IMPORTANT:

● Professional Regulatory Board of Conceptual framework provides foundation for

Accountancy Resolution No. 44 s. 2022
standards that:
Adoption of the International Financial
Reporting Standards (IFRS) Sustainability - Contribute to transparency by enhancing
Disclosure Standards for General Purpose the international comparability and quality
Financial Statements and Renaming Financial of financial information, enabling investors
Reporting Standards Council (FRSC) to Financial
and other market participants to make
and Sustainability Reporting Standards Council
(FSRSC) informed economic decisions.
- Strengthen accountability by reducing the
information gap between the providers of
● Financial info primary users are present and capital and the people to whom they have
potential equity investors, lenders, other entrusted their money.
creditors - Contribute to economic efficiency by
● Accounting standards are more applicable helping investors to identify opportunities
to financial accounting and risks across the world, thus improving
● Accounting standards - guidelines, capital allocation.
procedure, and rules on how to report
financial info properly, basehan; the basis; Ch1: The Objective of General Purpose
main purpose to ensure relevance of
Financial Accounting
financial info
General Purpose financial reports
● IAS 7 - Cash and Cash Equivalents
● do not and cannot provide information
● IAS 2 - Inventories
about general economic conditions and
● IAS 41 - Agriculture
expectations, political events and political
● IAS 16 - Property plant and eqpt
climate, and industry and company
● IASB has no authority to require the
outlooks.
compliance of businesses, it’s the governing
bodies (WB, IOSCO etc. to promote the ● Not designed to show the (real) value of a
standards to the firms. reporting entity, but they provide
● Project summary - dun makikita yung information to help existing and potential
comments about the draft and sinasabi din investors, lenders and other creditors to
kung ano yung kasama estimate the value of the reporting entity.
● Prior to 2001, PAS were based on FASB of ● Other users:
USA (prior 2001 because the PH transition ○ Management
to IAS was made on a staggered basis, ○ Other parties, such as regulators and
effective from 2001) members of the public other than
● Kapag may part ng standard na hindi investors, lenders and other
applicable sa PH they may delete and not creditors may also find general
revised the part and sometimes may purpose financial reports useful.
pinapalitan lang na words para maging (customers, employees, owners)
necessary na sa PH
Ch2: The Qualitative Characteristics of Useful
IFRS Conceptual Framework for Financial Financial Information
Financial information is more quantitative
Reporting 2018
information that should contain qualitative
information so that it could be useful to users.
CONCEPTUAL FRAMEWORK
In framework 2010, relevance and reliability.
History
● April 1989 - framework was created and Materiality - based on judgement; differ per
approved to be used by IASC Board company; will only be relevant if meet the terms of
● July 1989 - framework was published the threshold
● April 2001 - framework was adopted by
IASB Direct verification - go to store of the recorded
● Sept. 2010 - Conceptual framework for material to verify and match the correct amount
financial reporting 2010 approved by IASB Indirect verification - limitations as to direct
● March 2018 - Conceptual framework for verification; recalculations
financial reporting 2018 (the framework) - Enhances faithful representation
published
C2C - consistent yung ginamit na basis;
For specific situations we must use the IAS, consistency entails comparability
but if there is no standard governing a particular
transaction then use the concepts in the Understandability - is more on relevance
conceptual framework. (if wala parin pwede na Timeliness entails more on relevance of info that it
gamitin yung policies made by preparers but enhances
policies namana are also in lined w/ CE)
Cost benefit analysis - benefit > cost uncertain future event
occurs.
Ch3: Financial Statements and the Reporting ○ Rights that do not correspond to an
Entity obligation of another party.
- New chapter in the 2018 version ■ Rights over physical objects
such as property, plant and
Perspective adopted in financial statements equipment, or inventory
● Financial statements provide information use.Examples of such rights
about transactions and other events viewed are a right to use a physical
from the perspective of the reporting entity object or a right to benefit
as a whole, not from the perspective of any from the residual value of a
particular group of the entities, existing or leased object.
potential investors, lenders or other ■ Rights to use intellectual
creditors. property.

Reporting Entity or Business Paragraph 4.8

- Provider / responsible person in preparing An entity’s right to obtain the economic
FS benefits produced by such goods or services exists
- An entity that is required or chooses to momentarily until the entity consumes the goods or
prepare financial statements. services.
- Can be a single entity or a portion of an
entity, or can comprise more than one Paragraph 4.9
entity. Not all of an entity’s rights are assets of that
- not necessarily a legal entity. (can be legal entity.
entity or not)
Note: If the question is “reporting entity is a legal Paragraph 4.10
entity” it is TRUE, however, if it is constructed as An entity cannot have a right to obtain
“reporting entity is necessarily a legal entity.” it is economic benefits from itself.
FALSE.
Paragraph 4.11
Types of FS (parent subsidiary relationship) In principle, each of an entity’s rights is a
Consolidated FS - provide information about separate asset. However, for accounting purposes,
assets, liabilities, equity, income and expenses of related rights are often treated as a single unit of
both the parent and its subsidiaries as a single account that is a single asset.
reporting entity. (iisang fs nalang ipepresent)
Unconsolidated FS - Designed to provide Paragraph 4.12
information about the parents, assets, liabilities, In many cases, the set of rights arising from
equity, income and expenses and not about those legal ownership of a physical object is accounted
of its subsidiaries. (they will have their own fs for as a single asset. Conceptually, the economic
parent and subsidiaries) resource is the set of rights, not the physical object
Combined FS - Financial statement on
which the reporting entity comprises two or more
entities that are not all linked by a parent- Paragraph 4.13
subsidiary relationship. In some cases, it is uncertain whether a right exists.
Until that existence uncertainty is resolved—for
Ch4: Elements of Financial Statements example, by a court ruling—it is uncertain whether
ASSETS controlled by the company. the entity has a right and, consequently, whether an
● Right That have the potential to produce asset exists.
economic benefits take many forms,
including:
○ Rights that correspond to an ● Potential to produce economic benefit.
obligation of another party. ○ A ride can meet the definition of an
■ rights to receive cash economic resource, and hence can
■ rights the receive goods and be an asset even if the probability
services that it will produce economic
■ rights to exchange economic benefits is low.
resources with another party ○ An economic resource could
on favorable terms. produce economic benefits for an
■ Rights to benefit from an entity by entitling and enabling it to
obligation of another party to do, for example, one or more of the
transfer an economic following:
resource if a specified
 ■ Receive contractual cash at a specified amount does not imply
flows or another economic that the other party must recognize
resource. an asset or measure it at the same
■ Exchange economic amount.
resources with another party ○ An entity’s duty or responsibility to
on favorable terms. transfer an economic resource is
■ Produce cash inflows or conditional on a particular feature
avoid cash outflows. action that the entity itself may take.
■ Received cash or other (IAS 20 - PPE)
economic resources by ○ It is uncertain whether an obligation
selling the economic exists. (IAS 37 - Liab uncertainties)
resource. ○ Types of Obligations:
■ Extinguish liabilities by ■ Legal Obligations - obligation
transferring the economic based on contract, legislation
resource. for similar means and are
legally enforceable by the
● Control party to whom they are
Paragraph 4.19 owed.
Assessing whether control exists helps to - Backed up by law
identify the economic resource for which the entity (promissory note,
accounts. bonds payable,
mortgage payable,
Paragraph 4.20 accounts payable)
An entity controls an economic resource if it ■ Constructive Obligations -
has the present ability to direct the use of the Obligations from an entity’s
economic resource and obtain the economic customary practices,
benefits that may flow from it. published policies, or specific
statements if the entity has
Paragraph 4.23 no practical ability to act in a
For an entity to control an economic manner inconsistent with
resource, the future economic benefits from that those practices, policies or
resource must flow to the entity either directly or statements.
indirectly rather than to another party. - Not based on law
- Based on policies
Paragraph 4.22 (environmental clean
Control of an economic resource usually up, warranties)
arises from an ability to enforce legal rights.
● Transfer of an Economic Resource
Paragraph 4.24 ○ The obligation must have the
Having exposure to significant variations in potential to record the entity to
the amount of the economic benefits produced by transfer an economic resource to
an economic resource may indicate that the entity another party (parties)
controls the resource ○ An obligation is still a liability even if
the probability of a transfer of an
Paragraph 4.25 economic resource is low.
A principal may engage an agent to arrange ○ Obligation to transfer an economic
sales of goods controlled by the principal. If an resource include:
agent has custody of an economic resource ■ Obligations to pay cash.
controlled by the principal, that economic resource ■ Obligations to deliver goods
is not an asset of the agent. or provide services.
■ Obligations to exchange
Note: Who owns the asset, consignor (principal) or economic resources with
consignee (agent)? Asset is owned by the another party on unfavorable
consignor; pwede bawiin ni principal yung asset terms.
anytime; kapag nabenta ang matatanggap lang ni ■ Obligations to transfer an
consignee is commission. economic resource if a
specified uncertain future
LIABILITIES event occurs.
● Obligation ■ Obligations to issue a
○ duty or responsibility that an entity financial instrument if that
has no practical ability to avoid. financial instrument will
○ Requirement for one party to oblige the entity to transfer
recognize a liability and measure it an economic resource.
 ○ ALTERNATIVES: Instead of fulfilling - Possible units of account include:
an obligation to transfer an - An individual right or individual
economic resource to the party that obligation.
has a right to receive that resource, - All right, all obligations or all rights
entities sometimes decide to: and all obligations arising from a
■ Settle the obligation by single source, for example, a
negotiating a release from contract.
the obligation. - A subgroup of those rights and or
■ Transfer the obligation to a obligations.
third party. - A group of rights and or obligations
■ Replace the obligation to arising from a portfolio of similar
transfer an economic items.
resource with another - A group of rights and our obligations
obligation by entering into a arising from a.Portfolio of dissimilar
new transaction. (debt items.
restructuring) - A risk exposure within a portfolio of
items–if a portfolio of items is
● Present obligation is a result of past subject to a common risk.
events.
○ A present obligation exists as a Executory Contracts
result of past events only if: - A contract, or a portion of a contract, that is
■ The entity already obtained equally unperformed–neither party has
the economic benefits for fulfilled any of its obligations or parties have
taking an action. partially fulfilled their obligations to an equal
■ As a consequence, the entity extent. (Executory if unperformed yet.)
will only have to transfer an - Establish a combined right and obligation to
economic resource that it exchange an economic resource. (if there
would not otherwise have are still liab)
had to transfer. - If either party fulfills its obligation under the
● The enactment of contract, the contract is no longer
legislation is not in executory.
itself sufficient to give
an entity a present EQUITY
obligation. Different classes of equity claims, such as ordinary
● A present obligation shares and preference shares, may confer on their
can exist even if a holders different rights, for example the rights to
transfer of economic receive some or all of the following from the entity:
resources cannot be - Dividends, if the entity decides to pay
enforced until some dividends to eligible holders.
point in the future. - The proceeds from satisfying the equity
claims, either in full on liquidation, or in part
UNIT OF ACCOUNT at other times.
- rights or group of rights, the obligation or - Other equity claims.
group of obligations, or the group of rights
and obligations, to which recognition INCOME AND EXPENSES
criteria and measurement concepts are Income - ginamit sa standard; encompasses
applied revenue (ordinary course of business) + gain (not
- Selected to provide useful information, arising ordinary course of business);
which implies that: Expenses - under this is losses
- The information provided about the
asset or liability and about any Ch5: Recognition and Derecognition
related income and expenses must Uncertainty
be relevant. (Relevance)
- The information provided about the ● Existence Uncertainty - uncertain whether
asset or liability and about any an asset or liability exists. (record ko ba or
related income and expenses must not kasi baka hindi pa nakarecord; does it
faithfully represent the substance of exist? Baka hindi pa siya i-recognized)
the transaction or other event from (Faithful Representation)
which they have arisen. ● Measurement Uncertainty - for an asset or
- Treating a set of rights and obligations as a liability to be recognized, it must be
single unit of account differs from measured. In many cases, such measures
offsetting (generally is not allowed) assets must be estimated. (only if u know it is
and liabilities.
 existing; the only problem is kung what
amount must it be recorded)

Recognition - process of capturing the financial

statements of an item that meets the definition of
one of the elements of the financial statements.

Derecognition
● Accounting requirements for the recognition
aimed to faithfully represent both:
○ Any assets and liabilities retained
after the transaction or other event
that led to the derecognition
(Including any asset or liability
acquired, incurred or created as part
of the transaction or other event)
○ The change in the entity's assets
and liabilities as a result of that
transaction or other event.