TOPIC FIVE: PAS 1
SCOPE
Prescribes the basis for presentation of general purpose financial statements
To improve comparability both with the entity’s financial statements of previous periods (intra) and with that of other entities (inter)
GENERAL PURPOSE FINANCIAL STATEMENTS
Those intended to serve users who do not have authority to demand financial reports tailored for their own needs
Cater to most of the common needs of a wide range of external users
The subject matter of the CF & PFRSs
COMPLETE SET OF FINANCIAL STATEMENTS
1. Statement of financial position
2. Statement of profit or loss and other comprehensive income
3. Statement of changes in equity
4. Statement of Cash Flows
5. Notes
o Comparative info in respect of the preceding period
6. Additional statement of financial position (if required in certain instances)
GENERAL FEATURES OF FINANCIAL STATEMENTS
Fair presentation and compliance with PFRSs
o The application of PFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair
presentation.
IMPORTANT POINTS:
o PAS1 requires an entity whose FSs comply w PFRS to make an explicit and unreserved statement of such compliance in the notes
o HOWEVER, an entity shall not make such statement unless it complies w all requirements of the PFRSs
o There may be cases wherein entity mgt concludes that compliance with a PFRS requirement is misleading.
o In such cases, PAS1 permits a departure from a PFRS requirement, if the relevant regulatory framework requires or allows such departure.
Going concern
o An entity is not going concern if, as of the financial reporting date or prior to the date of authorization of the FSs for issue, mgt either:
Intends to liquidate or cease trading
Has no realistic alternative but to do so
o Going concern assessment is at least 12 months
Accrual basis of accounting
o An entity shall prepare its FSs, except for cash flow info, using accrual basis of accounting.
Materiality and aggregation
o Each material class of similar items must be presented separately in the FSs.
Offsetting
o Assets and liabilities, and income and expenses, shall NOT be offset unless required or permitted by a PFRS
o Measuring assets net of valuation allowances, for example, obsolesce allowances on inventory, allowance for doubtful receivable accounts,
and accumulated depreciation on PPE are not offsetting.
Frequency of reporting
o An entity shall present a complete set of FSs (including comparative info) at least annually.
o When an entity changes the end of its reporting period and presents FSs for a period longer or shorter than a year, an entity shall disclose
the ff:
Period covered,
Reason for using longer or shorter period, and
Fact that amounts presented in the FSs are not entirely comparable
Comparative information
o An entity shall present comparative info in respect of the preceding period for all amounts reported in the current period’s FSs, unless other
standards permit or require otherwise
*An additional statement of financial position is presented as at the beginning of the preceding period when an entity:
1. Applies an accounting policy retrospectively,
2. Makes a retrospective restatement of items in its FSs, or
3. Reclassifies items in its FSs
… and the effect of the event to the statement of financial position as at the beginning of the preceding period is material.
Consistency of presentation
o An entity shall retain the presentation and classification of items in the FSs from one period to the next unless:
It is apparent that another presentation or classification would be more appropriate following a significant change in the nature of
the entity’s operations or a review of its FSs, or
A PFRS requires a change in presentation
PRESENTATION AND DISCLOSURE
Information is communicated through presentation and disclosure in the FSs.
Effective communication makes info more useful.
Requirements:
o Focusing on presentation and disclosure objectives and principles rather than on rules
the objectives are specified in the Standards
Principles includes:
- use of entity specific info is more useful than standardized descriptions, and
- duplication of info is usually unnecessary
o Classifying info by grouping similar items and separating dissimilar ones
Classifying means combining similar and separating dissimilar items
Offsetting of assets and liabilities is generally NOT acceptable
Income and expenses are classified as recognized either in
- Profit or loss; or
- Other comprehen-sive income
o Aggregating info in a manner that it is not obscured either by excessive detail or by excessive summarization
Aggregation is the “adding together of assets, liabilities, equity, income, or expenses that have shared characteristics and are
included in the same classification.”
STRUCTURE AND CONTENT OF FINANCIAL STATEMENTS
PAS1 requires an entity to clearly identify:
In addition, the ff info must be displayed prominently, and repeated as necessary:
o Name of reporting entity and any changes in said name
o Whether the FSs are a group of entities or an individual entity
o Info about the reporting period and the presentation currency
o The level of rounding used (eg thousands, millions, etc)
FINANCIAL STATEMENTS DATES
The statement of financial position is dated AS THE END of the reporting period
The other FSs are dated FOR THE PERIOD that they cover
MANAGEMENT’S RESPONSIBILITY OVER FINANCIAL STATEMENTS
Preparation and fair presentation in accordance with PFRS
Internal control over financial reporting
Going concern assessment
Oversight over the financial reporting process
Review and approval of FSs
*The responsibilities are expressly stated in a docu called “Statement of Management’s Responsibility for Financial Statements” which is attached as a
cover letter of the FS.
TOPIC SIX: BALANCE SHEET
DEFINITION
The statement of financial position (SOFP) shows the entity’s financial condition as at a certain date or at a point in time
It is a formal statement showing the three elements (A, L, O)
Statement users analyze (interpret) the balance sheet to evaluate factors such as liquidity, solvency, and the entity’s need for additional financing.
These factors are useful in predicting the entity’s ability to comply with future commitments and pay dividends to shareholders
PURPOSE
To report what a company owns and owes, but not necessarily what it is worth. It does not report a company’s current value.
PRESENTATION
A classified presentation highlights the entity’s working capital and facilitates the computation of liquidity and solvency ratios
o Working Capital= Current Assets-Current Liabilities
The SOFP may be classified as:
o Classified- showing distinctions between current and noncurrent assets and liabs
o Unclassified (based on liquidity)- showing no distinction between current and noncurrent items
PRESENTATION AND FORMAT
Additional line items, headings, and subtotals may be needed to fairly present the entity’s financial position.
When an entity presents subtotals, those shall:
o be comprised of line items made up of amounts recognized and measured in accordance to PFRS;
o be presented and labelled in a clear understandable manner;
o be consistent from period to period;
o and not be displayed with more prominence than the required subtotals and totals
PAS 1 does not prescribe the format of the SOFP. (Assets can be presented current then non-current or vice versa and Liabilities and equity can be
presented current then non-current then equity or vice versa)
CURRENT ASSETS
An entity shall classify an asset as current when:
o It expects to realize the asset or intends to sell/consume it, in its normal operating cycle
o It holds the asset primarily for the purpose of trading
o It expects to realize the asset within 12 months after the reporting period
o The asset is cash or cash equivalent unless the asset is restricted from being exchanges or used to settle a liability for more than 12 months after the rep
period
CURRENT LIABILITIES
An entity shall classify a liability as current when:
o It expects to settle the liability in its normal operating cycle
o It holds the liability primarily for the purpose of trading
o The liability is due to be settled within 12 months after the reporting period
o The entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the rep period
CURRENTLY MATURING LONG-TERM LIABILITIES
o General rule- currently maturing long term liabilities are present as current liabs
o Exceptions
Refinancing agreement is fully completed on or before balsheet date (noncurrent liab)
Refinancing agreement after the balsheet date but before the FSs are authorized for issue (noncurrent liab if the entity expects and has
the discretion to refinance it on a long-term basis under an existing loan facility)
BREACH OF LOAN AGREEMENT
o General rule- a liability that is payable on demand is current
o Exception- it is presented as non-current if the lender provides the entity, on or before the balsheet date, a grace period ending atleast 12
months after the balsheet date to rectify a breach of loan covenant
PRESENTATION OF DEFERRED TAXES
o Deferred tax liabilities (assets) are presented as noncurrent items in a classified statement of financial position, irrespective* of their expected
dates of reversal
*regardless
OPERATING CYCLE
An entity’s operating cycle refers to the time between the acquisition of assets for processing and their realization in cash or cash equivalents
If it is not clearly identifiable, it is assumed to be 12 months
Operating cycle for:
o Trading Entity- ave period of time from acquiring merchandise, sell the inventory to customers, and ultimately collect cash from sale
o Manufacturing Entity- period of time from acquiring materials entering into a process and sell the product to customers and ultimately collect
cash from sale
