PAS 1 Presentation of Financial Statements Part 1 – Source: Yt

Objective of PAS 1

 Prescribes the basis for presentation of general purpose financial statements to “improve
comparability” both with the entity’s financial statements of previous periods (intra
comparability) and with the financial statements of other entities (inter-comparability)

General purpose financial statements

 intended to serve users who do not have the authority to demand financial reports tailored for
their own needs
 cater to most of the common needs of a wide range of external users
 are the subject matter of the Conceptual Framework and the PFRSs.

Complete set of financial statements

1. Statement of financial position (Balance Sheet) /

2. Statement of profit or loss / and other comprehensive income
3. Statement of changes in equity (depends on what type of business)
4. Statement of cash flows
5. Notes

5a. Comparative information in respect of the preceding period; and

6. Additional statement of financial position (required only when certain instances occur)

General Features

a. Fair Presentation and Compliance with PFRSs

- The application of PFRSs, with additional disclosure when necessary  will result to fair presentation
in financial statements

b. Going concern : at least 12 months

- An entity is not a going concern if the management:

 intends to liquidate the entity or to cease trading, or

 Has no realistic alternative but to do so
 c. Accrual Basis of Accounting : an entity shall prepare its financial statements using the accrual
basis of accounting EXCEPT for “cash flow information”

- income is recognized when earned, not when the cash is received; expense is recognized as incurred
not when it is paid

d. Materiality & Aggregation : Each material class of similar items must be presented separately in
the financial statements

e. Offsetting : assets and liabilities, and income and expenses, shall not be offset unless required or
permitted by a PFRS.

- Measuring assets net of valuation allowances, are NOT OFFSETTING. EXAMPLE: Obsolescence
allowances on inventories, allowances for doubtful accounts on receivables, and accumulated
depreciation on property, plant, and equipment are not offsetting.

f. Frequency of reporting : an entity shall present a complete set of financial statements (including
comparative information) AT LEAST ANUALLY

- 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 the following:

 The PERIOD COVERED by the financial statements

 The REASON for using a longer or shorter period, and
 The FACT that amounts presented in the financial statements are not entirely comparable.

g. Comparative information : an entity SHALL PRESENT COMPARATIVE information in respect of

the preceding period for all amounts reported in the current period’s financial statements,
unless other standards permit or require otherwise.

h. Consistency of presentation : an entity SHALL RETAIN the presentation and classification of

items in the financial statements from one period to the next UNLESS:
 it is apparent that another presentation or classification would be more appropriate following a
significant change in the nature of the entity’s operations or a review of its financial statements;
or
 a PFRS required a change in presentation

i. Additional statement of financial position

- An additional statement of financial is presented as AT THE BEGINNING OF THE PRECEDING PERIOD
when an entity:

 Applies an accounting policy retrospectively, or

 Makes a retrospective restatement of items in its financial statements, or
 Reclassifies items in its financial statements

* It must be assured that the effect of the event to the SFP as at the beginning of the preceding period is
MATERIAL.

STATEMENT OF FINANCIAL POSITION

 A statement of financial position may be presented as either:

1. Classified : showing distinctions between current and noncurrent assets and liabilities, or
2. Unclassified (based on liquidity) : showing no distinction between current and noncurrent items

CURRENT ASSETS

 An entity shall classify an asset as current when:

1. It expects to realize the asset or intends to sell or consume it, in its normal operating cycle
2. It holds the asset primarily for the purpose of trading / buy or sell;
3. It expects to realize the asset within twelve months after the reporting period; or
4. The asset is cash or a cash equivalent unless the asset is restricted from being exchanged or
used to settle a liability for at least twelve months after the reporting period

NON-CURRRENT ASSETS : residual definition of current assets

CURRENT LIABILITIES

 An entity shall classify a liability as current when:

1. It expects to settle the liability in its normal operating cycle
2. It holds the liability primarily for the purpose of trading / buy or sell;
3. The liability is due to be settled within twelve months after the reporting period; or
4. The entity have a conditional right to defer settlement of the liability for at least twelve months
after the reporting period
CURRENTLY MATURING LONG-TERM LIABILITIES : considered as “current liabilities”

Yet, here are the exceptions:

 Refinancing agreement is fully completed on or before the balance sheet date  non-current
liability
 Refinancing agreement “after the balance sheet date” but “before the financial statements are
authorized for issue” non-current liability < if the entity expects, and has the discretion, to
refinance it on a long-term bases under an existing loan facility

BREACH OF LOAN AGREEMENT : like a covenant

 General rule: A liability that is “payable on demand” is a CURRENT LIABILITY

 Exception: It is presented as NON-CURRENT LIABILITY if the lender provides the entity, on or
before the balance sheet date, a grace period ending at least 12 months after the balance sheet
date to rectify a breach of loan covenant