CHAPTER 1
STATEMENT OF FINANCIAL POSITION
Financial Statements
• “Structured representation of an entity’s
financial position and results of its
operations” (PAS 1.9)
• Periodically communicated to users.
• FS of an entity pertain only to that entity and
not to the industry where the entity belongs
or the economy as a whole.
General Purpose Financial Statements
• General purpose financial statements
('financial statements') are "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." (PAS 1.7)
• General purpose financial statements cater
to most of the common needs of a wide
range of external users. General purpose
financial statements are the subject matter
of the Conceptual Framework and the
PFRSS.
Purpose of financial statements
• 1. Primary objective: 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.
• 2. Secondary objective: To show the results
of management's stewardship over the
entity's resources.
To meet the objective, financial statements
provide information about an entity's:
a. Assets (economic resources);
b. Liabilities (economic obligations);
c. Equity;
d. Income;
e. Expenses;
f. Contributions by, and distributions to,
owners; and
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
A complete set of financial statements consist
of:
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;
(5a) Comparative information; and
6. Additional statement of financial position
(required only when certain instances occur).
An entity may use other titles for the
statements. For example, an entity may use
the title "balance sheet" in lieu of "statement
of financial position" or "statement of
comprehensive income" instead of "statement
of profit or loss and other comprehensive
income."
However, an "income statement" is different
from a "statement of profit or loss and other
comprehensive income" or a "statement of
comprehensive income."
Reports that are presented outside of the
financial statements, such as financial reviews
by management, environmental reports and
value-added statements, are outside the
scope of PFRSS.
General Features of Financial Statements
1. Fair Presentation and Compliance with
PFRS. (PAS 1 Requires an entity whose
financial statements comply with PFRS
to make an explicit and unreserved
statement of such compliance in the
notes.
2. Going Concern. When preparing
financial statements, management
shall assess the entity’s ability to
continue as a going concern, taking
into account all the available
information about the future, which is
at least, but not limited to, 12 months
from the reporting date.
If an entity is not going concern, its
financial statements shall be prepared
using another basis. This fact shall be
disclosed, including the basis used, and
 the reason why the entity is not
regarded as going concern.
3. Accrual basis of accounting. All
financial statements shall be prepared
using the accrual basis of accounting
except for the statement of cash flows,
which is prepared using cash basis.
4. Materiality and Aggregation. Each
material class of similar items is
presented separately. A class of similar
items is called a “Line item” Dissimilar
items are presented separately unless
they are immaterial. Individually
immaterial items are aggregated with
other items.
5. Offsetting. Assets and liabilities or
income and expenses are presented
separately and are not offset, unless
offsetting is required or permitted by a
PFRS.
Offsetting is permitted when it reflects the
substance of the transaction. Examples of
offsetting:
a. Presenting gains or losses from sales of
assets net of the related selling
expenses.
b. Presenting at net amount the
unrealized gains and losses arising from
trading securities and from translation
of foreign currency denominated
assets and liabilities, except if they are
material.
c. Presenting a loss from a provision net of
a reimbursement from a third party.
Measuring assets net of valuation allowances
is not offsetting. For example, deducting
allowance for doubtful accounts from
accounts receivables or deducting
accumulated depreciation from a building
account is not offsetting.
6. Frequency of reporting. Financial
statements are prepared at least
annually. If an entity changes its
reporting period to a period longer or
shorter than one year, it shall disclose
the following
A. The period covered by the financial
statements.
B. The reason for using a longer or shorter
period and,
C. The fact that amounts presented in the
financial statements are not entirely
comparable.
7. Comparative Information. PAS 1
requires an entity to present
comparative information in respect of
the preceding period for all amounts
reported in the current period’s
financial statements, unless another
PFRS requires otherwise.
As a minimum, an entity presents two of
each of the statements and related
notes. For example, when an entity
presents its 20x2 current year financial
statements, the 20x1 preceding year
financial statements shall also be
presented as comparative information.
PAS 1 permits entities to provide
comparative information in addition to
the minimum requirement.
Additional Statement of financial
position
As mentioned earlier, a complete set of
financial statements includes an
additional statement of financial
position when certain instances occur.
Those instances are as follows:
a. The entity applies an accounting
policy retrospectively, makes a
retrospective restatement of items in
its financial statements, or reclassifies
items in its financial statements; and
b. The instance in (a) has a material
effect on the information in the
statement of financial position at the
beginning of the preceding period.
The opening (additional) statement of
FS is dates as at the beginning of the
preceding period even if the entity
presents comparative information for
earlier periods. The entity need not to
present the related notes to the opening
statement of FS.
 8. Consistency of presentation
The presentation and classification of
items in the financial statements is
retained from one period to the next
unless a change in presentation:
A. Is required by a PFRS or;
B. Results in information that is reliable
and more relevant.
A change in presentation requires the
reclassification of items in the comparative
information. If the effect of a reclassification
is material, the entity shall provide the
“additional statement of financial position”.
Structure and content of financial
statements
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. For example, financial
statements are usually included in an
annual report, which also contains other
information. The PFRSS apply only to the
financial statements and not necessarily to
the other information.
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 (e.g.,
thousands, millions, etc.)
The statement of financial position is dated as
at the end of the reporting period while the
other financial statements are dated for the
period that they cover.
PAS 1 requires particular disclosures to be
presented either in the notes or on the face of the
other financial statements (e.g., footnote
disclosures). Other disclosures are addressed by
other PFRSS.
Management's Responsibility over Financial
Statements
The management is responsible for an entity's
financial statements. The responsibility
encompasses:
a. the preparation and fair presentation of
financial statements I accordance with PFRSS.;
b. internal control over financial reporting;
c. going concern assessment;
d. Oversight over the financial reporting process;
and
e. review and approval of financial statements.
The responsibilities are expressly stated in a
document called "Statement of Management's
Responsibility for Financial Statements," which is
attached to the financial statements as a cover
letter. This document is signed by the entity's
a. Chairman of the Board (or equivalent),
b. Chief Executive Officer (or equivalent), and
c. Chief Financial Officer (or equivalent)
Statement of Financial Position
The statement of financial position shows the
entity's financial condition (i.e., status of assets,
liabilities and equity) as at a certain date. It includes
line items (a) that present the following amounts:
a. Property, plant and equipment;
b. Investment property;
c. Intangible assets;
d. Financial assets (excluding (e), (h) and (i));
e. Investments accounted for using the equity
method;
f. Biological assets;
g. Inventories;
h. Trade and other receivables;
i. Cash and cash equivalents;
j. Assets held for sale, including disposal k. Trade
and other payables;
k. groups;
l. Provisions; (Policies and permits)
m. Financial liabilities (excluding (k) and (1));
n. Current tax liabilities and current tax assets;
o. Deferred tax liabilities and deferred tax assets;
p. Liabilities included in disposal groups;
q. Non-controlling interests; and
r. Issued capital and reserves attributable to
owners of the parent. (PAS 1.54)
NOTE: A line item is a caption used to describe
a group of accounts with similar nature.
PAS 1 does not prescribe the order or format
of presenting items in the statement of
financial position. The foregoing is simply a list
of items that are sufficiently different in nature
or function to warrant separate presentation.
Accordingly, an entity may modify the
descriptions used and the sequence of their
presentation to suit the nature of the entity
and its transactions. Moreover, additional line
items may be presented whenever relevant to
the understanding of the entity's financial
position.
A classified presentation shall be used except
when an unclassified presentation provides
information that is reliable and more relevant.
When that exception applies, assets and
liabilities are presented in order of liquidity (this
is normally the case for banks and other
financial institutions).
PAS 1 also permits a mixed presentation, i.e.,
presenting some assets and liabilities using a
current/non-current classification and others
in order of liquidity. This may be appropriate
when the entity has diverse operations.
Whichever method is used, PAS 1 requires the
disclosure of items that are expected to be
recovered or settled (a) within 12 months and
(b) beyond 12 months, after the reporting
period. A classified presentation highlights an
entity's working
capital and facilitates the computation of
liquidity and solvency ratios.
All other assets and liabilities are classified as
noncurrent.
"The operating cycle of an entity is the time
between the acquisition of assets for
processing and their realization in cash or
cash equivalents. When the entity's normal
operating cycle is not clearly identifiable, it is
assumed to be 12 months." (PAS 1.68)
Assets and liabilities that are realized or settled
as part of the entity's normal operating cycle
(e.g., trade receivables, inventory, trade
payables, and some accruals for employee
and other operating costs) are presented as
current, even if they are expected to be
realized or settled beyond 12 months after the
reporting period.
Assets and liabilities that do not form part of
the entity's normal operating cycle (e.g., non-
operating assets and liabilities) are presented
as current only when they are expected to be
realized or settled within 12 months after the
reporting period.
Deferred tax assets and liabilities are always
presented a non-current item in a classified
statement of financial position, regardless of
their expected dates of reversal.
Refinancing agreement
A 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 and before the financial
statements are authorized for issue.
However, the obligation is classified as
noncurrent if the entity has the right, at the end
of the reporting period, to roll over the
obligation for at least twelve months after the
reporting period under an existing loan
facility. Without such right, the entity does
not consider the potential to refinance the
obligation and classifies the obligation as
current. Liabilities payable on demand

• Refinancing refers to the replacement
of an existing debt with a new one but
with different terms, e.g., an extended
maturity date or a revised payment
schedule. Refinancing normally entails
a fee or penalty. A refinancing where
the debtor is under financial distress is
called "troubled debt restructuring."
• Loan facility refers to a credit line.
Liabilities that are payable upon the demand
of the lender are classified as current.
A long-term obligation may become payable
on demand as a result of a breach of a loan
provision. 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. This is because the entity
does not have an unconditional right to defer
settlement of the liability for at least twelve
months after the reporting period.
However, the liability is noncurrent if the lender
provides the entity by the end of the reporting
period (e.g., on or before December 31) a
grace period ending at least twelve months
after the reporting period, within which the
entity can rectify the breach and during
which the lender cannot demand immediate
repayment.

SUMMARY:
General purpose financial statements are
those statements that cater to the common
needs of a wide range of primary (external)
users.
• The purpose of general-purpose
financial statements is 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.

• A complete set of financial statements

consists of the following:
(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, (5a) comparative information, and
(6) additional statement of financial position
when an entity makes a retrospective
application, retrospective restatement, or
reclassifies items with material effect.

• The statement of financial position may

be presented either showing
current/non-current distinction
(classified) or based on liquidity
(unclassified). PAS 1 encourages the
classified presentation.
• Current assets are those that are
expected to be realized within 1 year.
All other assets are noncurrent.
• Current liabilities are those that are
expected to be settled within 1 year. All
other liabilities are noncurrent.
• Deferred tax assets and deferred tax
liabilities are presented as noncurrent
items in a classified statement of
financial position.
• PAS 1 does not prescribe the order or
format in which an entity presents
items.