Chapter 1.

Statement of Financial Position

Related Standard: PAS 1 Presentation of Financial Statements

Introduction
-​ IAS 1 (PRESENTATION OF FINANCIAL STATEMENTS) provides guidelines on the
preparation of the “general-purpose financial statements”.
-​ Ensures comparability
-​ It provides overall requirements for the presentation of financial statements, guidance on
their structure, and the minimum requirements for their content. It also prescribes the
components of the financial statements that together would be considered a complete
set of financial statements.

Scope
-​ IAS 1 does not apply to: Financial statements prepared in accordance with IAS 34
Interim Financial Reporting.
-​ IAS 1 applies to: All entities including those entities that prepare Consolidated Financial
Statements.

Financial Statements
-​ Are the structured representation of an entity’s financial position and result of its
operations.
-​ The end product of the financial reporting process.
-​ The means by which the information gathered and processed is periodically
communicated to users.
-​ The financial statements of an entity pertain only to that entity and not to the industry
where the entity belongs or the economy as a whole.

General purpose financial statements

-​ Those intended to meet the needs of users who are not in a position to require an entity
to prepare reports tailored to their particular information needs.
-​ Cater to most of the common needs of a wide range of primary external users.
-​ The subject matter of the conceptual framework and the PFRSs.

Purpose of financial statements

1.​ To provide information about the financial position, financial performance, and cash flows
of an entity that is useful to a wide range of users in making economic decisions.
2.​ To show the results of management’s stewardship over the entity’s resources.

Complete set of financial statements

1.​ a statement of financial position (balance sheet) at the end of the period
2.​ a statement of profit or loss and other comprehensive income for the period (presented
as a single statement, or by presenting the profit or loss section in a separate statement
of profit or loss, immediately followed by a statement presenting comprehensive income
beginning with profit or loss)
3.​ a statement of changes in equity for the period
4.​ a statement of cash flows for the period
5.​ notes, comprising a summary of significant accounting policies and other explanatory
notes
6.​ comparative information prescribed by the standard
-​ NOTE: When an entity applies an accounting policy retrospectively or makes a
retrospective restatement of items in its financial statements, or when it
 reclassifies items in its financial statements, it must also present a statement of
financial position as at the beginning of the earliest comparative period

General features of financial statements

1.​ Fair presentation and compliance with PFRSs
-​ “Fair presentation” implies that the financial statements “present fairly” (or
alternatively, in some jurisdictions [countries], present a “true and fair” view) of
the financial position, financial performance, and cash flows of an entity
-​ Faithfully representing the effects of transactions.
-​ Proper selection and application of accounting policies.
-​ Proper presentation of information and provision of additional disclosures.
-​ Inappropriate accounting policies cannot be rectified by mere disclosure.
-​ Requires an entity to make an explicit and unreserved statement of such
compliance in the notes.
-​ PAS 1 permits a departure from a PFRS requirement if the relevant regulatory
framework requires or allows such departure. The entity shall disclose the
following:
a.​ that management has concluded that the financial statements present
fairly the entity’s financial position, financial performance and cash flows
b.​ that it has complied with applicable IFRSs, except that it has departed
from a particular requirement to achieve a fair presentation
c.​ the title of the IFRS from which the entity has departed, the nature of the
departure, including the treatment that the IFRS would require, the reason
why that treatment would be so misleading in the circumstances
d.​ for each period presented, the financial effect of the departure on each
item in the financial statements that would have been reported in
complying with the requirement

2.​ Going Concern

-​ Financial statements are normally prepared on a going concern basis unless the
entity has an intention to liquidate or has no other alternative but to do so.
-​ If there are material uncertainties, it shall be disclosed.
-​ If the entity is not a going concern, its financial statements shall be prepared
using another basis.
-​ In making the assessment about the going concern assumption, management
takes into account all available information about the future, which is at least 12
months from the balance sheet date

3.​ Accrual Basis of accounting

-​ All shall be prepared using accrual basis except for the statement of cash flows.

4.​ Materiality and aggregation

-​ Each material class of similar items is presented separately.
-​ A class of similar items is called a “line item”.
-​ Dissimilar items are presented separately unless they are immaterial.
-​ Individually immaterial items are aggregated with other items.
-​ The Standards do not provide a quantitative or qualitative threshold in
determining materiality, it is a matter of professional judgment.
5.​ Offsetting
-​ Assets and liabilities or income and expenses are presented separately and are
not offset, unless required by a PFRS.
-​ Offsetting is permitted when it reflects the substance of the transaction.
-​ Measuring assets net of valuation allowances is not offsetting.

6.​ Frequency of reporting

-​ FS are prepared at least annually.
-​ If an entity changes its reporting period, it shall disclose the following:
a.​ Period covered by the FS;
b.​ Reason for using a longer or shorter period; and
c.​ The fact that amounts presented in the FS are not entirely comparable.

7.​ Comparative information

-​ PAS 1 requires an entity to present comparative information in respect of the
preceding period for all amounts reported in the current period’s FS, unless
another PFRS requires otherwise.
-​ An entity presents at least 2 of each of the statements and related notes.
-​ PAS 1 permits entities to provide comparative information in addition to the
minimum requirement.
-​ In case there is a change in the presentation or classification of items in the
financial statements, the comparative information needs to be appropriately
reclassified, unless it is impracticable to do so.
-​ When an entity changes the end of its reporting period and presents financial
statements for a period longer or shorter than one (1) year, it shall disclose the
following:
a.​ the period covered by the financial statements
b.​ the reason for using a longer or shorter period
c.​ the fact that amounts presented are not entirely comparable
-​ An entity shall present a third statement of financial position as at the beginning
of the preceding period in addition to the minimum comparative financial
statements required if:
(a) it applies an accounting policy retrospectively, makes a retrospective
restatement of items in its financial statements or reclassifies items in its financial
statements; and
b) the retrospective application, retrospective restatement or the
reclassification has a material effect on the information in the statement of
financial position at the beginning of the preceding period.
-​ In the circumstances described in paragraph 40A, an entity shall present three
statements of financial position as at:
(a) the end of the current period;
(b) the end of the preceding period; and
(c) the beginning of the preceding period.
-​ If an entity changes the presentation or classification of items in its financial
statements, it shall reclassify comparative amounts unless reclassification is
impracticable. When an entity reclassifies comparative amounts, it shall disclose
(including as at the beginning of the preceding period):
a.​ the nature of the reclassification
b.​ the amount of each item or class of items that is reclassified
c.​ the reason for the reclassification
 -​ When it is impracticable to reclassify comparative amounts, an entity shall
disclose:
(a)​ the reason for not reclassifying the amounts, and
(b)​ the nature of the adjustments that would have been made if the amounts
had been reclassified.

8.​ Consistency of presentation

-​ The presentation and classification of items in the FS is retained from one period
to the next unless a change in presentation is required by a PFRS, or results in
information that is reliable and more relevant.
-​ A change in presentation requires the reclassification of items in the comparative
information.
-​ If the reclassification is material, the entity shall provide the additional statement
of financial position.
-​ If an entity changes the presentation or classification of items in its financial
statements, it shall reclassify comparative amounts unless reclassification is
impracticable.

Additional statement of financial position

-​ Included when certain instances occur or as follows:
a.​ The entity applies an accounting policy retrospectively, makes a retrospective
restatement of items in its financial statements, or reclassifies items in its
financial statements; and
b.​ It has a material effect on the information in the SFP at the beginning of the
preceding period.
-​ If any of the instances above occur, the entity shall present 3 SFPs:
1.​ Current year (As at December 31, 20x2)
2.​ Preceding year (As at December 31, 20x1)
3.​ Additional (As at January 1, 20x1)
-​ The additional SFP is dated as at the beginning of the preceding period even if the entity
presents comparative information for earlier periods.

Structure and content of financial statements

-​ Each FS shall be presented with equal prominence and shall be clearly identified and
distinguished from other information.
-​ The following information shall be displayed prominently and repeatedly:
a.​ Name of the reporting entity
b.​ Whether the statements are for the individual entity or for a group of entities
c.​ The date of the end of the reporting period or the period covered by the FS
d.​ The presentation currency
e.​ The level of rounding used
 -​ SFP is dated as at the end of the reporting period, while the other FS are dated for the
period they cover.

Management’s responsibility over financial statements

-​ Responsible for an entity’s financial statements.
a.​ Preparation and fair presentation of FS in accordance with PFRSs
b.​ Internal control over financial reporting
c.​ Going concern assessment
d.​ Oversight over the financial reporting process
e.​ Review and approval of FS
-​ The responsibilities are expressly stated in the “Statement of Management’s
Responsibility for Financial Statements,” signed by:
a.​ Chairman of the board
b.​ CEO
c.​ CFO

Statement of financial position

-​ Shows the entity’s financial condition as at a certain date.
-​ PAS 1 does not prescribe the order or format of presenting items in the SFP.
-​ An entity may modify the descriptions used and the sequence of their presentation to
suit the nature of the entity and its transactions.
-​ Current and noncurrent assets and liabilities should be classified separately on the face
of the statement of financial position except in circumstances when a liquidity-based
presentation provides more reliable and relevant information

Presentation
-​ PAS 1 requires the disclosure of items that are expected to be recovered or settled
within 12 months and beyond 12 months, after the reporting period.
a.​ A classified presentation shows distinctions between current and noncurrent
assets and liabilities.
-​ Shall be used except when an unclassified presentation provides
information that is reliable and more relevant.
-​ Highlights an entity’s working capital and facilitates the computation of
liquidity and solvency ratios.
b.​ An unclassified presentation (also called based on liquidity) shows no distinction
between current and noncurrent items.
 c.​ PAS 1 also permits a mixed presentation.
-​ Presenting some assets and liabilities using a current/noncurrent
classification and others in order of liquidity
-​ May be appropriate when the entity has diverse operations.

Current assets and liabilities

 -​ The operating cycle of an entity is the time between the acquisition of assets for
processing, and their realization in cash or cash equivalents.
-​ Normal operating cycle is assumed to be 12 months.
-​ DTA/DTL are always presented as noncurrent items, regardless of their expected dates
of reversal.

Refinancing agreement
-​ Long-term obligation maturing in 12 months:
a.​ current, even if a refinancing agreement to reschedule payments is completed
after the reporting period/before FS are issued.
b.​ noncurrent, if the entity has the right, at the end of the reporting period, to roll
over the obligation for at least 12 months after the reporting period under an
existing loan facility.
-​ Refinancing refers to the replacement of an existing debt with a new one but with
different terms.
-​ Refinancing entails a fee or penalty.
 -​ Refinancing where the debtor is under financial distress is called “troubled debt
restructuring”.
-​ Loan facility refers to a credit line.

Liabilities payable on demand

-​ Classified as current.
-​ A long-term obligation may become payable on demand as a result of a breach of a loan
provision.
a.​ Current, even if the lender agreed, after the reporting period/before the FS are
issued, not to demand payment. No unconditional right to defer settlement of the
liability for at least 12 months after the reporting period.
b.​ Noncurrent, if the lender provides the entity by the end of the reporting period
a grace period ending at least 12 months after the reporting period, within which
the entity can rectify the breach and during which the lender cannot demand
immediate payment.