IAS 1 and Financial Statements

Financial Statements

• Financial statements offer a snapshot of an enterprise's financial health and activities.
• These are designed to be useful for a wide range of users in making economic decisions.
• They reflect management's stewardship of the resources it has been entrusted with.
• They include information about assets, liabilities, and equity.
• Financial statements also presents income and expenses including gains and losses, contributions, distributions to owners, and cash flows.

IAS 1 and Financial Statements

• International Accounting Standards (IAS) 1: Presentation of Financial Statements provides the basis for the presentation of financial statements.
• The goal of IAS 1 is to make sure an enterprise's financial statements can be compared to those of other enterprises
• This also ensures its comparability to the financial statements of the same enterprise across different periods.
• Financial statements are management's responsibility.

Complete Set of Financial Statements

• A statement of financial position as at the end of the period
• A statement of comprehensive income for the period
• A statement of changes in equity for the period
• A statement of cash flows for the period.
• Notes contain a summary of significant accounting policies and other explanatory information.

Requirement for Additional Statement of Financial Position

• An additional statement of financial position as at the beginning of the preceding period is required when an entity restates its comparative prior period financial statements.
• Restatement is triggered by changes in accounting policy.
• Restatement happens when prior period errors are discovered,.
• Restatement happens when elements are reclassified in financial statements.

Accounting Policies

• Accounting policies greatly influence financial statements.
• IAS 8 defines accounting policies as accounting principles, bases, conventions, rules and practices that an entity applies when preparing and presenting financial statements.
• Management should consider the requirements in PFRS and IFRS when selecting accounting methods to form accounting policies.
• It also has to consider the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Conceptual Framework.

General Features

• IAS 1 specifies general features for financial statement presentation.
• They include fair presentation and compliance with IFRS/PFRS.
• It involves going concern, accrual basis of accounting, materiality and aggregation, and offsetting
• As well as frequency of reporting, comparative information, and consistency of presentation.

Fair Presentation and IFRS Compliance

• Financial statements shall offer a fair view of financial position, performance, and cash flows.
• Fair presentation includes faithful depiction of transactions, events, and conditions, following definitions and recognition criteria for assets, liabilities, income, and expenses in the Conceptual Framework.
• Applying IFRS, along with added disclosures, aims for financial statements that achieve fair presentation.
• An entity needs to follow PAS/IAS 8 when selecting accounting policies.
• It needs to present information and accounting policies in a relevant, reliable, comparable, and understandable manner.
• It needs to provide extra disclosures if IFRS doesn't fully enable users to grasp the effect of a specific transaction, event, or condition on the entity's financials.
• Philippine Financial Reporting Standards (PFRS) include standards and interpretations adopted by the Financial Reporting Standards Council.
• PFRS consists of Philippine Financial Reporting Standards, Philippine Accounting Standards, and Interpretations from various committees.
• Management has an extremely rare option to diverge from IFRS requirements.
• This is allowed, only, if compliance results in misleading financial information.
• Departure is only permitted if the regulatory framework allows or does not forbid it.
• If a deviation from IFRS is made, the entity makes specific disclosures about the departure and its financial impacts.
• Additional disclosures are made if regulatory frameworks prevent departures from IFRS..

Going Concern

• Financial statements assume a business will continue operating.
• This is disregarded if management plans to liquidate, cease trading, or has no other choice.
• The notes must disclose the non-going concern basis.
• The basis for preparing the statements must be disclosed.
• The reason the enterprise is not considered a going concern must be disclosed.

Accrual Basis

• Companies should prepare financial statements using the accrual basis of accounting.
• Cash flow information is an exception.
• Under the accrual basis, transactions are recognized when they occur.
• Expense recognition should be based on direct association between costs and earnings.
• This may be achieved via direct matching of costs to specific income items or from systematic allocation of asset costs over its benefit period.
• Recognition of an asset's cost is disallowed, when future economic benefits are unlikely.

Revenue Recognition

• Revenue is recognized when goods/services are delivered.
• Revenue needs to result to an inflow of economic benefits.
• These benefits have to be measured in a reliable manner.

Materiality and Aggregation

• Present each material item separately in financial statements.
• Aggregate immaterial amounts of similar nature/function as one-line items.
• Information is material if its omission influences decision-making.
• Materiality varies based on the item's size and character.

Aggregation and Classification

• Present information in condensed and classified formats.
• If an individual item attracts user's attention, present it as a single line on financial statements.
• Aggregate immaterial items with others on statements or notes.

Financial Statement Threshold

• Materiality sets the financial statement recognition threshold.
• Accounting Standard disclosure requirements need not apply if the item is not material.

Offsetting

• Deducting one item from another results in only the net being presented on financial statements, known as a means of offsetting.
• Offsetting is only allowed if required, and/or permitted by a Standard or Interpretation.
• Presenting netting any income with related expenses coming from the transaction is allowed.

Frequency of Reporting

• Financial statements should be provided once every year.
• If statement of financial position date changes arise during the period and statements are prepared for a period longer than a year, it must be disclosed.

Comparative Information

• Disclose preceding period information for all financial information in the financial statements.
• This is only disregarded when IFRSs permit otherwise.
• Comparative details are necessary for understanding financial statements.

Retrospective Adjustments

• Retrospective adjustments are mandated in an enterprise makes the following changes.
• These include changes in accounting policy
• Also correction of prior period errors.
• Finally reclassification or amendment of items in the financial statements.
• When retrospective adjustments are done, three statements of financial position shall be presented to properly account for adjustments at specific points in time.
• These are the end of the current period, the end of the immediate prior period, the beginning of the preceding period.
• This ensures comparability of the prior year information with current period.
• If an entity makes reclassifications, it should reveal its nature, amount and reason.
• If it is impractical to reclassify comparative amounts, the reason behind it should be disclosed, as well as an adjustment that would have been made if the reclassification took place.
• Present and classify items consistently in financial statements, unless a company's operations or financial statements change, or IFRS requires the change.

Financial Statement Standards

• Financial statements should be identifiable and distinct from supplemental data in the document.
• Each element of it should be clearly labeled to avoid confusion.
• A company name and other identifier's must be cited.
• It should indicate individual or group of entity coverage.
• Dates covered by those reports also need to be displayed as well as reporting currency
• Levels to which numbers or data will be rounded are necessary for proper formatting.

Fundamentally Related Financial Statements

• Financial statements link due to sets of transactions during periods.
• The statement of comprehensive income is prepared first.
• Next, it reports profit and then is transferred as equity in changes of equity statement.
• Cash flow refers to inflow and/or outflow of cash or their equal equivalents.
• Any cash flow is presented through a cash flow statement.

Financial Statement Limits

• The use of the measurement affects real business worth on financial statements.
• Financial statements present values with purchasing power.
• Uncertainties affect events reported because measurement is needed to be fit for recording.
• Information like morale, company efficiency, production and negative impact on environment is not reported on financial statements.

SRC Rule 68 and SEC

• The SEC, Securities and Exchange Commission in the Philippines, oversees businesses.
• It regulates, records and manages securities trading, including protecting investors and promoting corporate governance.
• SRC Rule 68 works with official info to apply requirements on financial statement form and content with the SEC.

Reporting Entities Under SRC Rule 68

• SRC Rule 68 has four reporting entity types, including the following;
• A large scale organization, or one which is publicly traded. That would fall under large and/or publicly accountable entities.
• Mid size ones, or ones that are just generally small and minute relative to others.
• PFRS/IFRS is for SMEs frameworks, while IFRS would be for large entities to follow guidelines on their books.
• Full PFRS may be chosen for subsidiaries, if they are or if they are soon preparing financial statement to be liquidated in the next fiscal year.
• The SEC may permit others with SMEs.
• Short term entities with high chance of breaching quantitative results may prepare financial statements with full PFRS, provided there are some significant change still.
• Small entities must follow SEC guidelines of adopted entities but may require IFRS for SMEs or overall PFRS depending

The Reporting Entities

• Large and publicly accountable entitles have the following traits:
• assets over P350 million, and liabilities over P250 million;.
• filing statements for public instruments.
• Medium sized reports must comply to all needs, with assets from P100 to P350 or liabilities from 100 to 250 Pmillion range, unless reporting is needed for consolidated figures or they are issuing information towards a market or holders
• Overall, small entities meeting needed criteria, follow PFRS through SEC, with those involved in operations, or those that have heavy chance or short term increases over financial results can follow IFRS also.
• Reporting for micro entities have an option at reporting entity and may consist at least in reporting responsibilities, audit reports, financial information, income and notes on statements.
• The SEC is the basis for all information to be considered accurate and truthful, with no external input affecting final ruling or the state of what was.