CFAS CHAPTER 3 • It is an expanded form of the income statement because it

Introduction encompasses both profit or loss and other comprehensive income.

A company's financial statements can be used as an • The information presented in the statement of comprehensive
• analytical tool, income helps users to assess the entity's ability to generate cash and
• as a management report card, the potential changes in economic resources that the enterprise is
• as an early warning signal, likely to control in the future.
• as a basis for prediction, Statement of Changes in Equity
• and as a measure of accountability. • the summarized transactions affecting the balances such as profit or
loss, other comprehensive income, contributions from owners and
Financial statements also provide an economic history that is comprehensive distributions to owners.
and quantitative, and can be used to gauge an entity's performance. For these Statement of Cash Flows
reasons, financial statements are indispensable for developing an accurate • presents information on the inflows and outflows of the reporting
profile of ongoing performance and prospects of an entity. period.
• The information assists users in assessing an entity's ability to
FINANCIAL STATEMENTS remain solvent and provide returns to investors and creditors.
Financial statements are The section “Notes to Financial Statements "
• structured financial representation of the financial position of and • presents relevant financial information pertaining to the entity's
the transactions undertaken by an enterprise. activities that cannot be presented on the face of the financial
The objective of general-purpose financial statements statements.
• is to provide information, performance and cash flows of an • it includes
enterprise that is useful to a wide range of users in making economic o description of the basis of the presentation of financial
decisions statements and summary of significant accounting policies,
• it also shows the result of the management's stewardship of the o information required by the PFRS or IFRS that is not presented
resources entrusted to it. on the face of the financial statements, and
To meet this objective, financial statements provide information about an o additional information that will help the users better
entity's understand the information presented in any of the financial
• assets; statements.
• liabilities;
• equity; For comparative purposes, the financial statements shall provide the same set
• income and expenses, including gains and losses; of information for the preceding year.
• contributions by and distributions to owners; and
Requirement for an additional statement of financial position
• cash flows
• IAS 1 requires the inclusion of a statement of financial position as
at the beginning of the preceding period whenever an entity restates
Financial statements are the responsibility of the company's management.
its comparative period prior financial statements
This means that the format by which the financial statements are presented, the
information presented therein and the fairness of their presentation depend on • there shall be 6 components of a complete set of financial statements
the assessment by the enterprise management.
International Accounting Standards (IAS) 1 Presentation of Financial Restatement of comparative prior period is necessary when there is any of the
statements presents the basis for the presentation of financial statements. following:
• retrospective application of a change in accounting policy
The objective of IAS 1 is • restatement of financial position as at the beginning of the preceding
• to present the basis for the presentation of the financial statements period presented achieves the objective of comparability
to ensure comparability of an enterprise's financial statements with
financial statements of other enterprises and with financial The requirement for restatement of prior year's financial statements and
statements of the same enterprise (for different reporting periods). inclusion of a restated statement of financial position as at the beginning of the
• Thus, both intercomparability and intracomparability are addressed preceding period presented achieves the objective of comparability
by IAS 1.
ACCOUNTING POLICIES
Components of Financial Statements • The financial statements are largely affected by the accounting
A complete set of financial statements includes the following. policies adopted by the company's management.
1. a statement of financial position as at the end of the period; • IAS 8 Accounting Policies, changes in Accounting Policies and
2. a statement of comprehensive income for the period; Errors, defines accounting policies as the specific principles, bases,
3. a statement of changes in equity for the period; conventions, rules and practices applied by an entity in preparing
4. a statement of cash flows for the period; and and presenting financial statements.
5. notes, comprising a summary of significant accounting policies and
other explanatory information. Some examples of an accounting policies are:
• criteria to determine which financial instruments qualify as cash
§ The components of the financial statements as enumerated present equivalents,
financial information about an entity as of the end of the reporting period • characteristics of elements comprising Investment Property,
and for the reporting period. • characteristics of elements comprising Property, Plant and
§ Only the statement of financial position presents information as of the end Equipment,
of the reporting period • measurement model for a class of property, plant and equipment,
§ All other Components present financial information during a reporting • use of the weighted average method to determine the cost of
period. inventory,
• measuring inventories at the lower of cost and net reelizable value.
Statement of Financial Position
• presents information on the balances of assets, liabilities and equity The management shall apply the specific requirements of the Philippine
as at the end of the reporting period. Financial Reporting Standards or Interpretation that specifically applies to a
• This statement, when evaluated together with the other components transaction, other event or condition.
of the financial statements, is useful to various users of accounting • In the absence of a Standard or an Interpretation that specifically
information in assessing the economic resources that an enterprise applies to a transaction, other event or condition, management shall
controls its financial structure, its liquidity and solvency and its use its judgment in developing and applying an accounting policy
capacity to adapt to changes in the environment in which it operates. that results in information that meets the qualitative characteristics
described in the Conceptual Framework
Statement of Comprehensive Income • In applying its judgment in selecting from different accounting
• presents the financial performance of an entity during a reporting methods to form part of its accounting policies, the management
period.
 shall refer to, and consider the applicability of the following sources circumstances that it would conflict with the objective of financial
in descending order (paragraph 11, IAS 8): statements set out in the Conceptual Framework, and the treatment
a. the requirements in PFRS and IFRS dealing with similar adopted; and
and related issues; and d. for each period presented, the financial impact of the departure on!
b. the definitions, recognition criteria and measurement each item in the financial statements that would have been reported
concepts for assets, liabilities, income and expenses in in complying with the requirement.
the Conceptual Framework.
In rare instances when management believes that departure from IFRS is
The management may also consider the most recent pronouncements of other necessary to achieve the objective of the financial statements, but the relevant
standard setting bodies that use a similar conceptual framework to develop regulatory framework prohibits departure from the requirement the enterprise
accounting standards, other accounting literature and accepted industry shall reduce the perceived misleading aspects of compliance by disclosing
practices to the extent that these do not conflict with the sources enumerated (paragraph 23, IAS 1).
above. a. the title of the Standard or Interpretation in question, the nature of
the requirement, and the reason why management has concluded
GENERAL FEATURES that complying with that requirement is so misleading in the
IAS 1 enumerates the following general features for the presentation of circumstances that it conflicts with the objective of the financial
financial statements: statements; and
1. Fair Presentation and Compliance with IFRS/PFRS b. for each period presented, the adjustments in each item in the
2. Going Concern financial statements that management has concluded would be
3. Accrual Basis of Accounting necessary to achieve fair presentation.
4. Materiality and Aggregation
5. Offsetting Going Concern.
6. Frequency of Reporting Financial statements should be prepared on a going concern basis unless
7. Comparative Alnformation management either intends to liquidate the enterprise or to cease trading, or has
8. Consistency of Presentation no reålistic alternative but to do so.

Fair Presentation and Compliance with IFRS When the financial statements are not prepared on a going concern basis, the
• Financial statements shall present fairly the financial position, following shall be disclosed in the notes to the financial statements:
financial performance and cash flows of an enterprise. a. the fact that the financial statements are not prepared on a going
• Fair presentation requires the faithful presentation of the effects of concern basis;
transactions, other events and conditions in accordance with the b. the basis on which the financial statements are prepared; and
definition and recognition criteria for assets, liabilities, income and c. the reason why the enterprise is not considered to be a going
expenses set out in the Conceptual Framework. concern.
• The application of IFRS with additional disclosures, when
necessary, is presumed to result in financial statements that achieve In assessing whether the enterprise is a going concern entity, the
a fair presentation management should assess the ability of the enterprise to continue operations
for a period of at least, but not limited to, twelve months. However, when the
Fair presentation requires an entity to enterprise has a history of profitable operations and ready access to financial
a. select accounting policies based on PAS/ IAS 8, observing the resources, no detailed analysis is necessary to evaluate the capacity of the
hierarchy in formulating accounting policies; enterprise to continue operations in the future.
b. present information, including accounting policies, in a manner that When management is aware of significant uncertainties that may cast
provides relevant, reliable, comparable, and understandable doubt upon the entity's ability to continue as a going concern, the management
information, and may consider reviewing the basis for measurement of assets and liabilities.
c. provide additional disclosures when compliapce with the specific Under such a circumstance, the financial statements shall disclose these
requirements of the IFRS is insufficient to enable the users to uncertainties, the basis for the presentation of financial statements, and the
understand the impact of a particular transaction, other event or reasons why the entity is not viewed as a going concern.
condition on the entior's financial position and performance.
Accrual Basis
Philippine Financial Reporting Standards (PFRS), as used in PAS 1 and in this • An enterprise should prepare its financial statements under the accrual
chapter, are Standards and Interpretations adopted by the Financial Reporting basis of accounting.
Standards Council. They comprise: • Under the accrual basis of accounting, and events are recognized when
a) Philippine Financial Reporting Standards (based on IFRS and they occur (not necessarily when cash financial is received statements or
originally promulgated by the International Accounting Standards paid).
Board); • The transactions are recorded and reported in the financial statements of
b) Philippine Accounting Standards (baseW on International the periods to which they relate.
Accounting Standards and originally promulgated by the • Expenses are recognized on the basis of a direct association between the
International Accounting Standards Committee, subsequently costs incurred and the earnings of a specific items of income (direct
reviewed, improved, amended or redrafted by the IAS Board); and matching) or by systematically allocating the cost of assets acquired the
c) Interpretations originated by the International Financial Reporting periods benefit (systematic and rational allocation).
Interpretations Committee (IFRIC, which is the body that interprets • The accrual basis of accounting and the expense recognition principles
the work of the IASB), Standing Interpretations Committee (SIC, also do not allow the recognition of assets for costs which are not expected
which was the body that interpreted the work of then IASC), and the to provide probable future economic benefits to the enterprise.
Philippine Interpretations Committee (PIC).
ü The accrual basis also applies the revenue recognition-principles.
In extremely rare circumstances, the management of the enterprise shall depart ü Revenue is generally recognized at the point of delivery of and services,
from the specific requirements of the IFRS when it concludes that compliance provided that it is probable that it would result in an inflow of economic
with that information would make information misleading, provided further that benefits that could be reliably measured.
the regulatory framework requires, or otherwise does not prohibit such a ü IFRS 15, Revenue from Contracts with Customers provides a
departure. In such circumstances the entity shall make the following comprehensive framework for recognizing revenue from contracts with
disclosures, as enumerated in paragraph 20, IAS 1: customers.
a. that management has concluded that the financial statements present
fairly the entity's e financial position, financial performance and Materiality and Aggregation
cash flows; • Each material item should be presented separately in the financial
b. that it has complied with applicable IFRSs, except that it has statements.
departed from a particular requirement to achieve a fair presentation; • Immaterial amounts of similar nature or function should be aggregated
c. the title of the IFRS from which the entity has departed, the nature and presented as one line item on the face of the financial statements.
of the departure, including the treatment that the IFRS would
require, the reason why the treatment would be misleading in the
• The details comprising the amount, if relevant to the decision needs of the three statements of financial position shall be presented, namely as at
users, will be presented in the notes to the financial statements. a. the end of the current period;
b. the end of the immediqte prior period; and
• Information is material if its non-disclosure would influence the decision c. the beginning of the preceding period.
or evaluation of the user. Materiality depends on the size and the item
judged in the particular circumstances of its omission. • This is done to ensure comparability of prior year information with
the current period.
The process of aggregation and classification involves the presentation of • An entity may present comparative information for periods earlier
condensed and classified information. If an item taken individually will call the than the preceding period provided that such components of
attention of the user, then the item is presented as a single line item on the face financial statements presented are in compliance with the IFRS.
of the financial statements. If the item, taken individually is not considered • When such is the case, the entity shall include related note
significant, it is aggregated with other items either on the face or in the notes. information for those additional components of financial statements.

Materiality is considered a threshold for recognition. A specific disclosure Consistency of Presentation

requirement in an accounting standard need not apply if the item is not material. The presentation and classification of items in the financial statements should
be the same from period to period, unless
Offsetting a) it is apparent, following a significant change in the nature of the
• Offsetting means deducting one item from another item of different entity's operations or a review of its financial statements, that
nature and presenting only the net on the face of the financial another presentation or classification would be more appropriate; or
statements b) An IFRS requires a change in presentation
• Presenting receivables net of the related allowance for bad debts,
property, plant and equipment net of accumulated depreciation, on This requirement for an additional statement Of financial position as at the
the face of the statement of financial position is not offsetting. beginning of the earliest comparative reporting period does not apply to entities
applying PFRS/IFRS for SMEs and those applying PFRS for Small Entities.
Generally, offsetting is not allowed, unless required or permitted by Standard
or an Interpretation. Thus, deferred tax assets are set off against the deferred tax • This means that the manner of presentation of financial statement shall be
liabilities, if they arise from deferred taxes imposed by only one taxing authority retained from period to period, unless the changed presentation is more
and they are expected to reverse simultaneously. This applies the requirements useful to the users and enhances the relevance of information.
of IAS 12 Income Taxes. • If presentation is changed, comparative financial statements for the prior
period shall be re-presented, unless it is impracticable to do so.
• Offsetting is also allowed and applied when presenting on the net basis
reflects the substance of the transaction or other event, say, netting any When an entity reclassifies comparative amounts, it shall disclose
income with related expenses arising on the same transaction. a. the nature of the reclassification;
• Thus, only the excess of proceeds from the sale of property, plant and b. the amount ofeach item or class ofitems that is reclassified.
equipment over its carrying amount is presented as a gain on the statement c. the reason for the reclassification
of comprehensive income.
• Other examples of offsetting involve presenting only the net unrealized When it is impracticable to reclassify comparative amounts, entity shall
gain or loss on financial assets at fair value through profit or loss and the disclose the reason for not reclassifying the amount and th nature of the
net foreign exchange transaction gain or losse adjustments that would have been made if the amount had been reclassified.

Frequency of Reporting IDENTIFICATION OF THE FINANCIAL STATEMENTS

• Financial statements should be presented at least annually. The financial statements shall be identified clearly and distinguished from
• When in exceptional cases, an enterprise's statement of financial position other information in the same published document
date changes and financial statements are prepared for a period longer or Each component of the financial statements shall be identified clearly. In
shorter than one year, that fact should be disclosed. addition, the following information shall be displayed prominently and
• The reason for using a period shorter or longer than one year and the fact repeated, when necessary, for a proper understanding of information presented
that comparative amounts are not entirely comparable should likewise be • name of the reporting entity and other means of, identification, and
disclosed. any change in that information from the preceding financial
• Reporting annually does not prevent the enterprise from presenting statement date;
interim financial statements, which cover a period shorter than one year. • whether the financial statements cover the individual entity or a
group of entities
Comparative information • the statement of financial position date or the period covered by the
• It should be disclosed in respect of the preceding period for all financial financial statements, whichever is appropriate to that component of
information in the financial statements, except when IFRSs permit or the financial statements;
require otherwise. • the presentation currency; and
• Comparative narrative and descriptive information shall likewise be • the level of rounding used in presenting amounts in financial
included when it is relevant to an understanding of the current period's statements
financial statements.
FUNDAMENTALLY RELATED FINANCIAL STATEMENTS
Ø Thus, when presenting the financial statements for the year 2017, the • Financial statements are fundamentally related because they relate to the
comparative information for 2016, as a minimum, should be presented. effects of the same sets of transactions completed by the enterprise during
Ø Likewise, comparative information for narrative disclosures relating to the reporting period.
the prior period should be presented, unless otherwise required. • In completing the accounting process, which culminates in the
Ø This means that in presenting information for the current year, two sets of presentation of the financial statements, the first financial statements
all components of the financial statements are presented: two statements prepared by for reporting entity is generally the statement of
of financial position (as at the end of the current year and as at the end of comprehensive income.
the immediate prior year); two statements of comprehensive income, two • The profit is the net effect of income and expenses presented in the profit
statements of changes in equity and two statements of cash flows (one set section of this statement, which is transferred to the appropriate equity
for the current year and another set for the immediate prior year). account in the statement of changes in equity.
Likewise, two sets of notes are included. • The equity account affected is either the capital for a single proprietorship,
the partners’ capital accounts for a partnership form of business
When an enterprise makes retrospective adjustment for any one or organization or retained earnings (or the Accumulated Profits as termed
combination of the following: by the IFRS) for a corporation.
a) change in accounting policy; • Likewise, the holding (or unrealized) gains and losses for or income and
b) correction of prior period error/s; and expenses that are expected to reverse over time and other items required
c) reclassification or amendment of items in the financial by the IFRS to be classified as other comprehensive income are presented
as other conference in income and are transferred to the equity component
 cumulative other comprehensive income in the statement of changes in Information such as the moral and efficiency of company personnel, the
equity. strategic location of the company's production facilities and markets, the
§ Other changes in equity not arising from financial performance, such as enterprise’s contribution to the development and deterioration of the
contributions from and distributions to the owners of the entity are also environment are reported nowhere in the financial statements because either
presented in the statement of changes in equity. they do not qualify under the definition of financial statement elements or they
§ In effect, the statement of changes in equity, as the term describes, involve high level of measurement uncertainty.
presents the changes in each major equity component during the reporting In spite of all foregoing limitations, users may use the information
period and reconciles the beginning equity component balances with the presented in the financial statements to estimate the value of the firm.
ending equity component balances, the latter being presented as the final
figures and are brought forward as equity account balances in the THE SECURITIES AND EXCHANGE COMMISSION
statement of financial position. • The corporate form of business organization allows its owners, called
shareholders, to trade their equity interest in the entity even without the
ü Information on cash flows, which is defined as the inflows and outflows consent of the other shareholders.
of cash and cash equivalents, is presented in the statement of cash flows. • The investment risk borne by these inactive owners is mitigated by
ü In the statement of cash flows, cash flow activities are classified as imposing some reportorial regulations to corporations.
operating, investing and financing.
The securities and Exchange Commission (SEC)
Operating cash flow activities • is the national regulatory agency charged with supervision of the
• are inflows and outflows of cash and cash equivalents that are corporate sector.
involved in the determination of profit. Thus, these activities include • From its original function of regulating the sale and registration of
a. inflows during the reporting period from sale of goods and securities, the SEC’s mandate has been broadened to include
services and for allowing other entities to use enterprise development and regulation of the corporate and capital market
resources, and toward good corporate governance, protection of investors, widest
b. outflows during the reporting period for acquisition of goods participation of ownership and democratization of wealth (SEC
and expenses incurred. website: sec.gov.ph. Mandate, Mission, Values and Vision).

Investing cash flow activities Republic Act 8799,

• are inflows and outflows of cash and cash equivalents during the • which is otherwise known as the Securities Regulation Code (SRC),
reporting period that affect, generally, non-current assets. with its subsequent amendments and implementing rules and
• These include cash inflows from disposal of non-current assets and regulations (IRR), reemphasizes the requirement for the submission
cash outflows from acquisition, creation, or enhancement of of an annual report by companies, together with financial
noncurrent assets. statements, certified by an independent certified public accountant.
• It also requires for internal record keeping and internal controls to
Financing cash flow activities be complied with by entities.
• are those that arise from transactions with non-trade lenders as well
as owners of the entity. SRC Rule 68
• They include inflows from borrowings from lenders, issue of share • provides for the general guides to financial statement preparation,
capital, reissue of treasury shares, other additional contributions responsibility to financial statements, qualifications and reports of
from owners, as well as outflows for payments to lenders, and independent auditors and rgiew of their quality assurance processes.
distributions to owners.
The Securities and Exchange Commission
The net cash change inflow or outflow of cash and cash equivalents • SEC realizes that enterprises may have transactions ranging from
• It represents the net change of cash and cash equivalents during the simple to more complex, depending on the nature and size of the
reporting period. enterprise.
• Such net change brings the beginning balance of cash and cash • The SEC is cognizant of the fact that financial statement
equivalents to the ending balance, the latter being the final figure in presentation may be modified to suit the varying decision needs of
the statement and the amount that is shown as cash and cash the users.
equivalents in the statement of financial position at the end of the
reporting period. CLASSIFICATION OF REPORTING ENTITIES EASED ON THE
APPLICABLE PHILIPPINE FINANCIAL REPORTING
§ The activities relating to a reporting entity's financial performance, its FRAMEWORKS
cash flow activities and other activities that involve equity accounts affect Although the discussions in this book are based primarily on the full PFRS or
the elements presented in the statement of financial position. IFRS, it is worthy to note at this time that there are several reporting frameworks
§ The balances of assets, liabilities and equity at the end of the reporting that govern the presentation of the entities' financial statements. SRC Rule 68
period that result from all the enterprise's activities during the period are Section 2 provides general guides to financial statements preparation.
comprehensively presented on an entity's statement of financial position.
Under SRCRule 68, reporting entities are classified as
LIMITATIONS OF THE FINANCIAL STATEMENTS a) large and/or publicly accountable entities;
Despite the usefulness of the financial statements, they also several weaknesses b) medium-sized entities;
and limitations. The real worth of the business is not reflected in the financial c) small entities; and
statements because of the use of different measurement bases. d) micro entities.

In addition, the financial statements present values that are a mixture of Large and/or publicly-accountable entities are those that meet any of the
different levels of purchasing power. following criteria:
• This is true when the non-current operating assets such as property, a) total assets of more than P350 million or total liabilities of more
plant and equipment, intangibles and investment property are than P250 million;
measured using the cost model. b) are required to file financial statementsm under Part Il of SRO Rule
• If such assets were acquired at different dates, the amounts at which 68;
these assets are measured in the statement of financial position as c) are in the process of filing their financial statements for the purpose
well as the depreciation reported as expense in the statement of of issuing any class of instruments in a public market;
comprehensive income reflect mixtures of pesos with different d) are holders of secondary licenses issued by regulatory agencies.
levels of purchasing power.
Medium-sized entities are those that meet all of the following
Furthermore, due to some measurement uncertainties, some financial statement • assets of more than P100 million to P350 million or liabilities of
elements are not recognized because only events and transactions capable of more than P100 million to P250 million (for a parent reporting
financial measurement and have met the recognition criteria identified in the entity, the amounts are based on consolidated figures);
Conceptual Framework can be reflected. • are not required to file financial statements under Part Il of Rule 68;
 • are not in the process of filing their financial statements for the e. an entity that has a short-term projection that it will breach the
purpose of issuing any class of instruments in a public market; and quantitative threshold set in the criteria for a small entity, provided
• are not holders of secondary licenses issued by regulatory agencies. that the event that caused the change in classification is "considered
significant and continuing";
Small entities are those that meet all of the following criteria: f. an entity that has a concrete plan to conduct an initial public offering
• total assets of between of between P3 million and P100 (for a parent within the next two years;
reporting entity, the amounts are based on consolidated figures); g. an entity that has been preparing financial statement under Full PFRs
• are not required to file financial statements under Part Il Of Rule 68; or PFRs for SMEs and has decided to liquidate;
• are not in the process of filing their financial statements for the h. and other entities that the SEC may consider as valid exceptions
purpose of issuing any class of instruments in a public market; and from mandatory adoption of PFRS for Small Entities
• are not holders of secondary licenses issued by regulatory agencies
• Small entities which opted to apply the PFRS for SMEs or Full PFRS
Micro entities are those that meet all of the following criteria: under any of the foregoing grounds shall include in its financial statements
the facts supporting their adoption of the PFRS for SMEs or Full PFRS.
• total assets and total liabilities of less than P3 million;
• are not required to file financial statements under Part II of
• Micro entities have the option of adopting either the PFRS for Small
• are not in the process of filing their financial statements for the
Entities or the income tax basis. The following, at a minimum, shall
purpose of issuing any class of instruments in a public market; and
consist the micro entities' financial statements:
• are not holders of secondary licenses issued by regulatory agencies
A. Statement of Management's Responsibility,
B. Auditor's Report,
APPLICABILITY OF PHILIPPINE FINANCIAL REPORTING C. Statement of Financial Position,
FRAMEWORKS D. statement of Income and
Financial reporting frameworks applicable to these foregoing entities fall under
E. Notes to Financial Statements.
the following classifications:
a. Full PFRS/IFRS; • All of these components must cover two-year comparative periods.
b. PFRS for Small' and Medium-Sized Entities (PFRS/IFRS for
The management of micro entities using a reporting framework other than
c. PFRS for Small Entities; and
PFRS for Small Entities shall assess the applicability of the basis of accounting
d. Income tax Reporting
considering the nature of the entity, the objective of the financial statements and
the requirements of the law or regulators (par iv.c, SEC Memorendum Circular
Large and/or publicly-accountable entities shall prepare their financial
No. 5, Series of 2018).
statements applying the Full PFRS/IFRS. Furthermore, banks, insurance
companies and other entities which are holders of secondary licenses issued by
The Securities and Exchange Commission requires the reporting entity to
regulatory agencies shall also apply the requirements of their respebtive
adopt a higher framework should the prescribed thresholds for total assets or
regulatory bodies, e.g. Central Bank and Insurance Commission.
total liabilities fall within different classification of the reporting entity.
Medium-sized entities shall use the PFRS/IFRS for SMEs as their
reporting framework.
The following medium-sized entities may choose to prepare the financial
statements following either Full PFRS/IFRS or PFRS/IFRS for SMEs (SEC
Memorandum Circular 5, Series of 2018):
a) a subsidiary of a parent reportingunder Full PFRS/IFRS;
b) a subsidiary of a foreign parent that will move towards Full
PFRS/IFRS;
c) a significant joint venture or associate that is part of a group that is
reporting under Full PFRS/IFRS;
d) a branch office or regional operating headquarter of a foreign
company reporting under Full PFRS/IFRS;
e) a subsidiary that is mandated to report under Full PFRS/IFRS;
f) an entity that has a short-term projection that it will breach the
quantitative threshold set in the criteria for a mediums sized entity,
provided that the event that caused the change in classification is
considered "significant and continuing";
g) an entity that has a concrete plan to coriduct an initial public offering
within the next two years;
h) an entity that has been preparing financial statement under Full
PFRS/IFRS and decided to liquidate; and
i) and other entities that the SEC may consider as valid exceptions
from mandatory adoption of PFRS for SMEs.

A medium-sized entity, belonging to any of the above, opting to adopt the

Full PFRS/IFRS instead of the PFRS for SMEs, shall include in its Notes to the
Financial Statements the facts supporting its adoption of the Full PFRS/IFRS.
Reporting entities classified as small entities under the foregoing criteria
shall use the PFRS for Small Entities as adopted by the Securities and Exchange
Commission. Small entities that have operations or investments in another
country with different functional currency shall apply instead the PFRS/IFRS
for SMEs or the Full IFRS/PFRS

Small entities falling under any of the following, may at their option apply the
PFRS/IFRS for SMEs or Full PFkS/1FkS, instead of PFRS for Small Entities
(SEC Memorandum Circular No. 5, Series of 2018):
a. a subsidiary of a parent reporting under Full PFRS/IFRS or
PFRS/IFRS for SMEs;
b. a subsidiary of a foreign parent that will move towards Full IFRS or
IFRS for, SMEs;
c. a significant joint venture or associate that is part of a group that is
reporting under Full PFRS/IFRS or PFRS/IFRS for SMEs;
d. a branch office or regional operating headquarter of a foreign
company reporting under Full PFRS/IFRS or PFRS/IFRS for SMEs;