Chap 3 and 4

• Which accounting standard presents the basis for the presentation of financial statements?

  International Accounting Standards (IAS) 1: Presentation of Financial Statements
• What information do financial statements present?

  a) Assets

  b) Liabilities

  c) Equity

  d) Income and Expenses, including gains and losses

  e) Contributions by and distributions to owners

  f) Cash Flows
• Who is responsible for the financial statements?

  Company's Management
• What is the objective of IAS 1?

  Ensure comparability through the basis for the presentation of the financial statements
• What is the complete set and components of the financial statements?

  a) Statement of Financial Position as at the end of the period

  b) Statement of Comprehensive Income for the period

  c) Statement of Changes in Equity for the period

  d) Statement of Cash Flows for the period

  e) Notes to the Financial Statements
• What elements of the financial statements are presented in the Statement of Financial Position?

  Assets, Liabilities, and Equity
• What information does a Statement of Financial Position provide that helps users in assessing the company?

  Liquidity, Solvency, and Financial and Operational Flexibility
• Which financial statement does not present information during the reporting period?

  Statement of Financial Position
• What elements of the financial statements are presented in the Statement of Comprehensive Income?

  Income and Expenses
• What information does a Statement of Comprehensive Income provide that helps users in assessing the company?

  Profitability
• What is the difference between Statement of Profit and Loss and Statement of Comprehensive Income?

  SPL — only profit and loss

  SCI — profit, loss, and other comprehensive income
• What elements of the financial statements are presented in the Statement of Changes in Equity?

  Equity, Contributions by and Distributions to Owners
• What financial information does the Statement of Cash Flows present?

  Inflows and Outflows of Cash and Cash Equivalents during the Reporting Period
• What information does a Statement of Cash Flows provide that helps users in assessing the company?

  Solvency
• What information does the Notes to the Financial Statements present?

  a) Description of the basis of the presentation of financial statements

  b) Summary of Significant Accounting Policies

  c) Information required by the PFRS or IFRS not presented on the face of the financial statements

  d) Additional information that will help the users better understand information presented (e.g. calculations behind the numbers)
• What is the purpose of providing the same set of financial statements for the preceding years?

  Comparability, intracomparability to be exact
• Which accounting standard requires the inclusion of a statement of financial position as at the beginning of the preceding period whenever an entity restates its comparative prior period financial statements?

  International Accounting Standards (IAS) 1: Presentation of Financial Statements
• When is the restatement of a comparative prior period necessary?

  When there is ANY of the following:

  a) Change in accounting policy

  b) Discovery of period errors

  c) Reclassification of an element
• What is the purpose of restating the financial statements of the prior year and inclusion of a restated statement of financial position at the beginning of the preceding period?

  Comparability and intracomparability
• Which accounting standard defines accounting policies applied by an entity in preparing and presenting financial statements?

  International Accounting Standards (IAS) 8: Accounting Policies, Changes in Accounting Estimates and Errors
• If the management shall apply the standard or interpretation that specifically applies to a transaction, other event or condition, which standard should it be?

  Philippine Financial Reporting Standards (PFRS) or Interpretation
• The management should use what in developing and applying an accounting policy in the case that there is an absence of a Standard or an Interpretation that specifically applied to a transaction?

  Judgment
• What is the hierarchy of sources used in developing and applying an accounting policy in absence of a Standard or Interpretation in a transaction?

  a) the requirements in PFRS and IFRS dealing with similar and related issues

  b) the definitions, recognition criteria, and measurement concepts for assets, liabilities, income and expenses in the Conceptual Framework

  c) the most recent pronouncements of other standard setting bodies in the extent that these do not conflict with the sources enumerated above (optional)
• How do you follow the hierarchy of the applicability of sources in developing and applying an accounting policy?

  In descending order
• What are the general features for the presentation of financial statements

  1) Fair presentation and compliance with IFRS/PFRS

  2) Going concern

  3) Accrual basis of accounting

  4) Materiality and aggregation

  5) Offsetting

  6) Frequency of reporting

  7) Comparative information

  8) Consistency of presentation
• The application of IFRS with additional disclosures, when necessary, is presumed to result in?

  Fair presentation
• Fair presentation requires an entity to?

  a) select accounting policies based on PAS/IAS 8, observing the hierarchy in formulating accounting policies

  b) present information, including accounting policies, in a manner that provides relevant, reliable, comparable, and understandable information

  c) provide additional disclosures when compliance with the specific requirements of the IFRS is insufficient to enable the users to understand the impact of a particular transaction, other event or condition on the entity's financial position and performance
• What are Standards and Interpretations that are used in PAS 1 and adopted by the Financial Reporting Standards Council?

  Philippine Financial Reporting Standards (PFRS)
• What are comprised of the PFRS?

  a) Philippine Financial Reporting Standards (PFRS)

  b) Philippine Accounting Standards (PAS)

  c) Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC), Standing Interpretations Committee (SIC), and the Philippine Interpretations Committee (PIC)
• When does the management decide to depart from the IFRS?

  When the management concludes that compliance with the requirements would make the financial information misleading
• When a management departs and no regulatory framework prohibits the department, what disclosures should be made?

  a) the management concludes that the financial statements are presented fairly

  b) it has complied with applicable IFRS, except that it has departed from a particular requirement to achieve a fair presentation

  c) the title of the IFRS that the departed from, the nature of the departure, treatment of said IFRS, the reason why the treatment is misleading and conflicting with the objective in the Conceptual Framework, and the treatment adopted from departing

  d) for each period presented and the financial impact of the departure on each item
• When a management departs but the regulatory framework prohibits the department, what disclosures should be made?

  a) the title of the Standard or Interpretation in question, the nature of requirement, and reason in the conclusion that the requirement is misleading

  b) for each period presented and the adjustments in each item
• What is the assumption that the enterprise will continue operating in the foreseeable future?

  Going Concern Assumption
• When the financial statements are not prepared on a going concern basis, what disclosures should be made?


  a) the fact that the financial statements are not prepared on a going concern basis

  b) the basis on which the financial statements are prepared

  c) the reason why the enterprise is not considered to be a going concern
• What is the basis that recognizes transactions when they occur rather than when cash is received or paid?

  Accrual basis of accounting
• Where should the accrual basis of accounting apply in the components of the financial statements?

  All financial statements except the Statement of Cash Flows
• What are the expense recognition principles?

  Direct matching — costs incurred and the earning of specific items of income

  Systematic and rational allocation — costs incurred by systematically allocating the cost of asset acquired to periods of benefit
• What recognition does the accrual basis of accounting and the expense recognition principles not allow?

  Recognition of assets for costs which are not expected to provide probable future economic benefits to the enterprise
• How should material items be presented?

  Separately
• How should immaterial items be presented?

  Aggregated to a one-line item