CONCEPTUAL FRAMEWORK

&
ACCOUNTING STANDARDS
2020 Edition

Lecture Aid
By: Zeus Vernon B. Millan

1
PAS 1 Presentation of Financial
Statements
Learning Objectives
• Enumerate and describe the general features of financial
statement presentation.
• Enumerate and describe the components of a complete set of
financial statements.
• State the acceptable methods of presenting items of income and
expenses.
• Differentiate between the statement of profit or loss and other
comprehensive income and the statement of changes in equity.
• State the relationship of the notes with the other components of a
complete set of financial statements.
Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 2
Objective of PAS 1

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).

Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 3

 General purpose financial statements

• General purpose financial statements are those intended to

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

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Standards (by: Zeus Vernon B. Millan)
Complete set of financial statements
1. Statement of financial position
2. Statement of profit or loss and other comprehensive
income
3. Statement of changes in equity
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)
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(by: Zeus Vernon B. Millan) 5
General features

1. Fair Presentation and Compliance with PFRSs - The

application of PFRSs, with additional disclosure when necessary, is
presumed to result in financial statements that achieve a fair
presentation.

2. Going concern - An entity is not a going concern if, as of the

financial reporting date or prior to the date of authorization of the
financial statements for issue, management either:
a. Intends to liquidate the entity or to cease trading, or
b. Has no realistic alternative but to do so.
• The assessment of going concern is at least 12 months.
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Vernon B. Millan)
General features (Continuation)

3. Accrual Basis of Accounting - An entity shall prepare its financial

statements, except for cash flow information, using the accrual basis of
accounting.

4. Materiality & Aggregation - Each material class of similar items must be

presented separately in the financial statements.

5. 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, for example, obsolescence
allowances on inventories, allowances for doubtful accounts on receivables, and
accumulated depreciation on property, plant, and equipment are not offsetting.

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Vernon B. Millan)
General features (Continuation)

6. Frequency of reporting – An entity shall present a complete set

of financial statements (including comparative information) at least
annually.
• 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:
1. The period covered by the financial statements,
2. The reason for using a longer or shorter period, and
3. The fact that amounts presented in the financial statements are
not entirely comparable.

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Vernon B. Millan)
General features (Continuation)

7. 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.

8. Consistency of presentation - An entity shall retain the presentation and

classification of items in the financial statements from one period to the next
unless:
a. 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
b. a PFRS requires a change in presentation.
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Vernon B. Millan)
Additional Statement of financial position

• An additional statement of financial position is presented as at the

beginning of the preceding period when an entity:
1. Applies an accounting policy retrospectively, or
2. Makes a retrospective restatement of items in its financial
statements, or
3. reclassifies items in its financial statements.

…..and the effect of the event to the statement of financial position

as at the beginning of the preceding period is material.

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Zeus Vernon B. Millan) 10
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

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Standards (by: Zeus Vernon B. Millan)
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;
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.

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Standards (by: Zeus Vernon B. Millan)
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;
3. the liability is due to be settled within twelve months after the
reporting period; or
4. the entity does not have an unconditional right to defer
settlement of the liability for at least twelve months after the
reporting period.

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Standards (by: Zeus Vernon B. Millan)
Currently maturing long-term liabilities

• General rule: Currently maturing long term liabilities are

presented as current liabilities.
• Exceptions:
1. Refinancing agreement is fully completed on or before the
balance sheet date – non-current liability
2. Refinancing agreement after the balance sheet date but before
the financial statements are authorized for issue – noncurrent
liability if the entity expects, and has the discretion, to
refinance it on a long-term basis under an existing loan facility.

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Standards (by: Zeus Vernon B. Millan)
Breach of loan agreement

• 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.

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Standards (by: Zeus Vernon B. Millan)
Presentation of Deferred taxes

• Deferred tax liabilities (assets) are presented as noncurrent items

in a classified statement of financial position, irrespective of their
expected dates of reversal.

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Standards (by: Zeus Vernon B. Millan)
Minimum line items in the statement of financial position

a. Property, plant and equipment;

b. Investment property;
c. Intangible assets;
d. Financial assets (excluding amounts shown under (e), (h) and (i));
e. Investments accounted for using the equity method;
f. Biological assets;
g. Inventories;
h. Trade and other receivables;
i. Cash and cash equivalents;
j. Assets (or disposal groups) classified as held for sale in accordance
with PFRS 5;
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Standards (by: Zeus Vernon B. Millan)
Minimum line items (Continuation)

k. Trade and other payables;

l. Provisions;
m. Financial liabilities (excluding amounts shown under (k) and (l));
n. Liabilities and assets for current tax, as defined in PAS 12 Income
Taxes;
o. Deferred tax liabilities and deferred tax assets, as defined in PAS
12;
p. Liabilities included in disposal groups classified as held for sale in
accordance with PFRS 5;
q. Non-controlling interests, presented within equity; and
r. Issued capital and reserves attributable to owners of the parent
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Standards (by: Zeus Vernon B. Millan)
Order/ Format of Presentation

• PAS 1 does not prescribe the order or format in which an entity

presents items.

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Standards (by: Zeus Vernon B. Millan)
Statement of profit or loss and other comprehensive income

• An entity shall present all items of income and expense recognized

in a period:
1. in a single statement of profit or loss and other comprehensive
income; or
2. in two statements: (1) a statement displaying the profit or loss
section only (separate ‘statement of profit or loss’ or ‘income
statement’) and (2) a second statement beginning with profit or
loss and displaying components of other comprehensive income.

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Standards (by: Zeus Vernon B. Millan)
Extraordinary items

• PAS 1 prohibits the presentation of any items of income or expense

as extraordinary items in the statement(s) presenting profit or loss
and other comprehensive income or in the notes.

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Standards (by: Zeus Vernon B. Millan)
Other comprehensive income for the period

a. Changes in revaluation surplus

b. Unrealized gains and losses on investments in FVOCI securities
c. Re-measurements of the net defined benefit liability (asset)
d. Gains and losses arising from translating the financial statements
of a foreign operation
e. Effective portion of gains and losses on hedging instruments in a
cash flow hedge

• OCI may be presented either (a) net of tax or (b) gross of tax.

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Reclassification adjustments
• Reclassification adjustments are amounts reclassified to profit
or loss in the current period that were recognized in other
comprehensive income in the current or previous periods.

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Total comprehensive income

• Total comprehensive income comprises all components of

1. Profit or loss; and
2. Other comprehensive income.

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Presentation of Expenses

1. Nature of expense method

2. Function of expense method

• If an entity classifies expenses by function, it shall disclose

additional information on the nature of expenses

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Standards (by: Zeus Vernon B. Millan)
Disclosure of dividends

• Dividends declared by an entity are disclosed either in the (a) notes

or (b) statement of changes in equity.

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Standards (by: Zeus Vernon B. Millan)
Order of presentation of disclosures in the Notes

1. Statement of compliance with PFRSs;

2. Summary of significant accounting policies applied;
3. Supporting information for items presented in the other financial
statements; and
4. Other disclosures.

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Standards (by: Zeus Vernon B. Millan)
 APPLICATION OF CONCEPTS
 

PROBLEM 4: FOR CLASSROOM DISCUSSION

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Problem 4

1. PAS 1 applies to which of the following?

a. The preparation and presentation of general purpose financial
statements
b. The recognition and measurement of specific assets, liabilities, income
and expenses
c. The disclosure requirements for specific transactions and other events
d. All of these.

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Standards (by: Zeus Vernon B. Millan)
Problem 4
2. In 20x3, Entity A makes a retrospective application of an accounting
policy that has a material effect on the information in the statement of
financial position as at the beginning of the preceding period. Entity A
wishes to provide comparative information in addition to the minimum
requirement of PAS 1, i.e., Entity A will be presenting its 20x3 financial
statements together with the 20x2 and 20x1 financial statements. In this
case, the additional statement of financial position required by PAS 1 will
be dated
a. As at January 1, 20x1
b. As at January 1, 20x2
c. As at January 1, 20x3
d. For the period ended 20x1

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Standards (by: Zeus Vernon B. Millan)
Problem 4
3. Entity A wants to change the presentation of, and the classification
of some items in, its financial statements. Which of the following
statements is incorrect?
a. Entity A can make the change if it is required by a PFRS.
b. Entity A can make the change if the change is expected to result in
reliable and more relevant information to the users of its financial
statements.
c. Entity A may be required to provide an additional balance sheet dated as
at the beginning of the preceding period.
d. Entity A can make the change only if it makes an irrevocable promise not
to make another change within the next five years.

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Standards (by: Zeus Vernon B. Millan)
Problem 4
4. The financial statements of Entity A shows line items described as
“Other current assets,” “Other noncurrent liabilities,” and
“Miscellaneous expenses.” Which of the following is correct?

a. Entity A considers the items included in these line items as dissimilar and
cannot be included in material classes of similar items and are also
individually immaterial to warrant separate presentation.
b. Entity A considers the items included in these line items as individually
material but with dissimilar nature or function.
c. Entity A considers the items included in these line items as comprising a
material class of similar items.
d. This manner of presenting items is unacceptable under PAS 1.

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Problem 4

5. According to PAS 1, a complete set of financial statements include

which of the following?

a. Income tax return

b. Directors’ reports
c. Notes
d. All of these

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Problem 4

6. PAS 1 requires an entity to present an additional statement of

financial position as at the beginning of the preceding period when
an entity makes any of the following, except

a. The retrospective application of an accounting policy

b. The retrospective restatement of items in the financial statements
c. The reclassification of items in the financial statements
d. The prospective application of a change in accounting estimate

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Standards (by: Zeus Vernon B. Millan)
Problem 4

7. The statement of financial position of which of the following

entities does not show current and noncurrent distinctions among
assets and liabilities?

a. Banks and other financial institutions

b. Mining companies
c. Trading enterprises
d. Manufacturing firms

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Standards (by: Zeus Vernon B. Millan)
Problem 4
8. The principles of PAS 1 in relation to the classification of liabilities as
current or noncurrent favor the current classification. PAS 1 provides
stricter conditions for classifying liabilities as noncurrent. Which of
the following statements best reflects a valid reason for this?
a. Noncurrent liabilities are usually more material in terms of size compared
to current liabilities
b. Most primary users are concerned more with an entity’s current liabilities
when making economic decisions because of the shorter duration of time
before they cause an outflow of economic resources
c. The stricter conditions for noncurrent classification address the potential
misuse of classification in order to present favorably the entity’s liquidity
d. All of these.

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Standards (by: Zeus Vernon B. Millan)
Problem 4

9. Which of the following is not an acceptable method of presenting

income and expenses?

a. Presenting income and expenses that affect profit or loss and those that
are components of other comprehensive income in a single statement
b. Presenting an income statement in addition to a statement that presents
comprehensive income
c. Presenting an income statement alone without a statement that presents
comprehensive income
d. All of these are acceptable methods of presentation

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Problem 4

10. This method of presenting expenses is more difficult to apply but

has the potential of providing more relevant information to users.
Its downside, however, is that it involves considerable judgment
and may require arbitrary allocations.

a. Nature of expense
b. Function of expense
c. Classified presentation
d. Based on liquidity

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Standards (by: Zeus Vernon B. Millan)
Problem 4

11. Which of the following is not a purpose of the notes?

a. To present information about the basis of preparation of the financial

statements and the specific accounting policies
b. To disclose the information required by PFRSs that is not presented
elsewhere in the financial statements
c. To provide information that is not presented elsewhere in the financial
statements but is relevant to an understanding of any of the financial
statements
d. To rectify inappropriate accounting policies

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Standards (by: Zeus Vernon B. Millan)
OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

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 END
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