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PGC Ingles 9 PDF

The Accounting Framework establishes the basic assumptions, principles, and concepts that provide the logical basis for recognizing and measuring items disclosed in annual accounts. It aims to ensure consistency and thoroughness when preparing standards for recognition and measurement and integrating them into accounting legislation. The Framework reinforces the objective of fair presentation of a company’s equity, financial position, and results through systematic application of accounting standards. It recognizes transactions based on their economic substance rather than just legal form. While still considering the principles in the 1990 General Accounting Plan as the backbone, the Framework makes two amendments to enhance theoretical consistency as a whole by including the purchase price principle in the measurement criteria section and putting prudence on equal footing with other principles.

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85 views

PGC Ingles 9 PDF

The Accounting Framework establishes the basic assumptions, principles, and concepts that provide the logical basis for recognizing and measuring items disclosed in annual accounts. It aims to ensure consistency and thoroughness when preparing standards for recognition and measurement and integrating them into accounting legislation. The Framework reinforces the objective of fair presentation of a company’s equity, financial position, and results through systematic application of accounting standards. It recognizes transactions based on their economic substance rather than just legal form. While still considering the principles in the 1990 General Accounting Plan as the backbone, the Framework makes two amendments to enhance theoretical consistency as a whole by including the purchase price principle in the measurement criteria section and putting prudence on equal footing with other principles.

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The Accounting Framework is a set of basic underlying assumptions, principles and

concepts that provide the basis for logical recognition and measurement, through
deductive reasoning, of the items disclosed in the annual accounts. The incorporation of
the Framework into the General Accounting Plan, and its consequent status as a legal
standard, is aimed at ensuring thoroughness and consistency in the subsequent process
of preparing recognition and measurement standards and interpretation and integration
in accounting legislation.

From part one of the new General Accounting Plan it is clear that the objective of
systematic and regular application of accounting standards continues to be fair
presentation of a company’s equity, financial position and results. To reinforce this
requirement, accounting and commercial law sets out the principles to serve as guidance
for the government in its regulatory developments and for reporting entities in their
application of the standards. The economic and legal substance of transactions is the
cornerstone for their accounting treatment. Transactions are therefore recognised based
on their nature and economic substance, and not just their legal form.

The Framework continues to attach relevance to the principles included in part one of
the 1990 General Accounting Plan, which are still considered the backbone of
accounting legislation. Nonetheless, the two amendments to this section seek to enhance
the theoretical consistency of the model as a whole.

In keeping with the Framework’s system of deductive reasoning, the principles of


recognition and matching of income and expenses are classed as criteria for recognising
items in the annual accounts, while the purchase price principle has been included in the
Framework section on measurement criteria, as assigning value is considered to be the
final step before accounting for any economic transaction or event.

The second change puts prudence on an equal footing with other principles. This in no
way suggests that the primacy of a company’s solvency with respect to its creditors is
abandoned in the model. On the contrary, risks should continue to be recognised in the
neutral, objective manner previously required by the 1990 General Accounting Plan for
analysing obligations. In the past it was generally the case that provisions should not be
made except where the company was exposed to genuine risks.

For the purposes of international harmonisation, Law 16/2007 of 4 July 2007 revised
and adapted commercial law to bring accounting standards into line with European
Union legislation, and article 38 of the Commercial Code was amended as a result.
Paragraph c) of this article stipulates that, in exceptional circumstances, where risks that
have a significant impact on fair presentation come to the company’s knowledge
between the date of preparation of the annual accounts and of their final approval, the
annual accounts should be redrafted.

The purpose of this legal regulation concerning events occurring subsequent to the
balance sheet date is not to require directors to redraft the annual accounts for just any
significant circumstances arising prior to their approval by the pertinent governing

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