| Intermediate Accounting Vol. Lil 2022)Edition by R. R_ Ocampo. CHAPTER 30 FINANCIAL STATEMENTS — OVERVIEW “You have to understand accounting and you have to understand the ‘nuances of accounting, It's the language of business and it's an imperfect language, but unless you are.willing to put in the effort to Jearn accounting - how to read and interpret financial statements - you really shouldn't select stocks yourself.” - Warren Buffett INTRODUCTION Financial statements are a structured representation of the financial position and financial performance of an entity. They also show the Fesults of the management's stewardship of the resources entrusted to it. ‘A reporting entity communicates information about its assets, liabilities, equity, income and expenses by presenting and disclosing Information in its financial statements. This chapter discusses the purpose, the complete set and the general features of general purpose financial statements in accordance with PAS 1 Presentation of Financial Statements. PAS 1 prescribes the basis for presentation of general purpose final 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. General purpose 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. Financial stateme events viewed fri not from the pers or potential inves TYPES OF FIN, Depending on the (a) consolidatec (b) unconsolidat (c)_ combined. Consolidated - subsidiaries. Unconsolidated Combined - a re not all linked by A reporting enti financial stateme portion of an enti entity is not nece: Other Types of Separate Financ Separate financial the entity could « Financial Stateme ventures and assc (a) at cost; (b) in accordance (c) using the eq Associates a1 The financial state associate or joint financial statemerid the an art to 5 - you nancial Dw the sted to ities, mation jeneral th PAS nancial nancial ents of tion of nimum > meet tity to Chapter 30. Financial Statements - Overview | 30-3 Financial statements. Provide information about transactions and other events viewed from the perspective of the reporting entity as a whole, not from the perspective of any particular group of the entity's existing or potential investors, lenders or other creditors. TYPES OF FINANCIAL STATEMENTS Depending on the reporting entity, financial statements are called: (a) consolidated; (b) unconsolidated; and (c) combined Consolidated - a reporting entity comprises both the parent and its subsidiaries. Unconsolidated - a reporting entity is the parent alone. Combined - a reporting entity comprises two or more entities that are not all linked by a parent-subsidiary relationship. A reporting entity is an entity that is required, or chooses, to prepare financial statements. A reporting entity can be a single entity or a portion of an entity or can comprise more than one entity. A reporting entity is not necessarily a legal entity. Other Types of Financial Statements Separate Financial Statements Separate financial statements are those presented by an entity in which the entity could elect, subject to the requirements PAS 27 Separate (inencial Statements, to account for its investments in subsidiaries, joint ventures and associates either: (a) at cost; (b) in accordance with PFRS 9 Financial Instruments; or (©) using the equity method as described in PAS 28 Investments in Associates and Joint Ventures. The financial statements of an entit associate or joint venturer’s interest financial statements, 'y that does:not have a subsidiary, in a joint venture are not separate30-4 | Intermediate Accounting Vol. III 2022 Edition by R. R. Ocampo Interim Financial Statements Interim financial statements are financial statements for a’ financial reporting period shorter than a full financial year prepared in accordance with PAS 34 Interim Financial Reporting. Interim financial statements can be: (a) a complete set of financial statements (as described in PAS 1); or (b) a set of condensed financial statements (as described in PAS 34). PURPOSE OF FINANCIAL STATEMENTS The objective of 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. The financial information provided in the financial statements is useful to users ih assessing the prospects for future net cash inflows to the reporting entity and in assessing management's stewardship of the entity’s economic resources. The information is provided: (a) in the statement of financial position, by recognizing assets, liabilities and equity; (b) in the statement(s) of financial performance, by recognizing Income and expenses; and (c) in other statements and notes, by presenting and disclosing information about: (i) recognized assets, liabilities, equity, income and expenses, including information about their nature and about the risks arising from those recognized assets and liabilities; (ii). assets and liabilities that have not been recognized, including information about their nature and about the risks arising from them; (iil) cash flows; ‘ (iv) contributions from holders of equity claims and distributions to them; and 7 (v)_ the methods, assumptions and judgements used in estimating the amounts presented or disclosed, and changes in those methods, assumptions and judgements. COMPLETE Ss A complete set (a) .a stateme (b) a stateme the perioc (c) astateme (d) a stateme (e) notes, cc explanatoi (f) comparati An entity may u 1. For example Statement of f Statement of | other compreh Statement of Statement of « An entity shall statements in a “Third’ Staten A statement of period is include entity: (a) applies an < (b) makes a | statements (c)_ when it reci PAS 1.s a at ul 1e 1e ng ng q ng ng ns Ise COMPLETE SET OF FINANCIAL STATEMENTS A complete set of financial statements comprises: (a) .a statement of financial position as at the end of the period; (b) a statement of profit or loss and other comprehensive income for the period; (c) a statement of changes in equity for the period; (d) a statement of cash flows for the period; (e) notes, comprising significant accounting policies and other explanatory information; and (f) comparative information prescribed by PAS 1, An entity may use titles for the statements other than those used in PAS. 1. For example: Chapter 30\- Financial Statements - Overview | 30-5 An entity shall present with equal prominence all of the financial statements in a complete set of financial statements. ‘Third’ Statement of Financial Posi in A statement of financial position as at the beginning of the preceding included in the complete set of financial statements when an (a) applies an accounting policy retrospectively; (b) makes a retrospective restatement of items in its financial statements, or ()_ when it reclassifies items in its financial statements as specified in PAS 1, Suggested Title Alternative Title(s) | Statement of financial position Balance sheet | Statement of profit or loss and Statement of comprehensive income other comprehensive income Statement of financial performance | Statement of profit or loss [income statement i ‘Statement of cash flows Cash flow statement(MI 2022 Edition by R. R. Ocampo 30-6 | Intermediate Accounting V¢ GENERAL FEATURES OF FINANCIAL STATEMENTS ‘The general features of financial statements include: Fair presentation and compliance with PFRSS Going concern Accrual basis of accounting Materiality and aggregation Offsetting Frequency of reporting Comparative information Consistency of presentation Fair Presentation and Compliance with PFRSs Fair Presentation 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 Conceptual Framework, * In virtually all circumstances, an entity achieves a fair presentation by compliance with applicable PFRSs. A fair presentation also requires an entity: (a) to select and apply accounting policies in accordance with PAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors. PAS 8 sets out a hierarchy of authoritative guidance that management considers in the absence of a PFRS that specifically applies to an item. (b) to present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information. (c) to provide additional disclosures when compliance with the specific requirements in PFRSS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance. An entity car disclosure of 1 material. Compliance \ An entity whos explicit and ur entity shall no unless they coi Departure fre The informatio to users in mak the objective Framework wot For this reaso requirement in the objective o requirement. This situation is not given. Neve An item of infc statements whe events and cor reasonably be | ikely to influe statements. When assessinc PFRS would be : financial statem (a) why the ol particular c (b) how the er that comphAn entity cannot rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory material. Compliance with PFRSs An entity whose financial statements comply with PFRSs shall make an explicit and unreserved statement of such compliance in the notes. An entity shall not describe financial statements as complying with PERSs unless they comply with all the requirements of PFRSs. Departure from PFRSs The information presented in the financial statements should be useful to users in making economic decisions. If the information is misleading, the objective of financial statements set out in the Conceptual Framework would not be achieved. For this reason, if management’ concludes that compliance with a requirement in a PFRS would be so misleading that it would conflict with the objective of financial statements, the entity shall depart from that requirement. This situation is possible but extremely rare. So rare that an example is not given. Nevertheless, this possibility is included in PAS 1. An item of information would conflict with the objective of financial statements when it does not represent faithfully the transactions, other events and conditions that it either purports to. represent or could reasonably be expected to represent and, consequently, it would be likely to Influence economic decisions made by users of financial statements. When assessing whether complying with a specific requirement in a PFRS would be so misleading that it would conflict with the objective of financial statements, management considers: (a) why the objective of financial statements is not achieved in the Particular circumstances; and (b) how the entity’s circumstances differ from those of other entities that comply with the requirement.30-8 | Intermediate Accounting Vol. III 2022 Edition by R. R. Ocampo If other entities in similar circumstances comply with the requirement, there is a rebuttable presumption that the entity’s compliance with the requirement would not be so misleading that it would conflict with the objective of financial statements: In extremely rare circumstances that an entity departs from a requirement of a PFRS, it shall disclose: (a) that management has concluded that the financial statements present fairly the entity's financial position, financial performance and cash flows; (b) that it has complied with applicable PFRSs, except that it has departed from a particular requirement to achieve a fair presentation; (©) the title of the PFRS from which the entity has departed, the nature of the departure, including the treatment that the PFRS would require, the reason why that treatment would be so misleading in the circumstances that it would conflict with the objective of financial statements, and the treatment adopted; and (a) for each period presented, the financial effect of the departure on each item in the financial statements that would have been reported in complying with the requirement. When an entity has departed from a requirement of a PFRS in a prior period, and that departure affects the amounts recognized in the financial statements for the current period, it shall make disclosures (c) and (d). Going Concern Financial statements are normally prepared on the assumption that the reporting entity is a going concern and will continue in operation for the foreseeable future. 5 An entity shall assess the appropriateness of this assumption when preparing financial statements. This assumption is appropriate when entity has neither the intention nor the need to enter liquidation or to cease trading. —e In assessing w Management te future, which is end of the repor facts in each cas When an entity to financial resot concern basis of In other cases, factors relating | schedules and px satisfy itself that Going Concern When managem: uncertainties rele doubt upon the e: shall disclose tho: Going Concern, When an entity concern basis, it s it prepared the fin regarded as a goii However, PAS 1 management shot policies that will information, The management expe liabilities, An entity may c (sometimes called Modified to reflec longer appropriatenent, h the h the ym a nents mance t has fair ature would ing in ve of re on been : prior a the es (c) _Chapter 30 ~ Financial Statements - Overview | 30-9 In assessing whether the going concern assumption is appropriate, Management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. The degree of consideration depends on the facts in each case. When an entity has a history of profitable operations and ready access to financial resources, the entity may reach a conclusion that the going concern basis of accounting is appropriate without detailed analysis In other cases, management may need to consider a wide range of factors relating to current and expected profitability, debt repayment schedules and potential sources of replacement financing before it can: satisfy itself that the going concern basis is appropriate. Going Concern Assumption Valid but Significant Doubt Exists When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity's ability to continue as a going concern, the entity shall disclose those uncertainties. Going Concern Assumption No Longer Valid When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern However, PAS 1 did not provide’ an alternative basis. Therefore, Management should consider PAS 8 in selecting and applying accounting policies that will provide the most relevant and reliable financial information, The selection of accounting policies would depend on how Management expects to recover the assets of the entity and settle its liabilities. An entity may consider the appropriateness of ‘liquidation basis’ (sometimes called "break-up basis’) or a basis consistent with PFRSs but Modified to reflect the fact. that the going concern assumption is no longer appropriate.30-12 | Intermediate Accounting Vol, Ii 2022 Edition by R. R. Ocampo Step 1 Identify information that has the potential to be material. Step 2 ‘Assess whether the information identified in Step 1 is, in fact, material. Step 3 Organize the information within the draft financial statements in a way ‘that communicates the information clearly and concisely to primary users. Step 4 f Review the draft financial statements to determine whether all material information has been identified and materiality considered from a wide perspective and in aggregate, on the basis of the complete set of financial statements. Aggregation Aggregation is the adding together of assets, liabilities, equity, income ‘or expenses that have shared characteristics and are included in the same classification. Financial statements result from processing large numbers of transactions or other events. Aggregation makes information more useful by summarizing a large volume of detail. However, aggregation conceals some of that detail. Hence, a balance needs to be found so that relevant information is not obscured either by a large amount of insignificant detail or by excessive aggregation. The aggregated amounts form the line items in the financial statements. Ifa line item is not individually material, it is aggregated with other items either in those statements or in the notes. An item that is not sufficiently material to warrant separate presentation in those statements may warrant separate presentation in the notes. An entity shall not reduce the understandability of its financial statements by obscuring material information with immaterial information or by aggregating material items that have different natures or functions. Offsetting An entity shall n unless required « Offsetting (alsc and measures b separate units of the statement performance. © therefore is gene Examples of Ali © Financial as PAS 32 © Governmen’ grant asset . Governmeni grant expen + Sales discou * Gains and | investments and_relatec consideratio * Expenditure with PAS 37 * Gains and Ic example, fo arising on fi Examples of Int Bank overdr. Accounts re: receivable w * Accounts pe payable with Dividend fun Sinking fund Bad debts de Interest incoOffsetting An entity shall not offset assets and liabilities or income and. expenses, unless required or permitted by a PFRS. Offsetting (also known as nettin and measures both an asset an the statement of financial position or Performance. Offsetting classifies dissimila therefore is generally not appropriate, statement of financial r items together and Examples of Allowed Offsetting * Financial assets and PAS 32 * Government grant liability deducted from the related government grant asset in accordance with PAS 20 * Government grant income deducted from the related government grant expenses in accordance with PAS 20 * Sales discounts deducted from sales revenue * Gains and losses on the disposal of non-current assets, including investments and operating assets (carrying amount of the asset and related selling expenses deducted from the amount ot consideration on disposal) * Expenditure related to a provision that is recognized in-accordance with PAS 37 deducted from the related reimbursement * Gains and losses arisini i sramble, foreign.exchange gains and losses or gains and losses arising on financial instruments held for trading financial liabilities offset-in accordance with Examples of Inappropriate Offsetting Bank overdraft offset against accounts with other banks * Accounts receivable with credit balance offset against accounts receivable with debit balances * Accounts payable with debit balance offset against accounts Payable with credit balances Dividend fund offset against dividends payable Sinking fund offset against bonds payable Bad debts deducted from sales revenue Interest income deducted from interest expense30-14 | Intermediate Accounting Vol. 111 2022 Edition by R. R. Ocampo Not Considered Offsetting © Inventories reported net of allowance for write-down to net realizable value * Financial assets at amortized cost reported net of allowance for expected credit losses * Property, plant and equipment reported net of accumulated depreciation and impairment losses Measuring assets net of valuation allowances is not offsetting. Frequency of Reporting ‘An entity shall present a complete set of financial statements (including comparative information) at least annually. When an entity changes the end of its reporting period and presents financial statements for a period longer or shorter than one year, an entity shall disclose, in addition to the period covered by the financial statements: (a) the reason for using a longer or shorter period, and (b) the fact that amounts presented in the financial statements are not entirely comparable. Normally, an entity consistently prepares financial statements for a one- year period. However, for practical reasons, some entities prefer to report, for example, for a 52-week period. PAS 1 does not preclude this practice. Comparative Information ‘An entity shall present comparative information in respect of the preceding period for all amounts reported in the current period's financial statements. An entity shall include comparative information for narrative and descriptive information if it is relevant to understanding the current period’s financial statements. Comparative information helps users of financial statements to identify and assess changes and trends in making economic decisions. ee Minimum Compe ‘An entity shall pre included in the cor For example, an e will present the fol | Statement | Financial position Financial performance | Changes in equity Cash flows. In some cases, statements for the current period. For details of a legal dis of the preceding p from the disclosure end of the precedin the steps that ha uncertainty. Additional Compa An entity may pre minimum comparat as that information For example, an en other comprehensiv Preceding period an the entity is not rec However, the entity statements, the co statement of profit «net for ited one. F to. this the od’s for jing tify ‘er 30 Financial Statements - Overview | 30-15 Minimum Comparative Information An entity shall present, as a minimum, two of each of the statements included in the complete set of financial statements and related notes, For example, an entity that uses calendar year as its accounting period will present the following financial statements as a minimum: | Date or Period Covered | Date or Period Covered ] | Statement = (Current Period) | ___(Previous Period) _| Financial position Dec. 31, 2021. = Dec. 31,2020 | Financial | performance _|_Year ended Dec. 31, 2021 | Year ended Dec, 31, 2020 Changes in equity | Year ended Dec. 31, 2021 | Year ended Dec. 31.20 Cash flows __| Year ended Dec. 31, 2021 | Year ended Dec. 31,2020 In some cases, narrative information provided in the financial statements for the preceding period(s) continues to be relevant in the Surrent period. For example, an entity discloses in the current period details of a legal dispute, the outcome of which was uncertain at the end of the preceding period and is yet to be resolved. Users may benefit from the disclosure of information that the uncertainty existed at the €nd of the preceding period and from the disclosure of information about the ‘steps that have been taken during the period to resolve the uncertainty, Additional Comparative Information An entity may present comparative information in addition to the mininum comparative financial statements required by PFRSs, as long as that information is prepared in accordance with PERSs For example, an entity presents a third statement of profit or loss and other comprehensive income (thereby presenting the current period, the Preceding period and one additional comparative period). In this case, the entity is not required to present a third of each other statements, However, the entity is required to present, in the notes to the financial statements, the comparative information related to that additional statement of profit or loss and other comprehensive income.Change in Accounting Policy, Retrospective Restatement or Reclassification ° An entity shall present a third statement of financial position as at the beginning of the preceding period in addition to the minimum comparative financial statements if: (a) it 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 retrospective application, retrospective restatement or the reclassification has a material effect on the information in the statement of financial position at the beginning of the preceding period. ; In these circumstances, an entity shall present three statements of financial position as at: (a) the end of the current period; (b) the end of the preceding period; and (c)_ the beginning of the preceding period. The date of that opening statement of financial position shall be as at the beginning of the preceding period regardless of whether an entity’s financial statements present comparative information for earlier periods. For example, an entity with a current period end of Dec. 31, 2021 is required present a third statement of financial position. Let’s say the entity also presents a third statement of profit or loss and other comprehensive income as allowed by PAS 1. The entity’s statements of financial position will be dated as follows: i (a) first statement (end of the current period) - Dec. 31, 2021 (b) second statement (the end of the preceding period) ~ Dec. 31, 2020 (c)_ third statement (beginning of the preceding period) - Jan. 1, 2020 When an entity is required to present an additional statement of financial position, it need not present the related notes to the opening statement of financial position as at the beginning of the preceding period. However, the entity should disclose certain information related to the reason why the entity was required to present the additional statement. ene ee If an entity cha financial statem reclassification ic When an entity (including as at t (a) the nature « (b) the amount (c) the reason f When it is impra shall disclose: (a) the reason f (b) the nature ¢ amounts hac Applying a requir cannot apply it af In some circums information for a the current perioc in the prior period impracticable to r Discussion of ac correction of prior Chapter 35. Consistency of An entity shall rete financial statemen (a) another prese or (b) a PFRS requir Change in presente change in the natu a significant acquis the financial staten be presented differIf an entity financial statements, reclassification is impracticable. When an entity reclassifies oF parative amounts, it shall. disclose (including as at the beginning of the preceding period): (2) the nature of the reclassification; (b) the amount of each item or Class of items that is reclassified; and (c) the reason for the reclassification, When it is impracticable to reclassify comparative amounts, an entity Shall disclose: (2) the reason for not reclassifying the amounts, and (b) the nature of the adjustments that would have been Made if the amounts had been reclassified, le, an entity may not a Way that allows reclassific: ‘e the information. have collected data ation, and it may be Discussion of acc correction of Chapter 35, ‘ounting for changes in accounting policies and Prior period errors in accordance with PAS 8 is included in Consistency of Presentation An entity shall retai financial statementsHf 2022 Edition by El |_ Intermediate Accounting Vol. ‘An entity changes the presentation of its financial statements only if the changed presentation provides information that is reliable and more (b) whether tr relevant to users of the financial statements and the revised structure group of e1 is likely to continue, so that comparability is not impaired. When making (c)_ the date o} such changes in presentation, an entity reclassifies its comparative by the set information. (d) the presen (e) the level presenting Better Communication in Financial Reporting Judgement is re ‘Better Communication in Financial Reporting’ is the central theme required informe underlying IASB’s current work plan. It highlights the importance and ‘common themes of a number of IASB's projects designed to help make financial information more useful and improve the way financial information is communicated to users of the financial statements. NOTES TO FII Notes to financiz part of the finan (either required presented in the The Primary Financial Statements project in particular is likely to introduce changes in the presentation and classification of items in.the financial statements, In his IFRS Conference speech in Zurich on June 30, 2016, IASB chairman Hans Hoogervorts said, that “this project will potentially result in a facelift of what is often called the face of the financial statements”. Structure The notes shall: IDENTIFICATION OF FINANCIAL STATEMENTS (a) present infc statements {An entity shall clearly identify the financial statements and distinguish “| (b) disclose the them from other information in the same:published document. elsewhere i (c)_ provide info statements, PFRSs apply only to financial statements, and not necessarily to other information presented in an annual report, a regulatory filing, or another document, Therefore, it is important that users can. distinguish information that is prepared using PFRSs from other information that may be useful to users but is not the subject of those requirements. The notes mus understanding of that confuses the Therefore, an er cross-reference € to the relevant ir An entity shall clearly identify each financial statement and the notes. In addition, an entity shall display the following information prominently, ‘and repeat it when necessary for the information presented to be understandable: (a). the name of the reporting entity or other means of identification, and any change in that information from the end of the preceding reporting period;rative heme © and make ancial ely to nthe ) June ct will of the ish F other nother aguish n that s. notes. nently, to be cation, ceding Chapter 30 ~ Finai (b) whether the financial statements are of an individual entity or a group of entities; (c) the date of the end of the reporting period or the period covered by the set of financial statements or notes; (d) the presentation currency, as defined in PAS 21; and (e) the level of rounding used (e.g. in millions ‘or thousands) in Presenting amounts in the financial statements. Judgement is required in determining the best way of presenting the required information. NOTES TO FINANCIAL STATEMENTS Notes to financial statements (Sometimes called footnotes) are integral Part of the financial statements. In general, entities make these notes (either required or not) to help users better understand the information presented in the financial statements. Structure The notes shall: (a) present information about the basis of preparation of the financial statements and the specific accounting policies used; (b) disclose the information required by PFRSs that is not presented elsewhere in the financial statements; and (c)__ provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any of them. The notes must be presented in a way that. facilitates better understanding of the financial information. Notes presented in a manner that confuses the users or obscures relevant information are useless. Therefore, an entity shall present notes in a systematic manner and cross-reference each item presented on the face of financial statements to the relevant information in the notes.30-20 | Intermediate Accounting Vol. III 2022 Edition by R. R. Ocampo Examples of systematic ordering or grouping of the notes includ (a) giving prominence to the areas of its activities that the entity considers to be most relevant to an understanding of its financial performance and financial position, such as grouping together information about particular operating activities; (b) grouping together information about items measured similarly such as assets measured at fair value; or (c) following the order of the line items in the statement(s) of profit or loss and other comprehensive income and the statement of financial position, such as: (i) statement of compliance with PFRSs; (ii) significant accounting policies applied; (iii) supporting information for items presented on the face of financial statements, in the order in which each statement and each line item is presented; and (iv) other disclosures, including: (1) contingent liabilities and unrecognized contractual commitments; and (2) non-financial disclosures, e.g. the entity's financial risk management objectives and policies. ‘An entity may present notes providing information about the basis of preparation of the financial statements and specific accounting policies as a separate section of the financial statements. Disclosure of accounting policies ‘An entity shail disclose its significant accounting policies comprising: (a) the measurement basis (or bases) used in preparing the financial statements; and (b) the other accounting policies used that are relevant to an understanding of the financial statements. Accounting policies used by the entity affect the amounts reflected in the financial statements. That is why it is important for an entity to inform users about its accounting policies. — Disclosure of pai when those polic example, fair va comparing the e other entities, Disclosure of the information usefi of the entity’s fin Unfortunately, F accounting policy operations even material. It is al: Policy that is not and applies in ac Update on disci As part of its ‘Bet IASB amended 1 ‘significant’ with material accour accounting policie while ‘significant’ In accordance wit material if, when « an entity’s. finan: influence decision statements make Examples of circi accounting policy * A change of information it © Achoice of a + An entity dey Accounting P the absence « ° Application of assumptions.7 Disclosure of particular accounting policies is especially useful to users when those policies are selected from alternatives allowed in PFRSs (for example, fair value or cost model for investment property). Also, when comparing the entity’s financial position and financial performance with other entities. Disclosure of the entity’s accounting policy choice will make the financial information useful since users can make more. meaningful assessment of the entity's financial position and financial performance. Unfortunately, PAS 1 does not define the term ‘significant’. An accounting policy may be significant because of the nature of the entity's Operations even if amounts for current and prior periods are not material. It is also appropriate to disclose each significant accounting policy that is not specifically required by PFRSs but the entity selects and applies in accordance with PAS 8 Update on disclosure of accounting policies As part of its ‘Better Communication in Financial Reporting’ theme, the IASB amended IAS 1 (issued Feb. 12, 2021) to replace the term ‘significant’ with ‘material’. An entity is now required to -disclose its material accounting policy information instead of its. significant accounting policies. This is because the term ‘material’ is defined in IFRS while ‘significant! is not. In accordance with the amended IAS 1, accounting policy information is material if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. Examples of circumstances in which an entity is likely to consider accounting policy information to be material include: * A change of accounting policy results in a material change to the information in the financial statements. + A choice of accounting policy is permitted by IFRS * An entity develops an accounting policy in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors in the absence of an IFRS that specifically applies. * Application of accounting policy requires significant judgements or assumptions.