PAS 1

(presentation of financial statements)

PAS 1 – describes the basis for the presentation of general purpose financial statements, the guidelines for their structure,
and the minimum requirements for their content to ensure comparability
- Applies to the preparation and presentation of general purpose financial statements
- Terminology in PAS 1 is suitable for profit-oriented entities
- If non-profit organizations apply PAS 1, they may need to amend the line-item and financial statement descriptions

Types of Comparability
a. Intra-comparability (horizontal or inter-period)
- Refers to the comparability of financial statements of the same entity from one period to another
b. Inter-comparability (dimensional)
- Refers to the comparability of financial statements between different entities
o Requires consistency in the adoption and application of accounting policies and in the presentation of financial
statements

Financial statements
o Structured representation of an entity’s financial position and results of operations
o End product of financial reporting process
o Means by which the information gathered and processed is periodically communicated to users
o General purpose financial statements
o Those intended to meet the needs of users who are not in a position to require an entity to prepare reports
tailored to their particular information needs
o Cater to most of the common needs of a wide range of external users
o Are the subject matter of the Conceptual Framework and PFRSs

Purpose of Financial Statements

o Primary objective:
o To provide information about the financial position, financial performance, and cash flows of an entity
that is useful in making economic decisions
o Secondary objective:
o To show the results of management’s stewardship
o Provide the information about an entity’s
a. Assets
b. Liabilities
c. Equity
d. Income
e. Expenses
f. Contributions by, and distributions to owners
g. Cash flows
 this information, along with other information in the notes, helps users assess the entity’s prospects for future
net cash inflows

Complete set of financial statements

o consists of:
a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of changes in equity
d. Statement of cash flows
e. Notes
i. Comparative information
f. Additional statement of financial position (required only when certain instances occur)

 “balance sheet” may be used in lieu of “statement of financial position”

 “statement of comprehensive income” instead of “statement of profit or loss and other comprehensive
income”
  BUT “income statement” is different from “statement of profit or loss and other comprehensive income”
 reports that are presented outside of the financial statements such as financial reviews by the management,
environmental reports and value added statements, are outside the scope of PFRSs

General features of financial statements

1. Fair Presentation and Compliance with PFRSs

o Is faithfully representing in the financial statements the effects of transactions and other events in
accordance with the definitions and recognition criteria for assets, liabilities, income, and expenses set out
in the conceptual framework
o Compliance with PFRSs is presumed to result in a fairly presented financial statement
o Fair presentation also requires
 the proper selection and application of accounting policies
 proper presentation of information
 provision of additional disclosures whenever relevant to the understanding of the financial
statements
o Inappropriate accounting policies cannot be rectified by mere disclosure
o PAS 1 requires an entity whose financial statements comply with the PFRSs to make an explicit and
unreserved statement of such compliance in the notes
Structure and content of financial statements

o Each of the financial statements shall be presented with equal prominence and shall be clearly identified and
distinguished from other information in the same published document
o The PFRSs apply only to the financial statements and not necessarily to the other information

o The following information shall be displayed prominently and repeatedly whenever relevant to the understanding
of the information presented:
a. The name of the reporting entity
b. Whether the statements are for the individual entity or for a group of entities
c. The date of the end of the reporting period or the period covered by the financial statements
d. The presentation currency
e. The level of rounding used

ABC Corporation
Statement of Financial Position
As of December 31, 20x2
(in thousands of Philippine Peso)

 The statement of financial position is dated as at the end of the reporting period while the OTHER financial
statements are for the year period that they cover
o Statement of financial position – as at the end
o Other financial statements – for the year period

PAS 1
o Requires particular disclosures to be presented either in the notes or on the face of other financial statements
(footnote disclosures)
o Other disclosures are addressed by other PFRSs

Management’s Responsibility over Financial Statements

o The management is responsible for an entity's financial statements

o the responsibility encompasses :
a. the preparation and fair presentation of financial statements in accordance with PFRSs
b. internal control over financial reporting
c. going concern assessment
d. oversight over the financial reporting process
e. review and approval of financial statements

o Their responsibilities are expressly stated in a document called

o Statement of Management Responsibility for Financial Statements
o attached to the financial statements as a cover letter
o this document is signed by the entity’s:

a. Chairman of the Board (or equivalent)

b. Chief Executive Officer (or equivalent)
c. Chief Financial Officer (or equivalent)

Statement of Financial Position

o Shows the entity's financial condition (assets, liabilities, and equity) as at a certain date

PAS 1
o DOES NOT prescribe the order or format of presenting items in the statement of financial position
 o An entity may modify the descriptions used and the sequence of their presentation to suit the nature of the
entity and its transactions
o Additional line items may be presented whenever relevant to the understanding of the entity’s financial position

Presentation of Statement of Financial Position

o A statement of financial position may be presented in a “classified” or an “unclassified” manner
a. Classified presentation
- Shows the distinction between current and non-current assets
- Shall be used except when an unclassified presentation provides information that is reliable and more
relevant
o When this exception applies, assets and liabilities are presented in order of liquidity
 Liquidity – normally the case for banks and other financial institutions
- Highlights on entities working capital and facilitates the computation of liquidity and solvency ratios
b. Unclassified presentation
- Also called “based on liquidity”
- Shows no distinction between current and non-current assets

PAS 1
o Permits a mixed presentation
o Such as presenting some assets and liabilities using a current/non-current classification and others in order of
liquidity
o This may be appropriate when the entity has diverse operations
o Whichever method is used, PAS 1 requires the disclosure of items that are expected to be recovered or settled
o Within 12 months
o beyond 12 months after the reporting period

Working Capital = Current Assets – Current Liabilities

 Operating Cycle
o Is the time between the acquisition of assets for processing and their realization in cash or cash equivalents
o When the entity’s normal operating cycle is not clearly identifiable, it is assumed to be 12 months

 Assets and liabilities that are realized or settled as part of the entity's normal operating cycle are presented as
CURRENT , even if they are expected to be realized or settled beyond 12 months after the reporting period
o Trade receivables
o Inventory
o Trade payables
o Some accruals for employee and other operating costs
 Assets and liabilities that do not form part of the entity's normal operating cycle are presented as current
ONLY WHEN they are expected to be realized or settled within 12 months after the reporting period
o Non-operating assets and liabilities

 Deferred tax assets and liabilities are always presented as NONCURRENT ITEMS in a classified statement of
financial position, regardless of their expected dates of reversal

Refinancing Agreement
o Long term obligation that is maturing within 12 months after the reporting period is classified as CURRENT,
even if a refinancing agreement to reschedule payments on a long-term basis is completed after the reporting
period but BEFORE THE FINANCIAL STATEMENTS ARE AUTHORIZED FOR ISSUE
o the obligation is classified as NONCURRENT if the entity expects, and has the DISCRETION, to refinance it on
a long-term basis under an EXISTING LOAN FACILITY
 o If the refinancing is NOT at the DISCRETION of the entity (there is no arrangement for refinancing), the
financial liability is CURRENT
o REFINANCING
- Refers to the replacement of an existing debt with a new one but with different terms
- Extended maturity date or revised payment schedule
- Normally entails a fee or penalty
- Refinancing where the debtor is under financial distress is called “troubled debt restructuring”

Liabilities Payable on demand

o Liabilities that are payable upon the demand of the lender are classified as CURRENT
o A long term obligation may become payable on demand as a result of a breach of a loan provision
o Such an obligation is classified as CURRENT even if the lender agreed, after the reporting period and before the
authorization of the financial statements for issue, not to demand payment
o this is because the entity does not have an unconditional right to defer settlement of the liability for at least
12 months after the reporting period
o However the liability is NONCURRENT if the lender provides the entity by the end of the reporting period a
grace period ending at least 12 months after the reporting period, Within which the entity can rectify the breach and
during which the lender cannot demand immediate repayment
o If ang grace period kay gihatang before the reporting period, noncurrent na na.. pero if ang grace period kay gihatag
after the reporting period, current na

Statement of Profit or Loss and Other Comprehensive Income

a. Single Statement
b. Two Statements
o Statement of profit or loss (income statement)
o Statement presenting comprehensive income
PAS 1
o Requires an entity to present information on the following:
a. Profit or Loss
b. Other Comprehensive Income
c. Comprehensive Income

 Presenting a separate income statement is allowed as long as a separate statement showing comprehensive income
is also presented (two-statement presentation)
 Presenting only an income statement is PROHIBITED

Profit or Loss
o Is income less expenses excluding the components of other comprehensive income
o The excess of income over expenses is PROFIT while the deficiency is LOSS
o This method of computing for profit or loss is called the TRANSACTION APPROACH
o Income and expenses are usually recognized in profit or loss unless:
a. they are items of other comprehensive income
b. they are required by other PFRSs to be recognized outside of profit or loss
o The following are not included in determining the profit or loss for the period
a. correction of prior period error
b. change in accounting policy
c. other comprehensive income
d. transactions with owners such as issuance of share capital, declaration of dividends etc.

PAS 1
o PROHIBITS the presentation of extraordinary items in the statement of profit or loss and other comprehensive
income