Conceptual Framework- is a body of interrelated objectives and fundamentals

- Underlying concepts that helps achieve those objectives

- Identifies the goals and purpose

Financial accounting is the process that culminates in the preparation of financial reports
on the enterprise for use by both internal and external parties.

Financial statements are the principal means through which a company communicates
its financial information to those outside it.

The Financial Statements mostly provided are

- Statement of Financial Position
- Statement of Comprehensive Income
-Statement of Cash Flows
- Statement in Changes in Equity

Objective of Financial Reporting

- is to provide financial information about the reporting entity that is useful to present and
potential equity investors, lenders, and other creditors in making decisions about providing resources to
the entity.

BRANCHES OF ACCOUNTING

❖ Financial Accounting is focused on the recording of business transactions and the

periodic preparation of reports on financial position and results of operations. Financial
accountants accord importance to existing accounting standards.

❖ Management Accounting, as defined by Institute of Management Accountants (IMA) is

a profession that involves partnering in management decision making, devising planning
and performance management systems, and providing expertise in financial reporting and
control to assist management in the formulation and implementation of organization’s
Strategy

❖ Cost Accounting deals with the collection, allocation and control of the cost of producing
specific goods and services.

❖ Auditing is an independent examination that ensures the fairness and reliability of the
reports that management submits to users outside the business entity.

❖ Government Accounting is concerned with the identification of the sources and uses of
government funds.

❖ Tax Accounting includes preparation of tax returns and the consideration of tax
consequences of proposed business transactions.

❖ Accounting Education employs accountants either as researchers, professors or

reviewers. They guarantee the continued development of the profession.
IASB ( International Accounting Standards Board )
-the main International standard setting organization
- based in London, United Kingdom
- IASB issues International Financial Reporting Standards ( IFRS ) which are used by most foreign
exchange

The two organizations that have a role in international standard-setting are the
International Organization of Securities Commissions (IOSCO) and the IASB.

a. The IOSCO does not set accounting standards; it is dedicated to ensuring that the global
markets can operate in an efficient and effective basis.
b. The member agencies have agreed to:
1. Cooperate to promote high standards of regulation in order to maintain just,
efficient, and sound markets.
2. Exchange information on their respective experiences in order to promote the
development of domestic markets.
3. Unite their efforts to establish standards and an effective surveillance of
international securities transactions.
4. Provide mutual assistance to promote the integrity of the markets by a rigorous
application of the standards and by effective enforcement against offenses.

IOSCO recommends that its members allow multinational issuers to use IFRS in cross
folder offerings and listings, as supplemented by reconciliation, disclosure, and interpretation
where necessary, to address outstanding substantive issues at a national or regional level.
The international standard-setting structure is composed of the following four organizations:
a. The IFRS foundation
-22 trustees
- provides oversight to the IASB, IFRS Advisory Council, and IFRS Interpretations Committee
-It appoints members, reviews effectiveness, and helps in fundraising efforts for these
organizations.
b. The International Accounting Standards Board (IASB)
-consisting of 16 members
-develops in the public interest, a single set of high-quality, enforceable, and global international
financial reporting standards for general-purpose financial statements.
c. The IFRS Advisory Council
-30 or more members
- provides advice and council to the IASB on major policies and technical issues.
d. The IFRS Interpretations Committee
-22 members assists the IASB through the timely identification, discussion, and resolution of
financial reporting issues within the framework of IFRS

In addition, as part of the governance structure, a Monitoring Board was created. It

establishes a link between accounting standard-setters and those public authorities that
generally oversee them (e.g. IOSCO). It also provides political legitimacy to the overall
organization.
The IASB has a thorough, open and transparent due process in establishing financial
accounting standards. It consists of the following elements:
a. An independent standard-setting board overseen by geographically and professionally
diverse body of trustees.
b. A thorough and systematic process for developing standards.
c. Engagement with investors, regulators, business leaders, and the global accountancy
profession at every stage of the process.
d. Collaborative efforts with the worldwide standard-setting community
To implement its due process, the IASB follows specific steps to develop a typical IFRS.
a. Topics are identified and placed on the Board’s agenda.
b. Research and analysis are conducted, and preliminary views of pros and cons are
issued.
c. Public hearings are held on the proposed standard.
d. The Board evaluates research and public responses and issues an exposure draft.
e. The Board evaluates the responses and changes the exposure draft, if necessary. Then
the final standard is issued.

The following characteristics of the IASB are meant to reinforce the importance of an open,
transparent, and independent due process.
a. Membership: The Board consists of 16 well-paid members, from different countries,
serving 5-year renewable terms.
b. Autonomy: The IASB is not part of any professional organization. It is appointed by
and answerable only to the IFRS Foundation.
c. Independence: Full-time IASB members must sever all ties with their former employer.
Members are selected for their expertise in standard-setting rather than to represent a
given country.
e. Voting: Nine of 16 votes are needed to issue a new IFRS.

The IASB issues three major types of pronouncements:

a. International Financial Reporting Standards: To date the IASB has issued 13

standards. In addition, the previous international standard-setting body, the International
Accounting Standards Committee (IASC) issued 41 International Accounting Standards
(IAS). Those that have not been amended or superseded are considered under the
umbrella of IFRS.

b. Conceptual Framework for Financial Reporting: The IASB issued the Framework
for the Preparation and Presentation of Financial Statements (referred to as the
Framework) with the intent to create a conceptual framework that would serve as a tool
for solving existing and emerging problems in a consistent manner. However, the
Framework is not an IFRS and does not define standards for any measurement or
disclosure issue. Nothing in the Framework overrides any specific IFRS.

c. International Financial Reporting Interpretations: Interpretations are issued by the

IFRS Interpretations Committee and are considered authoritative and must be followed.
Twenty have been issued to date. These interpretations cover (1) newly identified
financial reporting issues not specifically dealt with in IFRS, and (2) issues where
unsatisfactory or conflicting interpretations have developed, or seem likely to develop,
in the absence of authoritative guidance.
The IASB has no regulatory mandate and no enforcement mechanism. It relies on other
regulators to enforce the use of its standards. For example, the European Union requires publicly
traded member country companies to use IFRS. Any company indicating that it prepares its
financial statements in conformity with IFRS must use all of the standards and interpretations. The
hierarchy of authoritative pronouncements is: IFRS, IAS, Interpretations issued by either the IFRS
Interpretation Committee or its predecessor the IAS Interpretations Committee, the Conceptual
Framework for Financial Reporting, and pronouncements of other standard-setting bodies that
use a similar conceptual framework to develop accounting standards (e.g., U.S. GAAP)
Financial Reporting Challenges
Although IFRS are developed by using sound research and a conceptual framework that
has its foundation in economic reality, a certain amount of pressure and influence is brought to
bear by groups interested in or affected by IFRS. The IASB does not exist in a vacuum, and
politics and special-interest pressure remain a part of the standard-setting process.
The expectations gap is the difference between what the public thinks accountants should
do and what accountants think they can do. It has been highlighted by the many accounting
scandals that have occurred. In order to meet the needs of society with highly transparent, clean,
and reliable systems, considerable costs will be incurred.
The significant financial reporting challenges facing the accounting profession are:
a. Non-financial measurements such as customer satisfaction indexes, backlog infor
mation, and reject rates on goods purchased.
b. Forward-looking information.
c. Soft assets (intangibles).
d. Timeliness.
In accounting, ethical dilemmas are encountered frequently. The whole process of ethical
sensitivity and selection among alternatives can be complicated by pressures that may take the
form of time pressure, job pressures, client pressures, personal pressures, and peer pressures.
And, there is no comprehensive ethical system to provide guidelines.
Convergence to a single set of high-quality global financial reporting standards is a real
possibility. For example, the IASB and the FASB (of the United States) have spent the last 12
years working to converge their standards.
In addition, U.S. and European regulators have agreed to recognize each other’s standards
for listing on the various world securities exchanges. As a result, costly reconciliation re
quirements have been eliminated and hopefully will lead to greater comparability and transparency.

Why the need for high-quality standards?

1. To facilitate efficient capital allocation
2. In order to ensure adequate comparability across borders, a single, widely accepted set
of high-quality accounting standards is a necessity.
3. Identify the elements involved:
a. A single set of high-quality accounting standards established by a single standard
setting body.
b. Consistency in application and interpretation.
c. Common disclosures.
d. Common high-quality auditing standards and practices.
e. Common approach to regulatory review and enforcement.
f. Education and training of market participants.
g. Common delivery systems.
h. Common approach to corporate governance and legal frameworks around the world.
Major standard-setters and regulatory authorities around the world recognize that capital
formation and investor understanding will be enhanced by a single set of high-quality accounting
standards.
ACCOUNTING STANDARDS IN THE PHILIPPINES
On November 18, 1981, the Philippine Institute of Certified Public Accountants (PICPA)
created the Accounting Standards Council (ASC) to establish and improve accounting standards
that will be generally accepted in the Philippines.
The creation of the Council received the support of the following:
the Securities and Exchange Commission (SEC) and the Central Bank of the Philippines (CB)-regulatory
agencies where the financial statements are filed; the Professional Regulation Commission (PRC) through
the Board of Accountancy—which supervises CPAs and auditors, and the Financial Executives
Institute of the Philippines (FINEX)—which is the largest organization of financial executives who
are responsible for the preparation of the financial statements. The ASC was composed of eight
(8) members-four from PICPA including the designated Chairman; and one each from SEC, CB,
PRC and FINEX.
The standards would generally be based on the following: existing practices in the
Philippines, research or studies by the Council; locally or internationally available literature on the
topic or subject; and statements, recommendations, studies or standards issued by other
standard-setting bodies such as the International Accounting Standards Board (IASB) and the
Financial Accounting Standards Board (FASB).
The statements and interpretations issued by the Council represented represent generally
accepted accounting principles in the Philippines. Accounting principles become generally
accepted if they have substantial authoritative support from the relevant parties interested in the
financial statements-the preparers and users, auditors and regulatory agencies.

Financial Reporting Standards Council

When created per Section 9(A) of the Rules and Regulations Implementing Republic Act
No. 9298 otherwise known as the Philippine Accountancy Act of 2004, the Financial Reporting
Standards Council (FRSC) shall be the new accounting standard setting body.
The FRSC shall be composed of fifteen (15) members with a Chairman, who had been or
presently a senior accounting practitioner in any of the scope of accounting practice and fourteen
(14) representatives from the following: one each from the BOA, SEC, BSP, BIR, COA and a
major organization composed of preparers and users of financial statements, and two
representatives each from the accredited national professional organization of CPAs in public
practice, commerce and industry, education/academe and government.
CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING

History of Conceptual framework

 April 1989
- Framework for the preparation and presentation of financial statements was approved by the
IASC Board

 July 1989
-Framework was published

 April 2001
- Framework was adopted by the IASB

 September 10
- Conceptual Framework for financial reporting 2010 approved by the IASB

 March 2018
- Conceptual Framework for financial reporting 2018 published

STATUS AND PURPOSE OF THE CONCEPTUAL FRAMEWORK

 The conceptual framework for Financial Reporting describes the objectives of, and the concepts for,
general purpose financial reporting

 The purpose of the Conceptual Framework is to:

- assists the International Accounting Standards Board ( Board ) to develop IFRS ( Standards ) that
are based on consistent concepts
- assist preparers to develop consistent accounting policies when no Standards applies to a
particular transaction or other event, or when a Standard allows a choice of accounting policy
-assists all parties to understand and interpret the standards

 The Conceptual Framework is not a Standard. Nothing in the Conceptual framework overrides any
Standard or any requirement in a Standard

 The Conceptual Framework provides the Foundation for Standards that:

- contribute to transparency by enhancing the International comparability and quality of financial
information, enabling investors and other market participants to make informed economic
decisions
- strengthen accountability by reducing the information gap between the providers of capital and
the people to whom they have entrusted their money.
- contribute to economic efficiency by helping investors to identify opportunities and risks across
the world, thus improving capital allocation
CHAPTER 1: THE OBJECTIVE OF GENERAL PURPOSE FINANCIAL REPORTING

 The objective of general purpose financial reporting is to provide financial information about the
reporting entity that is useful to existing and potential investors, lenders and other creditors in making
decisions relating to providing resources to the entity.

 Those decisions involve decisions about:

- buying, selling or holding equity and debt instruments
- providing or settling loans and other forms of credit
- exercising rights to vote on, or otherwise influence, managements actions that affect the use of
the entity's economic resources

 They need information about:

- the economic resources of the entity, claims against the entity and changes in those resources and
claim
-how efficiently and effectively the entity’s management and governing board have discharged
their responsibilities to use the entity’s economic resources