PRESENTATION of

FINANCIAL
STATEMENTS

PAS 1
 MODULE OBJECTIVES

 Update the participants on the basis of the presentation

of the financial statements
 Acquaint participants with the proper balance sheet
presentation, using the current and non-current
classification of assets and liabilities
 Acquaint participants with the formats of presenting
expenses on the income statement.
 Present an illustrative format for the presentation of
the statement of changes in equity.
 Enumerate information that are required to be
presented in the notes to the financial statements.
 Objective
This Standard prescribes the basis for presentation
of general purpose financial statements to ensure
comparability both with the entity’s financial
statements of previous periods and with the
financial statements of other entities. It sets out
overall requirements for the presentation of
financial statements, guidelines for their structure
and minimum requirements for their content.
 OBJECTIVE of PAS 1
 To prescribe the basis for presentation of
general purpose financial statements, to ensure
comparability both with financial statements of
previous periods and with the financial
statements of other entities.
 OBJECTIVE of PAS 1
 The Standard sets out the following:
- overall requirements for the presentation
of financial statements;
- guidelines for their structure; and
- minimum requirements for their content.
 SCOPE
 The Standard shall be applied to all general
purpose financial statements prepared and
presented in accordance with International
Financial Reporting Standards (IFRSs).
 SCOPE
 General purpose financial statements are
those that are intended to meet the needs
of users who are not in a position to
demand reports tailored to meet their
particular information needs.
 IFRS Components
International Financial Reporting Standards (IFRSs)
are Standards and Interpretations issued by the
International Accounting Standards Board (IASB).
They comprise:
(a) International Financial Reporting Standards;
(b) International Accounting Standards;
(c) IFRIC Interpretations; and
(d) SIC Interpretations.
 IFRS Defined
International Financial Reporting Standards
- are Standards and Interpretations
adopted by the International Accounting
Standards Board composed of:
*IFRSs
*IASs
*Interpretations originated by IFRIC or
SIC
 Materiality
Omissions or misstatements of items are material if
they could, individually or collectively, influence the
economic decisions that users make on the basis of
the financial statements. Materiality depends on the
size and nature of the omission or misstatement
judged in the surrounding circumstances.

The size or nature of the item, or a combination of

both, could be the determining factor.
 OTHER COMPREHENSIVE
INCOME
Other comprehensive income comprises items
of income and expense (including
reclassification adjustments) that are not
recognised in profit or loss as required or
permitted by other IFRSs.
 OTHER COMPREHENSIVE INCOME

The components of other comprehensive income include:

(a) changes in revaluation surplus (see IAS 16 Property, Plant and
Equipment and IAS 38 Intangible Assets);
(b) remeasurements of defined benefit plans (see IAS 19
Employee Benefits);
(c) gains and losses arising from translating the financial
statements of a foreign operation;
(d) gains and losses from investments in equity instruments
measured at fair value through other comprehensive income in
accordance with paragraph 5.7.5 of IFRS 9 Financial
Instruments;
 OTHER COMPREHENSIVE INCOME

The components of other comprehensive income include:

(e) the effective portion of gains and losses on hedging
instruments in a cash flow hedge (see IAS 39 Financial
Instruments: Recognition and Measurement);
(f) for particular liabilities designated as at fair value through
profit or loss, the amount of the change in fair value that is
attributable to changes in the liability’s credit risk (see
paragraph 5.7.7 of IFRS 9).
 Other Definitions
Owners are holders of instruments classified as
equity.
Profit or loss is the total of income less expenses,
excluding the components of other comprehensive
income.
Reclassification adjustments are amounts reclassified
to profit or loss in the current period that were
recognised in other comprehensive income in the
current or previous periods.
 Other Definitions
Total comprehensive income is the change in equity
during a period resulting from transactions and other
events, other than those changes resulting from
transactions with owners in their capacity as owners.

Total comprehensive income comprises all

components of ‘profit or loss’ and of ‘other
comprehensive income’.
 PURPOSE OF
FINANCIAL STATEMENTS
To provide information about the -
- financial position,
- financial performance, and
- cash flows
of an entity that is useful to a wide range of users
in making economic decisions.
 COMPONENTS OF
FINANCIAL STATEMENTS
A complete set of financial statements comprises:
(a) a balance sheet;
(b) an income statement;
(c ) a statement of changes in equity;
(d) cash flow statement;
(e) notes to the financial statements;
 COMPONENTS OF
FINANCIAL STATEMENTS
A complete set of financial statements comprises:
(f) a statement of financial position as at the beginning of the
earliest comparative period when an entity applies an
accounting policy retrospectively or makes a retrospective
restatement of items in its financial statements, or when it
reclassifies items in its financial statements.
An entity may use titles for the statements other than those
used in this Standard.
For example, an entity may use the title ‘statement of
comprehensive income’ instead of ‘statement of profit or loss
and other comprehensive income’.
 COMPONENTS OF
FINANCIAL STATEMENTS
An entity may present a single statement of profit or loss and
other comprehensive income, with profit or loss and other
comprehensive income presented in two sections. The
sections shall be presented together, with the section
presented first followed directly by the other comprehensive
income section. An entity may present the profit or loss
section in a separate statement of profit or loss. If so, the
separate statement of profit or loss shall immediately precede
the statement presenting comprehensive income, which shall
begin with profit or loss.
 COMPONENTS OF
FINANCIAL STATEMENTS

11 An entity shall present with equal

prominence all of the financial statements in a
complete set of financial statements.
 Management’s Responsibility

The financial statements are basically the

responsibility of the company’s management.
 GENERAL FEATURES
Fair presentation and compliance with IFRSs

Financial statements shall present fairly the financial position, financial

performance and cash flows of an entity. Fair presentation requires the
faithful representation of the effects of transactions, other events and
conditions in accordance with the definitions and recognition criteria for
assets, liabilities, income and expenses set out in the Framework.

The application of IFRSs, with additional disclosure when necessary, is

presumed to result in financial statements that achieve a fair presentation.
 GENERAL FEATURES
An entity whose financial statements comply with IFRSs shall make an
explicit and unreserved statement of such compliance in the notes. An
entity shall not describe financial statements as complying with IFRSs
unless they comply with all the requirements of IFRSs.
 GENERAL FEATURES
An entity cannot rectify inappropriate accounting policies
either by disclosure of the accounting policies used or by
notes or explanatory material.
 Accounting Policies
Accounting policies are the specific principles,
bases, conventions, rules and practices applied
by an entity in preparing and presenting financial
statements.
Hierarchy of Accounting Policies
In descending order:
(a) requirements of an applicable accounting
standard or an interpretation;
(b) management judgment/ decision that results
to relevant and reliable information, considering
(1) requirements and guidance of similar
accounting standards and interpretations; and
(2) the definitions, recognition criteria and
measurement bases in the Framework.
OVERALL CONSIDERATIONS
 Fair Presentation and Compliance with IFRSs
 Going Concern
 Accrual Basis of Accounting
 Consistency of Presentation
 Materiality and Aggregation
 Offsetting
 Comparative Information
 FAIR PRESENTATION AND
COMPLIANCE WITH IFRS
Achieved by:
 Complying with all the applicable requirements
of PFRS;
 Presenting information that meets the qualitative
characteristics
 Providing additional disclosures, when necessary
 FAIR PRESENTATION AND
COMPLIANCE WITH IFRS
An entity whose financial statements comply with
IFRS shall make an explicit and unreserved
statement of such compliance in the notes.
Financial statements shall not be described as
complying with IFRS unless they comply with
ALL the requirements of IFRSs.
 GOING CONCERN
An entity preparing IFRS financial statements are
presumed to be a going concern.
If management has significant concerns about the entity’s
ability to continue as a going concern, the uncertainties
must be disclosed.
If management concludes that the entity is not a going
concern, the financial statements should not be
prepared on a going concern basis, in which case IAS 1
requires a series of disclosures.
 ACCRUAL BASIS
OF ACCOUNTING
An entity should prepare its financial statements,
except for cash flow information, using the
accrual basis of accounting.
 CONSISTENCY
OF PRESENTATION
The presentation and classification of items in the
financial statements shall be retained from one
period to the next unless a change is justified
either by a change in circumstances or a
requirement of a new IFRS.
 MATERIALITY
AND AGGREGATION
Each material class of similar items must be
presented separately in the financial statements.
Dissimilar items may be aggregated only if these
are individually immaterial.
 OFFSETTING
Assets and liabilities, and income and expenses,
may not be offset unless required or permitted
by a Standard or an Interpretation.
 COMPARATIVE
INFORMATION
The Standard requires that comparative
information shall be disclosed in respect of the
previous period for all amounts reported in the
financial statements, both on the face of
financial statements and notes, unless another
Standard requires otherwise.
If comparative amounts are changed or
reclassified, generally restatement and various
disclosures are required.
 STRUCTURE AND CONTENT
OF FINANCIAL STATEMENTS
 Identification of the Financial Statements
The financial statements shall be identified
clearly and distinguished from other information
in the same published document.
 STRUCTURE AND CONTENT
OF FINANCIAL STATEMENTS
 Reporting Period

Financial statements shall be presented at least

annually.
 PRESENTATION OF ASSETS
AND LIABILITIES ON THE BS
 An entity shall present current and non-current
classification of assets and liabilities, except
when a presentation based on liquidity provides
information that is reliable and is more relevant.
 When exception applies, all assets and liabilities
shall be presented broadly in the order of
liquidity.
 NORMAL OPERATING CYCLE

When an entity’s normal operating cycle is not

clearly identifiable, its duration is assumed
to be twelve months.
 Current Assets Defined
Assets falling under any of the following:
 Expected to be realized in, or for sale or consumption
in, the entity’s normal operating cycle;
 Held primarily for the purpose of being traded;

 Expected to be realized within twelve months of the

balance sheet date;
 Cash or cash equivalent, unless restricted from being
used or exchanged to settle a liability for at least twelve
months after the balance sheet date.
 Current Liabilities
An obligation meeting any of the following criteria:
 It is expected to be settled in the entity’s normal
operating cycle
 It is held primarily for the purpose of being traded
 It is due to be settled within twelve months after the
balance sheet date
 The entity does not have an unconditional right to
defer settlement of the liability for at least twelve
months after the balance sheet date
 Current and Non-current Liabilities
An entity classifies its financial liabilities as current
when they are due to be settled within twelve
months after the balance sheet date, even if:
(a) the original term was for a period of more than
twelve months; and
(b) an agreement to refinance or to reschedule
payments, on a long-term basis is completed after
the balance sheet date and before the issuance of
the financial statements
Current and Non-Current Liabilities
If an entity expects, and has the discretion, to
refinance or roll over an obligation for at
least twelve months after the balance sheet
date under existing loan facility, it classifies
the obligation as non-current, even if it
would otherwise be due within a shorter
period.
Current and Non-current Liabilities
However, when refinancing or rolling over the
obligation is not at the discretion of the
entity, the potential to refinance is not
considered and the obligation is classified as
current.
Current and Non-Current Liabilities
When an entity breaches an undertaking
under a long-term agreement on or before
the balance sheet date with the effect that
the liability becomes payable on demand,
the liability is classified as current, even if
the lender has agreed, after the balance
sheet date and before the authorization of
the financial statements for issue not to
demand payment as a consequence of the
breach.
 Current and Non-current Liabilities
The liability is classified as non-current if the
lender agreed by the balance sheet date to
provide a period of grace ending at least 12
months after the balance sheet date, within
which the entity can rectify the breach and
during which the lender cannot demand
immediate payment.
Current and Non-Current Liabilities
For each of the following cases, determine how much will be
reported as current liabilities and noncurrent liabilities on
December 31, 2007 balance sheet.
Case 1. Ravena, Inc. has P2M of notes payable due June 15,
2008. At December 31, 2007, Ravena signed an agreement
to borrow up to P2M to refinance the notes payable on a
long-term basis. The financing agreement called for
borrowings not to exceed 80% of the value of the collateral
Ravena was providing. At the date of issue of the
December 31, 2007 financial statements, the value of the
collateral was P2.4M and was not expected to fall below this
amount.
 Current and Non-current Liabilities
Case 2. Ravena, Inc. has P2M of notes payable due
June 15, 2008. At February 15, 2008, Ravena signed
an agreement to borrow up to P2M to refinance
the notes payable on a long-term basis. The
financing agreement called for borrowings not to
exceed 80% of the value of the collateral Ravena
was providing. The value of the collateral was
P2.4M and was not expected to fall below this
amount. The financial statements are authorized
for issuance on March 5, 2008.
 Current and Non-current Liabilities
Case 3. In October 2005, Vivian Corp. acquired land
from Carlo, Inc. by paying P750,000 down and signing
a note with a maturity value of P5M due October 2007.
Situation A. Under the terms of the financing
agreement, Vivian has the discretion to roll over the
obligation for at least twelve months. In October
2007, management decides to exercise its discretion to
roll over the liability up to October 31, 2009.
Current and Non-Current Liabilities
Case 3. In October 2005, Vivian Corp. acquired land from Carlo,
Inc. by paying P750,000 down and signing a note with a maturity
value of P5M due October 2007.
Situation B. The existing loan agreement does not carry a
provision to refinance. In October 2007, Vivian was
experiencing financial difficulty and was unable to pay the
maturing obligation. On February 1, 2008, Carlo has agreed not
to demand payment for at least 12 months as a consequence of
the breach of payment on the principal of the loan. The
financial statements were authorized for issue on March 31,
2008.
Current and Non-Current Liabilities
Case 3. In October 2005, Vivian Corp. acquired land from Carlo,
Inc. by paying P750,000 down and signing a note with a maturity
value of P5M due October 2007.
Situation C. The existing loan agreement does not carry a
provision to refinance. In October 2007, Vivian was
experiencing financial difficulty and was unable to pay the
maturing obligation. On December 31, 2007, Carlo signed an
agreement to provide Vivian a grace period of 15 months from
that date, during which period, Carlo will not demand immediate
payment in order to give Vivian the chance to rectify the breach.
The financial statements were authorized for issue on March 31,
2008.
INFORMATION ON THE FACE
OF THE BALANCE SHEET
• Property, Plant and Equiipment
• Investment property
• Intangible assets
• Financial assets, excluding cash, receivables and investment
under equity method
• Investments accounted for using the equity method
• Biological assets
• Inventories
• Trade and other receivables
• Cash and cash equivalents
INFORMATION ON THE FACE
OF THE BALANCE SHEET

• Trade and other payables

• Provisions
• Financial liabilities, excluding trade and other payables and
provisions
• Liabilities and assets for current tax
• Deferred tax liabilities and assets
• Minority interest, which is presented within equity (for
consolidated balance sheet) and
• Issued capital and reserves attributable to equity holders of
the parent.
 INCOME STATEMENT
INFORMATION TO BE PRESENTED ON THE
FACE OF THE INCOME STATEMENT
 Revenue

 Finance Costs

 Share of the profit or loss accounted for using the

equity method
 Discontinued Operations

 Tax Expense

 Profit or loss
 INCOME STATEMENT
The following items shall be disclosed on the face
of the income statement as allocations of profit
or loss for the period:
(for consolidated FS)
 Profit or loss attributable to minority interest;
and
 Profit or loss attributable to equity holders of
the parent
 INCOME STATEMENT
Expenses should be analyzed and presented either
by nature (raw materials, staffing costs,
depreciation, etc.) or by function (cost of sales,
selling, administrative, etc.).
If an enterprise categorizes by function, additional
information on the nature of expenses, at a
minimum - depreciation, amortization, and staff
costs, must be disclosed.
 INCOME STATEMENT

An entity shall not present any items of income

and expense as extraordinary items, either on the
face of the income statement or in the notes.
Income Statement Format – Nature
of Expense
Revenues Pxx
Other Income xx
Total Income Pxx
Expenses:
Net Purchases Pxx
(Increase) decrease in inventory xx
Salaries and wages xx
Depreciation xx
Taxes xx
Impairment of PPE xx
Other Operating Expenses xx
Total Operating Expenses xx
Profit Before Interest and Tax Pxx
Income Statement Format- Nature
of Expense Method (Continued)
Profit before interest and tax Pxx
Interest expense and finance costs (xx)
Profit before income tax Pxx
Income tax xx
Profit from continuing operations Pxx
Discontinued operations, net of
income tax of Pxx xx
Profit Pxx
Earnings per share
Basic Diluted
Continuing Operations Px.x Px.x
Discontinued Operations x.x x.x
Earnings per Share Px.x Px.x
Income Statement – Function of
Expense Method
Revenue Pxx
Cost of Sales xx
Gross Profit Pxx
Other Income xx
Total Income Pxx
Less: Expenses:
Distribution Costs Pxx
Administrative Expense xx
Other Expenses xx
Profit before interest and tax Pxx
Income Statement Format- Function
of Expense Method
Profit before interest and tax Pxx
Interest expense and finance costs (xx)
Profit before income tax Pxx
Income tax xx
Profit from continuing operations Pxx
Discontinued operations, net of
income tax of Pxx xx
Profit xx
Earnings per share
Basic Diluted
Continuing Operations Px.x Px.x
Discontinued Operations x.x x.x
Earnings per Share Px.x Px.x
 Discontinued Operations
 A discontinued operation is a component of an
entity that either has been disposed of, or is
classified as held for sale, and –
 represents a separate major line of business or
geographical area of operations, that is part of a
single co-ordinated plan to dispose of a separate
major line of business or geographical area of
operations, or
 is a subsidiary acquired exclusively with a view to
resale.
 Discontinued Operations
 In presenting discontinued operations, an
entity shall disclose a single amount
comprising the total of
(a) The post-tax profit or loss from operations of the
discontinued operations and
(b) The post tax gain or loss on disposal of the assets
of the discontinued operations or the post-tax gain
or loss on the measurement to realizable value of
the assets or disposal groups constituting the
discontinued operations.
 STATEMENT OF CHANGES
IN EQUITY
The statement must show:
* profit or loss for the period;
* each item of income and expense for the period that is
recognized directly in equity, and total of those items;
* total income and expense for the period (calculated as
the sum of the first two items), showing separately the
total amounts attributable to equity holders of the
parent and to minority interest; and
* for each component of equity, the effects of changes
in accounting policies and corrections of errors
recognized in accordance with IAS 8.
 STATEMENT OF CHANGES IN
EQUITY
Share Other Retained
Capital Reserves Earnings Total
Balances, 1/1/05 Pxx Pxx Pxx Pxx
Changes in Accounting Policy xx xx
Correction of Prior Period Error (xx)_________xx_
Restated Balances, 1/1/05 Pxx Pxx Pxx Pxx
Revaluation of PPE xx xx
Unrealized Loss on AFSS (xx) (xx)
Issue of share capital xx xx xx
Profit or Loss for the period xx xx
Dividends (xx)________(xx)
Balances, 12/31/05 Pxx Pxx Pxx Pxx
 STATEMENT OF CHANGES IN
EQUITY
Share Other Retained
Capital Reserves Earnings Total
Balances, 12/31/05
(brought forward) Pxx Pxx Pxx Pxx
2006 Changes:
Revaluation of PPE xx xx
Unrealized Gain on AFSS xx xx
Issue of share capital xx xx xx
Profit or Loss for the period xx xx
Dividends (xx)______(xx)
Balances, 12/31/06 Pxx Pxx Pxx Pxx
 ALTERNATIVE METHOD OF
PRESENTING CHANGES IN
EQUITY
 An alternative method of presenting changes in
equity may be used segregating items taken
directly in equity from profit for the period (net
income shown on the income statement). This
presentation is called Statement of Recognized
Income and Expenses.
RECOGNIZED INCOME AND
EXPENSES
2006 2005
Gains on revaluation P xx Pxx
Unrealized gains and losses
Taken to equity xx xx
Transferred to profit or loss (xx) (xx)
Cash flow hedges
Taken to equity xx xx
Transferred to profit or loss (xx) (xx)
Transferred to carrying amount
of hedged items (xx) (xx)
Tax on items taken directly to equity (xx) (xx)
Income recognized directly in equity Pxx Pxx
 RECOGNIZED INCOME AND
EXPENSES (Continued)
2006 2005
Income taken directly to equity Pxx Pxx
Profit for the period xx xx
Total recognized income Pxx Pxx

Attributable to
Equity holders of the parent Pxx Pxx
Minority interest xx xx
Pxx Pxx
 NOTES TO THE
FINANCIAL STATEMENTS
The notes must -
 present information about the basis of preparation of the
financial statements and the specific accounting policies used;
 disclose any information required by IFRSs that is not presented
on the face of the balance sheet, income statement, statement of
changes in equity or cash flow statement; and
 provide additional information that is not presented on the face
of the balance sheet, income statement, statement of changes in
equity or cash flow statement that is deemed relevant to an
understanding of any of them.
 NOTES TO THE
FINANCIAL STATEMENTS
Notes should be cross-referenced from the face of
the financial statements to the relevant notes.
 NOTES TO THE
FINANCIAL STATEMENTS
IAS 1 suggests that the notes should normally be presented in
the following order:
(1) a statement of compliance with IFRSs;
(2) a summary of significant accounting policies applied,
including
(a) the measurement basis bases used in
preparing the financial statements; and
(b) the other accounting policies used that are
relevant to an understanding of the financial
statements.
 NOTES TO THE
FINANCIAL STATEMENTS
(3) supporting information for items presented on the face
of the BS, IS, SCE and CFS, in the order in which
each statement and each line item is presented; and
(4) other disclosures, including -
(a) contingent liabilities and unrecognized
contractual commitments; and
(b) nonfinancial disclosures, such as the entity’s
financial risk management objectives and
policies.
 NOTES TO THE
FINANCIAL STATEMENTS
New disclosures required in the revised IAS
1:
(1) Disclosure of judgments
(2) Disclosure of key sources of
estimation and
(3) Basis for resolving uncertainty.
 REVIEW OF MODULE
OBJECTIVES
 To update the participants on the basis of the
presentation of the financial statements
 To acquaint participants with the proper balance sheet
presentation, using the current and non-current
classification of assets and liabilities
 To acquaint participants with the formats of presenting
expenses on the income statement.
 To present an illustrative format for the presentation of
the statement of changes in equity.
 To enumerate information that are required to be
presented in the notes to the financial statements.