PFRS 1 - First time adoption of PFRS
Rationale:
When a company decides to adopt Philippine Financial Reporting Standards (PFRS) for the first
time, it is not just updating how it presents its books, it is changing how it tells its financial story.
PFRS 1, First-time Adoption of PFRS, guides companies through this transition by setting clear
rules on how to shift from their previous accounting system to one that aligns with global
standards.
This standard applies to a first-time adopter an entity that formally and fully declares that its
financial statements now comply with PFRS. Without this clear and full declaration, the entity
cannot claim PFRS adoption, even if its reports resemble PFRS in some ways.
Recognition:
An entity’s first PFRS financial statements are its first complete set of annual reports that
explicitly state full compliance with PFRS. Several situations can qualify as first-time adoption,
such as:
1. If the entity previously used national standards that differ from PFRS.
2. If it used PFRS but did not clearly declare full compliance.
3. If it followed only parts of PFRS.
4. If it issued reports under national standards but included reconciliations to PFRS values.
5. If it created internal reports only under PFRS and never published them.
6. If it reported under PFRS for consolidation purposes, but did not prepare full financial
statements.
7. If the entity has not published financial statements at all in the previous period.
For example, if a company reported using national GAAP last year but now explicitly states full
compliance with PFRS, this year’s financial statements will be its first under PFRS.
Measurement:
The date of transition to PFRS is the beginning of the earliest comparative period presented in
the first PFRS financial statements. From that point, the entity prepares an opening PFRS
statement of financial position. This opening statement is the foundation, it is where the
transition begins.
Presentation Requirements for the Opening Statement:
1. Recognize all assets and liabilities required under PFRS.
2. Remove any items that are not allowed under PFRS.
3. Reclassify items to align with how PFRS categorizes them.
For example, something previously treated as equity under local GAAP might now be a
liability.
4. Measure all recognized items in accordance with PFRS rules.
Any changes needed to align the previous records with PFRS are directly reflected in retained
earnings or another part of equity not passed through the income statement.
Presentation:
In the year of adoption, the first PFRS financial statements must include a complete and
comparative set of reports:
1. Three statements of financial position:
○ At the current year-end
○ At the previous year-end
○ At the transition date
2. Two statements of comprehensive income
○ For the current and prior years
3. Two separate income statements (if presented apart from the comprehensive income)
4. Two statements of changes in equity
○ For current and prior years
5. Two statements of cash flows
6. Notes to the financial statements
○ Including comparative information and explanations of adjustments
This full presentation allows readers including investors, auditors, and regulators to understand
the shift, see how past results were adjusted, and trust that the financial reports now meet
global standards.
Disclosure:
Transparency is crucial during the transition. Entities must disclose and explain all adjustments
and impacts made to comply with PFRS. This includes:
● The reasons for changes in financial position and performance
● How figures under the old accounting system were converted to PFRS
● Any accounting policies adopted for the first time
These disclosures allow users to trace the company’s evolution from its old reporting methods to
full PFRS compliance — with clarity and integrity.
