Conceptual Framework

 Summary of the terms and concepts in FS preparation

 Concerned with general purpose FS, including consolidated FS
 Special purpose financial reports are outside its scope

Hierarchy
1. Specific standard
2. Related standard (analogy) Note: Conceptual Framework ≠ PFRS
But: In case of conflict, PFRS prevails.
3. Conceptual Framework
4. Others (US GAAP, literature, practice)

Users
 Primary — creditors, lenders, investors (CLIP)
 Others — employees, customers, State, the public

Measurement bases
1. Historical cost
2. Current cost
3. Realizable value
4. Present value

Basic objective of accounting

 To provide quantitative financial information about a business that is useful to statement
users, particularly owners and creditors, in making economic decisions

The accountancy profession

 R.A. 9298 or “The Philippine Accountancy Act of 2004”

Board of Accountancy
 Authorized by law to promulgate rules and regulations affecting the practice of the
accountancy profession
 Prepares and grades the CPALE

Certificate of Accreditation
 Issued to CPAs in public practice if they have acquired a minimum of 3 years of
meaningful experience in any areas of public practice, including taxation

Certificate of Registration
 Issued to be able to practice public accountancy which shall be valid for 3 years and
renewable every 3 years
Three main areas of CPA practice
1. Public accounting
a. Auditing
i. Internal auditing
ii. External auditing — the “attest function” of independent CPAs
b. Taxation
c. Management advisory services
2. Private accounting
 Controller — the highest accounting officer in an entity
3. Government accounting
a. Focus: the custody and administration of public funds

Generally Accepted Accounting Principles (GAAP)

 Followed in the preparation and presentation of financial statements

Financial Reporting Standards Council (FRSC)

 Replaced the Accounting Standards Council
 Created by the PRC
 Assists the BOA in carrying out the latter’s powers provided under R.A. 9298
 Functions to establish and improve accounting standards in the Philippines
 Publishes PAS, PFRS, and Interpretations
 15 members (term of 3 years, renewable for another term)

Philippine Interpretations Committee (PIC)

 Formed by the FRSC in August 2006
 Prepares interpretations of PFRS
 Provides timely guidance on financial reporting issues not specifically addressed in
current PFRS

International Accounting Standards Board

 Replaced the IAS Committee
 An independent and private sector body
 Aims to achieve uniformity, greater transparency, and a higher degree of comparability
in financial reporting around the world
 Publishes IAS, IFRS, and Interpretations

Accounting assumptions/postulates
1. Going concern or Continuity
 The only assumption mentioned in the CF
 The foundation of “cost principle”
 2. Accounting entity
 The entity is separate from its owners
 Each business is independent
3. Time period
 The indefinite life of an entity is subdivided into time/accounting periods which
are usually of equal length
4. Monetary unit
a. “Quantifiability” aspect
 ALEIE should be stated in terms of a unit of measure, which is the ₱₱₱
b. “Stability of the peso” aspect
 The purchasing power of the peso is stable; any instability is
insignificant, hence, inflation is ignored

General purpose financial reports

 Do not and cannot provide all of the information needed; not designed to show the
entity’s value, but provide information to help the users estimate the entity’s value

Qualitative characteristics
1. Fundamental QC (content/substance)
a. Relevance
i. Predictive value
 Accurate forecasting
ii. Confirmatory value
 Confirm prior expectations

b. Faithful representation
i. Completeness / Full disclosure
Materiality/Doctrine
ii. Neutrality / Principle of fairness of Convenience
iii. Free from error
iv. Substance over form (old CF)
v. Prudence / Conservatism (old CF)

2. Enhancing QC (presentation/form) [VCUT]

a. Verifiability
b. Comparability and Consistency
 Not the same, but interrelated.
 Comparability is the goal, consistency achieves it
c. Understandability
d. Timeliness
 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
Conceptual Framework
 Summary of the terms and concepts in FS preparation
 Concerned with general purpose FS, including consolidated FS
 Special purpose financial reports are outside its scope

Hierarchy
1. Specific standard
2. Related standard (analogy)
3. Conceptual Framework
4. Others (US GAAP, literature, practice)

Note: Conceptual Framework ≠ PFRS

But: In case of conflict, PFRS prevails.

Users
 Primary — creditors, lenders, investors (CLIP)
 Others — employees, customers, State, the public

Measurement bases
1. Historical cost
2. Current cost
3. Realizable value
4. Present value

Basic objective of accounting

 To provide quantitative financial information about a business that is useful to statement users, particularly owners and creditors,
in making economic decisions

The accountancy profession

 R.A. 9298 or “The Philippine Accountancy Act of 2004”

Board of Accountancy
 Authorized by law to promulgate rules and regulations affecting the practice of the accountancy profession
 Prepares and grades the CPALE

Certificate of Accreditation
 Issued to CPAs in public practice if they have acquired a minimum of 3 years of meaningful experience in any areas of public
practice, including taxation

Certificate of Registration
 Issued to be able to practice public accountancy which shall be valid for 3 years and renewable every 3 years

Three main areas of CPA practice

1. Public accounting
a. Auditing
i. Internal auditing
ii. External auditing — the “attest function” of independent CPAs
b. Taxation
c. Management advisory services
2. Private accounting
 Controller — the highest accounting officer in an entity
3. Government accounting
a. Focus: the custody and administration of public funds

Generally Accepted Accounting Principles (GAAP)

 Followed in the preparation and presentation of financial statements

Financial Reporting Standards Council (FRSC)

 Replaced the Accounting Standards Council
 Created by the PRC
 Assists the BOA in carrying out the latter’s powers provided under R.A. 9298
 Functions to establish and improve accounting standards in the Philippines
 Publishes PAS, PFRS, and Interpretations
 15 members (term of 3 years, renewable for another term)

Philippine Interpretations Committee (PIC)

 Formed by the FRSC in August 2006
 Prepares interpretations of PFRS
 Provides timely guidance on financial reporting issues not specifically addressed in current PFRS
International Accounting Standards Board
 Replaced the IAS Committee
 An independent and private sector body
 Aims to achieve uniformity, greater transparency, and a higher degree of comparability in financial reporting around the world
 Publishes IAS, IFRS, and Interpretations

Accounting assumptions/postulates
1. Going concern or Continuity
 The only assumption mentioned in the CF
 The foundation of “cost principle”
2. Accounting entity
 The entity is separate from its owners
 Each business is independent
3. Time period
 The indefinite life of an entity is subdivided into time/accounting periods which are usually of equal length
4. Monetary unit
a. “Quantifiability” aspect
 ALEIE should be stated in terms of a unit of measure, which is the ₱₱₱
b. “Stability of the peso” aspect
 The purchasing power of the peso is stable; any instability is insignificant, hence, inflation is ignored

General purpose financial reports

 Do not and cannot provide all of the information needed; not designed to show the entity’s value, but provide information to help
the users estimate the entity’s value

Qualitative characteristics
1. Fundamental QC (content/substance)
a. Relevance
i. Predictive value
 Accurate forecasting
ii. Confirmatory value
 Confirm prior expectations

Materiality/Doctrine of Convenience

b. Faithful representation
i. Completeness / Full disclosure
ii. Neutrality / Principle of fairness
iii. Free from error
iv. Substance over form (old CF)
v. Prudence / Conservatism (old CF)

2. Enhancing QC (presentation/form) [VCUT]

a. Verifiability
b. Comparability and Consistency
 Not the same, but interrelated.
 Comparability is the goal, consistency achieves it
c. Understandability
d. Timeliness
 BOA FRSC AASC ETC
1 – Senior accounting
1 – Senior Chairman in 1 – Senior Chairman in
1 – Chairman practitioner in the
accounting practice public practice
academe

1 – BOA 1 – BOA 1 – BOA

1 – SEC 1 – SEC
1 – BSP 1 – BSP
1 – COA 1 – COA
6 – Members, 1 – BIR
appointed by the
President 1 – Major organization of 1 – Associate in active
FS preparers and users public practice

2 Public practice 6 Public practice 1 Public practice

2 Commerce 1 Commerce 1 Commerce
2 Academe 1 Academe 1 Academe
2 Government 1 Government 1 Government

7 members 15 members 15 members 7 members

 p
“Accounting is a service activity. Its function is to provide
quantitative information, primarily financial in nature, about
economic entities, that is intended to be useful in making
economic decision.”
Accounting Standards Council (ASC)

p
“Accounting is the art of recording, classifying, and
summarizing
in a significant manner and in terms of money, transactions,
and events, which are in part at least of a financial character,
and interpreting the results thereof.”
Committee on Accounting Terminology of
the AICPA

p
“Accounting is the process of identifying, measuring, and
communicating economic information to permit informed
 judgment and decision
by users of the information.”
American Accounting Association (AAA)

AAA’s definition has stood the test of time.