Philippine Accounting Standard No.

Presentation of Financial Statements

Objective
1. To prescribe the basis for presentation of
general purpose FS
2. To ensure comparability with:
 FS of prior periods
 FS of other entities
To achieve the above objectives, IAS 1 sets out:
 the overall requirements for the presentation of FS,
 guidelines for their structure,
 and the minimum content requirements.
Scope
 
 Applies to all general purpose financial statements
prepared in accordance with IFRS.
 Does not apply to condensed interim financial
statements prepared in accordance with IAS 34
Interim Financial Reporting
 Uses terminology that is suitable for profit-oriented
entities, including public-sector business entities.
 There may be a need to amend the descriptions
used in the financial statements for public-sector
business entities and entities that do not have
equity
Purpose of Financial Statements

The objective of general purpose financial statements is to provide

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

It also shows the result of management’s stewardship of resources

entrusted to it.
Purpose of Financial Statements
(cont.)
To meet this objective, FS provide information
about an entity’s:
 Assets;
 Liabilities;
 Equity;
 Income and expenses, including gains and losses;
 Contributions by and distributions to owners in
their capacity as owners;
 Cash flows

International Accounting Standards-Training of Trainers 5

Components of
Financial Statements

A complete set of financial statements comprises:

 a statement of financial position as at the end of the period;
 An Income Statement;
 a statement of comprehensive income for the period;
 a statement of changes in equity for the period
 a statement of cash flows for the period
 Notes, comprising a summary of significant accounting
policies and other explanatory information; and
 A statement of financial position as at the beginning of the
earliest comparative 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
 
Frequency of Reporting

 Financial statements shall be presented at least

annually.
 When an entity’s end of reporting period changes
and financial statements are presented for a
period longer or shorter than one year, an entity
shall disclose:
 The period covered by the financial statements;
 The reason for using a longer/shorter period;
 The fact that amounts presented in the financial
statements are not entirely comparable.
International Accounting Standards-Training of Trainers 7
Definitions
Impracticable - when the entity cannot apply a requirement after making
every reasonable effort to do so.
International Financial Reporting Standards (IFRSs) are Standards and
Interpretations adopted by the International Accounting Standards Board
(IASB). They comprise:
(a) International Financial Reporting Standards;
(b) International Accounting Standards; and
(c) Interpretations originated by the International Financial Reporting
Interpretations Committee (IFRIC) or the former Standing Interpretations
Committee (SIC).
Material - if the omissions or misstatements could, individually or
collectively, influence the economic decisions of users taken on the basis
of the financial statements. Materiality depends on the size and nature of
the omission or misstatement.
Notes - information in addition to that presented in the balance sheet,
income statement, statement of changes in equity and cash flow
statement. Notes provide narrative descriptions or disaggregations of
items disclosed in those statements and information about items that do
not qualify for recognition in those statements.
Definitions (cont.)
Other Comprehensive Income – comprises items of income and expense
(including reclassification adjustments) that are not recognized in profit
or loss as required or permitted by other IFRSs.

Components of Other Comprehensive Income:

 Changes in revaluation surplus
 Actuarial gains and losses on defined benefit plans
 Gains and losses arising from translation of financial statements of a
foreign operation
 Gains and losses arising from remeasuring available-for-sale financial
assets
 The effective portion of gains and losses on hedging instruments in a
cash flow hedge

International Accounting Standards-Training of Trainers 9

Definitions (cont.)
Owners are holders of instruments classified as equity.

Profit or loss is the total of income less expenses, excluding components of

other comprehensive income.

Reclassification adjustments are amounts reclassified to profit or loss in the

current period that were recognized in other comprehensive income in
the current or previous periods.

Total comprehensive income is the change in equity during a period

resulting from transactions and other events, other than those changes
resulting from transactions with owners in their capacity as owners.

International Accounting Standards-Training of Trainers 10

Overall Considerations

The overall factors included in IAS 1 are:

 Fair presentation and compliance with IFRSs
 Going concern
 Accrual basis of accounting
 Materiality and aggregation
 Offsetting
 Frequency of reporting
 Comparative information
 Consistency of presentation
 Fair Presentation and Compliance with IFRS

Fair Presentation
 requires 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 Framework.
 application of IFRSs, with additional disclosure when
necessary, is presumed to result in FS that achieve a fair
presentation.
Compliance with IFRS
 requires an explicit and unreserved statement of compliance
in the notes. FS shall not be described as complying with
IFRSs unless they comply with all the requirements of IFRSs.
 Inappropriate accounting policies are not rectified either by
disclosure of the accounting policies used or by notes or
explanatory material.
Continued- Compliance with IFRS

In extremely rare circumstances in which management concludes that

compliance would be so misleading that it would conflict with the
objective of FS set out in the Framework:
1. The entity shall depart from that requirement if the relevant regulatory
framework requires, or otherwise does not prohibit, such a departure, and shall
disclose:
a) that management has concluded that the FS present fairly the entity’s financial
position, financial performance and cash flows;
b) that it has complied with applicable Standards and Interpretations, except for a
particular requirement to achieve a fair presentation;
c) the title of the Standard or Interpretation from which the entity has departed, the
nature of the departure, including the treatment that the Standard or Interpretation
would require, the reason why that treatment would be so misleading in the
circumstances that it would conflict with the objective of FS set out in the
Framework, and the treatment adopted; and
d) for each period presented, the financial impact of the departure on each item in the
FS that would have been reported in complying with the requirement.
Continued- Compliance with IFRS

2. If relevant regulatory framework prohibits

departure from the requirement, the entity shall, to
the maximum extent possible, reduce the perceived
misleading aspects of compliance by disclosing:
a) the title of the Standard or Interpretation in question, the nature
of the requirement, and the reason why management has
concluded that complying with that requirement is so misleading
in the circumstances that it conflicts with the objective of FS set
out in the Framework; and
b) for each period presented, the adjustments to each item in the FS
that management has concluded would be necessary to achieve a
fair presentation.
Going Concern

 An assessment of the ability to continue as a

going concern must be made at each reporting
date.
 
 FS should be prepared on a going concern basis
unless the business will cease or there is no
realistic alternative but to liquidate.
 
Disclosure requirements:
 there are uncertainties regarding the ability to continue
as a going concern
 FS not prepared on a going concern basis.
Accrual Basis of Accounting
 Applied in the preparation of financial statements,
except for the cash flow statement.

Materiality and Aggregation

 Present separately each material class of similar items.
 Present separately items of a dissimilar nature or
function unless immaterial.
 A specific disclosure requirement in a Standard or an
Interpretation need not be satisfied if the information is
not material.
 
Offsetting
• Assets and liabilities should not be offset unless
offsetting is specifically required or permitted by
another IAS.
 
• Income and expense items are to be offset only
when:
– an IAS requires or permits offsetting: or
– gains, losses and related expenses arising from similar
transactions are not material in which case these
amounts should be aggregated.
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
International Accounting Standards-Training of Trainers 18
Comparative Information

 Comparative information need to be disclosed for:

 all amounts reported in the financial statements; and
 narrative and descriptive information when it is relevant to an
understanding of the current period’s financial statements.
 When the presentation or classification is amended,
comparative amounts shall be reclassified unless the
reclassification is impracticable.
 If comparative amounts are reclassified, disclose:
(a) the nature of the reclassification;
(b) the amount of each item or class of items that is reclassified; and
(c) the reason for the reclassification.
 If it is impracticable to reclassify comparative amounts, disclose:
(a) the reason for not reclassifying the amounts; and
(b) the nature of the adjustments that would have been made if the
amounts had been reclassified.
Consistency of Presentation

An entity shall retain the presentation and

classification of items in the financial
statements from one period to the next
unless:
 It is apparent that another presentation or
classification or presentation would be more
appropriate; or
 An IFRS requires a change in presentation

International Accounting Standards-Training of Trainers 20

Statement of Financial Position

 A formal statement showing the assets,

liabilities and equity as of a certain time.
 It enables users to analyze the liquidity,
solvency, financial structure and capacity for
adaptation.

International Accounting Standards-Training of Trainers 21

Statement of Financial Position:
Current/Non-current Distinction

Assets and liabilities should be presented on the

face of the balance sheet:
 using a current / non-current classification; or
 broadly in order of their liquidity.
 
Whichever method is chosen:
 disclose amounts due for recovery or settlement after
more than 12 months for each asset and liability item.
Current Assets

Current assets are:

a) expected to be realized in, or is intended for sale or
consumption in, the entity’s normal operating cycle;
b) held primarily for the purpose of being traded;
c) expected to be realized within twelve months after the
reporting period; or
d) cash or a cash equivalent (as defined in IAS 7 Cash Flow
Statements) unless restricted from being exchanged or
used to settle a liability for at least twelve months after the
balance sheet date.

All other assets shall be classified as non-current.

Current Liabilities
Current liabilities are:
(a) expected to be settled in the entity’s normal operating
cycle;
(b) held primarily for the purpose of being traded;
(c) due to be settled within twelve months after the
reporting period; or
(d) the entity does not have an unconditional right to defer
settlement of the liability for at least twelve months
after the reporting period.

All other liabilities shall be classified as non-current.

Current Assets

 Cash and cash equivalents

 Financial assets at fair value
 Trade and other receivables
 Inventories
 Prepaid expenses
 The total assets classified as held for sale and
assets included in the disposal groups in
accordance with IFRS5;

International Accounting Standards-Training of Trainers 25

Noncurrent Assets
 Property, plant and equipment;
 Investment property;
 Long –term Investments
 Intangible assets;
 Biological assets;
 Other Noncurrent assets

When an entity presents current and noncurrent assets as

separate classifications on the face of the statement of
financial position, it shall not classify deferred tax assets
as current assets.
International Accounting Standards-Training of Trainers 26
Current Liabilities

 Trade and other payables

 Current Provisions;
 Short – term borrowings;
 Current – portion of long-term debt;
 Current tax liabilities

International Accounting Standards-Training of Trainers 27

Noncurrent Liabilities

 Noncurrent portion of long-term debt;

 Finance lease liability;
 Deferred tax liability;
 Long-term obligations to company officers;
 Long-term deferred revenue

When an entity presents current and noncurrent

liabilities as separate classifications on the face of
the statement of financial position, it shall not
classify deferred tax liability as current liability.
International Accounting Standards-Training of Trainers 28
Financial Liabilities
Financial liabilities are classified as current when
they are due to be settled within twelve months
after the balance sheet date, even if:
(a) the original term was for a period longer than
twelve months; and
(b) an agreement to refinance, or to reschedule
payments, on a long-term basis is completed
after the reporting period and before the
financial statements are authorized for issue.
Financial Liabilities
When an entity breaches an undertaking under a
long-term loan agreement on or before the
balance sheet date with the effect that the liability
becomes payable on demand, the liability is
classified as current, even if the lender has agreed,
after the balance sheet date and before the
authorization of the financial statements for issue,
not to demand payment as a consequence of the
breach.
Equity

 Equity is the residual interest in the assets of

the entity after deducting all of its liabilities.
 Shareholders’ equity is the residual interest of
owners in the net assets of a corporation.

International Accounting Standards-Training of Trainers 31

Additional Information Disclosed on the Face of the
Statement of Financial Position or in the Notes

 Present on the face of the balance sheet:

a) the total of assets classified as held for sale and assets included
in disposal groups classified as held for sale in accordance with
accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations; and
b) liabilities included in disposal groups classified as held for sale
in accordance with IFRS 5.
 Further sub-classifications of the line items can be
disclosed either on the face of the balance sheet or in
the notes to the balance sheet. Example, receivables
are disaggregated into amounts receivable from trade
customers, receivables from related parties,
prepayments and other amounts.
Detailed Disclosures
 Detailed disclosures relating to equity line items are required
to be made either on the face of the balance sheet or in the
 
notes to the balance sheet.
 Comprehensive disclosure regarding equity items:
 For each class of share capital:
ono. of shares authorized
ono. of shares issued and fully paid, and issued but not fully paid
opar value or no-par value
oreconciliation of movements in number of shares
orights, preferences and restrictions
oshares in the entity held by the entity or by its subsidiaries or
associates;
o shares reserved for issue under options and contracts for the sale of
shares, including the terms and amounts; and
 Nature and purpose of each equity reserve
Comprehensive Income

 Comprehensive income is the change in

equity during a period resulting from
transactions and other events, other than
changes resulting from transactions with
owners in their capacity as owners.
 Comprehensive income includes:
 Components of profits or loss
 Components of other comprehensive income

International Accounting Standards-Training of Trainers 34

Profit or Loss

 “Profit or loss” is the total of income less

expenses, excluding the components of other
comprehensive income.

International Accounting Standards-Training of Trainers 35

Other Comprehensive Income
 Comprises items of income and expenses including
reclassification adjustments that are not recognized in profit or
loss as required or permitted by PFRS.
 Examples of Other Comprehensive Income:
 Unrealized gain or loss on investment in equity instrument measured
at fair value through other comprehensive income;
 Gain or loss from translation of the financial statements of a foreign
operation;
 Changes in revaluation surplus;
 Unrealized gain or loss from derivative contracts designated as cash
flow hedge;
 Actuarial gain or loss on defined benefit plan accounted for using the
“full recognition” approach.
International Accounting Standards-Training of Trainers 36
Statement of
Comprehensive Income
 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).

International Accounting Standards-Training of Trainers 37

Statement of Comprehensive Income:
Minimum Information

 Presented on the face of the income statement the ff.:

(a) revenue;
(b) finance costs;
(c) share of the profit or loss of associates and joint ventures
accounted for using the equity method;
(d) tax expense;
(e) a single amount comprising the total of (i) the post-tax profit or
loss of discontinued operations and (ii) the post-tax gain or loss
recognised on the measurement to fair value less costs to sell or
on the disposal of the assets or disposal group(s) constituting the
discontinued operation; and
(f) profit or loss.
Statement of Comprehensive Income:
Minimum Information

(g) each component of other

comprehensive income classified by nature
(h) share of other comprehensive income or
associates and joint ventures accounting
for using the equity method; and
(i) total comprehensive income.

International Accounting Standards-Training of Trainers 39

Additional Information Disclosed on the Face
of the Income Statement or in the Notes

 Disclose on the face of the income statement as allocations

of profit or loss for the period:
a) profit or loss attributable to minority interest; and
b) profit or loss attributable to equity holders of the parent.

 Disclose on the face of the income statement or in the notes

 an analysis of expenses using a classification based on either the
nature of expenses or their function.
 
 When the nature of expense method is used, expenses are
aggregated in the income statement according to their
nature (e.g., depreciation, transportation, employee benefits
and advertising costs).
Nature of Expenses Method

 
Revenue X
 
Other income X
Changes in inventories of finished goods and work in progress X  

 
Raw materials and consumables used X
 
Employee benefits costs X
 
Depreciation and amortization expenses X
 
Other expenses X
 
Total expenses (x)
 
Profit X
Continued-Additional Info…
When the cost of sales method or function of
expenses method is used, expenses are
classified according to their functions as part
of cost of sales, distribution or administrative
activities. Additional disclosure is required
about the nature of expenses, including
depreciation, amortization and employee
benefits expense.
Income statement: Function of expenses

Example: Income statement: Function of expenses

Revenue x
Cost of sales (x)
Gross profit X
Other income X
Distribution costs (x)
Administrative expenses (x)
Other expenses (x)
Profit X
Continued-Income statement…

 Disclose, either on the face of the income

statement or the statement of changes in
equity, or in the notes, the amount of
dividends recognized as distributions to
equity holders during the period, and the
related amount per share.
Cost of Goods Sold
Beginning raw materials P 500,000
Net purchases 2,000,000
Raw materials available for use 2,500,000
Ending raw materials (300,000)
Raw materials used 2,200,000
Direct labor 3,000,000
Factory overhead 1,300,000
Total manufacturing cost 6,500,000
Beginning goods in process 900,000
Total cost of goods in process 7,400,000
Ending goods in process (1,000,000)
Cost of goods manufactured 6,400,000
Beginning finished goods 1,600,000
Goods available for sale 8,000,000
Ending finished goods (1,500,000)
Cost of goods sold P 6,500,000
International Accounting Standards-Training of Trainers 45
Statement of Retained Earnings

 Shows the changes affecting directly the

retained earnings of an entity:
 Profit or loss for the period
 Prior-period errors
 Dividends declared and paid to shareholders
 Effect of change in accounting policy
 Appropriation of retained earnings
 The Statement of Retained Earnings is not
part of the basic set of FS.
International Accounting Standards-Training of Trainers 46
Statement of Changes in Equity
The face of the statement of changes in equity
should show the ff.:
a) Total comprehensive income for the period;
b) For each component of equity, the effects of changes
in accounting policies and correction of errors in
accordance with IAS 8;
c) For each component of equity, a reconciliation
between the carrying amount at the beginning and
end of the period, separately disclosing changes from:
a) Profit or loss
b) Each item of other comprehensive income
c) Transactions with owners in their capacity as owners showing
separately contributions by and distributions to owners.
Notes to the Financial Statements
 The Notes to the Financial Statement should be
presented in a systematic order, and cross-referenced
to the balance sheet, income and cash flow statement.
 The notes should:
 Present basis of preparation of FS and accounting
policies
 Disclose information required by IFRSs and
additional useful information not presented
elsewhere.
Continued-Notes to…
The notes are normally presented in the ff. order:
(a) a statement of compliance with IFRSs;
(b) a summary of significant accounting policies applied;
(c) supporting information for items presented on the face of
the balance sheet, income statement, statement of
changes in equity and cash flow statement, in the order in
which each statement and each line item is presented; and
(d) other disclosures, including:
(i) contingent liabilities (IAS 37) and unrecognised
contractual commitments; and
(ii) non-financial disclosures, eg the entity’s financial risk
management objectives and policies (IAS 32).
Other Disclosures
 If not disclosed elsewhere in information
published with the financial statements,
an entity must disclose the following:
 the domicile and legal form of the enterprise, its
country of incorporation and the address of
registered office (or, if different, the address of its
principal place of business);
 a description of the nature of its operations and
principal activities;
 the name of the parent and ultimate parent of
the group.
Implementation Guidelines
 The guidance provides simple examples of ways in
which the requirements of the Standard for the
presentation of the balance sheet, income
statement and changes in equity might be met. The
order of presentation and the descriptions used for
line items should be changed when necessary in
order to achieve a fair presentation in each entity’s
particular circumstances.