Financial Accounting & Reporting (FAR)
Part 1 of 6 - Conceptual Framework & Financial Statements
About FAR
Financial Accounting and Reporting covers the preparation and presentation of financial statements in accordance with Philippine Financial Reporting Standards (PFRS) and Philippine Accounting Standards (PAS).
Key Focus Areas
- Conceptual Framework for Financial Reporting
- Financial Statement Presentation (PAS 1)
- Accounting Standards for Assets, Liabilities, Equity
- Revenue Recognition (PFRS 15)
📚Conceptual Framework
Qualitative Characteristics
Fundamental Characteristics
Relevance
- Predictive value
- Confirmatory value
- Materiality (entity-specific)
Faithful Representation
- Complete
- Neutral
- Free from error
Enhancing Characteristics
- Comparability: Compare between entities/periods
- Verifiability: Independent observers can agree
- Timeliness: Available when needed
- Understandability: Clear and concise
Elements of Financial Statements
| Element | Definition | Recognition Criteria |
|---|---|---|
| Asset | Present economic resource controlled by entity | Provides relevant, faithful info |
| Liability | Present obligation to transfer economic resource | Provides relevant, faithful info |
| Equity | Residual interest (Assets - Liabilities) | N/A (derived) |
| Income | Increase in assets / decrease in liabilities → equity increase | Provides relevant, faithful info |
| Expense | Decrease in assets / increase in liabilities → equity decrease | Provides relevant, faithful info |
Accounting Equation
Assets = Liabilities + Equity
Equity = Share Capital + Retained Earnings + OCI
📊Financial Statements (PAS 1)
Complete Set of Financial Statements
1. Statement of Financial Position (Balance Sheet)
Shows assets, liabilities, equity at a point in time
2. Statement of Profit or Loss and Other Comprehensive Income
Shows income and expenses for a period
3. Statement of Changes in Equity
Shows changes in each component of equity
4. Statement of Cash Flows
Shows cash movements: operating, investing, financing
5. Notes to Financial Statements
Accounting policies and additional disclosures
Current vs Non-Current Classification
Current Asset if:
- Expected to be realized in normal operating cycle
- Held primarily for trading
- Expected to be realized within 12 months
- Cash/cash equivalent (unrestricted)
Current Liability if:
- Expected to be settled in normal operating cycle
- Held primarily for trading
- Due within 12 months
- No unconditional right to defer settlement
📝Key Accounting Standards
PAS 2 - Inventories
Measurement: Lower of Cost and Net Realizable Value (NRV)
Cost Formulas: FIFO, Weighted Average (LIFO not allowed)
NRV: Estimated selling price - Costs to complete - Costs to sell
PAS 16 - Property, Plant & Equipment
Initial Measurement: Cost (purchase price + directly attributable costs)
Subsequent Measurement: Cost Model OR Revaluation Model
Depreciation Methods: Straight-line, Declining Balance, Units of Production
PAS 38 - Intangible Assets
Recognition: Identifiable, controlled, future economic benefits
Research: Expense as incurred
Development: Capitalize if criteria met (PIRATE)
PFRS 15 - Revenue from Contracts
5-Step Model:
- Identify the contract
- Identify performance obligations
- Determine transaction price
- Allocate transaction price
- Recognize revenue when obligation satisfied
PFRS 16 - Leases
Lessee: Single model - recognize Right-of-Use Asset and Lease Liability
Lessor: Finance lease or Operating lease (unchanged)
Exceptions: Short-term leases (<12 months), Low-value assets
Key Formulas
Depreciation (SL):
(Cost - Residual) / Useful Life
NRV:
Selling Price - Costs to Sell
Book Value:
Cost - Accumulated Depreciation
Gain/Loss on Disposal:
Proceeds - Book Value