Lecture notes-CFAS

1. Only accountable events are recognized (journalized). Accountable event is one that affetcs the
assets, liabilities, equity, income or expenses of an entity. Also known as economic activity,
which is subject matter of accounting. Activities are emphasized and recognized in accounting.
Sociological and psychological matters are not recognized.
2. Non-accountable events are not recognized but disclosed only in the notes, if they have
accounting relevance. Disclosure only in the notes is not an application of the recognition
process. A non-accountable event that has an accounting relevance may be recorded through a
memorandum entry.
3. Types of events or transactions.

ACCOUNTING STANDARDS:

1. The PFRSs represent the GAAP in the Phils. They are standards and Interpretations adopted by
the FRSC.. Its composition are:
a. PFRSs
b. Pass and
c. Interpresentations
2. PFRS are accompanied by guidance to assist entities in applying their requirements. A guidance
states whether it is an integral part of the PFRRSs. A guidance that is an integral part of the
PFRRSs is mandatory.
3. Need for reporting standards: the FS to be useful, they should be prepared using reporting
standards that are generally acceptable. Otherwise, each entity would have develop its own
standards. If that is the case, every entity may just present any asset or income it wants and
omit any liability or expense it does not want. FS would not be comparable, the risk of
fraudulent reporting is heightened, and economic decisions based on these FS would be grossly
incorrect. For this reason, entities should follow a uniform set of reporting standards when
preparing FS.
4. The term”generally acceptable” means that either:
a. The standard has been established by an authoritative accounting rule-making body, e.g.,
the PFRSs adopted by the FRSC; or
b. The principle has gained general acceptance due to practice overtime and has been proven
to be most useful, e.g., double-entry recording and other implicit concepts.
5. The process of establishing financial accounting standards is a democratic process in that a
majority of practicing accountants must agree with a standard before it becomes implemented.
6. When selecting its accounting policies, an entity considers the ff. in descending order:
a. PFRSs
 b. In the absence of a PFRS that specifically applies to a transaction or event, management
shall use its judgement in developing and applying an accounting policy that results in
information that is relevant and reliable.
7. In making the judgement,
a. Management shall refer to, and consider the applicability of, the ff: in descending order
- The requirements in PFRSs dealing with similar and related issues;
- The conceptual framework.
b. Management may also consider the ff:
- Pronouncements of other standard-setting bodies
- Accounting literature and accepted industry practices.

ACCOUNTING STANDARD SETTING BODIESS AND OTHER RELEVANT ORGANIZATIONS

1. Financial Reporting Standards Council (FRSC)-official accounting setting standard setting body in
the Phils. created under the Phil. Accountancy Act of 2004 (RA9298). It comprises 15 individuals-
a chairperson who had been or presently a senior accounting practitioner in any of the scope of
accounting practice and 14 representative members, namely:
a. BOA
b. COA
c. SEC
d. BIR
e. A major organization composed of preparers and users of FS
f. Accredited National Professional Organization of CPAs(i.e. PICPA) 2 each sector
- Public Practice
- Commerce and industry
- Academes/education
- Government
2. Philippine Interpretations Committee (PIC)- a committee formed by the Accounting Standard
Council (ASC), the predecessor of FRSC, with the role of reviewing the interpretations of the
International Financial Reporting Interpretations Committee (IFRIC) for approval and adoption
by the FRSC.
3. BOA- professional regulatory board created under RA9298 to supervise the registration,
licensure and practice of accountancy in the Phils. It consists of a chairperson and six members
appointed by the President of the Phils. The board shall elect a vice-chairperson from among its
members for a term of one year.
4. SEC- the government agency tasked at regulating corporations and partnerships, capital and
investment markets, and the investing public. Some SEC rulings affect the accounting
requirements of entities and the adoption and application of accounting policies.
5. BIR – administers the provisions of the National Internal revenue Code. These provisions do not
always reflect the goals of financial reporting. However, they do at times influence the choice of
accounting methods and procedures.
6. BSP- influences the selection and application of accounting policies by banks and other entities
performing banking functions.
 7. Cooperative Development Authority (CDA) – influences the selection and application of
accounting policies by cooperatives.
- Accounting policies prescribed by a regulatory body (i.e BSP,CDA) are sometimes
referred to as regulatory accounting principles.

INTERNATIONAL ACCOUNTING STANDARDS:

1. The IASB – the standard setting body of the IFRS Foundation with the main objectives of
developing and promoting global accounting standards. It was established in April 1,2001 as
part of the International Accounting Standards Committee (IASC) Foundation. The IASC
Foundation is a non=profit organizations based based in Delaware, USA and is the parent of the
IASB, which is based in London. On July 1, 2010, the IASC Foundation was renamed to IFRS
Foundation.
2. The standards issued by the iASB are the IFRSs composed of the ff:
a. IFRSs
b. IASs
c. Interpretations
3. The IFRSs are standards issued by the IASB after it replaced its predecessor, the International
Accounting Standards Committee (IASC) which was adopted by the IASB. The PFRSs and PASs
are based on these standards
4. The IASC was founded in June 1973. It was established as a result off an agreement by
accountancy bodies in ten national jurisdictions which constituted the original board, namely-
Australia, Canada, France, Germany, Japan, Mexico, Netherlands, the UK, Ireland, and the US.

DUE PROCESS

OTHER RELEVANT INTERRNATIONAL ORGANIZATIONS

1. International Financial Reporting Interpretations Committee (IFRIC) – committee that prepares

interpretations of how specific issues should be accounted for under the application of IFRRS
where:
a. the standards do not include specific authoritative guidance and
b. There is a risk of divergent and unacceptable accounting practices
- The IFRIC is composed mostly of technical partners in audit firms but also includes
preparers and users. In 2002 ,IFRIC replaced the former Standing Interpretations
Committee (SIC) which had been created by the IASC. ALL of the SIC Interpretations
have been adopted by the IASB.
2. IFRS Advisory Council (formerly Standards Advisory Council or SAC – group of organizations and
individuals with an interest in international financial reporting. Its role includes advising in
priorities within the IASBs work program.
3. International Federation of Accountants (IFAC) – a non-profit, non-governmental, non=political
organization of accountancy bodies that represents the worldwide accountancy profession.
 4. Based on US GAAP, i.e. the Statements of Financial Accounting body of security commissions.
The Phil. SEC is a member of IOSC)

MOVE TO IFRSs

1. Prior to the full adoption of the IFRSs in 2005, the accounting standards used in the Phils. Were
previously based on US GAAP, i.e., the Statements of Financial Accounting Standards issued by
the Federal Accounting Standards Board (FASB) ,the US national standard setting body.
2. The move to IFRS was primarily brought about by the increasing acceptance of IFRSs world-wide
and increasing internationalization of businesses thereby increasing the need for a common
financial reporting standards that minimize, if not eliminate inconsistencies of financial reporting
among nations.
“ a good example of inconsistent national financial reporting is that of German car manufacturer
Daimler-Benz obtained a listing of its shares in the US in 1993, and in so doing, needed toreport
under both the US in 1993, and in so doing needed to report both US GAAp and German GAAP.
While one might expect that the profit reported would be similar (as it was exactly the same set
of economic transactions being presented), this was not the case. The company reported a
huge loss of $1B under US GAAP, while at the same time reporting a profitof $370M under its
own domestic German GAAP. This difference was simply the result of different accounting
practices being used by different countries. Such signifaicant differences undermine the
usefulness of financial statements”
3. A significant milestone towards achieving the goal of having one set of global standards was
reached in October 2002 when the FASB and the IASB entered into a MOU called “Norwalk
Agreement”. In this agreement, the FASB and the IASB formalized their commitment to the
convergence of US GAAP and IFRS by agreeing to use best efforts to:
- Make their existing financial reporting standards fully compatible as soon as
practicable,i.e minimize differences and
- Coordinate their future work programs to ensure that once achieved, compatibility is
maintained.
4. Since the publication of the Norwalk Agreement, the IASBand FASB have been working together
with the common goal of producing a single set of global accounting standards. :in a published
statement issued in January 2017, the outgoing (US) SEC chairman expressed support for the
development of high-quality, globally accepted accounting standards, and suggested that the
(US)SEC support efforts by the FASB and IASB to converge their ACCOUNTING STANDARDS TO
ENHANCE THE QUALITY AND COMPARABILITY of financial reporting.
Conceptual Framework:

The conceptual framework is a set of principles and guidelines that serve as a foundation for
developing accounting standards and making accounting judgments. It provides a theoretical basis
for understanding and applying accounting standards consistently across different transactions and
situations. The primary objectives of a conceptual framework include:

1. Relevance: Information should be relevant to the decision-making needs of users. It should

have predictive value, confirmatory value, and materiality.
2. Reliability: Information should be reliable, which means it should be verifiable, neutral, and
free from bias.
3. Comparability: Information should allow for meaningful comparisons over time and across
different entities.
4. Consistency: Similar transactions and events should be accounted for and presented in the
same manner over time.
5. Understandability: Information should be presented in a clear and concise manner to
facilitate understanding by users.
6. Faithful Representation: Information should accurately represent the economic substance
of transactions and events.
7. Substance over Form: Transactions should be accounted for based on their economic
substance rather than their legal form.

Accounting Standards:

Accounting standards are specific rules and guidelines that prescribe how various transactions and
events should be recognized, measured, presented, and disclosed in financial statements. They are
developed based on the conceptual framework and aim to ensure consistency, comparability, and
reliability of financial reporting. Some key accounting standards include:

1. International Financial Reporting Standards (IFRS): These standards are developed by the
International Accounting Standards Board (IASB) and are widely used globally, especially in
countries outside of the United States.
2. Generally Accepted Accounting Principles (GAAP): GAAP refers to the accounting
standards, principles, and practices used in the United States. The Financial Accounting
Standards Board (FASB) is responsible for developing and updating these standards.
3. Specific Standards: These include individual standards for various types of transactions and
events, such as revenue recognition, leases, financial instruments, and more. These standards
provide detailed guidance on how to account for specific situations.

Accounting standards help ensure consistency and comparability in financial reporting across