Read PAS 1 Presentation of Financial Statements and answer the following guide questions:

1. Define financial statements.

FS are the means by which the information accumulate ed and processed in
financial accounting is periodically communicated to the user.
FS are structured financial representation of the financial position and financial
performance of an entity.

2. Explain general purpose financial statements.

General-purpose financial statements are issued throughout the year to aid investors
and creditors in their decision-making process. A set of general-purpose financial
statements includes a balance sheet, income statement, statement of owner's
equity/retained earnings, and statement of cash flows.

3. What are the components of financial statements?

1. Statement of financial position
2. Income statement
3. Statement of comprehensive income
4. Statement of changes in equity
5. Statement of cash flow
6. Notes, comprising a summary of significant accounting policies and other
explanatory information.

4. Explain the objective of financial statements.

The objective of financial statements is to provide information about the financial
position, performance and changes in financial position of an enterprise that is useful to
a wide range of users in making economic decisions." Financial statements should be
understandable, relevant, reliable and comparable

5. To meet the objective of financial statements, what information is necessary?

To meet the objective of financial statements, provide information about the following:
1. Assets
2. Liabilities
3. Equity
4. Income and expenses, including gains and losses
5. Contributions by and distributions to owners in their capacity as owners
6. Cash flow

Such information, along with other information in the notes, would assist users of
financial statements in predicting the entity’s cash flows and in particular their timing
and certainty.
6. Explain financial position, financial performance and cash flows of an entity.
a. Financial position comprises the assets, liabilities and equity of an entity at a particular
moment in time.
b. Financial performance comprises the revenue, expenses and net income or loss of an
entity for a period
c. Cash flows are the cash receipts and cash payments arising from the operating, investing
and financing activities of the entity

7. Explain financial reporting.

Financial reporting refers to standard practices to give stakeholders an accurate
depiction of a company's finances, including their revenues, expenses, profits, capital,
and cash flow, as formal records that provide in-depth insights into financial
information.

8. Explain the target users of financial reporting.

1. Owners and investors
Stockholders of corporations need financial information to help them make decisions on
what to do with their investments (shares of stock), i.e. hold, sell, or buy more.
Prospective investors need information to assess the company's potential for
success and profitability. In the same way, small business owners need financial
information to determine if the business is profitable and whether to continue, improve
or drop it.

2. Management
In small businesses, management may include the owners. In huge organizations,
however, management is usually made up of hired professionals who are entrusted with
the responsibility of operating the business or a part of the business. They act as agents
of the owners.
The managers, whether owners or hired, regularly face economic decisions –
How much supplies will we purchase? Do we have enough cash? How much did we
make last year? Did we meet our targets? All those, and many other questions and
business decisions, require analysis of accounting information.

3. Lenders
Lenders of funds such as banks and other financial institutions are interested in the
company’s ability to pay liabilities upon maturity (solvency).

4. Trade creditors or suppliers

Like lenders, trade creditors or suppliers are interested in the company’s ability to pay
obligations when they become due. They are nonetheless especially interested in the
company's liquidity – its ability to pay short-term obligations.
 5. Government
Governing bodies of the state, especially the tax authorities, are interested in an entity's
financial information for taxation and regulatory purposes. Taxes are computed based
on the results of operations and other tax bases. In general, the state would like to know
how much the taxpayer makes to determine the tax due thereon.

6. Employees
Employees are interested in the company’s profitability and stability. They are after the
ability of the company to pay salaries and provide employee benefits. They may also be
interested in its financial position and performance to assess company expansion
possibilities and career development opportunities.

7. Customers
When there is a long-term involvement or contract between the company and its
customers, the customers become interested in the company’s ability to continue its
existence and maintain stability of operations. This need is also heightened in cases
where the customers depend upon the entity.

For example, a distributor (reseller), the customer in this case, is dependent upon the
manufacturing company from which it purchases the items it resells.

8. General Public
Anyone outside the company such as researchers, students, analysts and others are
interested in the financial statements of a company for some valid reason.

9. What is the objective of financial reporting under the Conceptual Framework for Financial
Reporting?
As the purpose of financial reporting is to provide useful information as a basis for
economic decision making, a conceptual framework will form a theoretical basis for
determining how transactions should be measured (historical value or current value)
and reported – i.e. how they are presented or communicated to users

10. What are the specific objectives of financial reporting?

The objective of financial reporting is to track, analyses and report your business
income. The purpose of these reports is to examine resource usage, cash flow, business
performance and the financial health of the business. This helps you and your investors
make informed decisions about how to manage the business.

11. What are the limitations of financial reporting?

1. General purpose financial reports do not and cannot provide all of the information that
existing and potential investors, lenders and other creditors need.
2. General purpose financial reports are not designed to show the value of reporting entity but
these reports provide information to help the primary users estimate the value of entity.
 3. General purpose financial reports are intended to provide common information to users and
cannot accommodate every specific request for information.
4. To a large extent, financial reports are based on estimate and judgement rather than exact
depiction.

12. Explain the responsibility for the preparation and presentation of financial statements.
The preparation and presentation of a company's financial statements are the
responsibility of the management of the company. Published financial statements may
be audited by an independent certified public accountant. In the case of publicly traded
firms, an audit is required by law.

13. What are the general features of financial statements?

IAS 1 explains the general features of financial statements, such as fair presentation and
compliance with IFRS, going concern, accrual basis of accounting, materiality and
aggregation, offsetting, frequency of reporting, comparative information and
consistency of presentation.

14. Explain fair presentation of financial statements.

Fair presentation is defined as faithful representation of the effects of transactions and
other events in accordance with the definitions and recognition criteria for assets,
liabilities, income and expenses laid down in conceptual framework.

15. Specifically, what are the requirements of fair presentation?

1. To select and apply accounting policies in accordance with PFRS
2. To present information, including accounting policies, in a manner that provides
relevant and faithfully represented financial information.
3. To provide additional disclosures necessary for the users to understand the entity’s
financial statements

16. Explain the requirements when there is a departure from an accounting standard?
1. In extremely rare circumstances
2. When management concludes that compliance with the standard would be
misleading
3. When the departure from the standard is necessary to achieve fair presentation
4. When the regulatory conceptual framework requires or otherwise do not prohibit
such departure.

17. Explain going concern.

A going concern is a business that is assumed will meet its financial obligations when
they fall due. It functions without the threat of liquidation for the foreseeable future,
 which is usually regarded as at least the next 12 months or the specified accounting
period (the longer of the both).

18. Explain accrual basis of accounting.

Accrual accounting is an accounting method where revenue or expenses are recorded
when a transaction occurs rather than when payment is received or made. The method
follows the matching principle, which says that revenues and expenses should be
recognized in the same period.

19. Explain materiality and aggregation.

Materiality and aggregation To decide whether information is material the nature and
the size of the item are evaluated together and if the non-disclosure thereof could
influence the economic decisions of users taken on the basis of the financial statements
it is material.

20. When is an item material?

Information is material if omitting, misstating or obscuring it could reasonably be
expected to influence decisions that the primary users of general purpose financial
statements make on the basis of those financial statements, which provide financial
information about a specific reporting entity.

21. What are the factors in determining materiality?

The revised definition of materiality highlight three important aspects:
1. Could reasonably be expected to influence
2. Obscuring information
3. Primary users

22. Explain the rule on offsetting.

The offset rule is a method to simplify the calculation of lump sum damage awards to
compensate victims for an expected lost future flow of income.

23. Explain the frequency of reporting financial statements.

Frequency. By law, companies prepare financial statements at the end of every quarter
and fiscal year. That's the frequency that regulatory agencies, such as the U.S. Securities
and Exchange Commission and financial market watchdogs, require from publicly listed
companies.
24. What are the necessary disclosures when an entity presents financial statements for a period
longer or shorter than one year?
When the end of an entity’s reporting
period changes and the annual financial statements are presented for a period longer or
shorter than one year, the entity shall disclose the following:
(a) that fact;
(b) the reason for using a longer or shorter period; and
(c) the fact that comparative amounts presented in the financial statements (including
the related notes) are not entirely comparable.

25. Explain the requirement for comparable information.

Comparability is the level of standardization of accounting information that allows the
financial statements of multiple organizations to be compared to each other. This is a
fundamental requirement of financial reporting that is needed by the users of financial
statements.

26. What are the circumstances when three statements of financial position are required?
Under these circumstances, an entity shall present three staements of financial position
as at
1. The end of current period
2. The end of previous period
3. The beginning the earliest comparative report
27. What is consistency of presentation?

The concept of consistency means that accounting methods once adopted must be
applied consistently in future. ... If for any valid reasons the accounting policy is
changed, a business must disclose the nature of change, the reasons for the change and
its effects on the items of financial statements

28. When is a change in the presentation and classification of items in the financial statements
allowed?
When the entity changes the presentation or classification of items in its financial
statements, the entity shall reclassify comparative amounts, unless reclassification is
impracticable

29. What is identification of financial statements?

An entity shall clearly identify the financial statements and distinguish them from other
information in the same published document. An entity meets the above requirements
by presenting appropriate headings for pages, statements, notes, columns and the like

30. What information shall be prominently displayed in identifying financial statements?

1. The name of reporting entity
2. Whether the financial statements cover the individual entity orgroup of entities
 3. The end of the reporting period or the period covered by the financial statements or
notes
4. The presentation currency
5. The level of rounding used in the amounts in the financial statements
31. Explain notes to financial statements.
Notes to the financial statements disclose the detailed assumptions made by
accountants when preparing a company's: income statement, balance sheet, statement
of changes of financial position or statement of retained earnings. The notes are
essential to fully understanding these documents.
32. What is the purpose of notes to financial statements?
The main purpose of the notes to the financial statements is to further clarify
accounting procedures used by a company, as well as to divulge information that has
occurred during and immediately after the close of the accounting period.
33. What is the order of presenting the notes to financial statements?
IAS 1 suggests that the notes should normally be presented in the following order:
 a statement of compliance with IFRSs a summary of significant accounting
policies applied, including:
 the measurement basis (or bases) used in preparing the financial statements the
other accounting policies used that are relevant to an understanding of the
financial statements
 supporting information for items presented on the face of the statement of
financial position (balance sheet), statement(s) of profit or loss and other
comprehensive income, statement of changes in equity and statement of cash
flows, in the order in which each statement and each line item is presented
other disclosures, including:
 contingent liabilities (see IAS 37) and unrecognized contractual commitments
non-financial disclosures, such as the entity's financial risk management
objectives and policies (see IFRS 7 Financial Instruments: Disclosures)
34. Explain the disclosure of compliance with PFRS.
Compliance with the PFRS for SMEs 3.6 When an entity has departed from a
requirement of this standard in a prior period, and that departure affects the amounts
recognized in the financial statements for the current period, it shall make the
disclosures set out in paragraph
35. What information shall be disclosed in the summary of significant accounting policies?
Certain items are commonly required disclosures in a summary of significant accounting
policies:
(1) the basis of consolidation,
(2) depreciation methods,
(3) amortization of intangible assets (excluding goodwill),
(4) inventory pricing,
(5) recognition of profit on long-term construction-type contracts, and
(6) recognition of revenue from franchising and leasing operations. Hence, the summary
of significant accounting policies should disclose the fact that property, plant, and
equipment are depreciated principally by the straight-line method.
36. Explain the disclosure of measurement basis.
An entity should disclose its significant accounting policies comprising: [IAS 1:117]. •the
measurement basis (or bases) used in preparing the financial

37. Explain the disclosure of accounting policies.

The main principle and purpose of disclosure of accounting policies are to disclose any
affair or event that influenced any financial statements. The business incorporates a
legal system, and, for most legal systems, it is a requirement in most countries to
disclose its policies and notices.
38. Explain the disclosure of judgments.
Disclosure of the most important judgments enables users of financial statements to
better understand how significant accounting policies are applied and enables
comparisons between companies regarding the basis on which management makes
these judgments.
39. Explain the disclosure of estimation uncertainty.
Estimation uncertainty is 'The susceptibility of an accounting estimate and related
disclosures to an inherent lack of precision in its measurement'. The greater the
estimation uncertainty, the more the client will need to explore the effect of different
models and assumptions to make an appropriate estimate.
40. What are "other disclosures" required by PFRS?
The reporting entity is required to provide details of any dividends proposed or declared
before the financial statements were authorized for issue but not charged to equity. It
should also indicate the amount of any cumulative preference dividends not recognized
in the statement of changes in equity.
If not otherwise disclosed within the financial statements, the following items should
be reported in the notes:
1. The domicile and legal form of the entity, its country of incorporation, and the
address of the registered office (or principal place of business, if different);
2. A description of the nature of the reporting entity’s operations and its principal
activities;
3. The name of the parent entity and the ultimate parent of the group; and
4. If it is a limited life entity, information regarding the length of its life.