation.
entity must depart from the requirement and
disclose the nature, reasons, and impact of the Information conflicts with the objective of financial
departure. statements if it fails to represent faithfully the
transactions, events, or conditions it claims or is
When an entity departs from a requirement of an expected to represent, potentially influencing users'
IFRS in accordance, it shall disclose: economic decisions. When assessing whether
(a) management concludes that the financial compliance with an IFRS would be so misleading
statements fairly present the entity’s that it conflicts with the Conceptual Framework,
financial position, performance, and cash management considers:
criteria
flows. (a)​ why the objective of financial statements is for
(b) the entity complies with IFRS, except not achieved in the specific circumstances. whether
complian
where a departure was necessary for fair (b)​ how the entity's circumstances differ from ce with
IFRS
presentation. others that comply with the requirement. If conflicts
(c) theIFRS departed from, the nature of similar entities comply, it is presumed that
with
Conceptu
the departure, including the required compliance would not be so misleading as to al
Framewo
treatment, why that treatment would be conflict with the objective of financial statements rk
misleading in the circumstances that it set out in the Conceptual Framework.
 Presentation of Financial Statements
Going Concern groups to make the statements clearer and more
An entityshall prepare financial statements on a understandable.
going concern basis unless management either
intends to liquidate the entity or to cease trading or Each material class of similar items must be
has no realistic alternative but to do so. presented separately in the financial statements.

An entity preparing PFRS financial statements is Dissimilar items may be aggregated only if they are
presumed to be a going concern. individually immaterial.

Going concern means that the accounting entity is Offsetting

viewed as continuing in operation indefinitely in the An entity shall not offset assets and liabilities or
absence of evidence to the contrary. income and expenses unless required or permitted
by an IFRS.
When an entity does not prepare financial
statements on a going concern basis, it shall An entity reports assets, liabilities, income, and
(a)​ disclose that fact, expenses separately.
(b)​ together with the basis on which it prepared
the financial statements and only allowed
Offsetting in financial statements is
(c)​ the reason why the entity is not regarded as when it reflects the substance of a transaction;
a going concern. otherwise, it hinders users' understanding of the
transactions, other events, and conditions and to
Example: assess the entity’s future cash flows.
A company facing financial distress due to declining
sales secures a new investor, allowing it to continue Example:
operations instead of shutting down. This Suppose an entity has a trade receivable of ₱50,000
demonstrates the going concern assumption. from a customer and a trade payable of ₱30,000 to
the same customer. The entity cannot offset these
Accrual Basis amounts and report a net receivable of ₱20,000.
An entity should prepare its financial statements,
except for the cash flow information, under the IFRS 15 Revenue from Contracts with Customers
accrual basis of accounting. requires revenue to be measured at the expected
consideration for goods or services transferred.
Under the accrual basis of accounting, transactions
or economic events are recognized when they occur. Transactions incidental to the main
revenue-generating activities, which do not
Materiality and Aggregation generate revenue, can be presented by netting
Materiality in financial statements refers to the related income and expenses if it reflects the
importance of an item or transaction in influencing substance of the transaction.
the decisions of users, such as investors, creditors,
Example:
and regulators.
An entity presents gains and losses on the disposal of
non-current assets, including investments and
Aggregation in financial statements means
operating assets, by deducting from the amount of
combining small or similar financial items into larger
 Presentation of Financial Statements
consideration on disposal the carrying amount of the Example:
asset and related selling expenses. A manufacturing firm follows an annual reporting
NET BASIS: similar
SEPARATE; material cycle but switches to a 52-week reporting period to
In addition, an entity presentson a net basis gains align with its business operations. It discloses this
and losses arising from a group of similar change in its financial statements for transparency.
transactions, for example, foreign exchange gains
and losses or gains and losses arising on financial Comparative Information
instruments held for trading. Comparative information should be disclosed in
respect of the preceding period for all financial
However, an entity presents such gains and losses information in the financial statements, except when
separately if they are material. IFRSs permit or require otherwise.
Example: An entity shall present, as a minimum:
A company engaged in international trade ●​ 2 Statements of Financial Position
experiences foreign exchange gains of ₱5,000 and
●​ 2 Statements of Comprehensive Income
losses of ₱4,500 from currency fluctuations. Since
●​ 2 Statements of Changes in Equity
the transactions are similar and not material, the
●​ 2 Statements of Cash Flows
entity can report a net foreign exchange gain of
●​ 2 Related Notes
₱500.

In some cases, narrative information provided in the

Frequency of Reporting financial statements for the preceding period(s)
An entity shall present a complete set of financial continues to be relevant in the current period.
statements (including comparative information) at
least annually. Example:
An entity discloses in the current period details of a
When an entity changes the end of its reporting legal dispute, the outcome of which was uncertain at
period and presents financial statements for a period the end of the preceding period and is yet to be
longer or shorter than one year, an entity shall resolved.
CHANGE IN
END OF
disclose, in addition to the period covered by the
REPORTING financial statements: An entity may present comparative information that
PERIOD
(a)​ the reason for using a longer or shorter may consist of one or more statements but need not
period, and comprise a complete set of financial statements.
(b)​ the fact that the amounts presented in the
financial statements are not entirely A third Statement of Financial Position is required
comparable. when there’s a retrospective adjustment for any one,
or combination of the following: ​
Normally, an entity consistently prepares financial (a)​ Change in accounting policy ​
statements for one year. However, for practical (b)​ Correction of prior period’s error/s; ​and
reasons, some entities prefer to report, for example, (c)​ Reclassification or amendment of items in
for a 52‑week period. This Standard does not financial statements ​​
preclude this practice.
Under these circumstances, an entity shall present
three statements of financial position at: ​
 Presentation of Financial Statements
(a)​ the end of the current period; ​ and current cost. The selection of different bases can
(b)​ the end of the preceding period; ​ affect the reported amounts of assets and liabilities.
(c)​ and the beginning of the preceding period. For instance, while historical cost records assets at
their original purchase price, fair value reflects
Consistency of Presentation current market prices. This can make it challenging
The presentation and classification of items in the to compare financial information across different
financial statements should be the same from period entities.
to period.
Inflationary Effects
However, change is allowed under the following Assets measured at historical costs reflect the level of
circumstances: purchasing power when those assets are acquired at
(a)​ it is apparent, following a significant different dates. Such purchase costs, albeit at
change in the nature of the entity’s different dates, are the basis of the presentation of
operations or a review of its financial these assets in the statement of financial position and
statements, that another presentation or of the computation of depreciation expenses in the
classification would be more appropriate statement of comprehensive income.
having regard to the criteria for the
selection and application of accounting If the inflation rate is relatively high, the amounts
policies in IAS 8; reported in the financial statements will appear
(b)​ or an IFRS requires a change in inordinately low since, under the cost model, the
presentation. assets are not adjusted for inflation. Hence, the
amounts reflected in the financial statements are a
Example: mixture of pesos with different levels of purchasing
XYZ Company has always classified its expenses by power.
function (e.g., cost of sales, administrative expenses,
selling expenses). However, after restructuring its Measurement Uncertainty
business operations, management decides that The use of reasonable estimates is an essential part
classifying expenses by their nature (e.g., salaries, of the preparation of financial information. In some
rent, raw materials, depreciation) gives a clearer view cases, the level of uncertainty involved in estimating
of financial performance. a measure of an asset or liability may be so high that
it may be questionable whether the estimate would
Limitations of the Financial Statements provide a sufficiently faithful representation of that
Use of different measurement bases asset or liability and of any resulting income,
Elements recognized in financial statements are expenses, or changes in equity.
quantified in monetary terms.Consideration of the
For example, determining the allowance for
qualitative characteristics of useful financial
doubtful accounts or estimating the useful life of an
information and of the cost constraint is likely to
asset involves subjective assessments.
result in the selection of different measurement
bases for different assets, liabilities, income, and
expenses. Not Always Comparable Across Companies
Different companies may apply different accounting
Financial statements often employ various policies and use different accounting periods.
measurement bases, such as historical cost, fair value,
 Presentation of Financial Statements
While accounting policies are disclosed in the the Financing Company Act, and other existing
financial statements, the users of financial statements laws.
can hardly adjust the reported figures in the financial RA 8799 - Securities Regulation Code
statements for comparability. Any one period may Under Section 5 of the Securities Regulation Code,
vary from the normal operating results of a business Rep. Act. 8799, the Commission shall have, among
due to seasonality effects. others, the following powers and functions:
(a)​ Have jurisdiction and supervision over all
Even within the same industry, variations in applying corporations, partnerships or associations
accounting standards can lead to significant who are the grantees of primary franchises
differences in reported figures, hindering and/or a license or permit issued by the
meaningful comparisons. Government;
(b)​ Formulate policies and recommendations
Non-Financial Information is Not Reported on issues concerning the securities market,
The notes to financial statements provide a textual advise Congress and other government
description of what was reported in the face of the agencies on all aspects of the securities
financial statements. However, the financial market and propose legislation and
statements do not report the level of corporate amendments thereto;
governance of the company, the moral and efficiency (c)​ Approve, reject, suspend, revoke or require
amendments to registration statements, and
of company personnel or business ethics, the effect
registration and licensing applications;
of the business to the environment, or the
(d)​ Regulate, investigate or supervise the
company’s contribution to the local community.
activities of persons to ensure compliance;
(e)​ Supervise, monitor, suspend or take over
Financial statements may report high net income
the activities of exchanges, clearing
but fail to indicate its degrading effect on the
agencies and other SROs;
environment.
(f )​ Impose sanctions for the violation of laws
and the rules, regulations and orders issued
No Predictive Value
pursuant thereto;
The financial statements report past events, but they
(g)​ Prepare, approve, amend or repeal rules,
do not provide any value that predicts what will regulations and orders, and issue opinions
happen in the future. and provide guidance on and supervise
compliance with such rules, regulations and
A company may report billions of income in the
orders;
preceding years, yet a newly elected president of the
(h)​ Enlist the aid and support of and/or
country cancels its contract on which it was relying.
deputize any and all enforcement agencies
of the Government, civil or military as well
Functions of the Securities and Exchange as any private institution, corporation, firm,
Commission (SEC) association or person in the implementation
Power and Functions of its powers and functions under this
The Commission shall have the powers and Code;
functions provided by the Securities Regulation (i)​ Issue cease and desist orders to prevent
Code, Presidential Decree No. 902-A, as amended, fraud or injury to the investing public;
the Corporation Code, the Investment Houses Law, (j)​ Punish for contempt of the Commission,
both direct and indirect, in accordance with
 Presentation of Financial Statements
the pertinent provisions of and penalties Considering that only Sections 2, 4, and 8 of PD
prescribed by the Rules of Court; 902-A, as amended, have been expressly repealed by
(k)​ Compel the officers of any registered the Securities Regulation Code, the Commission
corporation or association to call meetings retains the powers enumerated in Section 6 of said
of stockholders or members thereof under Decree, unless these are inconsistent with any
its supervision; provision of the Code.
(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.