Notes to financial statements

• provide narrative description or

disaggregation of items presented in the
financial statements and

• information about items that do not qualify

for recognition.
Purpose of notes to financial statements
• to provide the necessary disclosures

• required by Philippine Financial Reporting

Standards.
Order of presenting the notes
a. Statement of compliance with PFRS

b. Summary of significant accounting policies used

c. Supporting information or computation for line items

presented in the financial statements

d. Other disclosures, such contingent liabilities,

unrecognized contractual commitments and
nonfinancial disclosures.
Compliance with PFRS
• an entity whose financial statements comply
with Philippine Financial Reporting Standards
shall make an explicit and unreserved
statement of such compliance in the notes.
Accounting policies
• the specific principles, methods, practices,
rules, bases and conventions

• adopted by an entity in preparing and

presenting financial statements.
Significant accounting policies
The summary of significant accounting policies
shall disclose the following:

a. The measurement basis used in preparing

the financial statements.

b. The accounting policies used that are

relevant to an understanding of the
financial statements.
Disclosure of measurement basis
• to inform users of the measurement basis
used in the financial statements because the
basis on which the entity prepares the
financial statements significantly affects the
users' analysis.
Disclosure of accounting policies
• management shall consider whether the
disclosure would assist users in understanding
how transactions, other events and conditions
are reflected in the financial statements.
Disclosure of judgment
• an entity shall disclose in the summary of
significant accounting policies the judgments
that management has made in the process of
applying accounting policies and that have a
significant effect on the amounts recognized in
the financial statements.
Disclosure of estimation uncertainty
• an entity shall disclose information about the
assumptions it makes about the future, and
other major sources of uncertainty at the end
of reporting period that have a significant risk
of resulting in a material adjustment to the
carrying amount of assets and liabilities within
the next financial year.
Other disclosures
PAS 1, paragraph 138, provides that an entity shall
disclose the following:
a. The domicile and legal form of the entity, its
country of incorporation and the address of the
registered office or principal place of business.
b. A description of the nature of the entity's
operations and its principal activities.
c. The name of the parent and the ultimate parent
of the group.
Related Parties
Related party- Parties are considered to be
related if one party has :
a. The ability to control the other party.
b. The ability to exercise significant influence
over the other party.
c. Joint control over the entity.
Examples of related parties
• Affiliates
• Associates
• Venturer in a joint venture
• Key management personnel
• Close family members
• Individuals owning directly or indirectly an interest in
the voting power of the reporting entity
• Postemployment benefit plans for the benefit of
employees of an entity
Examples of related party transaction
PAS 24, paragraph 20, provides the following examples of related
party transaction:
1. Purchase and sale of goods
2. Purchase and sale of property and other asset
3. Rendering or receiving services
4. Leases
5. Transfer of research and development
6. License agreement
7. Finance arrangements, including loans and equity
contributions in cash or in kind
8. Guarantee and collateral
9. Settlement of liabilities on behalf of the entity or by the
entity on behalf of another party.
Related party disclosures
• PAS 24, paragraph 12, requires disclosure of
related party relationships where control
exists irrespective of whether there have been
transactions between the related parties.
Disclosures of related party transaction
• PAS 24, paragraph 17, provides that if there
have been transactions between related
parties, an entity shall disclose the nature of
the related party relationship as well as
information about the transactions and
outstanding balances necessary for an
understanding of the financial statements.
Key management personnel compensation
PAS 24, paragraph 16, provides that an entity shall
disclose key management personnel compensation in
total and for each of the following categories:
a. Short-term employee benefits
b. Postemployment benefits, for example, retirement
pensions
c. Other long-term benefits
d. Termination benefits
e. Share based payment transactions, for example,
share options
Unrelated parties
Unrelated parties include the following:
1. Two entities simply because they have a director or key
management personnel in common.
2. Providers of finance, trade unions, public utilities and
government agencies in the course of their normal dealings
with an entity by virtue only of those dealings.
3. A single customer, supplier, franchisor or general agent with
whom an entity transacts a significant volume of business
merely by virtue of the resulting economic dependence.
4. Two venturers simply because they share joint control over a
joint venture.
Transactions with government-related entities
A reporting entity is exempted from providing
the normal disclosures for transactions with:

a. A government that has control, joint control

or significant influence over the entity.

b. Other entities controlled, jointly controlled

or significantly influenced by the same
government.
Related party disclosures not required
• PAS 24, paragraph 3, requires disclosure of
related party transactions and outstanding
balances in the separate financial statement
of a parent, subsidiary, associate or venturer.
Pricing policies
Accounting recognition of a transfer of resources is
normally based on the price agreed upon between the
parties.

1. Uncontrolled price method

2. Resale price  

3. Cost plus method

4. No price method
Events after the Reporting Period
• those events, whether favorable or
unfavorable, that occur between the end of
reporting period and the date on which the
financial statements are authorized for issue.

• Such events may require either adjustment or

disclosure.
Types of events after the reporting period
a. Adjusting events after the reporting
period are those that provide evidence of
conditions that exist at the end of
reporting period.

b. Non-adjusting events after reporting

period are those that are indicative of
conditions that arise after the end of
reporting period.
Examples of adjusting events
Examples of adjusting events after the reporting period which
require the entity to adjust its financial statement are:
1. Settlement after the reporting period of a court case.
2. Bankruptcy of a customer which occurs after the reporting
period.
3. Sale of inventories after the reporting period.
4. The determination after the reporting period of the cost of
assets purchased or the proceeds from assets sold before the
end of reporting period.
5. The determination after the reporting period of the profit
sharing or bonus.
6. The discovery of fraud or errors that show the financial
statements were incorrect.
Examples of non-adjusting events
1. Business combination after the reporting period.
2. Plan to discontinue an operation.
3. Major purchase and disposal of asset or
expropriation of major asset by government.
4. Destruction of a major production plant by a fire after
the reporting period.
5. Major ordinary share transactions and potential
ordinary share transactions after the reporting
period.
Examples of non-adjusting events
6. Announcing or commencing the implementation of
a major restructuring.
7. Abnormally large changes after the reporting period
in asset prices or foreign exchange rates.
8. Entering into significant commitments or contingent
liabilities, for example, by issuing guarantees.
9. Commencing major litigation arising solely from
events that occurred after the reporting period.
10. Change in tax rate enacted or announced after the
end of reporting period that has a significant effect
on current and deferred tax asset and liability.
Financial statements authorized for issue
• Financial statements are authorized for issue
when the board of directors reviews the
financial statements and authorizes them
issue.
Disclosure of date of authorization for issue
• PAS 10, paragraph 17, provides that an entity
shall disclose the date when the financial
statements are authorized for issue and who
gave the authorization.
Resources need to be owned by the company to be
included as part of its assets.

Is this true? (Yes or No)

No
Control is sufficient. As long as it allows the
possessor to obtain the risk and reward of
ownership.
Resources need to be owned by the company to be
included as part of its assets.

Is this true? (Yes or No)

No
Control is sufficient. As long as it allows the
possessor to obtain the risk and reward of
ownership.