PREPARATION OF

FINANCIAL STATEMENTS
LITO J. SOLIMA, CPA, CTT, LPT, MBA
(revised PAS1)
 INTRODUCTION (PAS 1)

Philippine Accounting Standards (PAS) 1 Comparability requires consistency in

Presentation of Financial Statements the adoption and application of
prescribes the basis for the presentation accounting policies and in the
of general-purpose financial statements, presentation of financial statements.
the guidelines for their structure, and the PAS 1 applies to the preparation of
minimum requirements for their content general-purpose financial statements.
to ensure comparability. The recognition, measurement and
disclosure requirements for specific
transactions and other events are set
out in other PFRSs.
 FINANCIAL STATEMENTS

“Financial statements are the “structured Purpose of financial statements

representation of an entity’s financial 1. Primary objective: to provide
position and results of its operations”.” information about the financial
position, financial performance, and
General purpose financial statements cash flows of an entity that is useful
(‘financial statements’) are “those to a wide range of users in making
intended to meet the needs of users who economic decisions.
are not in a position to require an entity 2. Secondary objective: to show the
to prepare reports tailored to a particular results of management’s
information needs.” stewardship over the entity’s
resources.
 FINANCIAL STATEMENTS

Complete set of financial statements General features of financial statements

1. Statement of financial position 1. Fair Presentation and Compliance
2. Statement of profit or loss and with PFRSs
other comprehensive income. 2. Going Concern
3. Statement of changes in equity.
4. Statement of cash flows 3. Accrual Basis of Accounting
5. Notes to the Financial Statements 4. Materiality and Aggregation
5. Offsetting
6. Frequency of reporting
7. Comparative information
8. Consistency of presentation
 FINANCIAL STATEMENTS

PROFIT OR LOSS OF THE YEAR HOW ITEMS ARE DISCLOSED

➢PAS 1 stipulates that all items of income ➢PAS1 specifies disclosures of certain
and expenses recognized in a period items in certain ways:
shall be included in profit or loss unless ▪ Some items must appear on the face
standard requires otherwise. of the statement of financial position
➢Circumstances where items may be or statement of profit or loss and
excluded from profit or loss for the other comprehensive income.
current year included the correction of ▪ Other items can appear in a note to
errors and the effect of changes in the financial statements instead.
accounting policies.
▪ Recommended formats are given
which entities may or may not follow,
depending on their circumstances.
 FINANCIAL STATEMENTS

Structure and contents of financial c) The date of the end of the

statements reporting period or the
The following information shall be period covered b the
displayed prominently and repeatedly financial statements
whenever relevant to the understanding d) The presentation currency
of the information presented: e) The level of rounding used
a) The name of the reporting (e.g., thousands, millions,
entity etc.)
b) Whether the statements are
for the individual entity or for a
group of entities.
FINANCIAL STATEMENTS

ABC Group
Statement of Financial Position
As of December 31, 20x2
(in thousands of Philippine Pesos)
 FINANCIAL STATEMENTS

Reporting Period Timeliness

PAS 1 states that presentation of financial If the publication of financial statement
statement should be prepared annually. is delayed too long after the reporting
If, unusually, the end of the entity's period, their usefulness will be severely
reporting period is changed (for example diminished. An entity with consistently
less or more than one year) for whatever complex operations cannot use this as a
reason, the entity should disclose: reason for its failure to report on a
1. The reason(s) why a period timely basis. Local legislation and
other than one year is used. market regulation imposes specific
2. The fact that the comparative deadlines on certain entities.
figures given are not in fact
comparable.
 FINANCIAL STATEMENTS

Management’s Responsibility over This document is signed by the entity’s:

Financial Statements a. Chairman of the Board, (or
The responsibility encompasses: equivalent)
a. The preparation and fair presentation b. Chief Executive Officer (or
of financial statements in accordance with equivalent), and
PFRSs;
c. Chief Financial Officer (or equivalent)
b. Internal control over financial
reporting;
c. Going concern assessment;
d. Oversight over the financial reporting
process; and
e. Review and approval of financial
statements
 STATEMENT OF FINANCIAL POSITION

PAS 1 suggest a format for the

statement of financial position.

PAS 1 discusses the distinction

between current and non-
current items in some details.
XYZ GROUP - STATEMENT OF FINANCIA POSITION AT DECEMBER 31, 2019
2019 2018
ASSETS P'000 P'000
NON-CURRENT ASSETS
PROPERTY, PLANT AND EQUIPMENT 350,700 360,020
GOODWILL 80,800 91,200
OTHER INTANGIBLE ASSETS 227,470 227,470
INVESTMENT IN ASSOCIATS 100,150 110,770
INVESTMENT IN EQUITY INSTRUMENTS 142,500 156,000
901,620 945,460
CURRENT ASSETS
INVENTORIES 135,230 132,500
TRADE RECEIVABLES 91,600 110,800
OTHER CURRENT ASSETS 25,650 12,540
CASH AND CASH EQUIVALENTS 312,400 322,900
564,880 578,740
TOTAL ASSSETS 1,466,500 1,524,200

EQUITY AND LIABILITIES

EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
SHARE CAPITAL 650,000 600,000
RETAINED EARNINGS 243,500 161,700
OTHER COMPONENTS OF EQUITY 10,200 21,200
903,700 782,900
NON-CONTROLLING INTEREST 70,050 48,600
TOTAL EQUITY 973,750 831,500

NON-CURRENT LIABILITIES
LONG-TERM BORROWINGS 120,000 160,000
DEFERRED TAX 28,800 26,040
LONG-TERM PROVISIONS 28,850 52,240
TOTAL NON-CURRENT LIABILITIES 177,650 238,280

CURRENT LIABILITIES
TRADE AND OTHER PAYABLES 115,100 187,620
SHORT-TERM BORROWINGS 150,000 200,000
CURRENT PORTION OF LONG-TERM BORROWINGS 10,000 20,000
CURRENT TAX PAYABLE 35,000 42,000
SHORT-TERM 5,000 4,800
TOTAL CURRENT LIABILITIES 315,100 454,420
TOTAL LIABILITIES 492,750 692,700
TOTAL EQUITY AND LIABILITIES 1,466,500 1,524,200
 STATEMENT OF FINANCIAL POSITION

The statement of financial position shows g. Inventories

the entity’s financial condition (i.e., status h. Trade and other receivables
of assets, liabilities and equity) as at a
i. Cash and cash equivalents
certain date. It includes line items that
present the corresponding amounts: j. Assets held for sale, including
a. Property, plant and equipment disposal groups
b. Investment property k. Trade and other payables
c. Intangible assets l. Provisions
d. Financial assets (including (e), (h) and
m. Financial liabilities (excluding (k) and
(i) (l))
e. Investments accounted for using the
equity method
f. Biological assets
 STATEMENT OF FINANCIAL POSITION

n. Current tax liability and current tax PAS 1 does not prescribe the order
assets or format of presenting items in the
o. Deferred tax liabilities and deferred tax statement of financial position. The
assets foregoing is simply a list of items that
are sufficiently different in nature or
p. Liabilities included in disposal groups function to warrant separate
q. Non-controlling interests, and presentation.
r. Issued capital and reserves attributable
to owners of the parent Accordingly, an entity may modify
the descriptions used and the
sequence of their presentation to suit
the nature of the entity and its
transactions.
 STATEMENT OF FINANCIAL POSITION

Presentation of statement of financial A classified presentation highlights

position an entity’s working capital and
A statement of financial position may be facilitates the computation of
presented in a “classified” or an liquidity and solvency ratios.
“unclassified” manner.
a. A classified presentation shows Working capital = Current Assets –
distinctions between current and Current Liabilities
noncurrent assets and current and
noncurrent liabilities.
b. An unclassified presentation (also
called ‘based on liquidity’) shown no
distinction between current and
noncurrent items.
 Current Assets Current Liabilities
are assets that are: are liabilities that are:

a. Expected to be realized, sold, a. Expected to be settled in

or consumed in the entity’s the entity’s normal
normal operating cycle. operating cycle.
b. Held primarily for trading b. Held primarily for trading.
c. Expected to be realized within c. Due to be settled within
12 months after the reporting 12 months after the
period; or reporting period.
d. Cash or cash equivalent , d. The entity does not have
unless restricted from being an unconditional right to
exchanged or used to settle a defer settlement of the
liability for at least twelve liability for at least twelve
months after the reporting months after the reporting
period. period.
All other assets and liabilities are
classified as noncurrent.
 STATEMENT OF FINANCIAL POSITION

“The operating cycle of an entity is the time

between the acquisition of assets for processing
and their realization in cash or cash equivalent.
When the entity’s normal operating cycle is not
clearly identifiable, it is assumed to be 12 months.”
 STATEMENT OF FINANCIAL PERFORMANCE

Income and expenses for the period may be presented in either:

a) A Single statement of profit or loss and other comprehensive
income (statement of comprehensive income); or

b) Two statements-
1. a statement of profit of loss, and
2. a statement presenting comprehensive income.
 STATEMENT OF FINANCIAL PERFORMANCE

These presentations have the B. Two-statement presentation

following basic formats: 1. Statement of profit or loss/Income
Single statement presentation: statement
A. Statement of profit or loss and other Revenues P100
comprehensive income Expenses ( 80)
Revenues P100 Profit of loss P 20
Expenses ( 80)
Profit or loss 20
Other comprehensive
income 10
Comprehensive Income P 30
 STATEMENT OF FINANCIAL PERFORMANCE

2. Statement of other comprehensive PAS 1 requires the entity to present

income information on the following:
a. Profit or loss
Profit of loss P20 b. Other comprehensive income
Other comprehensive c. Comprehensive income
income 10 Presenting a separate income
Comprehensive income P30 statements is allowed as long as a
separate statement showing
comprehensive income is also
presented (i.e., “two-statement
presentation”). Presenting only an
income statement is prohibited.
 STATEMENT OF FINANCIAL PERFORMANCE

Profit or Loss Presentation of Expenses

Expenses may be presented using
Profit or loss is income less expenses, either of the following methods:
excluding the components of other a. Nature of expense method- under
comprehensive income. The excess of this method, expenses are aggregated
income over expenses is profit, while the according to their nature (e.g.,
deficiency is called loss. This method of depreciation, purchases of materials,
computing for profit or loss is called the transport costs, employee benefits, and
“transaction approach”. advertising costs) and are not
reallocated according to their functions
within the entity.
 STATEMENT OF FINANCIAL PERFORMANCE

b. Function of expense method- (Cost Other Comprehensive Income (OCI)

of sales method)- under this method, an
entity classifies expenses according to
their function (e.g., cost of sales, Other comprehensive income
distribution costs, administrative “comprises items of income and
expenses, and other functional expense (including reclassification
classifications). At a minimum, cost of adjustments) that are not recognized in
sales shall be presented separately from profit or loss as required or permitted
other expenses. by other PFRSs.”
 STATEMENT OF FINANCIAL PERFORMANCE

Presentation of OCI Total Comprehensive Income

The other comprehensive income section
shall group items of OCI into Total comprehensive income is “the
the following: change in equity during a period
a. Those for which reclassification resulting from transactions and other
adjustment is allowed; and events, other than those changes
resulting from transactions with owners
b. Those for which reclassification in their capacity as owners”. (PAS 1.7)
adjustment is not allowed.
 STATEMENT OF CHANGES IN EQUITY

PAS 1 requires a statement of changes in Statement in changes in equity shows

equity. This shows the movement in the the following information:
equity section of the statement of a. Effects of change in accounting policy
financial position. (retrospective application) or correction
of prior period error (retrospective
restatement);
b. Total comprehensive income for the
period; and
 STATEMENT OF CHANGES IN EQUITY

c. For each component of equity, a Retrospective adjustments and

reconciliation between the carrying retrospective restatements are
amount at the beginning and the end of presented in the statement of changes in
the period, showing separately equity as adjustments to the opening
balance of retained earnings rather than
changes resulting from: as changes in equity during the period.
1. Profit and loss
2. Other comprehensive income Components of equity include for
3. Transactions with owners, e.g., example, each class of contributed
contributions by and distributions to equity, the accumulated balance of each
owners. class of other comprehensive income and
retained earnings. (PAS1.108)
 STATEMENT OF CASH FLOWS

A statement of cash flows is a Will be discussed on a separate

component of financial statements chapter.
summarizing the operating, investing and
financing activities of an entity.
In simple language, the statement of cash
flows provides Information about the
cash receipts and cash payment; of an
entity during a period.
An entity shall prepare a statement of
cash flows and present it 'as an integral
part of the financial statements for each
period for which financial statements are
presented.
 NOTES TO THE FINANCIAL STATEMENTS

Contents of Notes Structure

The notes to the financial statement will The notes to the financial statement
amplify the information given in the should perform the following functions:
statement of financial position, statement a. Present information about
of profit or loss and other comprehensive the basis on which the
income and statement of changes in financial statements were
equity. prepared and which specific
accounting policies were
chosen and applied to
significant
transactions/events.
 NOTES TO THE FINANCIAL STATEMENTS

Structure Notes to the FS will amplify the

b. Disclose any information, not information shown therein by giving the
shown elsewhere in the following:
financial statements, which is a. More detailed analysis or
required by PFRS. breakdown of figures in the
c. Show any additional statements.
information that is relevant to b. Narrative information
understanding which is not explaining figures in the
shown elsewhere in the statements.
financial statements. c. Additional information (e.g.
contingent liabilities and
commitments)
 NOTES TO THE FINANCIAL STATEMENTS

PAS 1 suggests a certain order for notes d. Other disclosures:

to the FS: a. Contingent liabilities,
a. Statement of compliance with commitments and other
PFRSs. financial disclosures
b. Non-financial disclosures
b. Statement of the measurement
basis (bases) and accounting
applied
c. Supporting information for
items presented in each
financial statement in the same
order as each line item and
each financial statement is
presented.
 NOTES TO THE FINANCIAL STATEMENTS

Disclosures of Accounting Policies: Other disclosures:

a. The measurement basis (or a. The amount of dividends
bases) used in preparing the proposed or declared before
financial statements. the FS were authorized for
issue but not recognized as a
b. The other accounting policies distribution to owners during
used, as required for a proper the period, and the amount
understanding of the financial per share.
statements.
b. The amount of any cumulative
preference dividends not
recognized.
 NOTES TO THE FINANCIAL STATEMENTS

Other specific disclosures:

a. The domicile and legal form of
the entity, its country of
incorporation and the address
of the registered office
b. A description of the nature of
the entity’s operations and its
principal activities
c. The name of the parent entity
and the ultimate parent entity
of the group.
 QUESTION:

WHAT IS PAS1? PRESENTATION OF

FINANCIAL STATEMENTS
 QUESTION:

WHY IT IS IMPORTANT THAT BECAUSE ALL PSAs/PFRSs APPLY

ENTITIES DISTINGUISH THE ONLY TO THE FINANCIAL
FINANCIAL STATEMENTS FROM STATEMENTS (THE MAIN
ANY OTHER INFORMATION STATEMENTS AND RELATED
PUBLISHED WITH THEM? NOTES), SO READERS OF THE
ANNUAL REPORT MUST ABLE TO
DIFFERENTIATE BETWEEN PARTS
OF THE REPORTS WHICH ARE
PREPARED UNDER PFRSs, AND
OTHER PARTS WHICH ARE NOT.
The END!