2012 Illustrative Consolidated Financial Statement

2012 Illustrative Consolidated Financial Statement
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Introduction

This publication provides an illustrative set of consolidated financial statements, prepared in accordance with Philippine Financial Reporting Standards (PFRS), for a fictional manufacturing, wholesale and retail publicly-listed company, Moonwalk Corporation.

Moonwalk Corporation is an existing preparer of PFRS consolidated financial statements. The PFRS, Philippine Accounting Standards (PAS), and interpretations of the Philippine Interpretations Committee (PIC), Standing Interpretations Committee (SIC) and International Financial Reporting Interpretations Committee (IFRIC) considered in preparing these illustrative corporate consolidated financial statements are those issued by Financial Reporting Standards Council (FRSC) up to 31 October 2012 which are effective for annual periods beginning on or after 1 January 2012.  These illustrative financial statements do not therefore reflect the effect of the standards that may be issued after 31 October 2012.

What's new

Significant changes from the 2011 Illustrative Financial Statements have been highlighted in rose throughout the document, while minor changes are highlighted in yellow 

Significant changes are as follows:

  • Updated Note 2 for the changes in accounting policies. Note that contrary to prior years, only the standards, amendments and interpretations that have a significant impact on the fictional company have been disclosed.

    This is consistent with PwC's view that that "disclosures [of standards, amendments and interpretations] are not necessary in respect of standards and interpretations that are clearly not applicable to the entity (for example industry-specific standards) or that are not expected to have a material effect on the entity. Instead, disclosure should be given in respect of the developments that are, or could be, significant to the entity. Management will need to apply judgement in determining whether a standard is expected to have a material effect. The assessment of materiality should consider the impact both on previous transactions and financial position and on reasonably foreseeable future transactions. For pronouncements where there is an option that could have an impact on the entity, the management expectation on whether the entity will use the option should be disclosed."
  • Updated partner's signature block format to include the expiration dates of the firm's and individual partner's SEC accreditation.
  • Included in Appendix IV an illustrative Schedule of Philippine Financial Reporting Standards effective as at December 31, 2012

Standards, amendments and interpretations effective 2012

Until 31 October 2012, the FRSC has approved the adoption of the following amendments to existing standards which are effective on or after 1 January 2012:

Standards, amendments or interpretations Effective date
PFRS 1 (Amendment), First-time Adoption of PFRS - Fixed Dates and Hyperinflation 1 July 2011
PFRS 7 (Amendment), Financial Instruments: Disclosures - Transfer of Financial Assets 1 July 2011
PAS 12 (Amendment), Income Taxes - Deferred Tax 1 July 2012

 

Adoption of new accounting standards

PAS 8, par. 30 states that when an entity has not applied a new Standard or Interpretation that has been issued but is not yet effective, the entity shall disclose this fact and known or reasonably estimable information relevant to assessing the possible impact of the application of the new Standard or Interpretation on the entity's financial statements in the period of initial application.

In complying with paragraph 30, an entity considers disclosing, at the minimum, the title of the new Standard or Interpretation; the nature of the impending change or changes in accounting policy; the date by which application of the Standard or Interpretation is required; the date in which it plans to apply the Standard or Interpretation initially; and either (1) a discussion of the impact the initial application of the Standard or Interpretation on the entity's financial statements; or (2) if that impact is not known or reasonably estimable, a statement to that effect.

However, as discussed above, it is PwC's view that disclosure should only be given in respect of the developments that are, or could be, significant to the entity. Disclosure is not necessary for standards, amendments or interpretations that are clearly not applicable to the entity (for example industry-specific standards) or that are not expected to have a material effect on the entity.

What needs to be incorporated in the financial statements?

For purposes of preparing the 2012 financial statements, it is important to ensure that disclosures required by the standards and regulatory authorities are adequately disclosed in the financial statements.

No interpretations, new standards or amendments were adopted early for the purpose of these illustrative corporate consolidated financial statements.

Certain items that may or may not apply to a particular reporting entity may have been included in these illustrative corporate consolidated financial statements.  

The sample disclosures in this publication should not be considered the only acceptable form of presentation.  The form and content of each reporting entity’s financial statements are the responsibility of the entity’s management, and forms of presentation alternative to those proposed in this publication that are equally acceptable, may be preferred and adopted if they comply with the specific disclosure requirements prescribed in PFRS.  Also, additional accounting disclosures may be required in order to comply with local laws, national financial reporting standards and/or Philippine Stock Exchange regulations.  Example of such is the disclosure requirements by the Philippine and Exchange Commission (SEC) through SRC Rule 68.1.  Some of the disclosure requirements are included in the disclosure for Moonwalk Corporation and some are placed as footnotes.

Certain additional statements may be required to accompany the auditor’s report on the financial statements when filed with certain regulatory authorities (such as the SEC and BIR).  Examples of these are as follows:

  • Supplemental written statement indicating that the auditor has examined the financial statements of an entity filing under Rule 68 for non-public and non-secondary licensees (Revised SRC Rule 68, as amended on October 20, 2011, Part I Section 3B(v), formerly SRC Rule 68 Section 3d);
  • Written statement indicating that partners of the auditing firm are independent from the client (Section 8-A of BIR Revenue Regulation No. V-1);
  • Auditor’s report on the SEC supplementary schedules required to be submitted by certain issues (such as public or listed companies) in addition to the financial statements (Revised SRC Rule 68, as amended on October 20, 2011, Part II Section 6D, formerly SRC Rule 68.1);
  • Auditor’s report on the reconciliation of retained earnings available for dividend distribution (“Annex A”) (Revised SRC Rule 68, as amended on October 20, 2011, Part I Section 4C; SEC Memorandum Circular No. 11, Series of 2008)
  • Separate auditor’s opinion on the supplementary information required to be disclosed in the notes to the financial statements (BIR Revenue Regulation Nos. 15-2010 and 19-2011); and
  • Emphasis of a matter paragraph in the case of a capital deficiency indicating that the auditor has conducted sufficient audit procedures to verify the validity of the company’s concrete plan to address the capital deficiency (Revised SRC Rule 68, as amended on October 20, 2011, Part I Section 3B(iv) sub-paragraph (v)).

Compliance of concerned companies, both public and non-public, with the disclosure requirements of regulatory bodies such as BIR, SEC, or the Insurance Commission is the responsibility of the client’s management.  

This illustrative set of financial statements is intended for general reference only.  They are not a substitute for reading the standards and interpretations themselves or for professional judgment as to fairness of presentation.  They do not cover all possible disclosures that PFRS requires, nor do they take into account any specific legal framework. Further specific information may be required in order to ensure fair presentation under PFRS.  We recommend that readers refer to the PFRS Disclosure and Content Checklist. 

Guidance in using this publication

In using the Illustrative Financial Statements for existing PFRS users, below are some guidance:

Full compliance with PFRS

For purposes of the preparation of the Illustrative Financial Statements, the terms PFRS was used as the financial reporting framework.  Please see No. 2 for guidance applicable to other Frameworks.

Financial Reporting Framework Other than PFRS

An entity is required by paragraph 1.103(a) of PAS 1, Presentation of Financial Statements,to disclose in the notes to financial statements information about the basis of preparation of the financial statements.

Entities that have complied in full with Philippine Financial Reporting Standards (PFRSs) refer to PFRSs as the basis of preparation of the financial statements.

Certain entities, however, have been permitted to defer the application of PFRSs in part or in full, such as entities which are required to comply with PFRS but were allowed by the primary regulator not to apply a specified PFRS(s) or certain provisions of a PFRS (ie, Pre-need companies and Mining Companies) or PFRS for SMEs.

Footnotes

Certain commentaries are provided in footnotes throughout the Illustrative Financial Statements, which may not necessarily be related to Moonwalk Corporation Group.  These commentaries provide additional information, warnings, clarifications, and in certain cases, sample disclosures as in the case of revalued property.

Section 2 - Appendices

Users could refer to these appendices for other sample disclosures.  These consist of a listing of the standards applicable to Moonwalk Corporation Group, alternative presentation methods, policies and disclosures for areas not relevant to Moonwalk Corporation Group, critical accounting estimates and judgments not relevant to Moonwalk Corporation Group, and selected standards and amendments to standards published but not yet effective.