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MODULE 1: CONCEPTUAL  Financial Performance – revenue,

FRAMEWORK expenses and net income/loss at a
period of time
Financial Statements – structured o Also known as Results of
representation of the financial position and Operations
financial performance. o Performance: level of income
earned through efficient and
 General Purpose FS
effective use of resources
o Primarily for the Primary Users
o Income Statement and
Group
Statement of Comprehensive
- Parties that provide
Income (For the year ended
resources to the entity
mm/dd/yy)
Ex: Existing and potential
 Cash Flows – useful in assessing the
investors, lenders, creditors
entity’s ability to generate cash and CE
REASON: They have the most
 Cash receipts and payments arising
critical and immediate need for info
from operating, investing and financing
in financial reports
activities.
 Reports for entity’s management and
o Statement of Cash Flows
bankers are not GPFS. They need
specific reports to meet their needs and However, does not provide all info needed by
the management can obtain the needed users. They largely portray the effects of past
info internally. events and does not necessarily provide
nonfinancial info.
*In Sir. Timon’s video: Customers, management
and government also uses General Purpose Financial Reporting – provision of financial info
Financial Report but they are not primary users to external users that is useful to them in
making economic decisions and assessing the
GENERAL PURPOSE SPECIAL PURPOSE
effectiveness of the management
FINANCIAL REPORT FINANCIAL REPORT
Primary Users Government Entity TARGET: Primary User Group
Format is intended Format depends on
for almost all type of the specific need of  Encompasses not only FS but also other
users the user means of communicating info such as:
o Financial highlights, summary of
important financial figures.
Complete Set of FS:
Analysis of FS and significant
1. Statement of Financial Position ratios
2. Income Statement  Include nonfinancial info that FS lacks
3. Statement of Comprehensive Income such as description of major products
4. Statement of Changes in Equity and listing of officers and directors.
5. Statement of Cash Flows  SPECIFIC OBJECTIVES – GFPS provide
6. Notes information useful in:
o Investing and credit making
*Reports/Statements such as Environmental
decisions about providing
Reports and Value-Added Statements are
resources to the entity
presented by many entities but are not
o Assessing the cash flow
components of FS.
prospects of the entity
Objective of General Purpose Financial o Entity resources, claims and
Statements changes
 LIMITATIONS – GPFS…
To provide information (financial in nature) that
o Do not and cannot provide all of
will be useful to users in making economic
the information needed by
decisions, such as:
Primary users
 Financial Position – assets, liabilities and o Not designed to show the value
equity at a particular moment in time. of the entity since it is not the
o Pertains to the liquidity, current value but provide info
solvency and the need for to help primary users estimate
additional financing it
o Statement of Financial Position o Intended to provide common
(As of mm/dd/yy) information, it cannot

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accommodate every specific
request
o Based on estimate and
judgment rather than exact
depiction
 RESPONSIBILITY
o Management has the primary
responsibility for
- Preparation and
presentation of FS
- Safekeeping of the
resources and their
proper, efficient
and profitable use
o Board of Directors is
responsible in discharging
responsibilities, reviews and
authorizes FS for issue
General Features of Financial Statements
Fair Presentation and Compliance with PFRS –
FS shall present fairly the financial position,
performance and cash flows.
 Fair presentation is achieved if FS is
prepared in accordance with the PFRS
 Fair Presentation requires:
o Select and applying accounting
policies with PFRS
o Present info in manner that
provides relevant and faithfully
represented financial info
o Provide additional necessary
disclosures
Departure from Standard – entity is permitted:
o Extremely rare circumstances
o Compliance with the standard
would be misleading
o Departure is necessary to
achieve fair representation
o Regulatory Conceptual
Framework requires or does not
prohibit
Going Concern – Accounting entity is viewed as
continuing in operation indefinitely in the
absence of evidence to the contrary.
Also known as Continuity Assumption
 FS are prepared normally on the
assumption that the entity shall
continue in operation indefinitely,,
THUS, Assets are Recorded at original
Acquisition Cost
,,unless management intends to
liquidate or cease trading
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 In making the assessment about the
going concern assumption, entity shall
consider all available information
about the future – at least 12 months
from the end of the rep. period
 If FS are not prepared in a going
concern basis, such shall be disclosed
together with the measurement basis
and reason
Accrual Basis – shall prepare FS based to this
except for Cash Flow info
 Effects of transactions and events are
recognized when they occur and not
when cash/CE is paid or received
Asset: Recognized when receivable
Liabilities: Recognized when payable
Income: Recognized when earned
regardless of when received
Expenses: Recognized when incurred
regardless of when paid
Materiality and Aggregation – entity shall
present separately:
o Each material class of similar
items
o Items of dissimilar nature or
function unless immaterial
 Final stage in the process of
aggregation and classification is the
presentation of condensed and
classified data which form line items in
the FS
Ex: Cash on hand, petty cash
fund, cash on bank and CE are
presented as one item, “Cash and Cash
Equivalents
 If line item is not individually material,
it is aggregated with other items either
in the statements or in the notes
Ex: Inventor’s share in the net
income is presented as a separate line
item in the income statement.
However, if it is individually material, it
may be aggregated with other income
 Entity does not need to provide a
specific disclosure if the information is
not material
o An item is material if knowledge
of it would affect the decision of
the primary users
o Information is material if
omitting or obscuring it could
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reasonably influence the Comparative Information – expect when

economic decisions of primary
users
o Obscured material Information is
when:
1. Language is vague or
unclear
2. Information is scattered
though out the FS
3. Dissimilar and Similar
items are not properly
aggregated
 Materiality of an items depends on
relative size rather than absolute size.
What is material for one entity may be
immaterial to another.
Offsetting – Assets and liabilities, income and
expensed, when material shall no offset against
each other.
 Offsetting may be done when it is
required/permitted by another PFRS
Ex: Gains and Losses on disposal of non-
current assets are reported by deducting
from the proceeds the C.A.
Expenditures related to a provision and
any reimbursement from a third party can
be offset, only the net is reported.
Gains and Losses arising from Trading
Securities are netted against the other
- However, if
material, such gains
and losses are
reported
separately.
Measurement of asset net of valuation
is permitted since it is not offsetting.
- Thus, Accounts
receivable may be
shown net of
allowance of
doubtful accounts.
Frequency of Reporting – shall present a
complete set of FS at least annually.
permitted/required by standard, FS of the
current period shall be presented with
comparative figures of the financial statements
of the immediately preceding year.
 Shall be included for narrative and
descriptive information when it is
relevant to understanding current
period’s FS
Consistency of Presentation – principle of
consistency requires that the accounting
methods and practices shall be applied on a
uniform basis from period to period
 Consistency is essential to achieve
comparability of FS
 Change can be made if said change will
result to information that is faithfully
represented and more relevant
o There should be full disclosure
of the change and the peso
effect of the change
o Allowed when it is required by
another standard or when a
significant change in the nature
of the operations will
demonstrate a more
appropriate revised
presentation and classification
o Inappropriate to leave
accounting policies unchanged
when better and acceptable
alternatives exist
IDENTIFICATION OF FINANCIAL STATEMENTS
Each component of the FS shall be clearly
identified:
 Name of the reporting entity
 Whether the FS cover the individual
entity or a group of entities
 The end of the reporting period or the
period covered by the FS or notes
 Presentation of currency
 Level of rounding used in the amounts

 If entity changes the end of the

reporting period and presents FS for
period longer/shorter than a year, it
shall disclose:
o Period covered by the FS
o Reason for using a
longer/shorter period
o Fact that amounts presented in
the FS are not entirely
comparable

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