REGULATION OF THE ACCOUNTING PROFESSION

Accounting standards — network of broad guidelines, rules and procedures that represent the GAAP

• GAAP — define the practice of financial reporting at a particular time

• Main purpose: Ensure relevance of financial information provided to external users

• Prior to 2001: Based on AS promulgated by FASB of USA

Accounting Standards Council (ASC) — original accounting standard setting body in the Philippines

• Nov. 18, 1981 by Philippine Institute of Certified Public Accountants (PICPA)

Need for global accounting standards:

• Globalization of capital markets

• Need for comparability of financial info across national boarders

• Greater transparency

• Portability of knowledge and education across national borders

• Consistency with the concept of a single global professional credential

International Accounting Standards Committee (IASC) — developed a single set of global accounting standards

• 1973

• Philippine transition to IAS: 2001 (staggered basis) —> Reconstituted as the IASB

• Full adoption to IAS: 2005

• Shortcomings: Shortage of resources

• [Old] Accounting standards: International Accounting Standards

• IAS Board vote: IASs issued by IASC continue with full force and effect unless and until IAS Board
amends/replace them

International bodies publicly urged the adoption of a single set of global AS

1. World Bank: Adopt the IASs or develop national standards based on IASs + IASs reporting as a condition
for granting a loan!

2. International Monetary Fund

3. International Organization of Securities Commission

4. Organization for Economic Cooperation and Development

International Financial Reporting Standards (IFRSs)

• Developed by the IAS Board

• Inclusions:

1. IFRSs

2. Interpretations of the International Financial Interpretations Committee (IFRIC) — interpreting body of

IASB

3. IASs

4. Interpretations of the Standing Interpretations Committee (SIC) — interpreting body of the IASC

Financial Reporting Standards Council (FRSC)

• 2006

• R.A. 9298 (Philippine Accountancy Act of 2004): Created by PRC upon the recommendation of BOA

• Succeeded the ASC

• R.A. 9298: 15 members (including the chairman)

1. (1) BOA

2. (1) SEC

3. (1) BSP

4. (1) BIR

5. (1) COA

6. (1) Major org of preparers and users of FSs [at the present time of the Financial Executives of the PH]

7. Accredited NPO of CPAs in the PH

A. (2) Public practice

B. (2) Commerce and industry

C. (2) Government

 D. (2) Academe

• Due process of developing AS:

1. Consider: Pronouncements of IASB

2. Form: Task force (when necessary)

3. Issuance: Exposure draft [majority vote of FRSC members]

4. Consider: Comments [period: at least 60d may be shortened to not less than 30d]

5. Approved by: Majority of FRSC members

6. Publish in: Official gazette or Newspaper of general circulation

Philippine Interpretations Committee

• August 2006

• Formed by FRSC

• Purpose: Issue implementation guidance on PFRS and PAS

• Widespread-important issues and not only to a single entity/ies

Philippine Financial Reporting Standards — currently effective accounting standards in the Philippines

• Composition:

1. PFRS — adoption of IFRS promulgated by the IASB

2. PAS —adoption of IASs

3. Interpretations by SIC

4. Interpretations by IFRIC

5. Implementation guidance of Philippine Interpretations Committee (PIC)

Professional Regulatory Board of Accountancy (BOA) — one of the regulatory boards under PRC that is
mandated to exercise administrative, quasi-legislative and quasi-judicial power over the accountancy profession

• R.A. 9298 (Philippine Accountancy Act of 2004): Chairman and 6 members [appointed by PH President]

• Qualifications of members of BOA:

1. Natural born citizen and resident

2. Duly registered CPA [at least 10 years of work experience in any scope of practice]

3. Good moral character + not have been convicted of crime involving moral turpitude

4. Not directly/indirectly connected with any school, college or university granting degrees for
admission to CPA examination or with CPA Review School or Institute NOR any pecuniary interest in
such school, college, university or CPA Review School or Institute

• Three year term; Vacancy occurring w/in the term of a member shall be filled up for the unexpired portion
of the term ONLY + Reappointment of a person who has served two successive complete terms is allowed
after the lapse of one year

CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING (IASB March 2018)

Conceptual Framework — describes the objectives of, and the concepts, for general purpose financial reporting

• IASB

• Not a PFRS

• Does not override any Standard or any requirement of a Standard; provides the foundations for Standards

• Purpose:

1. Assist the Board to develop IFRS

2. Assist prepares to develop consistent accounting policies [no Standard applies or Standard allows a
choice in accounting policy]

3. Assist all parties to understand and interpret the Standards

• Scope:

1. Objective of GPFR

2. Qualitative Characteristics of Useful Financial Information

3. FS and Reporting Entity

4. Elements of the FS

5. Recognition and Derecognition

6. Measurement

7. Presentation and Disclosure

8. Concepts of Capital and Capital Maintenance

Objective of Financial Reporting: Provide financial info that is useful to users in making decisions relating to
providing resource to the entity based on:

1. Economic resources and claims + changes

2. Financial performance reflected on accrual accounting + by past cash flows

3. Changes in economic resources and claims not resulting from financial performance

Types of Users’ Decisions

1. Buying, selling or holding equity or debt instruments

2. Providing or settling loans and other forms of credit

3. Voting or otherwise influencing management decisions

Assessed by users:

1. Prospects for future net cash inflows to the entity

2. Management’s stewardship of the entity’s economic resources

Information needed for assessments:

1. Entity’s resources and claims against entity + changes

2. How efficiently and effectively management has discharged its responsibility to use the entity’s economic
resources

Users of Financial Information

1. Primary Users — make decisions about providing resources to the entity; buy, sell and hold equity and
debt instruments + expect and receive returns on these investments

• Existing and potential investors

• Lenders

• Other creditors

2. Other users

• Lenders — need info to determine whether they should buy, hold, or sell

• Owners — assess ability of enterprise to pay dividends

• Employees — assess ability of enterprise to provide remuneration, retirement benefits and

employment opportunities

• Suppliers and other trade creditors — determine whether amounts owing to them will be paid when
due

• Customers — about the continuance of an entity

• Government and its agencies — on the activities of the enterprise to determine taxation policies

• Public

Qualitative Characteristics of Useful Financial Information

Fundamental

1. Relevance — capable of making a difference in the decision of informed users

• Elements of relevant information:

A. Confirmatory value (or feedback value)

B. Predictive value

C. Materiality

2. Faithful Representation — faithfully represent the substance of what it purports to represent

• Elements of faithful representation:

A. Completeness

B. Neutrality (supported by prudence)

C. Freedom from error

Enhancing [enhances the usefulness of info BUT can’t make non-useful information useful to users!]

1. Comparability

2. Verifiability

3. Timeliness

4. Understandability

Cost constraint — benefit of providing information needs to exceed the cost of providing and using the info

Financial Statements and the Reporting Entity

Reporting Entity — required, or chooses to prepare financial statements; not necessarily a legal entity

1. Single Entity

2. Portion of an entity

3. Comprised of more than one entity

Financial Statements — particular form of financial reports that provide info about the reporting entity’s ALE, I&E

• Classification [if composing of more than one entity]:

1. Consolidated FS — parents + subsidiaries as a single reporting entity

2. Unconsolidated FS — parent ONLY

3. Combined FS — two or more entities that are not all linked by a parent-subsidiary relationship

Elements of FS

A. Financial Position

1. Asset — economic resource controlled by entity as a result of a past event

• Economic resource — right that has the potential to produce economic benefit

2. Liability — present obligation of entity to transfer an economic resource as a result of a past event

• Obligation — duty/responsibility that an entity has no practical ability to avoid

3. Equity — residual interest in the assets of an entity after deducting all its liabilities 


B. Financial Performance

1. Income — inc A or dec L that result in inc E, other than those relating to contributions from holders of
equity claims

2. Expenses — dec A or inc L that result in dec E, other than those relating to contributions from holders of
equity claims

Unit of account — right/s or obligation/s, or group of r&o, to which recognition criteria and measurement
concepts are applied

Recognition and Derecognition

Recognition — capturing for inclusion in the SFP or SP an item that meets the definition of ALEIE

• Appropriate if it results in both R + FR because the aim is to provide useful info to primary users

• Criteria:

1. Meets the definition of an ALEIE

2. Provides useful info that is relevant and faithfully represented

 3. Cost Constraint

4. Measurable

Derecognition — removal of all or part of a recognized A/L from an entity’s SFP

• Asset — Entity loses control of all or part of the recognized asset

• Liability — Entity no longer has a present obligation for all or part of the recognized liability

Measurement of Financial Statement Elements

Measurement — quantifying in monetary terms the elements recognized in the FS

Measurement Bases

1. Historical cost — price of the transaction/other event that gave rise to the item being measured

2. Current value — provides info updated to reflect conditions at measurement date; bases:

A. Fair Value

B. Value in use for assets and fulfillment value for liabilities

C. Current Cost

Concepts of Capital and Capital Maintenance

Concepts of Capital

1. Financial Capital — net assets/equity measured in nominal monetary units of constant purchasing power

2. Physical Capital — operating capability of entity [Productive Capacity of Entity] measured in current cost
basis of measurement

Concepts of Capital Maintenance

1. Financial — profit is earned only if the financial amount of Net Assets @ the end of period > beginning of
period, AFTER excluding the effects of transactions with owners

• Part of profit: Increase in prices of assets that exceeds the increase in the general level of prices

• Part of equity: *The rest of the increase

2. Physical — profit represents the increase in the physical productive capacity over the period, AFTER
excluding the effects of transactions with owners

• Part of equity: Price changes in the measurement of the physical productive capacity

THE ACCOUNTING PROCESS

Accounting process — sequence of interrelated procedures the primary purpose of which is to produce the
entity’s financial statements for a given reporting period

Steps:

1. Identify the events to be recorded

2. Journalize transactions and events

3. Post form journal to the ledger

4. Prepare the unadjusted trial balance

5. Journalize and post adjusting entries

6. Prepare adjusted trial balance

7. Prepare financial statements

8. Journalize and post closing entries

9. Prepare post-closing trial balance

10. Journalize and post reversing entries

Reportable events — affect the elements of financial statements

1. External events

A. Transfers — resources and/or obligations from/to other enterprises; include exchanges (or reciprocal
transfers) and non-reciprocal transfers

B. External events and other than transfers — change in interest rates, market values, and technologies

2. Internal events — only the entity participates

A. Depreciation of PPE

B. Consumption of supplies for use in production

C. Casualties that affect the entities resources and obligations

Possible effects of reportable events:

• ↑ Asset, ↓ Another asset

• ↑ Asset, ↑ Liability

• ↑ Asset, ↑ Equity

• ↓ Asset, ↓ Liability

• ↓ Asset, ↓ Equity

• ↑ Liability, ↓ Equity

• ↑ Liability, ↓ Another Liability

• ↓ Liability, ↑ Equity

• ↑ Equity, ↓ Equity

Journalization — recording the economic events [transactions] in the books [journal] of original entry

• Double entry bookkeeping system — transactions are recorded in two-fold effects: debit and credit

• General journal or special journals

Types of Special Journals

1. Non-voucher system

• Sales Journal — sale of merchandise on account

• Cash Receipts Journal — receipt of cash

• Purchase Journal — purchase of merchandise on account

• Cash Disbursement Journal — payment of cash

• General Journal — all other transactions

2. Voucher system

• Sales Journal — sale of merchandise on account

• Cash Receipts Journal — receipt of cash

• Voucher Register — all potential payments

• Check Register — issuance of checks

• General Journal — all other transactions

Posting — transferring the entries from the journal to the ledgers

Types of Ledgers

1. General — control account in the trial balance

2. Subsidiary — details of balances of the general ledger accounts in the trial balance

Trial Balance — proof of the equality of the debits and credit in the general ledger; totals serve no meaningful
purpose

Adjusting Entries — prepared and dated at the last day of the reporting period to bring the accounts in the trial
balance to their updated balances [fair segment in the FS]

• Accrual basis of accounting — revenues and expenses are recognized in the accounting period in which
they are considered earned and incurred (regardless of the inflow/outflow of cash)

• Affects AT LEAST one nominal account and one real account

• Type of adjusting entries:

1. Ending inventory under periodic inventory system

2. Accruals (accrual of expense & income)

3. Deferrals (prepaid expense & unearned income)

4. Depreciation of PPE and amortization of intangibles

5. Impairment of assets

6. Remeasurement of financial assets

Nominal account — balance is brought to zero at the end of the reporting period

• Income accounts, expense accounts, dividends, and drawings (single proprietorship and partnership)

Real account — balance is brought forward to the next accounting period

• Reported in the SFP (ALE)

Adjusted trial balance — adjusted balances of all GL accounts that are to be presented in the company’s FSs

• May be omitted in the accounting cycle with the use of the worksheet

Financial statements — finished products of the accounting process; means by which financial information about
an enterprise is communicated to the users

Closing entries — prepared at the end of the accounting period (after journalizing and posting AJE) to bring
nominal accounts to zero balances so that they will accumulate again the effects of transactions in the next
accounting period

Post-Closing Trial Balance (third trial balance) — prepared after closing entries; balances listed are the opening
balances of the accounts for the next reporting period; optional step!

Reversing entries — optional!; prepared on the first day of the new reporting period; prepared for adjustments
involving accruals and deferrals that were originally recorded in nominal accounts; AJE subject to reversal:

1. Accrued expenses

2. Accrued income

3. Prepaid expenses using the expense method ONLY

4. Unearned income using the income method ONLY


IAS 1 — PRESENTATION OF FINANCIAL STATEMENTS

Overview:

• Overall requirements for the presentation of FSs

• Guidelines for their structure

• Minimum requirements for their content

Scope: Applied to all GPFS prepared and presented in accordance with IFRSs

• GPFS — intended to meet the needs of users who are not in a position to demand reports tailored to meet
their particular information needs

Purpose of financial statements: Provide info about the financial position, financial performance, and cash flows
of an entity that is useful to a wide range of users in making economic decisions

Components of financial statements:

1. SFP

2. SCI

3. SCE

4. SCF

5. Notes to the FS

6. SFP

- at the beginning of the preceding period when an entity applies an accounting policy retrospectively

- makes a retrospective restatement of items in its FSs

- reclassifies items in its FSs

Financial statements are management’s responsibility!

Accounting policies — specific principles, bases, conventions, rules and practices appleid by an entity in
preparing and presenting financial statements

• Hierarchy (in descending order):

1. Requirements of an applicable accounting standard or an interpretation

2. Management judgment/decision that results to relevant and reliable information, considering

A. Requirements and guidance of similar accounting standards and interpretations; and

B. Definitions, recognition criteria and measurement bases in the Conceptual Framework

General Features

• Fair Presentation and Compliance with IFRSs

• Going Concern

• Accrual Basis of Accounting

• Materiality and Aggregation

• Offsetting

• Frequency of Reporting

• Comparative Information

• Consistency of Presentation

Fair Presentation and Compliance with IFRSs

Fair Presentation

• Complying with ALL the applicable requirements of IFRS [entity should make an explicit and unreserved
statement of such compliance in the notes]

• Meets qualitative characteristics

• Providing additional disclosures (when necessary)

Going Concern

Presumption!

• Uncertainties must be disclosed

• If not a going concern —> FSs should not be prepared on a going concern basis (IAS 1 requires series of
disclosures)

Accrual Basis of Accounting

All financial statements except for cash flow information.

Materiality and Aggregation

• Material class of similar items— presented separately

• Dissimilar items — [individually immaterial] aggregated

Offsetting

ALEIE may not be offset UNLESS required/permitted by an IFRS!

Frequency of Reporting

• Presented at least annually

• Disclose: Entity changes the end of its reporting period + presents FSs for a period longer/shorter than one
year + The fact that amounts presented in the FSs are not entirely comparable

Comparative Information

• Disclosed in respect of the preceding period for ALL amounts reported in the CURRENT period’s FSs, both on
the face of FSs and notes UNLESS another IFRS allows/requirese otherwise

• With retrospective application/reclassification [has material effect on the FSs]: Required to present third SFP at
the beginning of the preceding period (in addition to minimum SFP at the end of the current and comparative
periods)

Consistency of Presentation

• Presentation and classification of items shall be retained from one period to the next UNLESS a change is
justified by: change in nature of entity’s operations OR requirement of a new IFRS

Identification of the Financial Statements:

1. Name of reporting entity

2. Financial statements cover: individual entity or group of entities

3. Date of the end of the reporting period or period cover by the FSs

4. Presentation currency

5. Level of rounding used in presenting amounts

Presentation of A&L on the SFP: Current and non-current classification EXCEPT when presentation based on
liquidity is more reliable + relevant

Normal Operating Cycle — average period of time for an entity to disburse cash to purchase goods, convert
these to salable goods/services, sell goods or services, and collect the sales price from customers

• 12 months (if not clearly identifiable)

Current Assets (otherwise non-current)

• Expect to be realized in, or for sale/consumption in, the entity’s NOC

• Held primarily for the purpose of trading

• Expected to be realized w/in 12 months after reporting period

• Cash/cash equivalent UNLESS restricted from being used or exchanged to settle a liability for at least 12
months after reporting period

Current Liability (otherwise non-current)

• Expected to be settled in the entity’s NOC

• Held primarily for the purpose of trading

• Due to be settled w/in 12 months after reporting period

• Entity does not have an unconditional right to defer settlement of liability for at least 12 months after
reporting period

Information on the Face of the SFP [Minimum Line Items]

1. PPE

2. Investment property

3. Intangible assets

4. Financial assets (excluding cash, receivables, and investment under equity method)

5. Groups of insurance contracts that are assets (disaggregated as required by IFRS 17)

6. Investments accounted for using the equity method

7. Biological assets

8. Inventories

9. Trade and other receivables

10. Cash and cash equivalents

11. Total of assets classified as held for sale and assets included in disposal groups classified as held for sale

12. Trade and other payables

13. Provisions

14. Financial liabilities (excluding trade and other payables and provisions)

15. Groups of insurance contracts that are liabilities (disaggregated as required by IFRS 17)

16. Liabilities and assets for current tax

17. Deferred tax liabilities and deferred tax assets

18. Liabilities included in disposal groups classified as held for sale

19. Non-controlling interest present w/in equity (for consolidated SFP)

20. Issued capital

21. Reserves attributable to owners of the parent

Additional line items can be presented separately based on an assessment of:

1. Nature and liquidity of assets

2. Function of assets w/in equity; and

3. Amounts, nature, and timing of liabilities

Statement of Comprehensive Income

1. One-statement format — continuous presentation; two parts: (1) profit or loss and (2) other comprehensive
income)

2. Two-statement format — separate statements (1) income statement showing components of profit or loss
and (2) statement of comprehensive income

Information to be presented on the face of the SCI [MLI]

Profit of Loss Section

1. Revenue, w/ separate presentation of interest revenue (calculated under the effective interest method) and
insurance revenue

2. G/L arising from derecognition of financial assets measured at amortized cost

3. Insurance service expense (from insurance contracts w/in the scope of IFRS 17)

4. Income and expenses from reinsurance contracts (w/in the scope of IFRS 17)

5. Finance costs

6. Impairment losses and reversals of impairment (recognized in accordance w/ IFRS 9)

7. Insurance finance income/expenses from insurance contracts issued

8. Finance income/expenses from reinsurance contracts held

9. Share of the profit/loss of associates and joint ventures accounted for using the equity method

10. G/L from reclassification of financial assets from amortized cost to FVPL

11. G/L from reclassification of financial assets from FV-OCI to FVPL

12. Tax expense

13. Single amount for discontinued operations

14. Expenses should be analyzed and presented either by: (1) nature — raw materials, staffing costs,
depreciation, or (2) function — cost of sales, selling, administrative [MLI + disclosure : Depreciation,
amortization, and employee benefit expense]

• Shall not be presented as extraordinary items (either on the face or in the notes)

Other Comprehensive Income (OCI) Section

1. Items of OCI that will not be reclassified subsequently to P/L + that will be reclassified subsequently to P/L
when certain conditions are met

2. Share of OCI of associates and joint ventures accounted for using the equity method

• Disclose on face/notes: Income tax relating to each item of OCI

• Disclose on face of SCI (as allocations of P/L and TCI for the period:

1. Attributable to non-controlling interest; and

2. Attributable to owners of the parent

• Disclose: Reclassification adjustments relating to components of OCI

Statement of Changes in Equity

• TCI for the period (separate: amounts owing to owners of parent and to non-controlling interest)

• Changes in accounting policy or correction of prior period erros: Effect of retrospective application/
restatement [for each component of equity]

• Reconciliation of carrying amount @ beg. and end of period + separate disclosure of P/L, each item of OCI,
and transactions w/ owners in their capacity as owners [for each component of equity]

Presented in SCE/notes: Dividends recognized as distribution to owners + related amount of DPS

Notes to the Financial Statements

• Reqs:

1. Present info about basis of preparation of FSs + specific accounting policies used

2. Disclose any info required by IFRSs not presented elsewhere in the FSs

3. Provide additional info not presented in the FSs BUT is relevant to an understanding of any of them

• Presented in a systematic manner

• Cross-referenced from the face of the FSs to the relevant notes

• IAS 1: Present notes in the ff order:

1. Statement of compliance with PFRSs

2. Summary of significant accounting policies applied, including:

A. Measurement basis/es

B. Other accounting policies

C. Judgments involving estimations + have significant effects on amounts recognized in the FSs

3. Supporting info for items presented on the face of the FSs (in order in w/c each statement & each line
item is presented)

4. Other disclosures, including:

A. Contingent liabilities and unrecognized contractual commitment

B. Non-financial disclosures: Entity’s financial risk management objectives and policies + Judgments +
Key sources of estimation + Basic for resolving uncertainty

IAS 7 — STATEMENT OF CASH FLOWS

Objective: Provide info about the historical changes in cash and cash equivalents of an enterprise

Scope:

1. Preparing a SCF in accordance with the requirements of IAS 7

2. Presenting the SCF as an integral part of its FSs for each period for which FSs are presented

Significance:

1. For users to evaluate the changes in net assets of an entity + financial structure (+ liquidity and solvency)

2. For users to assess the ability of the enterprise to affect the amounts & timing of CF in order to adapt to
changing circumstances and opportunities

3. To assess the ability of entity to generate CCE + enable users to develop models to assess and compare the
PV of future CF of different entities

4. Enhances comparability of reporting of operating performance

5. Historical CF info ~ often used as an indicator of amount, timing, and uncertainty of future CF

6. To check the accuracy of past assessments of future CF + examine relationship between profitability and net
CF and impact of changing prices

Cash flows — inflows and outflows of cash and cash equivalents

• Cash — cash on hand and demand deposits

• Cash equivalents — short-term, highly liquid investments that are readily convertible to known amounts of
cash + subject to an insignificant risk of changes in value

Cash equivalents

• Investment as CE ~ short maturity of 3 months or less from the date of acquisition

• Exclude equity investments UNLESS in substance are like redeemable PS

• Include bank overdrafts which are repayable on demand + form an integral part of an enterprise’s cash
management

• Exclude movements between items that constitute CCE [part of cash management of entity rather than OIF
activities]

Presentation of SCF

• Classification:

1. Operating activities — principal revenue-producing activities of entity (+ other activities no IF

activities)

2. Investing activities — acquisition and disposal of long-term assets (+ other investments not included
in CE)

3. Financing activities — result in changes in the size and composition of the contributed equity and
borrowings of the entity

• Interest and dividends received and paid should be classified consistently from period to period

• CF arising from taxes on income: OPERATING unless can be specifically identified to FI activities

• Operating CF: Direct method of presentation is encouraged [indirect method is equally acceptable tho]!

Methods of presentation:

1. Direct — shows each major class of gross cash receipts and gross cash payments

2. Indirect — reconciles profit to CF from operations, whereby P/L is adjusted for the effects of transactions of a
non-cash nature, any deferrals/accruals of past/future operating cash receipts/payments, and items of
income/expense associated with investing/financing CF

Obtaining info about major class of gross CR and CP (under direct method):

1. Accounting records of entity

2. Adjust sales, COS (interest and similar income & interest expense and similar charges for a financial
institution) and other items in the IS for:

A. Changes during the period in inventories and operating receivables and payables

B. Other non-cash items

C. Other items for which the cash effects are IF CF

Determining net cash flow from operating activities (under indirect method):

1. Changes during the period in inventories and operating receivables and payables

2. Non-cash items (depreciation, amortization of intangibles, provisions, deferred taxes, unrealized FCG/L,
undistributed profits of associates, and NCI)

3. All other items for which the cash effects are IF CF

Cash Flows from Operating Activities

1. CR from sale of goods and rendering of services

2. CR from royalties, fees, commissions, and other revenue

3. CP to suppliers for goods and services

4. CP to and on behalf of employees

5. CR and CP of an insurance entity for premiums and claims, annuities, and other policy benefits

6. CP or refunds of income taxes UNLESS they can be specifically identified with FI activities

7. CR and CP from contracts held for dealing/trading purposes (similar to inventory acquired specifically for
resale)

8. Cash advances and loans made by financial institutions

Cash Flows from Investing Activities

1. CP to acquire PPE, Intangibles, and other long-term assets (+ relating to capitalized development costs and
self-constructed PPE)

2. CR from sales of PPE, Intangibles, and other long-term assets

3. CP to acquire equity/debt instruments of other entities and interest in joint ventures (other than payments for
those instruments considered to be CE or those held for dealing/trading purposes)

4. CR from sales or equity/debt instruments of other entities and interest in joint ventures (other than payments
for those instruments considered to be CE or those held for dealing/trading purposes)

5. Cash advances and loans made to other parties (other than by financial institutions)

6. CR from repayment of advances and loans made to other parties (other than by financial institution)

7. CP for futures, option, and swap contracts EXCEPT when contracts are held for dealing/trading purposes or
payments are classified as F activities

Cash Flows from Financing Activities

1. Cash proceeds from issuing shares or other equity instruments

2. CP to owners to acquire or redeem the entity’s shares

3. CP from issuing debentures, loans, notes, bonds, mortgages and other short/long-term borrowings

4. Cash repayments of amounts borrowed

5. Cash payments by a lesses for the reduction of the outstanding liability relating to a finance lease

Presentation of Noncash Investing and Financing activities

• Exclude from SCF + Disclose elsewhere in the FSs: If not required to use CCE

• Examples:

1. Acquisition of assets either by assuming directly related liabilities or by means of finance lease

2. Acquisition of an entity by means of an equity issue

3. Conversion of debt to equity

Foreign currency cash flows — recorded in the entity’s functional currency; apply the exchange rate @ date of
the cash flow; if CF of a foreign subsidiary —> translate at the exchange rates @ the dates of CF

Disclosure requirements

1. Components of CCE + reconciliation of amounts in its SCF w/ the equivalent items reported in the SFP

2. Policy in determining the composition of CCE

3. Effect of any change in policy for determining components of CCE

4. Amount of significant CCE balances held by the entity that are not available for use by the group

IAS 8 — ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS

Objective: Prescribe the criteria for selecting and change accounting policies, together with the accounting
treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of
errors

Scope:

1. Applied in selecting and applying accounting policies

2. Accounting for changes in accounting policies

3. Changes in accounting estimates

4. Correction of prior period errors

Accounting policies — specific principles, bases, conventions, rules and practices applied by entity in preparing
and presenting FSs

Change in accounting estimate — adjustment of the carrying amount of an A/L, or the amount of the periodic
consumption of an assets, that results from the assessment of the present status of, and expected benefits and
obligations associated with, AL

• Result from new info/developments

• Not corrections of errors

International Financial Reporting Standards (IFRSs) — SI adopted by the IASB

1. IFRS

2. IAS

3. Interpretations originated by the IFRIC or the former SIC

Material omissions/misstatements of items — could individually/collectively influence the economic decisions of

users taken on the basis of the FSs; depends on the size and nature of omission/misstatement

Prior period errors — omissions from, and misstatements in, the entity’s FSs for one or more prior periods arising
from a failure to use, or misuse of, reliable information that was available when FSs for those periods were
authorized for issue and could reasonably be expected to have been obtained and taken into account in the
preparation and presentation of those FSs (e.g., mathematical errors, mistakes in applying accounting policies,
oversights/misinterpretations of facts, fraud)

Retrospective application — applying new accounting policy to transactions, other events and conditions as if
that policy had always been applied

Retrospective restatement — correcting the recognition, measurement and disclosure of amounts of elements of
FSs as if a prior period error had never occurred

• Requires presentation of third SFP (dated at the beginning of the preceding period)

Prospective application — applying the new accounting policy to transactions, other events and conditions
occurring after the date as at which the policy is changed and recognizing the effect of the change in the
accounting estimate in the current and future periods affected by the change

Basis for selecting accounting policies:

1. If a Standard/Interpretation SPECIFICALLY applies to a TEC —> Apply the requirements & guidance in the
IFRS/Interpretation dealing with them

2. In the absence of an IFRS that SPECIFICALLY applies to TEC —> Management’s judgment that considers
(descending order):

A. Requirements in IFRS dealing with similar and related issues

B. Definitions, recognition criteria and measurement concepts for ALIE in the Conceptual Framework

C. *Most recent pronouncements of other standard setting bodies [they should not be in conflict w/ (a) & (b)]

Application of Accounting Policies: Apply consistently for similar TEC UNLESS Standard/Interpretation
SPECIFICALLY requires/permits categorization of items for which different policies may be appropriate [select
appropriate accounting policy and apply consistently to each category!]

Changes in Accounting Policies

1. Required by an IFRS; or

2. Results in FSs providing reliable and more relevant info about the effects of TEC on the entity’s financial
position, financial performance or CF


*Should not differ in substance from those previously occurring or those that did not occur previously or were
immaterial

Applying Changes in Accounting Policies

• In accordance with specific transitional provisions from IFRS; if there is no provision/voluntary CAP —> apply
change retrospectively [retrospective restatement thus third SFP]

• If above is impracticable: Apply new AP as at the beg. of the earliest period for which it is practicable (may be
the current period); Adjustment to each affected equity component shall be made!

• Disclosures in the notes (IFRS)

• Initial adoption of revaluation model for classifications of PPE (IAS 16)

Accounting estimates — measurements used to prepare and present items in the FSs that involve the use of
judgment and subject to the changes due to new information or more experience

Treatment of change in accounting estimates [recognize prospectively by including in P/L] — Recognized in:

1. Period of change (change affects that period ONLY)

2. Period of change and future period (change affects BOTH)

Correcting prior period errors

• Retrospectively in the first set of FSs authorized for issue after their discovery by:

1. Restating the comparative amounts for the PP presented in which the error occurred

2. Restating the opening balances of ALE for the earliest PP presented (error occurred before earliest PP
presented)

• Present third SFP (dated as of the beg. of the preceding period)

Disclosures relating to CAP caused by a new Standard/Interpretation

1. Title of S/I causing the change

2. Nature of CAP

3. Description of transitional provisions (+ those that might have an effect on future periods)

4. Amount of adjustment to the extent practicable (for the current period & each PP presented)

• For each FS line item affected

• For basic and diluted EPS

5. Amount of adjustment relating to periods before those presented (to the extent practicable)

6. Explanation and description of how CAP was applied (if retrospective application is impracticable)

Disclosures relating to voluntary CAP

1. Nature of CAP

2. Reasons why apply new AP provides reliable and more relevant info

3. Amount of adjustment to the extent practicable (for the current period & each PP presented)

• For each FS line item affected

• For basic and diluted EPS

4. Amount of adjustment relating to periods before those presented (to the extent practicable)

5. Explanation and description of how CAP was applied (if retrospective application is impracticable)

Disclosures relating to CAE

1. Nature and amount of CAE that has an effect in the current period or is expected to have effect in future
periods

2. "Amount of the effect in future periods is not disclosed because estimating is impracticable”

Disclosures relating to prior period erros

1. Nature of the PPE

2. Amount of correction for each PP presented (to the extent practicable)

• For each FS line item affected

• For basic and diluted EPS

3. Amount of correction at the beginning of the earliest PP presented

4. Explanation and description of how error has been corrected (if retrospective application is impracticable)

IAS 10 — EVENTS AFTER THE REPORTING PERIOD

Scope: Applies in the accounting for, and disclosure of, events after the reporting period

Events after reporting period — events, favorable and unfavorable, that occur between the end of the reporting
period and the date when the FSs are authorized for issue

• Date when FSs are authorized for issue: When management of the enterprise authorizes the issuance of FSs

Types of Events after reporting period

1. Adjusting — provide confirmation of conditions that existed at the reporting date

• Adjustments on the face of the FSs

A. Adjust amounts of certain accounts

B. Reclassify FS account

C. Recognize FS account not previously recognized

D. Derecognize account that was previously recognized

2. Non-adjusting — indicative of conditions that arose after the reporting date

• Ignore — insignificant and will not affect evaluation of user

• Disclose in notes to FS — non-disclosure could influence economic decisions of users taken on the basis
of the FSs; include: Nature of the event and an estimate of the financial effect, or statement that an
estimate cannot be made

• Examples [disclosure]

A. Major business combination

B. Declaration of an equity dividend

C. Disposal of a major subsidiary

D. Major purchases and disposal of assets

E. Major expropriation of assets by govt

F. Announcing/commencing major restructuring

G. Major OS transactions and potential OS transactions

H. Changes in tax rate/laws that will affect tax A/L

I. Entering into significant commitments

J. Commencing major litigation out of events after the end of the reporting period

K. Dividends proposed/declared after reporting period (not recognized as liability at the end of RP)

Going concern considerations:

• (x) Intends to liquidate entity or cease trading or has no realistic alternative but to liquidate after the end of the
reporting period

• Deterioration in an entity’s FP after the end of the RP could cast substantial doubt about an entity’s ability to
continue as a going concern

• Comply with disclosures under IAS 1!

Additional disclosure requirements:

1. Date when FSs were authorized for issue

2. Who gave the authorization

3. “Entity’s owner/s have the power to amend the FSs after issuance”