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OVERALL CONSIDERATIONS
1. Fair presentation and compliance with IFRS
Financial statements are required to be presented fairly as set out in the framework and in accordance
with IFRS and are required to comply with all requirements of IFRSs.
a. IAS 1 requires an entity to make an explicit and unreserved statement of compliance in the notes.
b. Inappropriate accounting policies are not rectified either by disclosure of the accounting policies
used or by notes or explanatory material.
c. IAS 1 acknowledges that in extremely rare circumstances, management may conclude that
compliance with an IFRS requirement would be so misleading that it would conflict with the
objective of financial statements set out in the Conceptual Framework. In such a case, the entity
may be permitted to depart from the requirement of an IFRS if the relevant regulatory framework
requires, or otherwise does not prohibit, such a departure. Shall disclose the following:
• that management has concluded that the financial statements present fairly the entity’s
financial position, financial performance and cash flows
• that it has complied with applicable IFRSs, except that it has departed from a particular
requirement to achieve a fair presentation
• the title of the IFRS from which the entity has departed, the nature of the departure,
including the treatment that the IFRS would require, the reason why that treatment would be
so misleading in the circumstances
• for each period presented, the financial effect of the departure on each item in the financial
statements that would have been reported in complying with the requirement
2. Going concern
Financial statements are required to be prepared on a going concern basis (unless entity is in liquidation or
has ceased trading or there is an indication that the entity is not a going concern). If management has
significant concerns about the entity’s ability to continue as a going concern, the uncertainties must be
disclosed.
3. Accrual basis of accounting
Entities are required to use accrual basis of accounting except for cash flow information.
4. Presentation consistency
An entity is required to retain presentation and classification from one period to the next unless:
• it is apparent that another presentation or classification would be more appropriate following a
significant change in the nature of the entity’s operations or a review of its financial statements
• an IFRS requires a change in presentation
If comparative amounts are changed or reclassified, an entity is required to disclose the following:
• the nature of the reclassification
• the amount of each item or class of items that is reclassified
• the reason for the reclassification
5. Materiality and aggregation
Each material class of similar assets and items of dissimilar nature or function is to be presented
separately. The Standards do not provide a quantitative or qualitative threshold in determining
materiality, it is a matter of professional judgment.
6. Offsetting
Offsetting of assets and liabilities or income and expenses is not permitted unless required by other IFRSs.
7. Comparative information
At least 1 year of comparative information (unless impractical). Listed entities in the Philippines are
required to disclose as a minimum three (3) of each statements of comprehensive income, statements of
changes in equity, and statements of cash flows.
When an entity changes the end of its reporting period and presents financial statements for a period
longer or shorter than one (1) year, it shall disclose the following:
• the period covered by the financial statements
• the reason for using a longer or shorter period
• the fact that amounts presented are not entirely comparable
An entity may use titles for the statements other than those stated above. All financial statements are
required to be presented with equal prominence.
When an entity applies an accounting policy retrospectively or makes a retrospective restatement of items
in its financial statements, or when it reclassifies items in its financial statements, it must also present a
statement of financial position as at the beginning of the earliest comparative period.
Reports that are presented outside of the financial statements – including financial reviews by
management, environmental reports, and value added statements – are outside the scope of IFRSs.
Notes are presented in a systematic manner and cross-referenced from the face of the financial
statements to the relevant note.
Other disclosures
a. Judgments and key assumptions – judgments 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 and key assumptions concerning the future, and other key sources of estimation uncertainty
at the end of the reporting period, that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year.
b. Dividends – the amount of dividends proposed or declared before the financial statements were
authorized for issue but which were not recognized as a distribution to owners during the period, and the
related amount per share, and the amount of any cumulative preference dividends not recognized.
c. Capital disclosures – information about its objectives, policies and processes for managing capital.
• qualitative information about the entity's objectives, policies and processes for managing capital,
including
e. Other information –
domicile and legal form of the entity
country of incorporation
address of registered office or principal place of business
description of the entity's operations and principal activities
if it is part of a group, the name of its parent and the ultimate parent of the group
if it is a limited life entity, information regarding the length of the life.
8. Third Statement of Financial Position
The improvement clarifies in regard to a third statement of financial position required when an entity
changes accounting policies, or makes retrospective restatements or reclassifications:
Opening statement is only required if impact is material
Opening statement is presented as at the beginning of the immediately preceding comparative
period required by IAS 1 (e.g. if an entity has a reporting date of 31 December 2012 statement of
financial position, this will be as at 1 January 2011)
Only include notes for the third period relating to the change.
Accounting policies
specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting
financial statements.
Selection and application of accounting Changes in accounting policies
policies An entity shall change an accounting policy only if the
a. When an IFRS specifically applies to a change:
transaction, other event or condition, the a. is required by an IFRS; or
accounting policy or policies applied to b. results in the financial statements providing reliable
that item shall be determined by applying and more relevant information about the effects of
the IFRS. transactions, other events or conditions on the entity’s
b. In the absence of an IFRS that specifically financial position, financial performance or cash flows.
applies to a transaction, other event or
condition, management shall use its Examples of Change in Accounting Policy
judgment. The following sources should a. Change in the method of inventory pricing from the
be referred to, to make the judgment: FIFO to weighted average method.
Requirements and guidance in other b. Change in the method of accounting for long term
standards/interpretations dealing with construction contract.
similar issues c. The initial adoption of policy to carry assets at
Definitions, recognition criteria and revalued amount.
measurement concepts in the d. Change from cost model to fair value model in
framework measuring investment property and property, plant
May use other GAAP that use a similar and equipment.
conceptual framework and/or may e. Change to a new policy resulting from the
consult other industry requirement of a new PFRS.
practice/accounting literature that is not
in conflict with standards or The following are not changes in accounting policies:
interpretations a. the application of an accounting policy for transactions,
Consistency of accounting policies other events or conditions that differ in substance
An entity shall select and apply its from those previously occurring; and
accounting policies consistently for b. the application of a new accounting policy for
similar transactions, other events and transactions, other events or conditions that did not
conditions, unless an IFRS specifically occur previously or were immaterial.
requires or permits categorization of items
for which different policies may be Principle:
appropriate. If an IFRS requires or permits If change is due to new standard/interpretation, apply
such categorization, an appropriate transitional provisions.
accounting policy shall be selected and If no transitional provisions, apply retrospectively.
applied consistently to each category.
Retrospective application - applying a new accounting
policy to transactions, other events and conditions as if
that policy had always been applied.
However, if it is impracticable to determine either the
period-specific effects or the cumulative effect of the
change for one or more prior periods presented, the
entity shall apply the new accounting policy to the
carrying amounts of assets and liabilities as at the
beginning of the earliest period for which retrospective
application is practicable, which may be the current
period, and shall make a corresponding adjustment to
the opening balance of each affected component of
equity for that period.
Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies,
oversights or misinterpretations of facts, and fraud.
Principle: Disclosures:
Correct material prior period errors retrospectively in the first a. the nature of the prior period
set of financial statements authorized for issue after their error
discovery by: b. for each prior period presented,
a. restating the comparative amounts for the prior period(s) to the extent practicable, the
presented in which the error occurred; or amount of the correction:
b. if the error occurred before the earliest prior period i. for each financial statement
presented, restating the opening balances of assets, line item affected
liabilities and equity for the earliest prior period presented. ii. if IAS 33 applies to the entity,
for basic and diluted
A prior period error shall be corrected by retrospective earnings per share
restatement except to the extent that it is impracticable to c. the amount of the correction at
determine either the period-specific effects or the cumulative the beginning of the earliest
effect of the error. prior period presented
a. When it is impracticable to determine the period-specific d. if retrospective restatement is
effects of an error on comparative information for one or impracticable for a particular
more prior periods presented, the entity shall restate the prior period, the circumstances
opening balances of assets, liabilities and equity for the that led to the existence of that
earliest period for which retrospective restatement is condition and a description of
practicable (which may be the current period). how and from when the error
b. When it is impracticable to determine the cumulative effect, has been corrected
at the beginning of the current period, of an error on all prior e. Subsequent periods need not
periods, the entity shall restate the comparative information repeat these disclosures
to correct the error prospectively from the earliest date
practicable.
An entity shall adjust the amounts recognized in An entity shall not adjust the amounts
its financial statements to reflect adjusting events recognized in its financial statements to reflect
after the reporting period. non-adjusting events after the reporting period.
Examples: Examples:
a. the settlement after the reporting period of a a. decline in fair value of investments between
court case that confirms that the entity had a the end of the reporting period and the date
present obligation at the end of the reporting when the financial statements are authorized for
period. issue.
b. the receipt of information after the reporting b. a major business combination after the
period indicating that an asset was impaired reporting period or disposing of a major
at the end of the reporting period, or that the subsidiary
amount of a previously recognized impairment c. announcing a plan to discontinue an
loss for that asset needs to be adjusted. For operation
example: d. major purchases of assets, classification of
i. the bankruptcy of a customer that occurs assets as held for sale in accordance with
after the reporting period usually confirms IFRS 5, other disposals of assets, or
that the customer was credit-impaired at the expropriation of major assets by government
end of the reporting period; e. the destruction of a major production plant
ii. the sale of inventories after the reporting by a fire after the reporting period
period may give evidence about their net f. announcing, or commencing the implementation
realizable value at the end of the reporting of, a major restructuring (see IAS 37)
period. g. major ordinary share transactions and
c. the determination after the reporting period of potential ordinary share transactions after
the cost of assets purchased, or the proceeds the reporting period
from assets sold, before the end of the reporting h. abnormally large changes after the reporting
period. period in asset prices or foreign exchange
d. the determination after the reporting period of rates
the amount of profit-sharing or bonus i. changes in tax rates or tax laws enacted or
payments, if the entity had a present legal or announced after the reporting period that have
constructive obligation at the end of the a significant effect on current and deferred tax
reporting period to make such payments as a assets and liabilities
result of events before that date j. entering into significant commitments or
e. the discovery of fraud or errors that show that contingent liabilities, for example, by issuing
the financial statements are incorrect. significant guarantees
k. commencing major litigation arising solely out
of events that occurred after the reporting
period.
Disclosures:
1. The date when the financial statements were authorized for issue and who gave that
authorization. If the entity’s owners or others have the power to amend the financial statements after
issue, the entity shall disclose that fact.
2. If an entity receives information after the reporting period about conditions that existed at the end of
the reporting period (adjusting events), it shall update disclosures that relate to those conditions, in
the light of the new information.
3. If non-adjusting events after the reporting period are material, non-disclosure could influence the
economic decisions that users make on the basis of the financial statements. Accordingly, an entity shall
disclose the following for each material category of non-adjusting event after the reporting period:
Disclosures in the notes about going concern and dividends declaration shall be in accordance with IAS 1.
The disclosures have to be made in the related consolidated and separate financial
statements of:
A parent
Investors with joint control of an investee
Investor with significant influence over an investee.
Objective The objective of this IAS 24 is to ensure that an entity’s financial statements contain the
disclosures necessary to draw attention to the possibility that its financial position and
profit or loss may have been affected by the existence of related parties and by
transactions and outstanding balances, including commitments, with such parties.
Definitions
1. Related party - a person or entity that is related to the entity that is preparing its financial statements
(in this Standard referred to as the ‘reporting entity’)
a. A person or a close member of that person’s family is related to a reporting entity if that person:
i. has control or joint control of the reporting entity
ii. has significant influence over the reporting entity
iii. is a member of the key management personnel of the reporting entity or of a parent of the
reporting entity
b. An entity is related to a reporting entity if any of the following conditions applies:
i. The entity and the reporting entity are members of the same group (which means that each
parent, subsidiary and fellow subsidiary is related to the others).
ii. One entity is an associate or joint venture of the other entity (or an associate or joint venture of a
member of a group of which the other entity is a member).
iii. Both entities are joint ventures of the same third party.
iv. One entity is a joint venture of a third entity and the other entity is an associate of the third
entity.
v. The entity is a post-employment benefit plan for the benefit of employees of either the reporting
entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the
sponsoring employers are also related to the reporting entity.
vi. The entity is controlled or jointly controlled by a person identified in (a).
vii. A person identified in (a)(i) has significant influence over the entity or is a member of the key
management personnel of the entity (or of a parent of the entity).
viii. The entity, or any member of a group of which it is a part, provides key management personnel
services to the reporting entity or to the parent of the reporting entity.
2. Related party transaction - a transfer of resources, services or obligations between a reporting entity
and a related party, regardless of whether a price is charged
3. Close members of the family of a person - those family members who may be expected to influence,
or be influenced by, that person in their dealings with the entity and include:
a. that person’s children and spouse or domestic partner;
b. children of that person’s spouse or domestic partner; and
c. dependents of that person or that person’s spouse or domestic partner
4. Compensation - includes all employee benefits (as defined in IAS 19 Employee Benefits) including
employee benefits to which IFRS 2 Share-based Payment applies.
5. Key management personnel - those persons having authority and responsibility for planning,
directing and controlling the activities of the entity, directly or indirectly, including any director
(whether executive or otherwise) of that entity.
6. Government - refers to government, government agencies and similar bodies whether local, national or
international.
Entity A1 Entity U1
-Subsidiary of A -Controlled by U
-Joint venture of A -Jointly
Entity Y1 Entity Y2 - Associate of A controlled by U
-Controlled by Y -Y is KMP
-Jointly controlled by Y
-Significant influence
held by Y Entity Y3 Person V
-Controlled by Y2 -Close family
member of U
Person Z
-Close family member of Y Entity V1
-Controlled by V
-Jointly
controlled by V
Entity Z1 Entity Z2
-Controlled by Z -Z is KMP
-Jointly controlled by Z Entity B
-Significant influence -Jointly
held by Z Entity Z3 controls RE
-Controlled by Z2
Entity B1
-Joint venture of B
Person X Person W -Associate of B
-Close family -KMP of RE
member of W -Significant influence
over RE Entity C
-Significant
influence over
Entity X1 RE
-Controlled by X Entity W1
-Jointly -Controlled by W REPORTING ENTITY
controlled by X -Jointly controlled by W Entity C1
-Joint venture of C
Entity RE1 -Associate of C
-Subsidiary of RE
-Joint venture of RE
-Associate of RE
If an entity disposes of a group of assets, possibly with directly associated liabilities (i.e.
an entire cash-generating unit), together in a single transaction, if a non-current asset in
the group meets the measurement requirements in IFRS 5, then IFRS 5 applies to the
group as a whole. The entire group is measured at the lower of its carrying amount and
fair value less costs to sell.
In particular, the IFRS requires: (a) assets that meet the criteria to be classified as held
for sale to be measured at the lower of carrying amount and fair value less costs to sell,
and depreciation on such assets to cease; and (b) assets that meet the criteria to be
classified as held for sale to be presented separately in the statement of financial
position and the results of discontinued operations to be presented separately in the
statement of comprehensive income.
Definitions
1. Cash-generating unit – the smallest identifiable group of assets that generates cash inflows that are
largely independent of the cash inflows from other assets or groups of assets.
2. Discontinued operations – a component of an entity that either has been disposed of or is classified as
held for sale and:
a. represents a separate major line of business or geographical area of operations,
b. is part of a single coordinated plan to dispose of a separate major line of business or
geographical area of operations or
c. is a subsidiary acquired exclusively with a view to resale
3. Disposal group – a group of assets to be disposed of, by sale or otherwise, together as a group in a
single transaction, and liabilities directly associated with those assets that will be transferred in the
transaction.
4. Fair value – the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
Classification
1. An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will
be recovered principally through a sale transaction rather than through continuing use. The following
criteria must be met:
a. The asset (or disposal group) is available for immediate sale.
b. The terms of asset sale must be usual and customary for sales of such assets
c. The sale must be highly probable
Management is committed to a plan to sell the asset
An active programme to locate a buyer and complete the plan must have been initiated
Asset must be actively marketed for a sale at a reasonable price in relation to its current fair
value