ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

Chapter 1: THE ACCOUNTANCY PROFESSION

ACCOUNTING

Accounting Standards Council definition of accounting: 3. COMMUNICATING as the Formal Component

➢ Accounting is a service activity. The accounting • Preparing and distributing accounting
function is to provide quantitative information, reports to potential users of accounting
primarily financial in nature, about economic entities, information.
that is intended to be useful in making economic
decisions. Accounting is the “Universal Language of Business”

Committee on Accounting Terminology of AICPA definition of Recording/Journalizing – process of systematically

accounting: maintaining a record of all business transactions after being
➢ Accounting is the art of recording, classifying and identified and measured.
summarizing in a significant manner in terms of
money, transactions and events which are in part at Classifying – sorting of similar and interrelated economic
least of a financial character and interpreting the transactions into their respective classes. Thus, accomplished
results thereof. by posting to the ledger (group of accounts which are
systematically categorized).
American Accounting Association in its Statement of Basic
Accounting Theory definition of accounting: Summarizing – preparation of financial statements.
➢ Accounting is the process of identifying, measuring
and communicating economic information to permit FINANCIAL STATEMENTS
informed judgement and decision by users of ➢ Statement of Financial Position
information. ➢ Statement of Comprehensive Income
➢ Statement of Cash Flows/
American Accounting Association definition of accounting ➢ Statement of Changes in Equity
that has stood the test of time: ➢ Notes to Financial Statements
➢ The very purpose of accounting is to provide
quantitative information to be useful in making THE ACCOUNTANCY PROFESSION
economic decisions.
Republic Act No. 9298 – Philippine Accountancy Act of 2004
ACCOUNTING COMPONENTS • law regulating the practice of accountancy in the
Philippines.
1. IDENTIFYING as the Analytical Component
• Recognition or nonrecognition of business Republic Act No. 10912 – Continuing Professional
activities as “accountable” events. Development (CPD) Act of 2016
• An event is accountable or quantifiable if it • law mandating and strengthening the continuing
affects the assets, liabilities and equity. professional development program for all regulated
• Only economic activities (may be external or professions, including accountancy profession.
internal transactions) are recognized in • Acquisition of advanced knowledge, skill and
accounting. proficiency.
• Raises and enhances the technical skill and
2. MEASURING as the Technical Component competence of CPA’s.
• Assigning of peso amounts to accountable
economic events. CPD CREDIT UNITS
• Historical Cost – original acquisition cost and • Renewal is every 3 years
the most common measure of financial • Under BOA, all CPA’s regardless of are of
transactions. sector/practice should comply with 120 CPD CREDIT
• Current Value – includes fair value, value in UNITS (mandatory), for accreditation of a CPA to
use, fulfillment value and current cost. practice the profession
• For renewal of license, ONLY 15 CPD CREDIT UNITS
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

• 65 years old are EXEMPTED for renewals Securities and Exchange Commission
(SEC)
Bangko Sentral ng Pilipinas (BSP)

Board of Accountancy (BOA)

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

a. PUBLIC ACCOUNTING – renders independent and GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
expert financial service to the public. • Accounting rules, procedures and practices
➢ AUDITING – examination of FS by • Represent the rules, procedures, practice, and
independent CPA for opinions as to fairness. standards followed in the preparation and
➢ TAXATION – includes preparation of annual presentation of financial statements.
tax returns and determination of tax • Principles have developed on the basis of experience,
consequences. reason, custom, usage, and practical necessity.
➢ MANAGEMENT ADVISORY SERVICES – • Overall Purpose of Accounting Standards:
offers advices on installation of computer o The overall purpose of accounting
system, quality control, installation and standards is to identify proper accounting
modification of accounting system, practices for the preparation and
budgeting, forward planning and presentation of financial statements.
forecasting.
➢ Formally GAAP – Now Philippine Accounting
b. PRIVATE ACCOUNTING – CPAs employed in business Standards (PAS)/ Philippine Financial Reporting
entities, major objective is to assist management Standards (PFRS)
planning and controlling operations
➢ Accounting Staff Financial Reporting Standards Council (FRSC)
➢ Chief Accountant promulgates PAS/PFRS
➢ Internal Auditor
➢ Controller (highest accounting officer) Composition of FRSC (composed of 15 members)

c. GOVERNMENT ACCOUNTING
• Accounting of all transactions involving
the receipt and disposition of
government funds and property and
interpreting results thereof.
• Focus is the custody and administration
of public funds.
• Bureau of Internal Revenue (BIR)
Commission on Audit (COA)
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

Board of Accountancy (BOA) 1 a. PFRS which correspond to IFRS

Securities and Exchange Commission (SEC) 1
Bangko Sentral ng Pilipinas (BSP) 1 The PFRS are numbered the same as their
Bureau of International Revenue (BIR) 1 counterpart in IFRS
Commission on Audit (COA) 1
Major organization of preparers and users b. PAS which correspond to IAS
of financial statements –
Financial Executive Institute of
The PAS are numbered the same as their
the Philippines (FINEX) 1
counterpart in IAS
Accredited national professional organization of CPAs:
Public Practice 2 c. Philippine Interpretations which correspond to
Commerce and Industry 2 Interpretations of the IFRIC and Interpretations
Academe or Education 2 developed by the PIC
Government 2

Total 14
An accountant’s primary task is to supply financial
+ The Chairman who is presently a Senior Accounting information so that the statement users could make informed
Practitioner judgement and better decision.
*They shall have a term of 3 years renewable for another term
➢ The Philippine Interpretations Committee (PIC) was
formed by the FRSC in August 2006 and has replaced Chapter 2: CONCEPTUAL FRAMEWORK:
the Interpretations Committee (IC) formed by ASC in
OBJECTIVES OF FINANCIAL REPORTING
May 2000.
➢ PIC prepares interpretations of PFRS for approval by
History of the Framework
the FRSC.
➢ April 1989 - Framework for the preparation
➢ International Accounting Standards Committee
and presentation of financial statements (the
(IASC)
Framework) was approved by IASC Board
o counterpart of PIC in the International ➢ July 1989 - Framework was published
Financial Reporting Board (IASB) ➢ April 2001 - Framework adopted by the IASB
o private sector body, with the objective of
➢ September 2010 - Conceptual Framework for
achieving uniformity in accounting principles
Financial Reporting 2010 approved by the IASB
around the world.
➢ March 2018 - Conceptual Framework for
o Formed in June 1973
Financial Reporting 2018 (the Framework) published

➢ International Financial Reporting Board (IASB) CONCEPTUAL FRAMEWORK defined

o Replaced the International Accounting
• It is a summary of the terms and concepts that
Standards Committee (IASC)
underlie the preparation and presentation of financial
o The IASB publishes standards in a series of
statements for external users.
pronouncements called International
• Describes the concepts for general purpose financial
Financial Reporting Standards (IFRS)
reporting
o However, the IASB has adopted the body
• Provide an overall theoretical foundation for
standards issued by the IASC which
accounting.
pronouncements continue to be designated
as International Accounting Standard (IAS)
Conceptual Framework provides the foundation for
o Declared that merits of proposed standards
standards that:
are assessed from a position if neutrality
a) Contribute to transparency.
b) Strengthen accountability
➢ In the past years, most PAS are based on American
c) Contribute to economic efficiency.
accounting standards. At present, the FRSC has
adopted entirely all IAS and IFRS.
PURPOSES OF REVISED CONCEPTUAL FRAMEWORK
➢ Philippine Financial Reporting Standards (PFRS)
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

• To assist the International Accounting Standards • To provide information useful in assessing the cash
Board (IASB) to develop IFRS based on consistent flow prospects of the entity
concepts • To provide information about entity resources, claims
• To assist preparers of financial statements to develop and changes in resources and claims.
consistent accounting policy
• To assist preparers of financial statements to develop LIMITATIONS OF FINANCIAL REPORTING
accounting policy when a standard allows a choice of • General purpose financial report do not and cannot
an accounting policy provide all of the information that existing and
• To assist all parties to understand and interpret the potential investors, lenders and other creditors need.
IFRS standards • not designed to show the value of an entity but the
reports provide information to help the primary users
AUTHORITATIVE STATUS estimate the value of the entity
• Conceptual Framework is not an accounting standard. • Intended to provide common information to users
• If there is a standard or an interpretation that and cannot accommodate every request for
specifically applies to a transaction, the standard or information
interpretation overrides the Conceptual Framework. • To a large extend, reports are based on estimate and
• In the absence of a standard or an interpretation that judgement rather than exact depiction
specifically applies to a transaction, management
shall consider the applicability of the Conceptual
Framework in developing and applying an accounting
policy that results in information that is relevant and
reliable.
• Nothing in the CONCEPTUAL FRAMEWORK overrides
any specific ACCOUNTING STANDARDS.
USERS OF FINANCIAL INFORMATION

Primary Users
- Existing and potential investors
- Lenders and other creditors

Secondary
- Employees
- Customers
- Government agencies
- Public

SCOPE OF REVISED CONCEPTUAL FRAMEWORK

➢ Objective of financial reporting

➢ Qualitative characteristics of useful financial
information
➢ Financial statements and reporting entity
➢ Elements of financial statements
➢ Recognition and derecognition
➢ Measurement
➢ Presentation and disclosure
➢ Concepts of capital and capital maintenance

SPECIFIC OBJECTIVES OF FINANCIAL REPORTING

• To provide information useful in making decisions
about providing resources to the entity