Integrity is one of the most crucial traits a business may have. As such, a business may
achieve this by showing integrity in the preparation of their financial statements. Correlating with
the principles of accounting which, to name a few, are the following: 1) Full disclosure principle,
which states that financial information must be complete for the sake of the readers’
understanding, 2) Materiality principle, which states that all financial information that may
significantly affect decision making must be comprehensible, and 3) Reliability principle, which
states that all recorded data must be verifiable through the use of receipts and other similar
documents. The said principles are enforced by notable accounting boards and their respective
standards as a means to fulfill the trait of integrity in financial reporting; some of these boards
are the International Accounting Standards Board (IASB) with the International Financial
Reporting Standards (IFRS), formerly the International Accounting Standards (IAS), and the
Financial Reporting Standards Council (FRSC) with the Philippine Financial Reporting Standards
(PFRS).
Prior to furthering this critique, it is to note this paper will mostly revolve around the
presentation of Financial Statements (IAS 1) and the IASB.
As mentioned, the IASB is responsible for the development of the IFRS. It is also an
independent organization operating under the IFRS Foundation (Formerly IASC Foundation).
They developed the IFRS with the intent of regulating financial statements of companies to be
more cohesive and honorable. Another reason by which the IFRS was created is to have a
standard that alleviates the struggle of users to collate different financial statements. Thus, it is
integral for accountants, budding or veterans, to be familiarized with the IFRS because it is their
job to deliver logically organized and comprehensive financial statements that may affect the
user’s decisions. Additionally, having the ability to read financial statements is a great tool in
terms of one’s financial literacy; familiarizing oneself with the IFRS grants that ability with a
degree of financial knowledge. As such, users, accountants, and students may be able to access
the IFRS through their website. This enables almost anyone to have familiarity with the IFRS and
thus be able to read financial statements as a part of daily life.
This paper will critique the financial statements of Wilcon Depot Incorporated. The
purpose of this paper is to determine the adherence of Wilcon Depot Inc. to the IFRS and their
set guidelines by which the paper will assess.
Wilcon Depot Inc. is one of the biggest construction supplies and furniture retailers in the
Philippines; they are also the sole publicly listed company in the services-retail sector. As such,
their inventory consists of “tiles, sanitary wares, plumbing, furniture, home interior, building
materials, hardware, electrical, appliances, and other DIY items” (“About us,” 2022). They started
in 1977 along Quezon Avenue selling various amounts of building materials. It was in 2003 when
they first launched their large-scale depot-style store in Las Pinas that we all know today. And in
2009, they furthered their marketing to Do-it-yourself (DIY) customers with Wilcon Home
Essentials. Their goal is to give the Filipinos access to materials in building a sustainable and
comfortable life.
Prior to proceeding with the critique, Wilcon Depot Inc. has not posted the official
documents relating to their financial statements as of writing. However, there is a report on the
Philippine Stock Exchange regarding their finances for the fiscal year ended Dec 31, 2021.
Furthermore, Wall Street Journal (WSJ) also has data on the financial information of Wilcon
Depot Inc.
As mentioned, Wilcon Depot Inc. has various retail stores nationwide that cater to
different sub-markets from construction companies to people who do DIY projects. Being a single
corporation, it is presumed that all retail stores, regardless of Depot or Home essentials, that fall
under it are included in their financial statements. Furthermore, Wilcon Depot Inc. follows a
calendar year in their financial reports where January 1 is the start of the fiscal year and concludes
on December 31.
IAS 1 paragraph 10 states what comprises financial statements to be deemed “complete.”
As per checking on PSE’s data, only two (2) of the requirements were met: 1) Statement of
Financial Position (Balance Sheet), and 2) Statement of Profit or Loss (Income Statement).
Wilcon’s lack of an official document relating to their financial reports is further supported
by their Annual Report on March 01, 2022 where, under the “Documents Incorporated by
Reference,” there is no annual report to security holders. Nonetheless, WSJ has a Statement of
Cash flows (no. 2 above) which shall be used in this paper for academic purposes.
It is written in paragraph 15 of IAS 1 that the financial position, performance, and cash
flows of an entity must be faithfully represented; this includes the recognition and effects of
transactions as per the criteria for assets, liabilities, income and expenses set out in the
Conceptual Framework. Due to the lack of completeness of Wilcon’s financial statements, as
mentioned above, they are required to make disclosures set in paragraph 20 which relates to the
departures of items required by the IAS. In it, it is written that the entity must include the
following:
3) The title of the IFRS from which the entity has departed, the nature of the
departure, including the treatment that the IFRS would require, the reason
why that treatment would be so misleading in the circumstances that it would
conflict with the objective of financial statements set out in the Conceptual
Framework, and the treatment adopted; and
4) For each period presented, the financial effect of the departure on each item
in the financial statements that would have been reported in complying with
the requirement”.
Regarding the previously mentioned Conceptual Framework, it is generally the set of the
essential and constitutive concepts that guide the IASB in formulating the standards of financial
reporting that was initially issued in September 2010 and was duly revised in March 2018. Aside
from the IASB, the Conceptual Framework also guides various companies and stakeholders in
understanding the standards. For one, it includes the criteria in relation towards the recognition
and derecognition of assets and liabilities.
As written in Chapter 2 paragraph 23 of the Conceptual Framework, there are qualitative
characteristics that financial statements must have in order to enhance relevant information and
to be aligned with faithful representation—Comparability, verifiability, timeliness, and
understandability.
Comparability suggests that the way of organization and standardization of a company’s
financial statements should be easy to read along with the previous financial reports of a
company and the financial reports of other companies is impactful in the decision-making process
of a user. It can be said that Wilcon Depot Inc., has this quality but only with the applicable parts
of the financial statement as previously mentioned.
Verifiability, on the other hand, suggests that the financial data as reported by an entity
could be deemed to follow faithful representation through observation such as cash count or
calculations using a single method. Being in the Philippine Stock Exchange (PSE), it can be said
that Wilcon holds the quality of verifiability. Nonetheless, it would be better should they publicly
post an official document with regard to their financial report.
Timeliness refers to the availability of financial information significant to making their
decisions where much more updated and relevant information is considered useful in contrast
with older information. Wilcon Depot Inc. upholds this quality as they are able to have their
financial reports of the previous fiscal year by March of the current year as written in paragraph
36 of IAS 1.
In terms of Understandability, it suggests that information must be presented in a concise
and non-complex manner. Wilcon Depot Inc. upholds this quality in terms of conciseness.
However, due to the lack of sufficient information in the reports, it would be incomplete and
therefore may mislead or confuse some users of the financial statement.
As seen in the financial report of Wilcon Depot Inc., there is the annual of the current
(2021) and previous (2020) fiscal years, and quarterly (1st quarter of 2022) information of their
balance sheet and income statement reports. This is aligned with the IAS 1 paragraph 38,
comparative information, where a user of the financial statement shows the same amounts and
items of the current financial statement with the preceding financial statements. In paragraph
38, it is written that “Except when IFRSs permit or require otherwise, an entity shall present
comparative information in respect of the preceding period for all amounts reported in the
current period’s financial statements. An entity shall include comparative information for
narrative and descriptive information if it is relevant to understanding the current period’s
financial statements”.
Written in paragraph 54 of IAS 1 are the information needed in presenting the statement
of financial position (SFP) such as the varying assets, liabilities, and equity or investments.
As such, the statement of financial position of Wilcon Depot Inc. as presented in the
Philippine Stock Exchange is not complete with regard to the line items mentioned above. The
only items present in PSEs copy are Current Assets, Total Assets, Current Liabilities, Total
Liabilities, Retained Earnings, Stockholders Equity, Stockholders Equity – Parent, and Book Value
Per Share. Although, it is to be mentioned that the majority of Wilcon Depot Incorporated’s
financial statements line items in WSJ’s data as listed above. Nonetheless, there are discrepancies
present in the presentation of financial assets between the PSE and WSJ copies that may confuse
or count as questionable by the users. For example, the amount of total assets listed in the PSE
copy is Php 32.337B whereas in the WSJ copy it is Php 32.371B.
Furthermore, it is stated in IAS 1 paragraph 55 that “An entity shall present additional line
items (including by disaggregating the line items listed in paragraph 54), headings and subtotals in the
statement of financial position when such presentation is relevant to an understanding of the entity’s
financial position.” Wilcon Depot Inc. was not able to follow the classification and differentiation
of current and noncurrent assets and liabilities on either copies of the PSE and the WSJ. Despite
this, they were able to separate the line items for current assets. The same goes for the liabilities
where the copies do not have a dedicated line item entitled “Non-current liabilities' ' but were
able to put the line items for the sub items of non-current assets and liabilities in the WSJ copy.
This shows that Wilcon is not fully compliant with the IFRS in terms of presenting their financial
data. Furthermore, the accounting on the perspective of Wilcon Depot Inc. seems to be
inconsistent. Therefore, it contradicts the purpose of the IFRS in maintaining financial statements
with consistency, completeness, and integrity.
Even so, Wilcon Depot Inc. was able to distinguish the Assets, Liabilities, and Equity, all of
which are the three (3) fundamentals of the balance sheet. These are one of the basic items that
users look at in determining the profitability of a company and therefore guiding its users in their
decision making. It tells the management whether they are profitable or not and thus will be able
to craft new plans or execute contingencies needed in developing the business; it tells whether
where and how much of the assets should be distributed to in order to maximize profits. It also
tells the investors whether or not it would be wise to invest in the company given its financial
position.
Wilcon Depot Inc., furthermore, do not have notes with regard to their financial
statements in either the PSE or WSJ copies. This includes other disclosures that are integral in
knowing how the company recognizes and derecognizes items in their presented financial
statements.
In consideration of all that has been said above in assessing the presentation of the
financial statements of Wilcon Depot Incorporated, one could tell that they have lacking
information that may prove significant. For one, they do not have an accessible official document
of the financial statement and were only able to see it through the archives of PSE and WSJ
websites. Furthermore, there are discrepancies in which there are lacking line items and differing
amounts for the same items between the two copies used in this paper. With that said, the
financial statement of Wilcon Depot Inc. could be described as questionable due to the reasons
mentioned above. Nonetheless, they were able to comply in terms of the presentation with the
applicable items as presented in both copies.
Cash and Cash Equivalent
Cash is known to be the most liquid asset as liquidity refers to the availability and ease of
acquiring cash. Furthermore, cash is defined as a readily available and non-restricted asset that
can be used as a medium of exchange and is acceptable by the bank for deposit and immediate
credit. In contrast, most people would confuse the accounting definition of cash as the coins and
bills that are regularly used on a daily basis such as the Php 100 bill. However, as mentioned
above, Cash in accounting has its determinants that one needs to consider in classifying them as
cash or cash equivalents.
For the purpose of this paper, it will use the Wall Street Journal (WSJ) copy of Wilcon
Depot Incorporated’s financial statements.
First and foremost, it can be seen in the financial statement that Cash is listed under the
current assets portion of the balance sheet. Being a guide for investors, WSJ also included the
percentages related to the total assets of the company. Under the line “Cash & Short Term
Investments,” one could see the following: Cash Only, Cash & Short Term Investments Growth,
and Cash & ST Investments/Total Assets. As per observation, there are no cash equivalents listed
under it. Furthermore, Short term investments and cash equivalents are different where the
latter would be accessible within three (3) months whereas the former would be accessible
within a span of three (3) to twelve (12) months. It may be said that Cash should just be listed as
Cash and Cash Equivalents where its components are listed in the notes. As mentioned, however,
there are no official notes available for the statement of financial position of Wilcon Depot
Incorporated.
In comparing the cash among the different fiscal years of Wilcon Depot Inc., it can be seen
that in 2021 has Cash only of Php1.543B, in 2020 with Php1.855B, and in 2019 with Php1.462B.
It can be said that Wilcon has complied by including previous fiscal years that are aligned with
comparability. However, when compared with the PSE copy, the line items for cash and cash
equivalents are not present. Furthermore, the accountants should have put notes that state how
the short term investments are classified for the sake of the user’s clarity.
In consideration of what has been mentioned above, there is insufficient information in
determining the cash of Wilcon Depot Incorporated. This may be attributed to the lack of an
official document and disclosures related to the statement of financial position. That said, Wilcon
Depot Inc. did not present Cash and Cash Equivalents in a proper manner due to the reasons
mentioned above and thus lacked completeness.
Receivables
Receivables are defined as money that is due to the company where a customer has
consumed or availed its goods and services, but have not yet paid for it. In contrast with Cash
where it is measured at face value, receivables on the other hand have more to it than just
measuring what is owed. For one, there are interests included that will change the future value
of the payment.
In the WSJ copy of the financial statements of Wilcon Depot Inc., the receivables are also
listed under the current assets. It is also included there the receivables of the previous fiscal years
where the Total Accounts Receivable in 2021 with the amount of Php412M, 2020 with Php669M,
and 2019 with Php837M. However, the line items lack trade receivables and other receivables
that could be shown in the balance sheet. It is shown instead as “Other Receivables” which could
prove to be vague for those individuals who utilize financial statements.
In addition to the lack of specificity of the receivables, there are also no notes present
that can be associated with knowing the composition of the receivables.
Bad Debt and Doubtful Accounts can also be seen in the financial statement as a one liner.
Bad Debt is considered to be defined as receivables that are uncollectible. On the other hand,
Allowance for Doubtful accounts are considered and defined as receivables that may become
Bad Debts. Different entities may use various methods in calculating their allowance for doubtful
accounts and bad debt. For one, companies may use the aging method where the percentage of
the accounts receivable that may be considered uncollectible goes up as the age of the receivable
increases. It could be observed that the financial statement shows the Gross Accounts Receivable
(Php 142M) and Net Accounts Receivable (Php 86M); the Net Accounts Receivable can be
calculated by deducting the Bad Debt/Doubtful Accounts (-Php 56M) from the Gross Accounts
Receivable.
As such, Wilcon Depot Inc. was able to present its receivables relatively better than the
cash due to the increased amount of specificity present in the financial statement. However, it
still showed to be lacking with some of the other line items in the copy of PSE. Thus, the company
did not comply with the previously mentioned required line items as mentioned above.
Equity Investment
Equity Investment is defined as the purchase of a company’s shares using money which
is called an investment. As per the International Financial Reporting Standards 9 (IFRS 9) in terms
of recognition of financial assets, it states that “…it classifies it based on the entity’s business
model for managing the asset and the asset’s contractual cash flow characteristics…”. As such,
there are 3 main classifications:
1. Amortized cost—it is used when an entity follows a business model with the objective of
collecting contractual cash flows where the entities keep their assets. It is called hold to
collect business model.
2. Fair value through other comprehensive income—this is used with the business model in
which a business aims to generate cash flows by both collecting contractual cash flows
and selling the asset afterwards when it is near maturity.
3. Fair value through profit or loss— the use of fair value through profit or loss is used should
the business model of a company not fall under the first 2.
Despite this, entities usually use Fair value through profit or loss (FVPL) in recognizing
their financial assets with the option to use Fair value through other comprehensive income
(FVOCI) as well. In adherence to the IFRS 9, the financial assets should not be reclassified unless
the entity changes its business model in managing financial assets. In this case, however, there
was no indication or notes in the financial statements of Wilcon Depot Inc. with regard to which
method the company used in recognizing their equity investments. Wilcon Depot Inc. did poorly
in presenting the equity investments due to the lack of notes in distinguishing the equity
investments involved in the business and in determining how they are recognized.
Investment in Associates
According to IAS 28, one is considered as an associate when an investor has 20%-50%
equity of the entity and therefore considered as having significant influence. Any percentage
lower than 20% would be considered not significant and any percentage greater than 50% would
be assumed as control rather than significant influence. In the matter of investment in associates,
the Equity method is used where an equity is, according to IAS 28, “recorded at cost and
subsequently adjusted to reflect the investor’s share of the net assets of the associate
(investee).”
As such, Wilcon Depot Inc. lacks the necessary details in determining its equity
investments and therefore has a poor disclosure with regard to its investment in associates and
how they are recognized. This goes against IFRS 12 as not disclosing the investment in associates
would deprive the users of knowing the risks and interests Wilson Depot Inc. is involved with.
Fund & Other Investments
Funds & Other Investments are included in the financial statements so that the users may
have knowledge and understanding on the other investing activities of an entity. Under the Cash
Flow statement of Wilcon Depot Inc. can be seen the entity’s investing activities. As such, it can
be seen that Wilcon Depot Inc. has various investments that are not specified. There is the
“Purchase/Sale of Investments” that amounts to Php1.957B in 2021, Php111M in 2020, and
Php135M in 2019. It is broken down between purchase and sale where in 2021, the entire
Php1.957B gain is either a sale or maturity with just a blank along the lines of purchase. After
observation, the sinking fund as discussed in class is not present in the financial statement. As
such, Wilcon Depot Inc. still lacks notes with regard to the specifications of their investments and
thus, in terms of funds & other investments, does not adhere to the Conceptual Framework
Chapter 2 paragraph 12 that refers to Faithful representation.
The financial statement of Wilcon Depot Incorporated is overall poorly made. There was
a lack of an official document and its notes by the company where some line items were not
properly specified and disclosed. In relation to that, there are also no company disclosures as
required by the IAS. With this, Wilcon should make accessible their complete and comprehensive
financial reports to the public especially that they are a publicly listed company. It would let
potential investors know that the company is upholding the principles of accounting and integrity
in presenting their financial statements. Thus, doing so would be for the betterment of the
company itself and the 3rd party entities involved with it.