Financial
Statements
KIM NICOLE M. REYES, CPA
Financial Statements
•They are the means by which
the information accumulated
and processed in the financial
accounting is periodically
communicated to the users.
General Purpose FS
•Those statements that meets
the needs of those not in a
position to require an entity to
prepare reports for particular
needs (aka external users)
Special Purpose FS
•Those statements that are
particularly tailored for
specific needs of the users
requesting the FS (aka internal
users)
Components of the FS
•Statement of Financial Position
•Income Statement
•Statement of Comprehensive income
•Statement of changes in equity
•Statement of Cash Flows
•Notes to FS
Objective of the FS
•It is to provide information about the
financial position (liquidity and
solvency), financial performance
(profitability), and cash flows of the
entity that is useful to a wide range of
users in making economic decisions.
•Reflects the stewardship of the
management of the resources entrusted to
it.
Objective of the FS
•Provides information about:
• Assets
• Liabilities
• Equity
• Income and expenses
• Contributions by and distributions of
owners
• Cash flows
Does the FS provide all
the info needed for
economic decisions?
•No. They only reflect financial effects of
past events and does not provide
nonfinancial information
Financial Position
•Shows the assets, liabilities
and equity of an entity at a
particular moment in time.
•Shows the liquidity, solvency
and need for additional
financing
Financial Performance
•Shows the revenue, expenses, and net
income or loss of the entity.
•Performance – level of income earned
by the entity through efficient and
effective use of its resources.
• Comprises of the income statement and
statement of comprehensive income
Cash Flows
•Shows the cash receipts and cash
payments from operating,
investing and financing activities
of the entity
•Assesses the company’s ability
to generate cash and cash
equivalents
Financial Reporting
•Provision of financial information
about an entity to external users that
is useful in decision making and
assessing effectiveness of the
management.
•Communicates information that
relates directly or indirectly to the
financial accounting process.
Financial reports
•Include the FS, financial highlights,
summary of important financial
figures, analysis of the Fs and
significant ratios.
•Includes also description of major
products and a listing of corporate
officers and directors.
Objective of Financial reporting
•Provide financial information about
the reporting entity that is useful to
existing and potential investors,
lenders and other creditors in making
decisions about providing resources
to the entity.
Target Users
•For general purpose FS, it is
the existing and potential
investors, lenders and other
creditors which compose the
primary user group.
Limitations of Financial Reporting
•Cannot provide all of the information for the
target users
•Not designed to show the value of a reporting
entity (just an estimate)
•Intended to provide common information to
users and cannot accommodate every specific
request for information
•Financial reports are based on estimate and
judgment
Responsibility for the FS
•Management – prepares and present
the FS
•BOD – reviews and authorizes the
FS for issuance
•Shareholders – assess how
effectively management fulfilled
their duties
General Features of the Fs
•Fair presentation and compliance with
PFRS
•Going concern
•Accrual basis
•Materiality and aggregation
•Offsetting
•Frequency of reporting
•Consistency
Fair Presentation
•Faithful representation of the effects
of transactions and other events in
accordance with the definitions and
recognition criteria for assets,
liabilities, income and expenses laid
down in the Conceptual Framework.
Departure from Standard
•An entity is permitted to depart from a
standard:
• In extremely rare circumstances
• Compliance with the standard would be
misleading
• Departure is necessary to achieve fair
presentation
• When conceptual framework requires or
otherwise does not prohibit such a
departure
Departure from Standard
•Disclose the following
• Has concluded that the FS are presented fairly
• Compliance with applicable standards except the
said departure to achieve fair presentation
• The title of the standard which the entity departed,
nature and the “should be treatment” but reasons
why it is misleading
• Financial impact of the departure of each item
Going Concern
•Continuity assumption
•Accounting entity is viewed as continuing in
operation indefinitely in the absence of
evidence to the contrary
•Assumption that the entity shall continue in
operation for the foreseeable future
•Disclosure of material uncertainties regarding
going concern must be made.
Accrual Basis
•Revenues are recognized
when earned regardless of
when received, expenses are
recognized when incurred
regardless of when paid.
Aggregation
•Present separately each
material class of similar items
•Present separately items of
dissimilar nature or function
unless immaterial
Materiality
•An item is material if knowledge of
it would affect the decision of the
informed users of the financial
statements
•It is material when omission or
misstatement could influence the
economic decision of users
Materiality
•Materiality depends on relative size
rather than absolute size.
•What is material for one entity may
be immaterial for another.
•Factors of materiality
• Relative size of the item
• Nature of the item
Offsetting
•Assets and liab, income
and expenses, when
material, shall not be
offset against each other.
Frequency of Reporting
•Present a complete set at least annually
•If shorter or longer than one year:
• The period covered by the FS
• The reason for using a longer or
shorter period
• The fact that amounts presented in the
Fs are not entirely comparable
Comparable Information
•An entity shall disclose
comparative information in
respect of the previous period
for all amounts reported in the
current period’s financial
statements
Third statement of financial position
•Required when:
• Applies accounting policy retrospectively
• Makes retrospective restatement
• Reclassifies items in the FS.
•Present 3 statement of FP at:
• End of current period
• End of previous period
• Beginning of the earliest comparative period
Consistency
•Requires that the accounting methods
and practices shall be applied on a
uniform basis from period to period.
•However, a change is allowed when:
• It is required by another PFRS
• When a significant change in the
nature of the operations will
demonstrate a more appropriate
revised presentation
Consistency
•It is inappropriate for an
entity to leave accounting
policies unchanged when
better and acceptable
alternatives exist
Identification of FS
•An FS must be clearly identified and
distinguished from other info in the same
published document
•Display the following:
• The name of the reporting entity
• Whether separate or consolidated
• End of reporting period
• Presentation currency
• Level of rounding used
THANK YOU!
KIM NICOLE M. REYES, CPA
