CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

CHAPTER 1: Accountancy Profession Financial Statements – key product of the info system
o Financial reports “how well an entity is performing in terms of profit and
DEFINITION
loss and where it stands in financial terms”
1. ASC “Accounting is a service activity, useful in making economic decision” Overall Objective: provide quantitative about a business useful to statement
2. AICPA “...is the art of recording, classifying, and summarizing in a significant users (owners/creditors) in making economic decisions
manner and in terms of money, transactions and events which are in part at Primary Task: supply financial info to help users make informed judgment and
least of a financial character and interpreting the results thereof” better decision
3. AAA “...is the process of identifying, measuring and communicating economic Essence: decision-usefulness

CCOUNTANCY PROFESSION
information to permit informed judgment and decision by the users of the
information”
Purpose – provide quantitative info to be useful in making an economic decision
IMPORTANT POINTS
1. Quantitative information
o RA No. 9298: Philippine
2. Financial in nature
3. Useful in decision making
Accountancy Act of 2004– law
COMPONENTS
1.IDENTIFYING – analytical
regulating the
o Recognition – accountable/quantifiable
 Effect on A,L,E
practice of accountancy
o Non-recognition – hiring, death, contract, meeting
o External transactions – involving one entity and another
o Board of Accountancy
o Internal transactions – involving the entity only
 Production – resources transformed into products
(BOA) – body authorized by law
 Casualty – unanticipated loss from a disaster (act of God)
2.MEASURING – technical, assigning of peso amounts (Philippine Peso) to
o Historical Cost – original acquisition cost, most common measure
o Current Value – fair value, value in use, current cost, fulfillment val promulgate
rules affecting practice of
3.COMMUNICATING – formal, preparing/distributing accounting reports to
potential users
o Accounting is the universal language of business
o Recording/Journalizing – record business transactions accountancy profession in PH,
o Classifying – sorting/grouping similar interrelated transactions
 Ledger – group of accounts
o Summarizing – preparation of financial statements
 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

preparing/grading the PH CPA 3year

Exam ACCOUNTANCY PROFESSION

o Certificate of Accreditation o
o
RA No. 9298: Philippine Accountancy Act of 2004– law regulating the
practice of accountancy

– issued to CPA in public o Board of Accountancy (BOA) – body authorized by law to promulgate
rules affecting practice of accountancy profession in PH,

practice, o
preparing/grading the PH CPA Exam
Certificate of Accreditation – issued to CPA in public practice, min of 3

min of
years of experience in taxation/auditing
o Securities and Exchange Commission – not register any corporation for
practice of public accountancy
3 years of experience in o Certificate of Registration – valid for 3 years, renewable every 3year

taxation/auditing
o Securities and Exchange MAIN AREAS (Profession)
Commission – not register any 1. PUBLIC ACCOUNTING
corporation 1. Auditing – primary service
for practice of public o External Auditing – attest
accountancy function
o Certificate of Registration – 2. Taxation – preparation of
valid for 3 years, renewable annual income tax returns and
every
 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

determination of tax o Maintaining records,

consequences producing financial reports,
3. Management Advisory preparing
Services – services to clients on budgets, controlling/allocating
Phases of business conduct and resources of entity,
operations determination of taxes
2. PRIVATE ACCOUNTING 3. GOVERNMENT
o Acctg staff, chief accnt, ACCOUNTING – involving
internal auditor, controller receipt, disposition of
(highest) gov’t
o Major Objective: assist funds and property
management in o Custody and Administration
planning/controlling of Public Funds
the entity’s operations o BIR, COA, DOBM, SEC,
BSP
 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

CONTINUING
1. Auditing – primary service
o External Auditing – attest function
2. Taxation – preparation of annual income tax returns and determination
PROFESSIONAL of tax consequences
3. Management Advisory Services – services to clients on Phases of
DEVELOPMENT (CPD) business conduct and operations
2. PRIVATE ACCOUNTING
o Inculcation and acquisition o Acctg staff, chief accnt, internal auditor, controller (highest)
o Major Objective: assist management in planning/controlling the entity’s
of advanced knowledge skill,…, operations
o Maintaining records, producing financial reports, preparing budgets,

and moral values after the initial 3.

controlling/allocating resources of entity, determination of taxes
GOVERNMENT ACCOUNTING – involving receipt, disposition of gov’t

registration of the CPA for funds and property

o Custody and Administration of Public Funds

assimilation into professional o BIR, COA, DOBM, SEC, BSP

CONTINUING PROFESSIONAL DEVELOPMENT (CPD)

practice and lifelong learning o Inculcation and acquisition of advanced knowledge skill,…, and moral

o Technical skill and values after the initial registration of the CPA for assimilation into
professional practice and lifelong learning

competence of CPA
o Technical skill and competence of CPA
o RA No. 10912 – mandating and strengthen the CPD program for all
regulated professions
o RA No. 10912 – mandating o CPD Credit Units/Hours
 120 CPD credit unit’s accreditation
and strengthen the CPD  15 CPD credit units for renewal
 Permanently exempted from renewal 65 y/o
program for all regulated  ACCOUNTING
professions BOOKKEEPING
MAIN AREAS (Profession)

1. PUBLIC ACCOUNTING
 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

 - WHY or reason  FINANCIAL

for action ACCOUNTING
 - conceptual MANAGERIAL
 - HOW of ACCOUNTING
accounting  - recording
 - Procedural transactions,
 - mechanical  preparing FS
recording  - internal/
 ACCOUNTING external users
ACCOUNTANCY  - accumulation/
 - reference only preparation of
to a  financial reports
 particular field  - only for
 - profession of internal user
accounting
ACCOUNTING BOOKKEEPING
- WHY or reason for action - HOW of accounting
- Conceptual - Procedural
 practice ACCOUNTING
- Mechanical recording
ACCOUNTANCY
 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
- Reference only to a - Profession of accounting o Authoritative guidance
particular field practice
IFRIC – International Financial Reporting Interpretations Committee

o United Kingdom and replaced the Standing Interpretations Committee

FINANCIAL ACCOUNTING MANAGERIAL ACCOUNTING
- Recording transactions, - Accumulated/preparations IASC – International Accounting Standards Committee
preparing FS of financial reports
o Independent private sector body
- Internal/external users - Only for internal users
o Achieve uniformity around the world
o Objectives:
GAAP – generally accepted accounting principles  Formulate and publish in the public interest accounting standards
 Promote worldwide acceptance and observance
o Like laws that must be followed in financial reporting
 Improvement and harmonization relating to FS
o Political process incorporates political actions
IASB – International Accounting Standards Board
Accounting Standards
o Replaces IASC
o Identify proper accounting practices for FS
o Publishes standards in series of pronouncements (IFRS)
o Create common understanding
o Continue to be designated as International Accounting Standard
o Ensure comparability and uniformity
ACCOUNTING AUDITING
FRSC – Financial Reporting Standards Council
- Beginning - Begins after FS
o Replaced the Accounting Standards Council - Constructive in nature - Analytical
o Accounting standard setting body created by PRC - Embraces auditing - Professional skepticism
o To assist the Board of Accountancy in its power and functions
o Highest hierarchy of gaap
o Standard-setting process
o Approved statements:
 PAS – Philippine Accounting Standards
 PFRS – Philippine Financial Reporting Standards
o esearch
Composition of FRSC o  Discussion paper
o 1 Chairman and 14 Representatives

PIC – Philippine Interpretations Committee

o  Exposure draft
o By FRSC and replaced the Interpretations Committee o  Accounting standard
o Prepare interpretations of PFRS for approval of FRSC
 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

oIFRS – International Financial o o PAS = IAS

Reporting Standard o o PH Interpretations
o o Uniform and = Interpretations of IFRIC,
globally accepted FR SIC, PIC
Standards
 Research
 Discussion paper
 Exposure draft
o o Factors deciding to  Accounting standard

move to IAS  IFRS – International

o  Common language and Financial Reporting
removal of free choices of Standard
accounting  o Uniform and
otreatments globally accepted FR
oPFRS – Philippine Financial Standards
Reporting Standards  o Factors
o o Corresponds to deciding to move to IAS
IFRS
 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

  Common language
 Common language and removal of free choices of accounting
treatments

and removal of free PFRS – Philippine Financial Reporting Standards

o Corresponds to IFRS
choices of accounting o
o
PAS = IAS
PH Interpretations = Interpretations of IFRIC, SIC, PIC
 treatments oCHAPTER 2: OBJECTIVE
 PFRS – Philippine
OF FINANCIAL
Financial Reporting
REPORTING
Standards
oCONCEPTUAL
 o Corresponds to
FRAMEWORK FOR
IFRS
FINANCIAL REPORTING
 o PAS = IAS
o o Complete,
 o PH
Interpretations = comprehensive, single
Interpretations of IFRIC, document promulgated by
SIC, PIC oIASB
IFRS – International Financial Reporting Standard o o Summary of terms
and concepts that underlie the
o Uniform and globally accepted FR Standards
o Factors deciding to move to IAS
 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

opreparation/presentation of FS oPURPOSES OF REVISED

for external users CONCEPTUAL
o o For general FRAMEWORK
purpose financial reporting oa) Assist IASB: develop IFRS
and overall Standards
otheoretical foundation for ob) Assist preparers of FS:
accounting develop consistent accounting
oFOUNDATION FOR policy
STANDARDS o(when no applies)
o1. Contribute to transparency oc) Assist preparers of FS:
o2. Strengthen accountability develop accounting policy
o3. Contribute to economic (when
efficiency oallows a choice)
 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

od) Assist all parties:

o Summary of terms and concepts that underlie the
preparation/presentation of FS for external users
o For general purpose financial reporting and overall theoretical foundation
understand/interpret IFRS for accounting

Standards FOUNDATION FOR STANDARDS

1. Contribute to transparency
oAUTHORITATIVE STATUS 2. Strengthen accountability
3. Contribute to economic efficiency

OF CONCEPTUAL PURPOSES OF REVISED CONCEPTUAL FRAMEWORK

FRAMEWORK a) Assist IASB: develop IFRS Standards

b) Assist preparers of FS: develop consistent accounting policy (when no

o o 1st –
applies)
c) Assist preparers of FS: develop accounting policy (when allows a choice)
d) Assist all parties: understand/interpret IFRS Standards
Standard/Interpretation AUTHORITATIVE STATUS OF CONCEPTUAL FRAMEWORK

(overrides CF) 1st – Standard/Interpretation (overrides CF)

o o 2nd – Conceptual
2nd – Conceptual Framework (not an IFRS, not overrides Standard)

Framework (not an IFRS, not USERS OF FINANCIAL INFORMATION

overrides o Primary Users – general purpose financial reports are primarily directed (must
rely)

oStandard)  Existing and Potential Investors – risk/return provided by investment

 Lenders and Other Creditors – if amounts owing to them will be paid
o Other Users – reports are not directed to them primarily
 Employees – stability/profitability of entity and their benefits
CHAPTER 2: OBJECTIVE OF FINANCIAL REPORTING  Customers – continuance of entity
CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING  Governments and their Agencies – allocation of resources and activities,
determine taxation policies
o Complete, comprehensive, single document promulgated by IASB  Public – trend and the range of its activities
 CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

OBJECTIVE OF FINANCIAL REPORTING ACCRUAL ACCOUNTING

o Forms the foundations of the CF o No money involved

o Overall objective of Financial Reporting: provide financial info about the o Only recognized when they occur
reporting entity useful to primary users in making decisions about providing o Income when earned and Expense when incurred
resources to the entity
LIMITATIONS OF FINANCIAL REPORTING
 Why, purpose, goal of accounting
o Financial Reporting – provision of financial info about an entity to external a) Don’t provide all information needed by primary users
users useful for economic decisions and effectiveness of entity’s management b) Not designed to show value of entity, estimate value of entity
 Annual financial statements – way of providing FS to external users c) Provide common information, can’t accommodate every request for info
 Nonfinancial information – description of products/listing officers and d) Based on estimate and judgment rather than exact depiction
directors
MANAGEMENT STEWARDSHIP – predicting how management will use entity’s
TARGET USERS/PRIMARY USERS economic resources in future periods
o Have the most critical and immediate need for financial information Your peso today is worth more than tomorrow.” TIME VALUE MONEY
o Provide resources to the entity

SPECIFIC OBJECTIVES OF FINANCIAL REPORTING (to provide information…)

a) Economic Decisions – investors to buy, sell, hold equity/creditors to

provide or settle loans
b) Assessing Cash Flow Prospects – principal and interest payments,
future net cash inflows to entity
c) Economic Resources and Claims
 Economic Resources – assets
 Claims – liabilities and equity
 Liquidity – availability of cash in near future to cover currently maturing
obligation
 Solvency – availability of cash over a long term to meet financial
commitment
 Financial Position – financial strength and weakness
d) Changes in Economic Resources and Claims
 Financial Performance – results of operations, assess ability to generate
future cash inflows from operations