PFRS 1

What does PFRS 1 primarily deal with?

• Revenue Recognition

• First-time Adoption of Philippine Financial Reporting Standards

• Financial Instruments

• Leases

Answer explanation

PFRS 1 is specifically designed to help companies in their first-time adoption of Philippine Financial Reporting Standards (PFRS).

It provides guidance on the transition from previous accounting standards to PFRS, ensuring that financial statements are transparent and comparable.

What is required by an entity under PFRS 1?

• Opening PFRS financial statements

• Final Statement of Financial Position
• Opening PFRS statement of profit or loss and other comprehensive income

• Closing Statement of Financial Position

Answer explanation

PFRS 1 focuses on the presentation of the opening financial statements under PFRSs.

When should an entity transition to PFRSs according to PFRS 1?

• The beginning of the entity's fiscal year

• The end of the entity's fiscal year

• There is no specific date mandated by PFRS 1

• The beginning of the earliest period for which an entity presents full PFRS financial statements

Answer explanation

PFRS 1 allows flexibility, requiring the transition to occur at the beginning of the earliest period presented as full PFRS financials.

What is the purpose of retrospective application of accounting policies?

• As if PFRSs have been used all along

• As if PFRSs are used only in prior periods

• As if PFRSs are used only in the current period

• Restating the Financial Statements in order to correct all errors

Answer explanation

When applying a new accounting policy retrospectively, the financial statements are adjusted to reflect how they would have looked if the new policy had been used from the beginning (for all prior periods presented). This ensures a more comparable picture of the entity's financial performance across periods.

PFRS 1 focuses on applying accounting standards retrospectively. What are two potential challenges that entities might face when implementing a retrospective application under PFRS 1?

• Increased comparability and transparency

• Data conversion difficulties and implementation costs

• Potential for fewer accounting policy choices

• Reduced user confidence in the financial statements

Answer explanation

Retrospective application can be complex. Entities might struggle with converting historical data to comply with new PFRS requirements, and there can be significant costs associated with implementing new systems and processes.