UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA

CALAMBA CAMPUS, BRGY. PACIANO RIZAL

CALAMBA CITY, LAGUNA, PHILIPPINES

Chapter 14 – PAS 24: RELATED PARTY / PAS 34 INTERIM FINANCIAL EDMUND E. HILARIO, CPA, MBA
FINANCIAL ACCOUNTING 1St SEMESTER 2019 – 2020
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I. PAS 24: RELATED PARTIES DISCLOSURES c) Dependents of the individual or
A. Definition of terms individual’s spouse
Related party – parties are considered to be 6) Individuals owning directly or indirectly an
related if one party has: interest in the voting power of the reporting
1) The ability to control the other party entity that gives them significant influence
2) The ability to exercise significant influence over the entity, and close family member of
over the other party such individuals
3) Joint control over the reporting period 7) Postemployment benefit plans for the
benefits of employees.
Control is the power over the investee or the
power to govern the financial and operating C. Examples of related party transactions
policies of an entity so as to obtain benefit. A related party transaction is a transfer of
Control is ownership directly or indirectly through resources or obligation between related parties,
subsidiaries of more than half of the voting power regardless of whether a price is charged. PAS
of an entity. 24, paragraph 20, provides the following
examples of related party transactions:
Significant influence is the power to participate 1) Purchase and sale of goods
in the financial and operating policy decision of 2) Purchase and sale of property and other
an entity, but not control of those policies. assets
Significant influence may be gained by share 3) Rendering or receiving services
ownership of 20% or more. Beyond the mere 4) Leases
20% threshold ownership, the existence of 5) Transfer of research and development
significant influence is usually evidenced by the 6) License agreement
following factors: 7) Finance arrangements, including loans and
1) Representation in the board of directors equity contributions in cash or in kind
2) Participation in the policy making process 8) Guarantee and collateral
3) Material transactions between the investor 9) Settlement of liabilities on behalf of the
and investee entity or by the entity on behalf of another
4) Interchange of managerial personnel party
5) Provision of essential technical information
D. Related party disclosures
Joint control – is the contractually agreed PAS 24, paragraph 12 requires disclosure of
sharing of control over an economic activity. related party relationships where control exists
irrespective of whether there have been
B. Examples of related party
transaction between the related parties. In other
1) Affiliates – meaning the parent, the
words, relationships between parents and
subsidiary and fellow subsidiaries
subsidiaries shall be disclosed regardless of
2) Associates – meaning the entities over which
whether there have been transaction between
one party exercise significant influence. The
those related parties.
term “associates” includes subsidiary or
subsidiaries of the associate
An entity shall disclose the name of the entity’s
3) Venturer in a joint venture. A joint venture
parent and if different, the ultimate controlling
includes the subsidiary or subsidiaries of the
party. If neither the entity’s parent nor the
associate
ultimate controlling party produces financial
4) Key management personnel – are those
statements available for public use, the name of
persons having authority and responsibility
the next most senior partner that does so shall
for planning, directing, and controlling the
also be disclosed.
activities of the entity, directly or indirectly,
including any executive director or
E. Disclosures of related party transaction
nonexecutive director.
PAS 24, paragraph 17, provide that if there have
5) Close family members of an individual – are
been transactions between related parties, an
those family members who may be expected
entity shall disclosed the nature of the related
to influence or be influenced by that
party relationship as well as information about
individual in their dealings with the entity.
the transactions and outstanding balances
Close family members of an individual
necessary for an undertaking of the financial
include:
statements. As a minimum, the disclosures of
a) The individual’s spouse and children
related party transaction shall include:
b) Children of the individual’s spouse
1) The amount of transaction

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 UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES

Chapter 14 – PAS 24: RELATED PARTY / PAS 34 INTERIM FINANCIAL EDMUND E. HILARIO, CPA, MBA
FINANCIAL ACCOUNTING 1St SEMESTER 2019 – 2020
=============================================================================
2) The amount of outstanding balances, terms financial reports may be presented monthly,
and conditions whether secured or quarterly or semiannually. Quarterly interim
unsecured, and nature of consideration to be reports are the most common.
provided in settlement
3) The allowance for doubtful accounts related However, publicly traded entities are encouraged
to the outstanding balance to provide interim financial reports at least
4) The doubtful accounts expense recognized semiannually and such reports are to be made
during the period in respect of amount due available not later than 60 days after the end of
from related parties interim period.

F. Key management personnel compensation B. Frequency of interim reporting

PAS 24, paragraph 16, provides that an entity PAS 34 does not mandate which entities are
shall disclose key management personnel required to publish interim financial reports, how
compensation in total and for each of the frequently, or how soon after the end of an
following categories: interim period.
1) Short-term employee benefits
2) Postemployment benefits, for example, C. Philippine jurisdiction
retirement pensions The SEC and PSE require entities covered by the
3) Other long-term benefits reportorial requirements of Revised Securities
4) Termination benefits Act to file quarterly interim financial reports
5) Share-based payment transactions, for within 45 days after the end of each of the first
example, share options three quarters. The SEC also requires entities
covered by the Rules on Commercial Papers and
G. Related party disclosures not required Financing Act to file quarterly financial reports
PAS 24, paragraph 3, requires disclosure of within 45 days after each quarter-end.
related party transactions and outstanding
balances in the separate financial statements of Entities that provide interim financial report in
a parent, subsidiary, associate or venturer. conformity with PFRS shall conform to the
However, paragraph 4, provides that intragroup recognition, measurement and disclosure
related party transactions and outstanding requirements set out in the standard.
balances are eliminated in the preparation of
consolidated financial statements of the group.
D. Components of an interim financial report
PAS 34, paragraph 8, provides that an interim
H. Unrelated parties
financial report shall include, at a minimum, the
Unrelated parties include the following:
following components:
1) Two entities simply because they have a
1) Condensed statement of financial position
director or key management personnel in
2) Condensed statement of comprehensive
common
income
2) Providers of finance, trade unions, public
3) Condensed statement of cash flows
utilities and government agencies in the
4) Selected explanatory notes
course of their normal dealings with an
entity by virtue only of those dealings Paragraph 8A provides that an entity can present
3) A simple customer, supplier, franchisor or items of profit and loss in a separate condensed
general agent with whom an entity transacts income statement. Nothing in the standard is
a significant volume of business merely by intended to prohibit or discourage an entity from
virtue of the resulting economic dependence publishing a complete set of financial statements,
4) Two venturer simply because they share rather than condensed financial statements and
joint control over a joint venture. selected explanatory notes.

II. PAS 34: INTERIM FINANCIAL REPORTING In other words, PAS 34 allows an entity to
A. Definition publish a set of condensed financial statements
Interim financial reporting means the preparation or complete set of financial statements in the
and presentation of financial statements for a interim financial report. “Condensed” means that
period of less than one year. PAS 34 prescribed each of the headings and subtotals presented in
the minimum content of an interim financial the entity’s most recent annual financial
report and the principles for recognition and statement is required but there is no requirement
measurement in complete or condensed financial to include greater details unless this is
statements for an interim period. Interim specifically required.
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 UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES

Chapter 14 – PAS 24: RELATED PARTY / PAS 34 INTERIM FINANCIAL EDMUND E. HILARIO, CPA, MBA
FINANCIAL ACCOUNTING 1St SEMESTER 2019 – 2020
=============================================================================
E. Disclosures of compliance with PFRS c) Comparative income statement for the
PAS 34, paragraph 19, provides that if an entity’s comparable interim period of the
interim financial report is in compliance with preceding year
PFRS, such fact shall be disclosed. An entity d) Comparative income statement
shall not describe an interim financial report as cumulatively for the comparable
complying with PFRS unless it complies with all financial year to date of the preceding
of the requirements of each applicable PFRS. year

F. Selected explanatory notes 3) Statement of comprehensive income

The selected explanatory notes are design to a) Statement of comprehensive income for
provide an explanation of significant events and the current interim period
transactions arising since the last annual b) Statement of comprehensive income
financial statements. PAS 34 assumes that cumulatively for the current financial
financial statement users have an access to the year to date
entity’s most recent annual report. c) Comparative statement of
comprehensive income for the
As a result, the standard reiterates that is a comparable interim period of the
superfluity to provide the same notes in the preceding year
interim financial report that appeared in the most d) Comparative statement of
recent annual financial report. Examples of comprehensive income cumulatively for
disclosures required in a condensed interim the comparable financial year to date of
financial report included; the preceding year
1) Writedown of inventories to NRV and the
reversal of such writedown 4) Statement of changes in equity
2) Recognition of a loss from the impairment of a) Statement of changes in equity
PPE and intangible assets and the reversal of cumulatively for the current financial
such an impairment loss year to date
3) The reversal of any provision for b) Comparative statement of changes in
restructuring equity for the comparable financial year
4) Acquisition and disposal of items of PPE to date of the preceding year
5) Commitments for the purchase of PPE
6) Litigation settlements 5) Statement of cash flows
7) Corrections of prior period errors in a) Statement of cash flows cumulatively
previously reported financial data for the current financial year to date
8) Changes in the economic circumstances that b) Comparative statement of cash flows for
effect fair value of financial assets and the comparable financial year to date of
financial liabilities the preceding year
9) Any debt default or any breach of a debt
covenant that has not been corrected H. Basic principles
subsequently 1. PAS 34, paragraph 28, provides that an
10) Related party transactions entity shall apply the same accounting
11) Changes in the classification of financial policies in the interim financial statements
assets as are applied in the annual financial
12) Contingent liabilities and contingent assets statements.

G. Presentation of comparative interim statements However, the frequency of an entity’s

1) Statement of financial positions reporting whether annual, half-yearly or
a) Statement of financial position at the quarterly shall not affect the measurement
end of current interim period of the annual results. Therefore,
b) Comparative statement of financial measurement for interim reporting purposes
position at the end of preceding year shall be made on a year to date basis.

2) Income statement 2. Revenues from products sold or services

a) Income statement of the current interim rendered are generally recognized for
period interim reports are the same basis as for the
b) Income statement cumulatively for the annual period
current financial year to date

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 UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES

Chapter 14 – PAS 24: RELATED PARTY / PAS 34 INTERIM FINANCIAL EDMUND E. HILARIO, CPA, MBA
FINANCIAL ACCOUNTING 1St SEMESTER 2019 – 2020
=============================================================================
3. Costs and expenses are recognized as dividend revenue is not recognized until declared
incurred in an interim period because even when highly predictable based on
a) Expenses associated directly with past experience, the dividend is not an obligation
revenue are matched against revenue in of the entity until it is legally declared.
those interim periods in which the
related revenue is recognized K. Uneven costs
b) Expenses not associated directly with Costs that are incurred unevenly during an
revenue are recognized in interim entity’s financial year shall be anticipated or
periods as incurred or allocated over the deferred for interim purposes only if it is also
interim periods benefited appropriate to anticipate or defer that type of
cost at the end of the financial year. For
4. Paragraph 21, provides that if the business example: a provision for warranty is recognized
is highly seasonal, in addition to the current at interim date because the entity has no
interim period financial statements, the realistic alternative but to make a transfer of
entity is encouraged to disclosed financial economic benefits as a result of an event that
information: has created a legal or construction obligation.
a) For the latest 12 months
b) Comparative information for the prior However, the cost of a planned major periodic
comparable 12-month period maintenance or overhaul that is expected to
occur late in the year is not anticipated for
5. Paragraph 41 provides that the preparation interim purposes unless an event has caused the
of interim financial reports generally requires entity to have a legal or constructive obligation.
a greater use of estimation than annual Expenditures for advertising is not deferred but
financial reports. recognized as expense in the interim period it is
incurred because it is not appropriate to defer
I. Inventories such cost at year end.
Paragraph 25 of Appendix B of PAS 34 provides
that inventories are measured for interim L. Year-end bonus
financial reporting by the same principles as at The nature of year-end bonuses varies widely.
financial year-end. This simply means that Some are earned simply by continued
inventories shall be measured at the LCNRV even employment during a time period. Some
for interim purposes. bonuses are earned based on a monthly,
quarterly or annual measure of performance.
The cost of inventory may be estimated using Some bonuses may be purely discretionary,
the gross profit method or retail inventory contractual or based on year of historical
method. For inventory and valuation procedures precedent.
are not required for inventories at interim date.
M. Recognition of bonus
Accordingly, if the NRV is lower than cost, a loss A bonus is anticipated for interim period if and
on inventory writedown shall be recognized only if:
regardless of whether the writedown is 1) The bonus is a legal obligation or past
temporary or nontemporary. PAS 34, paragraph practice would make the bonus a
17, requires disclosures of the writedown of constructive obligation for which the entity
inventories to NRV and the reversal of such has no realistic alternative but to make the
writedown in a later interim period. The NRV of payment
inventories is determined by reference to selling 2) A reliable estimate of the obligation can be
prices and related cost to complete and cost of made.
disposal at interim dates.
N. Irregular costs
J. Seasonal, cyclical or occasional revenue Certain cots are expected to be incurred
Seasonal, cyclical or occasional revenue shall not irregularly during the financial year, such as
be anticipated or deferred as of an interim date if charitable contribution and employee training
anticipation or deferral would not be appropriate cost. Such costs are generally discretionary and
at the end of the entity’s reporting period. even though they are planned shall not be
anticipated as of an interim date, simply because
Thus, dividend revenue, royalties and the costs have not yet been incurred.
government grants shall be recognized in the
interim period when they occur. For example: O. Depreciation and amortization

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 UNIVERSITY OF PERPETUAL HELP SYSTEM DALTA
CALAMBA CAMPUS, BRGY. PACIANO RIZAL
CALAMBA CITY, LAGUNA, PHILIPPINES

Chapter 14 – PAS 24: RELATED PARTY / PAS 34 INTERIM FINANCIAL EDMUND E. HILARIO, CPA, MBA
FINANCIAL ACCOUNTING 1St SEMESTER 2019 – 2020
=============================================================================
Depreciation and amortization for an interim
period shall be based only on assets owned
during the interim period. Asset acquisition or
disposition planned for later in the financial year
shall not be taken into account.

P. Paid vacation and holiday leave

Paid vacation and holiday leave shall be accrued
for interim purposes because these are
enforceable as legal commitments.

Q. Gain and loss

Gain or loss from disposal of property, gain or
loss from discontinued operation and other gain
or loss shall not be allocated over the interim
period. The gain is reported in the interim period
when realized and the loss is reported in the
interim period when incurred.

R. Income tax
Interim period income tax expense shall reflect
the same general principles of income tax
accounting applicable to annual reporting.
Paragraph 12 of Appendix B of PAS 34 states
that the interim period income tax expense is
accrued using the annual effective income tax
rate applied to the pretax income of the interim
period.

S. Difference in financial reporting year-end and tax

year
If the financial reporting year and the income tax
year differ, paragraph 17 of Appendix B of PAS
34 states that the income tax expense for
interim periods of that financial year is measured
using separate effective tax rate for each of the
tax years applied to the portion of pretax income
earned in each of those tax years. Simply
stated, the effective tax rate of a particular tax
year is applied to the pretax income of the
interim period in the same tax year.

T. Change in accounting year

PAS 34, paragraph 43, provides that a change in
accounting policy shall be reflected by restating
the financial statements of prior interim periods
of the current year and the comparable interim
periods of the prior financial year.

The objective of this requirement is to ensure

that a single accounting policy is applied to a
particular class of transactions throughout the
entire financial year. To allow different
accounting policies for the same class of
transaction within a single financial year would
result in interim allocation difficulties, obscured
operating results, and complicated analysis and
understandability of interim information.

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