CONCEPTUAL FRAMEWORKS AND ACCOUNTING Recording - systematically committing

STANDARDS into writing journal entries.

2. Explain the basic concepts applied in
Chapter 1: Overview of Accounting accounting.
Accounting concepts -principles upon w/c the
LEARNING OBJECTIVES: process of accounting is based.
Accounting assumptions - fundamental concepts and
1. Define Accounting and state its basic basic notions that provide the foundation of the
purpose accounting process.
a. Accounting is the process of Accounting Theory - logical reasoning in a form of a
identifying, measuring and set of broad principles that provide a general frame of
communicating economic information reference and guide the development of new
to permit informed judgments and practices.
decisions by users of the information. a. Double entry system - each
(AAA) accountable event is recorded in both
b. The basic purpose of accounting is to debit and credit
provide information that is useful in b. Going concern assumption - the entity
making economic decisions. is assumed to carry on operation for
c. Accountable events - one that affects an indefinite time.
the assets, liabilities, equity, income c. Separate entity - the entity is viewed
and expenses of an entity. separately from its owners.
d. Stable monetary unit - accounts are
Identifying - analyzing events and transactions if stated in terms of a common unit (Ph
recognizable or not. Peso) and purchasing power is
Recognition - process of including the regarded as stable (Acctg info should
effects of an accountable event in the be stated in common denominator/
statement of FP or the income statement foreign currency should be translated
through journal entries. into peso)
e. Time period - life of an entity is
Types of External Events: divided into periods. (Calendar - Jan to
a. Exchange (reciprocal transfer) - giving and Dec / Fiscal - 12 months)
receiving economic resources. (ex. Sale, f. Materiality concepts - info is material
purchase, payment…) if its omission or misstatement could
b. Non-reciprocal Transfer - one way influence economic decision
transaction (payment of taxes, donations, g. Cost-benefit - cost of processing and
gifts…) communicating info should not
c. External event other than transfer - involves exceed the benefits to be derived from
changes in the econ resources it.
h. Accrual basis of accounting - effects
Types of Internal Events: of transactions and other events are
a. Production - resources to finished goods recognized when they occur and not
b. Casualty - unanticipated loss when cash is received or paid.
i. Historical cost concept - value of an
Measuring - assigning numbers, normally in asset is determined on the basis of
monetary terms. acquisition cost.
j. Concept of Articulation - all
Communicating - transforming economic data into components of a complete set of FS
useful accounting information. are interrelated.
k. Full disclosure principle - recognizes the same period the related revenue is
that the nature and amount of info recognized.
should be included in the FS reflect a u. Systematic and rational allocation -
series of judgment tradeoffs. costs that are not directly related to
l. Consistency concept - FS are the earning of revenue are initially
prepared on the basis of accounting recognized as expenses over the
principles that are applied consistently periods their economic benefits are
from one period to the next. consumed, using some method of
m. Matching principle - costs are allocation.
recognized as expenses when the v. Immediate recognition - costs that do
related revenue is recognized. not meet the definition of asset, or
n. Entity theory - accounting objective is cease to meet the definition of an
geared towards the proper income asset, are expensed immediately.
determination. Emphasizes the (Casualty losses and impairment
income statement and exemplified by losses)
“Assets = Liabilities + Capital” 3. State the branches of Accounting and the
o. Proprietary theory - geared towards Sectors in the practice of Accountancy
the proper valuation of assets. Branches of Accounting :
Exemplified by “Assets - Liabilities = a. Financial Accounting - branch of acctg
Capital” that focuses on general purpose FS.
p. Residual Equity Theory - applicable ■ General purpose financial
when there are 2 classes of shared statements - used to cater
issue. “Assets - Liabilities - Preferred common needs of external
Shareholders’ Equity = Ordinary users (potential and existing
Shareholders’ Equity”. This is applied investors, and lenders and
in the computation of book value per creditors)
share and return on equity. ■ Financial accounting -
q. Fund Theory - accounting objective is governed by the PFRS
directed towards cash flows, (Philippine Financial Reporting
exemplified by formula “cash inflows - Standards)
cash outflows = funds”. This is used in ■ Financial statements -
fiduciary and government accounting. structured representations of
r. Realization - process of converting an entity’s financial position
non-cash assets into cash or claims and results of operations. (end-
for cash. It is also the concept which product of accounting
deals with revenue recognition. process)
s. Prudence - use of caution when ■ Financial report - include FS
making estimates under conditions of plus other information
uncertainty, such that assets or provided outside the FS that
income are not overstated and contributes to the
liabilities and expenses are not interpretation of the FS.
understated. One which has the least ■ Primary Objective of financial
effect on equity is chosen. reporting - to provide info
Expense recognition principles: about an entity’s economic
t. Matching concept - costs that are resources, claims to those
directly related to the earning of resources, and changes in
revenue are recognized as expenses in those resources.
 ■ Secondary Objective of k. Accounting systems - installation of
financial reporting - to provide accounting procedures for the
information useful in accumulation of financial data and
assessing the entity’s designing of accounting forms to be
management stewardship. used in data gathering
b. Management accounting - refers to l. Accounting research - pertains to the
accumulation and communication of careful analysis of economic events
info for use by internal users or and other variables.
management advisory services w/c Bookkeeping and accounting
includes services to clients. - Bookkeeping refers to the process of
c. Cost accounting - the systematic recording the accounts of an entity. It
recording and analysis of the cost of normally ends in trial balance. Unlike
materials, labor and overhead incident accounting, bookkeeping doesn’t require the
production. interpretation of the significance of the
d. Auditing - the process of evaluating processed information.
the correspondence of certain Accountancy
assertions with established criteria - Refers to the profession / practice of
and expressing an opinion thereon. accounting.
e. Tax accounting - preparation of tax - Public practice accounting - doesn’t involve
returns and rendering of tax advice, employee-employer relationship
such as the determination of the - Private practice accounting - the accountant
consequences of certain proposed is an employee of the entity.
business endeavors. 4. Four Sectors in the practice of accountancy
f. Government accounting - accounting Under RA 9298 aka Philippine Accountancy
for the government and its Act of 2004, the practice of accountancy is
instrumentalities, placing emphasis on classified into the following:
the custody of public funds, the a. Practice of Public Accountancy -
purposes for which those funds are involves rendering of audit or
committed, and the responsibility and accounting related services to more
accountability of the individuals than one client on a fee basis.
entrusted with those funds. b. Practice in Commerce and Industry -
g. Fiduciary accounting - the handling of refers to the employment in the private
accounts managed by a person sector in a position which involves
entrusted with the custody and decision making requiring
management of a property for the professional knowledge in the science
benefit of another. of accounting.
h. Estate accounting - handling of c. Practice in Education/Academe -
accounts of fiduciaries who wind up employment in an educational
the affairs of a deceased person. institution w/c involves teaching of
i. Social accounting - social and accounting, auditing, management
environmental accounting or social advisory services, finance, business
responsibility reporting. The process law, taxation, and other technically
of communicating the social and related subjects.
environmental effects of an entity’s d. Practice in the Government -
economic actions to the society employment / appointment to a
j. Institutional accounting - the position in an accounting professional
accounting for non-profit entities other group in the government or in a
than the government.
 government-owned and/or controlled ● Cooperative Development Authority
corporation.
Philippine Financial Reporting Standards (PFRS) ❖ International Accounting Standards Board
- Standards adopted by the Financial and ❖ International Financial Reporting
Sustainability Reporting Standards Council Interpretations Committee
(the official standard-setting body in the ❖ IFRS Advisory Council (Standards Advisory
Philippines) from the International Financial Council)
Reporting Standards (IFRS) which consists ❖ International Federation of Accountants
the following: (IFAC)
a. IFRS Accounting Standards (IASB) ❖ International Organization of Securities
i. International Financial Reporting Commissions (IOSCO)
Standards
ii. International Accounting Standards
iii. Interpretations
b. IFRS for SMEs Accounting Standards (IASB)
c. IFRS Sustainability Disclosure Standards
(ISSB) Chapter 2: Conceptual Framework for Financial
- PFRS consist of the following: Reporting
a. Philippine Financial Reporting Standards
b. Philippine Accounting Standards Purpose of Conceptual Framework
c. Interpretations a. Assist the Int’l Acctg Standards Board in
5. Importance of uniform set of financial reporting developing Standards that are based on
standards consistent concepts
● Otherwise, each entity would have to develop b. Assist in developing consistent acctg policies
its own standards when no Standard applies to particular trans
● Every entity may just present any asset or or when a Standard allows a choice of acctg
income it wants and omit any liability or policy
expense it doesn’t want. c. assist all parties in understanding and
● The risk of fraudulent reporting is heightened interpreting the Standards
and economic decisions based on these FS
would be grossly incorrect. Scope of the Conceptual Framework
● Generally acceptable - standard has been
established by an authoritative acctg rule- 1. The objective of financial reporting
making body. Principle has gained general 2. Qualitative characteristics of useful financial
acceptance due to practice overtime and has information
proven to be most useful. 3. Financial statements and the reporting entity
4. The elements of financial statements
Accounting standard setting bodies and other 5. Recognition and derecognition
relevant organizations 6. Measurement
7. Presentation and disclosure
● Financial and Sustainability Reporting 8. Concepts of capital and capital maintenance
Standards Council - the official accounting
standard setting body Objective of Financial Reporting
● Philippines Interpretations Committee ● Provide financial information about the
● Board of Accountancy reporting entity that is useful to existing and
● Securities and Exchange Committee potential investors…
● Bureau of Internal Revenue ● Primary users:
● Bangko Sentral ng Pilipinas ○ Existing and potential investors
 ○ Lenders and other creditors ii. Indirect verification - checking
the inputs to a model
Information on Economic Resources, Claims and c. Timeliness - available to users in time
Changes d. Understandability - presented in clear
and concise manner
a. Financial Position - info on econ resources
and claims against the reporting entity The four-step Materiality Process
b. Changes in economic resources and claims - 1. Identify info that has potential to be material
info on financial perf and other trans and 2. Assess if the info identified is material
events that lead to changes in FP 3. Organize info w/in the draft FS in a way that
“The decisions of primary users are based on communicates info clearly and concisely
assessments of an entity’s prospects for future net 4. Review draft FS to determine if all material
cash inflows and management stewardship. To make info has been identified
these assessment, users need info on the entity’s FP,
FPerf, and other changes in FP, and utilization of Cost - pervasive constraint on the entity’s ability to
econ resources” provide useful information FS

Fundamental Qualitative Characteristics of Parent - controlling entity

Conceptual Framework Subsidiary - controlled entity
● Make the info useful to users Consolidated FS - Parent and subsidiary
a. Relevance (Materiality) - it can make a Unconsolidated FS - parent alone
difference in decisions of users Individual FS - subsidiary alone
● Predictive Value - make Combined FS - two subsidiary entities
prediction of future outcomes
● Confirmatory Value (feedback Elements of FS:
value) - confirming previous 1. Assets (Financial Position)
predictions a. Present econ resource controlled by
- Predictive and confirmatory values are entity as a result of past events. An
interrelated. Info that has predictive value is econ is a right that has the potential to
likely to have confirmatory value. produce econ benefit
b. Faithful representation - infos are b. Essential elements:
true, correct and complete depiction i. Right
● Completeness - all info is ii. Potential to produce econ
provided benefit
● Neutrality - info is selected and iii. control
presented without bias 2. Liabilities (Financial Position)
● Free from error - no errors in a. Present obligation of entity to
the description transform an econ resource as a result
of past events
Enhancing Qualitative Characteristics of Conceptual b. Essential elements:
Framework i. Obligation
● Enhance the usefulness of info to users ii. Transfer of an economic
a. Comparability - help users identify resource
similarities and differences iii. Present obligation as a result
b. Verifiability - users could reach general of past events
agreement as to what info purports 3. Equity (Financial Position)
i. Direct verification - direct a. Residual interest in assets after
observation deducting liabilities
 4. Income (Financial Performance) i. Value in use - the present value
a. Increase in assets or decrease in of cash flows, or other econ
liabilities resources, that an entity
5. Expenses (Financial Performance) expects to derive from the use
a. Decreases in assets or increases in of an asset and from its
liabilities ultimate disposal
ii. Fulfillment value - present
Recognition - process of including the statements of value of cah, or other
FP an item that meets the definition of one of the economic resources, that an
financial statement elements entity expects to be obliged to
transfer as its fulfills a liability
Requisites of Recognition: iii. ENTITY SPECIFIC
● If it meets the definition of an asset, liabilities, ASSUMPTIONS
equity, income and expenses iv. EXIT VALUES
● Recognizing it would provide useful info c. Current Cost
i. Asset - cost of an equivalent
Derecognition - process of removing previously asset at the measurement
recognized transactions in an FS . Asset is date,, comprising the
derecognized if it has expired or has been consumed, consideration that would be
collected, or transferred. paid at the measurement date
plus the transaction costs that
The Conceptual framework is not a STANDARD, would be incurred at that date.
hence it does not provide requirements for specific ii. Liability - the consideration that
transactions or other events - these are addressed would be received for an
by the standards. The CF main purpose is to provide equivalent liability at the
the foundation for the development of globally measurement date minus the
acceptable Standards. transaction costs that would
be incurred at that date.
Measurement bases iii. ENTRY VALUES
1. Historical Cost
a. Asset - consideration paid to acquire Concepts of Capital and Capital Maintenance
the asset plus transaction cost a. Financial concept of capital
b. Liability - consideration received to b. Physical concept of capital
incur liabilities minus transaction cost c. Financial capital maintenance
c. ENTRY VALUES d. Physical capital maintenance
2. Current Value - reflect changes in value at the
measurement date. Not derived from the
price of the transaction.
a. Fair Value - the price that would be
received to sell an asset, or paid to
transfer a liability, in an orderly
transaction between market
participants at the measurement date.
i. ASSUMPTIONS BY MARKET
PARTICIPANTS
ii. EXIT VALUES
b. Value in use and fulfillment value
Chapter 3: PAS 1 Presentation of Financial b. Indirect method
Statements 2. Investing activities
3. Financing activities
Types of Comparability
1. Intra-comparability (horizontal) Chapter 6: PAS 8 Accounting Policies, Changes in
2. Inter-comparability (dimensional) Accounting Estimates and Errors

Complete set of Financial Statements Types of errors according to period

1. Statement of financial position a. Current period errors
2. Statement of profit or loss and other b. Prior period errors
comprehensive income
3. Statement of changes in equity Chapter 6: PAS 10 Events after the reporting period
4. Statement of cash flows
5. Notes to FS Two types of events after reporting period
6. Additional statement of financial position 1. Adjusting events after the reporting period
2. Non-adjusting events after the reporting
General features of financial statements period
1. Fair presentation and compliance with PFRS
2. Going concern Chapter 7: PAS 12 Income Taxes
3. Accrual basis of acctg
4. Materiality and aggregation Temporary differences
5. Offsetting a. Taxable temporary differences
6. Frequency of reporting i. financial income > taxable income
7. Comparative information ii. carrying amount of income > tax base
8. Consistency of Presentation iii. carrying amount of liab < tax base
b. Deductible temporary differences
Presentation of Expenses i. financial income < taxable income
a. Nature of expense method ii. carrying amount of an asset < tax
b. Function of expense method base
iii. carrying amount of liability > tax base
Chapter 4 : PAS 2 Inventories

Cost
a. Purchase cost
b. Conversion cost
c. Other costs

Cost Formulas
1. Specific identification
2. First In, First Out
3. Weighted Average

Chapter 5: PAS 7 Statement of Cash flows

Classification of Cash Flows

1. Operating activities
Presentation of cash flows
a. Direct method
 ● RA NO 3105 - Accountancy act of 1923
● RA NO 5166 - Accountancy act of 1967
● PD NO 692 - Revised Accountancy law of
1975
● RA NO 9282 - Philippine Accountancy Act of
2004
● Currently under revision ang PAA of 2004

Accounting Standards (PFRS)

● PURPOSES:
○ To identify the proper acctg practices
for prep and presentation of FS
○ Create common understanding
between preparers and users
(investors, lenders, creditors,
employees, management)
○ To ensure comparability and
uniformity
● “The work of the accountant ends when the
work of auditor begins”
● Accounting provides quantitative information
primarily financial in nature that is used for
economic decision making.

Financial Reporting Standards Council - 2006 (Acctg

Standards Council - 1981)
● Established by the Boards of Accountancy
nung 2006
○ Regulating body of the PH Board Exam
○ Has Chairman and 6 members
○ 7 PEOPLE IN BOA
○ Chairman Noe Quiñanola
○ Under of Philippine Regulatory
Commission (PRC)
○ Requisites:
■ CPA w/ 10 yrs of experience in
any field of Accounting
■ Recommended by PICPA to
PRC
■ Approved by the President of
the Philippines
○ Chairman of BOA is only valid for 3
Sir KM Discussion Notes: years but can renew for another 3
years and then stop. Then you can be
CHAPTER 1 - Overview of Accounting a chairman again after 3 years. (43:01)
● Helping BOA for the accounting standards in
Paano nag-start ang accounting sa Ph? the PH
Philippine Accounting History: ● Main Function:
 ○ To establish generally accepted ■ 6 - Public Practice
accounting principles in the PH ■ 1 - Commerce and Industry
○ PAS & PFRS (former GAAP) ■ 1 - Academe and Education
● The successor of ASC w/c was created in ■ 1 - Government
NOVEMBER 1981 ● BIR IS THE ONLY DIFFERENCE IN MEMBERS
● Established by PICPA (Ph Institute of CPA) OF FRSC and AASC
● Issues new releases standard and ● BOA RESOLUTION NO. 22 SERIES OF 2020
interpretation ○ Naging 9 yung Public practice and
● FRSC issues standards in series of nawala yung Government member
pronouncements called (PFRS) ○ Nadagdagan ng isang Insurance
○ PFRS (corresponds to Int’l FRS) Commission member
○ PAS (corresponds to Int’l AS)
○ Ph Interpretations (corresponds to
Interpretations of the IFR Philippine Interpretations Committee (PIC)
Interpretations Committee) ● Formed by FRSC in August 2006
● Our standards are adopted from international ● To issue implementation guidelines on PFRS
standards ● Interpretations Council was created in May
● We are globally competitive as accountants 2000
● FRSC Members ● 15 Members:
○ Chairman (Mr. Wilson P. Tan) ○ 9 - accounting firms
■ Senior Accounting Practitioner ○ 1 - Financial Executives in the Ph
any scope ○ 1 - Academe
○ 1 - BOA ○ 1 - BOA
○ 1 - Sec & Exchange Commission ○ 1 - SEC
○ 1 - BSP ○ 1 - BSP
○ 1 - BIR ○ 1 - Insurance Commission
○ 1 - COA
○ 1- Financial Executives Institute of PH
○ Accredited National Professional Orgs
(PICPA)
■ 2 - Public practice
■ 2 - Commerce and Industry
■ 2 - Academe and Education
■ 2 - Government
● Have a term of 3 years, renewable for another
term
● Auditing Assurance and Standard Council
(former ASPC) according to IRR of RA 9298
○ Chairman
■ Senior Practitioner in Public
Practice
○ 1 - BOA
○ 1 - SEC
○ 1 - BSP
○ 1 - COA
○ 1 - Assoc / Org of CPA in Public Prac
○ Accredited National Professional Orgs
(PICPA)