CFAS

Module 1 - Development of Financial To facilitate efficient capital allocation, investors need

relevant information and a faithful representation of
Reporting Framework and Standard
that information to enable them to make comparisons
Setting Body across borders. A single, widely accepted set of
● Financial Accounting - the process that high-quality accounting standards is a necessity to
culminates in the preparation of financial ensure adequate comparability.
reports on the enterprise for use by both a. A single set of high-quality accounting
internal and external parties. standards established by a single standard
● Financial Statements - the principal means setting body.
through which a company communicates its b. Consistency in application and interpretation.
financial information to those outside it. c. Common disclosures.
- Note disclosures are an integral part of each d. Common high-quality auditing standards and
Financial Statement. practices.
e. A common approach to regulatory review and
Objective of Financial Reporting enforcement.
- to provide financial information about the f. Education and training of market participants.
reporting entity that is useful to present and g. Common delivery systems (e.g., extensible
potential equity investors, lenders, and other Business Reporting Language—XBRL).
creditors in making decisions. h. A common approach to corporate governance
I. General-purpose financial statements - and legal frameworks around the world.
those statements intended to meet the needs
of the users to provide the most useful Branches of Accounting
information to a wide variety of users. ● Financial Accounting - focused on the
recording of business transactions and the
II. Equity investors and creditors - the primary
periodic preparation of reports on financial
user groups and have the most critical and
position and results of operations.
immediate needs for information in the FS.
They need this information to assess a ● Management Accounting - a profession that
company’s ability to generate net cash involves partnering in management
inflows. decision-making, devising planning and
- to understand management’s ability to protect performance management systems, and
and enhance the assets of a company. providing expertise in financial reporting and
control to assist management in the
III. Entity perspective - means that the
formulation and implementation of
company is viewed as being separate and
organization’s strategy.
distinct from its investors.
- the assets of the company belong to the ● Cost Accounting - deals with the collection,
company. allocation, and control of the cost of
- proprietary perspective—financial reporting producing specific goods and services.
focused only on the needs of the
shareholders—not considered appropriate. ● Auditing - an independent examination that
IV. Decision-usefulness - means that ensures the fairness and reliability of the
information contained in the FS should help reports that management submits to users
investors assess the amounts, timing, and outside the business entity.
uncertainty of prospective cash inflows.
- the FS and related explanations must provide ● Government Accounting - concerned with
information about the company’s economic the identification of the sources and uses of
resources, the claims to those resources, and government funds.
the changes in them.
 ● Tax Accounting - includes preparation of tax
returns and the consideration of tax
consequences of proposed business
transactions. The international standard-setting structure is
composed of the following four organizations:
● Accounting Education - employs a. IFRS foundation (22 trustees) provides
accountants either as researchers, oversight to the IASB, IFRS Advisory Council,
professors, or reviewers. and IFRS Interpretations Committee.
- appoints members, reviews
Standard-Setting Organizations effectiveness, and helps in fundraising
International Accounting Standards Board (IASB) efforts for these organizations.
- main international standard setting organization, b. IASB (16 members) develops in the public
based in London, UK. interest, a single set of high-quality
- issues International Financial Reporting enforceable, and global international financial
Standards (IFRS) which are used by most reporting standards for general-purpose
foreign exchanges. financial statements.
c. IFRS Advisory Council (30 or more
The two organizations that have a role in members) provides advice and council to the
international standard-setting are the International IASB on major policies and technical issues.
Organization of Securities Commissions (IOSCO) d. IFRS Interpretations Committee (22
and the IASB. members) assists the IASB through the timely
a. the IOSCO does not set accounting identification, discussion, and resolution of
standards; it is dedicated to ensuring that the financial reporting issues within the
global markets can operate in an efficient and framework of IFRS.
effective basis. As part of the governance structure, a Monitoring
b. the member agencies have agreed to: Board was created. It establishes a link between
1. cooperate to promote high standards accounting standard-setters and those public
of regulation in order to maintain just, authorities that generally oversee them (e.g. IOSCO).
efficient, and sound markets. It also provides political legitimacy to the overall
2. exchange information on their organization.
respective experiences in order to
promote the development of domestic The IASB has a thorough, open, and due
markets. process in establishing financial accounting
3. unite their efforts to establish standards. It consists of the following elements:
standards and an effective a. an independent standard-setting board
surveillance of international securities overseen by geographically and
transactions. professionally diverse body of trustees.
4. provide mutual assistance to promote b. a thorough and systematic process for
the integrity of the markets by a developing standards.
rigorous application of the standards c. engagement with investors, regulators,
and by effective enforcement against business leaders, and the global accountancy
offenses. profession at every stage of the process.
IOSCO recommends that its members allow d. collaborative efforts with the worldwide
multinational issuers to use IFRS in cross-folder standard-setting community.
offerings and listings, as supplemented by
reconciliation, disclosure, and interpretation where To implement its due process, the IASB follows
necessary, to address outstanding substantive issues specific steps to develop a typical IFRS.
at a national or regional level. a. Topics are identified and placed on the
Board’s agenda.
 b. Research and analysis are conducted, and In addition, the previous international
preliminary views of pros and cons are standard-setting body, the IASC issued 41
issued. International Accounting Standards (IAS).
c. Public hearings are held on the proposed b. Conceptual Framework for Financial
standard. Reporting (CFFR): the IASB issued the
d. The Board evaluates research and public Framework for the Preparation and
responses and issues an exposure draft. Presentation of Financial Statements
e. The Board evaluates the responses and (referred to as Framework) with the intent to
changes the exposure draft, if necessary. create a conceptual framework that would
Then the final standard is issued. serve as a tool for solving existing and
emerging problems in a consistent manner.
Characteristics of IASB However, the Framework is not an IFRS and
- meant to reinforce the importance of an open, does not define standards for any
transparent, and independent due process. measurement or disclosure issue. Nothing in
a. Membership - the Board consists of 16 the Framework overrides any specific IFRS.
well-paid members, from different countries, c. International Financial Reporting
serving 5-year renewable terms. Interpretations: Interpretations are issued by
b. Autonomy - the IASB is not part of any the IFRS Interpretations Committee and are
professional organization. It is appointed by considered authoritative. 20 have been
and answerable only to the IFRS Foundation. issued to date.
c. Independence - full-time IASB members - These interpretations cover: newly identified
must sever all ties with their former employer. financial reporting issues not specifically dealt
Members are selected for their expertise in with in IFRS; and issues where unsatisfactory
standard-setting rather than to represent a or conflicting interpretations have developed,
given country. or seem likely to develop, in the absence of
d. Voting - 9 of 16 votes are needed to issue a authoritative guidance.
new IFRS.
The IASB has no regulatory mandate and no
IASB Due Process enforcement mechanism. It relies on other regulators
1. Topics are identified and placed on IASB’s to enforce the use of its standards. Any company
agenda. indicating that it prepares its financial statements in
2. An exposure draft, which is IASB’s main conformity with IFRS must use all of the standards
vehicle for consulting the public, is published and interpretations.
for public comment. The Hierarchy of Authoritative
3. All comments received on discussion Pronouncements
document and exposure draft are considered.
IFRS
4. After comments on the first exposure draft
have been affected, the IASB considers IAS
whether to publish its revised proposals for
another round of comments. Interpretations issued by either the IFRS
5. After the due process is completed, all Interpretation Committee or its predecessor, the
outstanding issues are resolved, and the IAS Interpretations Committee
IASB members have balloted in favor of The Conceptual Framework for Financial Reporting
publication, the IFRS is issued.
Pronouncements of other standard-setting bodies
The IASB issues three major types of that use a similar conceptual framework to develop
pronouncements: accounting standards (US GAAP)
a. International Financial Reporting
Standards (IFRS): Has issued 13 standards. Accounting Standards in the Philippines
 - November 18, 1891, the Philippine Institute of Accountancy Act of 2004, FRSC shall be the
Certified Public Accountants (PICPA) created new accounting standard-setting body.
the Accounting Standards Council (ASC). - Shall be composed of fifteen members with a
- to establish and improve accounting Chairman, who had been or presently a
standards that will be generally senior accounting practitioner in any of the
accepted in the Philippines. scope of accounting practice and fourteen
representatives from the following:
- The Council received the support of the - one each from the BOA, SEC, BSP,
following: BIR, COA, and a major organization
- the Securities and Exchange composed of preparers and users of
Commission (SEC) and the Central financial statements
Bank of the Philippines (CB) - - two representatives each from the
regulatory agencies where the accredited national professional
financial statements are filed; organization of CPAs in public
- the Professional Regulation practice, commerce and industry,
Commission (PRC) through the Board education/academe and government.
of Accountancy - which supervises IAS to IFRS
CPAs and auditors; and IASC to IASB
- the Financial Executives Institute of
the Philippines (FINEX) - which is the
largest organization of financial
executives who are responsible for the Module 2 - Conceptual Framework for
preparation of the FS. Financial Reporting
- Composed of eight (8) members - four from ● Conceptual Framework - defined as a
PICPA including the designated Chairman; system of ideas and objectives that lead to
and one each from the SEC, CB, PRC, and the creation of a consistent set of rules and
FINEX. standards.
- The standards would generally be based on In accounting, the rule and standards set the nature,
the following: existing practices in Philippines, function and limits of financial accounting and
research or studies by the council; locally or financial statements.
internationally available literature on the topic; - The IASB issued the revised CFFR, a
and statements, recommendations, studies or comprehensive set of concepts for financial
standards issued by other standard-setting reporting, in March 2018.
bodies such as the IASB and the Financial
Accounting Standards Board (FASB). Status and Purpose of the Conceptual
- The statements and interpretations issued by Framework
the Council represented represent GAAP in a. assist the IASB to develop IFRS that are
the Philippines. based on consistent concepts;
- Accounting principles become b. assist preparers to develop consistent
generally accepted if they have accounting policies when no Standard applies
substantial authoritative support from to a particular transaction or other event, or
the relevant parties: the preparers and when a Standard allows a choice of
users, auditors and regulatory accounting policy; and
agencies. c. assist all parties to understand and interpret
the Standards.
Financial Reporting Standards Council (FRSC) The Conceptual Framework is not a Standard.
- When created per Section 9(A) of the Rules
and Regulations Implementing Republic Act Objective, usefulness, and limitations of
No. 9298 otherwise known as the Philippine general-purpose financial reporting
 - forms the foundation of the Conceptual financial reports are directed. Financial reports are
Framework. based on estimates, judgments, and models rather
- other aspects of the Conceptual than exact depictions. The Conceptual Framework
Framework—the qualitative characteristics of, establishes the concepts that underlie those
and the cost constraint on, useful financial estimates, judgments, and models. The concepts are
information, a reporting entity concept, the goal towards which the Board and preparers of
elements of financial statements, recognition financial reports strive.
and derecognition, measurement,
presentation, and disclosure—flow logically
from the objective. Economic resources and claims
- to provide financial information about the - Information about the nature and amounts of
reporting entity that is useful to existing and a reporting entity’s economic resources and
potential investors, lenders and other claims can help users to identify the reporting
creditors in making decisions relating to entity’s financial strengths and weaknesses.
providing resources to the entity, it involves: - The information can help users to assess the
- buying, selling or holding equity and reporting entity’s liquidity and solvency, its
debt instruments; needs for additional financing and how
- providing or settling loans and other successful it is likely to be in obtaining that
forms of credit; or financing.
- exercising rights to vote on, or - It can also help users to assess
otherwise influence, management’s management’s stewardship of the entity’s
actions that affect the use of the economic resources. And how future cash
entity’s economic resources. flows will be distributed among those with a
The decisions described depend on the returns that claim against the reporting entity.
existing and potential investors, lenders and other
creditors expect. Changes in economic resources and claims
- Result from that entity’s financial performance
Investors’, lenders’ and other creditors’ expectations and from other events or transactions such as
about returns depend on their assessment of the issuing debt or equity instruments.
amount, timing and uncertainty of (the prospects for) - Users need to identify these changes to
future net cash inflows to the entity and on their properly assess future net cash inflows to the
assessment of management’s stewardship of the reporting entity and management’s
entity’s economic resources. Existing and potential stewardship of the entity’s economic
investors, lenders and other creditors need resources.
information to help them make those assessments.
They need information about: Financial performance reflected by accrual
a. the economic resources of the entity, claims accounting
against the entity and changes in those - provides a better basis for assessing the
resources and claims; and entity’s past and future performance than
b. how efficiently and effectively the entity’s information solely about cash receipts and
management and governing board have payments during that period.
discharged their responsibilities to use the
entity’s economic resources. Qualitative Characteristics of Useful Financial
Many existing and potential investors, lenders and Information
other creditors cannot require reporting entities to ● Financial reports - provide information about
provide information directly to them and must rely on the reporting entity’s economic resources,
general purpose financial reports for much of the claims against the reporting entity and the
financial information they need. Consequently, they effects of transactions and other events and
are the primary users to whom general purpose
 conditions that change those resources and
claims. The Cost Constraint on Useful Financial
- some include explanatory material about Reporting
management’s expectations and strategies - cost is a pervasive constraint on the
for the reporting entity. information that financial reporting can
Fundamental Qualitative Characteristics provide.
1. Relevance - if it has predictive value, - reporting financial information imposes costs,
confirmatory value or both, financial those costs should be justified by the benefits
information can make a difference in of reporting that information.
decisions.
2. Faithful representation - must not only
represent relevant phenomena, but it must Financial Statements
also faithfully represent the substance of the - provide information about economic
phenomena that it purports to represent. resources of the reporting entity, claims
- should be complete, neutral, and free from against the entity, and changes in those
error to be a perfectly faithful representation. resources and claims, that meet the
- if the substance of an economic phenomenon definitions of the elements of financial
and its legal form are not the same, then it statements.
would not faithfully represent the economic
phenomenon. Reporting Period
Financial Statements are prepared for a
Enhancing Qualitative Characteristics specific period of time and provide information about:
The following below are qualitative a. assets and liabilities—including unrecognized
characteristics that enhance the usefulness of assets and liabilities—and equity that existed
information that both is relevant and provides a at the end of the reporting period, or during
faithful representation of what it purports to the reporting period; and
represent. b. income and expenses for the reporting
1. Comparability - users’ decisions involve period.
choosing between alternatives. To help users of financial statements identify and
- enables users to identify and understand assess changes and trends, it also provide
similarities in, and differences among, items. comparative information.
- requires at least two items.
2. Verifiability - helps assure users that Going-concern Assumption
information faithfully represents the economic - the assumption that the reporting entity is a
phenomena it purports to represent. going concern and will continue in operation
- means that different knowledgeable and for the foreseeable future.
independent observers could reach a
consensus. Elements of Financial Statements
3. Timeliness - means having information ● Asset - a present economic resource
available to decision-makers in time to be controlled by the entity as a result of past
capable of influencing their decisions. events.
- the older the information, the less useful it is - Economic resource is a right that has the
but some information may continue to be potential to produce economic benefit.
timely as users may need to identify and Discusses three aspects of those definitions:
assess trends. a. right;
4. Understandability - classifying, b. potential to produce economic
characterizing, and presenting information benefits; and
clearly and concisely makes it c. control.
understandable.
 ● Liability - a claim, a present obligation of the - involves depicting the item in one of those
entity to transfer economic resource as a statements—either alone or in aggregation
result of past events. Three criteria must be with other items.
all be satisfied: ● Carrying amount - the amount at which an
a. the entity has an obligation; asset, a liability or equity is recognized in the
b. the obligation is to transfer an statement of financial position.
economic resource; and
c. the obligation is a present obligation Recognition links the elements; the SFP and the SCI
that exists as a result of past events. as follows:
a. in the SFP at the beginning and end of the
● Equity - the residual interest in the assets of reporting period, total assets – total liabilities
the entity after deducting all its liabilities. = total equity; and
- they are claims against the entity that do not b. recognized changes in equity during the
meet the definition of a liability. Such claims reporting period comprise:
may be established by contract, legislation or i. income – expenses recognized in the SCI;
similar means: plus
a. shares of various types, issued by the ii. contributions from holders of equity claims
entity; and – distributions to holders of equity claims
b. some obligations of the entity to issue
another equity claim. The statements are linked because the recognition of
● Income - increase in assets or decrease in one item (or a change in its carrying amount)
liabilities that result in increase in equity, other requires the recognition or derecognition of one or
than those relating to contributions from more other items (or changes in the carrying amount
holders of equity claims. of one or more other items).
- changes in economic resources and claims a. the recognition of income occurs at the same
reflecting financial performance. time as:
● Expenses - decrease in assets or increase in i. the initial recognition of an asset, or an
liabilities that result in decrease in equity, increase in the carrying amount of an asset;
other than those relating to distributions to or
holders of equity claims. ii. the derecognition of a liability, or a
Income and expenses are the elements that relate to decrease in the carrying amount of a liability.
an entity’s financial performance. Information about b. the recognition of expenses occurs at the
them is just as important as information about assets same time as:
and liabilities. i. the initial recognition of a liability, or an
increase in the carrying amount of a liability;
Other changes in economic resources and or
claims: ii. the derecognition of an asset, or a
- contributions from holders of equity claims decrease in the carrying amount of an asset.
and distributions to them.
- exchanges of assets or liabilities that do not Recognition Criteria
result in increases or decreases in equity. Only items that meet the definition of ALCRE
are recognized. However, not all items that meet the
The Recognition Process definition of one of those elements are recognized.
● Recognition - the process of capturing for Not recognizing an item that meets the definition will
inclusion in the statement of financial position make the statements less complete. An element is
or financial performance. recognized only if it provides users of financial
statements with useful information.

Derecognition
 - is the removal of all or part of a recognized Presentation and Disclosure as Communication
asset or liability from an entity’s SFP. Tools
- normally occurs when that item no longer A reporting entity communicates information
meets the definition of an asset or of a about its ALCRE by presenting and disclosing
liability: information in its FS.
a. for assets, derecognition normally Effective communication of information in FS
occurs when the entity loses control of makes that information more relevant and contributes
all or part of the recognized asset; and to faithful representation of an entity’s ALCRE. It also
b. for liabilities, derecognition normally enhances the understandability and comparability of
occurs when the entity no longer has a information.
present obligation for all or part of the It also constraints decisions about
recognized liability. presentation and disclosure, hence, it is important to
consider whether the benefits provided to users of
Measurement Bases FS by presenting or disclosing particular information
- is an identified feature—for example, are likely to justify the costs of providing and using
historical cost, fair value, or fulfilment that information.
value—of an item being measured
Elements recognized in FS are quantified in
monetary terms. Classification
- the sorting of ALCRE based on shared
Historical Cost characteristics for presentation and disclosure
- measures provided monetary information purposes. Such characteristics include—but
about assets, liabilities, and related income are not limited to—the nature of the item, its
and expenses, using information derived. role (or function) within the business activities
- does not reflect changes in values, except to conducted by the entity, and how it is
the extent that those changes relate to measured.
impairment of an asset or a liability becoming
onerous. Classification of Assets and Liabilities
It may sometimes be appropriate to separate
Current Value an asset or liability into components that have
- measures provided monetary information different characteristics and to classify those
about assets, liabilities and related income components separately. It would be appropriate when
and expenses, using information updated to it would enhance the usefulness of the resulting
reflect conditions at the measurement date. financial information. For example, current and
- the current value reflect changes and is not non-current components.
derived. Current value measurement bases
include: Offsetting
a. fair value; - occurs when an entity recognizes and
b. value in use and fulfillment value for liabilities; measures both an asset and liability as
and separate units of account, but groups them
c. current cost. into a single net amount in the SFP.
- classifies dissimilar items together and
Measurement of Equity therefore is generally not appropriate.
- the total carrying amount of equity (total
equity) is not measured directly. It equals the Classification of Equity
total of the carrying amounts of all recognized To provide useful information, it may be
assets less the total of the carrying amounts necessary to classify equity claims separately if
of all recognized liabilities. those equity claims have different characteristics.
Classification of Income and Expenses - only the part of the increase in the prices of
Classification is applied to: assets that exceeds the increase in the
a. income and expenses resulting from the unit general level of prices is regarded as profit,
of account selected for an asset or liability; or the rest is treated as a capital maintenance
b. components of such income and expenses if adjustment, hence, a part of equity.
those components have different b. Physical Capital Maintenance - a profit is
characteristics and are identified separately. earned only if the physical productive capacity
For example, a change in the current value of of the entity at the end of the period exceeds
an asset can include the effects of value the physical productive capacity at the
changes and the accrual of interest. beginning of the period, after excluding any
distributions to, and contributions from,
Profit or Loss and Other Comprehensive Income owners during the period.
Income and expenses are classified and - requires the adoption of the current cost basis
included either: of measurement.
a. in the statement of profit or loss; or - All price changes affecting the assets and
b. outside the statement of profit or loss, in other liabilities of the entity are viewed as changes
comprehensive income. in the measurement of the physical productive
The statement of profit or loss is the primary source capacity of the entity; hence, they are treated
of information about an entity’s financial performance as capital maintenance adjustments that are
for the reporting period. part of equity and not as profit.
The concept of capital maintenance is concerned
Aggregation with how an entity defines the capital that it seeks to
- the adding together of ALCRE that have maintain. It provides the linkage between the
shared characteristics and are included in the concepts of capital and the concepts of profit; only
same classification. inflows of assets in excess of amounts needed to
- makes information more useful by maintain capital may be regarded as profit and
summarizing a large volume of detail. therefore as a return on capital.

Concepts of Capital Module 3 - Review of Accounting Process

- a financial concept of capital is adopted by ● Accounting Cycle - AKA accounting process
most entities in preparing their FS. Capital is - A series of steps to complete during an
synonymous with the net assets or equity of accounting period or reporting period.
the entity. - End Results: Financial Statements; SFP, SCI,
- under a physical concept of capital, capital is SCE, SCF, Notes
regarded as the productive capacity of the ● Financial Statements - prepared on a
entity. monthly, quarterly, and/or annually depending
on the purpose of reporting
Concepts of Capital Maintenance and the - Main source of financial information for the
Determination of Profit most decisions by the management.
a. Financial Capital Maintenance - a profit is - Places such a high emphasis on accuracy,
earned only if the financial amount of the net reliability, and relevance.
assets at the end of the period exceeds the - Prepared to give users outside of the entity
financial amount of net assets at the (e.g. investors and creditors) more
beginning of the period, after excluding any information about the entity’s financial
distributions to and contributions from. performance.
- can be measured in either nominal monetary
units or units of constant purchasing power. PHASES OF ACCOUNTING PROCESS
- does not require the use of a basis of 1. Transactions are documented
measurement.
 ● The cycle starts with a business event or journalizing, posting entries is done
transactions. throughout the accounting period.
● Verifiability of transactions is supported with
business documents: sales receipts, sales 4. Trial Balance is prepared
invoice, purchase invoice, check vouchers. ● Determined the equality of debits and credits
in the ledger but does not give assurance of
2. Analyze the transactions, recording in the error-free during journalizing and posting
journal process.
● Journals are often called the book of original ● Accounts are usually listed in order of their
entry. It is a record of transactions for a account number. In order, starting with the
specific account in chronological order. assets, liabilities, equity accounts and ending
● For the transactions to be recorded (ALCRE), with income and expense accounts.
it must meet the criteria of recognition
identified in the framework of accounting: 5. Adjusting entries are journalized and posted
a. There is a future economic benefit ● Made at the end of accounting period before
associated with the item that flows to the the financial statements are prepared. Most
entity. used in accordance with the matching
b. There is a monetary amount at which the principle - to match revenue and expenses in
elements are to be recognized and reported. the period for which they earned or incurred.
● Double entry accounting system - requires ● An entity should account for the tax
every business transactions or event to be consequences of each transaction,
recorded in at least two accounts. adjustments for income taxes must be made.
● General journal - often used by small entities Recording AJE: (1) Determine current
with only few transactions and also called account balance; (2) Determine what current
two-column journals. balance should be; and (3) Record adjusting
● Special journal - used in addition to general entries. These adjustments are then made in
journal that are used to help divide and journals > gl > worksheet (optional).
organize business transactions: CRJ, CDJ, ● Affects the real account and nominal account.
PJ, SJ. The three different types of AJE are as
- Facilitates the posting process and only the follows:
total are entered in the ledger. 1. Prepayments - Prepaid expenses are goods
or services used in the operations of the entity
3. Post journal entries to applicable ledger that have been paid for but have not been
accounts consumed at the end of accounting period.
● Ledger is a complete listing of all the - Unearned revenues are income received from
accounts used. The debits are always customers, but no goods or services have yet
transferred to the left side and the credits are been provided to them.
always transferred to the right side of the
ledger. 2. Accruals - Accrued expenses are expenses
● Pencil footing - since there are several incurred but are not yet paid at the end of the
transactions, there are usually several fiscal period.
numbers in the debit and credit columns, the - Accrued revenues are revenues earned but
account balances of each account are not yet received at the end of the period.
calculated at the bottom and get its total. 3. Non-cash expenses (Asset Depreciation and
● Subsidiary ledger - for accounts with various amortization, Impairment of Asset) - expenses
details. like depreciation, amortization, and depletion.
● Manual accounting systems are usually - The recognition of depreciation for PPE and
posted weekly or monthly. Just like amortization of IA applies the recognition
principle of systematic and rational allocation
 - Depreciation - is the systematic allocation of ● Post-closing TB - is a list of all accounts and
expense on the life or usefulness of the asset. their balances after the closing entries have
Credit Accumulated Depreciation. been journalized and posted.
- Amortization - is the systematic and rational ● Purpose: To verify that all temporary accounts
allocation of cost of the intangible assets over have been closed.
its economic benefits. Credit Accumulated
Amortization. 10. Reversing entries are journalized and posted
- Impairment of Asset - accounts such as loans ● Reversing entries - are journal entries made
and receivables should be appropriately at the beginning of the next accounting period
reported at NRV. Credit Allowance for to reverse or cancel out AJE. This is the last
Uncollectible Accounts. step in the accounting cycle.
- Periodic Inventory (Physical System) - ● Made because previous year accruals and
adjustment is necessary to set-up the ending prepayments will be paid off or used during
inventory. the new accounting period.
- Perpetual Inventory - does not require further ● Not all adjusting entries need to be reversed,
adjusting entry. only these type of adjustments as follows:
- For accruals: Income & Expense
6. Preparation of Adjusted Trial Balance - For deferrals: Prepaid expense using
● Adjusted TB is a listing of all company expense method & Unearned income
accounts that will appear on the financial using income method.
statements after year-end AJE.
● Worksheet - is essentially a spreadsheet that
tracks each step of the accounting cycle.
Typically have five sets of columns that start
with the unadjusted TB and end with FS. Module 4 - Presentation of Financial
Basically a spreadsheet that shows all of the Statements
major steps in the accounting cycle side by ● Financial Statements - are a structured
side. representation of the financial position and
7. Preparation of Financial Statements financial performance of an entity.
● The financial statements are the end results - General-purpose financial statements are
of the accounting process. Includes SFP, SCI, those intended to meet the needs of external
SCE, SCF, and Notes comprising significant users.
accounting policies and other explanatory - IAS 1 sets out requirements for the
information. presentation of FS. It requires an entity to
present a complete set of FS at least
8. Preparation of closing entries annually.
● Each account that affects the profit or loss for
the period is to be debited or credited that will Objective of the Financial Statements
amount to zero balance, such account is the ● To provide information about the financial
Income Summary account. position, financial performance and cash
● The Income Summary account and the flows of an entity that is useful to a wide
Dividends account are finally transferred to range of users in making economic decisions.
Retained Earnings account. At the end of the ● To show the results of the management’s
year, only permanent accounts are carried for stewardship of the resources entrusted to it.
the next accounting period. ● To meet the objectives, FS provide
information about an entity’s:
9. Preparation of Post-Closing Trial Balance
- assets;
- liabilities;
 - equity; ● An entity considers the liability as current
- income and expenses, including gains even if: the original term was for a period > 12
and losses; months; and the intention is supported by an
- contributions by and distributions to agreement to refinance or reschedule the
owners in their capacity as owners; payments is completed before the FS are
and authorized for issue.
- cash flows. ● If there is a breach, even if the lender has
● This information assists users of FS in agreed to not demand payment, the liability is
predicting the entity’s future cash flows, their payable on demand.
timing, and certainty. ● E.g. Trade and other payables, current
provisions, short-term borrowings, current
Components of Financial Statements portion of long-term debt, and current tax
1. Statement of Financial Position liability.
● Normal Operating Cycle - the time between
the acquisition of assets for processing and Non-current Liabilities
their realization cash or cash equivalents. ● Long term notes payable and bonds payable
- When the entity’s normal operating that are due beyond 12 months from the end
cycle is not clearly identifiable, its of the reporting period.
duration is assumed to be twelve ● Long-term notes payable that are due within
months. twelve months after the reporting period, but
Current Assets which terms is extended on a long-term basis
● It expects to realize the asset, or intends to and negotiation has been completed before
sell or consume it, in its normal operating the end of the reporting period.
cycle. ● If the entity has the discretion to refinance or
● For the purpose of trading. to roll over the obligation for > 12 months
● It expects to realize the asset within twelve after the end of the reporting period, even if it
months after the reporting period. would be due within a shorter period.
● It is cash or cash equivalent unless the asset Equity
is restricted from being exchanged or used to ● The residual interest in the assets of the entity
settle a liability for > 12 months. after deducing all liabilities.
● E.g. cash and cash equivalents, trade and ● Net asset, or total assets - total liabilities.
other receivables, financial asset at FV,
inventories, and prepaid expenses. Sole Proprietorship Owner’s equity

Non-Current Assets Partnership Partner’s equity

● E.g PPE, Intangible Assets, Investment
Property, and Financial assets that are not Corporation Stockholders’
equity/shareholders’ equity
expected to be realized in cash in the entity’s
normal operating cycle or within twelve
months after the reporting period. Forms of the SFP
● Account form - looks like T-account, where
Current Liabilities assets are listed on the left side while
● It expects to settle the liability in its normal liabilities and equity are on the right side.
operating cycle. ● Report form - presents the elements in a
● It is due to be settled within twelve months continuous format.
after the reporting period. ● Financial position form - emphasizes working
● The entity does not have an unconditional capital of the firm. Net assets = Equity.
right to defer settlement of the liability for at
least twelve months after the reporting period. 2. Statement of Comprehensive Income
 ● Comprehensive income - is the change of - Change in FV arising from credit risk for
equity during a period other than changes financial liabilities measured at FV through
resulting from transactions with owners. profit/loss.
Includes profit or loss and other
comprehensive income. Presentation of Expenses:
● An entity shall present all items of income and ● Nature of expense method - expenses are
expense recognized in a period through: aggregated in the SCI according to their
single SCI; or two statements, a statement nature and are not reallocated among various
displaying components of profit or loss functions within the entity.
(separate income statement) and a second ● Function of expense or COS method -
statement beginning with profit or loss and classifies expenses according to their function
displaying components of OCI (SCI). as part of cost of sales or, for example, the
● Profit and Loss - is the total income less cost of distribution or administrative activities.
expenses excluding the components of OCI. - Shall disclose additional information on the
It shall include: nature of expenses, including depreciation,
- Revenue, interest revenue is presented amortization, and employee benefit
separately using effective interest method and expenses.
insurance revenue. - They shall not present any items as
- Gains and losses arising from derecognition extraordinary.
of financial assets measured at amortized 3. Statement of Changes in Equity
cost. ● The entity shall present the amount of
- Insurance service expenses and insurance dividends, either in the SCE or the notes,
finance income or expenses from contracts. recognized as distributions to owners during
- Reinsurance contracts (finance) income or the period, and the related amount per share.
expenses. ● The entity shall present SCE showing the:
- Finance costs. 1. Total comprehensive income for the
- Impairment losses. period, showing separately the total
- Share of the profit/loss of associated and amounts attributable to owners of the
joining ventures using equity method. parent and to non‑controlling interests.
- If a financial asset is reclassified, any 2. The effects of retrospective
gain/loss from amortized cost – FV. application/restatement recognized for
- Tax expense. each component of equity.
- A single amount for the total of discontinued 3. For each equity component, a
operations. reconciliation between the carrying
amount at the beginning and end of
Two types of OCI items: the period, separately disclosing
1. Profit/Loss - unrealized gain/loss on debt changes resulting from: profit or loss;
investments measured at FV through OCI. OCI; and transactions with owners in
- Unrealized gain/loss from derivative contracts their capacity as owners.
designated as cash flow hedge.
- Translation gains and losses of foreign 4. Statement of Cash Flows
operations. ● Provides users of FS with a basis to assess
2. Retained Earnings - unrealized gain or loss the ability of the entity to generate cash and
on equity investments measured at FV cash equivalents and the needs of the entity
through OCI. to utilize those cash flows
- Change in Revaluation Surplus. Classification:
- Remeasurement gains/losses for defined 1. Operating Activities - primarily
benefit plans. derived from the principal
 revenue-producting activities of the other short and long-term borrowings;
entity. cash repayments of amounts borrowed;
- Cash flows arising from the purchase and cash payments by a lessee for the
and sale of dealing or trading reduction of the outstanding liability.
securities and loans and cash
advances and loans made by financial Interest and Dividends
institutions are related to the - Cash flows from interest and dividends
main-revenue producing activity. received and paid shall each be disclosed
Examples: cash receipts from the sale
separately. Each shall be classified in a
of goods and services rendered; cash consistent manner from period to period.
receipts from royalties, fees,
commissions and other revenue; cash
payments to suppliers for goods and Received Paid
services; cash payments to and on
behalf of employees; cash payments to Interest Operating (or Operating (or
refunds on income taxes unless Investing) Financing)
identifies w/ financing & investing
activities; and cash receipts and Dividends Operating (or Financing (or
payments from contracts held for Investing) Operating)
dealing/trading purposes.

Taxes on Income
2. Investing Activities - cash flows
- Cash flows arising from taxes on income shall
derived from the acquisition and
be separately disclosed and shall be
disposal of long-term assets and other
classified as a part of operating activities.
investment not included in cash
equivalents.
Presentation of Cash Flows
- Only expenditures that result in a
An entity shall report cash flows from
recognized asset in SFP are eligible.
operating activities using either:
Examples: cash payments and receipts ● Direct method - whereby major
to acquire/sale PPE, intangibles, and classes of gross cash receipts and
other long-term assets which include
those relating to capitalized payments are disclosed.
development costs and self-constructed - Investing and financing activities are
property; cash payments and receipts presented using this method.
to acquire/sale equity or debt - Info can be obtained through
instruments of other entities and
interests in joint ventures; cash
accounting records of the entity; or by
advances and loans made to other adjusting sales, CoS, and other items
parties; cash receipts from the in SCI (inv, operating receivables and
repayment of advances and loans; cash payables, other non-cash items, and
payments and receipts for/from future
contracts, forward contracts, option other items that affect investing or
contracts, and swap contracts. financing cash flows).
● Indirect method - whereby profit or
3. Financing Activities - include cash loss is adjusted for the effects of
transactions affecting non-trade transactions of a non-cash nature, any
liabilities and shareholder’s equity. deferrals or accruals of past/future
operating cash receipts or payments,
Examples: cash proceeds from issuing and items of income or expense
shares or other equity instruments;
cash payments to owners to acquire or associated with investing or financing
redeem the entity’s shares; cash cash flows.
proceeds from issuing debentures, - The Net Cash Flow from Operating
loans, notes, bonds, mortgages and Activities is determined by adjusting
 profit or loss for the effects of: Disclosure of judgments - an entity must disclose, in
changes during the period in inv and summary, the judgments, apart from those involving
operating receivables and payables; estimations that management has made in the
non-cash items such as depreciation, process of applying the entity’s accounting policies
provisions, deferred taxes, unrealized that have the most significant effect on the amounts
foreign currency gains and losses, and recognized in the FS.
undistributed profits of associates; and
all other items that affect investing or Hierarchy in the Formation of Accounting
financing cash flows. Policies
In the absence of an IFRS that specifically
Net Income L, E, Contra-Assets = + Assets = -
applies to a transaction, other event or condition,
management shall use its judgment in developing an
+ Depreciation, amortization, and other accounting policy that results in info that is:
noncash expenses - relevant to the economic decision-making
- All increases in trade noncash CA needs of users; and
- reliable
+ All decreases in trade noncash CA - the FS represent faithfully the financial
position, performance, and cash flows;
+ All increases in trade CL
- reflect the economic substance of
- All decreases in trade CL transactions, other events and
conditions, not merely the legal form;
- Gain on disposal of property
- are neutral, free from bias;
+ Loss on disposal of property - are prudent; and
- are complete in all material respects.
5. Notes to the Financial Statements In making the judgment described above, the
● It must present information about the basis of management shall refer to the applicability of:
preparation of the FS and the specific (descending order)
accounting policies used. ● the requirements in IFRSs dealing with similar
● Disclose any info required by PFRSs that is and related issues;
not presented on the face of FS. ● the definitions, recognition criteria, and
● Provide additional info that is not presented measurement concepts for ALRE in the
on the face of FS that is deemed relevant to Conceptual Framework for Financial
an understanding of any of them. Reporting; and
Presentation of Notes ● they may also consider the most recent
- Statement of compliance with PFRSs. pronouncements of other standard-setting
- A summary of significant accounting policies bodies that use a similar CF, to the extent that
applied, including: the measurement basis these do not conflict with the sources above.
used in preparing the FS; and the other
accounting policies used that are relevant to General Features in the Presentation of FS
the understanding of the FS. 1. Fair presentation and compliance with
- Supporting info for items presented on the PFRS
face of FS in the order in which each - FS shall present fairly the financial position,
statement and each line item is presented. performance, and cash flows of an entity.
- Other disclosures, including: contingent - shall make an explicit and unreserved
liabilities and unrecognized contractual statement of such compliance in the notes.
commitments; and non-financial disclosures, - requires the faithful representation of the
such as the entity’s financial risk management effects of transactions, other events, and
objectives and policies. conditions in accordance with the recognition
criteria for ALRE. A fair presentation requires:
 - IAS 8 sets out a hierarchy of - An entity recognizes items as ALCRE when
authoritative guidance in the absence they satisfy the definitions and recognition
of IFRS that specifically applies to an criteria in Conceptual Framework.
item.
- to present info, including policies, that 4. Materiality and aggregation
provides relevant, reliable, - An entity shall present separately each
comparable, and understandable info. material class of similar items.
- to provide additional disclosure that - An entity shall present separately items of a
enable users to understand the impact dissimilar nature or function unless they are
of particular transactions on the immaterial.
entity’s financial position and - An item that is not sufficiently material to
performance warrant separate presentation in those
- cannot rectify inappropriate accounting statements may warrant separate
policies either by disclosure, by notes, or presentation in the notes. But if the resulting
explanatory material. disclosure is not material, an entity need not
- in extremely rare circumstances, compliance provide a specific disclosure even if required
with PFRS would be so misleading that it by PFRS.
would conflict with the objective of FS set out
in the Framework, the entity would be 5. Offsetting
required to depart from the PFRS with - An entity shall not offset ALRE, unless
detailed disclosure. required or permitted by an IFRS.
- They report separately both AL and RE.
2. Going concern Measuring assets net of valuation
- Defined as the accounting entity is viewed as allowances–for example, obsolescence
continuing in operation indefinitely in the allowances on inventories and doubtful debts
absence of evidence to the contrary. allowances on receivables–is not offsetting.
- An entity shall prepare FS on a going concern
basis unless management intends to liquidate 6. Frequency of reporting
the entity or to cease trading or has no - An entity shall present a complete set of FS
realistic alternative but to do so. (including comparative info) at least annually.
- An entity preparing PFRS FS is presumed to - When the entity changes the end of its
be going concern. reporting period and presents FS for a period
- When management is aware of material longer or shorter than one year, it shall
uncertainties related to events or conditions disclose, in addition to the period covered by
that may significant doubt the ability to the FS:
continue, they shall disclose those - the reason for using a longer or
uncertainties. shorter period; and
- When an entity does not prepare FS on a - the fact that amounts presented in the
going concern basis, it shall disclose the fact, FS are not entirely comparable.
together with the basis on which it prepared - Entities who report for a 52-week period does
the FS and the reason why the entity is not not preclude this practice.
regarded as a going concern.
7. Comparative information
3. Accrual Basis ● Minimum Comparative Information - except
- An entity shall prepare its FS, except for cash when IFRSs permit or require otherwise, an
flow information, using the accrual basis of entity shall present comparative info in
accounting. respect of the preceding period for all
amounts currently reported.
 - An entity shall present, as a minimum, ● Use of different measurement bases -
2 SFP, 2 SCI, 2 SCF, 2 SCE, and elements are quantified in monetary terms.
related notes. Consideration of the qualitative characteristics
- An entity shall include comparative of useful financial information and of the cost
info for narrative and descriptive info if constraint is likely to result in the selection of
it is relevant to understanding the different measurement bases for different
current period’s FS. ALRE.
● Additional Comparative Information - may ● Inflationary effects - Assets measured at
consist of one or more statements but need historical costs reflect the level of purchasing
not comprise a complete set of FS. E.g. an power when those assets are acquired at
entity may present a third statement of P/L different dates. The amounts reflected in FS
and other comprehensive income, however, are mixture of pesos with different levels of
they are not required to present a third SFP, purchasing power.
SCF, or SCE. The entity is required to ● Measurement uncertainty - the use of
present, in the notes to the FS, the reasonable estimates is essential. In some
comparative information related to that cases, the level of uncertainty involved in
additional statement of profit or loss and other estimating a measure of an asset or liability
comprehensive income. may be so high that it may be questionable
Third SFP is required: whether the estimate provides a sufficiently
- if it applies an accounting policy faithful representation of ALCRE.
retrospectively, makes a retrospective ● Now always comparable across
restatement of items or reclassifies items in companies - different companies may apply
FS; and different accounting policies and accounting
- if the retrospective application, restatement, periods. While it is disclosed in the FS, the
or reclassification has a material effect on the users can hardly adjust the reported figures in
info in the SFP at the beginning of next the FS for comparability. Any period may vary
period. due to seasonality effects.
Under these circumstances, the entity shall present ● Non-financial information is not reported -
three SFP as at: the end of the current period, the though the notes to FS provide description,
end of the preceding period; and the beginning of the the FS do not report the level of corporate
preceding period. governance of the company, the moral and
efficiency of company personnel or business
8. Consistency of presentation ethics, effect of the business to the
- An entity shall retain the presentation and environment or the company’s contribution to
classification of items in the FS from one the community.
accounting period to the next. Change is ● No predictive value - the FS report past
allowed under the following circumstances: events, but they do not provide any value that
- it is apparent, following a significant predict what will happen in the future.
change in the nature of the entity’s
operations or a review of its FS, that Function of the Securities and Exchange
another presentation or classification Commissions
would be more appropriate having The Commission shall have the powers and
regard to the the criteria of accounting functions provided by Securities Regulation Code,
policies in IAS 8; or PD No. 902-A.
- an IFRS requires a change in a. have jurisdiction and supervision over all
presentation. corp, partnerships or associations who are
the grantees of primary franchises or license;
Limitation of the Financial Statements b. formulate policies and recommendations on
issues concerning the securities market;
 c. approve, reject, suspend, revoke or require Reporting Entities Financial Reporting
amendments to registration statements, and Frameworks
registration and licensing applications;
d. regulate, investigate or supervise the Large and/or publicly Full PFRS/IFRS
accountable entities
activities of persons to ensure compliance;
e. supervise, monitor, suspend, or take over the Medium-sized entities PFRS for SMEs
activities of exchanges, clearing agencies, (PFRS/IFRS)
and other SROs;
Small entities PFRS for Small Entities
f. impose sanctions for the violation of laws and
the rules, regulations, and orders; Micro entities Income Tax Reporting
g. prepare, approve, amend or repeal rules,
regulations and orders, and issue opinions Large and/or publicly accountable entities
and provide guidance on and supervise ● those with total assets of more than P350
compliance with such rules, regulations and million or total liabilities of P250 million.
orders; ● holders of secondary licenses issued by
h. enlist the aid and support of and/or deputize regulatory agencies
any and all enforcement agencies of the Govt ● required to file FS under Part II of SRC Rule
in the implementation of its powers and 68
functions; ● in the process of filing their FS for the
i. issue cease and desist orders to prevent purpose of issuing any class of instrument in
fraud or injury to the investing public; a public market
j. punish for contempt of the Commission, both ● imbued with public interest as the SEC may
direct and indirect, in accordance with the consider in the future
pertinent provisions and penalties prescribed ● shall use the PFRS as their financial reporting
by the Rules of court; framework, however, a set of financial
k. compel the officers of any registered reporting framework other than full PFRS may
corporation or association to call meetings of be allowed by the Commission for certain
stockholders or members thereof under its sub-class (e.g. banks, insurance companies).
supervision;
l. issue subpoena duces tecum and summon Medium-sized entities
witnesses to appear in any proceedings of the ● total assets of more than P100 million to P350
Commission for the proper disposition of the million or total liabilities of more than P100
cases before it; million to P250 million.
m. suspend or revoke, after proper notice and ● not required to file financial statements
hearing the franchise upon any of the ● not in the process of filing their FS
grounds provided by law; and ● not holders of secondary licenses
n. exercise such other powers as may be ● shall use as their financial reporting
provided by law as well as those which may framework the PFRS for SMEs. They may
be implied from, or which are necessary or apply for full PFRS:
incidental to the carrying out of, to achieve - SME subsidiary of a foreign parent
the objectives and purposes of these laws. company reporting under full PFRS
The Commission shall retain jurisdiction over - subsidiary of a foreign parent
pending cases involving intra-corporate disputes company which will be moving
submitted for final resolution which should be towards IFRS pursuant to the foreign
resolved within one (1) year from the enactment of country’s published convergence plan
the Code. - either as a significant joint venture or
associate which is a part of a group
Philippine Financial Reporting Frameworks and that is reporting under the full PFRS
the Reporting Entities
 - has a subsidiary that is mandated to to be significant and continuing due to
report under full PFRS its long-term effect on company’s AL
- has a short term projection that shows - has been preparing financial
it will breach the quantitative statements using full PFRS or PFRS
thresholds set, the breach is expected for SMEs and has decided to liquidate
to be significant and continuing due to - such other cases that the Commission
its long-term effect on company’s AL may consider as valid exceptions
- has concrete plan to conduct an initial
public offering within the next two Micro entities
years ● total assets and liabilities are below P3 million
- has been preparing financial ● not required to file FS, not in the process of
statements using full PFRS and has filing their FS, and not holders of secondary
decided to liquidate licenses
- such other cases that the Commission ● have the option to use as their financial
may consider as valid exceptions reporting framework either the income tax
basis or PFRS for SEs, provided however,
Small entities that the FS shall at least consist of the
● total assets of between P3 million to P100 following: Statement of Management’s
million or total liabilities between P3 million to Responsibility, Auditor’s Report, SFP, SCI,
P100 million. If the entity is a parent company, and Notes to FS, all of which cover 2-year
the amount shall be based on the comparative periods.
consolidated figures ● when the entity breaches the prescribed
● not required to file FS, not in the process of threshold in terms of TA or TL, the Audited
filing their FS, and not holders of secondary Financial Statements of said entity shall be
licenses prepared in accordance with the higher
● shall use their financial reporting framework framework.
the PFRS for SEs. They may apply for full
PFRS or SMEs: Events After the Reporting Period
- subsidiary of a foreign parent - those events, favorable or unfavorable, that
company reporting under full PFRS or occur between the end of the reporting period
PFRS for SMEs and the date that the FS are authorized for
- subsidiary of a foreign parent issue.
company which will be moving
towards IFRS pursuant to the foreign Date of Authorization of the Financial Statements
country’s published convergence plan - this date is the date when management
- either as a significant joint venture or authorizes the FS for issue regardless of
associate which is a part of a group whether such authorization for issue is for
that is reporting under the full PFRS or further approval or for final issuance to users.
PFRS for SMEs Two Types of Events After the Reporting Period
- SE which is a branch office or regional 1. Adjusting events - those that provide
operating headquarter of a foreign evidence of conditions that existed at the end
company reporting under full PFRS or of the reporting period (requires adjustments
PFRS for SMEs of amounts).
- has a subsidiary that is mandated to 2. Non-adjusting events - those that are
report under full PFRS or PFRS for indicative of conditions that arose after the
SMEs reporting period (disclosure only).
- has a short-term projection that shows
it will breach the quantitative Disclosures
thresholds set, the breach is expected - date of authorization for issue
 - adjusting events - is a complete or condensed set of financial
- material non-adjusting events statements for a period shorter than a
financial year.
Going-concern Timely and reliable interim financial reporting
PAS 10 prohibits the preparation of financial improves the ability of stakeholders to understand an
statements on a going concern basis if the enterprise’s capacity to generate earnings and cash
management determines after the reporting period flows and its financial condition and liquidity.
either that it intends to liquidate the entity or to IAS 34 encourages publicly traded companies
cease trading, or that it has no realistic alternative to provide interim financial reports at least as of the
but to do so. end of the first half of their financial year and to make
their financial reports available no later than 60 days
after the interim period.
Non-preparation of interim reports or
non-compliance with IAS 34 does not necessarily
prevent the entity’s annual financial statements from
conforming to the IFRS.

Objective of IAS 34
- to prescribe the minimum content of an
interim financial report.
- to prescribe the recognition and measurement
in complete or condensed financial
statements in an interim period.

Minimum Components and Contents of an

Interim Financial Report
The entity applies IAS 1 if it opts to provide a
complete set of financial statements in its interim
financial report. The entity applies IAS 34 if it opts to
provide a condensed set of financial statements in its
interim financial report.
IAS 1 - Complete set of FS

● SFP
● Statement of P/L and OCI
● SCE
● SCF
● Notes Comparative Information
● Additional Statement
Module 5 - Interim Financial Reporting
Financial reporting is more informative and
valuable to varied users when FS are disaggregated IAS 34 - Condensed set of FS
into information for shorter reporting periods (interim ● Condensed SFP
reporting) and sub-components (operating segments) ● Condensed Statement of P/L and OCI
of a reporting enterprise. ● Consensed SCE
● IAS 34, “Interim Financial Reporting” - ● Condensed SCF
indicates that an enterprise may be required ● Selected explanatory notes
to or may elect to provide less info at interim - IAS 34 does not prohibit or discourage an
dates than its annual FS. entity from preparing a complete set of FS.
 - At a minimum, condensed interim FS include circumstances–does not duplicate information
each of the headings and subtotals that were previously reported. Consequently, users of interim
included in the entity’s most recent annual financial report are assumed to also have access to
financial statements and the selected the entity’s latest annual financial report.
explanatory notes required by IAS 34. Examples of events and transactions for
- Additional line items or notes are provided if which disclosures would be required if they are
their omission makes the condensed FS significant:
misleading. a. write-down of inventories to net realizable
value and reversal thereof
Periods Covered by Interim FS b. impairment losses and reversal thereof
● Statement of Financial Position - as of the a. reversal of provision for restructuring costs
end of the current interim period and at the c. acquisitions and disposals of PPE, including
immediately preceding year-end. purchase commitments
- e.g., SFP as of September 30, 2022 and as d. litigation settlements
of December 31, 2021 e. corrections of prior period errors
● Statement of Comprehensive Income - for f. business or economic circumstances affecting
the current interim period and cumulatively for the fair value of financial assets and financial
the current financial year to date, with liabilities
comparative statements of profit or loss and g. unremedied loan default or breach of loan
other comprehensive income for the agreement
comparable interim periods (current and h. related party transactions
year-to-date) of the immediately preceding i. transfers between levels of the fair value
financial year. hierarchy used in measuring the fair value of
- e.g., for the quarter ended September 30, financial instruments
2022, and for the nine months ended j. changes in the classification of financial
September 30, 2022, with comparative assets
statements for the previous year, same k. changes in contingent liabilities and assets
period.
● Statement of Changes in Equity - Other Disclosures
cumulatively for the current financial If users of the financial statements do not
year-to-date, with a comparative statement for have access to the information incorporated by
the comparable year-to-date period of the cross-reference on the same terms and at the same
immediately preceding financial year. time, the interim financial report is incomplete. In
- e.g., for the nine months ended September addition to significant events and transactions, the
30, 2022, and for the nine months ended following are also disclosed in the interim financial
September 30, 2021 report:
● Statement of Cash Flows - cumulatively for b. a statement that the same accounting policies
the current financial year-to-date, with a were used in the interim financial statements
comparative statement for the comparable as those used in the latest annual financial
year-to-date period of the immediately statements. If there have been changes,
preceding financial year. those changes are disclosed.
- e.g., for the nine months ended September c. explanation of seasonality (fixed) or cyclicality
30, 2022, and for the nine months ended (not fixed period) of interim operations
September 30, 2021 d. unusual items affecting the financial
statement elements
Significant Events and Transactions e. changes in accounting estimates
Interim reports are intended to provide an f. issuances and settlements of debt and equity
update on the latest complete set of annual FS. securities
Accordingly, it focuses on new activities, events, and g. dividends paid (aggregate or per share)
 h. segment information (if the entity is covered interim reporting purposes shall be made on a
by IFRS 8) year-to-date basis. Two point-of-views in interim
i. events after the reporting period reporting:
j. changes in the composition of the entity, e.g., 1. Discrete view - “requiring that an entity
business combinations, obtaining or losing apply the same accounting policies in its
control of subsidiaries, restructurings, and interim FS as in its annual statements may
discontinued operations seem to suggest that interim period
k. disclosures on the fair value of financial measurements are made as if each interim
instruments period stands alone as an independent
l. disclosures required by IFRS 12 when the reporting period”.
entity becomes or ceases to be an investment 2. Integral view - “providing that the frequency
property of an entity’s reporting shall not affect the
m. disaggregation of revenue from contracts with measurement of its annual results”
customers as required by IFRS 15 acknowledges that an interim period is a part
n. The entity presents basic and diluted of a larger financial year.
earnings per share if the entity is within the
scope of IAS 33. Year-to-date measurements may involve changes in
The entity discloses its compliances with IFRSs if it estimates of amounts reported in prior interim
has complied with IAS 34 and all the requirements of periods of the current financial year. But the
other IFRSs. If an entity’s interim financial report is in principles for recognizing ALRE for interim periods
compliance with this Standard, that fact shall be are the same as in annual FS. IAS 34 provides the
disclosed. An interim financial report shall not be following accounting principles:
described as complying with IFRSs unless it a. Losses from inventory write-downs,
complies with all the requirements of IFRSs. restructurings, or impairments in an interim
period are accounted for in the same way as
● Materiality - shall be assessed in relation to in annual FS. The original estimate is
the interim period financial data. adjusted by accruing an additional loss or by
- shall be recognized that the interim reversing a previously recognized loss, if
measurements may rely on estimates to a there are subsequent changes in estimates.
greater extent than measurements of annual FS in previous interim periods are not
financial data. restated.
- overriding goal: to ensure that an interim b. A cost that does not qualify as an asset in an
financial report includes all information that is interim period is not deferred either to wait if it
relevant to understanding an entity’s financial qualifies in the next period or to smooth
position and performance during the interim earnings over the interim periods within a
period. financial year. A liability at the end of an
interim period must meet all the recognition
criteria at that date.
c. Income tax expenses in interim periods are
based on the best estimate of the weighted
average annual income tax rate expected for
Recognition and Measurement of Revenues and the full financial year.
Expenses The recognition principles of assets, liabilities,
An enterprise should apply the same income and expenses under the Conceptual
accounting policies in its interim financial statements Framework are applied in the interim period in the
as applied in its annual financial statements. same way as in the annual period. Thus, items that
However, the frequency of an entity’s reporting do not qualify as assets, liabilities, income or
(annual, semi-annual, or quarterly) shall not affect the expenses in the annual period do not also qualify as
measurement of its annual results. Measurements for such in the interim period.
 policy prospectively from the earliest date
Revenues received seasonally, cyclically, or practicable.
occasionally
- shall not be anticipated or deferred as of an
interim date if anticipation or deferral would
not be appropriate at the end of the entity’s
financial year.
- e.g., dividends revenue, royalties,
government grants, or season revenues of
retailers
- losses from long-term construction type
contracts accounted for under the
percentage-of-completion method should be
recognized in full during the interim period
when the losses become evident.

Costs incurred unevenly during the financial year

- costs that are incurred unevenly during an
entity’s financial year shall be anticipated or
deferred for interim reporting purposes if, and
only if, it is also appropriate to anticipate or
defer that type of cost at the end of the
financial year.

Use of estimates
- the preparation of interim financial reports
generally will require greater use of estimation
methods than annual financial reports.

Restatement of previously reported interim

periods
A change in accounting policy, other than one
for which the transition is specified by a new IFRS,
shall be reflected by:
a. Retrospectively - restating the financial
statements of prior interim periods of the
current financial year and the comparable
interim periods of any prior financial years
that will be restated in accordance with IAS 8. Module 6 - Operating Segments
b. Prospectively - when it is impracticable to Segment information aims to inform users
determine the cumulative effect at the about the different types of products and services an
beginning of the financial year of applying a enterprise produces and the various geographical
new accounting policy to all prior periods, areas in which it operates.
adjusting the financial statements of prior Reporting by operating segments is required
interim periods of the current financial year, for enterprises whose equity or debt securities are
and comparable interim periods of prior publicly traded and those in the process of issuing
financial years to apply the new accounting equity and debt securities in the public market.
 ● Operating Segments - a component of an revenue, internal and external, of all operating
entity: segments.
- that engages in business activities from which - the absolute measure of its reported profit or
it may earn revenues and incur expenses loss is 10% or more of the greater, in absolute
(includes the revenues and expenses relating amount, of (i) the combined reported profit of
to transactions with other components of the all operating segments that did not report a
same entity) loss and (ii) the combined reported loss of all
- whose operating results are reviewed by the operating segments that reported a loss,
entity’s CODM to assess the component’s - or its assets are 10% or more of the
performance and allocate enterprise combined assets of all operating segments.
resources Two or more operating segments may be
- for which discrete financial information is aggregated into a single operating segment if
available aggregation is consistent with the principles of the
chief operating decision maker - refers to a function, standard, the segments have similar economic
not necessarily a manager with a specific title (may characteristics and are similar in various prescribed
be the chief executive officer, chief operating officer, respects.
or a group of executive directors or officers. If the total external revenue reported by
operating segments constitutes less than 75% of the
A component is not excluded from being an entity’s revenue, additional operating segments must
operating segment even if its sole purpose is to sell be identified as reportable segments (even if they do
products or services internally to other enterprise not meet the quantitative thresholds set out above)
components. until at least 75% of the entity's revenue is included
Operating segments are identified based on in reportable segments.
the components of the business that the entity
considers significant for internal management Measuring and Reporting Segment P/L
reporting purposes. The segments are identified Segment Revenue (may include both Pxx
based on internal reports that the chief operating internal and external)
officer makes to allocate enterprise resources and
assess business performance. Direct attributable costs and expenses (xx)

Common costs that are charged to (xx)

management approach - approach of looking to an segment on some rational basis
entity’s organizational and management structure
and its internal financial reporting system to identify Segment profit (loss) Pxx
the entity’s segments for external reporting.
Disclosures
An operating segment is one whose performance is This can be classified into four categories:
monitored by a manager who is directly accountable 1. General information, includes disclosures of:
to CODM. One manager may be held responsible for - factors used to identify reportable segments,
two or more operating segments. especially the basis of organizations
Reportable Segments - judgments in applying aggregation criteria
IFRS 8 requires an entity to report financial - types of products/services generating
and descriptive information about its reportable revenues
segments.
Reportable segments - operating segments or 2. Information about P/L, Assets and
aggregations for which segment information must be Liabilities:
disclosed, must meet any specified criteria: ● measurement of segment items equal to the
- its reported revenue, from both external measure reported to the chief operating
customers and intersegment sales or decision maker (CODM)
transfers is 10% or more of the combined
● disclose separately the following amounts if it
is included in items of segment P/L reported 4. Entity-wide Disclosures - these are not at a
to the CODM or regularly reported to him: segment level but at the entity level of all the
- revenue from external customers segments
- internal revenue - information about the products and services
- interest revenue - information about geographical areas
- interest expense - revenue from external customers:
- depreciation and amortization attributed to entity’s country of
- material items of income and expense domicile or attributed to all foreign
- interest in P/L of associates and joint ventures countries
- income tax expense or income - non current assets: located in entity’s
- material non-cash items (deferred income tax, country of domicile or located in
write-downs in the value of acquired all-foreign countries
companies, employee stock-based - information about major customers, if revenue
compensation, as well as depreciation and with single customer is 10% or more of the
amortization) total revenue
● provide an explanation of measurement basis
of segment P/L, segment assets, and reviewer:
segment liabilities for each reportable [Link]
segment: 7TF7GDqmOwGG7XSzfDujQ/edit
○ basis of accounting for transaction
between reportable segments
○ nature of differences between
measurements of reportable
segments’ P/L and entity’s P/L after
income tax + discounted operations
○ nature of differences between Module 7 - Related Party Disclosures
measurements of reportable In 2001, the IASB adopted IAS 24 Related
segments’ assets and liabilities and Party Disclosures.
entity’s assets and liabilities Objective: to ensure that an entity’s FS contain the
○ nature of any changes from prior disclosures necessary to draw attention to the
periods in the measurement methods possibility that its financial position and profit or loss
to determine segment’s P/L and their may have been affected by the existence of related
effects parties and by transactions and outstanding
○ nature and effect of asymmetrical balances, including commitments, with such parties.
allocations to reportable segments ● Key Management Personnel - those
persons having authority and responsibility for
3. Reconciliations planning, directing, and controlling the
- total of reportable segment’s revenue to activities of the entity, directly or indirectly,
entity’s revenue including any director of that entity
- total of reportable segment’s P/L to entity’s
P/L before and after tax and discounted Related Parties and Related Party Transactions
operations ● Related Party - a person or entity that is
- total of reportable segment’s assets and related to the entity that is preparing its FS.
liabilities to entity’s assets and liabilities A person or a close member of that person’s family is
- total of reportable segment’s amounts for related to a reporting entity if:
every other material item of information - that person’s children and spouse or domestic
disclosed to the corresponding amount of the partner, children of that person’s spouse or
entity
 domestic partner, and dependents of that - the entity, or any member of a group of which
person or that person’s spouse or domestic it is a part, provides key management
partner. personnel services to the reporting entity or to
- that person has control or joint control of the the parent of the reporting entity.
reporting entity (voting power > 50%: person OKAY BASICALLY, IF THEY ARE CONTROLLED BY
to a parent company); A SINGLE ENTITY, THEY ARE NOW RELATED.
- that person has significant influence over the In considering each possible related party
reporting entity (voting power is 20% to 50%: relationship, attention is directed to the substance of
person to associate company); or the relationship and not merely the legal form. The
- that person is a member of the key following are not related parties:
management personnel of the reporting entity - two entities simply because they have a
or of a parent of the reporting entity (person director or other member of key management
to another company). personnel in common or because a member
An entity is related to a reporting entity if any of the of key management personnel of one entity
following conditions applies: has significant influence over the other entity
- the entity and the reporting entity are (significant influence lang, dapat ay control or
members of the same group (which means jointly controls dibah) (tapos bawal din na
that each parent, subsidiary, and fellow person to c and d company na key
subsidiary is related to the others) (parent management personnel)
company controls subsidiary 1 and 2, PC-S1 - two joint venturers simply because they share
PC-S2 S1-S2). joint control of a joint venture
- one entity is an associate or joint venture of - providers of finance, trade unions, public
the other entity (or an associate or joint utilities, and departments and agencies of a
venture of a member of a group of which the government that does not control, jointly
other entity is a member) (parent company control or significant influence the reporting
significantly influence associate) (kapag entity, simply by virtue of their normal
jointly control, di related parties si CA at CB dealings with an entity (even though they may
(which are the joint venturers)). affect the freedom of action of an entity or
- both entities are joint ventures of the same participate in its decision‑making process).
third party - a customer, supplier, franchisor, distributor or
- one entity is a joint venture of a third entity general agent with whom an entity transacts a
and the other entity is an associate of the significant volume of business, simply by
third entity virtue of the resulting economic dependence.
- the entity is a post-employment benefit plan
for the benefit of employees of either the ● Related party transaction - a transfer of
reporting entity or an entity related to the resources, services, or obligations between a
reporting entity. If the reporting entity is itself reporting entity and a related party,
such a plan, the sponsoring employers are regardless of whether a price is charged. The
also related to the reporting entity following are examples of related party
- the entity is controlled or jointly controlled by transactions that are to be disclosed:
a person identified. - purchases or sales of goods (finished or
- a person identified to have control or jointly unfinished)
control of the reporting entity, has significant - purchases or sales of property and other
influence over the entity or is a member of the assets
key management personnel of the entity (or of - rendering or receiving of services
a parent entity) (kapag may control lang dun - leases
lang may relation kapag key management - transfers of research and development
personnel) - transfers under license agreements
 - transfers under finance arrangements source: CFAS_IAS 24:Related Party Disclosures
(including loans and equity contributions in
cash or in kind)
- provision of guarantees or collateral
- commitments to do something if an event
occurs or does not occur in the future,
including executory contracts (a certain
obligation to be done at an agreed time)
(recognized or unrecognized)
- settlement of liabilities on behalf of the entity
or by the entity on behalf of that related party.

Required Disclosures
Relationship between a parent and its
subsidiaries shall be disclosed irrespective of
whether there have been transactions between them.
An entity shall disclose the name of its parent and, if
different, the ultimate controlling party. If neither the
entity’s parent nor the ultimate controlling party
produces consolidated FS available for public use,
the name of the next most senior parent that does so
shall be disclosed.
An entity shall disclose key management
personnel compensation in total and for each of the
short-term employee benefits, post-employment
benefits, other long-term benefits, termination
benefits, and share-based payment. Amounts
incurred by the entity for the provision of key
management personnel services that are provided by
a separate management entity shall also be
disclosed.
If an entity had related party transactions
during the periods covered by the financial
statements, it shall disclose the nature of the related
party relationship as well as information about those
transactions and outstanding balances, including Module 8 - Cash to Accrual Accounting
commitments, necessary for users to understand the
and Single-Entry System
potential effect of the relationship on the financial
Cash to Accrual Basis
statements. At a minimum the disclosure includes:
● Cash Basis - income is recognized when
- the amount of the transactions.
received regardless of when earned, and
- the amount of outstanding balances, including
expense is recognized when paid regardless
commitments, their terms and conditions and
of when incurred.
details of any guarantees given or received.
- does not recognize accounts receivable,
- provisions for doubtful debts related to the
accounts payable, accrued income, deferred
amount of outstanding balances.
income, accrued expenses, and prepaid
- the expense recognized during the period in
expenses.
respect of bad or doubtful debts due from
- simple, less costly and more reliable since
related parties.
estimates and judgement is not required.
 - cons: not useful in evaluating performance
Bad debts No bad debts Doubtful
because it does not reflect the results of all are recognized accounts are
profit-directed activities which took place because trade treated as bad
during the period and cash receipt and receivables are debts.
payments and the related accomplishments not recognized
and effort occur in different periods.
- does not present the financial position Conversion from Cash Basis to Accrual Basis
or operating result result of an ● Increase in Accounts/Notes Receivable -
enterprise in conformity with GAAP. trade (A,N/R, ending > A,N/R, beginning) -
● Accrual Basis - recognizes income when there were more sales on account than
earned regardless when cash is received and collection.
recognizes expense when incurred regardless
of when paid.
- the essence of this approach is the
recognition accounts receivable, accounts
payable, accrued income, deferred income,
accrued expense and prepaid expenses.

Cash Accrual

Sales Cash sales Cash sales

plus collection plus sales on ● Decrease in Accounts/Notes Receivable -
of trade account.
receivables trade (A,N/R, ending < A,N/R, beginning) -
there were more collection than sales on
Purchases Cash Cash account.
purchases plus purchases
payment to plus
trade creditors purchases on
account.

Income other Amount Amount

than sales received is earned are
considered as considered as
income income
regardless regardless
when earned when it is
received.

Expenses, in Amounts paid Amount ● Increase in Accounts/Notes Payable - trade

general is treated as incurred are
(A,N/P, ending > A,N/P, beginning) - there
expense considered as
regardless expense were more purchases on account than
when incurred regardless payments to suppliers.
when it is
paid.

Depreciation Depreciation is Depreciation

provided is provided
normally normally
(applicable
when modified
CB is used)
 Note: Accrued Revenues are Receivables
● Decrease on Accounts/Notes Payable -
trade (A,N/P, ending < A,N/P, beginning) -
there were more payments to suppliers (cash Single Entry Accounting System
basis purchases) than accrual basis ● Bookkeeping System - is the systematic and
purchases. chronological recording of transactions and
events in the books of accounts. It is also
known as the recording phase of accounting.
Bookkeeping Accounting

Recording part of Broader field

accounting

Mechanical, repetitive Analytical. judgmental,

conceptual

Follows method Determines accounting

prescribed by accounting principles and methods
The conversion of data from cash basis to accrual
basis focuses on the recognition of accruals and Systems of Bookkeeping
deferrals, since there are items that are usually taken 1. Single-entry bookkeeping - only cash and
under the accrual basis that are not considered personal accounts are recognized.
under cash basis. - may range from mere narrative transactions
to one that approximates but does not
completely adopt double-entry system
- simple and economical
- cons: the accounting record will be
incomplete and the double-entry automatic
check is missing.
- accounting equation is disregarded (real kasi
Cash basis to accrual: nga pinagsasama ang income positive at
expense negative)
- typically, only cash is recorded, and personal
accounts are maintained
- trial balance cannot be prepared
- data needed for preparation of FS is
incomplete (edi walang FS?)
- net income is determined by reconstructing
revenue and expenses or comparing beg and
end capital.
 2. Double-entry bookkeeping - a system of - actuarial gains and losses
bookkeeping which views a transaction as - gains and losses arising from translating the
having two-fold effect on accounting values FS in foreign operations
that provides automatic check on certain - effective portion of gains and losses on
bookkeeping errors. hedging instruments in a cash flow hedge
- uses the concept of accounting equation - gains and losses on remeasuring FVTOCI

T-Accounts
Double-Entry Single-Entry
A/R / N/R
Principles 1. Duality Recognizes
involved 2. Equality only one phase Beg Bal Cash Collections
of transactions Sales on Account Sales Discount
Recoveries SRA
Transactions Records every Records only Write-offs
and events type of transactions End Bal
recorded accountable involving cash
events and personal
accounts
A/P / N/P
Accounts ALCRE Cash, A/R, A/P,
recognized equity Payments (Cash Basis) Beg Bal
Purchase Discounts Purchases on Account
Books used Journal and Cash book, PRA
ledger subsidiary End Bal
ledger

FS Prepared in a Income (loss)

preparation systematic and statement
Accrued Revenue (Receivable)
processing data; of assets and
known as the liabilities are Beg Bal Collections (cash basis)
accounting prepared using Recognized Income End Bal
process, income the analysis or (Accrual basis)
(loss) is indirect
computed using approach.
the matching
principle.
Unearned Revenue (Liability)

Financial Capital Maintenance Approach Recognized Income Beg Bal

- profit is earned only if the financial (or money) (Accrual basis) Collections
End Bal
amount of the net assets at the end of the
period exceeds the financial (or money)
amount of net assets at the beginning of the
period, after excluding any distributions to,
and contributions from owners during the
period.
Prepaid Expenses

Beg Bal Recognized Expense

Payment of Cash End Bal

Accrued Expenses
Items may include:
- changes in the revaluation surplus of PPE
Payment of Cash Beg Bal
End Bal Recognized Expense

source:
UiFRS_Cash to Accrual Accounting

for problem-solving:
MOD 8 CFAS -MABAIT NA VANE
CFAS QUIZ #[Link] #20, False-True
cash basis [Link]
cash to accrual [Link]
cash to accrual PS [Link]
Lord ito ba parusa ng bobong nag-take ng BSA…