Module 1: Development of the Financial
Reporting Framework
1.1 Overview of Accounting
Introduction: The History and Definition of Accounting
Definition of Accounting
● Accounting is “the process of identifying, measuring, and
communicating economic information to permit informed judgment and
decisions by users of information.” (American Association of Accountants-AAA)
Three (3) Important Activities
1. Identifying - the process of analyzing events and transactions to determine
whether or not they will be recognized. Only accountable events are
recognized.
2. Measuring - involves assigning numbers, normally in monetary terms, to the
economic transactions and events.
3. Communicating - the process of transforming economic data into useful
accounting information, such as financial statements and other accounting
reports, for dissemination to users.
Types of Events or Transactions
1. External Events – events that involve an external party
Three Types of External events:
1. Exchange (reciprocal transfer) – reciprocal giving and
receiving
2. Non-reciprocal transfer – “one-way” transaction
​
3. External event other than transfer – an event that
involves changes in the economic resources or
obligations of an entity caused by an external party or
external source but does not involve transfers of
resources or obligations.
Internal Events – events that do not involve an external party
Two Types of Internal Events:
1. Production – the process by which resources are
transformed into finished goods.
2. Casualty – unanticipated loss from disasters or other
similar events.
Measurement Bases
● The several measurement bases used in accounting include, but not limited
to, the following:
1. Historical Cost (Links to an external site.)
2. Fair Value (Links to an external site.)
3. Present Value (Links to an external site.)
4. Realizable Value (Links to an external site.)
5. Current Cost (Links to an external site.), and
6. sometimes Inflation-Adjusted Costs (Links to an external site.)
● The most commonly used is historical cost. This is usually combined with
the other measurement bases. Accordingly, financial statements are said to
be prepared using a mixture of costs and values.
Valuation by Fact or Opinion
● When the measurement is affected by estimates, the items measured are
said to be valued by Opinion.
● When the measurement is unaffected by estimates, the items measured are
said to be valued by Fact.
Basic Purpose of Accounting
● The basic purpose of accounting is to provide information about economic
activities intended to be useful in making economic decisions.
Types of Accounting Information Classified as to Users’ Needs
● General-purpose accounting information - designed to meet the common
needs of most statement users. This information is governed by the Philippine
Financial Reporting Standards (PFRSs).
● Special purpose accounting information - designed to meet the specific
needs of particular statement users. This information is provided by other
types of accounting, e.g., managerial accounting, tax basis accounting, etc.
The Basic Accounting Concepts -principles upon which the process of
accounting is based.Used interchangeably with accounting assumptions and accounting
theory.
● some are derived from the Conceptual Framework and the PFRSs but some
are implicit or generally accepted because of their long-time use.
● Double-Entry System – each accountable event is recorded in two parts, the
Debit and Credit.
● Going Concern - the entity is assumed to carry on its operations for an
indefinite period of time.
● Separate Entity – the entity is treated separately from its owners.
● Stable Monetary Unit - amounts in the financial statements are stated in
terms of a common unit of measure; changes in purchasing power are
ignored.
● Time Period – the life of the business is divided into series of reporting
periods.
● Materiality concept – information is material if its omission or misstatement
could influence economic decisions.
● Cost-benefit – the cost of processing and communicating information should
not exceed the benefits to be derived from it.
● Accrual Basis of Accounting – effects of transactions are recognized when
they occur (and not as cash is received or paid) and they are recognized in
the accounting periods to which they relate.
● Historical Cost Concept – the value of an asset is determined on the basis
of acquisition cost.
● Concept of Articulation – all of the components of a complete set of
financial statements are interrelated.
● Full Disclosure Principle – financial statements provide sufficient detail to
disclose matters that make a difference to users, yet sufficient condensation
to make the information understandable, keeping in mind the costs of
preparing and using it.
● Consistency Concept – financial statements are prepared on the basis of
accounting policies which are applied consistently from one period to the
next.
● Matching Principle– costs are recognized as expenses when the related
revenue is recognized.
● Residual Equity Theory – this theory is applicable where there are two
classes of shares issued, ordinary and preferred. The equation is “Assets –
Liabilities – Preferred Shareholders’ Equity = Ordinary Shareholders’ Equity.”
● Entity Theory- the objective is proper income determination (matching of
cost and revenues in the income statement). Exemplified by the equation
"Assets=Liabilities + Capital"
● Proprietary Theory - the objective is the proper valuation of assets in the
balance sheet. Exemplified by the equation "Assets- Liabilities = Capital"
● Fund Theory – the accounting objective is the custody and administration of
funds.
● Realization – the process of converting non-cash assets into cash or claims
for cash.
● Prudence (Conservatism) – the inclusion of a degree of caution in the
exercise of the judgments needed in making the estimates required under
conditions of uncertainty, such that assets or income are not overstated and
liabilities or expenses are not understated.
● Systematic and rational Allocation - costs that are not directly related to
income generation are initially recognized as an asset and recognized as
expenses over the period where their economic benefits are consumed.
● Immediate recognition -costs that do not/ceases to meet the definition of
assets are expensed immediately.
Note:
Some accounting concepts are implicit, or they are not expressly stated in the
framework but are generally accepted because of their long-time use in the profession.
The Common Branches of Accounting
● Financial Accounting - focuses on general-purpose financial statements.
● Management Accounting – focuses on special purpose financial reports for
use by an entity’s management.
● Cost Accounting - the systematic recording and analysis of the costs of
materials, labor, and overhead incident to production.
● Auditing - the process of evaluating the correspondence of certain assertions
with established criteria and expressing an opinion thereon.
● Tax Accounting - the preparation of tax returns and rendering of tax advice,
such as the determination of tax consequences of certain proposed business
endeavors.
● Government Accounting - refers to the accounting for the government and
its instrumentalities, placing emphasis on the custody of public funds, the
purposes for which those funds are committed, and the responsibility and
accountability of the individuals entrusted with those funds.
● Fiduciary Accounting -refers to the handling of accounts managed by a
person entrusted with the custody and management of property for the
benefit of another.
● Estate Accounting-refers to the handling of accounts for fiduciaries who
wind up the affairs of deceased persons.
● Social Accounting - the process of communicating the social and
environmental effects of an entity's economic actions to society.
● Institutional Accounting -the accounting for non-profit entities other than the
government
● Accounting System- the installation of accounting procedures for the
accumulation of financial data and designing of accounting forms to be used
in data gathering.
● Accounting research- pertains to the careful analysis of economic events
and other variables to understand their impact on decisions.
The Four (4 ) Sectors of Accountancy
Four Sectors in the Practice of Accountancy
Under R.A. 9298 also known as the “Philippine Accountancy Act of 2004” the
practice of accounting is sub-classified into the following:
1. Practice of Public Accountancy - involves the rendering of audit or
accounting-related services to more than one client on a fee basis.
2. Practice in Commerce and Industry - refers to employment in the private
sector in a position that involves decision making requiring professional
knowledge in the science of accounting and such position requires that the
holder thereof must be a CPA.
3. Practice in Education/Academe – employment in an educational institution
that involves the teaching of accounting, auditing, management advisory
services, finance, business law, taxation, and other technically related
subjects.
4. Practice in the Government – employment or appointment to a position in
an accounting professional group in the government or in a
government-owned and/or controlled corporation where decision-making
requires professional knowledge in the science of accounting, or where civil
service eligibility as a CPA is a prerequisite.
Services offered by Professional Accountants in Public Practice
● audit - the expression of an opinion on the fairness of the financial
statements of a client for an accounting period.
● review- limited examination of the client's financial statements
● compilation services - classifying and summarizing the client's financial
information to present a financial statement in conformance with the financial
accounting and reporting standards.
● tax services - preparation of the annual income tax returns, representation of
clients in tax cases, tax planning etc.
Accounting Standards in the Philippines
● Philippine Financial Reporting Standards (PFRSs) are Standards and
Interpretations adopted by the Financial Reporting Standards Council (FRSC)
based on the IFRSs. They comprise:
1. Philippine Accounting Standards (PASs)*;
2. Philippine Financial Reporting Standards (PFRSs)**; and
3. Interpretations
The Need for Reporting Standards
● Entities should follow a uniform set of generally accepted reporting standards
when preparing and presenting financial statements; otherwise, financial
statements would be misleading.
● The term “generally acceptable” means that either:
○ the standard has been established by an authoritative accounting
rule-making body, or
○ the principle has gained general acceptance due to practice over
time and has been proven to be most useful.
● The process of establishing financial accounting standards is a democratic
process in that a majority of practicing accountants must agree with a
standard before it becomes implemented.
Prior to the full adoption of IFRSs (2005)
● The accounting standards used in the Philippines were based on the US
GAAP,
○ includes the Statement of Financial Accounting Standards (SFAS)
issued by the Federal Accounting Standards Board (FASB), the US
national standard-setting body.
● The move to IFRSs was primarily brought about by:
○ increasing acceptance of IFRSs worldwide;
○ increasing internationalization of businesses thereby increasing the
need for a common financial reporting standards that minimize, if
not eliminate inconsistencies of financial reporting of nations.
Norwalk Agreement (October 2002)
● FASB and the International Accounting Standards Board (IASB) agreed to
converge the U.S. GAAP and the IFRSs ;
● work together with the common goal of producing a single set of global
accounting standards and,
● enhance the quality and comparability of financial reporting.
Changes in Financial reporting standards
● Financial reporting standards are continuously reviewed, revised, and
superseded primarily to respond to users' needs influenced by legal,
political, business, and social environment.
● Regulatory bodies, lobbyists, laws, regulations, and changes in the economic
environment affect the choice of accounting treatment provided under the
reporting standards.
*issuance by the ASC
**issuance by the FRSC
Accounting
Standard-Setting
Organizations
Bodies
and
other
Relevant
1. Financial Reporting Standards Council (FRSC)
● is the official accounting standard-setting body in the Phils.
● created under the Phil. Accountancy Act of 2004 (RA 9298).
● It is composed of a chairman and 14 representative members.
● replaced the Accounting Standards Council(ASC)
2. Philippine Interpretations Committee (PIC)
● it has the role of reviewing the interpretations of the International Financial
Reporting Interpretations Committee (IFRIC) for approval and adoption of the
FRSC.
3. Board of Accountancy (BOA)
●
the professional regulatory board created under RA 9298 to supervise the
registration, licensure, and practice of accountancy in the Philippines.
● It consists of a chairperson and 6 members with a tenure of one (1) year.
4.International Accounting Standards Board (IASB)
● the standard-setting body of the IFRS Foundation with the main objective of
developing and promoting global accounting standards.
5. International Financial Reporting Interpretations Committee (IFRIC)
●
the committee that prepares interpretations of how specific issues should be
accounted for under the application of the IFRS.
6. IFRS Advisory Council (IFRSAC)
● group of organizations and individuals with an interest in international
financial reporting.
7. International Federation of Accountants (IFAC)
●
it is a non-profit, non-governmental, non-political organization of accountancy
bodies that represents the worldwide accountancy profession.
8. Philippine Institute of Certified Public Accountant (PICPA)
● The national professional organization of Certified Public Accountants in the
Philippines having the basic authority of setting-up and implementing rules
vital to the accounting profession.
● Accounting Associations under the wing of PICPA
○ National Association of Certified Public Accountants in Education
(nACPAE) –for accounting professors
○ Government Association Certified Public Accountants (GACPA)
–for government accountants
○ Association of Certified Public Accountants in Public Practice
(ACPAPP)
○ Association of CPAs in Commerce and Industry (ACPACI) -for all
private and public accountants
9. Auditing and Assurance Standards Council (AASC)- is the body authorized to
establish and promulgate generally accepted auditing standards (GAAS) in the
Philippines. Replaced the Auditing Standards and Practices Council (ASPC)
10. Professional Regulations Commission (PRC)- the body in charge of regulating
and licensing the practice of accountancy and other specialized professions.
11. International Organizations of Securities
international body of securities commissions.
Commissions
(IOSCO)-
an
12. Securities and Exchange Commission (SEC)- the government agency tasked
with regulating corporations and partnerships, capital and investment markets, and the
investing public.
13. Bureau of Internal Revenue (BIR) - administers the provisions of the National
Internal Revenue Code.
14. Bangko Sentral ng Pilipinas (BSP) - influences the selection and application of
accounting policies by banks and other entities performing banking functions.
15. Cooperative and development Authority (CDA) - influences the selection and
application of accounting policies by cooperatives.
Note:
Regulatory accounting principles - accounting policies prescribed by a regulatory
body.
The Accountancy Profession in the Philippines (pursuant to RA 9298)
The three (3) requirements to qualify to practice the accountancy profession, a
person must:
● be a holder of a Bachelor’s Degree in Accountancy
● pass the difficult CPA Licensure Examination (CPALE) administered by the
Board of Accountancy.
○ The examination is given every May and November of each year.
○ with an average of 75%, with no grade lower than 65% in any
subject.
● be accredited by the Board of Accountancy to practice accounting upon
showing that such registrant has:
○ acquired a minimum of 3 years of meaningful experience in any of
the areas of public practice including taxation
○ completed the required 120 Continuing Professional Development
(CPD) credit units as mandated by RA 10912, the law
strengthening the CPD program for all regulated professions to
enhance the technical skills and competence of the CPA.
Note:
CPAs 65 years old and above shall be permanently exempted from the CPD requirement for renewal of
CPA license but not for the accreditation to practice the accountancy profession.
The Code of Ethics for CPAs
1. Integrity
● A professional accountant should be straightforward and honest in all
professional and business relationships.
2. Objectivity
● A professional accountant should not allow bias, conflict of interest or undue
influence of others to override professional or business judgments.
3. Professional Competence and Due Care
● A professional accountant has a continuing duty to maintain professional
knowledge and skill at the level required to ensure that a client or employer
receives competent professional service based on current developments in
practice, legislation, and techniques.
● Professional accountants should act diligently and by applicable technical and
professional standards when providing professional services.
4. Confidentiality
● A professional accountant should respect the confidentiality of information
acquired as a result of professional and business relationships and
● should not disclose any such information to third parties without proper and
specific authority unless there is a legal or professional right or duty to
disclose.
● Confidential information acquired as a result of professional and business
relationships should not be used for the personal advantage of the
professional accountant or third parties.
5. Professional Behavior
● A professional accountant should comply with relevant laws and regulations
and should avoid any action that discredits the profession.
1.2
The
Conceptual
Framework
for
Financial
Reporting
The Conceptual Framework for Financial Reporting
● (or the “Framework”) is a basic document that sets objectives and the
concepts for general purpose financial reporting.
● Its predecessor, Framework for the preparation and presentation of the
financial statements was issued back in1989.
● Then in 2010, IASB published the new document, however, it was a bit
unfinished as a few concepts and chapters were missing.
● The newest and completed Framework Published in 2018 is comprised of 8
Chapters.
Definition
● The Conceptual Framework sets out the concepts that underlie the
presentation and preparation of financial statements for external users.
The Purpose of the Conceptual Framework
1. Assist the FRSC in developing accounting standards and in reviewing and
adopting existing IFRSs;
2. Assists preparers of financial statements in applying the Standards and in
dealing with topics that have yet to form the subject of an FRSC standard;
3. Assists auditors in forming an opinion as to whether financial statements
conform with the Standards;
4. Assist the users' financial statements in interpreting the information
contained in financial statements; and
5. Provide those who are interested in the work of the FRSC with
information about its approach to the formulation of the Standards.
Authoritative Status of the Conceptual Framework
● The Conceptual Framework is not a PFRS.
● The Conceptual Framework does not define any standard for any particular
measurement or disclosure requirement.
● If there is a conflict between the Conceptual Framework and the PFRS, the
PFRS will prevail.
● In the absence of a PFRS, management shall consider the application of the
Conceptual Framework.
1.2.1 The Eight (8) Chapters of the CFWFR
The Eight (8) Chapters of the Conceptual Framework
for Financial Reporting
CFWFR Chapter 1
The Objective of General Purpose Financial Reporting
● The main objective of general purpose financial reports is to :
○ provide the financial information about the reporting entity that is
useful to existing and potential investors, lenders, and other
creditors and ;
○ to help them make various decisions (e.g. about trading with debt
or equity instruments of a reporting entity).
● The Conceptual Framework describes more general-purpose reports that
should contain the following information about the reporting entity:
○ The economic resources and claims (this refers to the financial
position);
○ The changes in economic resources and claims resulting from
the entity’s financial performance and from other events.
○ It puts an emphasis on accrual accounting to reflect the financial
performance of an entity.
■ events should be reflected in the reports in the periods
when the effects of transactions occur, regardless of the
related cash flows.
■ However, the information about past cash flows is very
important to assess management’s ability to generate
future cash flows.
CFWFR Chapter 2
Qualitative Characteristics of Useful Financial Information
Fundamental Qualitative Characteristics
● Relevance - capable of making a difference in the users’ decisions. The
financial information is relevant when it has a :
○ predictive value - information can be used to make predictions
○ confirmatory value - information confirms previous predictions
○ Materiality - omitting or misstating information will affect the
decision of the primary user.
● Faithful representation -The information is faithfully represented when it is
complete, neutral, and free from error.
Enhancing Qualitative Characteristics
● Comparability- Information should be comparable between different entities
or time periods;
● Verifiability- Independent and knowledgeable observers are able to verify the
information;
● Timeliness- Information is available in time to influence the decisions of
users;
● Understandability-Information shall be classified, presented clearly, and
concisely.
CFWFR Chapter 3
Financial Statements and the Reporting Entity
The financial statements should provide useful information about the reporting entity in
the:
● Statement of Financial Position, by recognizing
○ Assets,
○ Liabilities,
○ Equity
● Statements of financial performance, by recognizing
○ Income, and
○ Expenses
​ Other Statements, by presenting and disclosing information about
○ recognized and unrecognized assets, liabilities, equity, income and
expenses, their nature and associated risks;
○ Cash flows;
○ Contributions from and distributions to equity holders, and
○ Methods, assumptions, judgments used, and their changes.
Financial statements are always prepared for a specified period of time or the reporting
period.
● It means that an entity will continue to operate for the foreseeable future
(usually 12 months after the reporting date).
● A Reporting entity is an entity that must or chooses to prepare the financial
statements. It can be :
○ A Single entity – one company;
○ A portion of an entity – a division of one company;
○ More than one entity – a parent and its subsidiaries reporting as a
group.
Types of Financial Statements:
● Consolidated -a parent and subsidiaries report as a single reporting entity;
● Unconsolidated - a parent alone provides reports, or
● Combined - reporting entity comprises two or more entities not linked by
parent-subsidiary relationship.
CFWFR Chapter 4
Elements of the Financial Statements
The five basic elements:
1. Asset = a present economic resource controlled by the entity as a result of
past events;
2. Liability = a present obligation of the entity to transfer an economic resource
as a result of past events;
3. Equity = the residual interest in the assets of the entity after deducting all its
liabilities;
4. Income = increases in assets or decreases in liabilities resulting in increases
in equity, other than contributions from equity holders;
5. Expenses = decreases in assets or increases in liabilities resulting in
decreases in equity, other than distributions to equity holders;
CFWFR Chapter 5
Recognition and Derecognition
● Not all items that meet the definition of one of the elements are recognized
in the financial statements.
● The Framework requires recognizing the elements only when the recognition
provides useful information – relevant with faithful representation.
Recognition
● Recognition means including an element of financial statements in the
financial statements. If you decide on recognition, you decide on WHETHER
to show this item in the financial statements.
The recognition process links the elements in the financial statements according to the
following formula:
Derecognition
● Derecognition means the removal of an asset or liability from the statement of
financial position and normally it happens when the item no longer meets the
definition of an asset or a liability.
● Again, the Framework discusses the derecognition in greater detail.
CFWFR Chapter 6
Measurement
● selection of the measurement basis or the method of quantifying monetary
amount for the elements in the financial statements.
● IN WHAT AMOUNT to recognize assets, liabilities, equity, income, or expense
in your financial statements.
Two basic measurement bases:
1. Historical cost – this measurement is based on the transaction price at the
time of recognition of the element;
2. Current value – it measures the element updated to reflect the conditions at
the measurement date. Here, several methods are included:
○ Fair value;
○ Value in use (Links to an external site.);
○ Current cost.
The Framework gives guidance on how to select the appropriate measurement basis
and what factors to consider (especially relevance and faithful representation).
The Guidance on Measurement of Equity states that:
● Equity is the “residual after deducting liabilities from assets”
● Measured by the Formula:
Total Carrying amount of All Assets
less: Total Carrying amount of All Liabilities
It is not possible to measure the total equity directly.
CFWFR Chapter 7
Presentation and Disclosure
The main objective of the presentation and disclosures is to provide an effective
communication tool in the financial statements.
● Effective communication of information in the financial statements requires:
○ Focus on objectives and principles of presentation and disclosure,
not on the rules.
○ Group similar items and separate dissimilar items;
○ Aggregate information, but do not provide unnecessary detail or
the opposite – excessive aggregation to obscure the information.
The Framework discusses the classification of assets, liabilities, equity, income, and
expenses in greater detail with describing
● offsetting,
● aggregation,
● distinguishing between profit or loss and other comprehensive income (Links
to an external site.)
● and other related areas.
CFWFR Chapter 8
Concepts of Capital and Capital Maintenance
Two concepts of Capital
1. Financial capital – this is synonymous with the net assets or equity of the entity.
● Under the financial maintenance concept, the profit is earned only when the
amount of net assets at the end of the period is greater than the amount of
net assets in the beginning, after excluding contributions from and
distributions to equity holders.
Net Assets, End > Net Assets, Beg = Profit
● The financial capital maintenance can be measured either in
○ Nominal monetary units, or
○ Units of constant purchasing power.
2. Physical capital – this is the productive capacity of the entity based on, for example,
units of output per day.
● The profit is earned if physical productive capacity increases during the
period, after excluding the movements with equity holders.
The main difference between the 2 concepts is how the entity treats the effects of
changes in prices in assets and liabilities.
1.3 The Accounting Standards
Generally Accepted Accounting Principles (GAAP)
● Represents the rules, procedures, practice, and standards followed in the
preparation and presentation of financial statements.
● Are like laws that must be followed in financial reporting
The Purpose of Accounting Standards
1. Identify the proper accounting practices for the preparation and
presentation of financial statements.
2. To create a common understanding between preparers and users of
financial statements particularly the measurement of assets and liabilities.
3. To ensure comparability and uniformity in financial statements based on
the same financial information.
The Financial Reporting Standards Council (FRSC)
● replaced the Accounting Standards Council (ASC) which initially developed
the GAAP in the Philippines.
● is the accounting standard-setting body created by the PRC upon
recommendation of the BOA to assist BOA in carrying out its powers and
functions under RA 9298.
○ The Accounting Standards promulgated by the FRSC constitutes
the “highest hierarchy” of GAAP in the Philippines.
○ The approved statement of the FRSC is known as :
1. The Philippine Accounting Standards (PAS)
2. The Philippine Financial Reporting Standards (PFRS)
● is composed of 15 members including a Chairman who is a senior
accounting practitioner and 14 representatives as follows:
○ 1 member - Board of Accountancy (BOA)○ 1 member - Securities and Exchange Commission (SEC)
○ 1 member- Bangko Sentral ng Pilipinas (BSP)
○ 1 member - Commission on Audit (COA)
○ 1 member - Financial Executives Institute of the Philippines
(FINEX)
○ 2 members - ACPAPP (Public Practice)
○ 2 members - ACPACI (Commerce and Industry)
○ 2 members - NaCPAE (Education)
○ 2 members - GACPA (Government)
(Term: 3 years renewable for another term)
Difference between PAS and the PFRS
● PAS represents the old accounting standard issued by the ASC, while the
● PFRS represents the new accounting standard, issued by the FRSC.
1.3.1 The Philippine Accounting Standards
No.
Topic
Issue Date
PAS 1
Pre­sen­ta­tion of Financial State­ments*
2007
In­ven­to­ries
2005
(Links
to
an
external
site.)
PAS 2
(Links
to
an
external
site.)
PAS 7
Statement of Cash Flows*
1992
(Links
to
an
external
site.)
PAS 8
(Links
to
an
external
site.)
Accounting Policies, Changes in Accounting 2003
Estimates and Errors*
PAS 10 Events After the Reporting Period*
2003
(Links
to
an
external
site.)
PAS 12 Income Taxes
1996
(Links
to
an
external
site.)
PAS 16 Property, Plant, and Equipment
(Links
to
an
external
site.)
2003
PAS 19 Employee Benefits (2011)
2011
(Links
to
an
external
site.)
PAS 20 Accounting for Gov­ern­ment Grants and Dis­clo­sure of 1983
Gov­ern­ment As­sis­tance
(Links
to
an
external
site.)
PAS 21 The Effects of Changes in Foreign Exchange Rates
2003
(Links
to
an
external
site.)
PAS 23 Borrowing Costs
2007
(Links
to
an
external
site.)
PAS 24 Related Party Dis­clo­sures
2009
(Links
to
an
external
site.)
PAS 26 Accounting and Reporting by Re­tire­ment Benefit 1987
Plans
(Links
to
an
external
site.)
PAS 27 Separate Financial State­ments (2011)
2011
(Links
to
an
external
site.)
PAS 28 In­vest­ments in As­so­ci­ates and Joint Ventures (2011)
2011
(Links
to
an
external
site.)
PAS 29 Financial Reporting in Hy­per­in­fla­tion­ary Economies
1989
(Links
to
an
external
site.)
PAS 32 Financial In­stru­ments: Pre­sen­ta­tion
2003
(Links
to
an
external
site.)
PAS 33 Earnings Per Share
2003
(Links
to
an
external
site.)
PAS 34 Interim Financial Reporting*
1998
(Links
to
an
external
site.)
PAS 36 Im­pair­ment of Assets
2004
(Links
to
an
external
site.)
PAS 37 Pro­vi­sions, Con­tin­gent Li­a­bil­it­ies, and Con­tin­gent 1998
Assets
(Links
to
an
external
site.)
PAS 38 In­tan­gi­ble Assets
2004
(Links
to
an
external
site.)
PAS 40 In­vest­ment Property
2003
(Links
to
an
external
site.)
PAS 41 Agri­cul­ture
(Links
to
an
external
site.)
2001
*Emphasis of ACCTG 016
(Other Standards are taken up in detail in Intermediate 1- 3 and Advanced Financial
Accounting and Reporting; You may click on the standard to view the summary)
Summary Module 1
Development of the Financial Reporting Framework
Overview of Accounting
● Accounting is “the process of identifying, measuring, and communicating
economic information to permit informed judgment and decisions by users of
information.” (American Association of Accountants)
● Recognition refers to the process of incorporating the effects of an
accountable event in the financial statements through a journal entry.
● External Events – events that involve an external party which includes:
○ Exchange (reciprocal transfer) – reciprocal giving and receiving
○ Non-reciprocal transfer – “one-way” transaction
○ External event other than transfer – an event that involves changes
in the economic resources or obligations of an entity caused by an
external party or external source but does not involve transfers of
resources or obligations.
● Internal Events – events that do not involve an external party
● Measuring - involves assigning numbers, normally in monetary terms, to
economic transactions and events.
● Financial Accounting - the branch of accounting that focuses on
general-purpose financial statements.
● General-purpose financial statements- are those that cater to the common
needs of a wider range of external users.
● External users - are those who do not have the authority to demand financial
reports tailored to their specific needs.
● The four(4) sectors in the practice of accountancy are a) public practice
b) commerce and industry c) academe and government
● The accounting standards used in the Philippines are PFRS which are based
on the IFRS which are comprised of the following: a) PFRSs b)PASs
c)Interpretations
● The Financial Reporting Standards Council (FRSC) is the official
accounting standard-setting body in the Philippines.
Conceptual Framework and Accounting Standards
● The Conceptual Framework
○ sets out the concepts that underlie the presentation and
preparation of financial statements for external users.
○ is not a standard. in case of a conflict between these two, the
standards prevail.
○ is concerned with general-purpose financial reporting which
involves the preparation of general-purpose financial statements.
● The objective of general purpose financial reporting is to provide
information that is useful to primary users in making decisions about providing
resources to the entity.
● The primary users are the a) existing and potential investors and b) lenders
and other creditors.
● The fundamental qualitative characteristics are 1) relevance 2) faithful
representation
● The enhancing qualitative characteristics are 1) comparability 2)
verifiability 3) timeliness and 4) understandability
● Relevant information has predictive value and feedback value.
● Materiality - omitting or misstating information will affect the decision of the
primary user.
● Faithful representation include a) completeness b) neutrality c) free from
error
● The objective of general purpose financial statements- to provide
financial information about the reporting entity's assets, liabilities, equity,
income, and expenses that is useful in assessing the entity's ability to
generate future net cash inflows and management stewardship over
economic resources.
● The elements of the financial position are the assets, liabilities, and equity.
● The elements of financial performance are income and expenses.
● An item is recognized if it meets the definition of an element and recognizing
it would provide useful information.
● An item is unrecognized if it ceases to meet the definition of an asset or
liability.
● The measurement bases used in financial reporting are broadly classified
into historical cost and current value.
● Financial information is communicated to users through presentation and
disclosure in the financial statements.
● The two (2) concepts of capital are financial and physical capital.
Module 2: Presentation of the Financial
Statements (PAS 1)
2.1 PAS 1 Overview : Presentation of the Financial Statements
Overview of PAS 1: The Financial Statements
● Issued: in 1975; re-issued in 2007, followed by amendments
● Effective date: 1 January 2009
PAS 1 Presentation of Financial Statements
● represents a basis of the whole PFRS reporting,
● it sets the overall requirements for the preparation and presentation of
general purpose financial statements,
● guidelines for their structure, and
● minimum requirements for their content to ensure comparability.
○ intra-comparability ( horizontal or inter period) -f/s of the entity from
one period to another
○ inter-comparability (dimensional) - f/s of different entities for the
same period
Financial Statements
● structured representation of the entity's financial position and results of
operation.
● The objective of the General Purpose of the 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.
○ to show the managements stewardship over the entity's resources
● The financial statements provide the following information about the
entity(presentation) :
○ assets, liabilities, and equity
○ income and expenses, including gains and losses
○ contributions by and distributions to owners
○ cash flows
● The Complete Set
● (Links to an external site.)
● of Financial Statements compliant with PFRS
○ a Statement of Financial Position as at the end of the period
○ 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 (discussed in the next
module)
○ Notes containing a summary of significant accounting policies and
other explanatory information.
○ additional statement of financial position (as at the beginning of the
earliest comparative period) shall be presented for certain
instances:
■ If some accounting policy is applied retrospectively, or
some retrospective restatements or reclassifications
were made,
■ has a material effect on the information in the statement
of financial position at the beginning of the preceding
period.
● General Features of Financial Statements, such as
○ Fair presentation and compliance with IFRS
■ all transactions, events, and conditions are reflected in
accordance with the definition ad recognition criteria of
the elements set out in the Framework.
○ Going Concern
■ financial statements shall be prepared on a going
concern basis* unless the management plans to
liquidate the enterprise
○ Accrual Basis of Accounting
■ transactions and events are recognized when they occur
and not when cash is received or paid.
○ Materiality and Aggregation
■ each material item of the same class should be
presented separately in the financial statements and
immaterial amounts of similar nature should be grouped
together as one line item (details of which is presented in
the notes)
○ Offsetting
■
assets and liabilities or income and expenses are
presented separately and are not offset unless permitted
by the PFRS (e.g. assets net of valuation allowances,
gains or losses from the sale of assets or loss from a
provision net of reimbursement from a 3rd party)
○ Frequency of Reporting
■ financial statements should be presented at least
annually, (exceptional cases should be disclosed in the
notes)
○ Comparative Information
■ presenting the financial statements for the current year
and the prior year (as a minimum)for all financial
information except when the PFRSs require otherwise
(also in the notes)
○ Consistency of Presentation
■ presentation and classification of items should be the
same from period to period (unless required by the
PFRS or the changed presentation will be more useful
to the users and provide more relevant and reliable
information)
Structure and Content
● PAS 1 requires the identification of the financial statements and
distinguish them from other information in the same published document.
● Each of the financial statements shall contain the:
○ name of the reporting entity,
○ information whether the financial statements are of an individual or
of a group,
○ date of the reporting entity and period covered,
○ presentation currency, and
○ level of rounding (thousands, millions…).
● PAS 1 lists the minimum content to be presented in the financial
statements, except for the statement of cash flows (subject to PAS 7).
Management's Responsibility for Financial Statements
● preparation and presentation of the F/S in accordance with the PFRSs -Chief
Financial Officer (CFO) and the Chief Executive Officer (CEO)
● oversight of the financial reporting process and review and approval of the FS
- Board of Directors (Chairman)
● responsibilities are clearly stated in the "Statement of Management
Responsibility for Financial Statements" attached as a cover letter to the
audited Financial Statements.
Legend:
*the ability of the entity to continue its operations for a period at least, but not limited to twelve (12)
months.
Statement of Management Responsibility
● shall be submitted together with the Audited Financial Statements
● states that Management is responsible for the presentation and preparation
of the Financial Statements
● The BOD is responsible for overseeing the financial reporting process and for
the review and approval of the Financial Statements
2.2 The Statement of Financial Position
The Statement of Financial Position
● Before significant amendments of PAS 1, this statement was simply called
“Balance Sheet”, however, it was renamed.
● PAS 1 requires the presentation of a classified statement of financial
position where the line items are further classified as:
○ current assets
○ current liabilities
○ non-current assets
○ non-current liabilities
● Basically, the asset or liability is current when it is expected to be recovered
or settled within 12 months after the reporting period.
● With regard to a minimum content, the following line items shall be
presented:
ASSETS - control over the resource, arising from past actions and providing the
enterprise probable future economic benefits
●
●
●
●
●
●
●
●
●
●
●
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid Expenses
Property, plant, and equipment
Investment property
Intangible assets
Investments accounted for using the equity method
Biological assets
IFRS 5 Non-current assets Held for Sale and Discontinued Operations
Current tax assets and deferred tax assets
LIABILITIES - the present obligation of the enterprise, it arises from a past event, and is
expected to result in a probable outflow of economic benefits.
● Trade and other payables
● Current tax liabilities and deferred tax liabilities
● Total Liabilities according to IFRS 5 Non-current assets Held for Sale and
Discontinued Operations
EQUITY- residual interest in the assets of the enterprise after deducting all its liabilities.
It refers to the interest of the owners in an enterprise measured as the excess of the
total assets over its liabilities, also called net assets.
● Issued capital and reserves attributable to owners of the parent
● Non-controlling interests
● Further subclassifications of the line items shall be disclosed either :
○ directly in the statement of financial position or
○ in the notes, such as disaggregation of property, plant, and
equipment into classes, and similar.
○ Also, certain information related to the share capital, reserves, and
a few others shall be included in the statement of financial position,
the statement of changes in equity, or in the notes.
● PAS 1 does NOT prescribe the precise format of the statement of financial
position. Instead, several formats are acceptable if they fulfill all requirements
outlined above.
○ Report form
■ assets, liabilities, and equity are shown in that order in a
vertical manner.
○ Account form
■ this follows the T-account format where assets are
shown on the left side and liabilities on the right side of
the statement(horizontal form).
○ Financial Position form
■ emphasizes the working capital position of an enterprise.
■ Presented in vertical form, the current liabilities are
deducted from current assets to derive the working
capital.
■ Non-current assets are then added and non-current
liabilities are deducted, leaving the residual amount as
equity, or net assets.
Balance Sheet Report Form
Balance Sheet Account Form
Balance Sheet Financial Position Form
2.3 The Statement of Comprehensive Income
The Statement of Comprehensive Income has
● Two (2) Basic Elements:
○ Profit or loss for the period: all items of income and expenses
(emanates from the regular operations of the business entity)
○ Other comprehensive income: items of income or expenses that
are not recognized in the profit or loss
● The Statement of Comprehensive Income must contain as a minimum
the following items:
PROFIT OR LOSS
○ Revenue
○ Gains and losses arising from the derecognition of financial assets
at amortized cost
○ impairment gains and losses on financial assets
○ Finance costs
○ Share of the profit or loss of associates and joint ventures (equity
method)
○ Tax expense
○ Post-tax profit/gain or loss of operations or assets in accordance
with IFRS 5 (Non-current assets Held for Sale and Discontinued
Operations)
○ Profit or loss
OTHER COMPREHENSIVE INCOME
○
○
○
○
○
○
○
changes in the revaluation surplus*
re-measurement of the net defined benefit plan*
FV changes - equity instrument*
FV changes - a debt instrument**
translation differences on foreign operations**
the effective portion of cash flow hedge**
Total Comprehensive Income
● Other comprehensive Income is further classified as:
○ Items that will not be reclassified subsequently to profit or loss*
○ items that may be reclassified subsequently to profit or loss**
● As opposed to US GAAP, PAS 1 prohibits reporting any transaction or item
as extraordinary items.
● Profit or loss for the period, as well as total comprehensive income, shall be
both presented in allocation:
○ attributable to non-controlling interests and
○ attributable to owners of the parent.
● Classification of expenses :
○ by nature of expense method (natural presentation)- classified as
depreciation, purchase of material, transport cost, employee
benefits, and advertising cost.
○ by function of expense method (functional presentation)
classified as Cost of Sales, distribution cost. administrative
expenses and other functional classification (will need additional
disclosure)
● PAS 1 prescribes the disclosure of certain items separately, either in the
statement of comprehensive income or in the notes.
These items are as follows:
○
○
○
○
○
○
○
○
write-downs of inventories and property,
plant and equipment,
their reversals,
restructuring of activities and reversals of related provisions,
disposals of property, plant, and equipment,
disposals of investments,
discontinuing operations,
litigation settlements and other reversals of provisions.
Presentation of the Statement of Profit or Loss and Other Comprehensive Income
● A single statement of Profit or Loss and Other Comprehensive Income
(Statement of Comprehensive Income)
● Two Statement
○ 1) Statement of Profit or Loss ( Income Statement)-includes only
items of profit and loss
○ 2) Statement of Other Comprehensive Income - starts with profit or
loss (as per Income Statement followed by other items comprising
other comprehensive income).
Statement of Comprehensive Income
2.4 The Statement of Changes in Equity
The Statement of Changes in Equity as a minimum must contain the following
items:
● total comprehensive income for the period, showing separately amounts
attributable to owners of the parent and to non-controlling interests
● the effect of retrospective application (change in accounting policy) or
retrospective restatement (correction of a prior period error) for each
component of equity (if applicable)
● the reconciliation between the carrying amount at the beginning and the end
of the period for each component of equity.
● The following changes shall be disclosed separately:
○ those resulting from profit or loss
○ resulting from other comprehensive income
○ resulting from transactions with owners (contributions, distributions,
and changes in ownership)
● PAS 1 prescribes to present the amount of dividends recognized as
distributions and the related amount per share on the face of the
Statement of Changes in Equity or in the notes.
Statement of Changes in Equity
2.5 The Notes to the Financial Statements
Notes to the Financial Statements
● are meant to be the document accompanying numerical financial statements.
● They should provide additional information
○ not contained in the numbers,
○ the basis of preparation of the financial statements, and
○ some additional information that might be relevant.
● an integral part of a complete set of financial statements.
● PAS 1 requires an entity to present the notes in a systematic manner.
The notes shall contain:
○ general information about the entity
○ a statement of compliance with PFRS (only if the entity complies
with all the requirements of the PFRSs.)
○ summary of significant accounting policies applied,
○ supporting information for the numbers presented in the financial
statements and
○ other disclosures required by PFRS such as:
■ contingent liabilities and unrecognized contractual
commitments
■ non-financial
disclosures (entity's financial risk
management)
■ non-adjusting events after the reporting date (if
material)
■ changes in accounting policies and estimates and
correction of a prior period error
■ related party disclosures
■ judgment and estimations
■ capital management
■ dividends declared after the reporting period but before
the issuance of the F/S
■ amount of any cumulative preference dividends not
recognized.
■ other disclosures not required by PFRS but deemed
relevant by the management for the understanding of the
FS.
● The notes shall be prepared in a very detailed manner.
Notes to the Financial Statements
Non-Adjusting Event after the Reporting Period
A non-adjusting event is an event after the reporting period that indicates conditions
arising after the end of the reporting period.
Accounting treatment: do not adjust financial statements for non-adjusting events.
The following disclosure shall be made:
● The nature of the event, and
● An estimate of its financial effect or a statement that such an estimate cannot
be made.
Accounting for dividends: If an entity declares dividends to shareholders after the end
of the reporting period, the entity shall not account for those dividends as a liability at
the reporting date.
If dividends are declared after the end of the Reporting Period, but before the financial
statements are approved for issue, the dividends are disclosed in the notes to the
financial statements.
PAS 8: Changes in Accounting Policies, Changes in Accounting
Estimates and Errors
Overview of PAS 8
● Issued: in 1978; re-issued in 1993 and 2003, followed by amendments
● Effective date: 1 January 2005
● What it does:
○ It prescribes the criteria for selecting and changing accounting
policy ;
○ It explains a change in accounting estimate, how to recognize
the effect of such a change in the financial statements and what to
disclose;
○ It provides the rules on how to correct errors made in the prior
period financial statements
○ It discusses impracticability in respect of the retrospective
application and retrospective restatement.
Difference between accounting policy and accounting estimate
● While Accounting Policy is a principle or rule, or a measurement basis,
Accounting Estimate is the amount determined or a calculation based on
the selected basis or some pattern of future consumption of the asset.
● While change accounting policy is accounted for retrospectively, you need
to account for the change in accounting estimate prospectively.
● If the change can't be distinguished between a change in accounting policy or
accounting estimate, the change is treated as a change in accounting
estimate with appropriate disclosure.
Errors
● are some omissions from or misstatements in the financial statements as
a result of ignoring or misusing the information that was available or could be
reasonably obtained when preparing these financial statements.
● Based on materiality,
prospectively.
they
can
be
corrected
retrospectively
or
Changes in Accounting Policies
Accounting Policies
● are anything from rules, guidelines, conventions, principles, and similar norms
used by entities for the preparation of the financial statements.
● PAS 8 specifically points out that the basis, especially measurement basis is
an accounting policy.
● Examples:
○ historical cost or fair value measurement
○ Fifo method to weighted average method
○ Cost model to revaluation model for PPE
○ Change to a new policy resulting from the requirement of a new
PFRS.
○ Change in Financial Reporting framework from PFRS for SMEs to
Full PFRS.
Selection of an accounting policy
●
If there is some standard or interpretation, then you simply apply it.
○ For example PAS 16 Property, plant, and equipment.
● If no specific standard or interpretation dealing with your transaction or
item, then management needs to use judgment and develop its own
policy, but the policy needs to provide as reliable and relevant information as
possible.
How to develop your accounting policy
1. Find the specific PFRS, or find other PFRS or IFRIC/SIC dealing with similar or
related issues.
● For example, if you are selecting your accounting policy for artwork, maybe
PAS 16 Property, Plant and Equipment or PAS 40 Investment Property are
standards dealing with similar issues.
2. Apply concepts from the Conceptual Framework for Financial Reporting.
3. Look to other standard-setting bodies and their own rules or standards for
guidance (pronouncements) or other accounting literature and industry practices.
Many companies do it regularly.
●
Apply every accounting policy consistently, to all transactions within the
same category or of the same type.
When to change the accounting policy
Only at two (2) circumstances:
1. When it is required by another IFRS. This will be the case when new IFRS
is issued and you have to apply it mandatorily.
2. When a new accounting policy provides better, more reliable, and relevant
information. In this case, you apply the new accounting policy voluntarily.
How to change the accounting policy
● If you apply new PFRS and this PFRS contains some transitional guidance,
then you simply follow the rules in that transitional provisions. New IFRS will
tell you exactly how.
● However, if there’s no transitional guidance, or you change your accounting
policy voluntarily, then you should apply it retrospectively (there are some
exceptions).
● “Retrospectively” means
○ going back to the previous reporting periods and restating every
single component of equity as if the new policy had always been in
place, and
○ you need to restate comparatives.
● If a retrospective application is impracticable, the entity is allowed to account
for the change prospectively.
Changes in Accounting Estimates
Accounting Estimate
● involves judgment since they can not be measured with precision.
● When you change the accounting estimate, you change either some amount
of an asset or a liability, or the pattern of its consumption in both current and
future reporting periods.
Note:
● If these changes result from some new information or a new trend, or
development, then they are changes in Accounting Estimates.
Examples of Changes in Accounting Estimates
●
●
●
●
●
change in Bad debt provisions,
change in Depreciation rates and useful lives of your assets,
change in Provisions for warranty repairs
change Net Realizable Value of Inventories
change in Fair Value of Financial Assets and Financial Instruments
How to account for the change in accounting estimate
● Unlike accounting for the change in accounting policy, we need to change our
accounting estimates prospectively, either:
○ In the current reporting period, in form of so-called „catch-up
adjustment“;
○ In both the current and future reporting periods, if the change
affects both (for example, change in useful lives affects
depreciation charges in both the current and the future reporting
periods).
● “Prospectively” means
○ do not restate comparatives and equity;
○ do not touch financial statements in the previous reporting periods,
and
○ simply adjust calculations in the current and future reporting
periods (if it affects both)
Prior period Errors
Errors
● are some omissions or misstatements in the financial statements as a
result of ignoring or misusing the information that was available or could be
reasonably obtained when preparing these financial statements.
● Correct it if it is material.
The materiality of the Error
● anything that can affect the decisions of users of financial statements is
material (anything significant) PAS 1 Presentation of Financial Statements
● something can be material not only because of its size but also due to its
nature.
○
for example, bonuses paid to the management are always
significant, whether they amounted to a few dollars or to millions.
Accounting for Errors
● If the error is NOT material, then you can correct it in the current reporting
period.
○ Remember, if the error is NOT material, then your financial
statements still might be reliable and relevant.
● If the error IS MATERIAL, then you always correct it retrospectively, by
going back and restating your figures in the previous periods.
PAS 24:Related Party Disclosures
Overview of PAS 24
● Issued: in 1984; re-issued in 2003 and 2009, followed by amendments
● Effective date: 1 January 2011
● What it does:
○ It helps identify:
■ Related party relationships and transactions;
■ Outstanding balances between the reporting entity and
its related parties,
■ When the disclosures should be made.
○ It determines what disclosures should be made.
○ An entity must present related party disclosures even though there
have been no transactions.
Definition of a Related Party
1. A person or a close member of that person’s family is related to a
reporting entity if that person:
○ Has control or joint control over the reporting entity;
○ Has significant influence
○ (Links to an external site.)
○ over the reporting entity; or
○ Is a member of the key management personnel of the
reporting entity or of a parent of the reporting entity.
2. An entity is related to a reporting entity if any of the following applies:
○ The entity and the reporting entity are members of the same
group.(parent-subsidiary)
○ One entity is an associate or joint venture of the other entity (or a
group).
○ Both entities are joint ventures of the same third party.
○ One entity is a joint venture of a third entity and the other entity is
an associate of the third entity.
○ The entity is a post-employment defined benefit plan for the benefit
or employees of either the reporting entity or an entity related to the
reporting entity. If the reporting entity is itself such a plan, the
sponsoring employers are also related to the reporting entity.
○ The entity is controlled or jointly controlled by a person identified in
(1).
○ A person identified in (1) has significant influence over the entity or
is a member of the key management personnel of the entity (or of a
parent of the entity).
○ The entity, or any member of a group of which it is a part, provides
key management personnel services to the reporting entity or to
the parent of the reporting entity.
Disclosures required by PAS 24
Relationships between parents and subsidiaries:
● Name of a parent of an entity,
● The ultimate controlling party,
● Next most senior parent that produces financial statements for public use (if
neither of 2 above do so).
● This must be disclosed even if there are no related party transactions.
Management compensation, both total and by the categories:
●
●
●
●
●
Short-term employee benefits,
Post-employment benefits,
Other long-term benefits,
Termination benefits,
Share-based payment benefits
Related party transactions
● These represent any transfer of resources, services, or obligations
between related parties regardless of whether a price is charged
● An entity should disclose:
○ Nature of the relationship and
○ Information about transactions and outstanding balances
The disclosures are presented separately for each category of related parties and
include:
● Amount of transactions;
● Amount of outstanding balances, together with their terms and conditions and
guarantees.
● Provisions for doubtful debts related to the amount of open balances; and
● The expense during the period for bad or doubtful debts due from related
parties.
Summary of Module 2
PAS 1 - Presentation of Financial Statements
● The objective of PAS 1 is to prescribe the basis for the presentation of
general purpose financial statements to ensure comparability
● General-purpose financial statements
○ are those statements that cater to the common needs of the
external users or "stakeholders"
○ the purpose is to provide information about the financial position,
financial performance, cash flow of an entity that will be useful to a
wide range of users.
● The complete set of financial statements is consists of the following:
○ Statement of Financial Position-maybe presented as
■ classified format - shows the current and non-current.
This presentation is encouraged.
■ unclassified format -based on liquidity. No current or
non-current distinction.
■ deferred tax assets/liabilities are classified as
non-current items.
○ Income and expenses may be presented in :
■ a single statement -Statement of Profit or Loss and
Other Comprehensive Income
■ two (2) statements form
● Profit or Loss Statement and the
● Statement of Comprehensive Income (all other
income not presented in the profit or loss)
■ Expenses may be presented
● by function (additional disclosure is needed)
● by nature
○ Statement of Changes in Equity - shows the owner's changes in
equity
○ Statement of Cash Flows - shows the inflows and outflows of cash
○ Notes to the Financial Statements -an integral part of the financial
statements
■ presents the basis of preparation of the financial
statements
■ information required by the PFRSs
■ other information not required by PFRSs but is relevant
to the users of the financial statements.
■ comparative information
○ Additional Statement of Financial Position when an entity makes a
retrospective application/restatement or reclassifies items - with
material effect.
● PAS 24 Related Party Disclosures
● The standard helps identify:
○ Related party relationships and
transactions;
○ Outstanding balances between the
reporting entity and its related
parties,
○ When the disclosures should be
made.
○ It determines what disclosures
should be made.
● A related party - a person or an entity that is
related to the reporting entity:
○ A person or a close member of that
person's family is related to a
reporting entity if that person has
control, joint control, or significant
influence over the entity or is a
member of its key management
personnel.
● Related party transactions - transfer of
resources, services, or obligations between
related parties regardless of whether a price is
charged.
● An entity should disclose:
○ Nature of the relationship and
○ Information about transactions and
outstanding balances
● Disclosures to be presented separately for
each category of related parties:
○ Amount of transactions;
○ Amount of outstanding balances,
together with their terms and
conditions and guarantees.
○ Provisions for doubtful debts related
to the amount of open balances;
and
○ The expense during the period for
bad or doubtful debts due from
related parties.
● An entity must present related party
disclosures even though there have been no
transactions.