Conceptual Framework Summary

PART I
Topic Outline:
1. Basic Concepts
2. Purpose of Conceptual Framework
3. Authoritative Status
4. Underlying Assumption
Scope of Conceptual Framework

Chapter 1: Objective of Financial Reporting
Chapter 2: Qualitative characteristics of Useful Information
Chapter 3: The Financial Statements and the Reporting Entity
Chapter 4: Elements of Financial Statements
Chapter 5: Recognition and Derecognition
Chapter 6: Measurement
Chapter 7: Presentation and Disclosure
Chapter 8: Concepts of Capital and Capital Maintenance
Basic Concepts
1. The conceptual framework is a summary of the terms and concepts that underlie the
preparation and presentation of financial statements.
2. The conceptual framework is concerned with general purpose financial statements, including
consolidated financial statements. (Just like PFRS)
Note: All PFRS approved are patterned with conceptual framework (including future PFRS)
The underlying theme of the framework is decision usefulness or usefulness of information in

making economic decision
Purpose
1. To serve as a guide in developing future PFRS and as a guide in resolving accounting issues not
directly addressed by existing PFRS.
Hierarchy: If no standard, back up ang conceptual

a. Specific standard (PFRS) (e.g. cash has no specific standard unlike inventory)
b. Related standard (e.g. cash has a related standard under PFRS 9 financial instruments)
c. Conceptual framework
d. Other GAAP
e. Accounting literature
Specific Purpose
1. To assist:
a. FRSC
1. In developing future PFRS and reviewing existing PFRSs.
2. In promoting harmonization of regulations, accounting standards and procedures
relating to presentation of FS
b. FS preparers
1. In applying PFRSs.
c. FS Users
1. In interpreting the information in the Financial Statements
d. Auditors
1. In forming opinion as to whether the FS conforms with PFRS.
Authoritative Status
The conceptual framework is not a PFRS and hence does not define standard for any particular
measurement or disclosure issue.
In case there is a conflict, the requirements of the PFRS shall prevail over the conceptual
framework.
PFRS consists of specific concepts in a line item in the financial statements. No provision of
conceptual framework shall prevail over PFRS.
In the absence of a standard or an interpretation that 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.
PART II
Underlying assumption – are the basic notion or fundamental premises on which accounting processed
is based.
1. Going concern – means that the accounting entity is viewed as continuing in operation
indefinitely in the absence of evidence to the contrary.
- Is the foundation of cost principle
Examples of application of going concern principle – assumption is that business will continue in
the future.
 The current and non-current classification of assets and liabilities.
 Accrual of income and expenses and prepayments and unearned income
 Depreciation of PPE, amortization of intangible assets and etc.
2. Accrual principle – it addresses the recognition of income and expenses against the cash basis
principle. Under this principle, income is recognized when earned rather than when received
and expenses is recognized when incurred rather than paid.
3. Accounting entity concept – the entity viewed separately from its owners. Accordingly, the
personal transactions of the owners among themselves or with other entities are not recorded
in the entity’s accounting records.
4. Time period principle – the life of the entity is divided into series of reporting periods. An
accounting period is usually 12 months and may either be a calendar or fiscal year.
5. Monetary unit principle – accounting information should be stated in a common measurement
basis to be useful, which is in the Philippines is peso.
PART III
Chapter 1: Objective of Financial Reporting
Users of Financial Reporting

1. Primary Users Concerns
a. Investors Risk and return of investments
b. Lenders and other creditors Liquidity and solvency
2. Other Users
a. Employees Stability and profitability
b. Customers Continuity (entity is supplier)
c. Government Regulatory (payment of taxes)
d. Public Various
Overall objective: to provide financial information about the reporting entity that is useful to
existing and potential investors, lenders, and other creditors in making decisions about
providing resources to the entity.
Specific objectives: (PAR)

1. To provide information useful in making decisions about providing resources to the entity
2. To provide information useful in assessing the prospects of future net cash flows to the
entity
3. To provide information about entity resources, claims and changes in resources and claims
Limitations of Financial Reporting

1. General purpose financial reports do not and cannot provide all of the information that
existing and potential investors, lenders and other creditors need.
2. General purpose financial reports are not designed to show the value of an entity but they
provide information to help the primary users estimate the value of the entity.
3. To a large extent, general purpose financial reports are based on estimate and judgment
rather than exact depiction

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PART I

Scope of Conceptual Framework

The underlying theme of the framework is decision usefulness or usefulness of information in

Hierarchy: If no standard, back up ang conceptual

Chapter 1: Objective of Financial Reporting

Users of Financial Reporting

Specific objectives: (PAR)

Limitations of Financial Reporting

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