BALIUAG UNIVERSITY

CPA Review Program

Theory of Accounts (FAR/AFAR – Principles)

Module 1: Financial Reporting Framework, Standard Setting Bodies & Regulation of Accountancy Profession LVC

I. The Philippine Accountancy of Act of 2004 (RA 9298)

 Objectives of RA 9298
- This Act shall provide for and govern:
a) The standardization and regulation of accounting education;
b) The examination for registration of certified public accountants; and
c) The supervision, control, and regulation of the practice of accountancy in the Philippines.
 Scope of Practice
- The practice of accountancy shall include, but not limited to, the following:
a) Public practice
b) Commerce and industry
c) Academe/education
d) Government
 The Board of Accountancy (BOA)
- The professional regulatory body of CPAs under the supervision and administrative control of PRC.
- It shall be composed of a chairman and six (6) members to be appointed by the President of the Philippines.
- The Board shall elect a vice-chairman from among its members for a term one (1) year.
- The Chairman and members of the Board shall hold office for a term of three (3) years.
- Any vacancy occurring within the term of a member shall be filled up for the unexpired portion of the term
only. Appointment to fill up an unexpired term is not to be considered as a complete term.
- No person who has served two (2) successive complete terms shall be eligible for reappointment until the
lapse of one (1) year.

II. The Financial Reporting Standards Council (FRSC)

 Creation and Function of FRSC
- The standard setting body established by the PRC under the Implementing Rules and Regulations of RA9298
to assist the Board of Accountancy in carrying out its power and function to promulgate accounting standards
in the Philippines.
- The FRSC’s main function is to establish generally accepted accounting principles in the Philippines.
- The FRSC is the successor of the Accounting Standards Council (ASC).
- The FRSC carries on the decision made by the ASC to converge Philippine accounting standards with
international accounting standards issued by the International Accounting Standards Board (IASB).
 Composition of FRSC
- The FRSC shall be composed of 15 members with a chairman appointed by the Board of Accountancy (BOA).
- The chairman must had been or presently a senior accounting practitioner in any scope of accounting practice.
- The other 14 representatives must come from the following agencies/organizations:
a) BOA 1
b) SEC 1
c) BSP 1
d) BIR 1
e) COA 1
f) Major organization of preparers and users of FS 1
g) Accredited national professional organization of CPAs
Public practice 2
Commerce & industry 2
Academe/Education 2
Government 2
 Philippine Interpretation Committee (PIC)
- The committee formed by FRSC in August 2006 to assist the FRSC in establishing and improving financial
reporting standards in the Philippines.
- The objectives of PIC
a) to issue implementation guidance on accounting standards collectively referred to as PFRS
b) To comment on exposure drafts of proposed PFRS and other documents that may be issued for
comment by the FRSC.

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c) To comment on exposure drafts of proposed accounting standards or proposed regulations with

accounting relevance that may be issued by government agencies, such as the Securities and Exchange
Commission, Bangko Sentral ng Pilipinas and Insurance Commission.
- The PIC shall consist of 15 representatives from the following:
a) Accounting firms 9
b) Financial Executives Institute of the Philippines (FINEX) 1
c) Academe (with a designated alternate) 1
d) SEC 1
e) BSP 1
f) Insurance Commission 1
g) BOA 1
 The Philippine Financial Reporting Standards
- Pronouncements by IASB adopted by FRSC are collectively referred to as PFRS.
- PFRSs are currently fully converged with International Financial Reporting Standards (IFRSs) except for the
deferral of IFRIC 15 Agreements for the Construction of Real Estate.
- Pronouncements adopted by FRSC
a) Preface to Philippine Financial Reporting Standards
b) The Conceptual Framework for Financial Reporting
c) Philippine Financial Reporting Standards (PFRS)
d) Philippine Accounting Standards (PAS)
e) Philippine Interpretation – IFRIC
f) Philippine Interpretation – SIC

III. Conceptual Framework for Financial Reporting (The Framework, 2018)

 Status and purpose and status of the Framework
- IASB issued the revised Conceptual Framework for Financial Reporting on 29 March 2018. The revised version
includes comprehensive changes to the previous Conceptual Framework, issued in 1989 and partly revised in
2010.
- The Framework's purpose is to assist the IASB in developing and revising IFRSs that are based on consistent
concepts, to help preparers to develop consistent accounting policies for areas that are not covered by a
standard or where there is choice of accounting policy, and to assist all parties to understand and interpret
IFRS.
- In the absence of a Standard or an Interpretation that specifically applies to a transaction, management must
use its judgment in developing and applying an accounting policy that results in information that is relevant
and reliable.
- Making that judgment requires management to consider the definitions, recognition criteria, and
measurement concepts for assets, liabilities, income, and expenses in the Framework.
- The Framework is not a Standard and does not override any specific IFRS.
- If the IASB decides to issue a new or revised pronouncement that is in conflict with the Framework, the IASB
must highlight the fact and explain the reasons for the departure in the basis for conclusions.
- The revised Conceptual Framework includes some new concepts, provides updated definitions and
recognition criteria for assets and liabilities and clarifies some important concepts.
- The revised Conceptual Framework is accompanied by a Basis for Conclusions.
- The Board has also issued a separate accompanying document, Amendments to References to the Conceptual
Framework in IFRS Standards, which sets out the amendments to affected standards in order to update
references to the revised Conceptual Framework
 Scope
- The Framework contains the following chapters:
Chapter 1: The objective of financial reporting
Chapter 2: Qualitative characteristics of useful financial information
Chapter 3: Financial statements and the reporting entity
Chapter 4: The 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
 Chapter 1: The Objective of financial reporting
- The primary users of general purpose financial reporting are present and potential investors, lenders and
other creditors, who use that information to make decisions about buying, selling or holding equity or debt
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instruments, providing or settling loans or other forms of credit, or exercising rights to vote on, or otherwise
influence, management’s actions that affect the use of the entity’s economic resources.
- The IFRS Framework notes that other parties, including prudential and market regulators, may find general
purpose financial reports useful. However, these are not considered a primary user and general purpose
financial reports are not primarily directed to regulators or other parties.
- IASB used the revision of the Conceptual Framework in 2018 as an opportunity to reintroduce the concept of
stewardship and to clarify its meaning. The Board sets out the information needed to assess management’s
stewardship, and separates this from the information that users need to assess the prospects of the entity’s
future net cash flows.

Objective of financial reporting

To provide financial information that is useful to users in making decisions relating to providing resources to the
entity.
Users’ decisions involve decisions about
 Buying, selling or holding equity  Providing or settling loans and  Voting, or otherwise influencing
or debt instruments other forms of credit management’s actions

To make these decisions, users assess

 Prospects for future net cash inflows to the entity  Management’s stewardship of the entity’s economic
resources
To make both these assessments, users need information about both
 The entity’s economic resources, claims against the  How efficiently and effectively management has
entity and changes in those resources and claims discharged its responsibilities to use the entity’s
economic resources

 Chapter 2: Qualitative characteristics of useful financial information

- For information to be useful it must both be relevant and provide a faithful representation of what it purports
to represent. Relevance and faithful representation are the fundamental qualitative characteristics of useful
financial information, and the guiding concepts that apply throughout the revised Conceptual Framework.
- The Board has however reintroduced the concept of prudence, and defined the concept of measurement
uncertainty in assessing the usefulness of financial information:
 Prudence is the exercise of caution when making judgements under conditions of uncertainty. Prudence
supports neutrality of information. Prudence does not allow for overstatement or understatement of
assets, liabilities, income or expenses.
 Measurement uncertainty does not prevent information from being useful. However, in some cases the
most relevant information may have such a high level of measurement uncertainty that the most useful
information is information that is slightly less relevant but is subject to lower measurement uncertainty.

Fundamental qualitative characteristics

Relevance
 Information is relevant if it is capable of making a
difference to the decisions made by users.
 Financial information is capable of making a
difference in decisions if it has predictive value or
confirmatory value.
Faithful representation
 Information must faithfully represent the substance
of what it purports to represent.
 A faithful representation is, to the maximum extent
possible, complete, neutral and free from error
 A faithful representation is affected by level of
measurement uncertainty.

Enhancing qualitative characteristics

Comparability Verifiability Timeliness Understandability
 These four qualitative characteristics enhance the usefulness of information but they cannot make non-useful
information useful
Cost constraint
 The benefit of providing the information needs to justify the cost of providing and using the information

 Chapter 3: Financial statements and the reporting entity

- Chapter 3 is a new chapter in the revised Conceptual Framework.
- It describes the scope and objective of financial statements.

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- Consolidated, unconsolidated and combined financial statements are all acknowledged as forms of financial
statements in the revised Conceptual Framework
- Chapter 3 also provides a description of the reporting entity.
- The Board acknowledged that it does not have authority to determine who must or should prepare financial
statements, but it provides general guidance in determining a reporting entity.
Reporting entity
 An entity that is required, or chooses, to prepare financial statements
 Not necessarily a legal entity—could be a portion of an entity or comprise more than one entity
Financial statements
 A particular form of financial reports that provide information about the reporting entity’s assets, liabilities,
equity, income and expenses
Consolidated Unconsolidated financial
Combined financial statements
financial statements statements
 Provide information about  Provide information about  Provide information about
assets, liabilities, equity, income assets, liabilities, equity, income assets, liabilities, equity, income
and expenses of both the parent and expenses of the parent only and expenses of two or more
and its subsidiaries as a single entities that are not all linked by
reporting entity a parent-subsidiary relationship

 Chapter 4: The elements of financial statements

- This chapter defines the five elements of financial statements – an asset, a liability, equity, income and
expenses.
- The definitions of an asset and a liability have been refined and the definitions of income and expenses have
been updated only to reflect that refinement. The definition of is unchanged.
Asset (old definition) Asset (new definition)
 A resource controlled by the entity as a result of  A present economic resource controlled by the
past events and from which future economic entity as a result of past events.
benefits are expected to flow to the entity.  An economic resource is a right that has the
potential to produce economic benefits.
Liability (old definition) Liability (new definition)
 A present obligation of the entity arising from past  A present obligation of the entity to transfer an
events, the settlement of which is expected to economic resource as a result of past events.
result in an outflow from the entity of resources  An obligation is a duty or responsibility that the
embodying economic benefits. entity has no practical ability to avoid.
Equity
 Equity is the residual interest in the assets of the entity after deducting all its liabilities.

Revised definition of income Revised definition of expenses

 Increases in assets, or decreases in liabilities, that
result in increases in equity, other than those
relating to contributions from holders of equity
claims.
Unit of account
 The right(s) or obligation(s), or group of rights and
obligations, to which recognition criteria and
measurement concepts are applied.
 Decreases in assets, or increases in liabilities, that
result in decreases in equity, other than those
relating to distributions to holders of equity claims.
Executory contracts
 A contract that is equally unperformed. It
establishes a single asset or liability for the
inseparable combined right and obligation to
exchange economic resources.

 Chapter 5: Recognition and derecognition

- This chapter discusses criteria for recognizing assets and liabilities in financial statements, and provides
guidance on when to remove or derecognize them.
- The revised recognition criteria refer explicitly to the qualitative characteristics of useful information.
- Recognition is appropriate if it results in both relevant information about assets, liabilities, equity, income and
expenses and a faithful representation of those items, because the aim is to provide useful information.

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- Recognizing assets, liabilities, equity, income and expenses depicts an entity’s financial position and financial
performance in structured summaries (the statements of financial position and financial performance).
- The amounts recognized in a statement are included in the totals and, if applicable, subtotals, in the
statement. The statements are linked because income and expenses are linked to changes in assets and
liabilities.

Recognition
 The process of capturing for inclusion in the statement of financial position or the statement(s) of financial
performance an item that meets the definition of an asset, a liability, equity, income or expenses.
Recognition criteria
Relevance Faithful representation
 Whether recognition of an item results in relevant Whether recognition of an item results in a faithful
information may be affected by, for example: representation may be affected by, for example:
a) low probability of a flow of economic benefits a) measurement uncertainty
b) existence uncertainty b) recognition inconsistency (accounting
mismatch)
c) presentation and disclosure
Cost constraint
 Cost constrains recognition decisions, just as it constrains other financial reporting decisions.
- Normally, a faithful representation of a transfer of an asset or liability is achieved by derecognition of the asset
or liability with appropriate presentation and disclosure.
- However, in limited cases, it may be necessary to continue to recognize a transferred component of an asset
or liability together with a liability or asset for the proceeds received or paid, with appropriate presentation
and disclosure.

Derecognition
 The removal of all or part of a recognized asset or liability from an entity’s statement of financial position.
Derecognition normally occurs
For an asset For a liability
 when the entity loses control of all or part of the  when the entity no longer has a present obligation
recognized asset for all or part of the recognized liability
Cost constraint
 Cost constrains recognition decisions, just as it constrains other financial reporting decisions.

 Chapter 6: Measurement
- The revised Conceptual Framework describes what information measurement bases provide and explains the
factors to consider when selecting a measurement basis.

Measurement Bases
Historical cost measurement bases
 Historical cost provides information derived, at least
in part, from the price of the transaction or other
event that gave rise to the item being measured
 Historical cost of assets is reduced if they become
impaired and historical cost of liabilities is increased
if they become onerous.
 One way to apply a historical cost measurement
basis to financial assets and financial liabilities is to
measure them at amortized cost
Current value measurement bases
 Current value provides information updated to
reflect conditions at the measurement date. Current
value measurement bases include:
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.
b) Value in use (for assets) - reflects entity-specific
current expectations about the amount, timing
and uncertainty of future cash flows.
c) Fulfilment value (for liabilities) – same
definition as value in use.
d) Current cost – reflects the current amount that
would be: paid to acquire an equivalent asset or
received to take on an equivalent liability.

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- The factors to be considered in selecting a measurement basis are in line with the qualitative characteristics
of useful information - relevance and faithful representation.
Factors affecting relevance of information
1. Characteristics of the asset or liability 2. Contribution to future cash flows
 Variability of cash flows  Whether cash flows are produced directly or
 Sensitivity of the value to market factors or indirectly in combination with other economic
other risks resources.
 For example, amortized cost cannot provide  The nature of the entity’s business activities
relevant information about a derivative  For example, if assets are used in
combination to produce goods or services,
historical cost can provide relevant
information about margins achieved in a
period

Factors affecting faithful representation

1. Measurement inconsistency 2. Measurement uncertainty
 If financial statements contain accounting  Does not necessarily prevent the use of a
mismatch, those financial statements may not measurement basis that provides relevant
faithfully represent some aspects of the information.
entity’s financial position and financial  But if too high might make it necessary to
performance. consider selecting a different measurement
basis.
Cost constraint
 Cost constrains the selection of a measurement basis, just as it constrains other financial reporting decisions

 Chapter 7: Presentation and disclosure

- Information about assets, liabilities, equity, income and expenses is communicated through presentation and
disclosure in the financial statements.
- Effective communication of information in financial statements makes that information more relevant and
contributes to a faithful representation of an entity’s assets, liabilities, equity, income and expenses.
- The revised Conceptual Framework includes concepts that describe how information should be presented and
disclosed in financial statements. The revised Conceptual Framework therefore introduces the following:
a) Concepts describing how information should be presented and disclosed in financial statements.
b) Guidance on classifying income and expenses for the Board to use when it decides whether they are to
be included in or outside of the statement of profit or loss.
c) Guidance for the Board on whether and when income and expenses included in other comprehensive
income (OCI) should subsequently be recycled to profit or loss.
Statement of profit or loss
 The statement of profit or loss is the primary source of information about an entity’s financial
performance for the reporting period.
 Profit or loss could be a section of a single statement of financial performance or a separate statement.
 The statement(s) of financial performance include(s) a total (subtotal) for profit or loss.
 In principle, all income and expenses are classified and included in the statement of profit or loss.
Other comprehensive income
 In exceptional circumstances, the Board may decide to exclude from the statement of profit or loss
income or expenses arising from a change in current value of an asset or liability and include those
income and expenses in other comprehensive income.
 The Board may make such a decision when doing so would result in the statement of profit or loss
providing more relevant information or a more faithful representation.
Recycling
 In principle, income and expenses included in other comprehensive income in one period are recycled to
the statement of profit or loss in a future period when doing so results in the statement of profit or loss
providing more relevant information or a more faithful representation.
 When recycling does not result in the statement of profit or loss providing more relevant information or
a more faithful representation, the Board may decide income and expenses included in other
comprehensive income are not to be subsequently recycled.

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 Chapter 8: Concepts of capital and capital maintenance

- The IASB Conceptual Framework identifies two concepts of capital:
a) Financial concept of capital
b) Physical concept of capital
- Most entities adopt a financial concept of capital maintenance. However, the existing Conceptual Framework
does not prescribe a particular model of capital maintenance.
- Concepts of capital maintenance are important as only income earned in excess of amounts needed to
maintain capital may be regarded as profit.
- Calculation of capital
a) Assets – Liabilities = Equity
b) Opening equity (net assets) + Profit – Distributions = Closing equity (net assets)
- The Framework notes that management of an entity should exercise judgement and select the concept of
financial maintenance that provides the most useful information to the users of financial statements.
Financial concept of capital Physical concept of capital
 A financial concept of capital is whereby the  A physical concept of capital is one where the
capital of the entity is linked to the net assets, capital of an entity is regarded as its production
which is the equity of the entity. capacity, which could be based on its units of
output.
Financial capital maintenance. Physical capital maintenance
 Under this concept a profit is earned only if the  Under this concept a profit is earned only if the
financial (or money) amount of the net assets at physical productive capacity (or operating
the end of the period exceeds the financial (or capacity) of the entity (or the resources or funds
money) amount of net assets at the beginning of needed to achieve that capacity) at the end of the
the period, after excluding any distributions to, period exceeds the physical productive capacity at
and contributions from owners during the period. the beginning of the period, after excluding any
 Financial capital maintenance can be measured in distributions to, and contributions from owners
either nominal monetary units or units of constant during the period.
purchasing power.

I. Identification
1. The accounting standard setting body established by the Professional Regulation Commission.
2. The professional regulatory body of CPAs under the supervision and administrative control of the Professional
Regulation Commission.
3. The international accounting standard-setting body that issues pronouncement adopted by FRSC.
4. The auditing standard setting body established by the Professional Regulation Commission.
5. The integrated national professional organization of CPAs in the Philippines accredited by BOA and PRC.
6. The council that assists the BOA in the attainment of the objective of continuously upgrading the accountancy
education in the Philippines and make the Filipino CPAs globally competitive.
7. The committee formed by FRSC to assist the Council in establishing and improving financial reporting standards
in the Philippines.
8. Scope of practice of those individual, partner or staff member in an accounting or auditing firms.
9. Scope of practice where a civil service eligibility as CPA is a prerequisite.
10. Refers to the collective accounting standards adopted and promulgated by FRSC in the Philippines.
11. Philippine Accountancy Act of 2004.
12. Its purpose is to assist the standard-setting body in developing and revising accounting standards that are based
on consistent concepts, to help preparers to develop consistent accounting policies for areas that are not covered
by a standard or where there is choice of accounting policy, and to assist all parties to understand and interpret
the accounting standards.
13. The exercise of caution when making judgments under conditions of uncertainty.
14. It pertains to how effectively and efficiently management has discharged their responsibilities to use the entity's
existing resources.
15. Fundamental qualitative characteristic that refers to the capability of information to make a difference to the
decisions made by users.
16. It reflects entity-specific current expectations about the amount, timing and uncertainty of future cash flows of
liabilities.
17. A right that has the potential to produce economic benefits.
18. A present obligation of the entity to transfer an economic resource as a result of past events.

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19. Enhancing qualitative characteristic which entails classifying, characterizing and presenting information clearly
and concisely.
20. 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.
21. Enhancing qualitative characteristic which enables users to identify and understand similarities in, and differences
among, items.
22. An equally unperformed contact which establishes a single asset or liability for the inseparable combined right
and obligation to exchange economic resources.
23. Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to
contributions from holders of equity claims.
24. Enhancing qualitative characteristic which means that information is available to decision-makers in time to be
capable of influencing their decisions.
25. It is one where the capital of an entity is regarded as its production capacity.
26. Enhancing qualitative characteristic which means that different knowledgeable and independent observers could
reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful
representation.
27. The removal of all or part of a recognized asset or liability from an entity’s statement of financial position.
28. The right(s) or obligation(s), or group of rights and obligations, to which recognition criteria and measurement
concepts are applied.
29. A present economic resource controlled by the entity as a result of past events.
30. Refers to the transferring the items of other comprehensive income to profit or loss in a future period.

II. True or False

1. The BOA shall be composed of a chairman and six members to be appointed by the President of the Philippines.
2. The FRSC shall be composed of 15 members and a chairman appointed by the BOA.
3. FRSC is not represented by CPAs from Department of Budget and Management and Insurance Commission.
4. PIC is not represented by CPAs from BIR and COA.
5. SEC, BSP and COA have representatives in both FRSC and AASC.
6. BOA appointment to fill up an unexpired term of a former member is to be considered as a complete term.
7. The chairman of FRSC must had been or presently a senior accounting practitioner from public practice.
8. The standardization and regulation of accounting education is a primary objective the Philippine Accountancy Act.
9. The Conceptual Framework for Financial Reporting is not a standard and does not override any specific PFRS.
10. A conceptual framework sets out the detailed accounting treatment of transactions and other items.
11. A high level of measurement uncertainty associated with an asset always results in the asset not being recognized.
12. A trade-off between the fundamental qualitative characteristics of relevance and faithful representation may
need to be made in order to meet the objective of financial reporting.
13. An analysis of income and expenses recognized in the statement of profit or loss is sufficient to understand an
entity's financial performance for the period.
14. An entity may decide to include income or expenses in other comprehensive income when doing so would result
in the statement of profit or loss providing more relevant information, or providing a more faithful representation
of the entity's performance for the period.
15. Both the information needed to assess management’s stewardship and the information that users need to assess
the prospects of the entity’s future net cash flow are required to provide information that is useful for making
decisions about providing resources to the entity, and therefore achieves the objective of financial reporting.
16. Combined financial statements provide information about assets, liabilities, equity, income and expenses of both
the parent and its subsidiaries as a single reporting entity.
17. Comparability, verifiability, timeliness, and understandability cannot make non-useful information useful.
18. Conceptual frameworks limit the consistency and comparability of financial statements.
19. Derecognition of an asset requires that the entity loses control of all of the recognized asset.
20. Expenses are decreases is assets and in liabilities, that result in decreases in equity.
21. Financial reports need to provide information useful in making decisions relating to providing resources to the
entity. Those decisions include decisions about exercising rights to vote on, or otherwise influence, management's
actions that affect the use of the entity's economic resources.
22. For a right to meet the definition of an asset, it needs to be likely that the right will produce economic benefits for
the entity.
23. If an IFRS Standard sets out requirements that are inconsistent with the Conceptual Framework, preparers have
to apply the Conceptual Framework for affected transactions.
24. In principle, all income and expenses are included in the statement of profit or loss.

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25. In selecting a measurement basis for an asset or liability, it is more important to consider the nature of the
information that the measurement basis will produce in the statement(s) of financial performance than in the
statement of financial position.
26. Income and expenses included in other comprehensive income in one period cannot be recycled to the statement
of profit or loss in a future period.
27. Information needed to assess management's stewardship is always different from information needed to assess
the prospects for future net cash inflows to the entity.
28. Investors, lenders and regulators are among the primary users of general purpose financial reporting.
29. It may be necessary to continue to recognize a transferred component of an asset or liability together with a
liability or asset for the proceeds received or paid, with appropriate presentation and disclosure.
30. Measurement inconsistency and measurement uncertainty are factors affecting faithful representation of
measurement basis.
31. Measurement uncertainty and existence uncertainty affects recognition criteria for both relevance and faithful
representation.
32. Measurement uncertainty does not necessarily prevent the use of a measurement basis that provides relevant
information.
33. Measurement uncertainty does not prevent information from being useful.
34. Most entities adopt a financial concept of capital maintenance.
35. One way to apply a current value measurement to financial assets and financial liabilities is to measure them at
amortized cost.
36. Only a legal entity can be a reporting entity.
37. Profit or loss could be a section of a single statement of financial performance or a separate statement.
38. Relevance and faithful representation are qualitative characteristics that enhance the usefulness of information.
39. Relevance is, is, to the maximum extent possible, complete, neutral and free from error.
40. Revision of the Conceptual Framework will automatically lead to changes in Standards that are inconsistent with
the revised concepts.
41. Some items that do not meet the definition of an asset, a liability or equity may still be recognized in the statement
of financial position.
42. The Conceptual Framework does not prescribe a particular model of capital maintenance.
43. The revised Conceptual Framework includes concepts that details what information should be presented and
disclosed in financial statements.
44. The statement of profit or loss is the primary source of information about an entity’s financial performance for
the reporting period.
45. The Conceptual Framework can override requirements in a Standard.
46. The Conceptual Framework identifies a preferred measurement basis for all assets and liabilities.
47. Ultimately, ii the absence of a Standard or an Interpretation that specifically applies to a transaction, management
must use the Conceptual Framework for Financial Reporting.
48. Under the money financial capital maintenance, the profit is measured if the closing net assets is greater than the
opening net assets, and the net assets in both cases are measured at current prices.
49. Under the real financial capital maintenance, the entity makes a net profit if the closing net assets are greater
than the opening net assets, and the net assets in both cases -are measured at historical costs.
50. When a reporting entity is not a legal entity and does not comprise only legal entities all linked by a parent-
subsidiary relationship, the boundary of the reporting entity can contain an incomplete set of economic activities
if that entity provides a description of how the boundary was determined.

III. MULTIPLE CHOICE

1. When developing requirements for IFRS Standards, can the International Accounting Standards Board depart
from the Conceptual Framework?
A. No
B. Yes, the Board is not required to use the Conceptual Framework when developing Standards
C. Yes, but only from aspects of the Conceptual Framework and only if doing so is needed to meet the
objective of financial reporting
D. No, unless the departure is unanimously agreed by the member of the IASB.
2. Which statement is included in the Conceptual Framework?
A. Relevance is a fundamental qualitative characteristic of useful financial information
B. Financial information without both relevance and faithful representation is not useful
C. Enhancing qualitative characteristics cannot make information useful if that information is irrelevant or does
not provide a faithful representation of what it purports to represent
D. All of the above
3. The Conceptual Framework defines a liability as:
A. A present obligation of the entity to transfer an economic resource as a result of past events
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B. A present obligation of the entity arising from past events, the settlement of which is expected to result in
an outflow from the entity of resources embodyiong economic benefits
C. An amount the entity may have to pay after the end of the reporting period
D. None of the above
4. Which factors may indicate that recognition of an item meeting the definition of an asset or a liability may not
provide relevant information?
A. Uncertainty about whether an asset or liability exists
B. Low probability of an inflow or outflow of economic benefits
C. Other factors
D. All of the above
A. Which measurement bases are categorized as current value measurement bases in the Conceptual
Framework? Value in use
B. Fair value
C. Fulfilment value
D. Amortized cost
5. How does the Conceptual Framework explain the role of stewardship?
A. Providing information needed to assess management's stewardship is identified as an additional objective of
financial reporting, equal in prominence to providing financial information useful to users in making
decisions relating to providing resources to the entity
B. Decisions relating to providing resources to the entity depend on users' assessment of the amount, timing
and uncertainty of the prospects for future net cash inflows to the entity and on their assessment of
management's stewardship
C. Providing information needed to assess stewardship is more important than providing information needed
to assess the prospects for future cash inflows to the entity
D. Financial reports are not intended to provide information needed to assess stewardship
6. What drives the determination of the boundary of a reporting entity that is not a legal entity and does not
comprise only legal entities all linked by a parent-subsidiary relationship?
A. Management's choice
B. Legal form of the reporting entity
C. Information needs of the primary users of the reporting entity
D. All of the above
7. The residual interest in the assets of an entity after deducting all its liabilities is:
A. Income
B. Profit or loss
C. Equity
D. Other comprehensive income
8. The purpose of the Conceptual Framework is:
A. To assist the International Accounting Standards Board to develop IFRS Standards
B. To assist preparers of IFRS financial statements to develop consistent accounting policies when no IFRS
Standard applies to a particular transaction or other event, or when a Standard allows a choice of
accounting policy
C. To assist all parties to understand and interpret IFRS Standards
D. All of the above
9. The Conceptual Framework describes prudence as:
A. The exercise of caution when making judgments under conditions of uncertainty
B. A bias towards understating assets or income and towards overstating liabilities or expenses
C. A preference towards the earlier recognition of expenses and liabilities than of income and assets
D. A mechanism for smoothing profits over time (understate profits in good years and overstate profits in bad
years)
10. Income and expenses included in other comprehensive income:
A. Are never reclassified (recycled) from other comprehensive income into the statement of profit or loss
B. Are recycled into the statement of profit or loss if the International Accounting Standards Board decides that
doing so results in the statement of profit or loss providing more relevant information, or providing a more
faithful representation of the entity’s financial performance for that period
C. Are always recycled into the statement of profit or loss at the end of the holding period of the related asset
or liability
D. None of the foregoing
11. A reporting entity can be:
A. A portion of an entity
B. A single entity
C. More than one entity
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D. All of the above

12. Recognition is the process of:
A. Capturing, for inclusion in the statement of financial position or the statement(s) of financial performance,
an item that meets the definition of one of the elements of the financial statements—an asset, a liability,
equity, income or expenses
B. Determining where an item should be presented in the financial statements
C. Sorting assets, liabilities, equity, income or expenses on the basis of shared characteristic
D. Adding together of assets, liabilities, equity, income or expenses that have shared characteristics
13. The objective of general purpose financial reporting as described in the Conceptual Framework is to:
A. Provide information to regulators
B. Support the entity's tax return
C. Meet the information needs of an entity's stakeholders
D. 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
14. The fundamental qualitative characteristics of useful financial information are:
A. Relevance and reliability
B. Relevance, reliability and comparability
C. Relevance and faithful representation
D. Comparability, relevance and faithful representation
15. Consolidated financial statements provide information about the assets, liabilities, equity, income and expenses
of both the parent and its subsidiaries as:
A. Separate reporting entities
B. A partnership
C. A single reporting entity
D. A legal entity
16. In explaining the meaning of the term 'obligation' in the definition of a liability, the Conceptual
Framework states:
A. That an obligation is a duty or responsibility that an entity has no practical ability to avoid
B. That an obligation can arise from a duty or responsibility conditional on a future action that the entity itself
may take, if the entity has no practical ability to avoid taking that action
C. That an obligation can arise from an entity’s customary practices, published policies or specific statements, if
the entity has no practical ability to avoid those practices, policies or statement
D. All of the above.
17. What does the Conceptual Framework state about derecognition?
A. For an asset, derecognition normally occurs when the entity loses control of all or part of the recognised
asset
B. For a liability, derecognition normally occurs when the entity no longer has a present obligation for all or
part of the recognised liability
C. Derecognition is the removal of all or part of a recognised asset or liability from an entity's statement of
financial position
D. All of the above
18. If an entity has a legal ownership of a physical object, its asset is:
A. The set of rights arising from legal ownership of the physical object
B. The physical object
C. The economic benefits that may flow from the physical object
D. All of the above
19. For information to be relevant, it has to possess:
A. Only predictive value
B. Only confirmative value
C. Both predictive and confirmatory value
D. Either predictive or confirmatory value, or both
20. What does the Conceptual Framework say about profit or loss?
A. The statement of profit or loss is the only source of information about an entity’s financial performance for
the period
B. In principle, all income and expenses are included in the statement of profit or loss
C. All income and expenses included in profit or loss arise from ordinary activities of the entity
D. All of the above
21. Entities have to apply the revised Conceptual Framework:
A. Immediately after it is issued
B. For annual reporting periods beginning on or after 1 January 2020, with early application permitted
C. Never - the Conceptual Framework is only used by the International Accounting Standards Board
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D. For annual reporting periods beginning on or after 1 January 2018, with early application permitted
22. Which of the following factors is (or are) considered in selecting a measurement basis?
A. Variability of cash flows of the asset or liability
B. How the asset or liability contributes to future cash flows, which depends in part on the nature of an entity's
business activities
C. The level of measurement uncertainty associated with a particular measurement basis
D. All of the above
23. Which of the following does the Conceptual Framework identify as the primary users of general purpose
financial reports? See paragraphs 1.2 and 1.5
A. Employees, investors and trade union representatives
B. Existing and potential investors, lenders and other creditors
C. Lenders and other creditors and customers
D. Existing and potential investors, government agencies and the general public
24. The Conceptual Framework defines an asset as:
A. A resource controlled by the entity as a result of past events and from which future economic benefits are
expected to flow to the entity
B. A present economic resource controlled by the entity as a result of past events
C. A right to receive income or reduce expenses in the future
D. None of the above
25. Which of the following is not a disadvantage of having a conceptual framework of accounting?
A. It does not allow for different conceptual bases depending on the user
B. It does not make the setting of accounting standards easier
C. It may hamper the development of preparing accounting standards
D. It may lead to inconsistent accounting practices
26. Which of the following is not an advantage of having a conceptual framework of accounting?
A. Development of accounting standards is subject to less political pressure
B. A consistent balance sheet or income statement approach is used to setting standards
C. Considers the needs of all users
D. Avoids a mixed up approach to setting standards
27. Which of the following is not a purpose of a financial reporting conceptual framework?
A. Development of new reporting practices
B. Evaluation of existing reporting practices
C. Enforcement of existing reporting practices
D. None of the foregoing
28. Which of the following is not within the scope of The Framework promulgated by IASB?
A. The objective of financial statements
B. Concepts of capital and capital maintenance
C. Concepts of income and expenditure
D. Recognition and derecognition of the elements of financial statements
29. A conceptual framework for accounting is..
A. A set of financial statements
B. A set of rules governing financial reporting
C. A set of components of financial statements
D. A set of principles underpinning financial reporting
30. Which of the following relate to financial position in a set of financial statements?
A. Assets, liabilities, income and expenses
B. Assets, liabilities and equity
C. Income and expenses
D. Income, expenses and liabilities

IV. PFRS and PAS

A. Philippine Financial Reporting Standards
PFRS No. Title
PFRS 1
PFRS 2
PFRS 3
PFRS 4
PFRS 5
PFRS 6

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PFRS No. Title

PFRS 7
PFRS 8
PFRS 9
PFRS 10
PFRS 11
PFRS 12
PFRS 13
PFRS 14
PFRS 15
PFRS 16
PFRS 17

B. Philippine Accounting Standards

PAS No. Title
PAS 1
PAS 2
PAS 7
PAS 8
PAS 10
PAS 11
PAS 12
PAS 16
PAS 17
PAS 18
PAS 19
PAS 20
PAS 21
PAS 23
PAS 24
PAS 26
PAS 27
PAS 28
PAS 29
PAS 32
PAS 33
PAS 34
PAS 36
PAS 37
PAS 38
PAS 39
PAS 40
PAS 41

“Whatever your hand finds to do, do it with all your might, for in the realm of the
dead, where you are going, there is neither working nor planning nor knowledge nor
wisdom.” Ecclesiastes 9:10 (NIV)

“Learning is not attained by chance, it must be sought for with ardor and diligence.” Abigail
Adams

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