CONCEPTUAL FRAMEWORK AND 2) Board of Accountancy -The body

ACCOUNTING STANDARDS authorized by the law to promulgate

rules and regulations affecting the
practice of accountancy in the
Definition of Accounting Philippines.

▪ ASC “Accounting is a service activity 3) Certificate of Accreditation – issued to

useful in making economic decisions” CPA in public practice for 3 years of
▪ AICPA “Accounting is the art of experience in Taxation/ Auditing.
recording, classifying and summarizing
a significant manner and in terms of 4) Securities and Exchange
money, transactions and events which Commission – shall not register any
are part at least of a financial character corporation for the practice of public
and interpreting the results thereof.” accountancy
▪ AAA “ Process of identifying, measuring
and communicating economic 5) Certificate of Registration – valid for 3
information to permit informed years, renewable every 3 years.
judgement and decision by users of the
information”
A CPA must accumulate at least 15 CPD
Overall objective/ Purpose units for him or her to be able to renew his her
- Provide quantitative financial information CPA license. And at least 120 CPD
about a business useful to statement accreditation.
users particularly owners and creditors
in making economic decisions.
CPD- Continuing Professional Development is
an ongoing training requirement to enhance
Accounting
technical skills by CPAs. 65 years Excempted.
- involves the activities of identifying,
measuring, and communicating
information that is useful in making
CPA is licensed - State Government
economic decisions.
- Is an information system that measures
business activities, processes The four sectors in the practice of
information into financial reports and accountancy are:
communicates the reports to decision
makers. ▪ Public practice
▪ Commerce and Industry
The overall objective of accounting is to ▪ Academe
provide quantitative financial information about ▪ Government
an entity that is useful in making economic
decisions

Accountants’ primary task is to supply financial

information so that the statement users could Accounting Concepts and Principles
make informed judgement and better decision. 1. Double-entry system
▪ Each accountable event is
Financial Reports tell us how well an entity is recorded in to two parts Debit &
performing in terms of profit and loss and Credit
where it stands in financial terms.
2. Going-concern assumptions
▪ Entity assumed to carry on its
The Accountancy Profession operations for indefinite period of
1) R.A No. 9298; Philippine time. Meaning the business/ entity
Accountancy Act of 2004 – The law does not expect to end its
regulating the practice of Accountancy in operations in the foreseeable
the Philippines future.
 10. Matching Principle
▪ recording expenses in the same
3. Separate Entity Concept period as the income they help
▪ business is considered a separate generate
legal entity from its owners. Only ▪ Cost should be matched with
the transactions related to the revenue
business are recorded in its Ex. Inventory- Asset
books, excluding personal But if we sell it COGS -
transactions of the owners expense

4. Stable Monetary Unit/ Monetary Unit

Measurement is defined as the process of
Assumption
qualifying the elements recognized in the
▪ A,L,E,R,Ex are stated in terms of
financial statements
common unit of measure, which is
peso in the Philippines

5. Time- Period Identifying This accounting process is the

▪ Life of an entity is divided into recognition or nonrecognition of business
series of reporting periods. An activities as accountable events.
accounting period is usually 12
months and may be A calendar
year or fiscal year Financial Accounting- branch of accounting
that focuses on the general purpose financial
6. Materiality Concept statements.
▪ Information is material if its
omission or misstatement could General Purpose financial statements are
influence economic decisions. those that cater to the common needs of a
Materiality is a matter of wider range of external users
professional judgement and is
based on the size and nature of
the item being judged. GAAP – Generally accepted accounting
▪ If an asset is to small to impact principles represent the rules, procedures,
financial statements. It should be practice and standards to be followed in the
recorded as an expense instead of preparation and presentation of financial
being capitalized. statements. It is like laws that must be followed
in financial Reporting.
7. Cost Benefit
▪ The cost of processing and
communicating information should
not exceed the benefits to be Philippine Financial Reporting Standards
derived from it. (PFRSs)
▪ Represent the GAAP in the
8. Accrual Basis of Accounting Philippines.
▪ revenues are recognized when ▪ PFRSs are standards adopted by
earned, and expenses are the (FSRSC)
recognized when incurred,
regardless of cash transactions. The reporting standards used in the Philippines
are the PFRSs, which are based on IFRSs.
9. Historical Cost Concept
▪ Assets are recorded at their The PFRS Accounting Standards consists of;
original acquisition cost. This
▪ PFRS
principle emphasizes reliability
▪ PAS
and objectivity in financial
▪ Interpretations
reporting, as it avoids subjective
valuations.
PAS and FRSC approved statements of
FRSC
STANDARDS SETTING BODIES International Accounting Standards
Committee (IASC)
1. Financial and Sustainability
▪ Independent Accounting sector
Reporting Standards Council
▪ Achieve uniformity around the
(FSRSC)
world.
▪ Official accounting standards
▪ Objectives:
setting body in the Philippines
➢ Formulate and publish in
created under the Philippine
the public interest
Accountancy Act of 2004(R.A
accounting standards
No.9298)
➢ Promote worldwide
▪ FSRSC consists of chairaman and
acceptance and
members who are appointed by
observance
the BOA and include
➢ Improvements and
representatives from BOA,
harmonization relating to
SEC,BSP, BIR, IC, COA, FINEX
FS.
and PICPA.
2. Philippine Interpretation Committee
4. International Financial Reporting
(PIC) 2006
Standards (IFRS) 1973
▪ Committee formed by Accounting
▪ Uniform and globally accepted
Standards Council (ASC)
financial reporting standards
▪ ensures consistent interpretation
▪ Objective of achieving uniformity
and application of accounting
in the accounting principles used
standards in the Philippines.
by business and other
▪ Role to prepare interpretations of
organizations for financial
PFRS for approval of Financial
Reporting Standards.
Reporting Standards Council
▪
(FRSC) and is tasked with
5. International Accounting Standards
providing guidance on the
Board (IASB) 2001
application of Philippine Financial
▪ Replaces International Accounting
Reporting Standards (PFRS),
Standards (IASC)
which are aligned with
▪ Publishes standards in series of
International Financial Reporting
pronouncements (IFRS)
Standards (IFRS). In context of
o Continue to be designated
Conceptual Framework provide
as International Accounting
timely guidance on Financial
Standard Main objective:
Reporting.
develop and promote global
accounting standards
3. Board of Accountancy (BOA)
▪ Under professional regulatory
board created under R.A No. 9298
to supervise the registration,
licensure and practice of Philippine Financial Reporting Standards
accountancy in the Philippines. (PFRS)
▪ Corresponds to IFRS
▪ PAS = IAS
International Accounting Standards Boards ▪ PH Interpretations =
(IASB) 2001 Interpretations of IFRIC, SIC, PIC
▪ Replaces IASC
▪ Publishes standards in a series of Timeline
pronouncements called
International Accounting
Standards Committee or IASC.
▪ The pronouncement of IASC
continue to be designated as
International Accounting
Standards or IAS.
CONCEPTUAL FRAMEWORK FOR resources and activities,
FINANCIAL REPORTING determine taxation policies
➢ Public – trend and the range of its
▪ Complete, comprehensive, single activities
document promulgated by IASB
▪ Summary of terms and concepts
that underlie the OBJECTIVE OF FINANCIAL REPORTING
preparation/presentation of FS for ▪ Forms the foundations of the CF
external users ▪ Overall objective of Financial
▪ For general purpose financial Reporting: provide financial info about
reporting and overall theoretical the reporting entity useful to primary
foundation for accounting users in making decisions about
providing resources to the entity
Conceptual Framework is a comprehensive set ➢ Why, purpose, goal of accounting
concept & guidance, not a standard. ▪ Financial Reporting – provision of
financial info about an entity to external
FOUNDATION FOR STANDARDS users useful for economic decisions and
1. Contribute to transparency effectiveness of entity’s management
2. Strengthen accountability ➢ Annual financial statements – way
3. Contribute to economic efficiency of providing FS to external users
➢ Nonfinancial information –
PURPOSES OF REVISED CONCEPTUAL description of products/listing
FRAMEWORK officers and directors
a) Assist IASB: develop IFRS Standards
b) Assist preparers of FS: develop
consistent accounting policy (when no TARGET USERS/PRIMARY USERS
applies) ▪ Have the most critical and immediate
c) Assist preparers of FS: develop need for financial information
accounting policy (when allows a choice) ▪ Provide resources to the entity
d) Assist all parties: understand/interpret
IFRS Standards
SPECIFIC OBJECTIVES OF FINANCIAL
AUTHORITATIVE STATUS OF REPORTING (to provide information…)
CONCEPTUAL FRAMEWORK a) Economic Decisions – investors to buy,
▪ 1st – Standard/Interpretation (overrides sell, hold equity/creditors to provide or
CF) settle loans
▪ 2nd – Conceptual Framework (not an b) Assessing Cash Flow Prospects –
IFRS, not overrides Standard) principal and interest payments, future
net cash inflows to entity
c) Economic Resources and Claims
USERS OF FINANCIAL INFORMATION ➢ Economic Resources – assets
▪ Primary Users – general purpose ➢ Claims – liabilities and equity
financial reports are primarily directed ➢ Liquidity – availability of cash in
(must rely) near future to cover currently
➢ Existing and Potential Investors maturing obligation
– risk/return provided by Liquidity refers to an entity’s ability to pay short-
investment term obligations, while solvency refers to an
➢ Lenders and Other Creditors – if entity's ability to meet is long-term obligations.
amounts owing to them will be
paid ➢ Solvency – availability of cash
▪ Other Users – reports are not directed to over a long term to meet financial
them primarily commitment
➢ Employees – stability/profitability ➢ Financial Position – financial
of entity and their benefits strength and weakness
➢ Customers – continuance of
entity
➢ Governments and their
Agencies – allocation of
 d) Changes in Economic Resources and
Claims Fundamental Qualitative Characteristics
▪ Financial Performance – results of a. Relevance
operations, assess ability to ▪ Capacity of the info to influence a
generate future cash inflows from decision.
operations ▪ Information should be related and
relevant.
ACCRUAL ACCOUNTING
Ingredients of Relevance:
▪ No money involved ➢ Predictive Value - Increase
▪ Only recognized when they occur likelihood of correctly or
▪ Income when earned and Expense accurately predicting or
when incurred forecasting future events.
(Based on factors)

LIMITATIONS OF FINANCIAL REPORTING ➢ Confirmatory Value - It

Don’t provide all information needed by primary provides feedback about
users previous evaluations and
corrects earlier expectations.
Not designed to show value of entity, estimate (Based on Financial
value of entity Statements
Provide common information, can’t
accommodate every request for info Materiality
▪ Information is material if it omitting
d) Based on estimate and judgment rather than ,misstating or obscuring it could b
exact depiction eexpected to influence the econo
MANAGEMENT STEWARDSHIP – predicting mic decisions.
how management will use entity’s economic ▪ Magiging material ang
resources in future periods isang item kung
nakakaapekto sa decision making
ng primary users.
QUALITATIVE CHARACTERISTICS ▪ IASB is the one who provided the
new definition of materiality.
▪ Qualities or attributes that make financial ▪ Materiality is a matter of
info useful. judgement.
▪ To ensure that information is useful to
users in making decisions. Materiality Process
1. Identify
2. Assess
Conceptual Framework classifies the
3. Organize
characteristics into the following.
4. Review

1. Fundamental Qualitative b. Faithful Representation

Characteristics ▪ Provides true, correct and
▪ Characteristics that make complete depiction of the
information useful to users. economic phenomena that it
▪ Substance of Financial Information purports to represent.
a. Relevance Ingredients of Faithful Representation
b. Faithful representation ➢ Completeness- information that
is necessary for a user to
understand the phenomenon or
2. Enhancing qualitative characteristics transaction.-Facilitates
▪ Enhances the usefulness of understanding and avoids
information. erroneous implication.-To be
a. Comparability complete, FS shall be
b. Verifiability accompanied by notes to FS.
c. Timeliness
d. Understandability ➢ Neutrality -To be fair, should not
favor one-party. Without bias, not
 slanted, emphasized or FINANCIAL STATEMENTS AND REPORTING
manipulated to increase profit. ENTITY
Neutrality Supported by
▪ Provide Financial information
Prudence.
about an entity’s asset, liabilities,
equity, income and expense.
➢ Free from error - No errors or
a. Entity’s prospects for future net
omissions in the description of the
cash inflows
transaction
b. Managements stewardship ov
er economic resources
Enhancing Qualitative Characteristics
Information is provided in the:
▪ Intended to increase
1. Statement of financial position
the usefulness of financial
(ALE)
information.
2. Income statement (income and
expenses)
➢Comparability
3. Statement of cash flows
▪ To identify and understand (operating,investing and financing
similarities and differences among activities)
items. 4. Statement of changes in equity
5. Notes to financial statements
➢Consistency
▪ Use of the same method for the Types of Financial Statements
same item. 1. Consolidated - a parent and
▪ Comparability is a goal, and subsidiaries report as a single entity
consistency helps to achieve the ❖Parent + Subsidiaries = 1 FS
goal.
▪ Is the uniform application of accou 2. Unconsolidated -a parent alone
nting methods providesa report.
❖1 parent = 1 FS
➢Understandability
▪ Clearly and concisely makes it 3. Combined - reporting entity
understandable. comprisestwo or more entities not linked
▪ Must be comprehensible or intellig by parent-subsidiary.
ible if it is to be useful.
❖2 Parents = 1 FS
▪ useless ang fundamental
characteristics kung hindi ❖2 Subsidiaries = 1 FS
maintindihan ng mga users.
Reporting entity is one that is required, or
chooses, to prepare financial statements, and
➢Verifiability
is not necessarily a legal entity.
▪ Verifiable in the sense that it is
supported by evidence.

Considered as reporting entity

➢Timeliness
a. Corp,partnership,
▪ Having information available to
b. parent alone
decision makers.
c. Unconsolidated
▪ The older the info, the less useful.
d. Combined
➢Cost Constraint e. A reportable business segment of an
▪ cost is a persuasive constraint on entity.
the information.
▪ is a consideration of the cost Reporting Period
incurred in generating financial info ▪ period when FS are prepared for
against the benefit to be obtained. general purpose financial
reporting.
▪ Must be prepared on an annual
basis(12 months)
▪ may be an interim basis (3
months, six or nine months)
 ▪ Interim are not required but Asset
optional.
▪ under the Revised ConceptualFra
a. ALE at the end of the reporting
mework, an asset is defined as ap
period
resent economic resource
b. Income and expenses during
controlled by the entity as a result
the reporting period.
of past events
Underlying Assumptions
The definition of asset has the following three
▪ Serves as the foundation or
aspects:
bedrock of accounting in order to
a. Right
avoid misunderstanding.
b. Potential to produce economic benefits
a. Going Concern (continuity
c. Control
assumption) -The accounting entity
is viewed as continuing in operation
indefinitely in the absence of Liabilities
evidence.
b. Accrual Principle ▪ Is a present obligation of an entity
▪ Income is recognized when to transfer an economic resource
earned rather than when received. as a result of past events.
▪ Expenses are recognized when Equity
incurred rather than when paid. ▪ is assets less liabilities.
▪ As against the cash basis ▪ IS
principle.
c. Accounting Entity Income
▪ an entity is separate from its ▪ Increases in assets, or decreases
owners. in liabilities, that result in increase
▪ Ang personal transaction ng in equity, other than those relating
owner ay hindi dapat naka report to contributions from holders of
sa FSng entity. equity claims
d. Time Period Expenses
▪ The life of an entity is divided into ▪ Decreases in assets, or increase in
a series of reporting periods. liabilities, result in decrease in
▪ Usually 12 months and may be a equity, other than those relatting
calendar or fiscal year. distributions to holders of equity
e. Monetary Unit claims.
▪ Should be stated in a common
measurement Income and expense are changes in assets and
basis to be useful.Peso if in the liabilities, excluding owner
Philippines. contributions/distributions and capital
▪ Assumes that purchasing power maintenance adjustments.
of peso is regarded as constant
kahit may mga fluctuations o RECOGNITON AND DERECOGNITION
inflations. Recognition process

ELEMENTS OF FINANCIAL STATEMENTS

The elements of financial statements are:
1. Asset
2. Liabilities
3. Equity
4. Income
5. Expenses
Recognition criteria
▪ Only items that meet the definition PRESENTATION AND DISCLOSURE
of an Asset, Liability or Equity are
recognized in the Statement of ALE – Assets, Liabilities, Equity
Financial Position. FS – Financial Statement
▪ Only items that meet the definition
of an Income or Expense are Presentation and Disclosure
recognized in the Statement of - can be an effective communication about
Financial Performance. the information in FS
▪ Information that is both relevant - A reporting entity communicates its
and faithfully represented. information about ALE, income
▪ An Asset or Liability and any andexpenses by presenting and
corresponding Income or Expense can disclosinginformation in the FS
exist even if the probability of inflow or - Effective communication enhances
outflow of the benefits is low. understandability, relevancy, faithful
representation and comparability of
Derecognition the information in the FS. This is further
An item is derecognized if it ceases to meet the supported by not duplicating
definition of an asset or a liability. Information in different parts of the FS.
- Duplication is unnecessary and can
make THE FS less understandable

Classification
MEASUREMENT - Is the sorting of ALE, income and expenses
- quantifying in monetary terms the based on their similar nature, function, and
elements in the financial statements measurement basis for presentation and
disclosure purposes.
The measurement bases used in financial .
reporting are broadly classified into historical Off setting
cost and current value (i.e., fair value, value in - Occurs when an asset and a liability with
use/fulfillment value, and current cost). separate units of accounts are combined
and only the net amount is presented in
a.Historical Cost the statement of financial position.
- original acquisition of an asset plus
transaction Classification of income and expenses
- cost-consideration received to incur the - classified as components of profit loss
liabilityminus transaction cost and components of other
- entry price or entry value comprehensive Income.
b. Current Value
❖Fair Value - price that buyer and seller Aggregation
agreed on. - is the “adding together of assets,
❖Value in Use - present value of cash liabilities, equity, income or expenses
flows that expects to derive from the use that have shared characteristics and are
of an asset and from the ultimate included in the same classification.
disposal. - makes information more useful by
summarizing large volumes of detail but
❖Fulfillment Value - present value of
in turn, it may conceal some of the
cash that is expected to transfer in paying
details.
or settling a liability.
- Normally, State of financial performance
❖Current Cost - cost of an
and statement of financial position
equivalent price at the measurement provide summarized and condensed
date that reflects market conditions. information
Based on entry price or value - More detailed info is provided in notes to
financial statements.

Financial information is communicated to

users through presentation and disclosure in the
financial statements.
Concepts of Capital and Capital
Maintenance

1. Financial concept of capital – capital is

regarded as the invested money or
invested purchasing power. Capital is
synonymous with equity, net assets, or
net worth.

2. Physical concept of capital – capital is

regarded as entity’s productive capacity.
Eg., units of output per day

Financial capital maintenance – profit is

earned if the net assets at the end of the period
exceeds the net assets at the beginning of the
period exceeds the net assets at the beginning
of the period, after excluding my distributions to,
and contributions from, owners during the
period.

Physical capital maintenance – profit is

earned only if the entity’s productive capacity at
the beginning of the period, after excluding any
distributions to and contributions from, owners
during period.