PFRS for Small Entities (PFRS for SE)
I. Scope of the Framework (Section 1 - Scope of the Framework, ref. 1 page 2)
The Philippine Financial Reporting Standard for Small Entities (PFRS for SE) is a
simplified financial reporting framework tailored specifically for small entities in the
Philippines. It aims to guide the preparation and presentation of financial statements that
meet the needs of small businesses while being less complex than the full Philippine
Financial Reporting Standards (PFRS). The framework consists of 29 sections, which
provide comprehensive guidance on various financial reporting topics.
II. What makes up a small entity? (ref. 2, page 3)
The Philippine Securities and Exchange Commission (SEC) defines a small entity using
specific criteria.
A. Criteria for a Small Entity
1. Total Assets or Liabilities
The entity has total assets or total liabilities ranging between ₱3 million to
₱100 million.
For parent companies, these amounts should be based on consolidated
figures.
2. Nature of Operations
The entity does not engage in complex operations or hold significant
investments or foreign-based operations.
Its financial transactions are straightforward, focusing on local business
activities.
3. Exclusions
Entities conducting operations or holding investments in foreign countries are
excluded from using this framework.
Entities required to use full PFRS or PFRS for SMEs due to regulatory or
stakeholder demands cannot apply this framework.
III. Objective of Financial Statements (ref. 1, Section 2 - Concepts and Pervasive Principles,
page 3)
The primary objective of financial statements under this framework is to provide information
about an entity's financial position, performance, and cash flows that are useful for
economic decision-making. This includes:
A. Financial Position
Represents the relationship between assets, liabilities, and equity at a
specific date.
B. Performance
Defined as the relationship between income and expenses during a
reporting period.
C. Cash Flows
Information on how cash and cash equivalents are generated and used,
classified into operating, investing, and financing activities.
IV. Recognition of Assets, Liabilities, Income and Expenses (ref. 1, Section 2 - Concepts
and Pervasive Principles, Page 3)
For an item to be recognized in financial statements, it must meet the definitions of an
asset, liability, income, or expense and satisfy the recognition criteria:
A. Probable Future Economic Benefit - The future economic benefit will likely flow to or
from the entity; and
B. Reliable Measurement - The cost or value can be measured reliably.
V. Accrual Basis of Accounting (ref. 1, Section 2 - Concepts and Pervasive Principles, page
4)
Under the PFRS for SE, financial statements (excluding cash flow information) must be
prepared using the accrual basis of accounting. This means that transactions are
recognized when they occur, not necessarily when cash changes hands. This principle
ensures that financial statements provide a more accurate representation of an entity's
financial performance and position.
VI. Financial Statement Presentation (ref. 1, Section 3 - Financial Statement Presentation,
page 6)
A. Compliance and Fair Presentation
Entities must explicitly state their compliance with the PFRS for SE in the notes to their
financial statements. The financial statements should present fairly the financial
position, performance, and cash flows of the entity, ensuring that users can make
informed decisions.
B. Going Concern Assumption
The framework assumes that an entity will continue as a going concern unless
management intends to liquidate it or cease operations. This assumption influences
the preparation of financial statements, affecting the classification of assets and
liabilities
C. Materiality and Aggregation
Information is considered material if its omission or misstatement could influence
users' economic decisions. Entities are required to present each material class of
similar items separately and disclose comparative information for the previous period.
D. Complete Set of Financial Statements
A complete set of financial statements must include:
1. Statement of Financial Position - shows the entity's assets, liabilities, and
equity at the reporting date.
2. Statement of Income - displays all income and expenses recognized during the
reporting period.
3. Statement of Changes in Equity - reconciles the carrying amount of equity
components.
4. Statement of Cash Flows - provides information about changes in cash and
cash equivalents.
5. Notes - summarize significant accounting policies and provide additional
explanatory information.
VII. Key Accounting Policies (ref. 1, Section 5 - Accounting Policies, Estimates and Errors,
page 17)
Entities must select and apply accounting policies consistently. If a particular transaction is
not addressed by the framework, management should use judgment to develop an
appropriate accounting policy, ensuring that the information is relevant and reliable.
VIII. List of Sections for PFRS for SE (ref. 1)
Section 1 - Scope of the Framework
Section 2 - Concepts and Pervasive Principles
Section 3 - Financial Statement Presentation
Section 4 - Subsidiaries
Section 5 - Accounting Policies, Estimates and Errors
Section 6 - Basic Financial Instruments
Section 7 - Other Financial Instruments
Section 8 - Inventories
Section 9 - Investments in Associates
Section 10 - Joint Arrangements
Section 11 - Investment Property
Section 12 - Property, Plant and Equipment
Section 13 - Intangible Assets Other than Goodwill
Section 14 - Business Combinations and Goodwill
Section 15 - Leases
Section 16 - Provisions and Contingencies
Section 17 - Equity
Section 18 - Revenue
Section 19 - Borrowing Costs
Section 20 - Share-based payment
Section 21 - Impairment of Assets
Section 22 - Employee Benefits
Section 23 - Income Tax
Section 24 - Foreign Currency Translation
Section 25 - Events after the End of the Reporting Period
Section 26 - Related Party Disclosures
Section 27 - Biological Assets
Section 28 - Government Grants
Section 29 - Transition to the Framework
IX. Conclusion
The PFRS for SE is a critical framework for small entities in the Philippines, providing
guidelines for preparing financial statements that serve the needs of various users.
Understanding its key concepts—such as the scope, objectives, recognition criteria, and
presentation requirements—enables entities to comply with reporting standards effectively,
ensuring transparency and accountability in financial reporting.
