Pedrocillo, Anne Abbygail V.

BSA-3A
5. Identify and discuss briefly the qualitative characteristics of Financial
Statements.

An entity shall present information including accounting policies in a manner that meets
the following qualitative characteristics enumerated in PPSAS 1:

A. UNDERSTANDABILITY – information is understandable when users might

reasonably be expected to comprehend its meaning. For this purpose, users are
assumed to have a reasonable knowledge of the entity’s activities and the environment
in which it operates, and to be willing to study the information. Information about
complex matters should not be excluded from the financial statements merely on the
grounds that it may be too difficult for certain users to understand.
B. RELEVANCE – information is relevant to users if it can be used to assist in
evaluating past, present or future events or in confirming, or correcting, past
evaluations. In order to be relevant, information must also be timely.
C. MATERIALITY – the relevance of information is affected by its nature
and materiality.
Information is material if its omission or misstatement could influence the decisions of
users or assessments made on the basis of the financial statements. Materiality
depends on the nature or size of the item or error, judged in the particular
circumstances of its omission or misstatement.
D. TIMELINESS – the usefulness of financial statements is impaired if they are not
made available to users within a reasonable period after the reporting date. Ongoing
factors such as the complexity of an entity’s operations are not sufficient reason for
failing to report on a timely basis. More specific deadlines are dealt with
by legislation and regulations in many jurisdictions. If there is an undue
delay in the reporting of information, it may lose its relevance. To provide
information on a timely basis, it may often be necessary to report before all aspects of a
transaction are known, thus impairing reliability. Conversely, if reporting is delayed until
all aspects are known, the information
may be highly reliable but of little use to users who have had to make decisions in the
interim. In achieving a balance between relevance and reliability, the
overriding consideration is how best to satisfy the decision-making needs of users.
(PPSAS 1)
E. RELIABILITY – reliable information is free from material error and bias,
and can be
depended on by users to represent faithfully that which it purports to represent or could
reasonably be expected to represent.
F. FAITHFUL REPRESENTATION – information to represent faithfully transactions and
other events, it should be presented in accordance with the substance of the
transactions and other events, and not merely their legal form.
G. SUBSTANCE OVER FORM – if information is to represent faithfully the transactions
and other events that it purports to represent, it is necessary that they be
accounted for and presented in accordance with their substance and economic
reality, and not merely them legal form. The substance of transactions or other events is
not always consistent with their legal form.
H. NEUTRALITY – information is neutral if it is free from bias. Financial statements are
not neutral if the information they contain has been selected or presented in a manner
designed to influence the making of a decision or judgment in order to achieve a
predetermined result or outcome.
I. PRUDENCE – is the inclusion of a degree of caution in the exercise of the judgments
needed in making the estimates required under conditions of uncertainty, such that
assets or revenue are not overstated and liabilities or expenses are not understated.
However, the exercise of prudence does not allow, for example, the creation of hidden
reserves or excessive provisions, the deliberate understatement of assets or revenue,
or the deliberate overstatement of liabilities or expenses, because the financial
statements would not be neutral and, therefore, not have the quality of reliability.
J. COMPLETENESS – the information in financial statements should be complete
within thebounds of materiality and cost.
K. COMPARABILITY – information in financial statements is comparable when users
are able to identify similarities and differences between that information and information
in other
reports. Comparability applies to the comparison of financial statements of
different entities and comparison of the financial statements of the same entity over
periods of time. An important implication of the characteristic of comparability is that
users need to be informed of the policies employed in the preparation of financial
statements, changes to those policies, and the effects of those changes. Because users
wish to compare the performance of an entity over time, it is important that
financial statements show corresponding information for preceding periods.

6. What are information that needs to be disclosed in the Notes to Financial

Statements?
The Notes to Financial Statements should contain this following:
A. a statement of compliance with PPSASs;
B. summary of significant accounting policies adopted and followed by the
reporting entity shall include:
I. the measurement basis (or bases) used in preparing the financial
statements;
II. the extent to which the entity has applied any transitional
provisions in any
PPSAS; and
III. the other accounting policies used that are relevant to an
understanding of the financial statements;
C. supporting information for items presented on the face of the Statement of
Financial Position, Statement of Financial Performance, Statement of Changes in Net
Assets/Equity or Statement of Cash Flows, in the order in which each statement and
each line item is presented; and
D. additional information required by PPSAS that is not shown on the face of the
financial statements but is relevant to an understanding of any of them
which includes the following:
I. disclosure that the budgeted amounts have not been exceeded. If any
budgeted amounts or appropriations have been exceeded or expenses
incurred without appropriation/allotment, then details shall be disclosed; (Par.
24 (b) PPSAS 1)
II. nature and extent of prior period errors; (PPSAS 3)
III. events after the reporting date that have a material effect
on the financial statements; (PPSAS 14)
IV. contingent liabilities (PPSAS 19), and unrecognized contractual
commitments;
V. related party disclosure (PPSAS 20); and
VI. non-financial disclosures, e.g., the entity’s financial risk management
objectives and policies. (PPSAS 15

7. What are the Events After the Reporting Date?

Events after the reporting date are those events, both favorable and unfavorable,
that occur between the reporting date and the date when the financial statements are
authorized for issue.
Two types of events can be identified:
A. ADJUSTING EVENTS AFTER THE REPORTING DATE – those that provide
evidence of conditions that existed at the reporting date; and
B. NON-ADJUSTING EVENTS AFTER THE REPORTING DATE – those that are
indicative of conditions that arose after the reporting date. (Par. 5, PPSAS 14)
The reporting date is set every end of the calendar year while the date on which the
financial statements are authorized for issue is the date when the
Statement of Management’s Responsibility is approved by the Chief Executive or his
authorized representative and the Head of Finance Department.

8. Is change of Accounting Policy allowed for government agencies?

Change is not allowed in PPSAS unless the change is required by PPSAS or
results in the financial statements that providing reliable and more relevant information
about the effects of transactions, other events and conditions on the entity’s financial
position, financial performance, or cash flows.

9. Differentiate current period errors from prior period errors and provide the
accounting
treatment for each item.
  CURRENT PERIOD ERRORS – are errors committed and discovered within the
same period. It shall be corrected by an adjusting entry, within the
same year before the financial statements is authorized for issue.
 PRIOR PERIOD ERRORS – are omissions from, and misstatements in, the
entities’ financial statements for one or more prior periods arising from failure to
use, or misuse of reliable information that was available when financial
statements for those periods were authorized for issue and could
reasonably be expected to have been obtained and taken into account in the
preparation and presentation of those financial statements. An entity shall
correct material prior period errors retrospectively in the first set of
financial statements authorized for issue after their discovery by restating the
comparative amounts for prior period(s) presented in which the error occurred or
if the error occurred before the earliest prior period presented, restating the
opening balances of assets, liabilities and net assets/equity for the earliest prior
period presented. (Par. 47, PPSAS 3). The correction of a prior period error is
excluded from the computation of income and expense for the period in which
the error is discovered.

10. What are the limitations for the retrospective restatement of prior period
errors?
The limitations of retrospective restatement of prior period errors are as follows:
A. A prior period error shall be corrected by retrospective restatement, except to
the extent that it is impracticable to determine either the period specific effects or
the cumulative effect of the error. (Par. 48, PPSAS 3)
B. When it is impracticable to determine the period-specific effects of
an error on comparative information for one or more prior periods presented,
the entity shall restate the opening balances of assets, liabilities, and net
assets/equity for the earliest period for which retrospective restatement is
practicable (which may be the current period). (Par. 49, PPSAS 3)
C. When it is impracticable to determine the cumulative effect, at the beginning
of the current period, of an error on all prior periods, the entity shall restate the
comparative information to correct the error prospectively from the earliest date
practicable. (Par. 50, PPSAS 3)

11. What are Interim Financial Statements?

Interim Financial Statements are financial statements that are required to be
prepared at any given period or at a financial reporting period without closing the books
of accounts. The interim financial statements shall be prepared employing the same
accounting principles used for annual reports. Adjusting and closing journal entries shall
be prepared. However, only the adjusting journal entries are recognized in the books of
accounts. To facilitate the preparation of the interim financial statements, the use of the
worksheet is recommended
.
12. Differentiate Trial Balance from Pre-Closing Trial Balance and Post-Closing
Trial Balance.
Trial Balance (TB) is a list of all the GL accounts and their balances at a given
time. The Pre- Closing Trial Balance shall be prepared after posting the AJE in the GJ
and the same to the GL. It shows the adjusted balances of all accounts as at a given
period. This is also described/termed as the Adjusted Trial Balance. The Post-Closing
Trial Balance shall be prepared at the end of the year after preparing and posting the
closing journal entries in the GJ and posting to the GL. Since revenue and expense
accounts have been closed out, the only accounts with balances are balance
sheet or real accounts