Intermediate Accounting 3

Chapter 1

Statement of Financial Position

    • General purpose financial statements are “a particular form of general purpose financial reports that provide information about the reporting entity’s assets, liabilities, equity, income and expenses.” General purpose financial statements cater to most of the common needs of a wide range of external users, primarily the potential and existing investors, and lenders and other creditors.
    • The objective of financial statements is to provide information about an entity’s assets, liabilities, equity, income and expenses that is useful to users in assessing: (a) the entity’s prospects for future net cash inflows; and (b) management’s stewardship of the entity’s economic resources.
    • A complete set of financial statements consist of: (1) Statement (or statements) of financial performance; (2) Statement of financial position; (3) Statement of changes in equity; (4) Statement of cash flows; (5) Notes; (6) Comparative information; and (7) Additional statement of financial position (when an entity makes a retrospective application, retrospective restatement, or reclassifies items – with material effect).
    • An entity classifies and aggregates items based on shared characteristics, and disaggregates them based on characteristics not shared in order to present line items that fulfill the role of the primary financial statements in providing useful structured summaries, or to disclose information that fulfills the role of the notes in providing material information.
    • The statement of financial position may be presented either showing current/non-current distinction (classified) or based on liquidity (unclassified). PFRS 18 encourages the classified presentation.
    • Deferred tax assets and deferred tax liabilities are presented as noncurrent items in a classified statement of financial position.
    • PFRS 18 does not prescribe the order or format in which an entity presents items.