Jaypaul Ocampo Acidera, CPA 2016

CONCEPTAUL FRAMEWORK — OLD version

, , (1989) CONCEPTUAL Fi MEWORK — NEW version polo)
(Alicia.] Titles (2) : Official Titles (2):
1,) "( onceptual Framework of:Accounting 1)"C'onceptual Frameworkfbr I; ul(incial, Reporting
,
2)‘ ".,Prft:91.1)re Lmration &Pres(ntation of FS" 2) "The 11,767.1f;16 Framework" ._
Scope (4): • \ Scopc.(5):
1) Objective of Financial Statements 1) Objectives of Financial Reporting
2) Qualitative Characteristics of Financial Statements •2) Qualitative Characteristics of FS .
.
3) Elements of Financial Statements . ' 3) l'ilcments of Financial Statements
4) Concepts of Capital and Capital Maintenance, 4) Concepts of Capital and(. apital Maintenance
5) The Reporting Entity (NOTE: details not yet available)
Qualitative Characteristics of Financial -Statements: Qualitative
, , -,. Characteristics 'of tiseful Financial Information:
-
1) Relevance (deals with (ONTENT) 1) Relevance (FUNDAMENTAL characteristic)
Timeliness l 1 ' Predictive value
I'eedba.ck value 1 - Conlirrnai.ory or feedback , value
' 1 Predictive value 2) Faithful Representation (Ft.INDAMENTAL)
2) Reliability (deals with (A)NTENI ), .1 Freedom/ from Error
si Faithful s repres e ntation V- Neutrality
),/ Substance over 'form V Completeness
I. Prudence 3). Comparability (I'NIIANCIN(i characteristic)
V'S Neutrality 4) Understandability
, (ENHANCING)
1 Completeness 5) Timeliness (I-NI-LANCING)
3) (oinparability (deals with PRESENTATI)N) 6) Verifiability (ENHANCING)
_ Understandability
4) , (deals with PRESENTATION)
thiderlying A.ssuniptions (2): tinderlying Asstunption: Going concern
.
1) Accrual basis, (NOTE: Accrual basis of accounting is Rientioned
2) Going concern * 'undeT
_ the section. _"objeCtive§
.._, of financial repOrting")
._ _
- -

5. The OBJECTIVE of financial reporting forms the foundation of the Conceptual Framework.
• 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: to provide information about entity resources, claims and changes in resources
and claims useful in making decisions about providing resources to the entity and in assessing the
,,„ -
prospects of future net cash flows to the entity. - . .
6. Financial.I5osition , refers to Information about the entity's economic resources and -claims against the
reporting entity (e.g., liquidity, solvency, need for financing) while changes in these economic resources
and claims result from the entity's Financial Perforn7ance 3 ,and from other t ransactions. .

1 Based on PAS 1, paragraph 7, the term 'PFIS' (Philippine l'inarleial Reporting Standards) shall be composed of, (a) P,l'RS
(b) Philippine Accounting Standards (PAS), and (c) Interpretations of PAS and.PFIS; PI'RS is presently the inain source
()f (3reric,rally Accepted Accounting Principles ((iAA1 )) in the Philippines. (seq page 10 for further details)
FRS( (Financial Rep)rtmg Standards Council), which replaces the AS(., (Accounting Standards (ouncil), is the
accounting standard-setting bt)clt in the Philippines; FRS( issues ‘PFRIS' while ASC in the past issued what used to be
called as ‘SFAS' (Statements of Financial Accounting Standards); SFAS was previously superseded by PAS, which _
eventually evolved into PFRS. (See page 10 .for further details)
3 1 .. Inder the Conceptual Fram4work, financial performance is reflected by (1) accrual accounting (2) past cash \flows;
ACCRIJAI, accounting depic t s the effects of transactions on a reporting ,entity's ec()norticc resources and claims in the
1 ••
periods in which those effects' occur. even if the resulting cash receipts and payments occur in a different period.

_
•
,
J. O. A.
 .• •

) • •

ReSA The Review School of Accountancy - • page 3

•
LECTURE NOTES in THEORY of ACCOUNTS (FAR/AFAR)

2. HEADINGS AND TITLES. An entity may use other title.s for th6 statements other than those used in
PFRS and Shall present with equal 'prominence all of the FS and distinguish them from other information
in the same published document. In addition, the following information shall be displayed prominently: -
A) The •name of reporting - entity ,
„ B) Whether the financial statements cover the individual entity or a group of entities - -
C) The date at the end of reporting Period or the period covered by the set of financial statements ,
- • Di The presentation currency (as defined in PAS 21)
E) The level of rounding (also known as 'truncation') used in presenting amounts in the FS
3., GENERAL FEATURES in presenting FS. •
4.• .FAIR PRESENTATION. Financial statements shall present fairly the financial ,position, financial
, performance and cash flows of an entity. The application of P'FR'S is presumed to result in FS, that -
S
achieve a fair presentation. FS that comply, with PFRS should include in the notes to rs
an explicit
, and unreserved statement
_ of such, compliance. 6
- • GOING CONCERN. An entity shalt prepare FS on a going concern basis unless management either
' to liquidate
intends the entity or to cease trading, or has no realistic alternative but to do so.
• ACCRUAL BASIS, OF ACCOUNTING. An entity shall prepare, its FS, except for cash flow inforMation,
, using the accrual basis of accounting. , ' - •
_• MATERIALITY and AGGREGATION. An entity shall present separately each material class of similar
items and shall present separately items of dissimilar nature or function unle s s they are immaterial.
, • 'OFFSETTING. An entity shall ' not offset assets and liabilities or income and expenses, unless
offsetting is required or permitted, by PFRS.
• COMPARATIVE INFORMATION. An entity shall disclose_ comparative cinformation' in respect of the
previous period for all amounts reported in. the current period's FS and shall include camparative
, information for narrative and descriptive information when it is relevant to an understanding the
S
current period FS. S- ,
FREQUENCY OF REPORTING. An entity shall- present 'a complete set of FS at least annually. When
. an entity presents 'FS' for a period longer or shorter than one year, an entity shall disclose:
' (A) the period covered by the FS ,
(B) the reasons for using a longer or shorter period, and - •
'(C) the fact that comparative amounts for FS are not entirely comparable.
• _ CONSISTENCY OF PRESENTATION.. An entity shall retain the presentation and classification of items
in_the FS from one period to the next unless: 1 ' ,
(A) it i apparent, following 0 change in the nature of the entity's operations or a review of its ,
FS, that -another presentation or classification Would be more appropriate; or
- (B) a specific PFRS , requires a change in presentation.
, 4. INCOME STATEMENT PRESENTATION. When items of incbme and expense are material, an entity shall
disclose their nature and amount separately. In addition, an entity shall present an analysis of
expenses using 'a classification based on either (1) nature of extiense method or (2) function of
expense' method, -whichever provides more reliable and,relevant information. S ,
5. EXTRAORDINARY ITEMS. An entity shall not present any Income or expense \as . extraordinary items, in .
the statement of comprehensive income, or separate income statement (if, presented), or in he notes -

. •
( financial statements.
to the , '
* _6. BALANCE SHEET (BS) PRESENTATION., An entity shall present current and non-current assets,' and
current and non-current liabilities, except when a presentation based on liquidity provides more reliable
and relevant information. When this exception applies, all assets and liabilities shall be presented
broadly in order of . liquidity. '
7.. CURRENT vs. NONCURRENT ASSETS. An entity shall classify an asset as current when,:
-A) The asset is a cash or cash equivalent (unless restricted for at least 12 months after BS date)
B) It holds the asset primarily for the purpose of trading -
'C) It expects to realize the asset Within 12 months after the reporting period (,BS date)
0) It expects Or intends to realize or consume it within the entity's normal operating cycle s
An entity shall classify all other ,assets as non-current.
8. CURRENT vs. NONCURRENT tIABILITiES. An • entity shall classify a liability
, as current when:
A) The liability is due to be settled within 12 months after the reporting period (BS date). .
- B) It holds the liability primarily for the purpose of trading
CI. It expects to settle the ,liability within the entity's normal operating cycle .
D) The entity does not have an unconditional right to defer settlement of the liability for at least
twelve months after the reporting period (BS date). S• ,
- An entity shall classify all other liabilities as non-current.
- • ,

5 Retrospective application of a change in accounting policy is covered by PiidiS 8, (See page 6 for more details)
.
lnapprop- riate accounting policies are not . -rectified Oher by dis c losure o, f the ,accounting policies used or by
explanatory notes. (PAS 1, par. 18)
7 An entity that uses the function of expense method . (a.k.a: 'cost of sales' method) shall disclose additional inforrirtion' J. O.on A.
amortiza t ion expense and employee benefits expense. (PAS" ,, par 104) .
" the nature of expenses, including depreciation and
The operating cycle of an entity is the time between the acquisition of assets for processing and their realization in cash or .
• 8 '

cash equivalents. When the entity's normal operating cycle is not clearly identifiable, its duration is assumed to be twelve ,
, q ,
months. (PAS 1, par. 68) S
- • , , 632
f

-
 ,

ResA, Thee Review School of Accountancy -

LECTURE NOTES in THEORY of ACCOUNTS.(FAR/AFAR)
_ 'Page 4. . •

. .
9 BALANCE SHEET LINEITEms,. As a minimum
requirement, the face of the statement of financial positiQn
shall. include line items that present the following amounts:
- A) Property, plant and equipment -
B) Investment property 9
f C) Intangible assets ,
D). Financial assets l° (excluding amounts' shown under E, H and I)
E) Investments accounted for using the equity method
,F) Biological assets (defined as 'living animals or plants" Under PAS 41)
_ G) Inventories - . •
H) Trade,arid other receival31,es S •
I) Cash-and cash equivalents
3) Total assets held for sale (includir)g assets of disposal groups held for sale under PFRS 5)
K) -Trade and other payables .• ,
L). Provisions (defined as 'liabilities of uncertain timing or amount" under PAS 37) '
- M) Financial liabilities il (excluding amounts shown under K and L)
N) Liabilities and assets for current tax . •• -
, •
0) Deferred tax liabilities and deferred tax assets, not to be presented a's current (PAS 1, par. 56)
P) Non-controlling (minority) interest, presented within eeluity 12
,Q) , Issued capital and reserves attributable to equity holders of the parent
10. FINANCIAL L I ABILITIES. An entity classifies its firiancial liabilities as current when they. are due to be ,
settled within
. , twelve \ months after the . Oalance sheet date even if . '
A) The original term was for a period longer than twelve months;.'and
B) , An agreement to refinance, or to reschedule payments, on a long-term basis is completed after
the reporting period (BS date) and befOre the FS are authorized for issue 13 , .
11. EFFECTS' OF BREACHES. When an entity breaches a provision of a long term loan , agreement on or
-

before the end of reporting period (1-zIS date) with the effect that the liabilit, - becomes payable on
demand, 'the liability is classified as current even if the lender' has agreed 'not to demand' payment as a
consequence of, the breach 14
• '
,
•
*12. STATEMENT OF CHANGES IN EQUITY (SC). An entity shall present a SCE showing: ,
- A) Total comprehensive income for the period, showing separately the total amounts attributedsto
owners of the parent and to non-controlling (minority) interest. ,
B) For each component of , equity, the effects of retrospective application/restatement under PAS 8.
C) The , amount of transactions with owners in their capacity as owners, showing separately •
contr-ibut:ions by and distnbtitions to owners. •
D) For each component of equity, a reconciliation of the between the carrying amount at the
'beginning and the end Of the period;, disclosing each change separately.
13. DIVIDENDS. An entity.shall present either in the saternent, of changes in equity or iri the notes, the
amount of dividends recbgnizecl as distributions to owners and the related amount per share.'
14.
- NOTES TO THE FS. The notes are normally presented in the following order, which assists . users in'
understanding the FS and comparing them FS of other entities: - I
A) A statement of compliance with PERS
B) A summary of 'significant accounting policies applied 15 , which shall include: , ,
0 , The measurement bases used in preparing FS
The other accounting policies used that are relevant to an understanding of the FS •
C) Supporting' informaion , for items shown on , the face of each FS I.in the order in Which each
statement and each line item is preserited., .
'0 D) Other disclosures, including:, , •
s Contingent liabilities and unreogriizecl contractual commitments
-> Non-financial disclosures (e.g. the entity's financial risk under PFRS 7)

_ . '
9 An investment property is a property (land
_ or building) held by the ovvner or by the lessee under a fina.nce lease to earn ,
rentals or for capital appreciation or both, rather ilian:fi)r use or sale. (PAS 4-0)
10 A financial asset is any asset that is cash,_ an equity instrument of another entity, a contractual right to receive cash or
• another financial asset from anotherentity. (PAS 32) ,
11 A financial 'liability is any liability that is a contractual obligation to . deliver cash or another financial asset to another
entity. (PAS 32) - 0'
12 Non-controlling interests (previously known as minority interest) shall be presented in the consolidated balance sheet ) •'
within equity, separately from the parent shareholders' equity. (PAS 27, par. 27) ,0
,.)13' If an entity expects, and has the di„ discretion to refinance or roll over an obligatiOn for at least twelve months after the
,

, balance date tinder an existing loan facility, it classifies the obligation as non-current, even if it would otherwise be
2 , •- ,
due within a shorter period. (PAS 1, par. 73)
14 the liability is classified as non-current if the ,lender agreed by the balance sheet - date to provide grace period ending/at \
least 12 months after the balance sheet date, within which the entity can rectify the breach and during which the lender
cannot demand immediate payment. (PAS 1 7 par. 75) 0•
that management has ,made in the process of applying the entity's
J. O. A.
15 An entity, is required to disclose the judgments
accounting policies and that have the most significant effect on the amounts recognized in the FS. (PAS 1, par. 122)
. In addition, the notes shall contain key assumptions concerning the future and other Iey sources of estimation that will
pose a significant risk of causing a material adjustnierit to the amount of assets and liabilities within- the next peric)'(1. In -
such a case, thenotes shall include nature, amount and other details ( .- )f such assets and liabilities. (PAS,1,,p -ar. 125)
, / f332 .
, k ,
,ts
, • ,

, • ,
,
• • —