Presentation of Financial Statements PDF

PRESENTATION
OF FINANCIAL
STATEMENTS
General purpose vs Specific purpose Financial Statements
General Purpose FS Specific Purpose FS

 Intended to meet the needs of users who are  Prepared specifically to meet the needs of
not in a position to require an entity to prepare management or bankers
reports tailored to their particular information  Generally detailed
needs
 Comprehensive
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Components of Financial Statements
The objective of a general purpose financial statements is to provide information about an entity’s
financial position, financial performance and cash flows that is useful to a wide range of users in
making economic decisions.
A complete set of financial statements comprise of:

 STATEMENT OF FINANCIAL POSITION
 STATEMENT OF COMPREHENSIVE INCOME (with STATEMENT OF PROFIT OR LOSS if presented separately)
 STATEMENT OF CHANGES IN EQUITY
 STATEMENT OF CASH FLOWS (where applicable)
 NOTES TO FINANCIAL STATEMENTS, with a summary of significant accounting policies
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Components of Financial Statements
FINANCIAL POSITION FINANCIAL PERFORMANCE CASH FLOWS
 Statement of assets,  Statement of revenues,  Statement of cash receipts,

liabilities and equity of an expenses and net income or cash payments arising from
entity at a point in time loss of an entity for a period the operating, investing and
 Liquidity, solvency and of time financing activities of the
need for additional  Performance is the level of entity
financing income earned by the entity  Useful in assessing the ability
through efficient and of the entity to generate cash
effective use of its and cash equivalents
resources
 Also known as results of
operations
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Financial Reporting
Financial reporting is the provision of financial information to external users useful in making decisions and
assessing effectiveness of an entity’s management. This is primarily done through the issuance of annual
financial statements.
Financial reports may also include nonfinancial information such as description of major products and listing of
corporate officers and directors.
Objectives of financial reporting:
 To provide information useful in making investing and credit decisions about providing resources to the entity
 To provide information useful in assessing the cash flow prospects of the entity
 To provide information about entity resources, claims and changes in resources and claims
Limitations of financial reporting:
 do not and cannot provide all information that users may need
 not designed to show the value of a reporting entity
 intended to provide common information only
 Are based on estimate and judgment rather than exact depiction
Primary responsibility over the preparation and presentation of financial statements rest with management
and those charged with governance.
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General Features of Financial Statements: Fair Presentation
Financial statements shall be presented fairly, in all material respects, in accordance with the applicable
reporting standards (PFRS in the Philippines).
Fair presentation is the faithful representation of the effects of transactions and other events in accordance
with the definitions and recognition criteria for assets, liabilities, income and expenses laid down in the
Conceptual Framework.
Fair presentation requires an entity:
 To select an apply accounting policies in accordance with PFRS
 To present information, including accounting policies, in a manner that provides relevant and faithfully
represented financial information
 To provide additional disclosures necessary for the users to understand the entity’s financial statements
An explicit statement regarding compliance with PFRS shall be made in the notes to financial statements.
The use of inappropriate accounting policies are not justified by explanatory information in the notes.
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General Features of Financial Statements: Fair Presentation
Allowed departures from the standards:

 In extremely rare circumstances
 When management concludes that compliance with the standard would be misleading
 When the departure from the standard is necessary to achieve fair presentation
 When the regulatory Conceptual Framework requires or otherwise does not prohibit such departure
Required disclosures:
 That the management has concluded that the financial statements present fairly the financial position,
performance and cash flows of the entity
 That the entity has complied with applicable standards except that it has departed from a particular
requirement to achieve fair presentation
 The title of the standard from which the entity has departed, the nature of the departure, including the
treatment the standard requires, the reason why the treatment would be so misleading and the treatment
adopted.
 For each period presented, the financial impact of the departure on each item in the financial statements
that would have been reported in complying with the requirement
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General Features of Financial Statements: Going Concern
Going concern – the accounting entity is viewed to continue operations indefinitely in absence of
any evidence to the contrary. Also known as continuity assumption.
Financial statements are prepared generally under the going concern assumption unless an entity
is under liquidation or has plans to liquidate. If the financial statements are not presented using
going concern, this shall be disclosed together with the measurement basis and the reason
therefor.
Any uncertainties about an entity’s ability to continue as a going concern shall be fully disclosed.
In making the assessment about the going concern assumption, the management shall take into
account all information about the future which is at least twelve months from the end of the
reporting period.
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General Features of Financial Statements: Accrual Basis
Financial information need to be presented using accrual basis, except for cash
flow information.
Accrual accounting – income is recognized when earned and expense is recognized
when incurred
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General Features of Financial Statements: Materiality and Aggregation
An entity shall present:

 Each material class of similar items separately
 Items of dissimilar nature or function separately, unless they are immaterial
“Material”
 Depends on professional judgment
 An item is material if knowledge of it would affect the decision of the informed users of the financial
statements
 Consider if the omission or misstatement could influence economic decision making
Factors of materiality
 Relative size of the item in relation to the total group to which the item belongs
 Nature of the item
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General Features of Financial Statements: Offsetting
Generally not allowed when items are material, unless permitted/required by a standard
Examples:
 Gains and losses on disposal of noncurrent assets are reported by deducting from the proceeds of the
carrying amount of the assets and the related selling expenses
 Expenditure related to a provision and reimbursed under a contractual agreement with a third party may be
netted against the related reimbursement
 Gains and losses arising from a group of similar transactions reported on a net basis (forex gains/losses)
Assets measured net of valuation allowance is not offsetting.
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General Features of Financial Statements: Frequency of Reporting
An entity shall present a complete set of FS at least annually.

Change in reporting period requires disclosure on:
 The period covered by the financial statements
 The reason for using a longer or shorter period
 The fact that amounts presented in the financial statements are not entirely comparable
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General Features of Financial Statements: Comparative Information
An entity shall disclose comparative information in respect of previous periods, unless

allowed/required by other PFRS.
Comparative information shall be included for narrative and descriptive information when it is
relevant to an understanding of the current period’s financial statements
Third statement of financial position is required when an entity:
 Applies an accounting policy retrospectively
 Makes retrospective restatement of items in the financial statements
 Reclassifies items in the financial statements
Under these circumstances, the entity shall present three statements of financial position as at
 The end of the current period
 The end of the previous period
 The beginning of the earliest comparative period
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General Features of Financial Statements: Consistency of Preparation
The principle of consistency requires that the accounting methods and practices shall be applied on
a uniform basis from period to period.
The presentation and classification of financial statement items shall be uniform from one
accounting period to the next.
A change in the presentation and classification of items in the financial statements is allowed:
 When it is required by another PFRS
 When a significant change in the nature of the operations of the entity will demonstrate a more appropriate
revised presentation and classification
The entity shall fully disclose the change and the peso effect of the change.
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Other Required Information
Each component of the financial statements shall be clearly identified

In addition, the following information must be prominently displayed:
 Name of reporting entity
 Whether the financial statements cover the individual entity or a group of entities
 The end of the reporting period or the period covered by the financial statements or notes
 The presentation currency
 The level of rounding used in the amounts in the financial statements
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PRESENTATION

General Purpose FS Specific Purpose FS

A complete set of financial statements comprise of:

FINANCIAL POSITION FINANCIAL PERFORMANCE CASH FLOWS

 Statement of assets,  Statement of revenues,  Statement of cash receipts,

Allowed departures from the standards:

An entity shall present:

An entity shall present a complete set of FS at least annually.

An entity shall disclose comparative information in respect of previous periods, unless

Each component of the financial statements shall be clearly identified

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