Chapter 3

• Notes to financial statements provide narrative description or disaggregation of items presented in the financial statements and information about items that do not qualify for recognition
• notes to financial statements are used to report information that does not fit into the body of the statements in order to enhance the understandability of the statements.
• The purpose of notes to financial statements is to provide the necessary disclosures required by Philippine Financial Reporting Standards.
• Specifically, PAS 1, paragraph 112, provides that the notes to financial statements shall:

  1. Present information about the basis of preparation of the financial statements and the specific accounting policies..
  2. Disclose the information required by Philippine Financial Reporting Standards that is not presented in the financial statements.
  3. Provide additional information which is not presented in the financial statements but is relevant to an understanding of the financial statements.
• PAS 1, paragraph 114, provides that an entity normally presents notes in the following order to assist users understand the financial statements and to compare them with financial statements of other entities:

  1. Statement of compliance with PFRS
  2. Summary of significant accounting policies used
  3. Supporting information or computation for line items presented in the financial statements
  4. Other disclosures, such contingent liabilities, unrecognized contractual commitments and nonfinancial disclosures.
• Accounting policies are defined as the specific principles, methods, practices, rules, bases and conventions adopted by an entity in preparing and presenting financial statements.
• PAS 1, paragraph 16. provides that an entity whose financial statements comply with Philippine Financial Reporting Standards shall make an explicit and unreserved statement of such compliance in the notes.
• The summary of significant accounting policies shall disclose the following:

  1. The measurement basis used
  2. The accounting policies used
• Measurement basis - is basis on which the entity prepares the financial statements significantly affects the users' analysis.
• Under the Revised Conceptual Framework, the measurement bases are historical cost and current value.
• Current value includes fair value, value in use, fulfillment value and current cost.
• Disclosure of particular accounting policies is especially useful to users when those policies are selected from alternatives allowed in Philippine Financial Reporting Standards.
• PAS 1, paragraph 122, provides that an entity shall disclose in the summary of significant accounting policies the judgments that management has made in the process of applying accounting policies and that have a significant effect on the amounts recognized in the financial statements.
• The disclosure of information about judgment is mandatory.
• PAS 1, paragraph 125, provides that an entity shall disclose information about the assumptions it makes about the future, and other major sources of uncertainty at the end of reporting period that have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next financial year
• The disclosure of information about key sources of estimation uncertainty is mandatory.
• PAS 1, paragraph 138, provides that an entity shall disclose the following:

  1. The domicile and legal form of the entity, its country of incorporation and the address of the registered office or principal place of business.
  2. A description of the nature of the entity's operations and its principal activities.
  3. The name of the parent and the ultimate parent of the group.
• Paragraph 137 provides that an entity shall disclose the following:

  1. The amount of dividends proposed or declared before the financial statements were authorized for issue but not recognized as distribution during the period and the related amount per share.
  2. The amount of any cumulative preference dividends not recognized.