MODULE 1: REGULATION OF THE 1.

globalization of capital markets

ACCOUNTING PROFESSION 2. the need for comparability of
financial information across national
- accounting standards are the basis for the
borders
formulation of the accounting policies.
3. greater transparency
(based on GAAP)
4. portability of knowledge and
- GAAP is the generic term; branded name is education across national borders
the Financial Reporting Standards (FRS) 5. consistency with the concept of a
single global professional credential
- before 2001, the Philippine accounting
standards were based on standards set by - International Accounting Standards
the Financial Accounting Standards Board Committee (IASC) to International
(FASB). Accounting Standard Board (IASB) in 2001
under the jurisdiction of the IFRS
- after 2001, Philippine accounting
Foundation.
standards are adapted from the
International Accounting Standards. (now - IASC, before, was focused on preparing and
called International Financial Reporting promulgating accounting standards and
Standards) getting funding for the organization.

- APO (Accredited Professional - now, the IFRS Foundation is tasked to

Organization) for CPAs is PICPA created the source the fundings and look over the
Accounting Standards Council (ASC) in operations for the IASB.
November 18, 1981.
- required to develop a set of global
- accredited = registered and granted the sustainability reporting standards. (ISSB)
certification by the Professional
- International Accounting Standards Board
Regulations Commission. (PRC)
and International Sustainability Standards
- comparability (importance of international Board. (internationally, there are two boards
accounting standards); business practices under the IFRS Board)
are not confined only in one geographical
- International Financial Reporting
location; funds from investors doing
Standards (IFRS) comprises of the following
business in a certain country may come
(broader term): (1) IAS (from the IAS
from different nations as well.
Committee; old standards), (2) IFRS (more
- the need for comparability of financial specific) (from the IAS Board; new
information across national borders. standards).

- International Accounting Standards - the World Bank pushed countries to adopt

Committee (created in 1973) the IASs or develop national standards
based on IASs; in some cases, the World
- the need for global accounting standards
Bank required IASs reporting as a condition
was acknowledged by the accounting
for granting a loan.
profession because of:
- the Philippine transition to IAS was made Board of Accountancy 1 1
on a staggered basis, effective from 2001; Securities and Exchange
1 2
the country set the year 2005 to adopt fully Commission
the IASs. Bangko Sentral ng
1 1
Pilipinas
- the IAS Committee suffered from a number Bureau of Internal Revenue 1 1
of shortcomings: (1) shortage of resources. Commission on Audit 1 1
- Standing Interpretations Committee (SIC) = Insurance Commission - 2
Major Organization of
IAS Committee; International Financial
Preparers and Users of
Reporting Interpretations Committee
Financial Statements 1 1
(IFRIC) = IAS Board.
(Financial Executives of
- in a broader sense, the IFRSs include the the Philippines)
following: Accredited National
Professional Organization
• IFRSs originally developed by the IAS of CPAs in the Philippines:
Board • Public Practice 2 2
• Interpretations of the International • Commerce and
2 2
Financial Interpretations Committee Industry
(IFRIC, which is the interpreting body • Government 2 2
of the IASB) • Academe 2 2
• IASs originally developed by the IAS
Committee and upheld and/or - the FRSC’s due process of developing
revised by the IAS Board accounting standards include the following
• Interpretations of the Standing steps:
Interpretations Committee (SIC,
which functioned as the interpreting a. consideration of pronouncements of
body of the IAS Committee) the IASB
b. formation of a task force, when
- R.A. 9298 (Philippine Accountancy Act of necessary
2004); currently, there is a bill to revise R.A. c. issuance of exposure draft duly
9298 but not yet approved. approved by the majority vote of the
- required 3-year meaningful experience FRSC members
before taking the CPALE. (new proposed d. consideration of comments
requirement) (comment period is at least 60 days,
may be shorted to not less than 30
- FRSC (Financial Reporting Standards days)
Council) succeeded the ASC in 2006. e. approval by a majority of the FRSC
- the FRSC originally was composed of 15 members
members, including the chairman; currently, f. publication of the approved standard
it is composed of 18 members, including the in the official gazette or a newspaper
chairman. of general circulation
- Philippine Interpretations Committee (PIC) a. a natural born citizen and a resident
was formed by the FRSC in August 2006: of the Philippines
give interpretations locally; primary purpose b. a duly registered Certified Public
is to issue implementation guidance on Accountant with at least ten years of
PFRS and PAS. work experience in any scope of the
practice
- FRSC has been renamed the Philippine
c. must be of good moral character and
Financial and Sustainability Reporting
must not have been convicted of
Council (FSRSC) to embrace the
crime involving moral turpitude
sustainability reporting.
d. must not be directly or indirectly
- assisted by the Philippine Sustainability connected with any school, college,
Reporting Committee (PSRC) and Philippine or university granting degrees for
Interpretations Committee. (PIC) admission to the Certified Public
Accountants examination or with
- Professional Regulatory Board of
CPA Review School or Institute, nor
Accountancy (BOA) regulates the
shall have any pecuniary interest in
accounting profession.
such school, college, university, or
- the currently effective accounting CPA review school or institute.
standards in the Philippines; the PFRS is
- four sectors/scope of practice: public
composed of the following:
practice, academe, commerce and industry,
• Philippine Financial Reporting government.
Standards (PFRS), adopted from the
- the chairman and the members of the BOA
IFRSs promulgated by the IAS Board
shall hold office for a term of three years.
• Philippine Accounting Standards,
adopted from the IASs that are still - in addition, no person who has served two
currently in force successive complete terms shall be eligible
• Interpretations by the Standing for reappointment until the lapse of one
Interpretations Committee year. (not normally followed)
• Interpretations by the International
Financial Reporting Interpretations
Committee
• Implementation guidance of the
Philippine Interpretations
Committee

- a chairman and six members to be

appointed by the President of the
Philippines; the qualifications of the
members of BOA include:
 MODULE 2: CONCEPTUAL FRAMEWORK • In case where there is a conflict, the
requirements of the Philippine
- Conceptual Framework: no rules; only lays
Financial Reporting Standards shall
the foundation of the promulgation of the
prevail over the Conceptual
IFRS (assist the IASB based on consistent
Framework.
principles to formulate the IFRS)
• In the absence of a standard or an
Basic Purpose: to serve as a guide in interpretation that specifically
developing future PFRSs and as a guide in applies to a transaction,
resolving accounting issues not directly management shall consider the
addressed by existing PFRS. applicability of the Conceptual
Framework in developing and
Specific Purposes:
applying an accounting policy that
1. To assist: results in information that is relevant
and reliable.
• FSRSC – (a) in developing future
PFRSs and reviewing existing - heirarchy in formulating accounting
PFRSs; (b) in promoting policies: (1) PFRS; (2) similar standards that
harmonization of regulations, address the issue (if no PFRS standard is
accounting standards and applicable); (3) free to formulate standards
procedures relating to the that applies the principles of the CFAS.
presentation of FS.
- purposes:
• Preparers of FS – in applying PFRSs.
• Users of FS – in interpreting the (1) assist the IASB to develop IFRSs that are
information in FS. based on consistent principles
• Auditors – in forming an opinion as
(2) assist preparers to develop consistent
to whether the FS conforms with
accounting policies when no standard
PFRS.
applies or when a standard allows a choice
2. To provide information to those who are
(3) assist all parties to understand and
not interested with the work of FRSC.
interpret the standards
Authoritative Status of the Conceptual
- provides foundation for the standards that
Framework
contribute to transparency, strengthen
• The Conceptual Framework is not a accountability, and economic efficiency to
Philippine Financial Reporting financial markets around the world.
Standard (PFRS) and hence does not
- previously, the Conceptual Framework only
define standard for any particular
has four chapters; but in the recent March
measurement or disclosure issue.
2018 version, it already comprises of eight
Thus, nothing in the Conceptual
chapters.
Framework overrides any specific
Philippine Financial Reporting Chapter 1: The Objective of Financial
Standard. Reporting
- to provide financial information that is Chapter 2: Qualitative Characteristics of
useful to existing and potential investors, Useful Information
lenders, and other creditors (primary users)
- inherent or presented characteristics in the
in making decisions relating to providing
financial statements.
resources to the entity.
A. Fundamental Qualitative Characteristics:
- economic resources and claims (claims by
the creditors or the owners of the entity) a. Relevance – the capacity of information
to make a difference in a decision made by
- economic resources (assets), economic
users. (overriding criterion on determining
claims of the creditors (liabilities), claims of
whether the information will be presented or
the owners (equity)
not in the financial statement)
- financial statements are: (1) snapshots of
- (predictive value) the information can
the entity’s financial position as of a certain
help users increase the likelihood of
period (SFP); (2) changes in the resources
correctly predicting or forecasting
and claims for a particular reporting period
outcome of events.
(SCI, SCE, SCF)
- (confirmatory/feedback value) the
- information about economic resources and
information enables users confirm or
claims and changes thereon:
correct earlier expectations.
• identify the reporting entity’s
- predictive and confirmatory values
strengths and weaknesses
(feedback value) are interrelated, meaning,
• assess the reporting entity’s liquidity
often, information has both values.
and solvency (SFP)
• assess management’s stewardship - past information may be used to predict.
of the entity’s resources (they are interrelated)
• predict how future cashflows will be
Materiality – it is the omission or
distributed among those with claims
misstatement of information causing to
• assess prospects for future net cash
influence the decision of the users.
inflows
• predict how efficiently and - materiality is not an ingredient of relevance
effectively management will use but rather a specific aspect of relevance; all
entity resources in the future material items are relevant but not all
• understand the return that the entity relevant items are material.
has produced on its economic
- in the exercise of judgement in determining
resources
materiality, the following factors may be
• give users a clear understanding of
considered:
why the economic resources and
claims changed and the implications a. relative size of the item in relation to
of such changes the total of the group to which the
item belongs
 b. nature of the item - a single entity but different periods (intra);
different entities in a single period (inter)
- materiality: does not specificy a uniform
quantitative threshold for materiality (entity- - inter-comparability (harder to achieve;
specific criteria) accounting policies may not be applicable
for all entities)
b. Faithful Representation – the information
provides a true, correct, and complete - the consistency principle states that once
depiction of the economic phenomena that a business chooses one accounting
it purports to represent. method, this method should be used
consistently going forward.
- (completeness) all information
necessary is provided, whether in words - comparability is the goal while
or numbers. (any information that cannot consistency is the means of achieving the
be conveniently presented in the face of goal.
the financial statements may be
- being consistent does not mean not
presented in the notes)
applying changes in the accounting
- (neutrality) financial statements should policies when deemed necessary.
not be prepared so as to favor one party
c. Timeliness – having information available
to detriment the other; “without bias”
to decision makers in time to influence their
- (free from error) there are no errors or decisions.
omissions in the description of the
- timeliness is connected to relevance.
phenomenon.
(relevant information may lose its relevance
- use of estimates is not prohibited and does if there is undue delay in its reporting)
not undermine the quality of the information
d. Understandability – requires that
provided the usage of the best method of
financial information must be
estimating and presented in the notes.
comprehensible or intelligible if it is to be
(going concern assumption)
useful but complex matters cannot be
B. Enhancing Qualitative Characteristics: eliminated.

a. Verifiability – different knowledgeable - two aspects: quality of the user and

and independent observers could reach quality of the information.
consensus, although not necessarily
Cost Constraint – the benefits of reporting
complete agreement, that a particular
an information should justify the costs
depiction is faithfully represented.
incurred to provide and use that information.
b. Comparability – the very essence of IAS
Chapter 3: Financial Statements and the
1, comparable presentation of financial
Reporting Entity
statements; it helps users identify
similarities and differences between
different sets of information.
- (reporting period) for a specified period of - if it is not probable, then it is a contingent
time and with comparative information for asset which is not qualified to be presented
at least one preceding period. until it becomes virtually certain.

- information presented is from the - changes in the financial statement

perspective of the reporting entity as a elements pertains to the SCE, SCI, and SCF.
whole, not from a particular group.
b. Liability – a present obligation of an entity
- going concern is the default assumption; arising from past transaction or event, the
unless circumstances state otherwise. settlement of which is expected to result in
(presented in one of the first notes of the FS) an outflow from the entity of resources
embodying economic benefits.
The Reporting Entity
− present obligation
− one that is required or chooses to
− arising from past transaction/event
prepare financial statements.
− settlement requires an outflow of
− can be a single entity, a portion of an
resources
entity, or more than one entity.
− not necessarily a legal entity. - (liability) identification of payee and
− consolidated FS for parent and certainty of timing of settlement and
subsidiaries. (consolidated) amount of liability are not essential
− combined FS for at least 2 entities characteristics of liabilities.
not linked by parent-subsidiary
- legal obligations (contracts, legislations, or
relationship. (combined)
similar means); constructive obligations
Chapter 4: Elements of Financial (customary practices, etc.)
Statements
c. Equity – residual interest in the assets of
a. Asset – a present economic resource the entity after deducting all of its liabilities.
controlled by the entity as a result of a part
- claims against the entity that do not
event. An economic resource is a right
meet the definition of a liability.
(present potential to produce economic
benefits) that has the potential to produce - components of equity are affected by
economic benefits. legal, regulatory, and other requirements.

− controlled by the entity (present - only one capital account (sole

ability to direct the use of the proprietorship); partner’s capital depending
economic resource) on the number of partners (partnership);
− result of a past transaction or event equity is subgrouped into account names
− provides future economic benefits based on source (corporation).
− cost can be measured reliably
d. Income – increase in economic benefit
- (asset) tangibility and ownership are not during the accounting period in the form of
essential characteristics of assets. an inflow or increase of asset or decrease of
liability that results in increase in equity,
other than contribution from equity • unrealized gain or loss on financial
participants. asset measured at fair value through
other comprehensive income
e. Expense – decrease in economic benefit
• gain or loss from translating
during the accounting period in the form of
financial statements of a foreign
outflow or decrease in asset and increase in
operation
liability that results in decrease in equity,
• revaluation surplus during the year
other than distribution to equity
• unrealized gain or loss from
participants.
derivative contracts designated as
Changes in Economic Resource and Claims cash flow hedge
• remeasurements of defined benefit
- from income and expenses (fair value
plan including actuarial gain or loss
changes in Other Comprehensive Income)
on defined benefit obligation
- other changes: (not included in Total
Chapter 5: Recognition and Derecognition
Comprehensive Income)
Recognition – the process of capturing for
− contributions from and distributions to
the inclusion in the statement of financial
holders of equity claims
position or the statement(s) of financial
− exchanges of assets or liabilities that
performance an item that meets the
do not result in change in equity
definition of one of the FS elements.
- contributions from equity participants,
- recognition starts as early as journalizing
distributions from equity participants (FASB
entries.
other elements of FS)
Derecognition – the opposite of recognition;
- gains (contributions from holders) and
it is the removal of a previously recognized
losses (distributions to holders) on sale of
asset or liability from the entity’s balance
treasury stocks are not items of income and
sheet.
expenses.
- (asset) this occurs when control is lost.
Revenue/Expenses – (1) arises from the
ordinary course of business and (2) - (liability) this occurs when the entity no
presented at gross amount. longer has a present obligation for all or
part of the recognized liability.
Gains/Losses – (1) arises from the
incidental or peripheral operations and (2) - on derecognition, the entity:
presented at net amount (net of direct cost)
• derecognizes the assets or
- (general rule) an income is part of profit or liabilities that have expired or have
loss unless it will be classified as OCI which been consumed, collected, fulfilled,
are as follows: or transferred and recognized any
resulting income and expenses
 • continues to recognize any assets b. Current Value – it measures the element
or liabilities retained after the updated reflect the conditions at the
derecognition. measurement date.

- derecognition is not appropriate if the b.1. Fair Value – price that would be
entity retains substantial control of a received to sell an asset or paid to transfer
transferred asset. a liability in an orderly transaction between
market participants.
- recognition criteria:
b.2. Value in Use – present value of cash
1. meets the definition of FS element
flows or other economic benefits, that an
2. provides information that is relevant
entity expects to derive from the use of an
and faithfully represented
asset and from its ultimate disposal. (used
3. the benefits justify the costs
when testing for impairment)
4. measurable
b.3. Fulfillment Value – the present value
- derecognition (asset and liability) since
of the cash or other economic resources
items of income and expense are closed
that an entity expects to be obliged to
every year-end.
transfer as it fulfills a liability.
Chapter 6: Measurement
- value in use and fulfillment value do not
a. Historical Cost – this measurement is include transaction costs in acquiring an
based on the transaction price at the time of asset or incurring the liability but include
recognition of the element. those expected to be incurred on the
ultimate disposal of the asset or fulfillment
- (asset) consideration paid to acquire the
of the liability.
asset plus transaction costs.
b.4. Current Cost – (asset) comprising the
- (liability) consideration received to incur
consideration that would be paid at the
the liability minus transaction costs.
measurement date plus transaction costs
- updated at the measurement date (BSD) incurred.
to depict:
- (liability) consideration that would be
1. consumption (e.g., depreciation) received for an equivalent liability at
2. payments (e.g., amortized cost, in measurement date minus transaction
case of financial assets and costs that would be incurred.
liabilities)
- fair value, value in use, and fulfillment value
3. impairment
(exit values); current cost and historical cost
4. accrual of interest
(entry values)
5. fulfillment of part of all
6. effect of events that change its - amortized cost (financial instruments)
value (e.g., for liabilities, contract
- considerations for choosing measurement
becomes onerous)
basis:
 • relevance of information
• nature of the FS element
• how the asset or liability contributes
to the future cash flows
• generally, measurement at initial
recognition affects subsequent
measurement.

Chapter 7: Presentation and Disclosure

- focus on principles rather than on rules.

- groups similar items and separates

dissimilar items.

- aggregates certain information to avoid

unnecessary details. (not obscured either by
excessive detail or by excessive
summarization)

Chapter 8: Concepts of Capital

Financial Concept of Capital – does not

require the adoption of specific
measurement basis; used when
stakeholders are concerned with
maintenance of nominal and purchasing
power of invested capital.

Physical Concept of Capital – requires the

adoption of current cost as measurement
basis; used when stakeholders are primarily
concerned with the operating capability of
the enterprise.

- currently, we use the financial concept of

capital (no specific measurement basis)

- physical concept of capital (used by

economies; current cost as measurement
basis)