FINANCIAL STATEMENTS  Provision of financial information

about an entity to external users that

 Information accumulated and
is useful to them in making
processed in financial accounting is
economic decision and for assessing
periodically communicated to the
the effectiveness of the entity’s’
users.
management.
 Main product or output of financial
 Encompasses also other means of
accounting process.
communicating information that
GENERAL PURPOSE OF FINANCIAL relates directly or indirectly to
STATEMENTS Financial process.

 To meet the needs of the users who INCLUDED in Financial Reporting

are not in the position to require an
 Financial Highlights
entity to prepare reports tailored to
 Summary of Important financial
their particular information needs.
figures
 Directed to all common and not to
 Analysis of financial statements.
specific users.
 Nonfinancial Information (Description
OBJECTIVE OF FINANCIAL STATEMENTS of main products, List of corporate
directors and officer)
 Provide information about financial
position, performance and cash OBJECTIVE OF FINANCIAL REPORTING
flow of entity that is useful to wide
 Provide information that is useful to
range of users in making economic
wide range of users in making
decision.
economic decision about providing
 Show the result of management
resources to the entity.
stewardship of resources.
 Provide information to primary user
 FS do not provide all the
group because they have the most
information needed by the users,
critical and immediate need for
because it only portrays past events
information in FR.
and do not provide nonfinancial
information. SPECIFIC OBJECTIVES OF FINANCIAL
REPORTING
FREQUENCY OF REPORTING  Provide information that is useful in
making investing and credit
 Shall be presented annually.
decision.
Change of reporting from longer or shorter  Provide information that is useful in
than one year, entity shall disclose: assessing cash flow of entity.
 Provide information about entity
 Period covered by the financial resources, claims, and changes in
statements resources and claims.
 Reason for using longer and shorter
period.
 Amount are presented in the financial
statements are not entirely
comparable. LIMITATIONS OF FINANCIAL REPORTING
FINANCIAL REPORTING
  Do not provide all the information  Assets normally recorded at original
needed by the users. acquisition cost but some are
 Not designed to show the value of the recorded at FV.
entity but rather help the users to  If the entity does not use the going
estimate it. concern, disclosure is needed with a
 Intended to provide common measurement basis and the reason.
information to the common users and
ACCRUAL BASIS
cannot accommodate specific request.
 Based on estimate and judgment  The FS prepared using Accrual basis
rather than exact depiction. except for cash flow information.
 Effect of transaction and event when
RESPONSIBILITY FOR FINANCIAL
they occur. Reported to FS on which
STATEMENTS
period they relate.
 MANAGEMENT has the responsibility
MATERIALITY AND AGGREGATION
for preparation and presentation of
FS.  Present separately each material class
 BOD authorizes and reviews the FS of similar items.
before the issuance if FS to the  Present separately items of dissimilar
shareholder. nature or function unless they are
immaterial.
FAIR PRESENTATION
 Need not provide a specific disclosure
 Achieved when the FS are presented required by standard if information is
in accordance with the standards not material.
(PFRS).  An item is material if it would affect
 If the entity complies with the PFRS the decision of the user.
the entity need to provide an explicit
OBSCURRING INFORMATION
and unreserved statements of such
compliance in the notes.  If presenting or communicating have
DEPARTURE FROM STANDARDS a similar effect as omitting or
misstating the information.
 In a rare circumstance  Information are not readily
 Management concludes that understood
compliance with the standard would
PRIMARY USERS
be misleading.
 Departure is necessary to provide fair  Primarily affected by general purpose
presentation. FS.
 When Conceptual Framework
requires. MATERIALITY IS A RELATIVELY

GOING CONCERN  Depends on relative size rather than

absolute size.
 Entity is viewed as a continuing
operation.
 The very foundation of cost principle.
FACTORS OF MATERIALITY  If the change will result to the
information that is faithfully
 RELATIVE SIZE OF THE ITEM
represented and more relevant to the
Relation to the total of the group to
users of FS, change should be made.
which the item belongs.
 There must be full disclosure of the
change.
 NATURE OF THE ITEM
 Inappropriate to leave accounting
Item is material because by its very
policy unchanged when better and
nature it affects economic decision.
acceptable alternative exists.
OFFSETTING
Change is Allowed WHEN?
 Done when required or permitted by
 Required by standards
another PFRS.
 When the nature of operations will
 Only the net expenditure is presented
demonstrate a more appropriate
as expense.
revised presentation and
COMPARABLE INFORMATION classification.

 FS of the current period shall be IDENTIFICATION OF FS

presented with comparative figures of
 Identified and distinguished from
the FS of the immediately preceding
other information with the same
year.
published documents.
 Included for narrative or descriptive
information when relevant to
understand current period FS.
THIRD STATEMENT OF FINANCIAL
POSITION

 Applies an accounting policy

retrospectively
 Makes retrospective statement of
items in the FS.
 Reclassifies items in the FS.
Present 3 statements at:

 End of the current period

 End of previous period
 Beginning of the earliest comparative
period.
CONSISTENCY OF PRESENTATION

 Accounting methods and practices

shall be applied on a uniform basis
from period to period.
 Essential to achieve comparability of
FS.
STATEMENT OF FINANCIAL POSITION
 Formal statement showing the
elements of financial position (assets,
liabilities and equity).
 Use by the users to evaluate liquidity,
solvency and the need of the entity for
additional financing.
 Information about liquidity and
solvency is useful in predicting the
ability of the entity to comply with
future commitments and to pay
dividends to shareholders.
LIQUIDITY
The ability to meet currently
maturing obligation.
SOLVENCY
Availability of the cash over the Long
term to meet maturing obligations.
CURRENT AND NONCURRENT
DISTINCTION
 Current and Noncurrent assets and
liabilities shall present as separate
classifications in the financial
position.
 Highlights assets that are expected to
be realized within the operating cycle
and liabilities that are due for
settlement within the same period.
ASSETS
 Controlled by the entity
 Result from past events
 Has the potential to produce
economic benefits.
CURRENT ASSETS
 Cash and Cash Equivalents, unless
restricted to settle a liability for more
than 12 mos.
 Holds the asset for trading
 Expect to realize the asset within 12
mos.
 Expected to realize or intends to sell,
consume it within the normal
operating cycle.
CASH AND CASH EQUIVALENT
 Unrestricted in use
 Short term highly liquid investment
that are readily convertible
 Subject to insignificant risk
 Short maturity of 3 mos. Or less from
the date of acquisition
 Date of purchase is the important
HELD FOR TRADING
Debt or equity security that are
purchased with the intent of selling it.
 Acquired principally for the purpose
of selling it.
 There is evidence of recent actual
pattern of short-term profit taking.
 Derivative.
EXPECTED TO BE REALIZZED WITHIN 12
MOS.
 Short term Nontrade receivables
 NTR claims arising from sources other
than sale of merchandise.
OPERATING CYCLE
 Time between the acquisition of asset
for processing and their realization in
cash or cash equivalents.
 If not clearly stated assumed 12 mos.
OPERATING CYCLE OF TRADING ENTITY
Average period to acquire inventory,
sell to customer and collect cash from sale.
OPERATING CYCLE OF MANUFACTURING
ENTITY
 Time between acquisition of materials LONG TERM DEBT CURRENTLY MATURING
entering into process and the realization of
Current if:
cash.
 Original term is longer than 12 mos.
 Agreement to refinance is completed
PROPERTY PLANT AND EQUIPMENT after 12 mos. And before the
authorization of FS.
 Tangible asset
 Used in business WORKING CAPITAL
 Expected to use over a period of more
Current Asset- Current Liability= WC
than 1 year.
WORKING CAPITAL RATIO
LONG TERM INVESTMENT
Current assets/ Current Liabilities
 Asset held by an entity for accretion of
wealth, for capital appreciation. CONTINGENT LIABILITY
 Current Investment realizable for not
more than 1 year  Possible obligation arises from past
events and confirmed only by the
 Noncurrent asset/ Long term
occurrence of uncertain future events.
investment intended to be held for
more than 1 year.  Can either probable or measurable
but not both.
INTANGIBLE ASSET
RANGE OF OUTCOME
 Identifiable nonmonetary asset
without physical substance.  Probable More than 50%
 Possible Less than or equal
WHEN IDENTIFIABLE? 50%
 Remote Less than or equal
 Separable or capable of being sold.
10%
 Arises from contractual or other legal
 Only probable and measurable
right.
recognizes as a provision
LIABILITIES  Remote and Measurable has no
disclosure.
 Has a present obligation
 Obligation to transfer economic CONTINGENT ASSET
resources.
 Possible asset arises from past events
 Liability arises from past events
and confirmed only by the occurrence
CURRENT LIABILITIES of uncertain future events.

 Settle the liability within the normal TREATMENT OF CA

operating cycle
 Recognized when realized
 Holds the liability for the purpose of
 Only disclosed when probable
trading
 If possible no disclosure
 Due to be settled within 12 mos.
 If remote no disclosure.
 Entity does not have the right to defer
settlement of liability. EQUITY
  Asset minus liability Asset, Liability and equity reported
 Increased by profitable operations downward.
and contributions
 Account Form
Asset shown on the left side and
Liability and equity on the right side of the
statement of financial position
SHARE CAPITAL AND SHARE PREMIUM
 Standard does not prescribe format.
 SC represent the total par or stated
value
 SUBSCRIBED SC portion authorized,
subscribed but not fully paid.
 Subscription receivable deduction
from SSC
 SP excess in par or stated value.

RETAINED EARNINGS

 Cumulative balance of net income or

loss.
 Unappropriated RE portion which is
free and can be declared to
Shareholder
 Appropriated RE restricted portion
 Deficit, deduction from SHE.

REVALUATION SURPLUS

 Sound value minus Carrying

amount of revalued asset.
 Sound value = FV or depreciated
Replacement cost
 Depreciated Replacement cost =
Replacement cost minus depreciation.
 Carrying amount = Cost minus
accumulated depreciation.
RESERVES

 Distributable equity portion can be

distributed to SH
 Nondistributable equity portion
cannot be distributed.
FORMS OF STATEMENT OF FINANCIAL
POSITION

 Report Form
  Required recognition and
measurement principles.
SIGNIFICANT ACCOUNTING POLICY

 Measurement Basis used

Can be a historical and current value
NOTES TO FINANCIAL STATEMENTS
(FV, FV in use, fulfillment value and current
 Provide narrative description or cost)
disaggregation about the items
 ACCOUNTING POLICIES USED
presented and not presented in FS.
 Report information that does not fit Consider whether it would assist the
to the body of financial statements to user in understanding the information.
enhance the understandability of
the Financial Information. DISCLOSURE JUDGMENT
 Present in a systematic matter.  Disclose the judgment that
PURPOSE OF NOTES TO FS management has made in the process
of applying the accounting policies.
 To provide necessary disclosure  This is mandatory
required by the PFRS.
DISCLOSURE OF ESTIMATION
NOTES TO FS SHALL; UNCERTAINTY
 Present the basis of information and  Mandatory
specific accounting policies used.
OTHER DISCLOSURE
 Disclose information required by the
standard.  Domicile and legal form of entity
 Provide additional information needed  Nature of the entity’s operation.
for the understandability of the FS.  Name of parent and ultimate parent of
ORDER OF PRESENTING THE NOTES the group.

 Statement of compliance in PFRS Entity shall disclose;

 Summary of significant accounting a) Dividends declared and proposed
Policy used before the FS authorized for issue but
 Supporting information or not recognized as distribution for the
computation of the line items period.
 Other disclosure, such as contingent b) Cumulative preference dividends not
liability, unrecognized contractual recognized.
commitments and nonfinancial
disclosure. RELATED PARTY

ACCOUNTING POLICIES If one party has;

 Principles, methods, practices and  Ability to control other party

rules adapted by entity in preparation  Exercise significant influence over
and presentation of FS. other party
 Joint control over the entity.
CONTROL
 The power over investee and the
power to govern the financial and
operating policies on entity to
obtain benefits.
 Obtain of having more than 50% of
voting power of the entity.
SIGNIFICANT INFLUENCE
 Power to participate in the financial
and operating policy decision.
 Must have 20% or more of share
ownership.
Evidence of SIGIFICANT INFLUENCE;
a) Representation in the BOD
b) Participation in policy making
c) Material transaction between investor
and investee
d) Interchange of managerial personnel
e) Provision of essential technical
information.
JOINT CONTROL
Contractually agreed sharing
control over an economic activity.
EXAMPLES OF RELATED PARTIES
Persons with managerial position
with the responsibility of controlling the
activities of the entity.
 Close family members of Key
management personnel
*Individual spouse and children.
*Children of Individual Spouse
*Dependents
 Individual or Shareholder owning at
least 20% including their close family
members
 Postemployment benefit plan
Trust Fund holder of the Entity.
RELATED PARTY TRANSACTION
Transfer of resources and obligations
between related parties.
RELATED PARTY DISCLOSURE
 There is a disclosure irrespective of
whether there has been transaction
of between related parties.

 AFFILIATES
Parent, subsidiary and fellow
subsidiary.

 ASSOCIATES

There is a significant influence.

 VENTURERS
Have joint control of the activities of
the joint venture
OTHER RELATED PARTIES

 Key management personnel