ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

Chapter 1: THE ACCOUNTANCY PROFESSION

ACCOUNTING
3. COMMUNICATING as the Formal Component
Accounting Standards Council definition of accounting: • Preparing and distributing accounting
➢ Accounting is a service activity. The accounting reports to potential users of accounting
function is to provide quantitative information, information.
primarily financial in nature, about economic entities,
that is intended to be useful in making economic Accounting is the “Universal Language of Business”
decisions.
Recording/Journalizing – process of systematically
Committee on Accounting Terminology of AICPA definition of maintaining a record of all business transactions after being
accounting: identified and measured.
➢ Accounting is the art of recording, classifying and
summarizing in a significant manner in terms of Classifying – sorting of similar and interrelated economic
money, transactions and events which are in part at transactions into their respective classes. Thus, accomplished
least of a financial character and interpreting the by posting to the ledger (group of accounts which are
results thereof. systematically categorized).

American Accounting Association in its Statement of Basic Summarizing – preparation of financial statements.
Accounting Theory definition of accounting:
➢ Accounting is the process of identifying, measuring FINANCIAL STATEMENTS
and communicating economic information to permit ➢ Statement of Financial Position
informed judgement and decision by users of ➢ Statement of Comprehensive Income
information. ➢ Statement of Cash Flows/
➢ Statement of Changes in Equity
American Accounting Association definition of accounting ➢ Notes to Financial Statements
that has stood the test of time:
➢ The very purpose of accounting is to provide THE ACCOUNTANCY PROFESSION
quantitative information to be useful in making
economic decisions. Republic Act No. 9298 – Philippine Accountancy Act of 2004
• law regulating the practice of accountancy in the
ACCOUNTING COMPONENTS Philippines.

1. IDENTIFYING as the Analytical Component Republic Act No. 10912 – Continuing Professional
• Recognition or nonrecognition of business Development (CPD) Act of 2016
activities as “accountable” events. • law mandating and strengthening the continuing
• An event is accountable or quantifiable if it professional development program for all regulated
affects the assets, liabilities and equity. professions, including accountancy profession.
• Only economic activities (may be external or • Acquisition of advanced knowledge, skill and
internal transactions) are recognized in proficiency.
accounting. • Raises and enhances the technical skill and
competence of CPA’s.
2. MEASURING as the Technical Component
• Assigning of peso amounts to accountable CPD CREDIT UNITS
economic events. • Renewal is every 3 years
• Historical Cost – original acquisition cost and • Under BOA, all CPA’s regardless of are of
the most common measure of financial sector/practice should comply with 120 CPD CREDIT
transactions. UNITS (mandatory), for accreditation of a CPA to
• Current Value – includes fair value, value in practice the profession
use, fulfillment value and current cost. • For renewal of license, ONLY 15 CPD CREDIT UNITS
• 65 years old are EXEMPTED for renewals
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

Board of Accountancy (BOA) Definition of Terms:

• the body authorized by law to promulgate rules and Auditing – starts after preparation of FS.
regulations affecting the practice of the accountancy Bookkeeping – procedural, concerned with development and
profession in the Philippines. maintenance of accounting records. The “how” of accounting.
• In charge of preparing and grading PH CPA Accountancy – the profession of accounting practice.
examination held every May and October each year. Accounting – reference only to particular field of accountancy.
Financial Accounting - recording business transactions and
Limitations of Public Practice preparation of financial statements.
• Should be passer of CPALE and be registered CPA’s in Managerial Accounting – accumulation and preparation of
the Philippines. financial reports for internal users only, it emphasizes
• Minimum of three (3) years meaningful experience developing accounting information for use within the entity
• Involved agencies are PRC & BOA only. only.

Certified Public Accountants generally practice their GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
profession in three main areas, namely: • Accounting rules, procedures and practices
• Represent the rules, procedures, practice, and
a. PUBLIC ACCOUNTING – renders independent and standards followed in the preparation and
expert financial service to the public. presentation of financial statements.
➢ AUDITING – examination of FS by • Principles have developed on the basis of experience,
independent CPA for opinions as to fairness. reason, custom, usage, and practical necessity.
➢ TAXATION – includes preparation of annual • Overall Purpose of Accounting Standards:
tax returns and determination of tax o The overall purpose of accounting
consequences. standards is to identify proper accounting
➢ MANAGEMENT ADVISORY SERVICES – practices for the preparation and
offers advices on installation of computer presentation of financial statements.
system, quality control, installation and ➢ Formally GAAP – Now Philippine Accounting
modification of accounting system, Standards (PAS)/ Philippine Financial Reporting
budgeting, forward planning and Standards (PFRS)
forecasting.
Financial Reporting Standards Council (FRSC)
b. PRIVATE ACCOUNTING – CPAs employed in business promulgates PAS/PFRS
entities, major objective is to assist management
planning and controlling operations Composition of FRSC (composed of 15 members)
➢ Accounting Staff Board of Accountancy (BOA) 1
➢ Chief Accountant Securities and Exchange Commission (SEC) 1
➢ Internal Auditor Bangko Sentral ng Pilipinas (BSP) 1
➢ Controller (highest accounting officer) Bureau of International Revenue (BIR) 1
Commission on Audit (COA) 1
c. GOVERNMENT ACCOUNTING Major organization of preparers and users
of financial statements –
• Accounting of all transactions involving
Financial Executive Institute of
the receipt and disposition of the Philippines (FINEX) 1
government funds and property and
interpreting results thereof. Accredited national professional organization of CPAs:
• Focus is the custody and administration Public Practice 2
of public funds. Commerce and Industry 2
• Bureau of Internal Revenue (BIR) Academe or Education 2
Commission on Audit (COA) Government 2
Securities and Exchange Commission
(SEC) Total 14
Bangko Sentral ng Pilipinas (BSP)
+ The Chairman who is presently a Senior Accounting
Practitioner
*They shall have a term of 3 years renewable for another term
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

➢ The Philippine Interpretations Committee (PIC) was

formed by the FRSC in August 2006 and has replaced
the Interpretations Committee (IC) formed by ASC in
May 2000.
➢ PIC prepares interpretations of PFRS for approval by
the FRSC.
➢ International Accounting Standards Committee
(IASC)
o counterpart of PIC in the International
Accounting Standards Board (IASB) is the
International Financial Reporting
Interpretations Committee (IFRIC)
o private sector body, with the objective of
achieving uniformity in accounting principles
around the world.
o Formed in June 1973

➢ International Accounting Standards Board (IASB)

o Replaced the International Accounting
Standards Committee (IASC)
o The IASB publishes standards in a series of
pronouncements called International
Financial Reporting Standards (IFRS)
o However, the IASB has adopted the body
standards issued by the IASC which
pronouncements continue to be designated
as International Accounting Standard (IAS)
o Declared that merits of proposed standards
are assessed from a position if neutrality

➢ In the past years, most PAS are based on American

accounting standards. At present, the FRSC has
adopted entirely all IAS and IFRS.

➢ Philippine Financial Reporting Standards (PFRS)

a. PFRS which correspond to IFRS

The PFRS are numbered the same as their

counterpart in IFRS

b. PAS which correspond to IAS

The PAS are numbered the same as their

counterpart in IAS

c. Philippine Interpretations which correspond to

Interpretations of the IFRIC and Interpretations
developed by the PIC

An accountant’s primary task is to supply financial

information so that the statement users could make informed
judgement and better decision.
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

Chapter 2: OBJECTIVES OF FINANCIAL REPORTING

History of the Framework AUTHORITATIVE STATUS

➢ April 1989 - Framework for the preparation • Conceptual Framework is not an accounting standard.
and presentation of financial statements (the • If there is a standard or an interpretation that
Framework) was approved by IASC Board specifically applies to a transaction, the standard or
➢ July 1989 - Framework was published interpretation overrides the Conceptual Framework.
➢ April 2001 - Framework adopted by the IASB • In the absence of a standard or an interpretation that
➢ September 2010 - Conceptual Framework for specifically applies to a transaction, management
Financial Reporting 2010 approved by the IASB shall consider the applicability of the Conceptual
➢ March 2018 - Conceptual Framework for Framework in developing and applying an accounting
Financial Reporting 2018 (the Framework) published policy that results in information that is relevant and
reliable.
The Conceptual Framework for Financial Reporting is a • Nothing in the CONCEPTUAL FRAMEWORK overrides
complete, comprehensive and single document promulgated any specific IFRS, ACCOUNTITNG STANDARDS
by the IASB ALWAYS PREVAIL.

CONCEPTUAL FRAMEWORK defined USERS OF FINANCIAL INFORMATION/TARGET USERS

• It is a summary of the terms and concepts that
underlie the preparation and presentation of financial PRIMARY USERS
statements for external users. Provides resources to the entity. Parties to whom
• Describes the concepts for general purpose financial general purpose financial reports are primary directed.
reporting Existing and potential investors
• Provide an overall theoretical foundation for - Concerned with the risk inherent in and
accounting. returned provided by their investment.
Lenders and other creditors
Conceptual Framework provides the foundation for - Ae interested in information which enables
standards that: them to determine whether their loans,
a) Contribute to transparency by enhancing the interests, and other amounts owed into
international comparability and quality of them will be paid when due.
information.
b) Strengthen accountability by reducing the SECONDARY/OTHER USERS
information gap between the providers of capital and Users of financial information other than existing and
the people to whom they have entrusted their potential investors, lenders, and other creditors. Thus,
money. reports are not primarily directed to them.
c) Contribute to economic efficiency by helping the Employees
investors or the users o the financial statement to - Interested in the information on the stability
identify opportunities and risks across the world. and profitability of the entity for their
benefits.
PURPOSES OF REVISED CONCEPTUAL FRAMEWORK Customers
a) To assist the International Accounting Standards - Have interest in information about the
Board (IASB) to develop IFRS based on consistent continuance of an entity.
concepts. Government agencies
b) To assist preparers of financial statements to develop - Interested in the allocation of resources and
consistent accounting policy. activities of the entity.
c) To assist preparers of financial statements to develop Public
accounting policy when a standard allows a choice of - Interested in the substantial contribution to
an accounting policy. the local economy (number of employment
d) To assist all parties to understand and interpret the and patronage of local suppliers).
IFRS Standards.
SCOPE OF REVISED CONCEPTUAL FRAMEWORK
1. Objective of financial reporting
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

2. Qualitative characteristics of useful financial and uncertainty of prospects for future net cash
information inflows to the entity.
3. Financial statements and reporting entity
4. Elements of financial statements ECONOMIC RESOURCES AND CLAIMS
5. Recognition and derecognition
6. Measurement Financial Position – information about the entity’s
7. Presentation and disclosure economic resources (asses) and the claims (liability & equity)
8. Concepts of capital and capital maintenance against reporting entity.
Otherwise stated, information about financial
OBJECTIVES OF FINANCIAL REPORTING position can help users to assess the entities liquidity,
(Forms the foundation of the Conceptual Framework) solvency, and the need for additional financing.
➢ The overall objective of financial reporting is to Liquidity – the availability of cash in the near
provide financial information useful for decision future to cover currently maturing
making. obligations.
➢ Financial reporting is the provision of financial Solvency – the availability of cash over a
information about an entity to external users that is long-term to meet financial commitments
useful to them in making economic decisions and for when they fall due.
assessing the effectiveness of the entity’s
management. FINANCIAL PERFORMACE - Comprises revenue, expense and
➢ Financial reports also include nonfinancial net income or loss for a period of time. Thus, it is the level of
information such as description of major products income earned by the entity through the efficient and effective
and a listing of corporate officers and directors. use of its resources.

Annual Financial Statements – principal way of USEFULNESS OF FINANCIAL PERFORMANCE

providing financial information to external users. a) Information about financial performance helps users
to understand the returns that the entity has
SPECIFIC OBJECTIVES OF FINANCIAL REPORTING produced on the economic resources.
➢ To provide information useful in making decisions b) Information about the return the entity has produced
about providing resources to the entity provides an indication of how well management has
➢ To provide information useful in assessing the cash discharged its responsibilities to make efficient and
flow prospects of the entity effective of the entity’s economic resources.
➢ To provide information about entity resources, claims c) Information about past financial information is
and changes in resources and claims (refers to assets, usually helpful in predicting the future returns on the
liabilities, capital/equity, and performance of the entity’s economic resources.
entity). d) Information about financial performance during a
period is useful in assessing the entity’s ability to
Economic Decisions generate future cash inflows from operation.
• Investors need general purpose financial reports in
order to enable them in making decisions whether to Accrual Accounting
but, sell, or hold equity investments, provide/settle • Used to measure financial performance of the entity.
loans and other forms of credit. • Under the accrual basis, the effects of transactions
and other events are recognized when they occur and
Assessing Cash Flow Prospects not as cash is received or paid.
• Decision about buying, selling o holding equity • Income is recognized when earned regardless of when
instruments depend on the returns that they expect received and expense is recognized when incurred
from an investment. regardless of when paid.
• Decisions about providing/settling loans and other
forms of credit depends on principal and interest LIMITATIONS OF FINANCIAL REPORTING
payments or other returns they expect. a) General purpose financial report do not and cannot
• Consequently, financial reporting should provide provide all of the information that existing and
information useful in assessing the amount, timing potential investors, lenders and other creditors need.
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

b) not designed to show the value of an entity but the

reports provide information to help the primary users
estimate the value of the entity.
c) Intended to provide common information to users
and cannot accommodate every request for
information
d) To a large extend, reports are based on estimate and
judgement rather than exact depiction

Management Stewardship
• Information about how efficiently and effectively
management has discharged its responsibility to use
the entity’s economic resources helps users to assess
management stewardship of those resources.
• Such information is also useful for predicting how
management will use the entity’s economic resources
in future periods.
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

Chapter 3: QUALITATIVE CHARACTERISTICS

QUALITATIVE CHARACTERISTICS c. Materiality

- Are the qualities or attributes that make financial - practical rule in accounting which
accounting information useful to others. dictates that strict adherence to GAAP is
- The objective is to ensure that the information is not required when items are not
useful to the users in making economic decisions. significant enough to affect the
- Classified into fundamental qualitative characteristics evaluation, decision, and fairness of the
and enhancing qualitative characteristics. financial statements.
- The doctrine of convenience
FUNDAMENTAL QUALITATIVE CHARACTERISTICS - A quantitative threshold linked to
- Relates to the contents or substance of financial quantitative characteristics of
information. relevance.
- RELEVANCE and FAITHFUL REPRESENTATION - The relevance of information is affected
by its nature and materiality.
APPLICATION OF QUALITATIVE CHARACTERISTICS
1. Identify economic phenomenon or transactions that Materiality is a relativity – materiality of an item
has a potential to be useful. depends on relative size rather than absolute size.
2. Identify the type of information about phenomenon What is material for one entity might be not for
or transactions that would be most relevant and can another.
be faithfully represented. Item Material – an item is material if knowledge of it
3. Determine whether the information is available. could reasonably affect or influence the economic
decision of the primary users of the financial
RELEVANCE statements.
• Capacity of information to influence a
decision. New Definition from the IASB: Information is
• To be relevant, the financial information material if the omission, misstatement and
must be capable of making a difference in obscuring of the information could reasonably affect
decision made by users. the economic decision of primary users.
• Information that does not bear on an a. Could reasonably be expected to
economic decision is useless. influence/Reasonability
e.g. Statement of Financial Position b. Obscuring Information – presentation
– Financial Position, Income of financial information is not readily
Statement – Performance understood nor clearly expressed. Thus,
characterized by deliberate vagueness,
Ingredients of Relevance ambiguity and abstruseness.
a. Predictive Value – financial c. Primary Users – include the existing and
information can be used as an input potential investors, lenders and other
to processes employed by users to creditors.
predict future value. Thus, financial
information has predictive value if Factors of Materiality
it can help users accurately predict • Depends on the magnitude and nature of the
outcome of events. financial information.
b. Confirmatory Value – financial
information provides feedback Relative Size of an Item – in relation to the
about previous evaluations. Thus, it total of the group to which the item belongs
enables users confirm or correct is taken into account.
earlier expectations.
o However, information has both predictive Nature of the Item – may be inherently
and confirmatory value because it is material because by its very nature it affects
interrelated. economic decision.
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

FAITHFUL REPRESENTATION ▪ Contingent Loss – “provision” if the

• Means that financial reports represent loss is probable and the amount can
economic phenomena or transaction in be reliably measured.
words and numbers. Thus, descriptions and ▪ Contingent Gain – is not recognized
figures must match what really existed. but disclosed only.
• The actual effects of the transactions shall be Expressions of Conservatism
properly accounted. "Anticipate no profit and provide for probable and
measurable loss."
Ingredients of Faithful Representation "In the matter of income recognition, the accountant
a. Completeness – requires that takes the position that no matter how sure the
relevant information should be businessman might be in capturing the bird in the
presented in a way that facilitates bush, he, the accountant, must see it in the hand."
understanding and avoids "Don't count your chicks until the eggs hatch".
erroneous implication. Financial
Statements shall be accompanied c. Free from Error – there are no
by notes to financial statement errors or missions in the description
(notes provide necessary of the phenomenon or transaction.
disclosures by Philippine Financial Thus, an estimate of an
Reporting Standards). unobservable value cannot be
o Standard of adequate disclosure / Principle determined to be accurate or
of full disclosure inaccurate so this does not mean to
- This results to completeness. be perfectly accurate in all respects.
- Means that all significant and o Measurement uncertainty – present during
relevant information leading to the estimations and affects faithful
preparation of FS shall be clearly representation if the level of uncertainty in
reported. providing an estimate is high.
- Best ascribed by disclosure of any o Substance over form – transactions and
financial facts significant enough to events are accounted in accordance with
influence the judgement of their substance and not merely their legal
informed users. form.

b. Neutrality – neutral depiction is Substance over form is not considered a separate

without bias in the preparation or component of faithful representation because it
presentation of financial would be redundant.
information. Thus, the information
is directed to the common needs of Faithful Representation inherently represents the
many users and not to the substance of an economic phenomenon or
particular needs of specific users. transaction rather than merely representing the
To be neutral is to be fair. legal form.
o Prudence – the exercise of care and caution
when dealing with the uncertainties in the Example of substance over form:
measurement process such that assets or An example is when the lessee leased property from the
income are not overstated and liabilities or lessor The terms of the lease provide that the lease transfers
expenses are not understated. ownership of the asset to the lessee by the end of the lease term.
Neutrality is supported by the exercise of In form, the contract is a lease as popularly understood. But in
substance, in reality, if the "transfer of ownership provision" is to
prudence.
be considered, the real intent of the parties. is an installment
o Conservatism – is synonymous with
purchase of an asset by the lessee from the lessor. Accordingly,
prudence. This means that when
the lessee shall record an acquisition of right of use asset and set
alternatives exist, the alternative which has
up a liability to the lessor. The periodic rental is conceived as an
the least effect on equity should be chosen. installment payment representing interest and principal.
“in case of doubt, record any loss and do not
record any gain”
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

ENHANCING QUALITATIVE CHARACTERISTICS 3. UNDERSTANDABILITY

- This relates to the presentation or form • Requires that financial information must be
of the financial information. comprehensible or intelligible if it is to be most
- Intended to increase the usefulness of useful.
the financial information that is relevant • Clear and concise presentation of information.
and faithfully represented. • This is very essential because a relevant and
faithfully represented information may prove
1. VERIFIABILITY useless if it is not understood by users.
• Means that different knowledgeable and
independent observers could reach consensus, 4. TIMELINESS
although not necessarily complete agreement, • Financial information must be available or
that a particular depiction is a faithful communicated early enough when a decision is
representation. to be made.
• Verifiability implies consensus • Generally, the older the information, the less
useful.
Types of Verification
1. Direct Verification – verifying through direct o Cost constraint on useful information
observation. E.g. counting cash - Cost is a pervasive constraint on the
2. Indirect Verification – checking inputs to a information that can be provided by
model, formula, or other technique and financial reporting
recalculating the inputs using the same - In other words, the cost constraint is a
methodology. consideration of the cost incurred in
generating financial information against the
2. COMPARABILITY benefit to be obtained from having the
• the ability to bring together for the purpose of information.
noting points of likeness and difference. - The benefit derived from the information
• Uniform application of accounting method within should exceed the cost incurred in obtaining
an entity (the quality of information that allows the information.
comparisons within a single entity through time - However, the evaluation of the cost
or from one accounting period to the next, also constraint is substantially a judgmental
known as horizontal comparability or process. Assessing whether the cost of
intracomparability) or between and across reporting outweighs or falls short of the
entities (the quality of information that allows benefit is difficult to measure and becomes
comparisons between two or more entities a matter of professional judgment.
engaged in the same industry, also known as
intercomparability or dimensional
comparability.)

Ingredient of Comparability
a. Consistency – not the same as
comparability. This refers to the use of the
same method for the same item, either from
period to period within an entity or in a
single period across entities. Comparability
is the goal and consistency help to achieve
the goal. It is the uniform application of
accounting method from period to period
within an entity.

Thus, it is inappropriate for an entity to leave

accounting policies unchanged when better and acceptable
alternatives exist.
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

Chapter 4: FINANCIAL STATEMENTS AND REPORTING UNDERLYING ASSUMPTIONS

ENTITY UNDERLYING ASSUMPTIONS ➢ Accounting assumptions or accounting postulates
are the basic notions or fundamental premises on
GENERAL OBJECTIVE OF FINANCIAL STATEMENT which accounting process is based.
Financial statements provide information about ➢ Serve as the foundation or bedrock of accounting to
economic resources of the reporting entity, claims against the avoid misunderstanding but rather enhance the
entity and changes in economic resources and claims. understanding and usefulness of the financial
statements.
Financial statements provide financial information about an
entity’s assets, liabilities, equity, income and expenses useful GOING CONCERN (explicit in the conceptual framework)
to users of financial information in: • The going concern or continuity assumption means
a) Assessing future cash flows to the reporting entity. that in the absence of evidence to the contrary, the
b) Assessing management stewardship of the entity’s accounting entity is viewed as continuing operation
economic resources. indefinitely.
• The going concern postulate is the very foundation of
The financial information is provided in the following: cost principle. Thus, assets are normally recorded at
1. Statements of Financial Position, by recognizing cost.
assets, liabilities and equity
2. Income Statement, by recognizing income and ENTITY CONCEPT/ACCOUNTING ENTITY
expenses (implicit in the conceptual framework)
3. Statement of Cash Flows, by recognizing cash flows • The entity is separate and distinct from its owners and
from operating, investing and financing activities other business enterprises.
4. Statement of Changes in Equity, by recognizing • Accordingly, transactions of the entity shall not be
contributions from equity holders and distribution to merged with the personal transactions of the owners.
equity holders • Each business is an independent accounting entity.
5. Notes to Financial Statement, by recognizing • When a parent and subsidiary relationship exists,
disclosures required by accounting standards consolidated financial statements are prepared in
recognition of single economic/accounting entity.
TYPES OF FINANCIAL STATEMENT
1. Consolidated Financial Statements – prepared when PEIODICITY CONCEPT/TIME PERIOD
the reporting entity comprises both the parent and its • Concept behind providing financial accounting
subsidiaries as a single reporting entity. Parent has information about economic activities at specific time
the control over the entity. periods.
2. Unconsolidated Financial Statements – prepared • This assumption requires that the indefinite life of an
when the reporting entity is the parent alone. entity is subdivided into accounting periods which are
3. Combined Financial Statements – prepared when the usually of equal length for the purpose of preparing
reporting entity comprises two or more entities that financial statements.
are not linked by a parent and subsidiary relationship. • Thus, during the lifetime of an entity, accountants
produces financial statements at arbitrary points in
Reporting Entity time in accordance with periodicity.
• Entity that is required or chooses to prepare financial
statements. Thus, it is not necessarily a legal entity. MONETARY UNIT
• The financial statements should be stated in terms of
Reporting Period a common financial denominator.
• The period when financial statements are prepared Two Aspects of Monetary Unit:
for general purpose financial reporting. 1. Quantifiability Aspect – means that the assets,
• Financial statements must be prepared on an annual liabilities, equity, income and expenses should be
basis or a period of 12 months. stated in terms of a unit.
• Assets, liabilities and equity = end of reporting period 2. Stability of the Peso – purchasing power of peso
Income and expenses = during the reporting period is stable and that its instability is insignificant.