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Topic Code

Topic

Related
PAS/PFRS

Raw
score

Raw
score

Theory of Accounts Syllabus


Course Outline
Introduction and Preface to PFRSs
Introduction and Preface to PFRSs
Conceptual Framework for Financial Reporting (Revised 2010)
Conceptual Framework for Financial Reporting
Introduction and Preface to PFRSs and Conceptual Framework
Presentation of Financial Statements

PAS 1
(Revised 2007
with
amendments)

Presentation of Financial Statements


Presentation of Financial Statements
Revenue

PAS 18

Revenue
Inventories

PAS 2 (Revised)

Inventories
Agriculture

PAS 41 and
PFRS 13

Agriculture
Revenue, Inventories and Agriculture
Property, Plant and Equipment

PAS 16

Property, Plant and Equipment


Investment Property

PAS 40 and
PFRS 13

Investment Property
Intangible Assets

PAS 38

Intangible Assets
PPE, Investment Property and Intangible Assets
Accounting for Government Grants and Disclosure of
Government Assistance
Accounting for Government Grants and Disclosure of
Government Assistance
Borrowing costs

PAS 20

PAS 23
(Revised 2007)

Borrowing costs
Government Grants and Borrowing costs
Noncurrent asset held-for-sale and Discontinued Operations

PFRS 5

Noncurrent asset held-for-sale and Discontinued Operations


Impairment of Assets

PAS 36 and
PFRS 13

Impairment of Assets
NCA held-for-sale, Discontinued operations and Impairment
Leases

PAS 17

Leases
Employee Benefits

PAS 19
(Revised 2011)

Employee Benefits
Income Taxes

PAS 12

Income Taxes
Topic

Related
PAS/PFRS

Leases, Employee Benefits and Income Taxes


FINANCIAL INSRUMENTS
Financial Assets: Cash and Cash equivalents, Trade and Other
Receivables, Investments in Debt and Equity Instruments,
Investments in Associates and Joint Ventures and Impairment

ToA.1602

PAS 28 (Revised
2011), PAS 32,
PAS 39, PFRS 7
and PFRS 9

Topic Code

Topic

Related
PAS/PFRS

Theory of Accounts Syllabus


Financial Liabilities: Trade and other payables, Provisions,
Contingent Liabilities, Bonds Payable and Other long-term
liabilities including Debt-restructuring

PAS 32, PAS 37,


PFRS 7 and
PFRS 9

Equity and Share-based payment

PAS 32, PFRS 2


and PFRS 7

Derivatives and Hedge Accounting

PAS 32, PAS 39,


PFRS 7 and
PFRS 9
PAS 7

Statement of Cash Flows


Statement of Cash Flows
Statement of Cash Flows
Accounting Policies, Changes in Accounting Estimates and Errors

PAS 8

Accounting Policies, Changes in Accounting Estimates and Errors


Accounting Policies, Changes in Accounting Estimates and Errors
Earnings per share

PAS 33

Earnings per share


Operating segments

PFRS 8

Operating segments
EPS and Operating segments
Related party disclosures

PAS 24
(Revised 2009)

Related party disclosures


Events after the Reporting Period

PAS 10

Events after the Reporting Period


Related parties and Events after the reporting period
Interim Financial Reporting

PAS 34

Interim Financial Reporting


PFRSs on SMEs
OTHER TOPICS:
Construction Contracts
The Effects of Changes in Foreign Exchange Rates
Accounting and Reporting by Retirement Benefit Plans
Business Combinations
Separate Financial Statements
Consolidated Financial Statements
Financial reporting in Hyperinflationary Economies
Joint Arrangements
Disclosure of Interests in Other Entities
Fair Value Measurement
Cost accumulation for product costing
Government Accounting
Not-for-Profit Organizations
Review of Accounting Process

PFRS for SMEs


PAS 11
PAS 21
PAS 26
PFRS 3
(Revised 2008)
PAS 27
(Revised 2011)
PFRS 10
PAS 29
PFRS 11
PFRS 12
PFRS 13
Refer to P2
handout
NGAS

Raw
score

Topic Code

Topic

Related
PAS/PFRS

Theory of Accounts Syllabus


Exploration for and Evaluation of Mineral Resources
Insurance contracts
First-time adoption of PFRSs
Development stage Enterprises
Philippine Interpretations effective as of December 31, 2011
and Built-Operate-Transfer (BOT)

PFRS 6
PFRS 4
PFRS 1
SIC/IFRIC

Raw
score

THEORY OF ACCOUNTS
LECTURE NOTES
CONCEPTUAL FRAMEWORK FOR FINANCIAL
REPORTING

The Conceptual Framework addresses:

(2010 Framework)
Purpose and Status of the Framework
The Conceptual Framework describes the basic
concepts that underlie the preparation and
presentation of financial statements for external
users. The Conceptual Framework serves as a
guide to the Board in developing future PFRSs and
as a guide to resolving accounting issues that are
not addressed directly in an International
Accounting Standard or International Financial
Reporting Standard or Interpretation.

the objective of financial reporting

the qualitative characteristics of useful


financial information

the reporting entity

the definition, recognition and


measurement of the elements from which
financial statements are constructed

concepts of capital and capital


maintenance

The purpose of the Framework is to:


(a) assist the FRSC in the development of future
Philippine
Financial
Reporting
Standards
(PFRSs) and in its review of existing PFRSs;
(b) assist the FRSC in promoting harmonization of
regulations,
accounting
standards
and
procedures relating to the presentation of
financial statements by providing a basis for
reducing the number of alternative accounting
treatments permitted by PFRSs;
(c) assist preparers of financial statements in
applying PFRSs and in dealing with topics that
have yet to form the subject of an
International Financial Reporting Standard
(IFRS);
(d) assist auditors in forming an opinion as to
whether financial statements conform with
PFRSs;
(e) assist users of financial statements in
interpreting the information contained in
financial statements prepared in conformity
with PFRSs; and
(f) provide those who are interested in the work
of FRSC with information about its approach to
the formulation of PFRSs.

The Framework is concerned with general purpose


financial statements (hereafter referred to as
financial statements) including consolidated
financial statements. Such financial statements
are prepared and presented at least annually and
are directed toward the common information
needs of a wide range of users.

This Framework is not PFRS and hence does not


define standards for any particular measurement
or disclosure issue. Nothing in this Framework
overrides any specific PFRS.

(a)

The FRSC recognizes that in a limited number of


cases there may be a conflict between the
Framework and PFRS. In those cases where there
is a conflict, the requirements of the PFRS prevail
over those of the Framework.
Scope

The Framework applies to the financial statements


of all commercial, industrial and business
reporting entities, whether in the public or the
private sectors. A reporting entity is an entity for
which there are users who rely on the financial
statements as their major source of financial
information about the entity.
USERS AND INFORMATION NEEDS
The users of financial statements include present
and potential investors, employees, lenders,
suppliers and other trade creditors, customers,
governments and their agencies and the public.
They use financial statements in order to satisfy
some of their different needs for information.
These needs include the following:
Investors. The providers of risk capital and
their advisers are concerned with the risk
inherent in, and return provided by, their
investments. They need information to help
them determine whether they should buy, hold
or sell. Shareholders are also interested in
information which enables them to assess the
ability of the entity to pay dividends.
(b) Employees.
Employees
and
their
representative groups are interested in
information about the stability and profitability

(c)

(d)

(e)

(f)

(g)

of their employers. They are also interested in


information which enables them to assess the
ability of the entity to provide remuneration,
retirement
benefits
and
employment
opportunities.
Lenders.
Lenders
are
interested
in
information that enables them to determine
whether their loans, and the interest attaching
to them, will be paid when due.
Suppliers and other trade creditors. Suppliers
and other creditors are interested in
information that enables them to determine
whether amounts owing to them will be paid
when due. Trade creditors are likely to be
interested in an entity over a shorter period
than lenders unless they are dependent upon
the continuation of the entity as a major
customer.
Customers. Customers have an interest in
information about the continuance of an
entity, especially when they have a long-term
involvement with, or are dependent on, the
entity.
Governments
and
their
agencies.
Governments
and
their
agencies
are
interested in the allocation of resources and,
therefore, the activities of entities. They also
require information in order to regulate the
activities of entities, determine taxation
policies and as the basis for national income
and similar statistics.
Public. Entities affect members of the public
in a variety of ways. For example, entities
may make a substantial contribution to the
local economy in many ways including the
number of people they employ and their
patronage of local suppliers.
Financial
statements may assist the public by providing
information about the trends and recent
developments in the prosperity of the entity
and the range of its activities.

The management of an entity has the primary


responsibility for the preparation and presentation
of the financial statements of the entity.
Management is also interested in the information
contained in the financial statements even though
it has access to additional management and
financial information that helps it carry out its
planning,
decision-making
and
control
responsibilities. Management has the ability to
determine the form and content of such additional
information in order to meet its own needs. The
reporting of such information, however, is beyond
the scope of this Framework. Nevertheless,
published financial statements are based on the
information used by management about the
financial position, performance and changes in
financial position of the entity.

THE
OBJECTIVE
OF
FINANCIAL REPORTING

GENERAL-PURPOSE

The primary users of general purpose financial


reporting are present and potential investors,
lenders and other creditors, who use that
information to make decisions about buying,
selling or holding equity or debt instruments and
providing or settling loans or other forms of credit.
The primary users need information about the
resources of the entity not only to assess an
entity's prospects for future net cash inflows but
also how effectively and efficiently management
has discharged their responsibilities to use the
entity's existing resources (i.e., stewardship).
The Conceptual Framework notes that general
purpose financial reports cannot provide all the
information that users may need to make
economic decisions. They will need to consider
pertinent information from other sources as well.
The Conceptual Framework notes that other
parties,
including
prudential
and
market
regulators, may find general purpose financial
reports useful. However, the Board considered
that the objectives of general purpose financial
reporting and the objectives of financial regulation
may not be consistent. Hence, regulators are not
considered a primary user and general purpose
financial reports are not primarily directed to
regulators or other parties.
QUALITATIVE CHARACTERISTICS OF USEFUL
INFORMATION
The qualitative characteristics of useful financial
reporting identify the types of information are
likely to be most useful to users in making
decisions about the reporting entity on the basis
of information in its financial report. The
qualitative characteristics apply equally to
financial information in general purpose financial
reports as well as to financial information provided
in other ways.
Financial information is useful when it is relevant
and represents faithfully what it purports to
represent. The usefulness of financial information
is enhanced if it is comparable, verifiable, timely
and understandable.
Fundamental qualitative characteristics
Relevance and faithful representation are the
fundamental qualitative characteristics of useful
financial information.

Relevance
Relevant financial information is capable of
making a difference in the decisions made by
users. Financial information is capable of making a
difference in decisions if it has predictive value,
confirmatory value, or both. The predictive value
and confirmatory value of financial information are
interrelated.
Faithful representation
General purpose financial reports represent
economic phenomena in words and numbers, To
be useful, financial information must not only be
relevant, it must also represent faithfully the
phenomena it purports to represent. This
fundamental characteristic seeks to maximize the
underlying
characteristics
of
completeness,
neutrality and freedom from error. Information
must be both relevant and faithfully represented if
it is to be useful.

Classifying,
characterizing
and
presenting
information clearly and concisely makes it
understandable. While some phenomena are
inherently complex and cannot be made easy to
understand, to exclude such information would
make financial reports incomplete and potentially
misleading. Financial reports are prepared for
users who have a reasonable knowledge of
business and economic activities and who review
and analyze the information with diligence.
Applying
the
characteristics

enhancing

qualitative

Enhancing qualitative characteristics should be


maximized to the extent necessary. However,
enhancing
qualitative
characteristics
(either
individually or collectively) render information
useful if that information is irrelevant or not
represented faithfully.
The cost
reporting

constraint

on

useful

financial

Enhancing qualitative characteristics


Comparability,
verifiability,
timeliness
and
understandability are qualitative characteristics
that enhance the usefulness of information that is
relevant and faithfully represented.
Comparability
Information about a reporting entity is more
useful if it can be compared with a similar
information about other entities and with similar
information about the same entity for another
period or another date. Comparability enables
users to identify and understand similarities in,
and differences among, items.
Verifiability
Verifiability helps to assure users that information
represents faithfully the economic phenomena it
purports to represent. Verifiability means that
different
knowledgeable
and
independent
observers could reach consensus, although not
necessarily complete agreement, that a particular
depiction is a faithful representation.
Timeliness
Timeliness means that information is available to
decision-makers in time to be capable of
influencing their decisions.
Understandability

Cost is a pervasive constraint on the information


that can be provided by general purpose financial
reporting. Reporting such information imposes
costs and those costs should be justified by the
benefits of reporting that information. The FRSC
assesses costs and benefits in relation to financial
reporting generally, and not solely in relation to
individual reporting entities. The FRSC will
consider whether different sizes of entities and
other
factors
justify
different
reporting
requirements in certain situations.
Underlying Assumption
The Conceptual Framework states that the going
concern assumption is an underlying assumption.
Thus, the financial statements presume that an
entity will continue in operation indefinitely or, if
that presumption is not valid, disclosure and a
different basis of reporting are required.
THE
ELEMENTS
STATEMENTS

OF

THE

FINANCIAL

Financial statements portray the financial effects


of transactions and other events by grouping
them into broad classes according to their
economic characteristics. These broad classes are
termed the elements of financial statements.
The elements directly related to financial position
(balance sheet) are:

Assets

Liabilities

Equity

The elements directly related to performance


(income statement) are:

Income

Expenses

The cash flow statement reflects both income


statement elements and some changes in balance
sheet elements.
Definitions of the elements relating to financial
position

Asset. An asset is a resource controlled


by the entity as a result of past events
and from which future economic benefits
are expected to flow to the entity.

Liability. A liability is a present obligation


of the entity arising from past events, the
settlement of which is expected to result
in an outflow from the entity of resources
embodying economic benefits.

Equity. Equity is the residual interest in


the assets of the entity after deducting all
its liabilities.

Definitions
of
performance

the

elements

relating

to

Income. Income is increases in economic


benefits during the accounting period in
the form of inflows or enhancements of
assets or decreases of liabilities that result
in increases in equity, other than those
relating to contributions from equity
participants.
Expense. Expenses are decreases in
economic benefits during the accounting
period in the form of outflows or
depletions of assets or incurrences of
liabilities that result in decreases in equity,
other than those relating to distributions
to equity participants.

The definition of income encompasses both


revenue and gains. Revenue arises in the course

of the ordinary activities of an entity and is


referred to by a variety of different names
including sales, fees, interest, dividends, royalties
and rent. Gains represent other items that meet
the definition of income and may, or may not,
arise in the course of the ordinary activities of an
entity. Gains represent increases in economic
benefits and as such are no different in nature
from revenue. Hence, they are not regarded as
constituting a separate element in the Conceptual
Framework.
The definition of expenses encompasses losses as
well as those expenses that arise in the course of
the ordinary activities of the entity. Expenses that
arise in the course of the ordinary activities of the
entity include, for example, cost of sales, wages
and depreciation. They usually take the form of an
outflow or depletion of assets such as cash and
cash equivalents, inventory, property, plant and
equipment. Losses represent other items that
meet the definition of expenses and may, or may
not, arise in the course of the ordinary activities of
the entity. Losses represent decreases in
economic benefits and as such they are no
different in nature from other expenses. Hence,
they are not regarded as a separate element in
this Framework. [F 4.33 and F 4.34]
Recognition of the Elements of Financial
Statements
Recognition is the process of incorporating in the
balance sheet or income statement an item that
meets the definition of an element and satisfies
the following criteria for recognition: [F 4.37 and F
4.38]

It is probable that any future economic


benefit associated with the item will flow
to or from the entity; and

The item's cost or value can be measured


with reliability.

Based on these general criteria:

An asset is recognized in the balance


sheet when it is probable that the future
economic benefits will flow to the entity
and the asset has a cost or value that can
be measured reliably.

A liability is recognized in the balance


sheet when it is probable that an outflow
of resources embodying economic benefits
will result from the settlement of a
present obligation and the amount at

which the settlement will take place can


be measured reliably.

Income is recognized in the income


statement when an increase in future
economic benefit related to an increase in
an asset or a decrease of a liability has
arisen that can be measured reliably.

Expenses are
recognized when
a
decrease in future economic benefit
related to a decrease in an asset or an
increase of a liability has arisen that can
be measured reliably.

Measurement of the Elements of Financial


Statements
Measurement
involves
assigning
monetary
amounts at which the elements of the financial
statements are to be recognized and reported.
The Conceptual Framework acknowledges that a
variety of measurement bases are used today to
different degrees and in varying combinations in
financial statements, including:

Historical cost

Current cost

Net realizable (settlement) value

Present value (discounted)

(a) Historical cost. Assets are recorded at the


amount of cash or cash equivalents paid or
the fair value of the consideration given to
acquire them at the time of their acquisition.
Liabilities are recorded at the amount of
proceeds received in exchange for the
obligation, or in some circumstances (for
example, income taxes), at the amounts of
cash or cash equivalents expected to be paid
to satisfy the liability in the normal course of
business.
(b) Current cost.
Assets are carried at the
amount of cash or cash equivalents that would
have to be paid if the same or an equivalent
asset was acquired currently. Liabilities are
carried at the undiscounted amount of cash or
cash equivalents that would be required to
settle the obligation currently.

(c) Realizable (settlement) value.


Assets are
carried at the amount of cash or cash
equivalents that could currently be obtained
by selling the asset in an orderly disposal.
Liabilities are carried at their settlement
values; that is, the undiscounted amounts of
cash or cash equivalents expected to be paid
to satisfy the liabilities in the normal course of
business.
(d) Present value.
Assets are carried at the
present discounted value of the future net
cash inflows that the item is expected to
generate in the normal course of business.
Liabilities are carried at the present discounted
value of the future net cash outflows that are
expected to be required to settle the liabilities
in the normal course of business.
CONCEPTS OF CAPITAL AND CAPITAL
MAINTENANCE
Concepts of Capital
A financial concept of capital is adopted by most
entities in preparing their financial statements.
Under a financial concept of capital, such as
invested money or invested purchasing power,
capital is synonymous with the net assets or
equity of the entity. Under a physical concept of
capital, such as operating capability, capital is
regarded as the productive capacity of the entity
based on, for example, units of output per day.
Concepts of Capital Maintenance and the
Determination of Profit

(a) Financial

capital maintenance.
Under this
concept a profit is earned only if the financial
(or money) amount of the net assets at the
end of the period exceeds the financial (or
money) amount of net assets at the beginning
of the period, after excluding any distributions
to, and contributions from, owners during the
period. Financial capital maintenance can be
measured in either nominal monetary units or
units of constant purchasing power.
(b) Physical capital maintenance.
Under this
concept a profit is earned only if the physical
productive capacity (or operating capability) of
the entity (or the resources or funds needed
to achieve that capacity) at the end of the
period exceeds the physical productive
capacity at the beginning of the period, after
excluding
any
distributions
to,
and
contributions from, owners during the period.

- DONE -

THEORY OF ACCOUNTS
LECTURE NOTES
PRESENTATION OF FINANCIAL STATEMENTS
(PAS 1 REVISED 2007 INCLUDING AMENDMENTS)
Scope
An entity shall apply this Standard in preparing and
presenting general purpose financial statements in
accordance with Philippine
Financial Reporting
Standards (PFRSs).
DEFINITION AND OBJECTIVE OF FINANCIAL
STATEMENTS
Financial statements are a structured representation of
the financial position and financial performance of an
entity. The objective of 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.
Financial statements also show the results of the
managements stewardship of the resources entrusted to
it.
COMPLETE SET OF FINANCIAL STATEMENTS
A complete set of financial statements comprises:
(a) a statement of financial position as at the end of the
period;
(b) a statement of comprehensive income for the
period;
(c) a statement of changes in equity for the period;
(d) a statement of cash flows for the period;
(e) notes, comprising a summary of significant
accounting
policies
and
other
explanatory
information; and
(f) 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.
An entity may use titles for the statements other than
those used in this Standard.
An entity shall present with equal prominence all of the
financial statements in a complete set of financial
statements.
GENERAL FEATURES (IMPORTANT
CONSIDERATIONS)
1. Fair presentation and compliance with PFRSs
Financial statements shall present fairly the financial
position, financial performance and cash flows of an
entity.
Fair
presentation
requires
the
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. The application of
PFRSs, with additional disclosure when necessary, is
presumed to result in financial statements that achieve a
fair presentation.

An entity whose financial statements comply with PFRSs


shall make an explicit and unreserved statement of such
compliance in the notes. An entity shall not describe
financial statements as complying with PFRSs unless
they comply with all the requirements of PFRSs.

In virtually all circumstances, an entity achieves a fair


presentation by compliance with applicable PFRSs. A fair
presentation also requires an entity:
(a) to select and apply accounting policies in accordance
with PAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors. PAS 8 sets out a
hierarchy
of
authoritative
guidance
that
management considers in the absence of anPFRS
that specifically applies to an item.
(b) to present information, including accounting policies,
in a manner that provides relevant , reliable ,
comparable and understandable information.
(c) to provide additional disclosures when compliance
with the specific requirements in PFRSs is
insufficient to enable users to understand the impact
of particular transactions, other events and
conditions on the entitys financial position and
financial performance.
An entity cannot rectify inappropriate accounting policies
either by disclosure of the accounting policies used or by
notes or explanatory material.
An entity whose financial statements comply with PFRSs
shall make an explicit and unreserved statement of such
compliance in the notes. An entity shall not describe
financial statements as complying with PFRSs unless
they comply with all the requirements of PFRSs.
In the extremely rare circumstances in which
management concludes that compliance with a
requirement in anPFRS would be so misleading that it
would conflict with the objective of financial statements
set out in the Framework
When an entity departs from a requirement ofPFRS, it
shall disclose:
(a) that management has concluded that the financial
statements present fairly the entitys financial
position, financial performance and cash flows;
(b) that it has complied with applicable PFRSs, except
that it has departed from a particular requirement to
achieve a fair presentation;
(c) the title of the PFRS from which the entity has
departed, the nature of the departure, including the
treatment that the PFRS 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
Framework, and the treatment adopted; and
(d) 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.

2. Going Concern
An entity preparing PFRS financial statements is
presumed to be a going concern. If management has
significant concerns about the entity's ability to continue
as a going concern, the uncertainties must be disclosed.
If management concludes that the entity is not a going
concern, the financial statements should not be
prepared on a going concern basis, in which case PAS 1
requires a series of disclosures.
In assessing whether the going concern assumption is
appropriate, management takes into account all
available information about the future, which is at least,
but is not limited to, twelve months from the end of the

reporting period. The degree of consideration depends


on the facts in each case.
3. Accrual Basis of Accounting
PAS 1 requires that an entity prepare its financial
statements, except for cash flow information, using the
accrual basis of accounting.
When the accrual basis of accounting is used, an entity
recognizes items as assets, liabilities, equity, income and
expenses (the elements of financial statements) when
they satisfy the definitions and recognition criteria for
those elements in the Framework.
4. Materiality and Aggregation
An entity shall present separately each material class of
similar items. An entity shall present separately items of
a dissimilar nature or function unless they are
immaterial.An entity need not provide a specific
disclosure required by PFRS if the information is not
material.
5. Offsetting
An entity shall not offset assets and liabilities or income
and expenses, unless required or permitted by anPFRS.
An entity reports separately both assets and liabilities,
and income and expenses. Offsetting in the statements
of comprehensive income or financial position or in the
separate income statement (if presented), except when
offsetting reflects the substance of the transaction or
other event, detracts from the ability of users both to
understand the transactions, other events and
conditions that have occurred and to assess the entitys
future cash flows. Measuring assets net of valuation
allowancesfor example, obsolescence allowances on
inventories and doubtful debts allowances on receivables
is not offsetting.
In addition, an entity presents on a net basis gains and
losses arising from a group of similar transactions, for
example, foreign exchange gains and losses or gains
and losses arising on financial instruments held for
trading. However, an entity presents such gains and
losses separately if they are material.
6. 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:
(a) the reason for using a longer or shorter period, and
(b) the fact that amounts presented in the financial
statements are not entirely comparable.

7. Comparative Information
Except when PFRSs permit or require otherwise, an
entity shall disclose comparative information in respect
of the previous period for all amounts reported in the
current periods financial statements. An entity shall
include comparative information for narrative and
descriptive information when it is relevant to an
understanding of the current periods financial
statements.
8. Consistency of Presentation
An entity shall retain the presentation and classification
of items in the financial statements from one period to
the next unless:
(a) it is apparent, following a significant change in the
nature of the entitys operations or a review of its

financial statements, that another presentation or


classification would be more appropriate having
regard to the criteria for the selection and
application of accounting policies in PAS 8; or
(b) aPFRS requires a change in presentation.
STRUCTURE AND CONTENTS OF FINANCIAL
STATEMENTS
The entity shall display the following information
prominently and repeat it when necessary for the
information presented to be understandable
(a) the name of the reporting entity or other means of
identification, and any change in that information
from the end of the preceding reporting period;
(b) whether the financial statements are of an individual
entity or a group of entities;
(c) the date of the end of the reporting period or the
period covered by the set of financial statements or
notes;
(d) the presentation currency, as defined in PAS 21; and
(e) the level of rounding used in presenting amounts in
the financial statements.
Statement of Financial Position
Information to be presented in the statement of financial
position
As a minimum, the statement of financial position
shall include line items that present the following
amounts:
(a) property, plant and equipment;
(b) investment property;
(c) intangible assets;
(d) financial assets (excluding amounts shown under
(e), (h) and (i));
(e) investments accounted for using the equity method;
(f) biological assets;
(g) inventories;
(h) trade and other receivables;
(i) cash and cash equivalents;
(j) the total of assets classified as held for sale and
assets included in disposal groups classified as held
for sale in accordance with PFRS 5 Non-current
Assets Held for Sale and Discontinued Operations;
(k) trade and other payables;
(l) provisions;
(m) financial liabilities (excluding amounts shown under
(k) and (l));
(n) liabilities and assets for current tax, as defined in
PAS 12 Income Taxes;
(o) deferred tax liabilities and deferred tax assets, as
defined in PAS 12;
(p) liabilities included in disposal groups classified as
held for sale in accordance with PFRS 5;
(q) non-controlling interests, presented within equity;
and
(r) issued capital and reserves attributable to owners of
the parent.
An entity shall present additional line items, headings
and subtotals in the statement of financial position when
such presentation is relevant to an understanding of the
entitys financial position.
An entity makes the judgment about whether to present
additional items separately on the basis of an
assessment of:
(a) the nature and liquidity of assets;
(b) the function of assets within the entity; and
(c) the amounts, nature and timing of liabilities.
Current/non-current distinction
An entity shall present current and non-current assets,
and current and non-current liabilities, as separate
classifications in its statement of financial position
except when a presentation based on liquidity provides

information that is reliable and more relevant. When


that exception applies, an entity shall present all assets
and liabilities in order of liquidity.
Current assets
An entity shall classify an asset as current when:
(a) it expects to realize the asset, or intends to sell or
consume it, in its normal operating cycle;
(b) it holds the asset primarily for the purpose of
trading;
(c) it expects to realize the asset within twelve months
after the reporting period; or
(d) the asset is cash or a cash equivalent (as defined in
PAS 7) unless the asset is restricted from being
exchanged or used to settle a liability for at least
twelve months after the reporting period.

(ii) the number of shares issued and fully paid, and


issued but not fully paid;
(iii) par value per share, or that the shares have no
par value;
(iv) a reconciliation of the number of shares
outstanding at the beginning and at the end of
the period;
(v) the rights, preferences and restrictions attaching
to that class including restrictions on the
distribution of dividends and the repayment of
capital;
(vi) shares in the entity held by the entity or by its
subsidiaries or associates; and
(vii) shares reserved for issue under options and
contracts for the sale of shares, including
terms and amounts; and

An entity shall classify all other assets as noncurrent.

(b) a description of the nature and purpose of each


reserve within equity.

Current liabilities
An entity shall classify a liability as current when:
(a) it expects to settle the liability in its normal
operating cycle;
(b) it holds the liability primarily for the purpose of
trading;
(c) the liability is 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.

Statement of Comprehensive Income


An entity shall present all items of income and
expense recognized in a period:
(a) in a single statement of comprehensive income, or
(b) 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).

An entity shall classify all other liabilities as noncurrent.


When an entity presents current and non-current assets,
and current and non-current liabilities, as separate
classifications in its statement of financial position, it
shall not classify deferred tax assets (liabilities) as
current assets (liabilities).
This Standard does not prescribe the order or format in
which an entity presents items.
An entity shall disclose, either in the statement of
financial
position
or
in
the
notes,
further
subclassifications of the line items presented, classified
in a manner appropriate to the entitys operations.
The detail provided in subclassifications depends on the
requirements of PFRSs and on the size, nature and
function of the amounts involved. The disclosures vary
for each item, for example:
(a) items of property, plant and equipment are
disaggregated into classes in accordance with PAS
16;
(b) receivables
are
disaggregated
into
amounts
receivable from trade customers, receivables from
related parties, prepayments and other amounts;
(c) inventories are disaggregated, in accordance with
PAS 2 Inventories, into classifications such as
merchandise, production supplies, materials, work in
progress and finished goods;
(d) provisions are disaggregated into provisions for
employee benefits and other items; and
(e) equity capital and reserves are disaggregated into
various classes, such as paid-in capital, share
premium and reserves.
An entity shall disclose the following, either in the
statement of financial position or the statement of
changes in equity, or in the notes:
(a) for each class of share capital:
(i) the number of shares authorized;

Information to be presented in the statement of


comprehensive income
As a minimum, the statement of comprehensive
income shall include line items that present the
following amounts for the period:
(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 recognized 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;
(f) profit or loss;
(g) each component of other comprehensive income
classified by nature (excluding amounts in (h));
(h) share of the other comprehensive income of
associates and joint ventures accounted for using
the equity method; and
(i) total comprehensive income.
An entity shall disclose the following items in the
statement of comprehensive income as allocations
of profit or loss for the period:
(j) profit or loss for the period attributable to:
(i) non-controlling interests, and
(ii) owners of the parent.
(k) total comprehensive income for the period
attributable to:
(i) non-controlling interests, and
(ii) owners of the parent.
Other comprehensive income comprises items of
incomeand expense (including reclassification
adjustments) that are not recognized in profit or
loss as required or permitted by other PFRSs.
Components of the Other Comprehensive Income (OCI)

revaluation surplus (PAS 16 and PAS 38).

actuarial gains and losses on defined benefit plans


recognized in accordance with of PAS 19 revised.
gains and losses arising from translating the
financial statements of a foreign operation (PAS 21).
gains and losses on remeasuring available-for-sale
financial assets (PAS 39).
the effective portion of gains and losses on hedging
instruments in a cash flow hedge (PAS 39).

NOTE:Amendment to PAS 1 Presentation of Items


of Other Comprehensive Income
(Effective on or after July 1, 2012)

Preserve the amendments made to PAS 1 in


2007 to require profit or loss and OCI to be
presented together, i.e. either as a single
statement of comprehensive income or a
separate income statement and a
statement of comprehensive income

Require entities to group items presented


in OCI based on whether they are
potentially reclassifiable to profit or loss
subsequently .
Example:
1. Items that might be
reclassified to profit or loss
in subsequent periods
2. Items that will not be
reclassified to profit or loss
in subsequent periods

Require tax associated with items


presented before tax to be shown
separately for each of the two groups of
OCI items (without changing the option to
present items of OCI either before tax or
net of tax).

An entity shall present additional line items, headings


and subtotals in the statement of comprehensive income
and the separate income statement (if presented), when
such presentation is relevant to an understanding of the
entitys financial performance.
Certain items must be disclosed either on the face of the
statement of comprehensive income or in the notes, if
material, including:

write-downs of inventories to net realizable value or


of property, plant and equipment to recoverable
amount, as well as reversals of such write-downs

restructurings of the activities of an entity and


reversals of any provisions for the costs of
restructuring

disposals of items of property, plant and equipment

disposals of investments

discontinuing operations

litigation settlements

other reversals of provisions


An entity shall present an analysis of expenses
recognized in profit or loss using a classification
based on either their nature or their function
within the entity, whichever provides information
that is reliable and more relevant .
The first form of analysis is the nature of expense
method. An entity aggregates expenses within profit or
loss
according to
their
nature
(for example,
depreciation, purchases of materials, transport costs,
employee benefits and advertising costs).

The second form of analysis is the function of expense


or cost of sales method and classifies expenses
according to their function as part of cost of sales or, for
example, the costs of distribution or administrative
activities. At a minimum, an entity discloses its cost of
sales under this method separately from other expenses.
If the entity used the function of expense method,
additional disclosure is required about the nature
of expenses, including depreciation, amortization
and employee benefits expenses.
An entity shall not present any items of income or
expenses as extraordinary items, in the statement
of comprehensive income, or the separate income
statement (if presented), or in the notes.
Statement of Changes in Equity
An entity shall present a statement of changes in equity
showing in the statement:
(a) total comprehensive income for the period, showing
separately the total amounts attributable to owners
of the parent and to non-controlling interests;
(b) for each component of equity, the effects of
retrospective
application
or
retrospective
restatement recognized in accordance with PAS 8;
and
(c) for each component of equity, a reconciliation
between the carrying amount at the beginning and
the end of the period, separately disclosing changes
resulting from:
(i) profit or loss;
(ii) each item of other comprehensive income: and
(iii) transactions with owners in their capacity as
owners, showing separately contributions by and
distributions to owners and changes in
ownership interests in subsidiaries that do not
result in a loss of control.
The following must be disclosed either on the face of 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.

Notes to the Financialstatements/ Notes


Structure
The notes shall:
(a) present information about the basis of preparation of
the financial statements and the specific accounting
policies used;
(b) disclose the information required by PFRSs that is
not presented elsewhere in the financial statements;
and
(c) provide information that is not presented elsewhere
in the financial statements, but is relevant to an
understanding of any of them.
An entity shall, as far as practicable, present notes in a
systematic manner. An entity shall cross-reference each
item in the statements of financial position and of
comprehensive income, in the separate income
statement (if presented), and in the statements of
changes in equity and of cash flows to any related
information in the notes.
An entity normally presents notes in the following order,
to assist users to understand the financial statements
and to compare them with financial statements of other
entities:
(a) statement of compliance with PFRSs

(b) summary of significant accounting policies applied ;


(c) supporting information for items presented in the
statements
of
financial
position
and
of
comprehensive income, in the separate income
statement (if presented), and in the statements of
changes in equity and of cash flows, in the order in
which each statement and each line item is
presented; and
(d) other disclosures, including:
(i) contingent liabilities (see
PAS 37) and
unrecognized contractual commitments, and
(ii) non-financial disclosures, eg the entitys financial
risk management objectives and policies (see
PFRS 7).

liabilities within the next financial year. These disclosures


do not involve disclosing budgets or forecasts.

Financial statements and specific accounting policies as


a separate section of the financial statements.

Other Disclosures
Disclosures about Dividends
The following must be disclosed either on the face of 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.


The following must be disclosed in the notes:

the amount of dividends proposed or declared before


the financial statements were authorized for issue
but not recognized as a distribution to equity holders
during the period, and the related amount per
share; and the amount of any cumulative preference
dividends not recognized.

Disclosure of accounting policies


An entity shall disclose in the summary of
significant accounting policies:
(a) the measurement basis (or bases) used in preparing
the financial statements, and
(b) the other accounting policies used that are relevant
to an understanding of the financial statements.
Disclosure of judgments. New in the 2003 revision to
PAS 1, an entity must disclose, in the summary of
significant accounting policies or other notes, the
judgments, apart from those involving estimations, that
management has made in the process of applying the
entity's accounting policies that have the most
significant effect on the amounts recognized in the
financial statements.
Examples
include
management's
judgments
in
determining:

whether financial assets are held-to-maturity


investments

when substantially all the significant risks and


rewards of ownership of financial assets and lease
assets are transferred to other entities

whether, in substance, particular sales of goods are


financing arrangements and therefore do not give
rise to revenue; and

whether the substance of the relationship between


the entity and a special purpose entity indicates that
the special purpose entity is controlled by the entity
Disclosure of key sources of estimation uncertainty. Also
new in the 2003 revision to PAS 1, an entity must
disclose, in the notes, information about the key
assumptions concerning the future, and other key
sources of estimation uncertainty at the balance sheet
date, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and

The following other note disclosures are required if not


disclosed elsewhere in information published with the
financial statements:

domicile of the enterprise

country of incorporation

address of registered office or principal place of


business

description of the enterprise's operations and


principal activities

name of its parent and the ultimate parent if it is


part of a group

Capital Disclosures
In August 2005, as part of its project to develop PFRS
7Financial Instruments: Disclosures, the IASB also
amended PAS 1 to add requirements for disclosures of:

the entity's objectives, policies and processes for


managing capital;

quantitative data about what the entity regards


as capital;

whether the entity has complied with any capital


requirements; and

if it has not complied, the consequences of such


non-compliance.
Disclosures about Puttable Shares and Obligations
Arising Only on Liquidation

summary quantitative data about the amount


classified as equity;

the entity's objectives, policies and processes for


managing its obligation to repurchase or redeem the
instruments;

the expected cash outflow on redemption or


repurchase of that class of financial instruments;
and

information about how the expected cash outflow on


redemption or repurchase was determined.

- DONE-

THEORY OF ACCOUNTS

Intro and Preface to PFRS

LECTURE NOTES
INTRODUCTION AND PREFACE TO PFRSs
Introduction
The Financial Reporting Standards Council (FRSC) was
established by the Board of Accountancy (BOA or the
Board) in 2006 under the Implementing Rules and
Regulations of the Philippine Accountancy of Act of 2004
to assist the Board in carrying out its power and function
to promulgate accounting standards in the Philippines.
The FRSC's main function is to establish generally
accepted accounting principles in the Philippines.
The FRSC is the successor of the Accounting Standards
Council (ASC). The ASC was created in November 1981
by the Philippine Institute of Certified Public Accountants
(PICPA) to establish generally accepted accounting
principles in the Philippines. The FRSC carries on the
decision made by the ASC to converge Philippine
accounting standards with international accounting
standards issued by the International Accounting
Standards Board (IASB).
The FRSC
The FRSC consists of a Chairman and members who are
appointed by the BOA and include representatives from
the Board of Accountancy (BOA), Securities and
Exchange Commission (SEC), Bangko Sentral ng
Pilipinas (BSP), Financial Executives Institute of the
Philippines (FINEX) and Philippine Institute of Certified
Public Accountants (PICPA). The FRSC has full discretion
in developing and pursuing the technical agenda for
setting accounting standards in the Philippines. Financial
support is received principally from the PICPA
Foundation.
The FRSC monitors the technical activities of the IASB
and issues Invitations to Comment on exposure drafts of
proposed IFRSs as these are issued by the IASB. When
finalized, these are issued as Philippine Financial
Reporting Standards (PFRSs). The FRSC similarly
monitors issuances of the international Financial
Reporting Interpretations Committee (IFRIC) of the
IASB, which it adopts as Philippine Interpretations.
The FRSC issues news releases to announce the
issuance of final Standards and Interpretations,
exposure drafts and other matters which are posted in
the Philippine Accounting Standards section of the PICPA
website (www.picpa.com.ph).
Philippine Interpretations Committee
The FRSC formed the Philippine Interpretations
Committee (PIC) in August 2006 to assist the FRSC in
establishing and improving financial reporting standards
in the Philippines. The role of the PIC is principally to
issue implementation guidance on PFRSs. The PIC
members were appointed by the FRSC and include
accountants in public practice, the academe and
regulatory bodies and users of financial statements. The
PIC replaced the Interpretations Committee created by
the ASC in 2000.
Preface
to
Philippine
Financial
Reporting
Standards
The Preface to Philippine Financial Reporting Standards
sets out the objectives and due process of the FRSC and
explains the scope, authority and timing of application of
Philippine FRSs.
This Preface is issued to set out the objectives and due
process of the Financial Reporting Standards Council and

to explain the scope, authority and timing of application


of Philippine Financial Reporting Standards.
1. The Financial Reporting Standards Council (FRSC)
was established by the Board of Accountancy (BOA
or the Board) in 2006 under the Implementing Rules
and Regulations of the Philippine Accountancy of Act
of 2004, to assist the Board in carrying out its power
and function to promulgate accounting standards in
the Philippines. BOA appointed the Chairman and
members of the FRSC which include representatives
from the Securities and Exchange Commission
(SEC), the Bangko Sentral ng Piiipinas (BSP), the
Board of Accountancy (BOA), the Financial
Executives Institute of the Philippines (FINEX) and
the
Philippine
Institute
of
Certified
Public
Accountants (PICPA). The approval of Philippine
Financial Reporting Standards (PFRSs), Philippine
Interpretations, and related documents, such as the
Framework for the Preparation and Presentation of
Financial Statements, exposure drafts and other
discussion documents is the responsibility of the
FRSC.
2.

The FRSC is the successor of the Accounting


Standards Council (ASC). The ASC was created in
November 1981 by the Philippine Institute of
Certified Public Accountants (PICPA) to establish
generally accepted accounting principles in the
Philippines. The creation of the ASC was endorsed
by the SEC BSP, the Professional Regulation
Commission through the Board of Accountancy, and
the FINEX. The ASC made a decision in 1997 to
converge Philippine accounting standards with
International Accounting Standards issued by the
International Accounting Standards Committee
(IASC), which was later succeeded by the
International Accounting Standards Board (IASB).

3.

Once it was established, the FRSC resolved that all


Standards and Interpretations issued by the ASC
continue to be applicable unless and until they are
amended or withdrawn by the FRSC.

Objectives of the FRSC


5. The main function of the FRSC is to establish
generally accepted accounting principles in the
Philippines. In achieving this objective, the FRSC
considers Standards issued by the IASB.
6.

The FRSC carries on the decision of the ASC to


converge Philippine accounting standards with
international accounting standards issued by the
IASB. The objectives of the FRSC in this respect are:
(a) to develop, in the public interest, a single set of
high quality, understandable and enforceable
accounting standards that require high quality,
transparent and comparable information in
financial
statements
and
other
financial
reporting to help participants in the various
capital markets and other users of the
information to make economic decisions;
(b) to promote the use and rigorous application of
those standards; and
(c) to work for the convergence of Philippine
accounting standards with International Financial
Reporting Standards (IFRSs) issued by the IASB.

Scope and Authority of PFRSs


7. The FRSC issues its Standards in a series of
pronouncements called Philippine Financial Reporting
Standards (PFRSs). These consist of

(a) Philippine Financial Reporting Standards (PFRSs)


[these correspond to International Financial
Reporting Standards (IFRSs)];
(b) Philippine Accounting Standards (PASs) [these
correspond
to
International
Accounting
Standards (lASs)]; and
(c) Philippine Interpretations [these correspond to
Interpretations of the International Financial
Reporting Interpretations Committee (IFRIC) of
the IASB and the Standing Interpretations
Committee (SIC) of the IASC; these also include
Interpretations developed by the PIC.
8.

9.

The FRSC achieves its objectives primarily by


developing and issuing Philippine Financial Reporting
Standards (PFRSs) and promoting the use of these
standards in general purpose financial statements
and other financial reporting. Other financial
reporting comprises information provided outside
financial statements that assists in the interpretation
of a complete set of financial statements or
improves users' ability to make efficient economic
decisions. In developing PFRSs, the FRSC considers
its objective of convergence with IFRSs issued by
the IASB.
PFRSs
set
out
recognition,
measurement,
presentation and disclosure requirements dealing
with transactions and events that are important in
general purpose financial statements. They may also
set out such requirements for transactions and
events that arise mainly in specific industries. PFRSs
are based on the Framework, which addresses the
concepts underlying the information presented in
general purpose financial statements. The objective
of the Framework is to facilitate the consistent and
logical formulation of PFRSs. The Framework also
provides a basis for the use of judgment in resolving
accounting issues.

10. PFRSs are designed to apply to the general purpose


financial statements and other financial reporting of
all profit-oriented entities. Profit-oriented entities
include those engaged in commercial, industrial,
financial and similar activities, whether organized in
corporate or in other forms. They include
organizations such as mutual insurance companies
and other mutual cooperative entities that provide
dividends or other economic benefits directly and
proportionately to their owners, members or
participants. Although PFRSs are not designed to
apply to not-for-profit activities in the private sector,
public sector or government, entities with such
activities may find them appropriate.
11. PFRSs apply to all general purpose financial
statements. Such financial statements are directed
towards the common information needs of a wide
range of users, for example, shareholders, creditors,
employees and the public, at large. The objective of
financial statements is to provide information about
the financial position, performance and cash flows of
an entity that is useful to those users in making
economic decisions.
12. A complete set of financial statements includes a
balance sheet, an income statement a statement
showing either all changes in equity or changes in
equity other than those arising from capital
transactions with owners and distributions to
owners, a cash flow statement, and accounting
policies and explanatory notes. In the interest of
timeliness and cost considerations and to avoid
repeating information previously reported, an entity
may provide less information in its interim financial

statements than in its annual financial statements.


PFRS 34, Interim Financial Reporting, prescribes the
minimum content of complete or condensed financial
statements for an interim period. The term financial
statements' includes a complete set of financial
statements prepared for an interim or annual period,
and condensed financial statements for an interim
period.
13. In some cases, PFRSs permit different treatments
for given transactions and events. Usually, one
treatment is identified as the 'benchmark treatment'
and the other as the 'allowed alternative treatment 1.
The financial statements of an entity may
appropriately be described as being prepared in
accordance with PFRSs whether they use the
benchmark treatment or the allowed alternative
treatment.
14. The FRSC's objective is to require tike transactions
and events to be accounted for and reported in a
like way and unlike transactions and events to be
accounted for and reported differently, both within
an entity over time and among entities.
Consequently, the FRSC intends not to permit
choices in accounting treatment. Also, the FRSC has
reconsidered, and will continue to reconsider, those
transactions and events for which PFRSs permit a
choice of accounting treatment with the objective of
reducing the number of those choices.
15. Standards approved by the FRSC include paragraphs
in bold type and plain type, which have equal
authority. Paragraphs in bold type indicate the main
principles. An individual standard should be read in
the context of the objective stated in that standard
and this Preface.
16. Interpretations of PFRSs are intended to give
authoritative guidanfce on issues that are likely to
receive divergent or unacceptable treatment, in the
absence of such guidance.
17. PAS 1, Presentation of Financial Statements,
includes the following requirement:
"An entity whose financial statements comply with
PFRSs shall make an explicit and unreserved
statement of such compliance in the notes. Financial
statements shall not be described as complying with
PFRSs unless they comply with all the requirements
of PFRSs."
18. Any limitation of the scope of a PFRSs is made dear
in the standard.

Due Process
19. PFRSs are developed through a due process that
involves members of PICPA, financial
executives,
regulatory
authorities,
academics
and
other
interested individuals and organizations. Due
process for projects normally, but not necessarily
involves the following steps:
(a) consideration of pronouncements of the IASB;
(b) formation of a task force, when deemed
necessary, to give advice to the FRSC;
(c) issuing for comment an exposure draft approved
by a majority of the FRSC members; comment
period will be at least 60 days, unless a shorter
period (not less than 30 days) is considered
appropriate by the FRSC;

(d) consideration of all comments received within


the comment period and, when appropriate,
preparing a comment letter to the IASB; and
(e) approval of a standard or an interpretation by a
majority of the FRSC members.

agreements may impose limits on measures shown


in a borrower's financial statements. The FRSC
believes
the
fact
that
financial
reporting
requirements evolve and change over time is well
understood and would be known to the parties when
they entered into the agreement. It is up to the
parties to determine whether the agreement should
be insulated from the effects of a future PFRS, or, if
not, the manner in which it might be renegotiated to
reflect changes in reporting rather than changes in
the underlying financial condition.

Timing of Application of PFRS


20. PFRSs apply from a date specified in the document.
New or revised PFRSs set out transitional provisions
to be applied on their initial application.
21. The FRSC has no general policy of exempting
transactions occurring before a specific date from
the requirements of new PFRSs. When financial
statements are used to monitor compliance with
contracts and agreements, a new PFRSs may have
consequences that were not foreseen when the
contract or agreement was finalized. For example,
covenants
contained
in
banking
and
loan

22. Exposure drafts are issued for comment and the


proposals are subject to revision. Until the effective
date of a PFRS, the requirements of any PFRS that
would be affected by proposals in an exposure draft
remain in force.

- DONE -