FINANCIAL STATEMENTS - an expanded form of the income

statement, it encompasses profit or

Financial Statements loss and other SCI.
structured financial representation of - It helps users assess the entity’s
an enterprise’s financial position, ability to generate cash.
performance, and transaction
3. Statement of Changes in
General Purpose FS Equity (SCE)
provide information about an - presents the summarized
enterprise's financial position, transactions affecting the balances
performance, and cash flows useful of equity accounts, such as profit or
to various users in making economic loss. Other SCI, contributions and
decisions distributions to owners
- details a company’s equity changes
IAS 1 Presentation of FS DURING the reporting period
presents the basis for presenting including new shares, dividends and
financial statements. retained earnings
- it helps users assess the entity’s
Objective of IAS 1 Presentation overall financial stability and
of FS health
presents the basis for presentation of
the financial statements to ensure 4. Statement of Cash Flows (SCF)
comparability of an enterprise’s FS - presents information on the
both inter and intra comparability inflows and outflows of cash and
cash equivalents DURING the
Components of Financial reporting period
Statements - assist users in assessing an
entity’s ability to remain solvent
1. Statement of Financial and provide returns to investors
Position (SFP) and creditors
- presents information on the -m provides a detailed overview of a
balances of assets, liabilities, and company’s cash inflows and
equity at the END of the period outflows, categorized into operating,
- provides a detailed overview of the investing, and financing activities
company’s financial status
- when evaluated to other 5. Notes to Financial Statements
components, it is useful to various - presents relevant financial
users of accounting information in information pertaining to the
assessing the economic entity’s activities that cannot be
resources that an enterprise presented on the face of FS.
controls, its liquidity and solvency, - include description of the basis of
and its capacity to adapt to changes the presentation of FS and a
in the environment. summary of significant accounting
policies, information required by
2. Statement of Comprehensive the PFRS and IFRS.
Income (SCI) - additional information will help the
- presents the financial performance users understand the information
DURING the reporting period presented in any of the FS
- presents comprehensive overview - provides context, explanation, and
of a company’s financial details on significant accounting the
performance over a specific period numbers of the financial statement
including revenues and expenses or
gains and losses
 Requirement for an additional
statement of financial position
GENERAL FEATURES
IAS 1 requires the inclusion of SFP
at the beginning of the preceding 1. Fair Presentation and
period whenever an entity restates Compliance with IFRS/PFRS
its comparative prior period financial
statements. In such a case there Fs shall present fairly the financial
shall be 6 components of a complete position, performance and cash flow
set of financial statement of an enterprise. Fair presentation
requires faithful representation of
ACCOUNTING POLICIES the effects of the transactions in
accordance with the definitions and
The accounting policies adopted by recognition criteria for assets,
the company’s management largely liabilities, income and expenses set
affect the FS. out in the Conceptual Framework.

IAS 8 Accounting Policies, Changing The principle emphasizes that FS

in Accounting Estimates and Errors should accurately represent a
defines accounting policies as the company’s financial position and
specific principles, bases, performance adhering to IFRS/PFRS
conventions, rules, and practices for consistency and comparability
applied by an entity in preparing
and presenting FS. 2. Going Concern
Some examples of an entity’s
accounting policies are criteria to FS should be prepared on a going
determine which financial concern basis unless management
instruments qualify as a cash intends to liquidate the enterprise
equivalents, characteristics of or cease trading or has no realistic
elements comprising Investment alternative to do so.
Property, PPE, the use of the
weighted average method to When the FS are not prepared on a
determine the cost of inventory, going concern basis, the following
and measuring inventories at the shall be disclosed in the notes to the
lower of cost and net realizable FS
value.
In assessing whether the enterprise
The management shall apply the should assess the ability of the
specific requirements of the PFRS or enterprise to continue operation for a
Interpretation that specifically period of at least 12 months.
applies to a transaction. In the However when the enterprise has a
absence of the Standard or an history of profitable operation
Interpretation that specifically and ready access to financial
applies to a transaction, the resources, no detailed analysis is
management shall use its judgement necessary to evaluate the capacity of
in developing and applying an an enterprise to continue operations
accounting policy that results in in the future.
information that meets the
qualitative characteristics described Financial Statements assume that
in the Conceptual Framework. the entity will continue to
operate in the foreseeable future
but should not assume
liquidation unless it’s
appropriate.
Information as material if it’s non-
disclosure would influence the
3. Accrual Basis decision or evaluation of the user.
Materiality depends on the size and
nature of the item judge in the
An enterprise should prepare its FS
particular circumstances of its
EXCEPT cash flow under the accrual
omission.
basis of accounting. Under this,
transactions are recognized
The aggregation and
when they occur (not when cash is
classification process involves
received/paid). There are 3 expense
presenting condense and
recognition principle
classified information. If an item
taken individually will call the
a. Associating cause & effect
attention of the user, then the items
b. Systematic & rational allocation
presented a single line item on the
c. immediate recognition
face of the FS. However if the item
taken individually is NOT considered
Expenses are recognized based on a significant, it is aggregated with
direct association between the cost other items either on the face or in
incurred and the earning of specific the notes.
items of income (a) or by
systematically allocating the cost of The presentation of information
assets acquired to periods of should be material to users, while
benefits (b). The accrual basis of immaterial details can be aggregated
accounting and the expense to prevent oversimplifying important
recognition principle DO NOT allow information
the recognition of assets for costs
that are not expected to provide 5. Offsetting
probable future economic benefits
(c). It means deducting 1 item from
another of different nature only the
Examples of (a) are COGS and net on the face of the FS.
warranty expense. (b) are
depreciation expense, rent expense Presenting receivables net of the
and insurance expense. related allowance for estimated
credit losses, and PPE net of
It involves recording financial accumulated depreciation on the
transactions and events as they face of the SFP is NOT offsetting.
occur, rather than when cash is
received or paid, for a more accurate Generally, offsetting is not allowed
financial representation unless required or permitted by a
Standard or an Interpretation.
4. Materiality and Aggregation
Offsetting is also allowed and applied
Each material item should be when presenting on the net basis
presented separately in the FS. reflects the substance of the
Immaterial amounts of similar transaction, say, netting an income
picture or function should be with related expenses arising on the
aggregated and presented as a one same transaction.
line item on the face of the FS.
Legal process of presenting assets
and liabilities as a single net amount
to provide a more accurate financial a. It is apparent
position b. An IFRS requires a change in
presentation
6. Frequency of Reporting That means that the manner of
presentation of FS shall be retained
FS should be presented at least from period to period unless the
annually. When in exceptional cases, changed presentation is more useful
an enterprise SFP date changes and to the users and enhances the
FS are prepared for a period longer relevance of information
or shorter than 1 year, that fact
should be disclosed. Entities should consistently apply
accounting policies across periods,
The company should prepare its FS unless required by IFRS or to provide
annually to provide stakeholders with more reliable and relevant
current information information

7. Comparative Information IDENTIFICATION OF THE

FINANCIAL STATEMENTS
Comparative Information should be
disclosed in respect of the preceding The FS shall be identified clearly and
for all financial information in the FS. distinguished from other information
Comparative narrative and in the same published document
descriptive information shall likewise
be included when it is relevant to Each component of the FS shall be
understanding the current period’s identified clearly. In addition, the
FS. following information shall be
displayed prominently and repeated
Thus, when presenting the FS for when necessary, for a proper
2023, the comparative information understanding of the information
for 2022, as a minimum should be presented.
presented. This means that in
presenting information for the (a) the name of the reporting entity
current year, two sets of all and any change in that information
components of FS are presented as from the preceding FS date
follows:
(b) whether the FS cover the
SFP (as at the end of current year) individual/group entities
SCI (for the current year ended)
SCE (for the current year ended) (c) the SFP date/period covered by
SCF (for the current year ended) the FS, whichever is appropriate to
Notes (for the current year) that component of FS

Comparative information previous (d) presentation of currency

years should be included in the
current year’s FS to aid users in (e) the level of rounding used in
evaluating the company’s presenting amounts in the FS
performance over time.

8. Consistency of Presentation FUNDAMENTALLY RELATED

FINANCIAL STATEMENTS
The presentation and classification of
items in the FS should be the same The FS are fundamentally related
from period to period unless because they relate to the effects of
the same sets of transactions
completed by the enterprise during disposal of non-current assets and
the reporting period. cash outflows from the acquisition,
creation, or enhancement of non-
In completing the accounting current assets.
process, which culminates in the
presentation of FS, the FIRST FS Financing Cash Flows Activities
prepared by a reporting entity is are those that arise from
generally the Statement of transactions with non-trade lenders
Comprehensive Income. The profit as well as owners of the entity they
is the net effect of income and include inflows from borrowing from
expenses presented in the profit lenders, issue of share capital,
section of the statement which is reissue of treasury shares, other
transferred to the appropriate equity additional contributions from owners,
account in the SCE. outflows for payments to lenders,
and distribution to owners.
The holding gains and losses or
income and expenses that are LIMITATIONS OF THE
expected to reverse overtime and FINANCIAL STATEMENTS
other items required by the IFRS to
be classified as other comprehensive Despite the usefulness of FS, they
income are presented as OCI they also have several weakness and
are transferred to the equity limitations.
component called cumulative OCI in
the SCE. The actual worth of a business is not
reflected in the FS because of the
Statement of Changes in Equity use of different measurement bases.
presents the changes in each major The FS present values that are a
equity component during the mixture of different levels of
reporting and reconciles the purchasing power
beginning equity component
balances with the ending equity Due to some measurement
component balances. uncertainties, some FS elements are
not recognized because only events
In the Statement of Cash Flows, and transactions capable of financial
cash flows activities are classified as measurement and have met the
operating, investing, and financing. recognition criteria identified in the
Conceptual Framework can be
Operating Cash Flows Activities reflected.
are inflows and outflows of cash and
cash equivalents that are involved in Despite all the preceding limitations,
the determination of profit. These users may use the information
activities include: (a) Inflows during presented in the FS to estimate the
the reporting from sale of goods and firm’s value
services and for allowing other
entities to use enterprise resources SUSTAINABILITY REPORTING
(b) outflows during the reporting for
acquisition of goods and expenses Publicly listed entities are also
incurred required to issue their sustainability
reports for disclosure of their
Investing Cash Flows Activities respective environmental, social, and
are inflows and outflows of cash and governance (ESG) goals.
cash equivalents that generally
affect non-current assets. These The sustainable reports provides
include cash inflows from the the entity’s stakeholders with an
overview of its economic, Republic Act 8799, which is
environmental and social impacts. otherwise known as Securities
Regulation Code (SRC) with its
By requiring entities to issue subsequent amendments and
sustainability reports, entities may implementing rules and regulations
increase levels of accountability and (IRR) reemphasizes the requirement
transparency in response to the for the submission of an annual
demands of their stakeholders. report by companies, together with
FS, certifies by an independent CPA
The sustainability report requirement
applies only to publicly listed SRC Rule 68 provides for the general
entities. However, non-publicly listed guides to FS preparation
entities will have to revisit their responsibility to FS qualifications and
practices and apply the triple- reports of independent auditors and
bottom-line concept that gives review of their quality assurance
equal importance to people, processes.
planet, and profit. Entities are
encouraged to measure their social CLASSIFICATION OF REPORTING
responsibility, economic value, and ENTITIES BASED ON THE
environmental impact to sustain APPLICABLE PHILIPPINE
operations and gain competitive FINANCIAL REPORTING
advantage. FRAMEWORKS

THE SECURITIES AND EXCHANGE SRC Rule 68 Section 2 provides

COMMISSION general guides to FS
[Link] SRC Rule 68,
The corporate form of business reporting entities classified as
organization allows its owners called
shareholders to trade their equity (a) large & publicly accountable
interest in the entity even without entities
the consent of the other (b) medium-sized entities
shareholders. The investment risk (c) small entities
these inactive owners bear is (d) micro entities
mitigated by imposing some
reportorial regulations on Large & publicly accountable
corporation. entities are those that meet ANY of
these:
The Security and Exchange - total assets of more than 350M or
Commission (SEC) is the national total liabilities of more than 250M
government regulatory agency -required to file FS under part II of
charged with the supervision of the SRC Rule 68
corporate sector. From its original - are holders of secondary licenses
function of regulating the sale and issued by regulatory agencies
registration of securities, the SEC’s
mandate has been broadened to Medium-sized entities are those
include the development and that meet ALL of these:
regulation of the corporate and - total assets of more than 100M-
capital market toward good 350M or liabilities of more than
corporate governance, protection of 100M-250M
investors, widest participation of - not required to file FS under part II
ownership, and democratization of of SRC Rule 68
wealth. - are not holders of secondary
licenses issued by regulatory
agencies
Small entities are those that meet
ALL of these:
- total assets of between 3M-100M or
liabilities of between 3M-100M
- not required to file FS under part II
of SRC Rule 68
- are not holders of secondary
licenses issued by regulatory
agencies

Micro entities are those that meet

ALL of these:
- total assets and total liabilities of
less than 3M
- not required to file FS under part II
of SRC Rule 68
- are not holders of secondary
licenses issued by regulatory
agencies

APPLICABILITY OF PHILIPPINE
FINANCIAL REPORTING
FRAMEWORKS

Financial reporting frameworks

applicable to these foregoing entities
fall under the following
classifications:

(a) Full PFRS/IFRS

(b) PFRS for Small and Medium-sized
entities
(c) PFRS for Small Entities
(d) Income tax reporting

Large and/or publicly accountable

entities shall prepare their FS
applying the full PFRS/IFRS.