PAS 1 - Presentation of Financial Statements

Issue date – 1975

Re-issue date – 2007, followed by amendments
Effective date – January 1, 2009

Introduction/ Overview of PAS 1:

 Basis of the whole PFRS reporting
 Sets the overall:
1. Requirements for the preparation and presentation of general purpose f/s
2. Guidelines for their structure, and
3. Minimum requirements for their content to ensure “comparability”

Financial Statements – structured representation of an entity’s financial position and result of

operation
General Purpose F/S
- Intended to meet the needs of users who are not in position to require an entity to prepare reports
tailored to their particular information needs
- Cater to most of the common needs of a wide range of external users
- Subject matter of the Conceptual Framework and the PFRSs
Objectives:
Primary Objective: Provide information about financial position, financial performance, and cash flows
of an entity useful to a wide range of users in making economic decisions
Secondary Objective: Show results of management’s stewardship over the entity’s resources

To meet the objectives, Financial Statements provide the following information:

o Assets, liabilities, and equity
o Income and expenses, including gains and losses
o Contributions by and distributions to owners
o Cash flows

Comparability – requires consistency in the adoption and application of accounting policies and in the
presentation of F/S
 Terminology used in PAS 1 – suitable for profit- oriented entities (if non-profit, may need to
amend the line-item and F/S descriptions)
2 Types of Comparability:
(1) Intra-comparability (horizontal or inter-period) – F/S of same entity from one period to another
[2001 and 2002]
(2) Inter-comparability (dimensional) – F/S of different entities for the same period
[ABC F/S and XYZ F/S of 2001]
Complete Sect of Financial Statements compliant with PFRS
1. Statement of Financial Position (balance sheet) as at the end of the period
2. Statement of Profit or Loss (income statement) and other comprehensive income for the period
3. In general, known as Statement of Financial Performance
4. Statement of Changes in Equity for the period
5. Statement of Cash Flows for the period
6. Notes to F/S – containing summary of significant accounting policies and other explanatory
information
7. Additional Statement of Financial Position (as at the beginning of the earliest comparative period)
Shall be presented for certain instances:
(1) Retrospective Application of Accounting Policy – going back to previous reporting periods and
restating every single component of equity as if new policy had always been in place and
comparatives must be restated.
- Applying new accounting policy to transactions, other events an conditions as if that policy had
always been applied
 Retrospective Restatement – correcting the recognition, measurement, and disclosure of
amounts of elements of financial statements as if a prior period had never occurred.
 Prospective Application – a change in accounting policy and of recognizing the effect of
a change in an accounting estimate
 Applying new accounting policy to transactions, other events and conditions occurring after the
date at which the policy is changed
 Recognizing the effect of the change in the accounting estimate in the current and future periods
affected by the change
Take note: If a retrospective application is impracticable, the entity is allowed to account for the
change “prospectively”
(2) Has material effect on the information in the statement of financial position at the beginning of
the preceding period
(3) Shall present (3) financial position
- Current, preceding year (comparative info) and additional

Outside the Scope of PFRS (Outside FS):

1. Financial reviews by management
2. Environmental reports and
3. Value added statements

8 General Features of Financial Statements (F.G.A.M.O.F.C.C)

1. Fair presentation and compliance with IFRS
 Faithful representation of effects of transactions
 All transactions, events and conditions are reflected in accordance with the definition and
recognition criteria of the elements set out in the Framework
 Fair presentation = proper selection and application of accounting policies, proper
presentation of information, and provision of additional disclosures whenever relevant to
the understanding of F/S
 Inappropriate accounting policies CANNOT BE RECTIFIED by mere disclosure
  Compliance with PFRS – presumed to result in fairly presented FS
 PAS 1 REQUIRES – F/S complying with PFRS to make an explicit and unreserved
statement of such compliance in the notes (shall not make such statement if it does not
comply with ALL the requirements of PFRS)
 IF PFRS IS MSLEADING - PAS 1 also permits “departure from a PFRS
requirement” – if relevant regulatory framework requires or allows (acctg. Principles,
and other financial reporting reqs. by gov’t body like BSP) = shall disclose mgmt.
conclusion as to fair presentation
2. Going Concern
 Going concern – the ability of the entity to continue its operations for a period at least,
but not limited to twelve (12) months
 F/S shall be prepared on a “going concern basis” unless the management plans to
liquidate the enterprise or has no other alternative to do so.
 Taking into account future information (at least but not limited to 12 mos. from the
reporting date)
 Assumptions: a) entity has history of profitable operations and b.) ready access to
financial resources – without detailed analysis
 If not going concern, use another basis and shall be disclosed including the reason for
not regarding the entity as “going concern”
3. Accrual Basis of Accounting
 FS/ are prepared using accrual basis except cash flows (cash-basis)
 Transactions and events are recognized when they occur and not when cash is received or
paid
4. Materiality and Aggregation
 Each material item of the same class – presented separately
 Dissimilar items – presented separately unless they are immaterial
 Immaterial amounts of similar nature – grouped together as one-line item/ aggregated
with other items (details of which is presented in the notes)
5. Offsetting
 Assets and Liabilities or Income and Expenses = presented separately and NOT
OFFSET unless permitted by the PFRS
Examples of Offsetting:
a. Gains or losses from sales of assets net of related selling expenses
b. Immaterial presentation of unrealized gains and losses arising from trading securities
and from translation of foreign currency denominated assets and liabilities at net
amount.
c. Loss from provision net of reimbursement from a 3rd party
Take note: Measuring assets net of valuation allowances is NOT Offsetting (i.e.
deducting ADA from A/R or deducting Accumulated Depreciation from a building
account – building measured initially at acquisition cost)
6. Frequency of Reporting
 F/S should be presented at least annually
 Exception: If presented shorter or longer than 1 year, entity shall disclose the following:
a. Period covered by the F/S
 b. Reason
c. Fact that amounts presented in the F/S are not entirely comparable
7. Comparative Information
 Presenting the F/S for the current year and the prior year (as a minimum) for all financial
information except when the PFRSs require otherwise (also in the notes)
 PAS also permits to provide comparative information in addition to the minimum
requirement (2) (e.g. may provide 3rd statement of comprehensive income – need not
provide a third statement for other F/S but must provide related notes)
8. Consistency of Presentation
 Presentation and classification of items should be the same (retained) from period to
period unless:
a. Required by PFRS or
b. Results in information that is reliable and more relevant
c. Change in presentation requires reclassification. If reclassification is material (more
useful to the users) shall provide “additional statement of financial position”
Structure and Content
 PAS 1 requires the clear identification and distinguishment of F/S from other information in
the same published document
Annual Financial Report = F/S and other information
Take note: PFRS only applies to F/S not to other information
Each F/S shall be presented with equal prominence
 Each F/S shall display the ff. information prominently and repeatedly (whenever relevant):
a. Name of the reporting entity
b. Information whether the F/S are of an individual or of a group
c. Date of the reporting entity (end of reporting period) or period covered
d. Presentation currency and
e. Level of rounding (thousands, millions,...)
Take note:
 PAS 1 lists the minimum content to be presented in the F/S except for statement of cash
flows (PAS 7)
 PAS 1 requires disclosures to be presented either in notes or on face of the other
statements
 Other disclosures are addressed by PFRSs

Management’s Responsibility for Financial Statements

 Preparation and fair presentation of the F/S in accordance with the PFRSs – Chief Financial
Officer (CFO) and the Chief Executive Officer (CEO)
 Internal control over the financial reporting
 Going concern assessment
 Oversight of the financial reporting process and review and approval of F/S - Board of Directors
(Chairman)
 Responsibilities are clearly stated in the “Statement of Management Responsibility” for F/S
attached as a cover letter to the audited F/S
Statement of Financial Position (“as at December 31, 2020”)
 Before amendments of PAS 1 , it was called “balance sheet”
 Required line items:
1.) Current assets
2.) Current liabilities
3.) Non-current assets
4.) Non-current liabilities
“Current” – expected to be recovered or settled within 12 mos. after the reporting period.
 PAS 1 does not prescribe the order or format of presenting items in the statement of financial
position
 Instead, several formats are acceptable if they fulfill all requirements outlined above.
o Report form
 Assets, liabilities, and equity are shown in that order in a vertical manner.
o Account form
 This follows the T-account format where assets are shown on the left side and
liabilities on the right side of the statement (horizontal form).
o Financial Position form
 Emphasizes the working capital position of an enterprise.
 Presented in vertical form, the current liabilities are deducted from current assets
to derive the working capital.
 Non-current assets are then added and non-current liabilities are deducted,
leaving the residual amount as equity, or net assets.

 Entity may modify – sequence of presentation based on its nature and transactions

Presentation of Statement of Financial Position

1.) Classified – “current and noncurrent” assets and liabilities
 Shall be used, recommended
 Highlights working capital, liquidity and solvency
2.) Unclassified – “based on liquidity”
*PAS 1 – permits mixed presentation (diverse operations)
*PAS 1 – requires whichever method used, disclosure of items to be recovered or settled w/in 12 mos.
and beyond 12 mos. after reporting period

OPERATING CYCLE – time between acquisition and realization

Assets - control over the resource, arising from past actions and providing the enterprise probable future
economic benefits. (revised in C.F.)

 Cash and cash equivalents (CA)

 Trade and other receivables (CA)
 Inventories (CA)
 Prepaid Expenses (CA)
 Property, plant, and equipment (NCA)
 Investment property (NCA)
 Intangible assets (NCA)
 Investments accounted for using the equity method (NCA)
 Biological assets (NCA)
  IFRS 5 Non-current assets Held for Sale and Discontinued Operations (NCA)
 Current tax assets and deferred tax assets (CTA – CA; DTA – NCA)

Liabilities – the present obligation of the enterprise, it arises from a past event and is expected to result in
a probable outflow of economic benefits (revised in C.F.)

 Trade and other payables

 Current tax liabilities and deferred tax liabilities
  Total Liabilities according to IFRS 5 Non-current assets Held for Sale and Discontinued
Operations

Refinancing Agreement
- Long-term obligation that is maturing w/in 12 mos. = CURRENT
- Non-current – if entity expects and has the discretion to refinance it under existing loan facility
(credit line)
- Refinancing – replacement of an existing debt with a new one but w/ different terms, normally
entails fee or penalty
- “Troubled debt restructuring” – debtor under financial distress
Liabilities Payable on Demand (breach of a loan provision) = CURRENT
Noncurrent if, lender provides “grace period” on or before the end of the reporting period

Equity – residual interest in the assets of the enterprise after deducting all its liabilities. It refers to the
interest of the owners in an enterprise measured as the excess of the total assets over its liabilities, also
called net assets

 Issued capital and reserves attributable to owners of the parent

 Non-controlling interests

Further subclassifications of the line items shall be disclosed either :

o directly in the statement of financial position or
o in the notes, such as disaggregation of property, plant, and equipment into classes, and
similar.
o Also, certain information related to the share capital, reserves, and a few others shall be
included in the statement of financial position, the statement of changes in equity, or in
the notes.

Statement of Comprehensive Income

2 BASIC ELEMENTS:

1.) Profit or loss for the period – all items of income and expenses (emanates from the regular
operations of the business entity)
2.) Comprehensive Income – items of income or expenses that are not recognized in the profit or
loss (reclassification adjustments)
Statement of Comprehensive Income must contain a minimum:

PROFIT OR LOSS (computation of profit or loss is called “transaction approach”)

o Revenue
o Gains and losses arising from the derecognition of financial assets at amortized cost
o impairment gains and losses on financial assets
o Finance costs
o Share of the profit or loss of associates and joint ventures (equity method)
o Tax expense
o Post-tax profit/gain or loss of operations or assets in accordance with IFRS 5 (Non-
current assets Held for Sale and Discontinued Operations)
o Profit or loss

OTHER COMPREHENSIVE INCOME

o changes in the revaluation surplus*
o re-measurement of the net defined benefit plan (asset)
o FV changes - equity instrument*
o FV changes - a debt instrument**
o translation differences on foreign operations**
o the effective portion of cash flow hedge**
o Total Comprehensive Income

 Other comprehensive Income is further classified as:

o Items that will not be reclassified subsequently to profit or loss*
o items that may be  reclassified subsequently to profit or loss**
 As opposed to US GAAP, PAS 1 prohibits reporting any transaction or item as extraordinary
items. 
 Profit or loss for the period, as well as total comprehensive income, shall be both presented in
allocation:
o attributable to non-controlling interests and
o attributable to owners of the parent.

Presenting only income statement is PROHIBITED

Classification or Presentation of Expenses:

o Nature of expense method (natural presentation) - classified as depreciation, purchase

of material, transport cost, employee benefits, and advertising cost.

- Not reallocated according to function

- Simpler to apply, eliminated considerable judgment
- Taking into account historical and industry factors and entity’s nature
 o Function of expense method (functional presentation) - classified as Cost of Sales,
distribution cost. administrative expenses and other functional classification (will need additional
disclosure)

- Additional disclosures
- Useful in predicting future cash flows

 PAS 1 prescribes the disclosure of certain items separately, either in the statement of

comprehensive income or in the notes.

      These items are as follows:

o write-downs of inventories and property,

o plant and equipment,
o their reversals,
o restructuring of activities and reversals of related provisions,
o disposals of property, plant, and equipment,
o disposals of investments,
o discontinuing operations,
o litigation settlements and other reversals of provisions.

Presentation of the Statement of Profit or Loss and Other Comprehensive Income

 A single statement of Profit or Loss and Other Comprehensive Income (Statement of
Comprehensive Income)
 Two Statement
o 1) Statement of Profit or Loss ( Income Statement)-includes only items of profit and loss
o 2) Statement of Comprehensive Income - starts with profit or loss (as per Income
Statement followed by other items comprising other comprehensive income.)

The Statement of Changes in Equity

 The Statement of Changes in Equity as a minimum must contain the following items:

 total comprehensive income for the period, showing separately amounts attributable to owners of
the parent and to non-controlling interests
 the effect of retrospective application (change in accounting policy) or retrospective restatement
(correction of a prior period error) for each component of equity (if applicable)
 the reconciliation between the carrying amount at the beginning and the end of the period for each
component of equity.

 The following changes shall be disclosed separately:

o those resulting from profit or loss
o resulting from other comprehensive income
 o resulting from transactions with owners (contributions, distributions, and changes in
ownership)

 PAS 1 prescribes to present the amount of dividends recognized as distributions and the
related amount per share on the face of the Statement of Changes in Equity or in the notes.

The Notes to the Financial Statements

 Notes to the Financial Statements

 Are meant to be the document accompanying numerical financial statements.

 They should provide additional information
o not contained in the numbers,
o the basis of preparation of the financial statements, and
o some additional information that might be relevant
o an integral part of a complete set of financial statements. 

 PAS 1 requires an entity to present the notes in a systematic manner. The notes shall
contain:
o general information about the entity (domicile and legal form, country, address of
principal office, description of nature of operations and principal activities)
o a statement of compliance with PFRS (only if the entity complies with all the
requirements of the PFRSs.)
o summary of significant accounting policies applied, (narrative descriptions, recognition
criteria, measurement bases, derecognition, transitional provisions, and other relevant info)
o Disaggregation (breakdowns) of line items and supporting information for the numbers
presented in the financial statements and
o other disclosures required by PFRS such as: (not exhaustive)
 contingent liabilities and unrecognized contractual commitments
 non-financial disclosures (entity's financial risk management)
 non-adjusting events after the reporting date (if material)
 changes in accounting policies and estimates and correction of a prior period
error
 related party disclosures
 judgment and estimations
 capital management
 dividends declared after the reporting period but before the issuance of the F/S
 amount of any cumulative preference dividends not recognized.

o other disclosures not required by PFRS but deemed relevant by the management for the
understanding of the FS.

 The notes shall be prepared in a very detailed manner. (voluminous, occupy bulk portion of FS)