BM2218

PAS 7, PFRS 1, PFRS 14 AND PAS 8

PAS 7 Statement of Cash Flows
Objective
The objective of this Standard is to require the provision of information about the historical changes in cash
and cash equivalents of an entity through a Statement of Cash Flows, which classifies cash flows during the
period from operating, investing, and financing activities.

Scope
An entity shall prepare a statement of cash flows following this Standard's requirements and present it as an
integral part of its financial statements for each period for which financial statements are given.

Benefits of cash flow information

A statement of cash flows, when used in conjunction with the rest of the financial statements, provides
information that enables users to evaluate the changes in net assets of an entity, its financial structure
(including its liquidity and solvency) and its ability to affect the amounts and timing of cash flows to adapt to
changing circumstances and opportunities. Cash flow information helps assess the power of the entity to
generate cash and cash equivalents. It enables users to develop models to evaluate and compare the present
value of the future cash flows of different entities. It also enhances the comparability of the reporting of
operating performance by different entities because it eliminates the effects of using different accounting
treatments for the same transactions and events.

Definitions
Cash comprises cash on hand and demand deposits.

Cash equivalents are short‑term, highly liquid investments that are readily convertible to known amounts of
cash and subject to an insignificant risk of changes in value.

Cash flows are inflows and outflows of cash and cash equivalents.

Cash and cash equivalents

Cash equivalents are held to meet short‑term cash commitments rather than for investment or other
purposes. For an investment to qualify as a cash equivalent, it must be readily convertible to a known amount
of cash and be subject to an insignificant risk of changes in value. Therefore, an investment usually qualifies
as a cash equivalent only when it has a short maturity of three (3) months or less from the date of acquisition.
Equity investments are excluded from cash equivalents unless they are, in substance, cash equivalents, for
example, in the case of preferred shares acquired within a short period of their maturity and with a specified
redemption date.

Bank borrowings are generally considered to be financing activities. However, in some countries, bank
overdrafts repayable on demand are integral to an entity's cash management. In these circumstances, bank
overdrafts are included as a component of cash and cash equivalents. A characteristic of such banking
arrangements is that the bank balance often fluctuates from positive to overdrawn.

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Presentation of a statement of cash flows

The statement of cash flows shall report cash flows during the period classified by operating, investing and
financing activities.

• Operating activities - The principal revenue‑producing activities of the entity and other activities that
are not investing or financing activities (i.e., cash receipts from the sale of goods, cash payments to
suppliers for goods and services, etc.).

• Investing activities - The acquisition and disposal of long‑term assets and other investments not
included in cash equivalents (i.e., cash payments to acquire property, plant and equipment, intangibles
and other long‑term assets, cash receipts from sales of property, plant and equipment, intangibles
and other long‑term assets, etc.).

• Financing activities - Activities that result in changes in the size and composition of the contributed
equity and borrowings of the entity (i.e., cash proceeds from issuing shares or other equity
instruments, cash payments to owners to acquire or redeem the entity’s shares, etc.).

Interests and dividends

Cash flows from interest and dividends received and paid shall each be disclosed separately. Each shall be
classified consistently from period to period as either operating, investing or financing activities.

Taxes on income
Cash flows arising from taxes on income shall be separately disclosed and classified as cash flows from
operating activities unless they can be specifically identified with financing and investing activities.

Reporting cash flows from operating activities

An entity shall report cash flows from operating activities using either:
a. The direct method, whereby major classes of gross cash receipts and gross cash payments are
disclosed; or
b. The indirect method, whereby profit or loss is adjusted for the effects of transactions of a non‑cash
nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of
income or expense associated with investing or financing cash flows.

The direct method shows each major class of gross cash receipts and gross cash payments. The operating cash
flows section of the statement of cash flows under the direct method would appear something like this:

Cash receipts from customers xx,xxx

Cash paid to suppliers xx,xxx
Cash paid to employees xx,xxx
Cash paid for other operating expenses xx,xxx
Interest paid xx,xxx
Income taxes paid xx,xxx
Net cash from operating activities xx,xxx

The indirect method adjusts accrual basis net profit or loss for the effects of non-cash transactions. The
operating cash flows section of the statement of cash flows under the indirect method would appear
something like this:

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Profit before interest and income taxes xx,xxx

Add back depreciation xx,xxx
Add back impairment of assets xx,xxx
Increase in receivables xx,xxx
Decrease in inventories xx,xxx
Increase in trade payables xx,xxx
Interest expense xx,xxx
Less Interest accrued but not yet paid xx,xxx
Interest paid xx,xxx
Income taxes paid xx,xxx
Net cash from operating activities xx,xxx

Foreign currency cash flows

Cash flows arising from transactions in a foreign currency shall be recorded in an entity’s functional currency
by applying to the foreign currency amount the exchange rate between the functional currency and the foreign
currency at the cash flow date.

The cash flows of a foreign subsidiary shall be translated at the exchange rates between the functional
currency and the foreign currency at the dates of the cash flows.

Investments in subsidiaries, associates and joint ventures

When accounting for an investment in an associate, a joint venture, or a subsidiary accounted for by use of
the equity or cost method, an investor restricts its reporting in the statement of cash flows to the cash flows
between itself and the investee, for example, to dividends and advances.

Changes in ownership interests in subsidiaries and other businesses

The aggregate cash flows from obtaining or losing control of subsidiaries, or other businesses shall be
presented separately and classified as investing activities. The aggregate amount of the cash paid or received
as consideration for obtaining or losing control of subsidiaries or other businesses is reported in the statement
of cash flows net of cash and cash equivalents acquired or disposed of as part of such transactions, events or
changes in circumstances.

Reporting cash flows on a net basis

Cash flows arising from the following operating, investing or financing activities may be reported on a net
basis:
a. Cash receipts and payments on behalf of customers when the cash flows reflect the activities of the
customer rather than those of the entity; and
b. Cash receipts and payments for items in which the turnover is quick, the amounts are large, and the
maturities are short.

Examples of cash receipts and payments referred to in (a) are:

a. Acceptance and repayment of demand deposits of a bank;
b. Funds held for customers by an investment entity; and
c. Rents collected on behalf of and paid over to the owners of properties.

Examples of cash receipts and payments referred to in (b) are advances made for and the repayment of:
a. Principal amounts relating to credit card customers;
b. Purchase and sale of investments; and

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c. Other short‑term borrowings are those with three (3) months or less maturity period.

Cash flows arising from each of the following activities of a financial institution may be reported on a net basis:
a. Cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date;
b. Placement of deposits with and withdrawal of deposits from other financial institutions; and
c. Cash advances and loans made to customers and the repayment of those advances and loans.

Non-cash transactions
Investing and financing transactions that do not require cash or cash equivalents shall be excluded from a
statement of cash flows. Such transactions shall be disclosed elsewhere in the financial statements in a way
that provides all the relevant information about these investing and financing activities.

Changes in liabilities arising from financing activities

An entity shall provide disclosures enabling users of financial statements to evaluate changes in liabilities
arising from financing activities, including both cash flows and non-cash changes.

To the extent necessary to satisfy the requirement, an entity shall disclose the following changes in liabilities
arising from financing activities:
a. Changes from financing cash flows;
b. Changes occurring from obtaining or losing control of subsidiaries or other businesses;
c. Effect of changes in foreign exchange rates;
d. Changes in fair values; and
e. Other changes.

Components of cash and cash equivalents

An entity shall disclose the components of cash and cash equivalents and present a reconciliation of the
amounts in its statement of cash flows with the equivalent items reported in the statement of financial
position.

Other disclosures
An entity shall disclose, together with a commentary by management, the amount of significant cash and cash
equivalent balances held by the entity that are not available for use by the group.

PFRS 1 First-time Adoption of Philippine Financial Reporting Standards

Objective
The objective of this PFRS is to ensure that an entity’s first PFRS financial statements, and its interim financial
reports for part of the period covered by those financial statements, contain high-quality information that:
a. Is transparent for users and comparable over all periods presented;
b. Provides a suitable starting point for accounting following PFRSs; and
c. Can be generated at a cost that does not exceed the benefits.

Scope
An entity’s first PFRS financial statements are the first annual financial statements in which the entity adopts
PFRSs, by an explicit and unreserved statement in those financial statements of compliance with PFRSs.
Financial statements following PFRSs are an entity’s first PFRS financial statements if, for example, the entity:
a. Presented its most recent previous financial statements

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b. Prepared financial statements following PFRSs for internal use only, without making them available to
the entity’s owners or any other external users;
c. Prepared a reporting package following PFRSs for consolidation purposes without preparing a
complete set of financial statements as defined in PAS 1 Presentation of Financial Statements; or
d. Did not present financial statements for previous periods.

This PFRS applies when an entity first adopts PFRSs. It does not apply when an entity:
a. Stops presenting financial statements following national requirements, having previously presented
them as well as another set of financial statements that contained an explicit and unreserved
statement of compliance with PFRSs;
b. Presented financial statements in the previous year following national requirements, and those
financial statements contained an explicit and unreserved statement of compliance with PFRSs; or
c. Presented financial statements in the previous year that contained an explicit and unreserved
statement of compliance with PFRSs, even if the auditors qualified their audit report on those financial
statements.

Accounting policies
An entity shall use the same accounting policies in its opening PFRS statement of financial position and
throughout all periods presented in its first PFRS financial statements. Those accounting policies shall comply
with each PFRS effective at the end of its first PFRS reporting period with certain exceptions.

An entity shall not apply different versions of PFRSs that were effective at earlier dates. An entity may apply
for a new PFRS that is not yet mandatory if that PFRS permits early application.

Example: Consistent application of the latest version of PFRSs

Background
The end of entity A’s first PFRS reporting period is December 31, 20X5. Entity A decides to present comparative
information in those financial statements for one (1) year only. Therefore, its transition date to PFRSs is the
beginning of business on January 1, 20X4 (or, equivalently, the close of business on December 31, 20X3). Entity
A presented financial statements following its previous GAAP annually to December 31, each year up to and
including December 31, 20X4.

Application of requirements
Entity A is required to apply the PFRSs effective for periods ending on December 31, 20X5, in:
a. Preparing and presenting its opening PFRS statement of financial position on January 1, 20X4; and
b. Preparing and presenting its statement of financial position for December 31, 20X5 (including
comparative amounts for 20X4), statement of comprehensive income, statement of changes in equity
and statement of cash flows for the year to December 31, 20X5 (including comparative amounts for
20X4) and disclosures (including comparative information for 20X4).

If a new PFRS is not yet mandatory but permits early application, entity A is allowed, but not required, to apply
that PFRS in its first PFRS financial statements.

An entity shall, in its opening PFRS statement of financial position:

a. Recognize all assets and liabilities whose recognition is required by PFRSs;
b. Not recognize items as assets or liabilities if PFRSs do not permit such recognition;
c. Reclassify items that it recognized following previous GAAP as one type of asset, liability or component
of equity but are a different type of asset, liability or component of equity following PFRSs; and

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d. Apply PFRSs in measuring all recognized assets and liabilities.

The accounting policies an entity uses in its opening PFRS statement of financial position may differ from those
it used for the same date using its previous GAAP. The resulting adjustments arise from events and
transactions before transitioning to PFRSs. Therefore, an entity shall recognize those adjustments directly in
retained earnings (or, if appropriate, another equity category) at the transition date to PFRSs.

Estimates
An entity’s estimates following PFRSs at the date of transition to PFRSs shall be consistent with estimates made
for the same date following previous GAAP (after adjustments to reflect any difference in accounting policies)
unless there is objective evidence that those estimates were in error.

Comparative information
An entity’s first PFRS financial statements shall include at least three (3) statements of financial position, two
(2) statements of profit or loss and other comprehensive income, two (2) separate statements of profit or loss
(if presented), two (2) statements of cash flows and two (2) statements of changes in equity and related notes,
including comparative information for all statements presented.

Non‑PFRS comparative information and historical summaries

Some entities present historical summaries of selected data for periods before the first period for which they
present full comparative information following PFRSs. This PFRS does not require such summaries to comply
with the recognition and measurement requirements of PFRSs. Furthermore, some entities present
comparative information per previous GAAP and the comparative information required by PAS 1. In any
financial statements containing historical summaries or comparative information following previous GAAP, an
entity shall:
a. Label the previous GAAP information prominently as not being prepared following PFRSs; and
b. Disclose the nature of the main adjustments that would make it comply with PFRSs. An entity need
not quantify those adjustments.

Explanation of transition to PFRSs

An entity shall explain how the transition from previous GAAP to PFRSs affected its reported financial position,
financial performance and cash flows.

Reconciliation
An entity’s first PFRS financial statements shall include the following:
a. Reconciliations of its equity reported following previous GAAP to its equity per PFRSs for both dates:
(i) the date of transition to PFRSs; and (ii) the end of the latest period presented in the entity’s most
recent annual financial statements under the previous GAAP.
b. A reconciliation of its total comprehensive income following PFRSs for the latest period in the entity’s
most recent annual financial statements. The starting point for that reconciliation shall be total
comprehensive income per previous GAAP for the same period or, if an entity did not report such a
total, profit or loss under the previous GAAP.
c. If the entity recognized or reversed any impairment losses for the first time in preparing its opening
PFRS statement of financial position, the disclosures that PAS 36 Impairment of Assets would have
required if the entity had recognized those impairment losses or reversals in the period beginning with
the date of transition to PFRSs.

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The reconciliations required shall give sufficient detail to enable users to understand the material adjustments
to the statement of financial position and statement of comprehensive income. If an entity presented a
statement of cash flows under its previous GAAP, it should also explain the material adjustments to the
statement of cash flows.

If an entity becomes aware of errors made under previous GAAP, the reconciliations required shall distinguish
the correction of those errors from changes in accounting policies.

Interim financial reports

Suppose an entity presents an interim financial report following PAS 34 for part of the period covered by its
first PFRS financial statements. In that case, the entity shall satisfy the following requirements in addition to
the requirements of PAS 34:
a. Each such interim financial report shall, if the entity presented an interim financial report for the
comparable interim period of the immediately preceding financial year, include the following:
i. A reconciliation of its equity following previous GAAP at the end of that comparable interim
period to its equity under PFRSs at that date; and
ii. A reconciliation to its total comprehensive income following PFRSs for that comparable
interim period (current and year to date). The starting point for that reconciliation shall be
total comprehensive income following the previous GAAP for that period or, if an entity did
not report such a total, profit or loss following the previous GAAP.
b. In addition to the reconciliations required by (a), an entity’s first interim financial report under PAS 34
for part of the period covered by its first PFRS financial statements shall include the reconciliations or
a cross‑reference to another published document that includes these reconciliations.
c. Suppose an entity changes its accounting policies or uses the exemptions contained in this PFRS. In
that case, it shall explain the changes in each interim financial report and update the reconciliations
required by (a) and (b).

PFRS 14 Regulatory Deferral Accounts

Objective
The objective of this Standard is to specify the financial reporting requirements for regulatory deferral account
balances that arise when an entity provides goods or services to customers at a price or rate subject to rate
regulation.

Scope
An entity is permitted to apply the requirements of this Standard in its first PFRS financial statements if and
only if it:
a. Conducts rate-regulated activities; and
b. Recognized amounts that qualify as regulatory deferral account balances in its financial statements
following its previous GAAP.

An entity shall apply the requirements of this Standard in its financial statements for subsequent periods if
and only if, in its first PFRS financial statements, it recognizes regulatory deferral account balances by electing
to apply the requirements of this Standard.

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Definitions
Rate regulation
A framework for establishing the prices charged to customers for goods and services subject to oversight
and/or approval by a rate-regulator.

Rate regulator
An authorized body empowered by statute or regulation to establish the rate or range of rates that bind an
entity. The rate regulator may be a third-party body or a related party of the entity, including the entity's
governing board if that body is required by statute or regulation to set rates both in the interest of customers
and to ensure the overall financial viability of the entity

Regulatory deferral account balance

The balance of any expense (or income) account that would not be recognized as an asset or a liability
following other Standards but that qualifies for deferral because it is included, or is expected to be included,
by the rate regulator in establishing the rate(s) that can be charged to customers

Recognition, measurement, impairment and derecognition

Temporary exemption from paragraph 11 of PAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors
An entity with rate-regulated activities that are within the scope of, and elects to apply, this Standard shall use
paragraphs 10 and 12 of PAS 8 when developing its accounting policies for the recognition, measurement,
impairment and derecognition of regulatory deferral account balances.

Continuation of existing accounting policies

On initial application of this Standard, an entity shall continue to apply its previous GAAP accounting policies
for the recognition, measurement, impairment and derecognition of regulatory deferral account balances,
except for any changes permitted by this Standard. However, the presentation of such amounts shall comply
with the presentation requirements of this Standard, which may require changes to the entity’s previous GAAP
presentation policies.

Changes in accounting policies

An entity shall not change its accounting policies to start recognizing regulatory deferral account balances. An
entity may only change its accounting policies for identifying, measuring, impairing, and derecognizing
regulatory deferral account balances. Changes shall be made in the financial statements to make them more
relevant and reliable to the economic decision-making needs of users. An entity shall judge relevance and
reliability using the criteria in paragraph 10 of PAS 8.

Interaction with other Standards

In the absence of any such exception or additional requirements, other Standards shall apply to regulatory
deferral account balances in the same way as they apply to assets, liabilities, income and expenses that are
recognized following other Standards. See the summary below.

PAS 10 Events After the
Reporting Period
PAS 12 Income Taxes
The requirements of PAS 10 are applied when determining which events after
the end of the reporting period should be taken into account in the recognition
and measurement of regulatory deferral account balances
Deferred tax assets and liabilities arising from regulatory deferral account
balances are presented separately from total deferred tax amounts, and

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PAS 33 Earnings Per
Share
PAS 36 Impairment of
Assets
PFRS 3 Business
Combinations
PFRS 5 Non-current
Assets Held for Sale and
Discontinued Operations
PFRS 10 Consolidated
Financial Statements and
PAS 28 Investments in
Associates and Joint
Ventures (2011)
PFRS 12 Disclosure of
Interests in Other Entities
movements in those deferred tax balances are presented separately from tax
expense (income)
Entities applying PFRS 14 are required to present additional basic and diluted
earnings per share that exclude the impacts of the net movement in regulatory
deferral account balances
Regulatory deferral account balances are included in the carrying amount of
any relevant cash-generating unit (CGU) and are treated in the same way as
other assets and liabilities where an impairment loss arises
The entity's accounting policies for regulatory deferral account balances are
used in applying the acquisition method, which can result in the recognition of
regulatory deferral account balances in respect of an acquiree, regardless of
whether the acquiree itself recognized such balances
The measurement requirements of PFRS 5 do not apply to regulatory deferral
account balances, and modifications are made to the presentation of
information about discontinued operations and disposal groups concerning
such balances
The entity's accounting policies in respect of regulatory deferral account
balances are required to be applied in an entity's consolidated financial
statements, or the determination of equity accounted information of
associates or joint ventures, notwithstanding that the entity's investees may
not have recognized regulatory deferral account balances in their financial
statements
Separate disclosure of regulatory deferral account balances and net
movements in those balances recognized in profit or loss or other
comprehensive income are required for various PFRS 12 disclosures

Presentation
Classification of regulatory deferral account balances
An entity shall present separate line items in the statement of financial position for:
a. The total of all regulatory deferral account debit balances; and
b. The sum of all regulatory deferral account credit balances.

When an entity presents current and non-current assets, and current and non-current liabilities, as separate
classifications in its statement of financial position, it shall not classify the totals of regulatory deferral account
balances as current or non-current. Instead, the required line items shall be distinguished from the assets and
liabilities presented following other Standards using sub-totals drawn before the regulatory deferral account
balances are presented.

Classification of movements in regulatory deferral account balances

In the other comprehensive income section of the statement of profit or loss and other comprehensive
income, an entity shall present the net movement in all regulatory deferral account balances for the reporting
period related to items recognized in other comprehensive income. Separate line items shall be used for the
net movement related to items that follow other Standards:
a. Will not be reclassified subsequently to profit or loss; and
b. Will be reclassified subsequently to profit or loss when specific conditions are met.

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An entity shall present a separate line item in the profit or loss section of the statement of profit or loss and
other comprehensive income, or the respective statement of profit or loss, for the remaining net movement
in all regulatory deferral account balances for the reporting period, excluding movements that are not
reflected in profit or loss, such as amounts acquired. This separate line item shall be distinguished from the
income and expenses presented following other Standards by using a sub-total drawn before the net
movement in regulatory deferral account balances.

Disclosure
An entity that elects to apply this Standard shall disclose information that enables users to assess:
a. The nature of, and the risks associated with, the rate regulation that establishes the price(s) that the
entity can charge customers for the goods or services it provides; and
b. The effects of that rate regulation on its financial position, financial performance and cash flows.

PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Definitions
The following terms are used in this Standard with the meanings specified:

Accounting policies are the specific principles, bases, conventions, rules and practices an entity applies in
preparing and presenting financial statements.

Accounting estimates are monetary amounts in financial statements subject to measurement uncertainty.

Information is material if omitting, misstating or obscuring it could reasonably be expected to influence

decisions that the primary users of general-purpose financial statements make.

Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more
prior periods arising from a failure to use, or misuse of, reliable information that:
a. Was available when financial statements for those periods were authorized for issue; and
b. Could reasonably be expected to have been obtained and considered in preparing and presenting
those financial statements.

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights
or misinterpretations of facts, and fraud.

Accounting Policies
Selection and application of accounting policies
When a PFRS specifically applies to a transaction, other event or condition, the accounting policy or policies
applied to that item shall be determined using the PFRS.

In the absence of a PFRS that specifically applies to a transaction, other event or condition, management shall
use its judgment in developing and applying an accounting policy that results in information that is:
a. Relevant to the economic decision‑making needs of users; and
b. Reliable, in that the financial statements:
i. Represent faithfully the financial position, financial performance and cash flows of the entity;
ii. Reflect the economic substance of transactions, other events and conditions, and not merely the
legal form;
iii. Neutral, i.e., free from bias;

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iv. Prudent; and

v. Complete in all material respects

In making a judgment, management shall refer to and consider the applicability of the following sources in
descending order:
a. The requirements in PFRSs dealing with similar and related issues; and
b. The definitions, recognition criteria and measurement concepts for assets, liabilities, income and
expenses in the Conceptual Framework for Financial Reporting (Conceptual Framework).

Management may also consider the most recent pronouncements of other standard‑setting bodies that use a
similar conceptual framework to develop accounting standards, other accounting literature and accepted
industry practices to the extent that these do not conflict with the sources above.

Consistency of accounting policies

An entity shall select and apply its accounting policies consistently for similar transactions, other events and
conditions unless a PFRS requires explicitly or permits categorization items for which different policies may be
appropriate. If a PFRS requires or permits such categorization, an applicable accounting policy shall be selected
and applied consistently to each category.

Changes in accounting policies

An entity shall change an accounting policy only if the change:
a. If it is required by a PFRS; or
b. Results in the financial statements provide reliable and more relevant information about the effects
of transactions, other events or conditions on the entity’s financial position, financial performance or
cash flows.

The following are not changes in accounting policies:

a. The application of an accounting policy for transactions, other events or conditions that differ in
substance from those previously occurring; and
b. The application of a new accounting policy for transactions, other events or conditions that did not
occur previously or were immaterial.

Subject to limitations on retrospective application:

a. An entity shall account for a change in accounting policy resulting from the initial application of a PFRS
following the specific transitional provisions, if any, in that PFRS; and
b. When an entity changes an accounting policy upon initial application of a PFRS that does not include
specific transitional provisions applying to that change or changes an accounting policy voluntarily, it
shall apply the change retrospectively.

Retrospective application
When a change in accounting policy is applied retrospectively, the entity shall adjust the opening balance of
each affected equity component for the earliest prior period presented and the other comparative amounts
disclosed for each prior period presented as if the new accounting policy had always been applied.

Limitations on retrospective application

During retrospective application, a change in accounting policy shall be applied retrospectively except to the
extent that it is impracticable to determine either the period‑specific effects or the cumulative effect of the
change.

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When it is impracticable to determine the period‑specific effects of changing an accounting policy on

comparative information for one or more prior periods presented, the entity shall apply the new accounting
policy to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which
retrospective application is practicable, which may be the current period, and shall make a corresponding
adjustment to the opening balance of each affected component of equity for that period.

When it is impracticable to determine the cumulative effect of applying a new accounting policy to all prior
periods at the beginning of the current period, the entity shall adjust the comparative information to use the
new accounting policy prospectively from the earliest date practicable.

Disclosure
When the initial application of a PFRS affects the current period or any prior period, would have such an effect
except that it is impracticable to determine the amount of the adjustment or might have an impact on future
periods, an entity shall disclose:
a. The title of the PFRS;
b. When applicable, the change in accounting policy is made following its transitional provisions;
c. The nature of the change in accounting policy;
d. When applicable, a description of the transitional provisions;
e. When applicable, the transitional provisions that might affect future periods;
f. For the current period and each prior period presented, to the extent practicable, the amount of the
adjustment:
i. For each financial statement line item affected; and
ii. If PAS 33 Earnings per Share applies to the entity, for basic and diluted earnings per share;
g. The amount of the adjustment relating to periods before those presented, to the extent practicable;
and
h. If the retrospective application required is impracticable for a particular prior period or periods before
those presented, the circumstances that led to that condition and a description of how and from when
the change in accounting policy has been applied.

Financial statements of subsequent periods need not repeat these disclosures.

When a voluntary change in accounting policy affects the current period or any prior period, would have an
effect on that period except that it is impracticable to determine the amount of the adjustment or might have
an impact on future periods, an entity shall disclose:
a. The nature of the change in accounting policy;
b. The reasons why applying the new accounting policy provides reliable and more relevant information;
c. For the current period and each prior period presented, to the extent practicable, the amount of the
adjustment:
i. For each financial statement line item affected; and
ii. If PAS 33 applies to the entity for basic and diluted earnings per share;
d. The amount of the adjustment relating to periods before those presented, to the extent practicable;
and
e. If a retrospective application is impracticable for a particular prior period or periods before those
presented, the circumstances that led to that condition and a description of how and from when the
change in accounting policy has been applied.

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Financial statements of subsequent periods need not repeat these disclosures.

When an entity has not applied a new PFRS that has been issued but is not yet effective, the entity shall disclose
the following:
a. This fact; and
b. Known or reasonably estimable information is relevant to assessing the possible impact that the
application of the new PFRS will have on the entity’s financial statements in the initial application
period.

Accounting estimates
The effect of a change in an accounting estimate, other than a change to which the succeeding paragraph
applies, shall be recognized prospectively by including it in profit or loss in:
a. The period of the change, if the change affects that period only; or
b. The period of the change and future periods of the change affects both.

To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities or relates
to an item of equity, it shall be recognized by adjusting the carrying amount of the related asset, liability or
equity item in the period of the change.

Disclosure
An entity shall disclose the nature and amount of a change in an accounting estimate that has an effect in the
current period or is expected to have an impact in future periods, except for the disclosure of the effect on
future periods when it is impracticable to estimate that effect.

If the amount of the effect in future periods is not disclosed because estimating it is impracticable, an entity
shall disclose that fact.

Errors
Subject to limitations on retrospective restatement, an entity shall correct material prior period errors
retrospectively in the first set of financial statements authorized for issue after their discovery by:
a. Restating the comparative amounts for the prior period(s) presented in which the error occurred; or
b. If the error occurred before the earliest prior period presented, restating the opening balances of
assets, liabilities and equity for the earliest prior period presented.

Limitations on retrospective restatement

A prior period error shall be corrected by retrospective restatement except to the extent that it is
impracticable to determine the error's period‑specific or cumulative effect.

When it is impracticable to determine the period‑specific effects of an error on comparative information for
one or more prior periods presented, the entity shall restate the opening balances of assets, liabilities and
equity for the earliest period for which retrospective restatement is practicable, which may be the current
period.

When it is impracticable to determine the cumulative effect of an error on all prior periods at the beginning
of the current period, the entity shall restate the comparative information to correct the error prospectively
from the earliest date practicable.

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 BM2218

Disclosure of prior period errors

An entity shall disclose the following:
a. The nature of the prior period error;
b. For each prior period presented, to the extent practicable, the amount of the correction:
i. For each financial statement line item affected; and
ii. If PAS 33 applies to the entity for basic and diluted earnings per share;
c. The amount of the correction at the beginning of the earliest prior period presented; and
d. If retrospective restatement is impracticable for a particular prior period, the circumstances that led
to that condition and a description of how and when the error was corrected.

Financial statements of subsequent periods need not repeat these disclosures.

References:
Cabrera, M., Cabrera, G., & Cabrera, B. (2022). Conceptual Framework and Accounting Standards. GIC
Enterprises & Co., Inc.
IFRS Foundation. (2022). IAS 7 Statement of Cash Flows. Retrieved on October 18, 2022, from
https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows/
IFRS Foundation. (2022). IFRS 1 First-time Adoption of International Financial Reporting Standards. Retrieved
on October 18, 2022, from https://www.ifrs.org/issued-standards/list-of-standards/ifrs-1-first-time-
adoption-of-ifrs.html/content/dam/ifrs/publications/html-standards/english/2022/issued/ifrs1/
IFRS Foundation. (2022). IFRS 14 Regulatory Deferral Accounts. Retrieved on October 18, 2022, from
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-14-regulatory-deferral-
accounts.html/content/dam/ifrs/publications/html-standards/english/2022/issued/ifrs14/
IFRS Foundation. (2022). IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Retrieved on
October 18, 2022, from https://www.ifrs.org/issued-standards/list-of-standards/ias-8-accounting-
policies-changes-in-accounting-estimates-and-errors.html/content/dam/ifrs/publications/html-
standards/english/2022/issued/ias8/
IAS Plus. (2022). IAS 7 Statement of Cash Flows. Retrieved on October 18, 2022, from
https://www.iasplus.com/en/standards/ias/ias7
IAS Plus. (2022). IFRS 1 First-time Adoption of International Financial Reporting Standards. Retrieved on
October 18, 2022, from https://www.iasplus.com/en/standards/ifrs/ifrs1
IAS Plus. (2022). IFRS 14 Regulatory Deferral Accounts. Retrieved on October 18, 2022, from
https://www.iasplus.com/en/standards/ifrs/ifrs14
IAS Plus. (2022). IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Retrieved on October
18, 2022, from https://www.iasplus.com/en/standards/ias/ias8
Millan, Z. (2022). Conceptual Framework & Accounting Standards. Bandolin Enterprise.
Valix, C., Peralta, J., & Valix, C. (2022). Conceptual Framework and Accounting Standards. GIC Enterprises &
Co., Inc.

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