STATEMENT OF FINANCIAL POSITION
Also called the “Statement of Financial
Condition” or “Balance Sheet”.
● Financial position of an entity at a particular
date.
● Economic resources (Assets)
● Economic Obligations (Liabilities)
● Net Assets (Equity/Capital)
● At a specific date.
● Assets = Liabilities + Equity
ELEMENTS OF FINANCIAL POSITION
Assets
● Present economic resource
○ Right that has the potential to produce
economic benefits.
● Controlled by an entity
● Result of past events
Liabilities
● Present obligation
○ Unable to avoid the obligation.
○ Identity of the person or entity to
whom the obligation is owed is not
necessarily known.
● Transfer an economic resource
○ Settled by paying cash, delivering
goods
or
services,
exchanging
economic resources on unfavorable
terms (onerous), creating another
obligation to replace the old, or issuing
a financial instrument equivalent to an
ownership interest.
● Result of past events.
○ Past transaction that the entity has
obtained economic benefits or taken
action that obliges it to transfer an
economic resource.
Equity
● Capital of any form of business organization
● Residual interest in the entity’s assets after
deducting all liabilities.
● Net assets
● Share Capital
● Share Premium (Additional Paid-In Capital)
● Accumulated Profits or Retained Earnings
● Cumulative Other Comprehensive Income
● Measured depends on the measurement of
assets and liabilities.
● Disclosure SFP/SCIE/Notes:
○ For each class of share capital:
■ the
number
of
shares
authorized;
■ the number of shares issued
and fully paid, and issued but
not fully paid;
■ par value per share, or that the
shares have no par value;
●
a reconciliation of the number
of shares outstanding as of the
beginning and at the end of
the period;
■ the rights, preferences, and
restrictions attaching to that
class, including restrictions on
the distribution of dividends
and the repayment of capital;
■ shares in the entity held by the
entity or by its subsidiaries or
associates (treasury shares)
and
■ shares reserved for issue under
options and contracts for the
sale of shares, including the
terms and amounts; and
○ A description of the nature and
purpose of each reserve within equity.
CONCEPT OF SUBSTANCE OVER FORM
● Substance
○ Parties’ actual intentions for a
transaction.
● Form
○ Legal aspect or document evidencing
the transaction.
● In case of conflict between substance and
for, recognition is given to its substance.
INFORMATION TO BE PRESENTED ON THE FACE OF SFP
● Minimum line items:
○ Property, plant, and equipment;
○ Investment property;
○ Intangible assets;
○ Financial assets not disclosed in other
headings enumerated below;
○ Investments accounted for using the
equity method;
○ Biological assets;
○ Inventories;
○ Trade and other receivables;
○ Cash and cash equivalents;
○ The total of assets classified as held for
sale and assets included in disposal
groups classified as held for sale under
○ IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations
○ Trade and other payables;
○ Provisions;
○ Financial liabilities not included in other
headings above
○ Liabilities and assets for current tax;
○ Deferred tax liabilities;
○ Liabilities included in disposal groups
classified as held for sale under IFRS 5.
■
Non-controlling interest, presented
within
equity
(for
consolidated
statements only);
○ Issued
capital
and
reserves
attributable to equity holders of the
parent.
● Additional line items and headings may be
presented on the face of SFP when the item
enhances the relevance of the informations
(presented based on):
○ the nature and liquidity of assets;
○ the function of assets within the entity;
and
○ the amounts, nature and timing of
liabilities.
● Main objective is to provide relevant
information to understand the entity’s
financial position.
REPORTING CLASSIFICATIONS OF THE SFP
● General requirement of IAS 1: classify assets
and liabilities into current and non-current.
● If presentation based on liquidity is more
relevant, do not apply current and
non-current presentation. (Presentation Based
on Liquidity - usually banks).
● Regardless of presentation, entity must
disclose the amount expected to be
recovered or settled within twelve months and
beyond twelve months.
Current Assets
● Any criteria:
○ Cash or cash equivalents (presentation
follow its purpose).
■ Set-aside
for
long-term
purposes (not timing of cash
disbursements) = NCA
○ Held for trading.
■ Equity Investments at FVPL
○ Expected to be realized within the
normal operating cycle.
○ Expected to be realized within 12
months from balance sheet date
(non-trade
assets
like
loan
receivables).
● Normal Operating Cycle
○ Time between the acquisition of assets
for processing and their realization in
cash or cash equivalents.
○ Length of time to complete the
following processes: purchase of
materials, production of goods, sale of
goods, and collection from customers.
○ Classifies
trade receivables and
inventories as current assets even if
they are not expected to be realized
○
in cash or sold within twelve months
from the end of the reporting period.
○ If not identifiable, presumed to be 12
months.
● Financial Assets at FVPL
○ Intended to meet the working capital
requirements
● Non-current Assets Held for Sale
○ Classified as current assets.
○ Presented separately.
Non-Current Assets
● Does not meet any criteria of current assets.
● Property, Plant, and Equipment
○ Tangible assets with an estimated
useful life beyond one year.
○ Land, Land Improvements, Buildings,
Machinery, Equipment, Furniture, Tools,
Returnable
Containers,
Leasehold
Improvements, Natural Resources or
Wasting Assets
● Investment Property
○ Land or a building or part of a building
(or both) held to earn rentals or for
capital appreciation or both.
● Investment in Associates
○ Investment in equity securities of
another enterprise that provides the
investor significant influence over the
investee.
○ Investor does not intend to trade nor
dispose of these securities within
twelve months from the date of
acquisition.
● Deferred Tax Assets
○ Account resulting from temporary
difference (book and tax bases of
certain assets and liabilities).
○ Arises from inter-period tax allocation.
● Receivables not Due Currently
● Other Non-Current Financial Assets
○ Not realizable within 12 months from
the reporting date and are not directly
involved in the operating cycle.
○ Bond
Retirement
Funds,
Plant
Expansion
Fund,
Long-term
Receivables and Advances to Officers,
Financial Assets at FVOCI, and
Investment in Debt Securities at
Amortized Cost.
● Intangible Assets
○ Identifiable
non-monetary
assets
without physical substance, controlled
by the enterprise, and provide the
enterprise some rights, privileges, and
competitive advantages.
○ Separately identifiable from the entity.
Could be reliably measured.
Patents,
Copyrights,
Trademarks,
Franchises
○ Goodwill
■ Not identifiable = NCA
■ Purchase Price - FVNA =
Goodwill
● Bioligical Assets
○ Living animals and plants held by a
companyengaged in raising livestock,
forestry, cropping, cultivating orchards
and
plantations,
floriculture,
or
aquaculture.
○ Distinguished
from
agricultural
produce.
■ Harvested product of the
entity’s biological assets
■ Example: Cow - Milk
Current Liabilities
● Settled in a normal operating cycle (Trade
and Accounts Payable)
● Settled within 12 months from Balance Sheet
date (For Non-trade payables like Bonds
Payable).
● No right at the end of the reporting period to
defer settlement of the liability at least 12
months after the reporting period.
● Held for Trading (FInancial Liability at FVPL)
● Examples: Trade Payables, Accrual for
Operating Costs, Bank Overdrafts, Dividends
Payable, Current Portion of Long-term
Non-Trade Payables.
● Refinancing of Currently Maturing Obligations
○
○
●
●
Refinancing is done through:
○ Extension of Maturity Date
○ Entering into a borrowing transaction,
proceeds of which will be used to
settle the maturing obligation.
Breach of Covenant Agreement
○ Due
and demandable (Current
Liability)
○ Not unless there is a grace period
provided (NCL).
If the following events (breach and
refinancing) occur between the reporting
period and the date financial statements are
authorized for issue:
○ Disclosed as non-adjusitng events to
the Notes of the Financial Statements:
■ Refinancing on a long-term
basis
■ Rectification of a breach of a
long-term loan arrangement
■ The granting by the lender of a
period of grace to rectify a
braeach of a long-term loan
arrangement ending at least
twelve
months
after
the
reporting period.
FORMS OF THE STATEMENT OF FINANCIAL POSITION
● No prescribe uniform format by IAS 1.
● May present separate line items when the size,
nature, or function of an aggregation of
similar items will make the financial information
more useful.
● Entity shall exercise its judgment on whether to
present additional items separately based on
its assessment of:
○ Nature and liquidity of assets
○ Function of assets within the entity
○ Amounts , nature and timing of
liabilities.
Report Form
● Straight line or vertical presentation of assets,
liabilities and equity.
Account Form
● T-account
● Assets - left side
● Liabilities and equity - right side
Financial Position Form
● Emphasizes the working capital position
● Current Assets - Current Liabilities = Working
Capital
● After, NCA are added and NCL deducted,
leaving a residual amount (equity or net
assets).
●
EVENTS AFTER THE REPORTING PERIOD
● Events between the end of the reporting
period and the date when financial
statements are authorized for issue.
● Classified as adjusiting and non-adjusting
events after the reporting period.
Adjusting Events After the Reporting Period
● The settlement after the reporting period of a
court case confirming that the entity had a
present obligation at the reporting date.
● The receipt of information after the reporting
period indicating that an asset was impaired
at the reporting
● date.
● The determination after the reporting period
of the cost of assets purchased, or the
proceeds from assets sold during the reporting
period.
● The determination after the reporting date of
the amount of profit-sharing or bonus
payments, if the entity had a present legal
obligation or constructive obligation to make
such payments as a result of events before the
end of the reporting period.
● The discovery of fraud or errors showing that
the financial statements are incorrect.
Non-Adjusting Events After the Reporting Period
● A major business combination or disposing of
a major subsidiary;
● Announcing a plan to discontinue an
operation, disposing of assets or settling
liabilities attributable to a discontinuing
operation, or entering into a binding
agreement to sell such assets or settle such
liabilities;
● Major purchases and disposals of assets, or
expropriation of significant assets by the
government;
● The destruction of a major production plant
by a fire;
● Announcing
or
commencing
the
implementation of a major restructuring;
● Major ordinary share transactions and
potential ordinary share transactions;
● Abnormally large changes, after the reporting
date, in asset prices or foreign exchange
rates;
● Changes in tax rates or tax laws enacted or
announced after the reporting period that
have a significant effect on current and
deferred tax assets and liabilities;
● Entering into significant commitments or
contingent liabilities, for example, by issuing
significant guarantees; and
●
Commencing major litigation arising solely out
of events that occurred after the reporting
period.
NOTES TO THE FINANCIAL STATEMENTS
Present the basis of FS preparation and
specific accounting policies used.
● Information required by IFRS that is not
presented elsewhere or on the face of the FS
(Disclosures).
● Additional
information
not
presented
elsewhere in the FS, but relevant.
● Logical sequence with cross-reference to any
related information in the notes.
● Notes are generally presented in the following
order, which assists users in understanding the
financial statements and comparing them
with financial statements of other entities (IAS
1)
○ A statement of compliance with IFRS;
○ A summary of significant accounting
policies applied;
○ Supporting information for items
presented on the face of the
statement
of
financial
position,
statement of comprehensive income,
statement of changes in equity, and
statement of cash flows, in the order in
which each statement and each line
item is presented; and
○ Other disclosures, including
■ contingent
liabilities
and
unrecognized
contractual
commitments; and
■ non-financial disclosures
● Not all accounts or amounts on the Face of
the FS requires notes (significant only).
Note 1: Reporting Entity
● Name
● Location
● Date of incorporation
● Parent
Note 2: Basis of FS Preparation
● Full PFRS/ PFRS for SME/ PFRS for Small Entity
● Statement of Compliance (in compliance with
the applicable Financial Reporting Framework
● Basis of the Consolidated FS
Note 3: Significant Accounting Policies
● Measurement basis (or bases) used in
preparing the FS
● Other accounting policies used that are
relevant.
Note 4: Judgments , Estimates, and Assumptions
Other Disclosures
● Disclosures of significant events after the
reporting period, key sources of estimation,
●
●
●
the basis of resolving uncertainties, and
information not required by any accounting
standard but are necessary to make the
financial statements not misleading are also
disclosed in the notes.
Entity shall also disclose in the notes
○ the amount of dividends proposed or
declared
before
the
financial
statements are authorized for issue but
not recognized as a distribution to
equity holders during the period, and
the related amount per share; and
○ the amount of any cumulative
preference dividends not recognized.
Entity shall disclose the following if not
disclosed elsewhere in information published
with the financial statements
○ the domicile and legal form of the
entity, its country of incorporation, and
the address of its registered office or
principal place of business;
○ a description of the nature of the
entity's operations and its principal
activities;
○ the name of the parent and the
ultimate parent of the group; and
○ if it is a limited life entity, information
regarding the length of life.
STATEMENT OF COMPREHENSIVE INCOME
Single most significant financial statement.
Most critical measure of an entity’s
performance.
● Assessment
of
the
overall
financial
performance of an entity.
COMPREHENSIVE INCOME
● Change in equity from transactions other than
those with the owners.
● Excludes contribution from owners and
distribution to owners.
● Profit/Loss
○ Income - Expense
■ Conventional
Income
Statement
● Other Comprehensive Income
○ Mainly of unrealized items of gains and
losses that an entity expects to reverse
over time.
APPROACHES TO MEASUREMENT OF PROFIT
Capital Maintenance Approach
● Economist’s view of determining profit.
● Not generally used because it fails to link the
information
provided
with
the
user’s
understanding.
● Profit/Net Income = Ending Capital Beginning Capital
●
●
○
After
excluding the
transactions with owners.
effects
of
Financial Capital Maintenance
○ Profit = Net Assets, Ending > Net Assets,
Beginning
● Physical Capital Maintenance
○ Adoption of the current cost basis of
measurement.
○ Profit = Physical Productive Capacity,
End > Physical Productive Capacity,
Beginning
Transaction Approach
● Profit = Income - Expenses
● Accrual Basis
● Helps users better assess the future
performance of the entity and its ability to
generate cash flows.
ELEMENTS OF PERFORMANCE
Income
● Increases in economic benefits during the
reporting period in the form of inflows or
enhancements of assets or decreases of
liabilities that result in increases in equity other
than those relating to contribution from equity
participants.
● Revenue
○ Revenue-producing activities
● Gains
○ Incidental transactions
Expenses
● Decreases in economic benefits during the
reporting period in the form of outflows or
depletion of assets or incurrences of liabilities
that result in decreases in equity other than
those relating to contribution from equity
participants.
● Operating Expense
○ Primary revenue-producing activities
● Losses
○ Incidental transactions
EXPENSE RECOGNITION
Associating Cause and Effect
● Directly associating the cost incurred with the
specific items of income.
● Matching Principle
○ Entity recognizes expense in the same
period when it earns and recognize
the related revenues.
● Example: COGS, Sales Commission, Warranty
Expense and Premium Expense
Systematic and Rational Allocation
● Expects economic benefits from a cost over
several reporting periods
● Cannot directly associate the costs with
revenues earned.
●
Example: Depreciation and Amortization of
long-lived assets, insurance, and rent.
Immediate Recognition
● Immediately recognize expenditure (expense)
● When such cost produces no future economic
benefits
● Future economic benefits do not qualify or
cease to qualify for recognition of assets.
● Example:
Amounts
paid
to
Lawsuits,
Intangibles determine to be worthless,
Long-lives assets destroyed by fire, Effects of
flood and other casualties, Advertising
Expenditures,
Research
Costs,
and
Development Costs that do not meet the
capitalization criteria.
REVENUE RECOGNITION PRINICIPLES
● General Rule: goods are delivered, services
are rendered
Revenue Recognition Under IFRS 15 (Revenue from
Contracts with Customers)
● Approved and issued by IASB in May 2014.
● Effectivity - beginning or after January 1, 2018
● Five-step Process Revenue Recognition
○ Identifying a contract with a customer;
○ Identifying the performance obligation
in the contract;
○ Determining the transaction price;
○ Allocating the transaction price to the
performance
obligations
in
the
contract; and
○ Recognizing the revenue when or as
the entity satisfies a performance
obligation
● Contract is within the Scope of IFRS 15 if all
conditions are met:
○ The contract has been approved by
the parties to the contract;
○ Each party's rights concerning the
goods or services to be transferred can
be identified;
○ The payment terms can be identified;
○ The
contract
has
commercial
substance; and
○ It is probable that the consideration to
which the entity is entitled in exchange
for the goods or services will be
collected.
● Performance Obligation
○ In the form of delivery of goods or
services (or bundle of goods or
services) that is distinct or a series of
distinct goods or services that are
substantially the same and that have
the same pattern of transfer to the
customer.
○ Transaction Price
●
Amount the entity expects to
be entitled to in exchange for
the
goods
and
services
transferred.
■ Multiple
performance
obligations = allocate to
stand-alone selling prices
○ When it is to be met by an entity over
a period of time, transaction price is
allocated as revenue when the
performance
obligation
is
proportionately satisfied.
● Revenue is recognized as control of the asset
is passed, either over time or at a point in time
● Control of an Asset
○ Ability to direct the use of ans obtain
substantially all of the remaining
benefits from an asset.
● At a point in time:
○ the entity has a present right to
payment for the asset;
○ the customer has legal title to the
asset;
○ the entity has transferred physical
possession of the asset;
○ the customer has the significant risks
and rewards related to the ownership
of the asset; and
○ the customer has accepted the asset.
● Over time:
○ the customer simultaneously receives
and consumes all of the benefits
provided by the entity as the entity
performs;
○ the entity's performance creates or
enhances an asset that the customer
controls as the asset is created; or
○ the entity's performance does not
create an asset with an alternative use
to the entity, and the entity has an
enforceable right to payment for
performance completed to date.
Special Revenue Recognition Principle
● End of Production Method
○ Recognizes revenue before the actual
sales of goods
○ Installment Method
■ Recognizes revenue in direct
proportion to collections during
the period.
■ Gross
Profit
Realized
=
Collections x GP rate based on
Sales
○ Cost Recovery Method
■ Used when collection is highly
uncertain
■
Most
prudent
recognition
method
■ Collections are first regarded as
cost recovery and then a profit
realization.
○ Installment and Cost Recovery Method
are not applicable for Financial
Reporting because they could not find
theoretical support under IFRS.
CONCEPT OF COMPREHENSIVE INCOME
● IAS 1 - from Income Statement to Statement of
Comprehensive Income
● Change in equity arising from events other
than those from transactions with enterprise
owners.
● Revenue, gains, expense, losses
● Divided into two: Profit/Loss and Other
Comprehensive Income
○ Sum of the two is called Total
Comprehensive Income
Profit/Loss
● Components
of
Conventional
Income
Statement
● Income - Expense = Profit/Loss
Other Comprehensive Income
● Items meet the definition of income or
expenses, but are excluded from P/L.
● Recycled to P/L (Recycle means if related
assets or liabilities are derecognized):
○ Gains and Losses from FOREX
○ Gains and Losses on Remeasurement
of Debt Investments at FVOCI
○ Effective Portion of gain and Losses on
hedging investment in a Cash Flow
Hedge
● Not Recycled to P/L (Recycled to RE when
related assets or liabilities are derecognized):
○ Gains or Losses on remeasurement of
DBO
○ Gains or Losses on remeasurement of
Equity Investments at FVOCI
○ Financial Liability designated at FVPL
attributed to Credit Risk
■ If hindi credit risk sa P/L siya.
■ Credit Risk - risk of default or risk
that the other party cannot
pay
its
duty when the
obligation becomes due
○ Revaluation Surplus
Presentation of SCI
● Single Statement
○ Direstso from income to OCI
● Two-statement
○ Presented separately
○ OCI will start with the P/L
■
○
Clearly shows the entity’s operations
result.
INFORMATION TO BE PRESENTED ON THE FACE OF SCI
● Profit/Loss (minimum):
○ revenue, presenting separately (a)
interest revenue and (b) insurance
revenue;
○ gains and losses arising from the
derecognition of financial assets
measured at amortized cost;
○ insurance
service
expenses
(for
insurance companies);
○ finance costs;
○ share of the profit or loss of associates
and joint ventures accounted for using
the equity method;
○ if a financial asset is reclassified so that
it is measured at fair value, any gain or
loss arising from a difference between
the previous carrying amount and its
fair value at the reclassification date;
○ tax expense;
○ a single amount for the discontinued
operations
■ (a) the post-tax profit or loss of
discontinued operations and
■ (b) the post-tax gain or loss
recognized
on
the
measurement to fair value less
costs to sell or on the disposal
of assets or disposal groups
constituting the discontinued
operations;
○ profit or loss;
● OCI (minimum):
○ Each component of the other
classified by nature and grouped into
those that (a) wil be reclassified
subsequently to profit or loss and (b)
will not be reclassified subsequently to
profit or loss.
○ Share of other comprehensive income
of associates and joint ventures
accounted for using the equity
method and grouped into those that
(a) will be reclassified subsequently to
profit or loss and (b) will not be
reclassified subsequently to profit or
loss.
○ total other comprehensive income;
and
○ total comprehensive income
● For Conso FS
○ profit or loss attributable to
■ non-controlling interests, and
■ owners of the parent.
total
comprehensive
income
attributable to
■ non-controlling interests, and
■ owners of the parent.
● The following are circumstances that would
give rise to the separate disclosure of items of
income and expense:
○ write-downs of inventories to net
realizable value or of property, plant,
and
equipment
to
recoverable
amount, as well as reversals of such
write-downs;
○ restructurings of the activities of an
entity and reversals of any provisions
for the cost of restructuring;
○ disposals of items of property, plant,
and equipment;
○ disposals of investments;
○ Litigation settlements
○ Other reversal provisions
Presentation of Expenses
● Nature of Expense
○ Aggregated according to nature
○ Does not show COGS
○ Increase or decrease in inventory =
adjustment to Net Purchases
○ Inherent characteristics
○ Example:
Dep.
Exp,
Purchases,
Transportation, Salary Expense
● Function of Expense
○ Cost of Sales Method
○ According to their purpose or function
○ Provides more relevant information
○ COGS or Cost of Sales
■ Most significant item deducted
from revenue
○ Selling Expense
■ Directly related to sale efforts
○ G&A
■ cost of running the business
○ Other operating expenses - if they
does not fall under COGS, SE, and
G&A
● Finance Costs
○ Separate line item in P/L
○ Expenditure related to borrowing such
as interest expense, discounts lost on
merchandise purchases, discounts lost
on
purchases
of
other
NCA,
amortization of discounts on long-term
debts, and additional costs ancillary to
borrowings.
○
DISCONTINUED OPERATIONS (IFRS 5)
● Presented separately in the SCI
● Enable financial statement users to evaluate
its current financial performance and better
predict future performance.
● Assessing the ongoing ability of the enterprise
to generate cash flows
● Separately part of P/L
● Component of an entity that either has been
disposed of or classified as held for sale
● Component of an Entity
○ comprises operations and cash flows
that can be distinguished operationally
and for financial reporting purposes
from the rest of the entity.
○ will have been a cash-generating unit
or a group of cash-generating units
held for use
● discontinued operation may be a segment, a
reporting unit, a subsidiary, or an asset group
● component is classified as a discontinued
operation at the date the entity has disposed
of the operation of the component or at the
date the component meets the criteria to be
classified as held for sale.
● Held for Sale if:
○ Carrying amount (asset and liability)
will be recovered principally through a
sale transaction rather than continuing
use
○ Assets must be available for immediate
sale in their present condition, and sale
must be highly probable
RECOGNITION AND MEASUREMENT
● apply the principles of IAS 36 Impairment of
Assets, and IAS 37 Provisions, Contingent
Liabilities, and Contingent of Assets
● Expenses
directly
resulting
from
the
discontinuance of the segment, such as
employees' termination costs and other
disposal costs, are reported under the
discontinued operations.
● impairment loss is recognized before the
actual sale of the discontinued segment if, at
the end of the reporting period, the net
recoverable value of the segment's net assets
is lower than its carrying value. (NRV < CV)
PRESENTATION OF DISCONTINUED OPERATIONS IN THE
STATEMENT OF COMPREHENSIVE INCOME
● Disclose a single amount comprising of:
○ post-tax profit or loss of the
discontinued operations; and
○ post-tax gain or loss recognized on the
measurement to fair value less costs to
sell or on the disposal of the assets or
disposal
groups
constituting the
discontinued operation.
● If unit is dispose during the reporting period,
include:
○ the after-tax profit or loss from the
operations
of
the
discontinued
operations
○ the after-tax gain or loss from the
disposal of the assets and settlement
of the liabilities of the discontinued
operations.
● Unit is not disposed:
○ the after-tax profit or loss from the
operations
of
the
discontinued
operations; and
○ the after-tax loss due to measurement
of the net assets to the lower between
the carrying amount and fair value less
cost to sell.
● An analysis of the single amount presented on
the statement of comprehensive income as
discontinued operations may be presented in
the notes or the face, identifying the section
relating to discontinued operations and shown
separately from continuing operations.
● The analysis consists of:
○ the revenue, expenses, and pre-tax
profit
or
loss
of
discontinued
operations;
○ the gain or loss recognized on the
measurement to fair value less cost to
sell or on the disposal of the assets
constituting
the
discontinued
operations; and
○ the income tax expense related to (a)
and (b). The statement on the next
page illustrates how "discontinued
operations" is presented on the
statement of comprehensive income
following the requirements of IFS 5. The
format classifies the expenses by
function.
Earning Per Share
● Public entities are required to present on the
Face of SCI.
STATEMENT OF CHANGES IN EQUITY
●
●
shows the events and transactions that took
place during a reporting period that affected
equity
information taken from the statement of
comprehensive
income
+
all
other
transactions involving the various shareholders'
equity accounts, including transactions with
owners.
Presented on the Face of SCIE
● Total comprehensive income for the period
showing separately the amounts due to
owners of the parent and to non-controlling
interests;
● For each component of equity, the effect of
any retrospective application or retrospective
restatement as a result of the change in
accounting policy or correction of prior period
errors;
● For
each
component
of
equity,
a
reconciliation of the carrying amount at the
beginning and the end of the period,
separately disclosing changes resulting from
○ profit or loss;
○ each item of other comprehensive
income;
○ transactions with owners, showing
separately contributions from and
distributions to owners.
● Enterprise should disclose any amounts of
dividends recognized during the period and
the dividends per share either in the statement
of changes in equity or the notes to the
financial statements.
CHANGE IN ACCOUNTING POLICY
● accounting policies are normally adopted
from one period to another so that users may
compare the financial statements of an
enterprise over a period to identify trends in its
financial position, performance, and cash
flows.
● Entity shall change an accounting policy only
if the change:
● Involuntary Change
○ is required by an IFRS; or
● Voluntary Change
○ results in the financial statements
providing reliable and more relevant
information about the effects of
transactions,
other
events,
or
conditions on the entity's financial
position, financial performance, or
cash flows.
○ Transition from one accounting policy,
and both old and new policies are
generally accepted and follow the
prevailing reporting standards.
○ Early application of an IFRS is not a
voluntary change.
Accounting Treatment for Changes in Accounting
Policies
Involuntary Change
● With transitional provision - follow the
transitional provision.
● No transitional provision - change shall be
treated retrospectively unless impracticable.
● Retrospective Application
○ Restating for prior periods.
○ Cumulative effect of such change
shall be considered an adjustment to
the beginning balance of retained
earnings or another component of
equity of the earliest prior period
presented.
○ Impracticable when the enterprise
cannot retrospectively apply the new
accounting policy after making every
reasonable effort.
○ For a particular prior period, it is
impracticable to retrospectively apply
a change in an accounting policy if:
■ the effects of the retrospective
application
are
not
determinable;
■ the retrospective application
requires assumptions about
what management's intent
would have been in that
period; or
■ the retrospective application or
retrospective
restatement
requires significant estimates,
and it is impossible to distinguish
objectively information about
other information from those
estimates
that
provide
evidence of circumstances
that existed on the date(s) at
which those amounts are to be
recognized and would have
been available for that prior
period
● Shall Disclose:
○ the title of the IFRS;
○ when applicable, that the change in
accounting
policy is made in
accordance
with
transitional
provisions;
○ the nature of the change in
accounting policy;
○ when applicable,
○ a description of the transitional
provisions
when applicable, the transitional
provisions that might affect future
periods;
○ for the current period and each prior
period presented, to the extent
practicable, the amount of the
adjustment for each financial line item
affected and for basic and diluted
earnings per share;
○ the amount of the adjustment relating
to periods before those presented, to
the extent practicable; and
○ if
retrospective
application
is
impracticable, the circumstances that
led to the existence of that condition
and a description of how and from
when the change in accounting policy
has been applied.
Voluntary Change
● apply the change retrospectively, adjusting
the opening balance of each affected
component of the equity for the prior periods
presented and other comparative amounts
disclosed for the prior periods presented as if
the new accounting policy had always been
applied, unless it is impracticable to do so.
● Shall disclose:
○ the nature of the change in
accounting policy;
○ the reasons why applying the new
accounting policy provides reliable
and more relevant information;
○ for the current period and each prior
period
presented,
the
extent
practicable, the amount of the
adjustment
for
each
financial
statement line item affected and for
basic and diluted earnings per share;
○ the amount of the adjustment relating
to periods before those presented to
the extent practicable; and
○ if
retrospective
application
is
impracticable, the circumstances that
led to the existence of that condition
and a description of how and from
when the change in accounting policy
has been applied.
● In all instances that require a restatement of
prior periods presented, present three sets of
statements of financial position:
○ at the end of the current period,
○ at the end of the previous period/s,
and
○ at the beginning of the earliest prior
period presented.
○
In all these circumstances, when an additional
statement of financial position is required, the
statement of financial position at the
beginning of the earliest prior period
presented shall have been adjusted to give
effect to the retrospective application of
accounting policy, reclassification of financial
statement element or any other retrospective
restatement.
ERRORS
● presence of errors and other misstatements
may affect the measurement of the financial
statement elements and the evaluation of the
decision-makers.
● misstatements must be rectified, and
appropriate disclosures must be made.
● May result from:
○ mathematical mistakes;
○ failure
to
apply
appropriate
accounting policies;
○ misinterpretation of facts;fraud; or
○ simply oversights.
● Detects error = take action to free from error
● Material Prior Period Error
○ Errors from past - discovered in the
current
○ Accounted as prior period adjustments
and
require
a restatement of
comparative prior period FS.
○ Effects - excluded from determining
P/L.
○ Adjustment to RE or other components.
Accounting Treatment
● Retrospective
○ restating the comparative amounts for
the prior period(s) presented in which
the error occurred; or
○ if the error occurred before the earliest
prior period, restating the opening
balances of assets, liabilities, and
equity for the earliest prior period
presented.
● Shall disclose:
○ the nature of prior period error;
○ for each prior period presented, to the
extent practicable, the amount of the
correction:
■ for each financial statement
line item affected; and
■ (if the company is required to
present earnings per share
information) for basic and
diluted earnings per share;
○ the amount of the correction at the
beginning of the earliest prior period
presented; and
●
if
retrospective
restatement
is
impracticable for a particular prior
period, the circumstances that led to
the existence of that condition, and a
description of how and from when the
error has been corrected.
OTHER COMPREHENSIVE INCOME REPORTED IN THE
STATEMENT OF CHANGES IN EQUITY
● Must be classified based on nature.
● Presentation is made in the second section of
the SCI
● Cumulative amount is transferred to SCIE.
● When a component of other comprehensive
income is a frequent and material transaction
in an entity, a separate column is shown for
this item in the statement of changes in equity;
● Otherwise, a single column would suffice for
the
different
components
of
other
comprehensive income.
○
STATEMENT OF CASH FLOWS
Cash receipts and cash disbursements during
a period.
● Determining an entity’s short-term viability
(ability to pay its obligations).
● Assess the ability of the enterprise to remain
solvent (pay its expenses, repay debts, and
provide returns to the investors and creditors).
● Historical cash and cash equivalents changes
during a reporting period.
● Provides information that enable users to
evaluate the changes in net assets of an
enterprise and its financial structures.
CASH EQUIVALENTS
● short-term, highly liquid investments that are
both:
○ Readily convertible to known amounts
of cash.
○ Subject to an insignificant risk of
changes in value.
● Short maturity (3 months or less from the date
of acquisition).
● Enterprise should disclose the components of
cash and cash equivalents, and present a
reconciliation of the amounts in the Statement
of Financial Position.
● Enterprise should also disclose in the Notes to
the FS the policy it adopts in determining the
composition of its cash and cash equivalents.
●
CASH FLOW ACTIVITIES
● Transaction that results in the inflow and
outflow of cash and cash equivalents.
Conversion of cash to cash equivalents, and
vice versa = not cash flow activities.
PRESENTATION OF STATEMENT OF CASH FLOWS
● Classification by activity provides information
that allows users to assess the impact of those
activities on the financial position of the
enterprise and the amount of its cash and
cash equivalents.
● Cash and Cash Equivalent Balance (SCF) =
Cash an Cash Equivalent Balance (SFP)
OPERATING ACTIVITIES
● How an enterprise generated sufficient cash
to repay loans, maintain the operating
capability, pay dividends, adn make new
investments without recourse to external
financing.
● Derived from principal revenue-producing
activities.
● Result from the transactions and other events
that determine the Profit/Loss.
● Examples:
○ Cash receipts from the sale of goods
and rendering of services.
○ Cash receipts from royalties, fees,
commissions, and other revenue.
○ Cash payment to suppliers for goods
and services.
○ Cash payments to and on behalf of
the employees.
○ Cash receipts and payments of an
insurance enterprise for premiums and
claims, annuities, and other policy
benefits.
○ Cash payments or refunds of income
taxes unless they can be specifically
identified with financing and investing
activities.
○ Cash receipts and payments from
contracts held for dealing or trading
purposes.
INVESTING ACTIVITIES
● Represent the extent to which expenditures
have been made for resources intended to
generate future income and cash flows.
● Affect non-trade assets, most are Non-Current
Assets.
● Examples:
○ Cash payments to acquire PPE,
intangibles, and other long-term assets.
(includes capitalized development
cosrs and self-constructed PPE)
○ Cash receipts from sales of PPE,
intangibles, an other long-term assets.
○ Cash payments to acquire investments
in equity or debt instruments or other
●
enterprises and interests in joint
ventures.
○ Cash receipts from sales of investments
in equity or debt instruments or other
enterprises and interests in joint
ventures.
○ Cash advances and loans made to
other parties (except by a financial
institution).
○ Cash receipts from the repayment of
advances and loans made to other
parties.
○ Cash payments for future contracts,
forward contracts, option contracts,
and swap contracts, except when the
contracts are held for dealing, on
trading purposes, or the payments are
classified as financing activities.
○ Cash receipts from future contracts,
forward contracts, option contracts,
and swap contracts, except when the
contracts are held for dealing, on
trading purposes, or the payments are
classified as financing activities.
FINANCING ACTIVITIES
● useful in predicting claims on future cash flows
by providers of capital to the enterprise.
● Transactions with non-trade creditors and
shareholders.
● Examples:
○ Cash proceeds from issuing shares or
other equity instruments.
○ Cash payments to owners to acquire
or redeem the enterprise’s shares.
○ Cash
proceeds
from
issuing
debentures, loans, notes, bonds,
mortgages, and other short or
long-term borrowings.
○ Cash
repayments
of
amounts
borrowed.
○ Cash payments by a lessee for the
reduction of the outstanding lease
liability.
Interest and Dividends
● Disclosed separately.
● Shall be classified consistently from period to
period as either operating, investing or
financing activities.
● Generally, operating (Interest Paid, Interest
and
Dividends
Received
enter
the
determination of Profit/Loss).
● Interest Paid
○ Burden of financing (alternately shown
under Financing Activities).
● Interest and Dividends Received
Fruits of investments (may be classified
as Investing Activities).
● Dividends Paid
○ Distributions to shareholders (finace
providers).
○ Financing Activity
○ Alternately, operating activities to
assist users in determining the ability of
an enterprise to pay dividends out of
operating cash flows.
Taxes on Income
● Separately disclosed.
● Generally, operating activities.
● However, if it's identifiable to a specific
activity, it will fall under that classification.
● Example:
○ Tax of cash flow from financing activity
= tax will be classified to financing
activity.
FOREIGN CURRENCY CASH FLOWS
● Unrealized gains and losses arising from
changes in foreign currency exchange rates
are not cash flows.
● However, effect of exchange rate changes
on cash and cash equivalents held or due in a
foreign currency is reported in the SCF to
reconcile cash and cash equivalents at the
beginning of the period.
● Separate item in the SCF.
NON-CASH TRANSACTIONS
● Not reported in the SCF.
● If material, disclose elsewhere in the FS
● Examples:
○ Acquisition of assets either by assuming
directly related liability or through
finance lease.
○ Acquisition of an enterprise by issuing
securities.
○ Conversion of debt to equity.
REPORTING CASH FLOWS FROM OPERATING ACTIVITIES
A. DIRECT METHOD
● Shows the major classes of gross cash receipts
and gross cash payments.
● Encouraged by IAS 7 (provides valuable
information in estimation of future cash flows).
● Accrual
Basis to Cash Basis (considering
changes in the related accounts in the SFP).
B. INDIRECT METHOD
● Adjusts the profit or loss for the effects of
non-cash transactions, any deferrals or
accruals, and items of income or expense
associated with investing or financing
activities.
● Adjusting Profit/Loss for the Effects of:
○ Changes in current assets and current
Liabilities involved in the company’s
○
●
●
operating cycle that affected cash
flows differently than profit.
○ Non-cash items such as depreciation,
deferred taxes, unrealized foreign
currency
gains
and
losses,
undistributed earnings of associates.
○ All other items for which the cash
effects are investing or financing cash
flows.
Provides a valuable link between the SCF and
the P/L in the SCI and account balances in
SFP.
Preparers prefer this method (easier and more
convenient)
Adjustment to P/L
Increase
Assets
in
Current
-
Decrease
Assets
in
Current
+
Increase
Liabilities
in
Current
+
Decrease
Liabilities
in
Current
-
EARNINGS PER SHARE
Objective:
○ Improve
the
comparison
of
performance
information
among
different enterprises in the same
period.
○ Performance information of the same
entity between reporting periods.
● Metric used by potential investors.
● Ordinary Shareholders (Net Income or Net
Loss).
● Preference Shareholders (Fixed Rate of
Dividends).
PRESENTATION OF EARNINGS PER SHARE
● Required to be presented in the Face of
Statement of Comprehensive Income, if:
○ Ordinary shares are publicly traded.
○ In the process of issuing shares to the
public.
● Private entity (presentation is optional).
● Continuing Operations (Face of P/L)
● Discontinued Operations (Face of P/L or
Disclose in Notes)
● Consolidate FS (Face of P/L)
● Separate FS (Optional, but not consolidated
amount. Use own EPS).
● Increase of BEPS = More attractive the
Company.
●
BASIC EARNINGS PER SHARE
● Provide a measure of interests of each
ordinary share in the performance of the
entity.
● Shall be calculated for P/L attributable to the
enterprise’s ordinary shares.
● Ordinary Shares: equity instrument that is
subordinate to all other classes of equity
instruments.
Net Income or Net Loss - Preference Shares Dividend
BEPS =
WANOSO
THE NUMERATOR
● Profit/Loss after making adjustments:
○ Amounts of preference dividends
○ Redemption premium payable on
preference shares
○ Other similar effects of preference
shares classified as equity
Adjustments to Profit for Amount of Preference
Dividend
● Deducted from P/L.
● Fixed rate that Preference Shareholders are
entitled to receive during the period (current
period).
● CUMULATIVE
○ Whether or not declared. (for the
period only)
○ Declared + Undeclared
● NON-CUMULATIVE
○ Declared during the period.
Adjustments for Differences in Settlement of
Preference Shares
● May be repurchased or retired.
CV of Pref. Share = Share Capital + Share Premium
●
●
●
●
Total issue price = cash inflow
Redemption price = cash outflow
CV of PS > Redemption Price = GAIN
CV of PS < Redemption Price = LOSS
BEPS =
Net Income or Net Loss - Preference Shares Dividend
+ Gain
WANOSO
BEPS =
Net Income or Net Loss - Preference Shares Dividend
- Loss
WANOSO
THE DENOMINATOR
Weighted Average Number of Ordinary Shares
Outstanding (WANOSO)
● Basis for the per share amounts reported (for
EPS).
● Weighted by the fraction of period they are
outstanding.
○ To find the equivalent number of
whole shares outstanding for the year.
Period Indicators:
Issuance of Shares
Issuance Date
Business Combination
Acquisition Date
Conversion to Ordinary
Shares
Conversion Date
Purchase
Shares
Acquisition Date
of
Treasury
Settlement of Liability
Settlement Date
Subscribed Shares
Subscription Date
Adjusting for the Effects of Bonus Issue/Stock
Dividends and Share Split
● If present, restatement of the shares
outstanding before the bonus issue or share
split is required.
● Retrospective Treatment
○ Assumed to be outstanding since the
beginning of the earliest period
presented or at the date of issuance of
the shares (before the split or bonus
issue), whichever comes later.
● Restated because these transactions do not
change the shareholder’s investment, but only
increase the number of ordinary shares
representing the investment.
Adjusting for the Effects of Stock Rights
● Issued: Exercise Price < FV of Shares (often)
○
Includes a bonus element
Net Income or Net Loss - Preference Shares Dividend
BEPS =
WANOSO before Rights Issuance + WANOSO OF SR
Share Rights Wanoso:
WANOSO of
Share Rights =
(Number of Share Rights Outstanding before
Exercise + Numbers of Shared Issued in the
Exercise) (Adjustment Factor)
Adjustment Factor:
Fair Value Rights-On
AF =
Theoretical Value of Ex-Rights
FV Share Rights-On = FV of Shares immediately prior to
the Exercise of Rights
Theoretical Value of Ex-Rights:
TV of ER =
Fair Value Rights-On — Theoretical Value Rights-On
Theoretical Value Rights-On:
FV Rights-On — Exercise Price
TVRO =
Number of Share per Rights + 1
DILUTED EARNINGS PER SHARE
● Profit/Loss attributable to ordinary equity
holders of the entity.
● Profit/Loss
from
continuing
operations
attributable to those equity holders.
● Provide a measure of the interest of each
ordinary share in the performance of an entity
while giving effect to all dilutive potential
ordinary shares outstanding during the period.
● Decrease in BEPS or Increase in BLPS (because
of POS - continuing operations only)
POTENTIAL ORDINARY SHARES
● AS IF APPROACH: as if converted or exercised
at the time they were initially issued.
● Financial instrument or another contract that
gives the holder the right to acquire ordinary
shares at a specified price for a given period.
●
Convertible Bonds Payable
○ POS when converted.
Dilutive if conversion decreases BEPS or
increases BLPS
● Convertible Prefernce Shares
○ Dilutive if conversion decreases BEPS or
increases BLPS
● Share Options and Warrants
○ Dilutive “in the money” - favorable to
holder
○ CALL OPTION: option to buy
■ Exercise Price < Average
Market Price (mas mataas
probability na bumili - Increase
in OS = Increase in WANOSO)
○ PUT OPTION: option to sell
■ Exercise Price > Average
Market Price (incentive na
magbenta - Increase in OS =
Increase in WANOSO)
DILUTION
● Reduction in EPS or increase in LPS from the
assumption that the entity converted or
exercised the POS upon fulfilling certain
conditions
DILUTIVE
● Conversion or exercise would decrease the
BEPS or increase BLPS from continuing
operations
● Most to Least Dilutive
○ Compute for the incremental EPS.
○ The least amount of incremental EPS is
the most dilutive.
○ Kapag present lahat ng POS, need na
i-rank lagi
○ Dilutive and Incremental EPS = inverse
relationship
○ If base sa rankings may anti-dilutive na
lumitaw yung mas mababa na EPS
yung piliin.
ANTI-DILUTIVE
● Conversion or exercise would increase BEPS or
decrease BLPS.
● Effects are ignored.
○
ADJUSTMENTS:
SOURCE
ADJUSTMENT
TO
NUMERATOR
ADJUSTMENT
TO
DENOMINATOR
Convertible PS
+Preference
Shares
Dividend (yung
sa convertible
lang - POS)
+WANOSO POS
Convertible BP
+After-Tax
Interest
Expense
+WANOSO POS
Share Options
None
+WANOSO POS
SHARE OPTIONS
● Adjustment Factor for WANOSO POS
AF =
Average Market Price — Exercise Price
Average Market Price
INTERIM FINANCIAL REPORTING AND
OPERATING SEGMENTS
INTERIM FINANCIAL REPORT
● Period that is less than 1 year or 12 months.
● Covers a period shorter than a full financial
year (Interim Financial Report).
● Reports quarte, monthly, or at other intervals.
● Required to or may elect to provide less
information at interim dates than its usual
annual Financial Statements.
● Improves the ability of users to understand an
enterprise’s capacity to generate earnings
and cash flows and its financial condition and
liquidity.
● To update the latest complete set of annual
financial statements.
● Focuses on new activities, events, and
circumstances, and does not duplicate
information previously reported.
● Beneficial to users - information is provided
earlier which can be used for decision
making.
● Contains either:
○ Complete Set of FS (PAS 1) or
○ Set of Condensed FS (PAS 34)
MINIMUM COMPONENTS AND CONTENTS OF AN
INTERIM FINANCIAL REPORT
● Shall include, at a minimum, the following:
○ a condensed statement of financial
position;
○ a
condensed
statement
of
comprehensive income, prepared as
either:
■ a single condensed statement;
or
■ a
condensed
separate
statement of profit or loss and a
condensed
statement
of
comprehensive income;
○ a condensed statement of changes in
equity;
○ a condensed statement of cash flows;
and
○ selected explanatory notes.
● Condensed statements should include, at a
minimum, each of the headings and subtotals
contained in its most recent annual financial
statements and the selected explanatory
notes.
● Additional line items or notes shall be included
if their omission would make the condensed
interim financial statements misleading.
● Face of the SCI should present the BEPS and
DEPS, whether the FS are condensed or
complete.
PERIODS COVERED BY INTERIM FINANCIAL STATEMENTS
● Interim reports should include interim financial
statements as follows:
○ Statement of financial position as of
the end of the current interim period
and as at the immediately preceding
year-end;
○ Statements of comprehensive income
for the current interim period and
cumulatively for the current year
financial
year
to
date
and
comparative
statements
of
comprehensive income for the same
interim period and cumulatively for the
preceding financial year to date.
○ Statement showing changes in equity
cumulatively for the current year and
the year-to-date period of the
immediately preceding financial year.
○ Statement of cash flows cumulatively
for the current year and the
year-to-date
period
of
the
immediately preceding financial year.
● If the current interim period is the third quarter
of 2022, the interim report should include:
statements of financial position as of
September 30, 2022, and as of
December 31, 2021;
○ statements of comprehensive income
for the quarter ended September 30,
2022, and for the nine months ended
September 30, 2022, with comparative
statements for the quarter ended
September 30, 2021, and for the nine
months ended September 30, 2021;
○ statements of changes in equity for the
nine months ended September 30,
2022, and for the nine months ended
September 30, 2022;
○ statements of cash flows for the nine
months ended September 30, 2022,
and for the nine months ended
September 30, 2021.
SELECTED
EXPLANATORY
NOTES
AND
OTHER
DISCLOSURES
● Must
include
significant
events
and
transactions
to
update
the
relevant
information presented in the most recent
annual financial statements. Such information
must include the following:
○ write-down of inventories to net
realizable value, and reversal of such
write-down;
○ recognition of asset impairment loss
and reversal of such impairment;
○ reversal of provisions for restructuring
costs;
○ acquisition and disposal of items of
property, plant, and equipment (PPE)
as well as commitment to purchase
items of PPE;
○ litigation settlements;
○ correction of prior period errors;
○ changes in circumstances that affect
the fair value of financial assets and
financial liabilities;
○ unremedied loan default and breach
of loan agreement;
○ related party transactions;
○ transfers between fair value hierarchy
in measuring the fair value of financial
instruments;
○ changes in the classification of
financial assets; and
○ changes in contingent liabilities and
contingent assets.
● Present the following information either in the
notes or by cross-reference from the interim
financial statements to some other reports
issued by the entity:
○
A statement that the same accounting
policies and methods of computations
are followed in the interim financial
statements as compared with the most
recent annual financial statements or if
those policies or methods have been
changed in the current financial year,
a description of the nature and effect
of the change;
○ Explanatory comments about the
seasonality or cyclicality of interim
operations;
○ The nature and amount of items
affecting assets, liabilities, equity, profit,
or cash flows that are unusual because
of their nature, size, or incidence;
○ The nature and amount of changes in
estimates of amounts reported in prior
interim periods of the current financial
year or changes in estimates of
amounts reported in prior financial
years, if those changes have a
material effect in the current interim
period;
○ Issuances,
repurchases,
and
repayments of debt and equity
securities;
○ Dividends paid (aggregate or per
share) separately for ordinary shares
and other shares;
○ Segment revenue and segment result
of business segments or geographical
segments;
○ Total assets and total liabilities of
reportable segments if those amounts
materially differ from those reported in
the most recent annual financial
statements;
○ Disaggregation of revenue from
contracts with customers;
○ Material events after the end of the
interim period that have not been
reflected in the financial statements for
the interim period;
○ Information on the fair value of
financial instruments; and
○ The effect of changes in the
composition of the enterprise during
the interim period, including business
combinations, acquisitions or disposal
of subsidiaries, restructurings; and
discontinuing operations; and
RECOGNITION AND MEASUREMENT OF REVENUE AND
EXPENSES
● Same as annual FS.
● Matching Principle
○
●
Two Views - both views are used
○ Integral
■ Integral part of the accounting
period.
■ Periods are all related or there
is connection between the
periods.
■ Cost, expenses, and revenues
incurred that benefit the other
period should be allocated to
the periods benefited.
○ Independent
■ Considered a discrete or
separate period.
■ Cost, expenses, and revenues
should
be
immediately
reported on the period it was
incurred.
■
○ Example:
Change in Accounting Policy
○ Retrospective Approach
REPORTING BY OPERATING SEGMENT
● Interim reporting provides additional and
updated information about an enterprise’s
operations
● Further
information
about
an
entity's
operations is also provided through reporting
by enterprise components called operating
segments
● Operating
Segments,
prescribes
the
requirements
for
reporting
financial
information by segment.
● Segment information aims to inform users
about the different types of products and
services an enterprise produces and the
various geographical areas in which it
operates.
● Helps financial statement users better
understand the enterprise's past performance,
assess its risks and returns, and make more
informed judgments about the enterprise.
● Reporting by operating segments is required
for enterprises whose equity or debt securities
are publicly traded and those in the process
●
of issuing equity and debt securities in the
public securities market.
● Shall comply with all the requirements of IFRS
8.
OPERATING SEGMENTS
● Engage in business activities.
○ Have its own source of profit or losses primary activity.
● Operating results are regularly reviewed by
the Chief Operating Decision Maker
○ “chief operating decision maker" refers
to a function, not necessarily a
manager with a specific title.
○ May be the chief executive officer,
chief operating officer, or a group of
executive directors or officers.
○ Function:
■ Assess the performance of
operating segments
■ Allocate resources to operating
segments.
● Discrete financial information is available
IDENTIFYING OPERATING SEGMENTS
● Based on the components of the business that
the entity considers significant for internal
management reporting purposes.
● Segments are identified based on internal
reports that the chief operating officer makes
to allocate enterprise resources and assess
business performance.
● An entity may group some components to
form one operating segment if they have
similar economic characteristics.
● IFS 8 allows the aggregation of two or more
segments if the segments are similar in each of
the following respects:
○ Nature of the products or services
○ Nature of the production processes
○ Type or class of customers for the
products or services
○ Methods used to distribute the
products or provide the services
○ If applicable, the nature of the
regulatory environment.
IDENTIFYING REPORTABLE SEGMENTS
● Reportable Segment is an operating segment
for which segment information must be
disclosed.
● An entity shall present a reconciliation
between the information disclosed for
reportable segments and the aggregated
information in the consolidated or individual
financial statements.
● Reportable if qualifies under the Quantitative
Thresholds:
○ Revenue Test
■ Revenue (external and internal)
of the segment is ≥ 10% of Total
revenue (external and internal)
of all operating segment
○ Asset Test
■ Assets of the segment are ≥
10% of Total assets of all
operating segment
○ Profit/Loss Test
■ Compute Total P/L separately absolute value
■ Profit / loss of the segment is ≥
10% of the greater in absolute
amount of either:
● Total profit of operating
segments with profit
● Total loss of operating
segments with losses
● External Revenue Reporting
○ Should be met to be considered
reportable
after
meeting
the
quantitative threshold.
○ External Revenue of Reportable
Segments 75% ≥ Total external revenue
of all operating segment
○ Not met, additional segments are
included even if none of the
quantitative thresholds are met
Manegement Approach
● Looking to an entity's organizational and
management structure and its internal
financial reporting system to identify the
entity's segments for external reporting.\
● If segment did not meet any of Thresholds,
management can deemed it as necessary to
be reportable.
SEGMENT'S FINANCIAL INFORMATION
● Provide the users of financial statements with
additional information on the nature and
financial effects of an entity's business
activities and the economic environment in
which the entity operates.
● An entity shall report the following information
about the identified reportable operating
segments:
○ general information, such as factors to
identify
the
entity's
reportable
segments and types of products and
services
from
which
reportable
segments derive its revenues;
basis for aggregation of segments and
the segments aggregated on that
basis;
○ information about profit or loss and
total assets;
○ information on liabilities if such
information is provided to the chief
operating decision maker.
Measuring and Reporting Segment Profit or Loss
● An entity shall report information on profit or
loss for each reportable segment.
● Emphasized
is the adoption of the
management approach, which implies that
those revenues and expenses that the chief
operating officer monitors for the segment
constitute the items included in the
measurement of the segment’s profit/loss.
○
●
●
The following information about a reportable
segment shall also be disclosed if such
information is reported to the chief operating
decision profit or loss:
○ maker, even if they are not included in
the measurement of the segment's
revenues from external customers
○ revenues from transactions with other
operating segments of the same entity
○ interest revenue
○ interest expense
○ depreciation and amortization
○ material items of income and
expenses that warrant separate
presentation on the statement of
comprehensive income
○ the entity's interest in profit or loss of
associates
and
joint
ventures
accounted for by the equity method
○ income tax expense or benefit
○ material non-cash items other than
depreciation or amortization.
For each reportable segment, an entity shall
report interest revenue separate from interest
expense unless the majority of the segment's
revenue is composed of interest and the chief
decision-making officer relies on net interest
revenue to assess the segment's performance.
Measuring and Reporting Segment Assets and
Liabilities
● An entity shall report a measure of assets and
liabilities for each reportable segment if such
amounts are reported to the chief operating
decision maker.
● The following shall be disclosed even if not
included in segment assets if they are
reported to the chief operating decision
maker of the entity:
○ the amount of investment in associates
and joint ventures accounted for by
the equity method; and
○ the
amounts
of
additions
to
non-current assets other than financial
instruments, deferred tax assets,
post-employment benefit assets, and
rights
arising
under
insurance
contracts:
● If certain assets, liabilities, income, and
expenses have been included in segment
information through the reasonable basis of
allocation, such basis must be disclosed.
ENTITY-WIDE DISCLOSURES
● The following information must be provided if
not disclosed as part of reportable segment
information:
● revenues from external customers for each
product and service, unless the cost to
develop such information is considered
excessive;
● revenues from external customers attributed
to the country's domicile and attributed to all
foreign countries from which the revenues are
derived;
● non-current assets located in the country of
domicile and located in foreign countries,
except
assets
arising
from
financial
instruments, deferred tax, employee benefits,
and insurance contracts;
● the extent of its reliance on a major customer.
For this purpose, if enterprise revenue from a
single external customer amounts to at least
10% of the total enterprise revenue, then such
customer is a major customer. Likewise, a
group of entities under common control is
considered a single customer.