Financial accounting involves preparing financial reports for internal and external users. The key financial statements are the statement of financial position, statement of comprehensive income, statement of cash flows, and statement of changes in equity. Financial accounting aims to provide useful information to present and potential investors and creditors to help them make informed decisions. The International Accounting Standards Board develops International Financial Reporting Standards to standardize financial accounting globally.
Financial accounting involves preparing financial reports for internal and external users. The key financial statements are the statement of financial position, statement of comprehensive income, statement of cash flows, and statement of changes in equity. Financial accounting aims to provide useful information to present and potential investors and creditors to help them make informed decisions. The International Accounting Standards Board develops International Financial Reporting Standards to standardize financial accounting globally.
Financial accounting involves preparing financial reports for internal and external users. The key financial statements are the statement of financial position, statement of comprehensive income, statement of cash flows, and statement of changes in equity. Financial accounting aims to provide useful information to present and potential investors and creditors to help them make informed decisions. The International Accounting Standards Board develops International Financial Reporting Standards to standardize financial accounting globally.
Financial accounting involves preparing financial reports for internal and external users. The key financial statements are the statement of financial position, statement of comprehensive income, statement of cash flows, and statement of changes in equity. Financial accounting aims to provide useful information to present and potential investors and creditors to help them make informed decisions. The International Accounting Standards Board develops International Financial Reporting Standards to standardize financial accounting globally.
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Financial Accounting – is the process that proprietary perspective—is not Includes managers,
culminates in the preparation of financial considered appropriate. owners, board members,
reports used by both internal and external Decision usefulness – means that shareholders, etc. users. the information contained in the Management Financial Statements – are the principal Accounting is the branch financial statements should help of accounting designed means as to how an entity communicates its investors assess the amounts, timing, for internal users. financial information to those outside it. FS and uncertainty of prospective cash 2. External Users – inactive owners of frequently provides the following: inflows from dividends or interest, and the business and management. Statement of Financial Position the proceeds from the sale, They use financial information to Statement of Comprehensive Income redemption and maturity of securities assess the company’s financial Statement of Cash Flows or loans—for investors to make these health, make investment decision Statement of Changes in Equity assessments, the financial statements and enforce regulations. Notes and related explanations must provide Includes investors, creditors, **Other means of financial reporting includes information about the company’s government agencies, and the the president’s letter or the supplementary economic resources, the claims to public. schedules in a company’s annual report, those resources and the changes in Financial Accounting is the prospectuses and reports filed with them. branch of accounting designed government agencies. for external users. Elements to facilitate efficient capital 3. Direct Users – have financial interest Financial Reporting – the communication of allocation, ensure relevant information the set of financial statements and other and faithful representation comparable in the business, such as investors and financial information. across boarders: creditors. Purpose of Financial Reporting They use financial information to A single set of high-quality assess the entity’s ability to to provide financial information about accounting standards generate profits and pay debts. the reporting entity that is useful to established by a single standard 4. Indirect Users – do not have present and potential investors, setting body. financial interest in the business, lenders, and other creditors in making Consistency in application and such as government agencies and decisions with regards to providing interpretation. legal consultants. resources to the entity and for Common disclosures. They use financial information stakeholders to make decisions for the Common high-quality auditing to assess the entity’s impact on entity. standards and practices. society and its contribution to Objectives of Financial Reporting A common approach to regulatory the economy. general purpose financial review and enforcement. Accounting Entity (Reporting Entity) – can statements provide at the least cost control its own economic resources and the most useful information possible to Education and training of market incurring economic obligations. a wide variety of users. participants. Accounting Entity Concept – separates the to provide financial information Common delivery systems (XBRL personality of the business from its owners (through financial statements) to —Extensible Business Reporting and other stakeholders. equity investors and creditors (as Language) Branches of Accounting they belong to the primary user group A common approach to corporate Financial Accounting – broadest and has immediate needs for financial governance and legal frameworks branch of accounting and is focused information). Equity investors and around the world. on the needs of external users. creditors need this information to Users of Financial Information **Financial Accountants accord assess a company’s ability to generate 1. Internal Users – active importance to existing accounting standards. net cash inflows and to understand the owners of the business and Management Accounting – serves management’s ability to protect and management. the needs of internal users. They use financial **Management Accountants is a enhance the assets of the entity. information to track the profession involves in management’s Entity perspective—means that the company’s performance, decision making, devising planning, and company is viewed as being separate identify areas for performance management systems, and and distinct from its investors. improvements and make providing expertise in financial reporting Therefore, the asset of the company decisions about resource and control to assist management in the belongs to the company, not a specific allocation. formulation and implementation of creditor or stakeholder. The organization’s strategy. Cost Accounting – deals with Replaced IASC in 2001. financial reporting issues within the collection, allocation, and control of Its main objective is to develop a framework of IFRS. the cost of producing specific goods single set of high-quality, Stages in IASB due process in developing and services. understandable, enforceable global IFRS Auditing – independent examination accounting standards to help business 1. Setting the agenda that ensures the fairness and reliability owners and other users. 2. Planning the project of the reports that management Revised many IASs. 3. Developing and publishing the submits to users outside the entity. **even after revision, IAS that originated discussion paper. Government Accounting – from the work of IASC continue to be 4. Developing and publishing the concerned with the identification of the called IAS exposure draft. sources and uses of government IASB has issued new standards of its 5. Developing and publishing the funds. own, called International Financial standard. Tax Accounting – includes Reporting Standards (IFRS). 6. Issuance of the standards. preparation of tax returns and the IASB has no authority to require Elements of IASB due process in consideration of tax consequences compliance with its accounting developing IFRS and proposed business transactions. standards. But through the help of An independent standard setting Accounting Education – employs international bodies mentioned earlier board overseen by geographically and accountants, either as researchers, have enjoined regulators in different professionally diverse body of professors, or reviewers to guarantee countries to adopt the use of IAS and trustees. the continued development of IFRS. Thorough and systematic process for accounting profession. International Standard-setting developing standards. International Accounting Standards structure includes: Engagement with investors, Importance: The IFRS Foundation (22 regulators, business leaders, and the Accounting reports need trustees) – provides oversight to global accountancy profession at comparability. the different standard setting every stage of process. Accounting reports need consistency. structures. It appoints members, Collaborative efforts with the There is need to bring into common reviews effectiveness, and helps in worldwide standard-setting basis, the system of measurement of fundraising efforts for these community. economic activities. organizations. Other infos: International Accounting Standards Not for profit international To address users’ demand for better Committee (IASC) organization responsible for quality financial information, the IASB Created in 1973 to develop global developing a single set of identifies issues, and puts in its agenda high-quality global accounting after considering the relevance of the accounting standards. information to the users and the reliability IASC issued a set of uniform global standards knows as IFRS standards. of the information that could be provided, accounting standards called and the possibility of increasing International Accounting Standards International Accounting convergence. (IAS) and promoted the use and Standards Board (IASB) (16 IASB decides if they will conduct a project application of these standards. members) – develops in the public alone or jointly with another standard The following international bodies interest, a single-set of high- setter. publicly urged the adoption of a single quality, enforceable, and global Discussions of the working group are set of global accounting standards: international financial reporting contained in a discussion paper— standards for general-purpose including comprehensive overview of the World Bank (WB) issue, possible approaches to solve it, International Monetary Fund financial statements. IFRS Advisory Council (30 or preliminary views of the author or the (IMF) IASB and an invitation for a comment. International Organization of more members) – provides Discussion takes place in public session Securities Commission advice and council to the IASB on (public meetings, public hearings, and (IOSCO) major policies and technical public round tables) where questions and Organization of Economic issues. answers are conducted. Cooperation Development IFRS Interpretation Committee An exposure draft is developed and voted (OECD) (22 members) – assists the IASB upon containing the comments received, International Accounting Standards Board through the timely identification, recommendations, etc. The exposure draft (IASB) discussion, and resolution of is the way of IASB to consult the public. Revisions are made after considering the The accounting standards developed and events that are important in comments on the exposure draft—if by ASC were known as Statement of general purpose financial transactions. necessary, a second exposure draft is Financial Accounting Standards Steps in due process of development developed and published. (SFAS) of PFRS Upon reaching conclusion on the issues **Accounting standards would generally a) Consideration of pronouncement covered in the exposure draft, pre-ballot is be based on the following: of IASB. sent to selected parties to review. Existing practices in the Philippines The approved pronouncement is posted to b) Formation of a task force, if Research studies by the councils. necessary, to give advice to the the IASB’s limited access website for an Locally and internationally available initial period of about 10 days, after which FRSC literature on the topic or subject. c) Issuing for comment an exposure the draft is available online. Statements, recommendations, After the issuance of an IFRS, the IASB studies, or standards issued by draft approved by a majority of hold a regular meeting with interested other standard-setting bodies such FRSC members, comment period parties to address some unanticipated as International Accounting will be at least 60 days, unless a issues relating to implementation. Standards Board (IASB) and the shorter period (30 days) is Financial Accounting Standards considered appropriate by the Why the need for high-quality accounting Board (FASB). FRSC standards? In 1997, the ASC decided to move d) Consideration of all comments To facilitate efficient capital allocation. fully to the International Accounting received within the comment To ensure adequate comparability Standards (IAS) period and, when necessary, across borders, a single, widely 1997 to 2000, ASC developed preparing a comment letter to accepted set of high-quality accounting standards based on IAS IASB accounting standards is a necessity. (gradual transition from SFAS to IAS e) Approval vote of a standard or an Identify the element involved. and IFRS) interpretation by a majority of IFRS includes the following: 2001, ASC adopted most of the FRSC members. Specific International Financial standards developed by IASC (IAS) PRFS consists of the following: Reporting Standards 2005 the year of full adoption of the a) A specific Philippine Financial Interpretations made by IFRIC IAS in the Philippines Reporting Standards, which International Accounting Standards **The SEC in Memorandum Circular #9 are adopted from the IFRS. (IAS) Series of 2004 dated December 22, 2004 b) Philippine Accounting Interpretation made by Standing required the adoption of the IAS, PAS and Standards (PAS)—adopted Interpretation Committee (SIC)—the IFRS in the audited Financial Statements. from IAS. body that interprets the work of IASC. Financial Reporting Standards Council c) Philippine Interpretations— Standard setting bodies in the Philippines (FRSC) adopted from the Accounting Standards Council (ASC) In 2006 the FRSC was established by interpretations of IFRIC and On November 18, 1981, the the Board of Accountancy to replace SIC. Philippine Institute of Certified Public and takeover the function of ASC. d) Interpretations of the PIC Accountants (PICPA) created the ASC (Section 9(a) of the Rules and (interprets the work of IASB) to establish and improve accounting Regulations implementing RA 9298 or standards that will be generally the Philippine Accountancy Act of Conceptual Framework for Financial accepted in the Philippines. 2004) Reporting The ASC was composed of 8 FRSC is composed of a chairman and The IASB issued a revised Conceptual members: 14 members representing BOA, SEC, Framework for Financial Reporting or 4 PICPA (including the BSP, BIR, COA and a major Conceptual framework—is a designated chairman) organization composed of preparers comprehensive set of concepts for **4 representatives of PICPA: and users of financial statements, and financial reporting in March 2018 (has Education, Public practice, the accredited national professional undergone series of revisions but the commerce and industry, and organization of CPAs in the most recent version is completed and government. Philippines (presently PICPA) published in March 2018). 1 SEC Philippine Financial Reporting Standards Conceptual Framework – describes 1 CB (PFRS) the objective of, and the concepts for 1 PRC Set out the recognition, measurement, general purpose financial reporting. 1 FINEX presentation, and disclosure Purpose of Conceptual Framework requirements dealing with transactions Assist the IASB to develop IFRS **accrual accounting recognizes the actual results of the transactions standards that are based on effects of transactions during the completed by the enterprise. reporting period when the charges in consistent concept. economic resources and claims occur To be faithful representation, the information must be: Assist preparers to develop rather than only when cash is a) Complete consistent accounting policies received or paid. b) Neutral – impartial and not when no standards apply to a Common information needs of the biased towards the needs or particular transaction or other users of general-purpose financial desires of users. event, or when a standard allows a reports is to evaluate the enterprise’s c) Free from error choice of accounting policy. liquidity, solvency, profitability and Enhancing qualitative Assist all parties to understand characteristics – characteristics that and interpret standards. enhance the usefulness of information. **Conceptual framework is not a Comparability – enables PFRS, nor it is an IFRS. Whenever operating and financial flexibility. users to identify similarities and there is conflict between the differences between at least conceptual framework and accounting two sets of economic standard, the requirement of the company’s ability to adjust to unexpected circumstances. downturns in the economic environment in **Achieving comparability is the accounting standard will prevail. which it operates or to take advantage of objective of IAS I Presentation of **In the absence of a standard, profitable investment opportunities as they Financial Statements. management shall consider the arise. **IAS I prescribes the basis for the conceptual framework in making its Chapter 2: Qualitative characteristics of presentation of FS to ensure useful financial information comparability both with the entity’s FS judgement in developing and applying of previous periods and with the FS of an accounting policy that results in Fundamental qualitative other entity. useful information. characteristics – characteristics that Intra-comparability – refers to Scope of Conceptual Framework (divided makes information useful to others. comparability within the reporting into 8 chapters) Relevance – knowledge of the entity for at least two reporting periods. Chapter 1: The objective of general- information would affect the **achieved by adhering to the principle of purpose Financial Statements decision or evaluation of the user. consistency—the application of the same Forms the foundation of conceptual Confirmatory Value – the financial accounting policies from period to period information enables users to confirm to compare the performance of FS. framework. earlier expectations about the entity. Inter-comparability – refers to To provide financial information about Predictive Value – financial comparability between and among the entity that is useful to existing and information helps the users to formulate enterprises. more intelligent predictions about the **this is more difficult to achieve. potential investors, lenders, creditors, **if a change in accounting policy is made according to etc. in making decisions relating to future. Material – information is material if new IASB reporting standards or to enhance relevance providing resources to the entity. omitting, misstating, or obscuring it and faithful representation, the entity must properly To make the assessment on the could reasonably be expected to disclose in the notes to FS so that readers will not be misled by the change. management’s ability of the entity’s influence decisions that the primary Verifiability – information can economic resources, external users users of a specific reporting entity’s general-purpose FS make based on FS. be replicated using the same need information about the following: Materiality depends on: measurement methods and Economic resources (assets) The nature of the item applying the same process. Claims against the reporting The magnitude of the items to **to help users, it may be necessary entity (liabilities and equity) which the information relates. to disclose the underlying The error judged circumstances or Changes in those resources misstatement of information. assumptions, the methods of and claims (statement of compiling the information, the Faithful Representation – measurement technique or bases and comprehensive income) information represents faithfully other factors that support the How efficiently and effectively the transaction and other events it information. the management and purports to represent or could **enhances the representational governing board have reasonable be expected to faithfulness of information. discharged their **quantified information need not be a represent. single point estimate to be verifiable. responsibilities to use the It requires the amounts and Timeliness – availability of entity’s economic resources. descriptions of information information to users as early **this information can be found in the presented on the FS reflect the general-purpose financial reports. enough to be used for economic decisions which the Going Concern Assumption – assumption **Carrying amount – amount at which an asset, a information might influence. that the entity has neither the intention nor the liability or equity is recognized in the statement of financial position. **relevance of information may be lost need to enter liquidation or to cease trading. **recognition links the elements of financial statements because of delay in reporting the FS are normally prepared on the Example: recognition of an income resulting in an information. assumption that the reporting entity is increase in asset Understandability – a going concern and will continue in Derecognition – is the removal of all part of a classifying, characterizing, and operation for the foreseeable future. recognized asset or liability from an entity’s presenting information clearly Reporting Entity – is the one that is required, statement of financial position. It occurs when and concisely makes it or chooses, to prepare financial statements. It the item no longer meets the definition of an understandable. is not necessarily a legal entity. It can be the asset or of a liability. Understandability depends on following: **an entity derecognizing a part of an asset or liability two factors: A single entity and retaining another part of it shall not recognize in 1. The quality of information profit or loss an income or expense relating to the 2. The quality of the user A portion of an entity portion retained unless the portion retained is More than one entity remeasured or reclassified. In such case, the income or Cost constraint – is the practical expense results from remeasurement or reclassification exception to the application of sound Chapter 4: The Elements of Financial of the retained portion. accounting theory. As such, it is an Statements Chapter 6: Measurement excuse not to apply rigidly what is Asset – present economic resource Elements recognized in financial required by current accounting controlled by a company because of past statements are quantified in monetary standards. events. terms. This requires the selection of **the presentation of relevant information Right – assets refer to right, and not measurement basis. constrained by the cost of obtaining the necessarily to a physical object. Measurement basis: information. Potential to produce economic Historical cost – original price **the benefits derived from information should benefits – exceed the cost of providing text. Control – the entity has an exclusive of an asset, as recorded in the Chapter 3: Financial Statements and right over the benefits of an asset and entity’s accounting records. Reporting Entity **historical cost of an asset is updated Financial Statements – form of general- the ability to prevent others from over time to depict, if applicable. purpose financial report that provides accessing those benefits. a. Accumulated depreciation of Liability – a present obligation of an entity to an asset information about the entity’s assets, b. Accrual of interest liabilities, equity, income, and expense that is transfer an economic resource because of c. Impairment useful for decision making. past events. For a liability to exist 3 criteria d. Payment received Consolidated Financial Statement – FS that must be met: **historical cost of a liability is updated both the parent and its subsidiaries. The entity has an obligation. over time to depict, if necessary. The obligation is to transfer an a. Fulfillment of part or all the Parent – an entity that exercises economic resource. liability control over another entity called a a) Current cost – current market subsidiary. The obligation is a present obligation value, monetary information in **subsidiaries own FS provide separate that exist because of past events. the measurement date. information about the assets, liabilities, equity, Equity – residual interest in the assets of an i. Fair value – estimated income, and expenses of that subsidiary. entity after deducting all its liabilities. price within the **unconsolidated financial statement may also Income – increases in assets, decreases in be prepared about the parent’s assets, liabilities that result to an increase in the measurement date. liabilities, equity, income, and expenses. But the equity, other than those relating to ii. Value in use – present unconsolidated FS cannot substitute the value of cash flows consolidated FS when the parent is required to contributions from holders of equity claims. expected to be derived present the latter. Expenses- decrease in assets, increases in from an asset. Combined Financial Statements – FS of a liabilities that results to a decrease in equity, reporting entity comprising two or more other than those relating to distribution to iii. fulfillment value – entities that are not linked by a parent- holders of equity claims. present value of cash subsidiary relationship. **income and expenses are the elements of FS that inflows expected to be Reporting Period – specified time in which relate to an entity’s financial performance. incurred in fulfilling a financial statements are prepared. Chapter 5: Recognition and Derecognition liability. **information or transactions and other events occurred Recognition – process of including in the iv. Current cost – current after the reporting period is also provided in the FS if face of FS an item that meets the definition of market value. such information is necessary to meet the objective of one of the elements of FS. the FS. **measurement basis selected must be one **Classification is applied to the unit of account Objectives of FS: that results to provision of the most relevant selected for an asset or liability. However, it may To provide information about the sometimes be appropriate to separate an asset or and faithful representation of the information. liability into components that have different financial position, financial **choice of measurement basis is determined characteristics and to classify those components performance and cash flows of an considering both initial measurement (at the separately—it will enhance the usefulness of the entity that is useful to a wide range of date of creation) and subsequent resulting financial information. For example, it could users in making economic decisions. measurement (at the date of reporting). be appropriate to separate an asset or liability into current and non-current. It also show the result of the Initial Recognition – the cost of an asset Aggregation – refers to “the adding management’s stewardship of the acquired out of a liability incurred is normally together of similar financial statements resources entrusted to it. like fair value at that date unless transaction elements that have shared characteristics Objectives of IAS/PAS 1 cost is significant. and are included in the same FS are the responsibility of the Subsequent to initial recognition – the classification” (PAR 7.20) company’s management. measurement basis is normally the same **aggregation summarizes large volume of details, To present the basis for the measurement basis at initial recognition. hence, information is not obscured by so many presentation of general-purpose **when the value of an asset is sensitive to details, which, when considered necessary, are financial statements to ensure inter- market factors or other risks, the most present in the notes. Chapter 8: Concepts of Capital and Capital comparability and intra-comparability. relevant information is provided by measuring Statement of Financial Position (Balance the asset and liability at fair value. Maintenance Financial Concept of Capital – capital is Sheet) **total carrying amount of equity is not Presents information on the balances measured directly. synonymous with the net assets or equity of the enterprise. of assets, liabilities, and equity at the Chapter 7: Presentation and Disclosure **profits is measured as the excess of the financial end of the reporting period. Information in the FS must be both amount of the net assets at the end of the period over Assets relevant and faithfully represented the financial amount of the net assets at the beginning An entity should classify an asset s and requires the following: of the period. current when: a. Focusing on presentation **profit is earned only if the financial amount of net assets at the end of the period exceeds the financial Expects to realize the asset, or and disclosure objectives amount net assets at the end of the period. intends to sell or consume it, in its and principles rather than **increases in the prices of assets held over the period normal operating cycle (ideally a on rules. are conceptually profits, however, they may not be year) b. Classifying information in recognized as profits until the assets is disposed. **can be measured in neither nominal monetary units or Hold the asset primarily for the a manner that groups units of purchasing power. purpose of trading. similar items and Physical Concept of Capital – capital is Expects to realize the asset within separates dissimilar viewed as the operating capacity of the twelve months after the reporting items. enterprise. period. c. Aggregating information **profit is earned only if the physical productive capacity Unless the asset is not restricted to make it not obscured of the entity for the resources of funds needed to from being exchanged or use to either by unnecessary achieve that capacity at the end of the period exceeds settle a liability for at least twelve detail or by excessive the physical productive capacity at the beginning of the same period, after excluding the effects of transaction months after the reporting period. aggregation. with owners. Liabilities Balance is needed between; giving **all price changes affecting assets and liabilities are An entity shall classify the liability as entities flexibility to provide relevant treated as capital maintenance adjustment that are not current when: and faithfully represented FS part of profit but are part of equity. Capital maintenance concept (net worth Expects to settle the liability elements; and achieving inter- within twelve months. comparability and intra-comparability. method of measuring profit) – views profit as the excess of the capital at the end of the Holds the liability primarily for Classification – is the sorting of assets, the purpose of trading. liabilities, equity, income, or expenses period over the capital of the beginning, after excluding the effects of contribution from and The entity does not have an based on shared characteristics for unconditional right to defer presentation and disclosure purposes. distributions to the owners during the reporting period. settlement of the liability for at Such characteristics includes, but not least twelve months after the **under capital maintenance concept, the focus is on limited to—the nature of the item, its return on capital, where only inflows of net assets in reporting period. function within the business activities excess of amounts needed to maintain capital may be Equity conducted by the entity and how it is regarded as profit. Residual interest in the assets of the measured. entity after deducting all the liabilities. Presentation of Financial Statements Account name in reporting the equity equivalents during the reporting presented on the face of financial depends on the form of business period. statements. organization: Provides users of financial statements Must present information about the Sole proprietorship owner’s equity with a basis to assess the ability of the basis of preparation of the FS and the Partnership partner’s equity entity to generate cash and cash SFP, income statement, statement of Corporation shareholder’s equity Requirement for Additional SFP equivalents and the needs of the entity changes in equity, or statement of IAS 1 requires the inclusion of SFP as to utilize those cash flows. cash flows. at the beginning of the preceding Classification of Cash flows Must disclose any information required period when an entity restates its Operating activities – producing by PFRSs that is not presented on the comparative prior period whenever activities of the entity. face if FS that is deemed relevant in entity restate its comparative period Presentation of Cash Flows understanding any of them. prior to FS. Direct Method – major Notes should be cross-referenced Restatement of comparative prior from the face of financial statements to classes of gross cash the relevant note. period is necessary when there is any receipts and gross cash of the following: Notes should be presented in the Retrospective application of a payments are disclosed. following order: change in accounting policy. Indirect Method – A statement of compliance with Restatement of FS because of PFRSs profit or loss is adjusted for A summary of significant prior period error discovered. the effects of transactions of a Reclassification of an element accounting policies applied, in financial statements. non-cash nature, any including: the measurement **the requirement for restatement the prior year’s FS deferrals or accruals of past basis used and other and inclusion of a restatement SFP as at the beginning accounting policies used that of the preceding period presented achieves the or future operating cash are relevant to understand the objective of comparability. receipts or payments, and FS. Statement of Comprehensive Income items of income or expense Other disclosures, including: Changes in equity during the period contingent liabilities and other than changes resulting from associated with investing or unrecognized contractual transactions with owners in their financing cash flows. commitments and non-financial capacity as such. Investing activities – cash flows disclosures, such as the Includes profit or loss and other derived from acquisition and entity’s financial risk comprehensive income. disposal of long-term assets. management objectives and **profit and loss are the total income Financing activities – includes policies. less expenses excluding the components of cash transactions affecting non- Disclosure of judgement – an entity must other comprehensive income. trade liabilities, and shareholder’s Other comprehensive income – disclose, in the summary of significant equity. accounting policies or other notes, the comprises income and expenses Interest and Dividends including reclassification, adjustments judgements, apart from those involving Cash flows from interest dividends estimations, that management has made in that are not included in profit and loss received and paid shall each be as required by a standard or the process of applying the entity’s disclosed separately. Each shall be accounting policies that have the most interpretation. Two types of OCI are; classified in a consistent manner from those reclassified to profit and loss significant effects on the amounts recognized period to period as either operating, in the FS. and those reclassified as retained investing or financing activities. earnings. Accounting Policies are the specific Statement of Changes in Equity principles, bases, conventions, rules, and Received Paid practices applied by an entity in preparing Present the summarized transactions Interest Operating Operating affecting the balances of equity and presenting FS. Dividends Operating Financing Fair Presentation and Compliance accounts, such as profit or loss, OCI, contributions from owners and with IFRS/PFRS Notes to the Financial Statements The application of IFRS with distributions to owners. This section presents relevant Statement of Cash Flows additional disclosures, when financial information pertaining the necessary, is presumed to Presents information on the inflows, entity’s activities that cannot be and outflows of cash and cash result in financial statements that achieve a fair nature or functions unless they that is reclassified, and c) the presentation. are immaterial. reason for reclassification. Fair presentation requires an If a line item is not individually Identification of Financial Statements entity to; a) select accounting material, it is aggregated with The FS shall be identified clearly and principles based on PAS/IAS 8, other items either in those distinguished from other information in b) present information, statements in the notes. the same published document. including accounting policies in Offsetting The following information shall be a manner that provides An entity shall not offset assets displayed prominently and repeated, relevant, reliable, comparable and liabilities or income and when necessary, for a proper and understandable expenses, unless required or understanding of the information information, and c) provides permitted by IFRS. presented. additional disclosures. Frequency of reporting The name of the reporting Going concern An entity shall present a entity and other means of An entity shall prepare FS on a complete set of financial identification, and any change going concern basis unless statements at least annually. in that information from the management either intends to When an entity changes the preceding financial date. liquidate the entity or to cease end of its reporting period and Whether the FS cover the trading or has no realistic presents FS for a period longer individual entity or a group of alternative but to do so. or shorter than one year, an entities. Going concern means that the entity shall disclose, in addition The SFP date or the period accounting entity is viewed as to the period covered by FS: a) covered by the financial continuing in operation the reason for using longer or statements, whichever is indefinitely in the absence of shorter period, and b) that fact appropriate to the components evidence to the contrary. that amounts presented in FS of FS. When FS are not prepared on are not entirely comparable. The presentation currency. a going concern basis, the Comparative information The level of rounding used in following should be disclosed Minimum Comparative Information presenting amounts in the FS. in the notes to FS: a) the fact An entity shall present Limitations on the use of FS that the FS are not prepared comparative information in Use of different measurement basis on a going concern basis, b) respect of the preceding period Consideration of the qualitative the basis on which the FS are for all amount reported in the characteristics of useful financial prepared, and c.) the reason current period’s FS. information and of the cost constraint why the enterprise is not Additional Comparative Information is likely to result in the selection of considered to be a going An entity may present different measurement basis. concern. comparative information that Inflationary effects In assessing whether the may consist of one or more If the inflation rate is relatively high, enterprise is a going concern statements but need not the amounts reported in the FS will entity, the management should comprise a complete set of FS. appear inordinately low since under assess the ability of the Third statement financial the cost model, the assets are not enterprise to continue information (already stated why, sa adjusted for inflation. Hence, the operations for a period of at SFP) amount reflected in the FS are least, but limited to, 12 months. Consistency of presentation mixtures of pesos with different levels Accrual basis of accounting An entity shall retain the of purchasing power. An entity shall prepare its FS, presentation and classification Measurement Uncertainty except cash flow information, of items in the financial The level of uncertainty involved in using the accrual basis of statements from one estimating a measure of an asset or accounting. accounting period to the next. liability maybe so high that it may be Materiality and aggregation When an entity reclassified questionable whether the estimate An entity shall present comparative amounts, it shall would provide a sufficiently faithful separately each material class disclose; a) the nature of representation of that asset or liability of similar items. reclassifications, b) the amount and of any resulting income, An entity shall present of each item or class of items expenses, or changes in equity. separately items of dissimilar Not always comparable across Approve, reject, suspend revoke, or may be implied from, or which are companies require amendments to registration necessary or incidental to the carrying Different companies may apply statements and registration and out of, the express powers granted the different accounting period. While licensing applications. commission to achieve the objectives accounting policies are disclosed in Regulate, investigate, or supervise the and purposes of these laws. the FS, the users of FS can hardly activities of persons to ensure Classification of reporting entities based adjust the reported figures in the FS compliance. on applicable Philippine Financial for comparability. Supervise, monitor, suspend or take Reporting Frameworks Non-financial information is not over the activities of exchanges, Large and/or Publicly Accountable reported clearing agencies and other SROs. Entities Notes to financial statements provide Impose sanctions for the violation of Are those with total assets of textual description of what was laws and rules, regulations and orders more than P350 million or total reported in the face of the FS, but it issued pursuant thereto. liabilities of more than P250 does not report the company’s Prepare, approve, amend, or repeal million. contribution to a local community. FS rules, regulations and orders, and Publicly accountable entities may report high net income but fail to issue opinions and provide guidance are those entities that meets indicate its effect to the environment. and supervise compliance with such the following criteria: a) holders No predictive value rules. of secondary licenses issued The FS report past events, but they do Enlist the aid and support of and/or by regulatory agencies, b) not provide any value that predict what deputize all enforcement agencies of required to file FS under Part II will happen in the future. the government, civil or military as well of SRC Rule 68, c) in the Securities and Exchange Commission as any private institutions. process of filing their FS for the (SEC) Issue cease and desist orders to purpose of issuing any class National government regulatory prevent fraud or injury to the investing instrument in the public market, agency charged with supervision of public. d) imbued with public interest the corporate sector. Punish for contempt of the as the SEC may consider in **RA 8799 or the Securities Regulation Code commission, both direct and indirect, the future. reemphasizes the requirement for the in accordance with the pertinent Large entities shall use the submission of an annual report by companies provisions and penalties prescribed by PFRS, as adopted by the together with FS, certified by an independent the rules of court. commission, as their financial CPA. It also requires for internal record Compel the officers of any registered reporting framework. keeping and internal controls to be complied corporation or association to call with by the entity. Medium-sized entities **SRC rule 68 provide for the general guides to meetings of stockholders or members Total assets of more than P100 financial statements preparation, responsibility thereof under supervision. million to P350 million or total to FS, qualifications and reports of Issue subpoena duces tecum and liabilities of more P100 million independent auditors and review of their summon witnesses to appear in any quality assurance. to P250 million. Functions of SEC proceedings of the commission and in **if the entity is a parent Under the Section 5 of RA 8799, SEC shall appropriate cases, order the company, the said amounts have, among others, the following powers, examination, search and seizure of all shall be used as consolidated and functions: documents, papers, files and records, figures. Have jurisdiction and supervision over tax returns, and books of account of Not required to file FS under all corporation, partnership association any entity or person under Part 2 of SRC rule 68. who are the grantees of primary investigation as may be necessary for Not on the process of filing franchises and/or license or permit the proper disposition of the cases their FS for the purpose of issued by the government. before it, subject to the provisions of issuing any class of instrument Formulate policies and existing laws. in a public market. recommendation on issues concerning Suspend or revoke, after proper notice Not holders of secondary the securities market, advice congress and hearing the franchise or certificate licenses issued by regulatory and other government agencies on all of registration of corporations, agencies. aspects of the securities market and partnership, or associations upon any Medium-sized entities shall use propose legislation and amendments of the grounds provided by the law. PFRS for SMEs as their thereto. Exercise such other powers as may be financial reporting framework. provided by law as well as those which SMEs that will use full PFRS Not in the process of filing their **companies must disclose the date when the FS includes the following: FS for the purpose of issuing were authorized for issue and who gave the authorization. a. An SME which is a any class of instrument in a subsidiary of a foreign public market. parent company reporting Not holders of secondary under the full PFRS. licenses issued by regulatory b. An SME which is a agencies. subsidiary of a foreign Shall use PFRS for SEs parent company which Micro Entities will be moving towards Total assets and liabilities are IFRS pursuant to the below P3 million. foreign country’s Not required to file FS under published convergence Part II of SRC Rule 68 plan. Not in the process of filing their c. An SME either as a FS for the purpose of issuing significant joint venture or any class of instrument in a associate, which is part of public market. a group that is reporting Not holders of secondary under the full PFRS. licenses issued by regulatory d. An SME which is a agencies branch office or regional Events after reporting period – are those operating headquarter of events, favorable or unfavorable, that occur a foreign company between the end of reporting period and the reporting under the full date that the financial statements are PFRS. authorized for issue. (PAS 10) e. An SME which has Two types of events after the reporting subsidiary that is period mandated to report under Adjusting events after the reporting full PFRS. period – are those that provide f. An SME which has a evidence conditions that existed at the short-term projection that end of the reporting period. shows that it will Non-adjusting events after breached the quantitative reporting period – those that are threshold set for an SME. indicative of conditions that arose after g. An SME which has a the reporting period. concrete plan to conduct Date of authorization of FS – date when the an initial public offering management authorizes the FS for issue within the next two years. regardless of whether the authorization for h. An SME which has been issue is for further approval or for final preparing FS using full issuance users. PFRS and has decided to Disclosures liquidate. Date of authorization for issue Small Entities Adjusting events Total assets of between P3 Material non-adjusting events million to P100 million or total **non-adjusting events should be disclosed if they liabilities between P3 million to are of such importance that non-disclosure would P100 million affect the ability of users to make proper **if an entity is a parent evaluations and decisions. **a company should update disclosures that relate company such amount shall be to conditions that existed at the end of the reporting based on consolidated figures. period to reflect any new information that it receives Not required to file FS under after the reporting period about those conditions. Part II of SRC Rule 68