ACCTG 033
Updates in Financial Reporting
(1st Sem 2023-2024)
COURSE CODE: ACCTG 033
COURSE NAME: UPDATES IN FINANCIAL REPORTING STANDARDS
Course Description:
The course is a detailed discussion of the updates in Philippine Financial
Reporting Standards (PFRS) such as new or revised standards, new or revised
interpretations and amendments on financial reporting standards, as well as, current
issues affecting the world of accounting. The course covers current issues affecting
accounting, PFRS 16 – Leases, PFRS 17 – Insurance contracts, IFRIC 23 – Uncertainty 1.2 PAS 10 - Events after the Reporting Period
over income tax treatments, and amendments to PFRS 14 and PAS 19. This course is
delivered to the students through interactive discussions and real-life problem-solving As future accountants, you know that most businesses end their calendar year on
cases.
MODULE 1: Current issues affecting accounting
1.1 COVID-19 pandemic
The image above depicts a frontliner amidst the COVID-19 pandemic.
Frontliners are affected, you are affected, the TIP community is affected and yes, even
the world of accounting is affected. How will this impact accounting and financial
reporting will be discussed in this module.
According to P&A Grant Thornton, one of the leading accounting and assurance firm
in the Philippines and the world:
The spread of the coronavirus (COVID-19) has caused economic shock on a global
scale resulting in many countries that have drastically acted to mitigate or suppress the
rapid contagion by implementing international travel restrictions (including the closing
of borders), community or national quarantine measures, and suspending business
operations.
Accordingly, we trace the series of events in our country:
• March 8, 2020 – The government announced a state of a public health
emergency.
• March 15, 2020 – The government implemented community quarantine in
NCR.
• March 17, 2020 – The government imposed enhanced community quarantine
(ECQ) in NCR, the rest of Luzon, and other provinces outside Luzon.
• May 1, 2020 – Lifted ECQ and placed the Philippines under general
community quarantine (GCQ) except for NCR, Cebu City, and Laguna.
• May 16, 2020 - NCR and Laguna are placed in modified enhanced community
quarantine (MECQ).
• June 1, 2020 – NCR and other areas in Luzon will be placed in GCQ.
Hence, as COVID-19 becomes more prevalent and with the risks, it brings as to the
extent of its impact on the business sector, it is paramount that management considers
the accounting and financial reporting implications of the outbreak.
The image above depicts a December calendar.
December 31, which signals that CPAs need to prepare the annual financial reports.
However, before the April 15 deadline set by BIR, a critical pandemic occur. How this
pandemic affect the reliability and relevance of the annual financial reports? It is a factor
of consideration.
The first implication of COVID-19 in financial reporting is about PAS 10.
International Accounting Standards (IAS) 10 - Events after the Reporting
Period, locally adopted as PAS 10, contains requirements for when events after the
end of the reporting period should be adjusted in the financial statements.
Adjusting events are those providing evidence of conditions existing at the end of the
reporting period, whereas non-adjusting events are indicative of conditions arising after
the reporting period (the latter being disclosed where material).
Important terms under PAS 10:
Event after the reporting period: An event, which could be favorable or unfavorable,
that occurs between the end of the reporting period and the date that the financial
statements are authorized for issue. [PAS 10.3]
Adjusting event: An event after the reporting period that provides further evidence of
conditions that existed at the end of the reporting period, including an event that
indicates that the going concern assumption in relation to the whole or part of the
enterprise is not appropriate. [PAS 10.3]
Non-adjusting event: An event after the reporting period that is indicative of a condition
that arose after the end of the reporting period. [PAS 10.3]
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Updates in Financial Reporting
(1st Sem 2023-2024)
1.2.1 PAS 10 Accounting implication If it is decided to either liquidate or to cease trading, or the company has no realistic
In an article by Christopher Arnold Stathis Gould last April 2020: alternative but to do so it is no longer a going concern and the financial statements may
For reporting periods ending on or before 31 December 2019, there is a consensus that have to be prepared on another basis, such as a liquidation basis.
the effects of the COVID-19 outbreak are the result of events that arose after the
reporting date 1.4 PFRS 13 Fair Value Measurement (FVM)
In the UK, the Financial Reporting Council has stated that COVID-19 in 2020 was a The next accounting implication of the COVID-19 pandemic is the fair value
non-adjusting event for the vast majority of UK companies preparing financial measurement of certain accounts.
statements for periods ended 31 December 2019. Accordingly, PFRS 13 defines fair value sets out in a single IFRS a framework for
With this regard, in my opinion, the management must assess the material impact of measuring fair value requires disclosures about fair value measurements.
the COVID-19 pandemic in the financial statements and IAS 10 recommends PFRS 13 Fair Value Measurement applies to PFRSs that require or permit fair value
disclosure. measurements or disclosures and provides a single PFRS framework for measuring fair
PAS 10 Disclosure: value and requires disclosures about fair value measurement.
Non-adjusting events should be disclosed if they are of such importance that non- Key terms of PFRS 13:
disclosure would affect the ability of users to make proper evaluations and decisions. Fair value - The price that would be received to sell an asset or paid to transfer a liability
The required disclosure is: in an orderly transaction between market participants at the measurement date.
1. the nature of the event and Active market - A market in which transactions for the asset or liability take place with
2. an estimate of its financial affect or a statement that a reasonable estimate of sufficient frequency and volume to provide pricing information on an ongoing basis
the effect cannot be made. [PAS 10.21]
Disclosures are needed to enable users to understand whether COVID-19 has been
1.3 Going concern considered for FVM.
The image above shows that a business establishment in the USA is temporarily closed. The volatility of stock markets in the Philippine Stocks Exchange (PSE) on the other
COVID-19 pandemic effect is not just in our country or in the US but globally. How the hand affects the fair value measurement of investment in equity securities.
accounting profession will treat this situation is discussed on this page. We revisit it on the next page.

Conceptual Framework paragraph 4.1 notes that financial statements are normally 1.4.1 Measurement of Investment in equity securities
prepared assuming the entity is a going concern and will continue in operation for the The image above depicts the stock market.
foreseeable future. With the volatility of market prices in the Philippine Stocks Exchange (PSE) right now,
PAS 1 requires management to assess an entity's ability to continue as a going the entity with Investment in an equity securities account is affected.
concern. Class, let us revisit the measurement of Investment in equity securities account :
If management has significant concerns about the entity's ability to continue as a going Initial recognition - At fair value, plus, in the case of a financial asset not at fair value
concern, the uncertainties must be disclosed. through profit or loss, transaction costs.
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. [PAS 1.25]
Management should assess the existing and anticipated effects of COVID-19 on the
company’s activities and the appropriateness of the use of the going concern basis.
Just recently in GMA-7's 24 Oras, certain private schools are on the verge of closing.
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Updates in Financial Reporting
(1st Sem 2023-2024)
Subsequent recognition - According to Philippine Financial Reporting Standard 4. and again from a change in fair value is recognized at Statement of Profit or
(PFRS) 9, all equity investments are to be measured at: loss every year-end, provided it is due to market risks and not credit risks.
1. Fair value in the Statement of financial position, with value changes
recognized in profit or loss. Market risks are due to interest rates.
Credit risks are risk from non-payment of bonds and are presented as a component
2. Except, for which the entity has elected the present value changes in Other of Other Comprehensive Income (OCI).
Comprehensive Income.
1.5.1 Bonds payable
We apply the concept by solving the illustrative problem.
We apply the concept by answering the illustrative problem.
On January 1, 2020, Maroon Company issued bonds payable with a face amount of
P8,000,000 and a stated rate of 10% at 95. The entity paid bond issue cost of
P150,000
The bonds have a 5-year term and interest is payable annually every December 31.
The entity elected the fair value option. On December 31, 2020, the fair value of the
bonds is P105
It is reliably determined that the fair value increase comprised P150,000 attributable to
credit risk and the remainder attributable to change in the market interest
In the above illustrative problem, the fair value or the market price of the investment in
rate.
equity securities dropped to P5.3 million fair value at year-end from the initial purchase
How much is the gain or loss on change in fair value of
price of P7M. In effect, the entity recorded an Unrealized loss of P1.7M.
bonds?
1.5 PFRS 9 Financial instruments
Another implication of the COVID-19 in financial reporting is the measurement of
expected credit loss assessment on financial instruments.
The IASB has published a document responding to questions regarding the application
of IFRS 9, locally adopted as PFRS 9, which requires companies to incorporate
reasonable and supportable information about past events, current conditions, and the
forecast of future economic conditions into the assessment of expected credit losses
(ECLs) for financial assets measured at fair value through profit or loss. From the above problem, we understand that the fair value of bonds payable became
Let us have Bonds payable as an example. P8,400,000 at year-end from a carrying amount on January 1, 2020, of P7,600,000.
PFRS 9 states that Bonds payable: Since bonds payable is a liability account, hence, a loss of P800,000 occurs. But, the
1. measured at fair value through profit or loss; only P650,000 is reported at profit or loss since the P150,000 loss is due to credit risk.
The P150,000 loss is reported in other comprehensive income section.
2. bond issue costs (transaction costs) are expensed outright;
3. amortization of bond discount or premium is not necessary.
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Updates in Financial Reporting
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1.6 PAS 36 - Impairment of Assets 1.6.1 Impairment loss
The image above shows financial losses in monetary value. Let us apply the concept through the illustrative problem below.
PAS 36 Impairment of Assets seeks to ensure that an entity's assets are not carried
at more than their recoverable amount (i.e. the higher of fair value fewer costs of
disposal and value in use).
PAS 36 applies to (among other assets):
1. land
2. buildings
3. machinery and equipment
4. investment property carried at cost
5. intangible assets goodwill investments in subsidiaries, associates, and joint
ventures carried at cost
6. assets carried at revalued amounts under PAS 16 and PAS 38

Key definitions [PAS 36.6]

Impairment loss - the amount by which the carrying amount of an asset or cash-
generating unit exceeds its recoverable amount
Carrying amount - the amount at which an asset is recognized in the balance sheet
after deducting accumulated depreciation and accumulated impairment losses Similar to previous illustrations, the value of machinery decline to P1,400,000 from
Recoverable amount - the higher of an asset's fair value fewer costs of disposal* P2,000,000 resulting in an impairment loss of P600,000.
(sometimes called net selling price) and its value in use Take note that the P1.4M is the recoverable value which is higher than the P1.4 FV less
• Before consequential amendments made by PFRS 13 Fair Value
cost of disposal and P1.2M value in use.
Under the COVID-19 pandemic, the financial reporting implications majority yield
Measurement, this was referred to as 'fair value fewer costs to sell'.
toward losses.
Fair value - the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date (see Let us solve another, illustrative problem:
PFRS 13 Fair Value Measurement)
Value in use - the present value of the future cash flows expected to be derived from
an asset or cash-generating unit
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Updates in Financial Reporting
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Allocation:
*7,500,000/12,000,000*400,000=250,000
**4,500,000/12,000,000*400,000=150,000
If the CGU includes Goodwill, you will first allocate the impairment loss to the amount
of goodwill, any remaining loss will then be allocated to the remaining Tangible assets.

1.6.1 Impairment of loan

Another problem created by the COVID-19 pandemic is the default on loan payments
because of debtors' lack of source of income. In this regard, the creditor or the bank will
have to test the loan for impairment.
Let us solve the illustrative problem, to comprehend the impairment of the loan (though
this is already discussed in your Intermediate Accounting 1):

1.7 Summary
1. As COVID-19 becomes more prevalent and with risks, it brings as to the
extent of its impact to the business sector, it is paramount that management
considers the accounting and financial reporting implications of the outbreak.
2. IAS 10 – Events after the reporting period require disclosure under non-
adjusting events to be applied in the financial statements on the entity for the
period ending December 31, 2019.
3. The International Accounting Standard Board (IASB) also suggested an
assessment of the going concern principle amidst the COVID-19 pandemic.
4. The volatility of stocks in the Philippine Stock Exchange (PSE) and other
relevant assets and liabilities (such as Bonds payable) of the entity should be
revalued.