STATEMENT OF FINANCIAL POSITION

An Introduction
(with discussions on International Accounting Standard 1,
Presentation of Financial Statements)

1. International Accounting Standard 1 (IAS 1)

a) issued by International Accounting Standards Board (IASB), an accounting standard-setting body
b) adopted in the Philippines as Philippine Accounting Standard 1 (PAS 1)
c) This Standard prescribes the basis for presentation of general purpose financial statements to ensure
comparability both with the entity’s financial statements of previous periods and with the financial statements of
other entities. It sets out overall requirements for the presentation of financial statements, guidelines for
their structure and minimum requirements for their content.

2. Definitions

a) General purpose financial statements (referred to as ‘financial statements’)

i. are those intended to meet the needs of users who are NOT in a position to require an entity to prepare
reports tailored to their particular information needs.

b) Impracticable
i. Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort
to do so.

c) International Financial Reporting Standards (IFRSs)

i. are Standards and Interpretations issued by the International Accounting Standards Board (IASB). They
comprise:
1. International Financial Reporting Standards;
a) standards issued by IASB
2. International Accounting Standards;
a) standards issued by International Accounting Standards Committee (IASC), now known to be IASB
3. IFRIC Interpretations; and
a) IFRIC stands for International Financial Reporting Interpretations Committee
b) interpretations issued by IFRIC, now known to be Standard Interpretations Committee (SIC)
4. SIC Interpretations.

d) Material
i. Omissions or misstatements of items are material if they could, individually or collectively, influence
the economic decisions that users make on the basis of the financial statements. Materiality
depends on the size and nature of the omission or misstatement judged in the surrounding circumstances.
The size or nature of the item, or a combination of both, could be the determining factor.
1. Assessing whether an omission or misstatement could influence economic decisions of users, and so be
material, requires consideration of the characteristics of those users. The Framework for the Preparation
and Presentation of Financial Statements states in paragraph 25 that ‘users are assumed to have a
reasonable knowledge of business and economic activities and accounting and a willingness to study the
information with reasonable diligence.’ Therefore, the assessment needs to take into account how users
with such attributes could reasonably be expected to be influenced in making economic decisions.

e) Notes
i. contain information in addition to that presented in the statement of financial position, statement(s) of
profit or loss and other comprehensive income, statement of changes in equity and statement of cash
flows. Notes provide narrative descriptions or disaggregations of items presented in those statements
and information about items that do not qualify for recognition in those statements.

f) OTHER comprehensive income

i. comprises items of income and expense (including reclassification adjustments) that are not recognised in
profit or loss as required or permitted by other IFRSs.
1. The components of other comprehensive income include:
a) changes in revaluation surplus (see IAS 16 Property, Plant and Equipment and IAS 38 Intangible
Assets);
b) remeasurements of defined benefit plans (see IAS 19 Employee Benefits);
c) gains and losses arising from translating the financial statements of a foreign operation (see IAS
21 The Effects of Changes in Foreign Exchange Rates);
d) gains and losses from investments in equity instruments designated at fair value through other
comprehensive income in accordance with paragraph 5.7.5 of IFRS 9 Financial Instruments;
i. gains and losses on financial assets measured at fair value through other
comprehensive income in accordance with paragraph 4.1.2A of IFRS 9.
e) the effective portion of gains and losses on hedging instruments in a cash flow hedge and the
gains and losses on hedging instruments that hedge investments in equity instruments measured
 at fair value through other comprehensive income in accordance with paragraph 5.7.5 of IFRS
9 (see Chapter 6 of IFRS 9);
f) for particular liabilities designated as at fair value through profit or loss, the amount of the
change in fair value that is attributable to changes in the liability’s credit risk (see paragraph 5.7.7
of IFRS 9);
g) changes in the value of the time value of options when separating the intrinsic value and time value
of an option contract and designating as the hedging instrument only the changes in the
intrinsic value (see Chapter 6 of IFRS 9); and
h) changes in the value of the forward elements of forward contracts when separating the forward
element and spot element of a forward contract and designating as the hedging instrument only
the changes in the spot element, AND changes in the value of the foreign currency basis
spread of a financial instrument when excluding it from the designation of that financial
instrument as the hedging instrument (see Chapter 6 of IFRS 9).

g) Owners
i. are holders of instruments classified as equity.

h) Profit or loss
i. is the total of income less expenses, EXCLUDING the components of other comprehensive income.

i) Reclassification adjustments
i. are amounts reclassified to profit or loss in the current period that were recognised in other comprehensive
income in the current or previous periods.

j) TOTAL comprehensive income

i. is the change in equity during a period resulting from transactions and other events, other than those
changes resulting from transactions with owners in their capacity as owners.
ii. Total comprehensive income comprises all components of ‘profit or loss’ AND of ‘other comprehensive
income’.

3. Although this Standard uses the terms ‘other comprehensive income’, ‘profit or loss’ and ‘total comprehensive income’,
an entity may use other terms to describe the totals as long as the meaning is clear. For example, an entity may
use the term ‘net income’ to describe profit or loss.

Financial Statements

4. Purpose of financial statements

a) Financial statements are a structured representation of the financial position and financial performance of an
entity.
b) The objective of financial statements is to provide information 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.
c) Financial statements also show the results of the management’s stewardship of the resources entrusted to it.
d) To meet this objective, financial statements provide information about an entity’s:
i. assets;
ii. liabilities;
iii. equity;
iv. income and expenses, including gains and losses;
v. contributions by and distributions to owners in their capacity as owners; and
vi. cash flows.
e) This information, along with other information in the notes, assists users of financial statements in predicting the
entity’s future cash flows and, in particular, their timing and certainty.

5. COMPLETE SET of financial statements

a) A complete set of financial statements comprises:
i. a statement of financial position as at the end of the period;
ii. a statement of profit or loss and other comprehensive income for the period;
iii. a statement of changes in equity for the period;
iv. a statement of cash flows for the period;
v. notes, comprising significant accounting policies and other explanatory information;
vi. comparative information in respect of the preceding period; and
vii. a statement of financial position as at the beginning of the preceding period when an entity applies
an accounting policy retrospectively or makes a retrospective restatement of items in its financial
statements, or when it reclassifies items in its financial statements.

6. An entity may use titles for the statements other than those used in this Standard. For example, an entity
may use the title ‘statement of comprehensive income’ instead of ‘statement of profit or loss and other
comprehensive income’.
7. An entity MAY present a single statement of profit or loss and other comprehensive income, with profit or
loss and other comprehensive income presented in two sections. The sections shall be presented together,
with the profit or loss section presented first followed directly by the other comprehensive income section. An
entity MAY present the profit or loss section in a separate statement of profit or loss. If so, the separate
statement of profit or loss shall immediately precede the statement presenting comprehensive income,
which shall begin with profit or loss.

8. Many entities present, outside the financial statements, a financial review by management that describes and explains
the main features of the entity’s financial performance and financial position, and the principal uncertainties it faces.
Such a report may include a review of:
a) the main factors and influences determining financial performance, including changes in the environment in which
the entity operates, the entity’s response to those changes and their effect, and the entity’s policy for investment
to maintain and enhance financial performance, including its dividend policy;
b) the entity’s sources of funding and its targeted ratio of liabilities to equity; and
c) the entity’s resources not recognised in the statement of financial position in accordance with IFRSs.

9. Many entities also present, outside the financial statements, reports and statements such as environmental reports
and value added statements, particularly in industries in which environmental factors are significant and when
employees are regarded as an important user group. Reports and statements presented outside financial
statements are outside the scope of IFRSs.

General Features

10. An entity whose financial statements comply with IFRSs SHALL make an explicit and unreserved
statement of such compliance in the notes. An entity shall not describe financial statements as complying with
IFRSs unless they comply with all the requirements of IFRSs. See example “Statement of Compliance” below.

11. An entity cannot rectify inappropriate accounting policies either by disclosure of the accounting policies used or by
notes or explanatory material.

12. In the extremely rare circumstances in which management concludes that compliance with a requirement in an
IFRS would be so misleading that it would conflict with the objective of financial statements set out in the
Framework, the entity shall depart from that requirement in the manner set out in paragraph 20 (of IAS 1, see
next discussion) if the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.

13. When an entity departs from a requirement of an IFRS, it shall disclose:

a) that management has concluded that the financial statements present fairly the entity’s financial position,
financial performance and cash flows;
b) that it has complied with applicable IFRSs, except that it has departed from a particular requirement to achieve a
fair presentation;
c) the title of the IFRS from which the entity has departed, the nature of the departure, including the treatment that
the IFRS would require, the reason why that treatment would be so misleading in the circumstances that it would
 conflict with the objective of financial statements set out in the Framework, and the treatment adopted; and
d) for each period presented, the financial effect of the departure on each item in the financial statements that would
have been reported in complying with the requirement.

14. Going concern

a) When preparing financial statements, management shall make an ASSESSMENT of an entity’s ability to
continue as a going concern. An entity shall prepare financial statements on a going concern basis unless
management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.
When management is aware, in making its assessment, of material uncertainties related to events or
conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, THE
ENTITY SHALL DISCLOSE THOSE UNCERTAINTIES.

15. When an entity does not prepare financial statements on a going concern basis,
a) it shall disclose that fact,
b) together with the basis on which it prepared the financial statements
c) and the reason why the entity is not regarded as a going concern.

16. In assessing whether the going concern assumption is appropriate, management takes into account all available
information about the future, which is at least, but is not limited to, twelve months from the end of the reporting
period. The degree of consideration depends on the facts in each case. When an entity has a history of profitable
operations and ready access to financial resources, the entity may reach a conclusion that the going concern basis of
accounting is appropriate without detailed analysis. In other cases, management may need to consider a wide range
of factors relating to current and expected profitability, debt repayment schedules and potential sources of
replacement financing before it can satisfy itself that the going concern basis is appropriate.

17. Accrual basis of accounting

a) An entity SHALL prepare its financial statements, except for cash flow information, using the accrual basis
of accounting.
b) When the accrual basis of accounting is used, an entity recognises items as assets, liabilities, equity, income and
expenses (the elements of financial statements) when they satisfy the definitions and recognition criteria for
those elements in the Conceptual Framework.

18. Materiality and aggregation

a) An entity shall present separately each material class of similar items.
b) An entity shall present separately items of a dissimilar nature or function UNLESS they are immaterial.

19. Financial statements result from processing large numbers of transactions or other events that are aggregated into
classes according to their nature or function. The final stage in the process of aggregation and classification is the
presentation of condensed and classified data, which form line items in the financial statements. If a line item is not
individually material, it is aggregated with other items either in those statements or in the notes. An item that is not
sufficiently material to warrant separate presentation in those statements may warrant separate presentation in the
notes.

20. When applying this and other IFRSs an entity shall decide, taking into consideration all relevant facts and
circumstances, how it aggregates information in the financial statements, which include the notes. An entity shall not
reduce the understandability of its financial statements by obscuring material information with immaterial information
or by aggregating material items that have different natures or functions.

21. Some IFRSs specify information that is required to be included in the financial statements, which include the notes.
An entity need not provide a specific disclosure required by an IFRS if the information resulting from that
disclosure is NOT material. This is the case EVEN IF the IFRS contains a list of specific requirements or
describes them as MINIMUM requirements. An entity shall also consider whether to provide additional disclosures
when compliance with the specific requirements in IFRS is insufficient to enable users of financial statements to
understand the impact of particular transactions, other events and conditions on the entity’s financial position and
financial performance.

22. Frequency of reporting

a) An entity shall present a complete set of financial statements (including comparative information) at least
annually.

b) When an entity changes the end of its reporting period and presents financial statements for a period longer or
 shorter than one year, an entity shall disclose, in addition to the period covered by the financial statements:
i. the reason for using a longer or shorter period, and
ii. the fact that amounts presented in the financial statements are not entirely comparable.

23. Normally, an entity consistently prepares financial statements for a one-year period. However, for practical reasons,
some entities prefer to report, for example, for a 52-week period. This Standard (IAS 1) does not preclude this
practice.

24. Comparative information

a) Except when IFRSs permit or require otherwise, an entity SHALL present comparative information in
respect of the preceding period for ALL amounts reported in the current period’s financial statements.
An entity shall include comparative information for narrative and descriptive information if it is relevant to
understanding the current period’s financial statements.

25. An entity shall present, as a minimum, two statements of financial position, two statements of profit or loss and
other comprehensive income, two separate statements of profit or loss (if presented), two statements of cash flows
and two statements of changes in equity, and related notes.

26. In some cases, narrative information provided in the financial statements for the preceding period(s) continues to be
relevant in the current period. For example, an entity discloses in the current period details of a legal dispute, the
outcome of which was uncertain at the end of the preceding period and is yet to be resolved. Users may benefit from
the disclosure of information that the uncertainty existed at the end of the preceding period and from the disclosure of
information about the steps that have been taken during the period to resolve the uncertainty.

27. An entity MAY present comparative information IN ADDITION to the minimum comparative financial
statements required by IFRSs, as long as that information is prepared in accordance with IFRSs. This comparative
information may consist of one or more statements, but need not comprise a complete set of financial statements.
When this is the case, the entity shall present related note information for those additional statements.

28. For example, an entity may present a third statement of profit or loss and other comprehensive income (thereby
presenting the current period, the preceding period and one additional comparative period). However, the entity is not
required to present a third statement of financial position, a third statement of cash flows or a third statement of
changes in equity (ie an additional financial statement comparative). The entity is required to present, in the notes to
the financial statements, the comparative information related to that additional statement of profit or loss and other
comprehensive income.

29. Consistency of presentation

a) An entity shall retain the presentation and classification of items in the financial statements from one period to
the next unless:
i. it is apparent, following a significant change in the nature of the entity’s operations or a review of its financial
statements, that another presentation or classification would be more appropriate having regard to the
criteria for the selection and application of accounting policies in IAS 8; or
ii. an IFRS requires a change in presentation.

Structure and Content

30. This Standard requires particular disclosures in the statement of financial position or the statement(s) of profit or
loss and other comprehensive income, or in the statement of changes in equity and requires disclosure of other line
items either in those statements or in the notes. IAS 7 Statement of Cash Flows sets out requirements for the
presentation of cash flow information.

31. This Standard sometimes uses the term ‘disclosure’ in a broad sense, encompassing items presented in the
financial statements. Disclosures are also required by other IFRSs. Unless specified to the contrary elsewhere in this
Standard or in another IFRS, such disclosures may be made in the financial statements.

Identification of the financial statements

32. An entity shall clearly identify the financial statements and distinguish them from other information in the same
published document.

33. IFRSs apply only to financial statements, and not necessarily to other information presented in an annual report, a
regulatory filing, or another document. Therefore, it is important that users can distinguish information that is
prepared using IFRSs from other information that may be useful to users but is not the subject of those requirements.

34. An entity shall clearly identify each financial statement and the notes. In addition, an entity shall display the
following information prominently, and repeat it when necessary for the information presented to be understandable:
a) the name of the reporting entity or other means of identification, and any change in that information from the
end of the preceding reporting period;
 b) whether the financial statements are of an individual entity OR a group of entities;
c) the date of the end of the reporting period OR the period covered by the set of financial statements or notes;
d) the presentation currency; and
e) the level of rounding used in presenting amounts in the financial statements.

35. An entity meets the requirements in the above paragraph by presenting appropriate headings for pages, statements,
notes, columns and the like. Judgement is required in determining the best way of presenting such information. For
example, when an entity presents the financial statements electronically, separate pages are not always used; an
entity then presents the above items to ensure that the information included in the financial statements can be
understood.

36. An entity often makes financial statements more understandable by presenting information in thousands or millions of
units of the presentation currency. This is acceptable as long as the entity discloses the level of rounding and does not
omit material information.

Statement of financial position

Information to be presented in the statement of financial position

37. Thestatement of financial position shall include line items that present the following amounts:
a) property, plant and equipment;
b) investment property;
c) intangible assets;
d) financial assets (excluding amounts shown under (e), (h) and (i));
e) investments accounted for using the equity method;
f) biological assets within the scope of IAS 41 Agriculture;
g) inventories;
h) trade and other receivables;
i) cash and cash equivalents;
j) the total of assets classified as held for sale and assets included in disposal groups classified as held for sale in
accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations;
k) trade and other payables;
l) provisions;
m) financial liabilities (excluding amounts shown under (k) and (l));
n) liabilities and assets for current tax, as defined in IAS 12 Income Taxes;
o) deferred tax liabilities and deferred tax assets, as defined in IAS 12;
p) liabilities included in disposal groups classified as held for sale in accordance with IFRS 5;
q) non-controlling interests, presented within equity; and
r) issued capital and reserves attributable to owners of the parent.

38. An entity shall present additional line items (including by disaggregating the line items listed in the above paragraph),
headings and subtotals in the statement of financial position when such presentation is relevant to an understanding
of the entity’s financial position.

39. When an entity presents current and non-current assets, and current and non-current liabilities, as separate
classifications in its statement of financial position, it shall not classify deferred tax assets (liabilities) as current assets
(liabilities). Paragraph 56

40. This Standard does not prescribe the order or format in which an entity presents items.

Current/non-current distinction

41. An entity shall present current and non-current assets, and current and non-current liabilities, as separate
classifications in its statement of financial position except when a presentation based on liquidity provides information
that is reliable and more relevant. When that exception applies, an entity shall present all assets and liabilities in order
of liquidity.

42. Whichever method of presentation is adopted, an entity shall disclose the amount expected to be recovered or settled
after more than twelve months for each asset and liability line item that combines amounts expected to be recovered
or settled:
a) no more than twelve months after the reporting period, and
b) more than twelve months after the reporting period.

43. When an entity supplies goods or services within a clearly identifiable operating cycle, separate classification of current
and non-current assets and liabilities in the statement of financial position provides useful information by
distinguishing the net assets that are continuously circulating as working capital from those used in the entity’s long-
term operations. It also highlights assets that are expected to be realised within the current operating cycle, and
liabilities that are due for settlement within the same period.
44. For some entities, such as financial institutions, a presentation of assets and liabilities in increasing or decreasing
order of liquidity provides information that is reliable and more relevant than a current/non-current presentation
because the entity does not supply goods or services within a clearly identifiable operating cycle.

45. An entity is permitted to present some of its assets and liabilities using a current/non-current classification and others
in order of liquidity when this provides information that is reliable and more relevant. The need for a mixed basis of
presentation might arise when an entity has diverse operations.

46. Information about expected dates of realisation of assets and liabilities is useful in assessing the liquidity and solvency
of an entity. IFRS 7 Financial Instruments: Disclosures requires disclosure of the maturity dates of financial assets and
financial liabilities. Financial assets include trade and other receivables, and financial liabilities include trade and other
payables. Information on the expected date of recovery of non-monetary assets such as inventories and expected
date of settlement for liabilities such as provisions is also useful, whether assets and liabilities are classified as current
or as non-current. For example, an entity discloses the amount of inventories that are expected to be recovered more
than twelve months after the reporting period.

Current assets

47. An entity shall classify an asset as current when:

a) it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;
b) it holds the asset primarily for the purpose of trading;
c) it expects to realise the asset within twelve months after the reporting period; or
d) the asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a
liability for at least twelve months after the reporting period.

48. An entity shall classify all other assets as non-current.

49. This Standard uses the term ‘non-current’ to include tangible, intangible and financial assets of a long-term nature. It
does not prohibit the use of alternative descriptions as long as the meaning is clear.

50. The operating cycle of an entity is the time between the acquisition of assets for processing and their
realisation in cash or cash equivalents. When the entity’s normal operating cycle is not clearly identifiable, it is
assumed to be twelve months. Current assets include assets (such as inventories and trade receivables) that are sold,
consumed or realised as part of the normal operating cycle even when they are not expected to be realised within
twelve months after the reporting period. Current assets also include assets held primarily for the purpose of trading
(examples include some financial assets that meet the definition of held for trading in IFRS 9) and the current portion
of non-current financial assets.

Current liabilities

51. An entity shall classify a liability as current when:

a) it expects to settle the liability in its normal operating cycle;
b) it holds the liability primarily for the purpose of trading;
c) the liability is due to be settled within twelve months after the reporting period; or
d) it does not have an unconditional right to defer settlement of the liability for at least twelve months after the
reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the
issue of equity instruments do not affect its classification.

52. An entity shall classify all other liabilities as non-current.

53. Some current liabilities, such as trade payables and some accruals for employee and other operating costs, are part of
the working capital used in the entity’s normal operating cycle. An entity classifies such operating items as current
liabilities even if they are due to be settled more than twelve months after the reporting period. The same
normal operating cycle applies to the classification of an entity’s assets and liabilities. When the entity’s normal
operating cycle is not clearly identifiable, it is assumed to be twelve months.

54. Other current liabilities are not settled as part of the normal operating cycle, but are due for settlement within
twelve months after the reporting period or held primarily for the purpose of trading. Examples are some financial
liabilities that meet the definition of held for trading, bank overdrafts, and the current portion of non-current financial
liabilities, dividends payable, income taxes and other non-trade payables.

55. Financial liabilities that provide financing on a long-term basis (i.e. are not part of the working capital used in the
entity’s normal operating cycle) AND are not due for settlement within twelve months after the reporting period
are non-current liabilities.
a) When an entity breaches a provision of a long-term loan arrangement on or before the end of the reporting period
with the effect that the liability becomes payable on demand, it classifies the liability as current, even if the lender
agreed, after the reporting period and before the authorisation of the financial statements for issue, not to
demand payment as a consequence of the breach. An entity classifies the liability as current because, at the end
of the reporting period, it does not have an unconditional right to defer its settlement for at least twelve months
 after that date.
b) However, an entity classifies the liability as non-current if the lender agreed by the end of the reporting period to
provide a period of grace ending at least twelve months after the reporting period, within which the entity can
rectify the breach and during which the lender cannot demand immediate repayment.

56. An entity classifies its financial liabilities as current when they are due to be settled within twelve months after the
reporting period, EVEN IF:
a) the original term was for a period longer than twelve months, and
b) an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting
period and before the financial statements are authorised for issue.

57. If an entity expects, and has the discretion, to refinance or roll over an obligation for at least twelve months after
the reporting period under an existing loan facility, it classifies the obligation as non-current, even if it would
otherwise be due within a shorter period. However, when refinancing or rolling over the obligation is not at the
discretion of the entity (for example, there is no arrangement for refinancing), the entity does not consider the
potential to refinance the obligation and classifies the obligation as current.

58. In respect of loans classified as current liabilities, if the following events occur between the end of the reporting period
and the date the financial statements are authorised for issue, those events are disclosed as non-adjusting events
in accordance with IAS 10 Events after the Reporting Period:
a) refinancing on a long-term basis;
b) rectification of a breach of a long-term loan arrangement; and
c) the granting by the lender of a period of grace to rectify a breach of a long-term loan arrangement ending at least
twelve months after the reporting period.

Information to be presented either in the statement of financial position or in the notes

59. An entity shall disclose, either in the statement of financial position or in the notes, further subclassifications of the
line items presented, classified in a manner appropriate to the entity’s operations.

60. The detail provided in subclassifications depends on the requirements of IFRSs and on the size, nature and function of
the amounts involved. The disclosures vary for each item, for example:
a) items of property, plant and equipment are disaggregated into classes in accordance with IAS 16;
b) receivables are disaggregated into amounts receivable from trade customers, receivables from related parties,
prepayments and other amounts;
c) inventories are disaggregated, in accordance with IAS 2 Inventories, into classifications such as merchandise,
production supplies, materials, work in progress and finished goods;
d) provisions are disaggregated into provisions for employee benefits and other items; and
e) equity capital and reserves are disaggregated into various classes, such as paid-in capital, share premium and
reserves.