MODULE 1 a.

General-purpose financial statements

provide at the least cost the most useful
Development of Financial Reporting Framework
information possible to a wide variety of users.
And Standard Setting Body
b. Equity investors and creditors are the
The purpose of Accounting and Financial
primary user groups and have the most critical
Reporting
and immediate needs for information in the
Accounting is important for markets, free enterprise, financial statements. Investors and creditors
and competition because it assists in providing need this information to assess a company’s
information that leads to capital allocation. Reliable ability to generate net cash inflows and to
information leads to a better, more effective process understand management’s ability to protect
of capital allocation, which in turn is critical to a and enhance the assets of a company.
healthier economy. c. The entity perspective means that the
Financial accounting is the process that company is viewed as being separate and
culminates in the preparation of financial reports on distinct from its investors (both shareholders
the enterprise for use by both internal and external and creditors). Therefore, the assets of the
parties. company belong to the company, not a specific
creditor or shareholder. Financial reporting
Capital allocation is the process of determining the focused only on the needs of the
most efficient investment strategy for an shareholder—the proprietary perspective—is
organization's financial resources, with the goal of not considered appropriate.
maximizing shareholder equity.
d. Decision-usefulness means that information
Financial statements are the principal means contained in the financial statements should
through which a company communicates its financial help investors assess the amounts, timing, and
information to those outside it. The financial uncertainty of prospective cash inflows from
statements most frequently provided are dividends or interest, and the proceeds from
1. the statement of financial position, the sale, redemption, or maturity of securities
2. the income statement or statement of or loans. For investors to make these
comprehensive income, assessments, the financial statements and
3. the statement of cash flows, and related explanations must provide
4. the statement of changes in equity. information about the company’s economic
5. Note disclosures are an integral part of resources, the claims to those resources, and
each financial statement. Other means of the changes in them.
financial reporting include the president’s BRANCHES OF ACCOUNTING
letter or supplementary schedules in the
corporate annual report, prospectuses, and  Financial Accounting is focused on the
reports filed with government agencies. recording of business transactions and the
periodic preparation of reports on financial
The major standard-setters of the world, position and results of operations. Financial
coupled with regulatory authorities, now accountants accord importance to existing
recognize that capital formation and investor accounting standards.
understanding is enhanced if a single set of high-
quality accounting standards is developed.  Management Accounting, as defined by
OBJECTIVE OF FINANCIAL REPORTING Institute of Management Accountants (IMA)
is a profession that involves partnering in
The objective of general-purpose financial management decision making, devising
reporting is to provide financial information about planning and performance management
the reporting entity that is useful to present and systems, and providing expertise in financial
potential equity investors, lenders, and other reporting and control to assist management
creditors in making decisions about providing in the formulation and implementation of
resources to the entity. organization’s strategy.
 STANDARD-SETTING ORGANIZATIONS
 Cost Accounting deals with the collection, The main international standard setting
allocation and control of the cost of producing organization is the International Accounting
specific goods and services. Standards Board (IASB), based in London, United
Kingdom. The IASB issues International
 Auditing is an independent examination Financial Reporting Standards (IFRS) which are
that ensures the fairness and reliability of the used by most foreign exchanges.
reports that management submits to users
The two organizations that have a role in
outside the business entity.
international standard-setting are the International
Organization of Securities Commissions
 Government Accounting is concerned with
(IOSCO) and the IASB.
the identification of the sources and uses of
government funds. a. The IOSCO does not set accounting standards;
it is dedicated to ensuring that the global markets
 Tax Accounting includes preparation of can operate in an efficient and effective basis.
tax returns and the consideration of tax b. The member agencies have agreed to:
consequences of proposed business
transactions. 1. Cooperate to promote high standards of
regulation in order to maintain just,
 Accounting Education employs efficient, and sound markets.
accountants either as researchers, 2. Exchange information on their respective
professors or reviewers. They guarantee experiences in order to promote the
the continued development of the development of domestic markets.
3. Unite their efforts to establish standards
profession.
and an effective surveillance of
To facilitate efficient capital allocation, investors international securities transactions.
need relevant information and a faithful 4. Provide mutual assistance to promote the
representation of that information to enable them integrity of the markets by a rigorous
to make comparisons across borders. A single, application of the standards and by effective
widely accepted set of high-quality accounting enforcement against offenses.
standards is a necessity to ensure adequate
IOSCO recommends that its members allow
comparability. In order to achieve this goal the
multinational issuers to use IFRS in cross-folder
following element must be present:
offerings and listings, as supplemented by
a. A single set of high-quality accounting reconciliation, disclosure, and interpretation where
standards established by a single necessary, to address outstanding substantive
standard-setting body. issues at a national or regional level.
b. Consistency in application and interpretation.
The international standard-setting structure is
c. Common disclosures.
composed of the following four organizations:
d. Common high-quality auditing standards and
practices. a. The IFRS foundation (22 trustees)
e. A common approach to regulatory review provides oversight to the IASB, IFRS
and enforcement. Advisory Council, and IFRS Interpretations
f. Education and training of market Committee. It appoints members, reviews
participants. effectiveness, and helps in fundraising efforts
g. Common delivery systems (e.g., extensible for these organizations.
Business Reporting Language—XBRL). b. The International Accounting Standards
h. A common approach to corporate Board (IASB) consisting of 16 members,
governance and legal frameworks around develops in the public interest, a single
the world. set of high-quality, enforceable, and global
international financial reporting standards for
general-purpose financial statements.
 c. The IFRS Advisory Council (30 or more a. Membership: The Board consists of 16
members) provides advice and council to the well-paid members, from different countries,
IASB on major policies and technical issues. serving 5-year renewable terms.
d. The IFRS Interpretations Committee (22 b. Autonomy: The IASB is not part of any
members) assists the IASB through the professional organization. It is appointed by
timely identification, discussion, and and answerable only to the IFRS Foundation.
resolution of financial reporting issues within c. Independence: Full-time IASB members
the framework of IFRS. must sever all ties with their former employer.
Members are selected for their expertise in
In addition, as part of the governance structure, a
standard-setting rather than to represent a
Monitoring Board was created. It establishes a link
given country.
between accounting standard-setters and those d. Voting: Nine of 16 votes are needed to issue
public authorities that generally oversee them
a new IFRS.
(e.g. IOSCO). It also provides political legitimacy
to the overall organization. The IASB issues three major types of
pronouncements:
The IASB has a thorough, open and transparent due
process in establishing financial accounting International Financial Reporting Standards:
standards. It consists of the following elements: To date the IASB has issued 13 standards. In
addition, the previous international standard-setting
a. An independent standard-setting board
body, the International Accounting Standards
overseen by geographically and
Committee (IASC) issued 41 International
professionally diverse body of trustees.
Accounting Standards (IAS). Those that have not
b. A thorough and systematic process for
been amended or superseded are considered
developing standards.
under the umbrella of IFRS.
c. Engagement with investors, regulators,
business leaders, and the global Conceptual Framework for Financial Reporting:
accountancy profession at every stage of the The IASB issued the Framework for the Preparation
process. and Presentation of Financial Statements
d. Collaborative efforts with the worldwide (referred to as the Framework) with the intent to
standard-setting community. create a conceptual framework that would serve as
a tool for solving existing and emerging problems
To implement its due process, the IASB follows
in a consistent manner. However, the Framework
specific steps to develop a typical IFRS.
is not an IFRS and does not define standards
a. Topics are identified and placed on the for any measurement or disclosure issue. Nothing
Board’s agenda. in the Framework overrides any specific IFRS.
b. Research and analysis are conducted, and International Financial Reporting
preliminary views of pros and cons are
Interpretations: Interpretations are issued by the
issued.
IFRS Interpretations Committee and are considered
c. Public hearings are held on the proposed
authoritative and must be followed. Twenty have
standard.
been issued to date. These interpretations cover
d. The Board evaluates research and public
(1) newly identified financial reporting issues not
responses and issues an exposure draft.
specifically dealt with in IFRS, and (2) issues
e. The Board evaluates the responses and
where unsatisfactory or conflicting interpretations
changes the exposure draft, if necessary.
have developed, or seem likely to develop, in the
Then the final standard is issued.
absence of authoritative guidance.
The following characteristics of the IASB are
The IASB has no regulatory mandate and no
meant to reinforce the importance of an open,
enforcement mechanism. It relies on other
transparent, and independent due process.
regulators to enforce the use of its standards. For
example, the European Union requires publicly
traded member country companies to use IFRS.
Any company indicating that it prepares its
financial statements in conformity with IFRS must In addition, U.S. and European regulators have
use all of the standards and interpretations. The agreed to recognize each other’s standards for
hierarchy of authoritative pronouncements is: IFRS, listing on the various world securities exchanges.
IAS, Interpretations issued by either the IFRS As a result, costly reconciliation requirements
Interpretation Committee or its predecessor the IAS have been eliminated and hopefully will lead to
Interpretations Committee, the Conceptual greater comparability and transparency. Why the
Framework for Financial Reporting, and need for high-quality standards?
pronouncements of other standard-setting bodies
that use a similar conceptual framework to develop  To facilitate efficient capital allocation.
accounting standards (e.g., U.S. GAAP).  In order to ensure adequate comparability
Financial Reporting Challenges across borders, a single, widely accepted set of
high-quality accounting standards is a necessity.
Although IFRS are developed by using sound
research and a conceptual framework that has its  Identify the elements involved:
foundation in economic reality, a certain amount of a. A single set of high-quality accounting
pressure and influence is brought to bear by groups standards established by a single standard-
interested in or affected by IFRS. The IASB does setting body.
not exist in a vacuum, and politics and special-
interest pressure remain a part of the standard- b. Consistency in application and
setting process. interpretation.

The expectations gap is the difference between c. Common disclosures.

what the public thinks accountants should do and
d. Common high-quality auditing standards
what accountants think they can do. It has been
and practices.
highlighted by the many accounting scandals that
have occurred. In order to meet the needs of society e. Common approach to regulatory review and
with highly transparent, clean, and reliable systems, enforcement.
considerable costs will be incurred.
f. Education and training of market
The significant financial reporting challenges facing participants.
the accounting profession are:
g. Common delivery systems.
a. Non-financial measurements such as
customer satisfaction indexes, backlog h. Common approach to corporate governance
information, and reject rates on goods and legal frameworks around the world.
purchased. Major standard-setters and regulatory authorities
b. Forward-looking information. around the world recognize that capital formation
c. Soft assets (intangibles). and investor understanding will be enhanced by a
d. Timeliness. single set of high-quality accounting standards.
In accounting, ethical dilemmas are encountered ACCOUNTING STANDARDS IN THE
frequently. The whole process of ethical sensitivity PHILIPPINES
and selection among alternatives can be
complicated by pressures that may take the form of On November 18, 1981, the Philippine Institute of
time pressure, job pressures, client pressures, Certified Public Accountants (PICPA) created the
personal pressures, and peer pressures. And, there Accounting Standards Council (ASC) to establish
is no comprehensive ethical system to provide and improve accounting standards that will be
guidelines. generally accepted in the Philippines.

Convergence to a single set of high-quality global The creation of the Council received the support
financial reporting standards is a real possibility. For of the following: the Securities and Exchange
example, the IASB and the FASB (of the United Commission (SEC) and the Central Bank of the
States) have spent the last 12 years working to Philippines (CB)-regulatory agencies where the
converge their standards. financial statements are filed; the Professional
Regulation Commission (PRC) through the Board of MODULE 2
Accountancy—which supervises CPAs and auditors,
Conceptual Framework for Financial Reporting
and the Financial Executives Institute of the
Philippines (FINEX)—which is the largest STATUS AND PURPOSE OF THE CONCEPTUAL
organization of financial executives who are FRAMEWORK
responsible for the preparation of the financial
statements. The ASC was composed of eight (8) The Conceptual Framework for Financial Reporting
members-four from PICPA including the designated (Conceptual Framework) describes the objective of,
Chairman; and one each from SEC, CB, PRC and and the concepts for, general purpose financial
FINEX. reporting. The purpose of the Conceptual
Framework is to:
The standards would generally be based on the
following: existing practices in the Philippines, a) assist the International Accounting Standards
research or studies by the Council; locally or Board (Board) to develop IFRS Standards that are
internationally available literature on the topic or based on consistent concepts;
subject; and statements, recommendations, b) assist preparers to develop consistent accounting
studies or standards issued by other standard- policies when no Standard applies to a particular
setting bodies such as the International Accounting transaction or other event, or when a Standard
Standards Board (IASB) and the Financial allows a choice of accounting policy; and assist all
Accounting Standards Board (FASB). parties to understand and interpret the Standards.
Objective, usefulness and limitations of general-
The statements and interpretations issued by the purpose financial reporting
Council represented represent generally accepted The objective of general-purpose financial
accounting principles in the Philippines. reporting is to provide financial information about the
Accounting principles become generally accepted reporting entity that is useful to existing and potential
if they have substantial authoritative support from investors, lenders and other creditors in making
the relevant parties interested in the financial decisions relating to providing resources to the
statements-the preparers and users, auditors and entity. Those decisions involve decisions about:
regulatory agencies.
a) buying, selling or holding equity and debt
Financial Reporting Standards Council instruments;
When created per Section 9(A) of the Rules and b) providing or settling loans and other forms of
Regulations Implementing Republic Act No. 9298 credit; or
otherwise known as the Philippine Accountancy Act c) exercising rights to vote on, or otherwise
of 2004, the Financial Reporting Standards Council influence, management’s actions that affect
(FRSC) shall be the new accounting standard setting the use of the entity’s economic resources.
body. Existing and potential investors, lenders and
The FRSC shall be composed of fifteen (15) other creditors need information about:
members with a Chairman, who had been or a) the economic resources of the entity,
presently a senior accounting practitioner in any of claims against the entity and changes in
the scope of accounting practice and fourteen (14) those resources and claims; and
representatives from the following: one each from b) how efficiently and effectively the entity’s
the BOA, SEC, BSP, BIR, COA and a major management and governing board have
organization composed of preparers and users of discharged their responsibilities to use the
financial statements, and two representatives each entity’s economic resources
from the accredited national professional
organization of CPAs in public practice, commerce Economic resources and claims
and industry, education/academe and government.
Information about the nature and amounts of a
reporting entity’s economic resources and claims
can help users to identify the reporting entity’s Understandability - Classifying, characterizing and
financial strengths and weaknesses. presenting information clearly and concisely makes
it understandable.
Changes in economic resources and claims
The cost constraint on useful financial reporting
Changes in a reporting entity’s economic resources
and claims result from that entity’s financial Cost is a pervasive constraint on the information
performance and from other events or that can be provided by financial reporting.
transactions such as issuing debt or equity Reporting financial information imposes costs, and it
instruments. is important that those costs are justified by the
benefits of reporting that information. There are
Financial performance reflected by accrual
several types of costs and benefits to consider.
accounting
Financial statements
Accrual accounting depicts the effects of
transactions and other events and circumstances on Financial statements provide information about
a reporting entity’s economic resources and claims economic resources of the reporting entity, claims
in the periods in which those effects occur, even if against the entity, and changes in those resources
the resulting cash receipts and payments occur in a and claims, that meet the definitions of the elements
different period. of financial statements. The objective of financial
statements is to provide financial information about
QUALITATIVE CHARACTERISTICS OF USEFUL
the reporting entity’s assets, liabilities, equity,
FINANCIAL INFORMATION
income and expenses that is useful to users of
- identify the types of information that are likely to financial statements in assessing the prospects for
be most useful to the existing and potential future net cash inflows to the reporting entity and
investors, lenders and other creditors for making in assessing management’s stewardship of the
decisions about the reporting entity on the basis of entity’s economic resource.
information in its financial report.
Fundamental qualitative characteristics
Relevance - Relevant financial information can
make a difference in the decisions made by
users if it has predictive value, confirmatory value or
both.
Faithful representation - Financial information
would be complete, neutral and free from error.
Enhancing qualitative characteristics:
Comparability - is the qualitative characteristic that
enables users to identify and understand similarities
in, and differences among, items.
Verifiability - means that different knowledgeable
and independent observers could reach consensus,
although not necessarily complete agreement, that a
particular depiction is a faithful representation.
That information is provided:
Timeliness - means having information available to
a) in the statement of financial position, by
decision-makers in time to be capable of influencing
recognizing assets, liabilities and equity;
their decisions.
b) in the statement(s) of financial performance,
by recognizing income and expenses; and
c) in other statements and notes, by presenting
and disclosing information about:
 i. recognized assets, liabilities, equity,
income and expenses, including
a) right;
information about their nature and
b) potential to produce economic benefits; and
about the risks arising from those
c) control.
recognized assets and liabilities;
ii. assets and liabilities that have not
been recognized, including
information about their nature and A liability is a present obligation of the entity to
about the risks arising from them; transfer an economic resource as a result of past
iii. cash flows; events. For a liability to exist, three criteria must all
iv. contributions from holders of equity be satisfied:
claims and distributions to them; and a) the entity has an obligation;
v. the methods, assumptions and b) the obligation is to transfer an economic
judgments used in estimating the resource; and
amounts presented or disclosed, and c) the obligation is a present obligation that
changes in those methods, exists as a result of past events.
assumptions and judgements.
Equity is the residual interest in the assets of the
entity after deducting all its liabilities. Equity claims
Reporting period are claims on the residual interest in the assets of
the entity after deducting all its liabilities. In other
Financial statements are prepared for a specified words, they are claims against the entity that do not
period of time (reporting period) and provide meet the definition of a liability. Such claims may be
information about: established by contract, legislation or similar means,
and include, to the extent that they do not meet the
a) assets and liabilities—including unrecognized
definition of a liability:
assets and liabilities—and equity that existed
at the end of the reporting period, or during the a) shares of various types, issued by the entity;
reporting period; and and
b) income and expenses for the reporting period. b) some obligations of the entity to issue
another equity claim.
To help users of financial statements to identify and
assess changes and trends, financial statements Income is increases in assets, or decreases in
also provide comparative information for at least liabilities, that result in increases in equity, other than
one preceding reporting period. those relating to contributions from holders of equity
Going concern assumption claims.
Expenses are decreases in assets, or increases in
Financial statements are normally prepared on the
liabilities, that result in decreases in equity, other
assumption that the reporting entity is a going
than those relating to distributions to holders of
concern and will continue in operation for the
equity claims.
foreseeable future. Hence, it is assumed that the
entity has neither the intention nor the need to enter Income and expenses are the elements of financial
liquidation or to cease trading. If such an intention statements that relate to an entity’s financial
or need exists, the financial statements may have performance. Users of financial statements need
to be prepared on a different basis. If so, the information about both an entity’s financial
financial statements describe the basis used. position and its financial performance. Hence,
An asset is a present economic resource although income and expenses are defined in
terms of changes in assets and liabilities, information
controlled by the entity as a result of past events.
about income and expenses is just as important as
An economic resource is a right that has the
information about assets and liabilities.
potential to produce economic benefits. This
section discusses three aspects of those
definitions:
THE RECOGNITION PROCESS Derecognition
Recognition Derecognition is the removal of all or part of a
recognized asset or liability from an entity’s
- is the process of capturing for inclusion in the
statement of financial position. Derecognition
statement of financial position or the
normally occurs when that item no longer meets the
statement(s) of financial performance an item
definition of an asset or of a liability:
that meets the definition of one of the
elements of financial statements—an asset, a a. for an asset, derecognition normally occurs
liability, equity, income or expenses. when the entity loses control of all or part of
- involves depicting the item in one of those the recognized asset; and
statements—either alone or in aggregation with b. for a liability, derecognition normally occurs
other items—in words and by a monetary when the entity no longer has a present
amount and including that amount in one or obligation for all or part of the recognized
more totals in that statement. liability.
‘carrying amount’ - the amount at which an asset, MEASUREMENT BASES
a liability or equity is recognized in the statement of
A measurement basis is an identified feature—for
financial position
example, historical cost, fair value or fulfillment
The statements are linked because the recognition
of one item (or a change in its carrying amount)
requires the recognition or derecognition of one or
more other items (or changes in the carrying amount
of one or more other items). For example:
a) the recognition of income occurs at the same
time as:
i. the initial recognition of an asset, or an
increase in the carrying amount of an
asset; or
ii. the derecognition of a liability, or a
decrease in the carrying amount of a
liability.
b) the recognition of expenses occurs at the same
time as: value—of an item being measured. Applying a
i. the initial recognition of a liability, or an measurement basis to an asset or liability creates a
increase in the carrying amount of a measure for that asset or liability and for related
liability; or income and expenses.
ii. the derecognition of an asset, or a
decrease in the carrying amount of an Historical cost - from the price of the transaction or
asset. other event that gave rise to them. Unlike current
value, historical cost does not reflect changes in
Recognition criteria values, except to the extent that those changes
Only items that meet the definition of an asset, a relate to impairment of an asset or a liability
liability or equity are recognized in the statement of becoming onerous.
financial position. Similarly, only items that meet the Current value - using information updated to reflect
definition of income or expenses are recognized in conditions at the measurement date. Current value
the statement(s) of financial performance. An asset measurement bases include:
or liability is recognized only if recognition of that
asset or liability and of any resulting income, a. fair value;
expenses or changes in equity provides users of b. value in use and fulfillment value for
financial statements with information that is useful. liabilities; and
c. current cost
Measurement of equity characteristics and are identified separately.
For example, a change in the current value of
The total carrying amount of equity (total equity) is
an asset can include the effects of value
not measured directly. It equals the total of the
changes and the accrual of interest. It would
carrying amounts of all recognized assets less the
be appropriate to classify those components
total of the carrying amounts of all recognized
separately if doing so would enhance the
liabilities.
usefulness of the resulting financial
Presentation and disclosure as communication information.
tools
Profit or loss and other comprehensive income
It is important to consider whether the benefits
Income and expenses are classified and included
provided to users of financial statements by
either:
presenting or disclosing particular information are
likely to justify the costs of providing and using a. in the statement of profit or loss; or
that information. b. outside the statement of profit or loss, in other
comprehensive income.
Classification
The statement of profit or loss is the primary
Classification is the sorting of assets, liabilities,
source of information about an entity’s financial
equity, income or expenses based on shared
performance for the reporting period. That statement
characteristics for presentation and disclosure
contains a total for profit or loss that provides a highly
purposes. Such characteristics include—but are not
summarized depiction of the entity’s financial
limited to—the nature of the item, its role (or
performance for the period.
function) within the business activities conducted by
the entity, and how it is measured. Aggregation
Classification of assets and liabilities Aggregation is the adding together of assets,
liabilities, equity, income or expenses that have
Classification is applied to the unit of account
shared characteristics and are included in the
selected for an asset or liability. That would be
same classification. Aggregation makes
appropriate when classifying those components
information more useful by summarizing a large
separately would enhance the usefulness of the
volume of detail. However, aggregation conceals
resulting financial information.
some of that detail. Hence, a balance needs to
Offsetting be found so that relevant information is not
obscured either by a large amount of insignificant
Offsetting occurs when an entity recognizes and detail or by excessive aggregation.
measures both an asset and liability as
CONCEPTS OF CAPITAL
separate units of account, but groups them into a
single net amount in the statement of financial Financial concept of capital - such as invested
position. Offsetting classifies dissimilar items money or invested purchasing power, capital is
together and therefore is generally not appropriate. synonymous with the net assets or equity of the
entity.
Classification of equity
Physical concept of capital - such as operating
To provide useful information, it may be necessary capability, capital is regarded as the productive
to classify equity claims separately if those equity capacity of the entity based on, for example, units of
claims have different characteristics . output per day.
Classification of income and expenses Concepts of capital maintenance and the
Classification is applied to: determination of profit

a. income and expenses resulting from the unit a. Financial capital maintenance. Under this
of account selected for an asset or liability; or concept a profit is earned only if the financial
b. components of such income and expenses (or money) amount of the net assets at the end
if those components have different of the period exceeds the financial (or money)
 amount of net assets at the beginning of • notes, comprising significant accounting policies
the period, after excluding any distributions and other explanatory information;
to, and contributions from, owners during • comparative information in respect of the
the period. Financial capital maintenance can preceding period
be measured in either nominal monetary units • a statement of financial position as at the
or units of constant purchasing power. beginning of the preceding period when an entity
applies an accounting policy retrospectively or
b. Physical capital maintenance. Under this makes a retrospective restatement of items in
concept a profit is earned only if the physical its financial statements, or when it reclassifies
productive capacity (or operating capability) of items in its financial statements.
the entity (or the resources or funds needed to
Statement of Financial Position - A statement of
achieve that capacity) at the end of the
financial position presents the assets, liabilities, and
period exceeds the physical productive
equity
capacity at the beginning of the period, after
excluding any distributions to, and Assets
contributions from, owners during the period.
An entity shall classify an asset as current when:
MODULE 3
• It expects to realize the asset, or intends to sell
Presentation of Financial Statements or consume it, in its normal operating cycle
• It holds the asset primarily for the purpose of
OBJECTIVE OF THE FINANCIAL STATEMENTS
trading
- to provide information about the financial position,
• It expects to realize the asset within twelve
financial performance and cash flows of an entity
months after the reporting period
that is useful to a wide range of users in making
• The asset is cash or a cash equivalent (as
economic decisions. Financial statements also show
defined in IAS 7) unless the asset is restricted
the results of the management’s stewardship of the
from being exchanged or used to settle a liability
resources entrusted to it.
for at least twelve months after the reporting
To meet this objective, financial statements provide period.
information about an entity’s:
Normal Operating Cycle – The time between the
• assets; acquisition of assets for processing and their
• liabilities; realization cash or cash equivalents. When the
• equity; entity’s normal operating cycle is not clearly
• income and expenses, including gains and identifiable, its duration is assumed to be twelve
losses; months.
• contributions by and distributions to owners
Line items under current assets are
in their capacity as owners; and
• cash flows. • Cash and cash equivalents
• Trade and other receivables
That information, along with other information in the
• Financial asset at Fair Value through Profit of
notes, assists users of financial statements in
Loss
predicting the entity's future cash flows and their
• Inventories
timing and certainty.
• Prepaid expenses
COMPONENTS OF FINANCIAL STATEMENTS
The caption “noncurrent assets” is a residual
A complete set of financial statements comprises: definition. PAS 1 provides that an entity shall classify
all other assets as non-current.
• a statement of financial position as at the end of
the period; The following are examples of non-current assets:
• a statement of profit or loss and other
• Property, plant, and equipment
comprehensive income for the period;
• Intangible assets
• a statement of changes in equity for the period;
• Investment property
• a statement of cash flows for the period;
• Financial assets that are not expected to be an existing loan facility, it classifies the
realized in cash in the entity’s normal operating obligation as non-current, even if it would be due
cycle or within twelve months after the reporting within a shorter period.
period  If a liability has become payable on demand
because an entity has breached an
Liabilities
undertaking under a long-term loan agreement
An entity shall classify a liability as current when: on or before the end of the reporting period, the
liability is current, even if the lender has agreed,
• It expects to settle the liability in its normal after the end of the reporting period and before
operating cycle the authorization of the financial statements for
• It holds the liability primarily for the purpose of issue, not to demand payment as a
trading consequence of the breach. However, the
• The liability is due to be settled within twelve liability is classified as non-current if the lender
months after the reporting period agreed by the end of the reporting period to
• The entity does not have an unconditional right provide a period of grace ending at least 12
to defer settlement of the liability for at least months after the end of the reporting period,
twelve months after the reporting period within which the entity can rectify the breach and
Current liabilities include during which the lender cannot demand
immediate repayment.
• Trade and other payables
• Current provisions Equity
• Short-term borrowings Equity is the residual interest in the assets of the
• Current portion of long-term debt entity after deducting all the liabilities.
• Current tax liability
Simply put, equity means net asset or total assets
An entity shall classify all other liabilities as non- minus total liabilities.
current, such as:
The account name in reporting the equity of an entity
• Long term notes payable that are due beyond depends on the form of the business organization:
12 months from the end of the reporting
period • Sole proprietorship - Owner’s equity
• Bonds payable that are due beyond twelve • Partnership - Partner’s equity
months after the reporting period • Corporation - Stockholders’ equity or
• Long-term notes payable that are due within shareholders’ equity
twelve months after the reporting period, but
Forms of the Statement of Financial Position
which terms is extended on a long-term basis
and negotiation has been competed before the A statement of financial position may be prepared
end of the reporting period. using any of the following formats:
An entity classifies its financial liabilities as current • Account form, which looks like a T account,
when they are due to be settled within twelve months where assets are listed on the left side of the
after the end of the reporting period, even if: statement while liabilities and equity are listed on
the right side
• The original term was for a period longer than • Report form presents the assets, liabilities,
twelve months; and
and equity in a continuous format. Liabilities
• The intention is supported by an agreement
are presented after total assets and equity
to refinance, or reschedule the payments, on
accounts are listed after the liabilities section
a long-term basis is completed after the end of • Financial position form emphasizes working
the reporting period and completed before the
capital of the firm. In this format, net assets are
financial statements are authorized for issue.
equal to the equity.
 If the entity has the discretion to refinance, or to
roll over the obligation for at least twelve months
after the end of the reporting period under
REPORT FORM Statement of Comprehensive Income
Comprehensive income - is the change of equity
during a period other than changes resulting from
transactions with owners in their capacity as such.
Comprehensive income includes profit or loss and
other comprehensive income.
Profit and Loss - is the total income less
expenses excluding the components of other
comprehensive income.
It shall include line items that present the
following amounts for the period:
• revenue, presenting separately interest
revenue calculated using the effective interest
method and insurance revenue
ACCOUNT FORM
• gains and losses arising from the
derecognition of financial assets measured at
amortized cost
• insurance service expenses from contracts
issued within the scope of IFRS 17
• income or expenses from reinsurance contracts
held
• finance costs
• impairment losses (including reversals of
impairment losses or impairment gains)
determined in accordance with Section 5.5 of
IFRS 9
• insurance finance income or expenses from
contracts issued within the scope of IFRS 17
• finance income or expenses from reinsurance
contracts held
• share of the profit or loss of associates and joint
ventures accounted for using the equity method
• if a financial asset is reclassified out of the
FINANCIAL POSITION FORM amortized cost measurement category so that it
is measured at fair value through profit or loss,
any gain or loss arising from a difference
between the previous amortized cost of the
financial asset and its fair value at the
reclassification date (as defined in IFRS 9)
• if a financial asset is reclassified out of the fair
value through other comprehensive income
measurement category so that it is measured at
fair value through profit or loss, any cumulative
gain or loss previously recognized in other
comprehensive income that is reclassified to
profit or loss;
• tax expense
• a single amount for the total of discontinued
operations
Other comprehensive income comprises Items of other comprehensive income (statement of
of income and expenses including reclassification comprehensive income).
adjustments that are not included in Profit and Loss  An entity shall present either an analysis of
as required by a standard or interpretation. There expenses using a classification based on either
are two types of OCI items, those that are the nature of expenses or their function within the
reclassified to profit or loss and those that are entity, whichever provides information that is
reclassified to Retained Earnings. reliable and more relevant.
OCI includes the following Components of OCI that FUNCTION OF EXPENSE
will be reclassified subsequently to profit, or loss
include the following:
• Unrealized gain or loss on debt investments
measured at fair value through other
comprehensive income
• Unrealized gain or loss from derivative contracts
designated as cash flow hedge
• Translation gains and losses of foreign
operations
Components of OCI that will be reclassified
subsequently to retained earnings include the
following:
• Unrealized gain or loss on equity investments
measured at fair value through other
comprehensive income
• Change in Revaluation Surplus NATURE OF EXPENSE
• Remeasurement gains and losses for defined
benefit plans
• Change in fair value arising from credit risk for
financial liabilities measured at fair value through
profit or loss

 An entity shall disclose the following items in the

statement of comprehensive income as
allocations of profit or loss for the period:

• Profit or loss for the period attributable to Minority

interest and Owners of the parent.
• Total comprehensive income for the period
attributable to Minority interest and Owners of
the parent.
 Statement of comprehensive income present  Nature of expense method – Expenses are
income and expense for a given reporting period.
aggregated in the income statement according
An entity shall present all items of income and
to their nature and are not reallocated among
expense recognized in a period: various functions within the entity.
• In a single statement of comprehensive income,  Function of expense or cost of sales
or method
• In two statements: a statement displaying - Classifies expenses according to their function
components of profit or loss (separate income as part of cost of sales or, for example, the cost
statement) and a second statement beginning
of distribution or administrative activities.
with profit or loss and displaying components
- An entity classifying expenses by function Statement of Cash Flows
shall disclose additional information on the
Cash flow information provides users of financial
nature of expenses, including depreciation
statements with a basis to assess the ability of the
and amortization expense and employee
entity to generate cash and cash equivalents and
benefits expense. An entity shall not present any
the needs of the entity to utilize those cash flows.
items of income and expense as extraordinary
items, either on the face of the income statement Classification
or in the notes
The statement of cash flows presents information on
Statement of Changes in Equity the inflows and outflows of cash and cash equivalent
classified into:
An entity shall present a statement of changes in
equity showing in the statement: – operating activities,
– investing activities,
• Total comprehensive income for the period,
– financing activities.
showing separately the total amounts
attributable to owners of the parent and to Cash flows from operating activities - are
non‑controlling interests primarily derived from the principal
• For each component of equity, the effects of revenue‑producing activities of the entity.
retrospective application or retrospective
restatement recognized in accordance with PAS Examples of cash flows from operating activities
8 are:
• For each component of equity, a reconciliation • cash receipts from the sale of goods and the
between the carrying amount at the beginning rendering of services;
and the end of the period, separately (as a • cash receipts from royalties, fees, commissions
minimum) disclosing changes resulting from: and other revenue;
- profit or loss; • cash payments to suppliers for goods and
- other comprehensive income; and services;
- transactions with owners in their capacity • cash payments to and on behalf of employees;
as owners, showing separately • cash payments or refunds of income taxes
contributions by and distributions to unless they can be specifically identified with
owners and changes in ownership financing and investing activities; and
interests in subsidiaries that do not result in • cash receipts and payments from contracts held
a loss of control. for dealing or trading purposes.
An entity shall present, either in the statement of
changes in equity or in the notes, the amount of  An entity may hold securities and loans for
dividends recognized as distributions to owners dealing or trading purposes, in which case they
during the period, and the related amount per are similar to inventory acquired specifically for
share. resale. Therefore, cash flows arising from the
purchase and sale of dealing or trading
securities are classified as operating activities.
 Similarly, cash advances and loans made by
financial institutions are usually classified as
operating activities since they relate to the main
revenue‑producing activity of that entity.
Investing Activities - are the cash flows derived
from the acquisition and disposal of long term assets
and other investment not included in cash
equivalents. Only expenditures that result in a
recognized asset in the statement of financial
position are eligible for classification as investing
activities.
Examples of cash flows arising from investing • cash payments by a lessee for the reduction of
activities are: the outstanding liability relating to a lease.
• cash payments to acquire property, plant and Interest and dividends
equipment, intangibles and other long‑term
Cash flows from interest and dividends received
assets. These payments include those relating to
and paid shall each be disclosed separately. Each
capitalized development costs and
shall be classified in a consistent manner from
self‑constructed property, plant and equipment;
period to period as either operating, investing or
• cash receipts from sales of property, plant
financing activities.
and equipment, intangibles and other
long‑term assets; Interest paid and interest and dividends received
• cash payments to acquire equity or debt may be classified as operating cash flows because
instruments of other entities and interests in joint they enter into the determination of profit or loss.
ventures (other than payments for those Alternatively, interest paid and interest and dividends
instruments considered to be cash equivalents received may be classified as financing cash flows
or those held for dealing or trading purposes); and investing cash flows respectively, because they
• cash receipts from sales of equity or debt are costs of obtaining financial resources or returns
instruments of other entities and interests in joint on investments.
ventures (other than receipts for those
instruments considered to be cash equivalents Dividends paid may be classified as a financing cash
and those held for dealing or trading purposes); flow because they are a cost of obtaining financial
• cash advances and loans made to other parties resources. Alternatively, dividends paid may be
(other than advances and loans made by a classified as a component of cash flows from
financial institution); operating activities in order to assist users to
• cash receipts from the repayment of advances determine the ability of an entity to pay dividends out
and loans made to other parties (other than of operating cash flows.
advances and loans of a financial institution); Received Paid
• cash payments for futures contracts, forward
contracts, option contracts and swap contracts Interest Operating (or Investing)
except when the contracts are held for dealing or Operating (or Financing)
trading purposes, or the payments are classified
Dividends Operating (or Investing)
as financing activities; and
Financing (or Operating)
• cash receipts from futures contracts, forward
contracts, option contracts and swap contracts Taxes on incomeCash flows arising from taxes
except when the contracts are held for dealing or on income shall be separately disclosed and
trading purposes, or the receipts are classified shall be classified as cash flows from operating
as financing activities. activities unless they can be specifically identified
with financing and investing activities.
Financing activities - include cash transactions
affecting non-trade liabilities, and shareholders’ Presentation of Cash Flows
equity.
An entity shall report cash flows from operating
Examples of cash flows arising from financing activities using either:
activities are:
• the direct method, whereby major classes of
• cash proceeds from issuing shares or other gross cash receipts and gross cash payments
equity instruments; are disclosed; or
• cash payments to owners to acquire or redeem • the indirect method whereby profit or loss is
the entity’s shares; adjusted for the effects of transactions of a
• cash proceeds from issuing debentures, loans, non‑cash nature, any deferrals or accruals of
notes, bonds, mortgages and other short-term or past or future operating cash receipts or
long‑term borrowings; payments, and items of income or expense
associated with investing or financing cash
• cash repayments of amounts borrowed; and
flows.
Under the direct method, information about major + Depreciation, amortization, and other noncash
classes of gross cash receipts and gross cash expenses
payments may be obtained either:
- All increases in trade noncash current assets
• from the accounting records of the entity; or
+ All decreases in trade noncash current assets
• by adjusting sales, cost of sales (interest and
similar income and interest expense and similar + All increases in trade current liabilities
charges for a financial institution) and other
items in the statement of comprehensive - All decreases in trade current liabilities
income for: - Gain on disposal of property
– changes during the period in inventories
and operating receivables and payables; + Loss on disposal of property
– other non‑cash items; and
– other items for which the cash effects are
investing or financing cash flows. Notes
to the

Under the indirect method, the net cash flow from

Financial Statements
operating activities is determined by adjusting profit
or loss for the effects of: The notes must:
• changes during the period in inventories and • Present information about the basis of
operating receivables and payables; preparation of the financial statements and the
• non‑cash items such as depreciation, provisions, specific accounting policies used;
deferred taxes, unrealized foreign currency • Disclose any information required by PFRSs that
gains and losses, and undistributed profits of is not presented on the face of the statement of
associates; and financial position, income statement, statement
• all other items for which the cash effects are of changes in equity, or statement of cash flows
investing or financing cash flows. • Provide additional information that is not
presented on the face of the statement of
Based on the foregoing, the following guidelines may
financial position, income statement, statement
be used in adjusting accrual basis net income to the
of changes in equity, or statement of cash flows
cash basis net income under the indirect method:
that is deemed relevant to an understanding of
Net Income any of them.
Notes should be cross-referenced from the face of - reflect the economic substance of
the financial statements to the relevant note. The transactions, other events and conditions,
notes should normally be presented in the following and not merely the legal form;
order: - are neutral, free from bias;
- are prudent; and
• A statement of compliance with PFRSs
- are complete in all material respects.
• A summary of significant accounting policies
applied, including: In making the judgement described, management
– The measurement basis (or bases) used shall refer to, and consider the applicability of, the
in preparing the financial statements; and following sources in descending order:
– The other accounting policies used that are
• the requirements in IFRSs dealing with similar
relevant to an understanding of
and related issues; And
the financial statements.
• the definitions, recognition criteria and
• Supporting information for items presented on
measurement concepts for assets, liabilities,
the face of the statement of financial position,
income and expenses in the Conceptual
income statement, statement of changes in
Framework for Financial Reporting
equity, and statement of cash flows, in the order
(Conceptual Framework).
in which each statement and each line item is
presented. Management may also consider the most recent
• Other disclosures, including: pronouncements of other standard‑setting bodies
– Contingent liabilities and unrecognized that use a similar conceptual framework to develop
contractual commitments accounting standards, other accounting literature
– Non-financial disclosures, such as the and accepted industry practices, to the extent that
entity's financial risk management these do not conflict with the sources mentioned
objectives and policies. above.
Disclosure of judgments - an entity must disclose, GENERAL FEATURES IN THE PRESENTATION
in the summary of significant accounting policies or OF THE FINANCIAL STATEMENTS
other notes, the judgments, apart from those
involving estimations, that management has made in - Fair presentation and compliance with PFRS
the process of applying the entity's accounting - Going concern
policies that have the most significant effect on the - Accrual basis
amounts recognized in the financial statements. - Materiality and aggregation
- Offsetting
HIERARCHY IN THE FORMATION OF - Frequency of reporting
ACCOUNTING POLICIES - Comparative information
When an IFRS specifically applies to a - Consistency of presentation
transaction, other event or condition, the LIMITATIONS OF THE FINANCIAL STATEMENTS
accounting policy or policies applied to that item
shall be determined by applying the IFRS. - Use of different measurement bases
- Inflationary effects.
In the absence of an IFRS that specifically - Measurement uncertainty
applies to a transaction, other event or condition, - Now always comparable across companies
management shall use its judgement in developing - Non-financial information is not reported
and applying an accounting policy that results in - No predictive value
information that is:
FUNCTION OF THE SECURITIES AND
• relevant to the economic decision‑making needs EXCHANGE COMMISSIONS (SEC)
of users; and
• reliable, in that the financial statements: The Commission shall have the powers and
- represent faithfully the financial position, functions provided by the Securities Regulation
financial performance and cash flows of the Code, Presidential Decree No. 902-A, as
entity; amended, the Corporation Code, the Investment
Houses Law, the Financing Company Act, and other
existing laws. Under Section 5 of the Securities person under investigation as may be
Regulation Code, Rep. Act. 8799, the Commission necessary for the proper disposition of the
shall have, among others, the following powers and cases before it, subject to the provisions of
functions: existing laws;
m. Suspend, or revoke, after proper notice and
a. Have jurisdiction and supervision over all
hearing the franchise or certificate of
corporations, partnerships or associations who
registration of corporations, partnerships or
are the grantees of primary franchises
associations, upon any of the grounds
and/or a license or permit issued by the
provided by law; and
Government;
n. Exercise such other powers as may be
b. Formulate policies and recommendations on
provided by law as well as those which may be
issues concerning the securities market,
implied from, or which are necessary or
advise Congress and other government
incidental to the carrying out of, the express
agencies on all aspects of the securities market
powers granted the Commission to achieve the
and propose legislation and amendments
objectives and purposes of these laws.
thereto;
c. Approve, reject, suspend, revoke or require Under Section 5.2 of the Securities Regulation
amendments to registration statements, and Code, the Commission’s jurisdiction over all cases
registration and licensing applications; enumerated under Section 5 of PD 902-A has been
d. Regulate, investigate or supervise the activities transferred to the Courts of general jurisdiction or the
of persons to ensure compliance; appropriate Regional Trial Court. The Commission
e. Supervise, monitor, suspend or take over the shall retain jurisdiction over pending cases involving
activities of exchanges, clearing agencies and intra-corporate disputes submitted for final
other SROs; resolution which should be resolved within one (1)
f. Impose sanctions for the violation of laws and year from the enactment of the Code. The
the rules, regulations and orders issued Commission shall retain jurisdiction over pending
pursuant thereto; suspension of payments/rehabilitation cases filed as
g. Prepare, approve, amend or repeal rules, of 30 June 2000 until finally disposed.
regulations and orders, and issue opinions and
Considering that only Sections 2, 4, and 8 of
provide guidance on and supervise compliance
PD 902-A, as amended, have been expressly
with such rules, regulations and orders;
repealed by the Securities Regulation Code, the
h. Enlist the aid and support of and/or deputize
Commission retains the powers enumerated in
any and all enforcement agencies of the
Section 6 of said Decree, unless these are
Government, civil or military as well as any
inconsistent with any provision of the Code.
private institution, corporation, firm, association
or person in the implementation of its powers PHILIPPINE FINANCIAL REPORTING
and functions under this Code; FRAMEWORKS AND THE REPORTING
i. Issue cease and desist orders to prevent fraud ENTITIES
or injury to the investing public;
j. Punish for contempt of the Commission, both Financial reporting frameworks applicable to
direct and indirect, in accordance with the different reporting entities are as follows:
pertinent provisions of and penalties prescribed Reporting Entities
by the Rules of Court;
k. Compel the officers of any registered - Large and/or publicly accountable entities
corporation or association to call meetings - Medium-sized entities
of stockholders or members thereof under its - Small entities
supervision; - Micro entities
l. Issue subpoena duces tecum and summon
Financial Reporting Frameworks
witnesses to appear in any proceedings of the
Commission and in appropriate cases, order - Full PFRS/IFRS
the examination, search and seizure of all - PFRS for Small and Medium-Sized
documents, papers, files and records, tax Entities (PFRS/IFRS for SMEs)
returns, and books of accounts of any entity or - PFRS for Small Entities
 - Income tax Reporting • An SME which is a subsidiary of a foreign
parent company which will be moving towards
Large and/or publicly accountable entities
International Financial Reporting Standards
Large entities are those with total assets of more pursuant to the foreign country’s published
than P350 million or total liabilities of more than convergence plan
P250 million. Public entities are those that meet any • An SME either as a significant joint venture or
of the following criteria: associate, which is part of a group that is
reporting under the full PFRS
• Holders of secondary licenses issues by • An SME which is a branch office or regional
regulatory agencies operating headquarter of a foreign company
• Required to file financial statements under Part reporting under the full PFRS
II of SRC Rule 68 • An SME which has a subsidiary that is mandated
• In the process of filing their financial statements to report under the full PFRS
for the purpose of issuing any class of instrument • An SME which has a short-term projection
in a public market that shows that it will breach the quantitative
• Imbued with public interest as the SEC may thresholds set in the criteria for an SME. The
consider in the future breach is expected to be significant and
Large and/or public interest entities shall use the continuing due to its long-term effect on the
PFRS, as adopted by the Commission, as their company’s asset or liability size
financial reporting framework. However, a set of • An SME which has c concrete plan to conduct an
financial reporting framework other than the full initial public offering within the next two years
PFRS may be allowed by the Commission for certain • An SME which has been preparing financial
sub-class (e.g., banks, insurance companies) of statements using full PFRS and has decided
these entities upon consideration of the to liquidate
pronouncements or interpretations. • Such other cases that the Commission may
consider as valid exceptions from the mandatory
Medium-sized entities adoption of PFRS for SMEs
Medium-sized entities are those that meet all of the
following criteria:
Small entities
• Total assets of more than P100 million to P350
million or total liabilities of more than P100 million Small entities are those that meet all of the following
to P250 million. If the entity is a parent company, criteria:
the said amounts shall be based on the • Total assets of between P3 million to P100
consolidated figures. million or total liabilities between P3 million to
• Not required to file financial statements under P100 million. If the entity is a parent company,
Part II of SRC Rule 68 the said amounts shall be based on the
• Not in the process of filing their financial consolidated figures.
statements for the purpose of issuing any class • Are not required to file financial statements
of instrument in a public market under Part II of SRC Rule 68
• Not holders of secondary licenses issues by • Are not in the process of filing their financial
regulatory agencies statements for the purpose of issuing any class
of instruments in a public market
Medium-sized entities shall use as their financial • Are not holders of secondary licenses issues by
reporting framework the PFRS for SMEs as adopted regulatory agencies
by the SEC. However, the following medium-sized Small entities shall use their financial reporting
entities shall be exempt from the mandatory framework the PFRS for SEs as adopted by the
adoption of the PFRS for SME’s and may instead Commission. However, entities who have operations
apply, at their option, the full PFRS: or investments that are based or conducted in a
• An SME which is a subsidiary of a foreign parent different country with different functional currency
company reporting under the full PFRS
shall not apply this framework and should instead basis or PFRS for SEs, provided however, that the
apply the full PFRS or PFRS for SMEs. financial statements shall at least consist of the
Statement of Management’s Responsibility (SMR),
The following small entities shall also be exempt
Auditor’s Report, Statement of Financial Position,
from the mandatory adoption of the PFRS for SEs
Statement of Income and Notes to Financial
and may instead apply, as appropriate, the full PFRS
Statements, all of which cover the 2-year
or PFRS for SMEs:
comparative periods, if applicable.
• A small entity which is a subsidiary of a foreign
In the event where an entity breaches the prescribed
parent company reporting under the full PFRS or
threshold in terms of total assets or total liabilities
PFRS for SMEs
and thus it falls within a different classification, the
• A small entity which is a subsidiary of a foreign
Audited Financial Statements of said entity shall be
parent company which will be moving towards
prepared in accordance with the higher framework.
International Financial Reporting Standards or
IFRS for SMEs pursuant to the foreign country’s Events at the End of the Reporting Period
published convergence plan
Objective and Scope
• A small entity either as a significant joint venture
or associate, which is part of a group that is PAS 10 prescribes the accounting for, and
reporting under the full PFRS or PFRS for SMEs disclosures of, events after the reporting period,
• A small entity which is a branch office or including disclosures regarding the date when the
regional operating headquarter of a foreign financial statements were authorized for issue.
company reporting under the full PFRS or PFRS
for SMEs Events after the reporting period are “those
• A small entity which has a subsidiary that is events, favorable or unfavorable, that occur
mandated to report under the full PFRS or PFRS between the end of the reporting period and the
for SMEs date that the financial statements are authorized
• A small entity which has a short-term for issue.” (PAS 10.3)
projection that shows that it will breach the
quantitative thresholds set in the criteria for a
small entity. The breach is expected to be
significant and continuing due to its long-term
effect on the company’s asset size
• A small entity which has been preparing financial
statements using full PFRS or PFRS for SMEs Date of authorization of the financial statements
and has decided to liquidate This date is the date when management
• Such other cases that the Commission may authorizes the financial statements for issue
consider as valid exceptions from the regardless of whether such authorization for issue is
mandatory adoption of PFRS for SMs for further approval or for final issuance to users.

Micro entities Illustration:

Micro entities are those that meet all of the following Entity A’s reporting period ends on December 31,
criteria: 2021 and its financial statements are authorized for
issued on March 31, 2022.
• Total assets and liabilities are below P3 million
• Are not required to file financial statements Events after the reporting period are those events
under Part II of SRC Rule 68 that occur within the January 1, 2022 to March 31,
• Are not in the process of filing their financial 2022.
statements for the purpose of issuing any class
Two types of events after the reporting period:
of instruments in a public market
• Are not holders of secondary licenses issues by  Adjusting events after the reporting period –
regulatory agencies are those that provide evidence of conditions
that existed at the end of the reporting period.
Micro entities have the option to use as their
(requires adjustments of amounts)
financial reporting framework either the income tax
 Non-adjusting events after the reporting Answer: Php610,000
period – those that are indicative of conditions
that arose after the reporting period. (disclosure
only)
Examples of adjusting events:
 The settlement after the reporting period of a
court case that confirms that the entity has a
present obligation at the end of reporting period.
 The receipt of information after the reporting
period indicating that an asset was impaired at
the end of reporting period. For example:
I. The bankruptcy of a customer that occurs
after the reporting period may indicate Examples of non-adjusting events
that the carrying amount of a trade
receivable at the end of reporting period  Changes in fair values, foreign exchange rates,
is impaired. interest rates or market prices after the reporting
II. The sale of inventories after the reporting period.
period may give evidence to their net  Casualty losses (e.g., fire, storm, or earthquake)
realizable value at the end of reporting occurring after the reporting period but before
period the financial statements were authorized for
 The determination after the reporting period of issue.
the cost of asset purchased, or the proceeds  Litigation arising solely from events occurring
from asset sold, before the end of reporting after the reporting period.
period.  Major ordinary share transactions and potential
 The discovery of fraud or errors that indicate ordinary share transactions after the reporting
that the financial statements are incorrect. period.
 Major business combination after the reporting
Adjusting events – Illustration period.
 Announcing a plan to discontinue an operation
Entity A’s inventories on December 31, 2020 have a
after the reporting period.
cost of Php100,000 and a net realizable value of
 Declaration of dividends after the reporting
Php80,000. Shortly after December 31, 2020, but
period
before the financial statements were authorized for
issue, the inventories were sold for a net sale Dividends
proceeds of Php70,000.
Dividends declared after the reporting period are
Requirement: How much is the correct valuation of not recognized as liability at the end of the reporting
Entity A’s inventories in the December 31, 2020 period.
financial statements?
Going Concern
Answer: Php70,000
PAS 10 prohibits the preparation of financial
Entity A recognized a provision for a pending statements on a going concern basis if the
litigation amounting to Php50,000 on December 31, management determines after the reporting period
2020 (end of current reporting period). This amount either that it intends to liquidate the entity or to
is reflected in Entity A’s reported profit of cease trading, or that it has no realistic alternative
Php600,000 for the year 2020. Shortly after but to do so.
December 31, 2020, but before the financial
statements were uthorized for issue, the litigation is Disclosures
settled for Php40,000.  Date of authorization for issue
Requirement: How much should be the profit  Adjusting events
in 2020?  Material Non-adjusting events
 MCQs c. The destruction of a major production plant
by a fire after the reporting period
1. The revised IAS 10 states that if an entity
d. All of the above
declares dividends after the reporting period, the
entity __________ those dividends as a liability
5. According to PAS 10, these are those events,
at the end of the reporting period.
favorable and unfavorable, that occur between
the end of the reporting period and the date when
a. Shall recognize
the financial statements are authorized for issue.
b. Shall not recognize
c. Is encouraged to recognize
a. Events after the reporting period
d. Is encouraged not to recognize
b. Adjusting events
c. Non-adjusting events
d. all of these

2. Which of the following is not an objective of IAS

10? 6. The Sarin Company's financial statements for
the year ended 30 April 20X8 were approved by
a. To prescribe when an entity should adjust its its finance director on 7 July 20X8 and a public
financial statements for events after the announcement of its profit for the year was made
reporting period on 10 July 20X8. The board of directors
b. To prescribe how an entity should distinguish authorised the financial statements for issue on
favourable events from unfavourable 15 July 20X8 and they were approved by the
c. To prescribe the disclosures that an entity shareholders on 20 July 20X8. Under PAS 10,
should give about the date when the financial after what date should consideration no longer
statements were authorised for issue and be given as to whether the financial statements
about events after the reporting period to 30 April 20X8 need to reflect adjusting and
d. To require an entity should not prepare its non-adjusting events?
financial statement on a going concern basis
if events after the reporting period indicate a. 7 July 20X8
the going concern assumption is not b. 10 July 20X8
appropriate c. 15 July 20X8
d. 20 July 20X8
3. Events after the reporting period are
__________ events that occur between the end 7. Which of the following is an example of a non-
of the reporting period and the date when the adjusting event?
financial statements are authorised for issue.
a. Sale of inventory for less than its carrying
a. Predictable value shortly after the reporting period
b. non-predictable b. Amounts received in respect of an insurance
c. Favourable claim being negotiated at the period end
d. Unfavourable c. Destruction of a machine by fire after the
e. B and D reporting period
f. C and D d. Bankruptcy of a major customer with a
balance owing at the period end
4. Which of the following information cannot
indicate that the asset was impaired at the end 8. One of Entity A’s delivery trucks had an accident
of the reporting period? on February 14, 20x2. The truck is totally
wrecked and is uninsured. Entity A’s December
a. The bankruptcy of a customer after the 31, 20x1 current-period financial statements
reporting period were authorized for issue on March 31, 20x2.
b. The sale of inventories after the reporting Entity A asked you if it can write-off the carrying
period amount of the destroyed truck from its December
 31, 20x1 statement of financial position. What
will you tell Entity A?
a. Yes, go ahead. Write-off the truck because
the event is an adjusting event.
b. No. Don’t write-off the truck because the
event is a non-adjusting event.
c. No. Don’t write-off the truck because the
event is a non-adjusting event. You should,
however, disclose the event if you deem it to
be material.
d. Yes, go ahead. I will support you.

9. Which of the following is most likely to be a non-

adjusting event?
a. A major customer liquidates its business after
the end of the reporting period. -ADJ
b. The entity announces a major restructuring
after the end of the reporting period.
c. The settlement after the reporting period of a
court case that confirms that the entity has a
present obligation at the end of reporting
period. -ADJ
d. The determination after the reporting period
of the cost of asset purchased, or the
proceeds from asset sold, before the end of
reporting period. -ADJ
 P135,000
34:58 P145,000
CFAS Quiz#2
7.An entity shall present separately each materi
1.This is the residual interest in the assets of the al class of similar items. An entity shall present
entity after deducting all the liabilities. It means net separately items of a dissimilar nature or function
asset or total assets minus total liabilities. unless they are immaterial.
Equity Accrual basis
Net Assets Offsetting
Income Materiality and Aggregation
Working capital Cash Basis

2.On December 31, 2022, the end of Coffee 8.The cost of goods available for sale is
Company’s accounting period, the company has P1,300,000. The gross profit is P300,000, net sales
outstanding Accounts Receivable of P400,000. amounted to P1,000,000, net purchases are
The company estimates that 3% of these receiv P1,100,000 and operating expenses are
ables might not be collected. If there is P12,00 P220,000. How much is the ending inventory of the
0 (credit) balance for Allowance for Uncollectible company?
Accounts, how much is the net realizable value of P500,000
the accounts receivable? P200,000
P388,000 P700,000
P376,000 P600,000 1M-300K= 700K 1.3M-700K = 600K
P368,000
P412,000 9.Whatis the change of equity during a period
other than changes resulting from transactions
3.Limitations of the financial statements include with owners in their capacity as such
which one? Losses
Measurement certainty Comprehensive income -including P and L
Deflationary effects Gains
Non-financial information is reported Equity
Use of different measurement bases
10. OCI includes the following Components of OCI
4.Entities that have Total assets of more than P100 that will be reclassified subsequently to profit, or
million to P350 million or total liabilities of more loss include the following, EXCEPT:
than P100 million to P250 million.
Large and/or publicly accountable entities Change in Revaluation Surplus – RETAINED
Small Entities EARNINGS
Micro entities
Medium-sized Entities Unrealized gain or loss from derivative contracts
designated as cash flow hedge
5.The different reporting entities are as follows:
Which does not belong? Translation gains and losses of foreign operations
Micro Entities
Mini Entities Unrealized gain or loss on debt investments
Small Entities measured
Medium-sized Entities at fair value through other comprehensive income

6.The balances of the following accounts were 11.The Rent Expense account had a balance of
closed to the Income Summary account: Salary P30,000, representing five months’ rent beginning
Expense, P50,000 debit; Cost of Goods Sold, December 1, 2020. The adjusting entry on
P80,000 debit; Utilities Expense, P25,000 December 31, 2020 will include
debit; Sales, P200,000 credit; Interest Revenue, debit to prepaid rent P30,000
P110,000 credit. The entry to close Income Su credit to rent expense P24,000 DR PREPAID
mmary to the capital account would be RENT
P155,000 credit to prepaid rent P6,000
P165,000 debit to rent expense P6,000
 Cash basis
12.One of the objectives of the statement of Accrual basis
financial position is to provide information that Materiality and Aggregation
assists users in assessing a firm's solvency, which Going Concern
is the ability to
16.Piranha Printing distributes a monthly sports
maintain IAS levels of preference and ordinary magazine. On July 1, 2020, the entity sold 1,000 1-
dividends year subscriptions for P100 each. On December
meet all obligations as they come due 31, 2020, the amount reported as liability on the
satisfy short-term obligations balance sheet and the amount reported as revenue
survive significant economic downturn on the income statement are, respectively:
Liability - P100,000; Revenue - P0
13.Adjusting events after reporting period include Liability - P0; Revenue - P100,000
all of the following, except cannot be determined
The bankruptcy of a customer which occurs after Liability - P50,000; Revenue - P50,000
the reporting period and before issuance of
statements resulting to a loss on a trade receivable 17.At the beginning of 2020, Silas Company’s
account. assets amount to P 11,000,000 and the liabilities
amounting to P5,000,000. During the year, assets
The settlement of a court case after the issuance of increased by P3,000,000, while the liabilities
the financial statements that confirms that the entity decreased by P500,000. How much is the owner’s
has a present obligation. equity at the end of the year?
P9,000,000
Determination after the reporting period and before P9,500,000
the issuance of the statements of the cost of P2,500,000
assets purchased before the end of reporting P8,500,000
period.
18.Events that occur after the reporting period but
The discovery of fraud or errors after reporting before the issuance of financial statements are
period and before issuance of statements that show called
that the financial statements were incorrect. unaudited events
prior events
14.Micro entities are those that meet all of the post-closing events
following criteria, EXCEPT: events after the reporting period

Are not required to file financial statements under 19.On December 31, 2023, the end of
Part II of SRC Rule 68. Ming Company’s accounting period, the company
has outstanding Accounts Receivable
Total assets of between P3 million to P100 million of P400,000. The company estimates that 5% of
or total liabilities between P3 million to P100 million. these receivables might not be collected. Assuming
If the entity is a parent company, the said amounts that there is P12,000 (debit) balance for Allowance
shall be based on the consolidated figures. – for Uncollectible Accounts, how much is the debited
BELOW 3M Uncollectible Accounts Expense for the December
31, 2023 adjusting entry?
Are not holders of secondary licenses issues by P20,000
regulatory agencies P32,000
P8,000
Are not in the process of filing their financial P30,000
statements for the purpose of issuing any class of
instruments in a public market. 20.An entity shall classify a liability as current
when, EXCEPT:
15.An entity recognizes items as assets, liabilities, It holds the liability primarily for the purpose of
equity, income and expenses (the elements of trading
financial statements) when they satisfy the
definitions and recognition criteria for those The liability is due to be settled within twelve
elements in the Conceptual Framework. months after the reporting period
The entity has an unconditional right to defer after the reporting period
settlement of the liability for at least twelve months
after the reporting period. = DOES NOT HAVE It expects to realize the asset, or intends to sell or
UNCONDITIONAL RIGHT consume it, in its normal operating cycle

It expects to settle the liability in its normal 25.Beam Company has a P180,000, 10%, 120-day
operating cycle note receivable outstanding on December 31. The
note is dated October 1, 2020. What is the
21.Type 1 events that provide evidence of adjusting entry on December 31, 2020?
conditions that existed at the balance sheet date
are given the following treatment: debit Cash P6,000; credit Interest Receivable
P6,000
recognition in the financial statements
debit Interest Receivable P4,500; credit Interest
ratification by shareholders at an annual meeting Income P4,500

adjustment in the cash flow statement debit Cash P4,500; credit accounts receivable
P4,500
note disclosure only, in the financial statements
debit Interest Receivable P6,000; credit Interest
22.An entity classifies its financial liabilities as Income P6,000
current when they are due to be settled
within twelve months after the end of the reporting 26. Fifth Company incurs salaries at a rate of
period, even if: P4,200 per day. The last payday in January is
I. The original term was for a period longer than Friday, January 28 and no work for Saturday a
twelve months; and nd Sunday. How much is the Salaries Payable
II. The intention is supported by an agreement t on January 31?
o refinance, or reschedule the payments, on a
long-term basis is completed after the end of the P12,600
reporting period and completed before the financial P8,400
statements are authorized for issue. P4,200
P16,800
Only statement I is True
Only statement II is True 27.Which form of the statement of financial position
Both statements are True lists current liabilities after current assets,
Both statements are False emphasizing the enterprise's working capital?
Horizontal Form
23.Gold Organizers purchased an equipment Report Form
costing Financial Position Form
P100,000 on July 1, 2022. The equipment has an Account Form
estimated useful life of 10 years with an estimated
residual value of P10,000. How much is the 28.Type II events that are indicative of conditions
depreciation expense on December 31, 2023? that arose after the balance sheet date are given
P10,000 the following
P9,000 treatment
P4,500 note disclosure in the financial statements
P13,500 recognition in the income statement
recognition in the balance sheet
24.An asset should be classified as current when it: recognition in the cash flow statement
It holds the asset primarily for the purpose of
trading
29.Under PAS 10, which of the following
All of the above statements is true regarding events after reporting
period?
It expects to realize the asset within twelve months
I. Adjusting events after reporting period are events True
that provide evidence of conditions that existed at False
the end of the reporting period. Correct
II. Nonadjusting events after reporting period are 1/1 Points
events that are indicative of conditions that arose 6.The principal difference between two concepts of
after the end of reporting period. capital maintenance is the treatment of the
II only effects of changes in the prices of assets and
I only liability of the entity.
Both I and II True
Neither I nor II False
Correct
30.Current liabilities does not include 1/1 Points
7.The selection of the appropriate concept of
Short-term borrowings capital by an entity should be based on the needs
Current tax liability of the users of its financial statements.
Bonds payable True
Trade and other payables False
Submit Incorrect
0/1 Points
8.The concept of capital maintenance chosen by an
QUIZ 1 entity shall determine the accounting model
Financial statements are the principal means th used in the preparation of its financial statements.
rough which financial information is True
communicated to those outside an enterprise. False
Correct
True
False 1/1 Points
Correct 9.The Conceptual Framework serves as a guid
1/1 Points e in developing future financial reporting
2.The major financial statements used under Int standards and in reviewing existing ones.
ernational Financial Reporting Standards True
(IFRS) include the statement of changes in fina False
ncial position and the statement of Correct
stockholders’ equity. 1/1 Points
True 10.The Conceptual Framework is a source of
statement of changes in financial position not included guidance for determining an accounting treatment
False
Correct where a standard does not provide specific
1/1 Points guidance.
3.In order to provide information that is useful in True
decision making and capital allocation, the False
International Financial Reporting Standards (IFRS) Correct
requires all companies to use a common 1/1 Points
currency. 11.The financial statements most frequently
True provided include all of the following except the
False statement of financial position
Correct income statement
1/1 Points statement of cash flows
4.Users of the financial information provided by statement of retained earnings
Correct
a company use that information to make
capital allocation decisions. 1/1 Points
True 12.All the following are differences between fina
False ncial and managerial accounting in how
Correct accounting information is used except to
1/1 Points plan and control company's operations.
5.The passage of a new International Financial decide whether to invest in the company
Reporting Standards Statement requires the evaluate borrowing capacity to determine the extent
support of ten of the sixteen board members. of a loan to grant.
All of these answers are differences 19.Which of the following is not one of the major
Correct types of pronouncements issued by the
1/1 Points International Accounting Standards Board (IASB)?
13.Which of the following represents a form of International financial reporting standard
communication through financial reporting but Memorandum of understanding
not through financial statements? Framework for financial reporting
President's letter International financial reporting interpretations.
Income statement Correct
Notes to financial statements 1/1 Points
Statement of financial position 20.General-purpose financial statements are the
Correct product of
1/1 Points financial accounting
14.The process of identifying, measuring, managerial accounting
analyzing, and communicating financial information both financial and managerial accounting
needed by management to plan, evaluate, and neither financial and managerial accounting
control an organization’s operations is Correct
called 5/5 Points
managerial accounting 21.Sequencing - Arrange the following according
tax accounting to the correct sequence.
auditing
financial accounting A. IASB Due Process
Correct
1/1 Points
15.The major financial statements include all of the
following except:
Statement of financial position
Statement of changes in financial position
Statement of comprehensive income
Statement of changes in equity
Incorrect
0/1 Points
16.What would be an advantage of having all
countries adopt and follow the same accounting
standards?
consistency
comparability
lower preparation costs
comparability and lower preparation costs
Correct
1/1 Points
17.Which of the following is not a major challenge
facing the accounting profession?
Nonfinancial measurements
Timeliness
Accounting for hard assets
Forward looking information
Correct
1/1 Points
18.Which of the following has the highest
authoritative support?
International Financial Reporting Standards
International Accounting Standards
Interpretations of the IFRIC
Framework for Financial Reporting
Correct
1/1 Points