1PAS 1 applies to all general purpose financial statements that are prepared and presented in accordance with PFRSs.
Scope: (PAS 1.2)
2General purpose financial statements are those intended to serve users who are not in a position to require financial reports tailored to their particular information needs
Scope: (PAS 1.7)
3The financial statements must "present fairly" the financial position, financial performance, and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, events, and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income, and expenses set out in the framework. The application of PFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation
General Features of Financial Statements: (PAS 1.15)
4PAS 1 requires an entity whose financial statements comply with PFRSs to make an explicit and unreserved statement of such compliance in the notes. Financial statements cannot be described as complying with PFRSs unless they comply with all the requirements of PFRSs (which includes International Financial Reporting Standards, International Accounting Standards, PFRIC Interpretations, and SIC Interpretations) Further subclassifications of line items presented are made in the statement or in in the notes, for example
General Features of Financial Statements: (PAS 1.16)
5Inappropriate accounting policies are not rectified either by disclosure of the accounting policies used or by notes or explanatory material.
General Features of Financial Statements: (PAS 1.18)
6PAS 1 acknowledges that, in extremely rare circumstances, management may conclude that compliance with a PFRS requirement would be so misleading that it would conflict with the objective of financial statements set out in the framework. In such a case, the entity is required to depart from the PFRS requirement, with detailed disclosure of the nature, reasons, and impact of the departure
General Features of Financial Statements: (PAS 1.19-21)
7The conceptual framework notes that financial statements are normally prepared with the assumption that the entity is a going concern and will continue in operation for the foreseeable future
Going Concern: (CF, paragraph 4.1)
8PAS 1 requires management to assess an entity's ability to continue as a going concern. If management has significant concerns about the entity's ability to continue as a going concern, the uncertainties must be disclosed. If management concludes that the entity is not a going concern, the financial statements should not be prepared on a going concern basis, in which case PAS 1 requires a series of disclosures
Going Concern: (PAS 1.25)
9PAS 1 requires that an entity prepare its financial statements, except for cash flow information, using the accrual basis of accounting
Accrual Basis of Accounting: (PAS 1.27)
10The presentation and classification of items in the financial statements shall be retained from one period to the next unless a change is justified by either a change in circumstances or a requirement of a new PFRS
Consistency of Presentation: (PAS 1.45)
11Information is material if omitting, misstating, or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.
Materiality and Aggregation: (PAS 1.7)
12Each material class of similar items must be presented separately in the financial statements. Dissimilar items may be aggregated only if they are individually immaterial.
Materiality and Aggregation: (PAS 1.29)
13However, information should not be obscured by aggregating or by providing immaterial information. Materiality considerations apply to all parts of the financial statements, and even when a standard requires a specific disclosure, materiality considerations do apply.
Materiality and Aggregation: (PAS 1.30A-31)
14Assets and liabilities, and income and expenses, may not be offset unless required or permitted by a PFRS
Offsetting: (PAS 1.32)
15PAS 1 requires that comparative information be disclosed in respect of the previous period for all amounts reported in the financial statements, both in the financial statements and in the notes, unless another standard requires otherwise. Comparative information is provided for narrative and descriptive purposes, where it is relevant to understanding the financial statements of the current period.
Comparative Information: (PAS 1.38)
16A third statement of financial position is required if the entity retrospectively applies an accounting policy, restates items, or reclassifies items, and those adjustments had a material effect on the information in the statement of financial position at the beginning of the comparative period.
Comparative Information: (PAS 1.40A)
17Where comparative amounts are changed or reclassified, various disclosures are required.
Comparative Information: (PAS 1.41)
18the financial statements, which must be distinguished from other information in a published document, each financial statement, and the notes to the financial statements.
PAS 1 requires an entity to clearly identify (PAS 1.49-51):
19the name of the reporting entity and any change in the name, whether the financial statements are a group of entities or an individual entity, information about the reporting period, the presentation currency (as defined by PAS 21 The Effects of Changes in Foreign Exchange Rates), and the level of rounding used (e.g., thousands, millions).
In addition, the following information must be displayed prominently and repeated as necessary (PAS 1.51):
20There is a presumption that financial statements will be prepared at least annually. If the annual reporting period changes and financial statements are prepared for a different period, the entity must disclose the reason for the change and state that amounts are not entirely comparable.
Reporting Period: (PAS 1.36)
21Reports that are presented outside of the financial statements-including financial reviews by management, environmental reports, and value added statements-are outside the scope of PFRSs.
Reporting Period: (PAS 1.14)
22An entity must normally present a classified statement of financial position, separating current and non-current assets and liabilities, unless presentation based on liquidity provides information that is reliable
Current and Non-current Classification (PAS 1.60)
23Current assets are assets that are expected to be realized in the entity's normal operating cycle; held primarily for the purpose of trading: expected to be realized within 12 months after the reporting period; and cash and cash equivalents (unless restricted).
Current assets are assets that are (PAS 1.66):
24All other assets are non-current
(PAS 1.66)
25Current liabilities are those expected to be settled within the entity's normal operating cycle; held for purpose of trading; due to be settled within 12 months; and for which the entity does not have the right at the end of the reporting period to defer settlement beyond 12 months. Other liabilities are non-current.
Current liabilities are those (PAS 1.69):
26When a long-term debt is expected to be refinanced under an existing loan facility and the entity has the discretion to do so, the debt is classified as non- current, even if the liability would otherwise be due within 12 months.
(PAS 1.73)
27Regarding a minimum content, the following line items shall be presented:
Assets:
• Cash and cash equivalents
• Financial assets
• Trade and other receivables
• Current tax assets
• Inventories
• Biological assets
• Non-current assets held for sale and discontinued operations
• Investments accounted for using the equity method
• Property, plant, and equipment
• Investment property
• Intangible assets
• Deferred tax assets
28Regarding a minimum content, the following line items shall be presented:
Liabilities and Equity:
• Financial liabilities
•Trade and other payables
• Current tax liabilities
• Provisions
• Non-current assets held for sale and discontinued operations
• Deferred tax liabilities
• Issued capital and reserves attributable to owners of the parent
• Non-controlling interests
29Additional line items, headings, and subtotals may be needed to fairly present the entity's financial position
(PAS 1.55)
30Further subclassifications of line items presented are made in the statement or in in the notes, for example: classes of property, plant, and equipment; disaggregation of receivables; disaggregation of inventories in accordance with PAS 2 inventories; disaggregation of provisions into employee benefits and other items; and classes of equity and reserves.
(PAS 1.77-78):
31PAS 1 does not prescribe the precise format of the statement of financial position. Instead, several formats are acceptable if they fulfill all the requirements outlined above.
Format of Statement
32Regarding issued share capital and reserves, the following disclosures are required : numbers of shares authorized, issued, and fully paid and issued but not fully paid; par value (or that shares do not have a par value); reconciliation of the number of shares outstanding at the beginning and the end of the period; description of rights, preferences, and restrictions; treasury shares, including shares held by subsidiaries and associates; shares reserved for issuance under options and contracts; and description of the nature and purpose of each reserve within equity.
(PAS 1.79):
33Additional disclosures are required in respect of an entity without share capital and where an entity has reclassified puttable financial instruments
(PAS 1.80-80A).
34As a minimum, the statement of comprehensive income must contain the following items:
Profit or Loss:
• Revenue
•Gains and losses arising from the derecognition of financial assets at amortized cost
• Finance costs
• Share of the profit or loss of associates and joint ventures accounted for using the equity method
• Tax expense
• Post-tax profitain or loss of operations or assets in accordance with PFRS 5 (non-current assets held for sale and discontinued operations)
• Profit or loss
35PAS 1 requires an entity to present a separate statement of changes in equity. The statement must show:
(a) total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to non- controlling interests;
(b) effects of any retrospective application of accounting policies or restatements made in accordance with PAS 8, separately for each component of other comprehensive income; and
(c) reconciliations between the carrying amounts at the beginning and the end of the period for each component of equity, separately disclosing:
(PAS 1.106)
36(c) reconciliations between the carrying amounts at the beginning and the end of the period for each component of equity, separately disclosing:
(i.) profit or loss,
(ii) other comprehensive income, and
(iii) transactions with owners, showing
separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.
37An analysis of other comprehensive income by item is required to be presented either in the statement or in the notes
(PAS 1.106A).
38The following amounts may also be presented in the statement of changes in equity or in the notes :
(a) amount of dividends recognized as distributions and
(b) related amount per share.
(PAS 1.107)
39The following amounts may also be presented in the statement of changes in equity or in the notes (PAS 1.107):
(a) amount of dividends recognized as distributions and
(b) related amount per share.
40The notes must (PAS 1.112):
• present information about the basis of preparation of the financial statements and the specific accounting policies used;
• disclose any information required by PFRSs that is not presented elsewhere in the financial statements; and
• provide additional information that is not presented elsewhere in the financial statements but is relevant to an understanding of any of them.
41The notes must :
• present information about the basis of preparation of the financial statements and the specific accounting policies used;
• disclose any information required by PFRSs that is not presented elsewhere in the financial statements; and
• provide additional information that is not presented elsewhere in the financial statements but is relevant to an understanding of any of them.
Notes to the Financial Statements: (PAS 1.112)
42Notes are presented in a systematic manner and cross-referenced from the financial statements to the relevant note
Notes to the Financial Statements: (PAS 1.113).
43An entity must disclose, in the summary of significant accounting policies or in other notes, the judgments, apart from those involving estimations, that management has made in the process of applying the entity's accounting policies that have the most significant effect on the amounts recognized in the financial statements
Judgments and Key Assumptions: (PAS 1.122)
44In addition to the distribution's information in the statement of changes in equity (See above), the following must be disclosed in the notes :
The amount of dividends proposed or declared before the financial statements were authorized for issue but were not recognized as a distribution to owners during the period and the related amount per share The amount of any cumulative preference dividends not recognized
Dividends : (PAS 1.137)
45Definitions of Financial Instruments:
Financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
In a contract involving financial instruments, the reporting entity enters into an agreement with another entity (or entities), giving rise to a financial asset, a financial liability, an equity instrument, or the combinations thereof.
The entity must enter into a contract to recognize a financial instrument.
A financial instrument is essentially a promise by the issuer of the instrument that creates a claim on the part of the holder. Thus, if the entity is the issuer of the financial instrument, it either has a financial liability or an equity instrument. Conversely, if the entity is the holder of an instrument, it has a financial asset.
46is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial instrument
47In a contract involving financial instruments, the reporting entity enters into an agreement with another entity (or entities), giving rise to a _____. ______.______, or the _________ thereof.
financial asset, a financial liability, an equity instrument, or the combinations thereof.
48 is essentially a promise by the issuer of the instrument that creates a claim on the part of the holder. Thus, if the entity is the issuer of the financial instrument, it either has a financial liability or an equity instrument. Conversely, if the entity is the holder of an instrument, it has a financial asset.
financial instrument
49A financial asset of the entity is any asset can be as follows (PAS 32.11):
Cash - all petty cash, bank accounts, and other cash equivalents
An equity instrument of another entity - for example, the reporting entity buys shares of PLDT on the stock exchange.
A contractual right to receive cash or another financial asset from another entity - trade receivables, issued loans, purchased bonds
A contractual right to exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity - purchased call options and purchased put options
50all petty cash, bank accounts, and other cash equivalents
Cash
51for example, the reporting entity buys shares of PLDT on the stock exchange.
An equity instrument of another entity
52trade receivables, issued loans, purchased bonds
A contractual right to receive cash or another financial asset from another entity
53purchased call options and purchased put options
A contractual right to exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity
54Financial liability is any liability that is :
a. A contractual obligation to deliver cash or another financial asset to another entity (e.g., trade payables, taken loans, issued bonds) or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity (e.g., written call options, written put options); and
b. A contract that will or may be settled in the entity's own equity instruments and is a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity's own equity instruments or a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments.
(PAS 32.11)
55Financial liability is any liability that is (PAS 32.11):
a. A contractual obligation to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity
b. A contract that will or may be settled in the entity's own equity instruments and is a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity's own equity instruments or a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments.
56Financial liability is any liability that is
(PAS 32.11):
a. A contractual obligation to deliver cash or another financial asset to another entity (e.g.. _________________)
trade payables, taken loans, issued bonds
57to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity (e.g.. _________________)
written call options, written put options
58An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting its liabilities
Equity instruments may include not only shares but also certain warrants, options, and other instruments.
Equity Instrument: (PAS 32.11)
59
is any contract that evidences a residual interest in the assets of the entity after deducting its liabilities
equity instrument
60may include not only shares but also certain warrants, options, and other instruments.
equity instrument
61_______ is a financial instrument with a value that is dependent upon an underlying asset or group of assets-a benchmark. The ________ itself is a contract between two or more parties, and the ________ gets its price from fluctuations in the underlying asset.
Derivative
62A derivative is within the scope of PAS 32 and PFRS 9 if it has all three of the following characteristics:
(1) the contract is based on an underlying variable called the "underlying" (e.g., specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variables);
(2) it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to
changes in market factors; and
(3) it is settled at a future date.
63the contract is based on an underlying variable called the "underlying" (e.g.. _________________)
(e.g., specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variables);
64Common types of Derivatives.
1. Futures
2. Swaps
3. Forwards
4. Options
65Two parties agree for the purchase and delivery of an asset at an agreed upon price at a future date. trade on an exchange, and the contracts are standardized. Traders will use a futures contract to hedge their rick or speculate on the price of an underlying asset. Parties involved in the futures transaction are obligated to fulfill a commitment to buy or sell the underlying asset.
Futures
66Used to exchange one kind of cash flow with another. For example, a trader might use an interest rate ____ to switch from a variable interest rate loan to a fixed interest rate loan or vice versa.
Swaps
67imilar to futures but do not trade on an exchange, only over-the-counter (OTC). Upon contract creation, the buyer and seller may have customized the terms, size, and settlement process for the derivative. As OTC products, forward contracts carry a greater degree of counterparty risk for both buyers and sellers.
Forwards
68A contract similar to a futures, it is an agreement between two parties to buy or sell an asset at a predetermined future date for a specific price. The key difference between options and future is that, with an option, the buyer is not obliged to exercise their agreement to buy or sell. It is an opportunity only, not an obligation-futures are obligations. As with futures, options may be used to hedge or speculate on the price of the underlying asset.
Options