 IASC

PHILIPPINE AND INTERNATIONAL - Formed in June 1973

ACCOUNTING STANDARD-SETTING
ORGANIZATIONS
ASC - Accounting Standards Council
BOA – Board of Accountancy
CB – Central Bank
CFFR – Conceptual Framework for Financial Reporting
FINEX -Financial Executives Institute of the Philippines
FRSC - Financial Reporting Standards Council
IAS – International Accounting Standards
IASB – International Accounting Standards Board
IASC – International Accounting Standards Committee
IASIC – International Accounting Standards
Interpretations Committee
IC – Interpretations Committee
IFRI – International Financial Reporting Interpretations
IFRIC – International Financial Reporting
Interpretations Committee
IFRS – International Financial Reporting Standard
PRC – Professional Regulation Commission
PFRS – Philippine Financial Reporting Standards
PAS – Philippine Accounting Standards
PIC – Philippine Interpretations Committee
PICPA – Philippine Institute of Certified Public
Accountants
RA No. 9298 – Philippine Accountancy Act of 2004
SFAS – Statements of Financial Accounting Standards
SIC – Standing Interpretations Committee
 ASC
- Formed by PICPA on Nov. 18, 1981
- Acc. Standards developed were known as
the SFAS
- 8 members (4 from PICPA and 1 each from
SEC, CB, PRC and FINEX.
- 2005- full adoption of IAS in the Ph.
 FRSC
- Replaced ASC
- Created by the PRC to assist the BOA in
carrying out its powers and functions
under RA 9298
- Main function: to establish and improve
accounting standards that will be
generally accepted in the Ph.
- “Highest hierarchy “of GAAP in the Ph.
- Issues PAS and PFRS.
- 15 members (1 Chairman and 14
Representatives) w/ a term of 3 years *pg.
15, CFAS, Valix et. al.
- Due process: consideration of
pronouncement of IASB, exposure draft,
consideration of comments received and
preparing a comment letter to the IASB,
approval of a standard
 PFRS
- Collectively include all the ff:
a. PFRS = IFRS
b. PAS = IAS
c. Philippine Interpretations =
IFRIC, SIC, and PIC
 PIC
- Replaced IC (w/c was formed by the ASC in
May 2000)
- Formed by the FRSC in 2006
- Prepare interpretations of PFRS and
provide timely guidance on fin.rep.
issues not specifically addressed in
current PFRS.
- IFRIC is the counterpart in the UK, which
replaced the SIC.
- Issued IAS (41 standards)
- Independent private sector body, with the
objective of achieving uniformity in the
accounting principles around the world.
- Objectives:
a. To formulate and publish in the
public interest accounting
standards and to promote their
worldwide acceptance and
observance.
b. For the improvement and
harmonization of regulations,
accounting standards and
procedures relating to the
presentation of FS.
 IASB
- Replaced the IASC, under the IFRS
Foundation (a not-for-profit, public
interest org. established to develop a
single set of high-quality,
understandable, enforceable, and globally
accepted acc. standards)
- Main international standard-setting
organization
- Issued 13 standards (IFRS)
- Over 115 countries require or permit the
use of IFRS
- 16 members, 5-year renewable terms
- Issues 3 major type of pronouncements:
a. IFRS (13 standards)
b. CFFR
c. IFRI – 20 interpretations issued
by the IFRIC (organized to
interpret specific issues when the
standards do not include specific
authoritative guidance)
- Due process: Research, discussion paper,
exposure draft and accounting standard.
- 16 members, w/ 5 year renewable term
- Nine of 16 votes to issue a new IFRS
- No regulatory mandate and no enforcement
mechanism.
4 ORGANIZATIONS (INTERNATIONAL STANDARD-SETTING
STRUCTURE)
1. IFRS Foundation
- 22 trustees
- Provides oversight to the IASB
2. IASB
3. IFRS Advisory Council
- 30 or more members
- Provides advice and council to the IASB
4. IFRS Interpretations Committee
- 22 members
- Assists the IASB through the timely
identification, discussion, and
resolution of fin.rep. issues
- Issues International Financial Reporting
Interpretations – authoritative and must
be followed
HIERARCHY OF AUTHORITATIVE PRONOUNCEMENTS
1. IFRS
2. IAS
3. Interpretations issued by IFRIC/IASIC
4. Conceptual Framework
5. Pronouncements of other standard-setting
bodies (US GAAP)

CONCEPTUAL FRAMEWORK
Conceptual Framework for Financial Reporting
- Describes the objective of, and the
concepts for, general purpose financial
reporting
- Most recent revision was in March 2018
- Promulgated by the IASB
- Not a PFRS nor an IFRS
- Nothing in the Framework overrides any
Standard on any requirement in a Standard
- The objective of financial reporting
forms the foundation of the Conceptual
Framework
4 PURPOSES of the Conceptual Framework
a. Assist the IASB to develop IFRS that are
based on consistent concepts
b. Assist preparers to develop consistent
accounting policies when no Standard
applies to a particular transaction or
other event or where an issue is not yet
addressed by an IFRS
c. to assist preparers of FS to develop
accounting policy when a Standard allows
a choice of an accounting policy
d. to assist all parties to understand and
interpret the IFRS.
General purpose financial reporting
- aims to provide financial information
about an entity that is useful to
existing and potential investors,
lenders, and other creditors in making
decisions about providing resources to
the entity.
- Directed to all common users and not to
specific users.
Financial Statements – provide information about
economic resources of the reporting entity,
claims against the entity, and changes in the
economic resources and claims.
TYPES OF FINANCIAL STATEMENTS
a. Consolidated FS – provides information
about the assets, liabilities, equity of
both parent and its subsidiaries
b. Unconsolidated FS – provides information
about the AL&E of the parent alone.
c. Combined FS – provide information about
the A,L,E,I,E of two or more entities not
linked w/ parent and subsidiary
relationship.
USERS of financial information
a. Primary users: Existing and potential
investors; and Existing and potential
Lenders, and other creditors
b. Other users: employees; customers;
governments and their agencies; and
public
OBJECTIVE of financial reporting
- To provide information that is useful for
decision making.
User’s decisions involve DECISIONS ABOUT:
a. Buying, selling, or holding equity or
debt instruments (investors)
b. Providing or settling loans and other
forms of credit (creditors)
c. Voting, or otherwise influencing
management’s actions
To make these decisions, users ASSES:
a. Prospects for future net cash inflows to
the entity
- Returns from the investment and
interest payments
b. Management’s stewardship of the entity’s
economic resources
To make these assessments, users need INFORMATION
ABOUT:
a. The entity’s economic resources and
claims (financial position)
- Helps to assess the entity’s
liquidity and solvency
b. Changes in economic resources and claims
(financial performance)
- Level of income by the entity
c. How efficiently and effectively
management has discharged its
responsibilities to use the entity’s
economic resources.
GOING CONCERN (Continuity assumption)
- Underlying assumption of the Conceptual
Framework.
- It means that in the absence of evidence
to the contrary, the accounting entity is
viewed continuing in operation
indefinitely.
- The FS are normally prepared on the
assumption that an enterprise is a going
concern and will continue in operation for
the foreseeable future.
QUALITATIVE CHARACTERISTICS OF
CONCEPTUAL FRAMEWORK
Qualitative characteristics are the qualities or
attributes that make financial accounting
information useful to users.
a) FUNDAMENTAL QUALITATIVE CHARACTERISTICS -
Relate to the content or substance of
financial information
1. Relevance
2. Faithful representation
RELEVANCE
- info. must be capable of making a
difference in the decision made by the
users.
- must influence a decision
- has PREDICTIVE VALUE and CONFIRMATORY VALUE
Materiality (doctrine of convenience)
- items not significant enough to affect
the valuation, decision, and fairness of
the FS
- subquality of relevance based on the
nature or magnitude or both of the items
to which the information relates
FAITHFUL REPRESENTATION
- Complete, neutral, and free from error
- Information must faithfully represent
the substance of what it purports to
represent
b) ENHANCING QUALITATIVE CHARACTERISTICS
- Relate to the presentation or form of
the financial information
1. Comparability
2. Understandability
3. Verifiability
4. Timeliness
Cost constraint on useful information
- Consideration of the cost incurred in
generating financial information
against the benefit to be obtained from
having the information.
- Benefit should be > cost incurred
ELEMENTS OF FINANCIAL STATEMENTS
FINANCIAL POSITION
a. Asset
- Present economic resource
- Controlled by the entity as a
result of past events
o No other party can benefit
from the asset
- Right that has a potential to
produce economic benefits
b. Liability
- Obligation
- The obligation is to transfer an
economic resource
- Present obligation that exists as
a result of past event
c. Equity
- Residual interest after deducting
all of the liabilities
FINANCIAL PERFORMANCE
a. Income
- increases in assets, decreases in
liability that result in increases
in equity, other than those
relating to contributions from
equity holders
- Income encompasses both revenue
and gains
b. Expense
- decreases in assets, increases in
liabilities, that result in
decreases in equity, other than
those relating to distributions to
equity holders
- expense encompasses losses
CONCEPTUAL FRAMEWORK:
RECOGNITION AND MEASUREMENT
RECOGNITION
- capturing for inclusion in the financial
statements an item that
- meets the definition of an asset, liability,
equity, income, or expense
-
INCOME AND EXPENSE RECOGNITION
 Income – when earned (point of sale)
 Expenses – when incurred (matching
principle)
a. Cause and effect association – expense
is recognized when revenue is already
recognized
b. Systematic & rational allocation –
costs are expensed by allocating them
over the periods benefited
c. Immediate recognition – cost is
expensed outright
DERECOGNITION
- Removal of all or part of a recognized
asset (e.g., loses control) or liability
(e.g., no longer has a present
obligation) from the SFP.
MEASUREMENT
- Quantifying in monetary terms the element
in the financial statements
a. Historical cost
b. Current Value
 Fair value
 Value in use for asset
 Fulfillment value for liability
 Current cost
HISTORICAL COST
- Provide monetary information using
information derived, at least in part,
from the price of the transaction or
other event that gave rise to them
- Entry price/value to acquire an asset or
to incur a liability
- Asset - consideration paid to acquire
asset plus transaction cost
- Liability – consideration received to
incur liability minus transaction cost
CURRENT VALUE
- Provide monetary information using
information updated to reflect conditions
at the measurement date
FAIR VALUE
- Asset – price that would be received to
sell an asset
- Liability – price that would be paid to
transfer a liability
- Exit price/value
VALUE IN USE (ASSET)
- Present value of the cash flows that an
entity expects to derive from the use of
an asset and from the ultimate disposal
 - Exit price/value
FULFILLMENT VALUE (LIABILITY)
- Present value of cash that an entity
expects to transfer in paying or settling
a liability
- Exit price/value
CURRENT COST
- Reflects market conditions on the
measurement date
- Asset – cost of an equivalent asset at the
measurement date
- Liability – consideration that would be
received less any transaction cost at the
measurement date
CONCEPTUAL FRAMEWORK:
PRESENTATION AND DISCLOSURE;
CONCEPTS OF CAPITAL
PRESENTATION & DISCLOSURE AS AN EFFECTIVE
COMMUNICATION TOOL:
- Makes the information more relevant and
contributes to a faithful representation
- Enhances understandability and
comparability
- Duplicating is unnecessary
CLASSIFICATION
- Sorting of assets, liabilities, income,
and expenses on the basis of similar
characteristics
a. Assets and Liabilities – Current and
noncurrent
b. Equity – OSC, PSC, SP, and Retained
earnings
c. Income and expenses – Profit or Loss
and Other Comprehensive Income
AGGREGATION
- Adding together of assets, liability,
income, and expenses that have similar
characteristics and are included in the
same classification
- Problem: Aggregation may conceal some of
the detail
CAPITAL MAINTENANCE
1. Transaction approach – traditional
preparation of income statement
2. Capital Maintenance Approach (Return on
capital & Return of Capital)
 Financial Capital (Capital = Net
Assets/Equity)
 Physical Capital (Physical
productive capacity)
Return on capital
- Amount in excess of the original
investment
Return of capital
- An erosion of the capital invested in the
entity
PRESENTATION OF FINANCIAL
STATEMENTS:
STATEMENT OF FINANCIAL POSITION
FINANCIAL STATEMENTS – are the means by which the
information accumulated and processed in
financial accounting is periodically communicated
to the users
- Structured representation of the
financial position and the
financial performance of an
entity.
- Objective: provide information
about the financial position,
financial performance and cash
flows of an entity that is useful
to wide range of user in making
economic decisions.
FREQUENCY OF REPORTING
1. At least annually; or
2. Longer or shorter than one year (entity
shall disclose the ff:)
a. Period covered
b. Reason
c. Fact that amounts presented in the
FS are not entirely comparable
STATEMENT OF FINANCIAL POSITION
- Formal statement showing the 3 elements
– assets, liabilities, and equity
- Shows the financial position of an
enterprise as of a given date/at a point
in time
ASSETS
a. Current assets
b. Noncurrent assets
- Except when a classification based
on liquidity is more relevant
Current assets
1. Cash or cash equivalent, unless
restricted
2. Purpose: trading
3. Realization: 12 months after reporting
period
4. Realization/Sale: normal operating cycle
Noncurrent assets
- Residual
- all other assets not classified as
current
LIABILITIES
a. Current Liabilities
b. Noncurrent Liabilities
Current liabilities
1. Expects to settle w/in normal operating
cycle
2. Purpose: trading
3. Due: 12 months after the RP
4. No unconditional right to defer: 12
months after the RP
Noncurrent liabilities
- Residual
- all other liabilities not classified as
current
Provision
- existing liability of uncertain timing
or uncertain amount
- e.g., Provision for warranty, Provision
for premium, provision for loyalty
program
- Current if w/ 12 months
- Noncurrent if beyond 12 months
CONTINGENT LIABILITY
- Possible obligation that arises from
past event
- Existence will be confirmed only by the
occurrence or non-occurrence
- Not probable of outflow
- Cannot be measured reliable
a. Probable (50% occurrence) - no
recognition, but is disclosed
b. Reasonably possible (less than 50%
occurrence) – disclosure
c. Remote (10% or less likely to occur) -
no recognition, no disclosure
CURRENTLY MATURING LONG-TERM DEBT
Current if:
1. Refinance/reschedule is completed after
the reporting period and before the FS
are authorized for issue.
2.
WORKING CAPITAL
- Excess of current assets over current
liabilities
EQUITY
- residual interest in the assets of the
entity after deducting all of its
liabilities
FORMS OF SFP:
1. Report form
2. Account form
PRESENTATION OF FINANCIAL
STATEMENTS:
STATEMENT OF COMPREHENSIVE
INCOME
STATEMENT OF FINANCIAL PERFORMANCE
Statement of profit or loss together with the
statement presenting other comprehensive income
CLASSSIFICATION OF EXPENSES
1. Distribution costs
2. Administrative expenses
3. Other expenses
Distribution costs – selling advertising and
delivery
Administrative expenses – all OpEx not related to
selling and COGS
Other expenses – not directly related to selling
and administrative function
FORMS OF INCOME STATEMENT
1. Function of expense / COGS method
2. Nature of expense
Function of expense – classifies expenses
according to their function as COGS, distribution
costs and other expenses
Nature of expense – expenses are aggregated
according to their nature
COMPREHENSIVE INCOME
- Net income (loss) plus (minus) the
components of other comprehensive income
- Net other comprehensive income is
carried to “reserves” or shown
separately in SCE
PRESENTATION OF COMPREHENSIVE INCOME:
a. SINGLE SCI - Combined income statement
and statement of comprehensive income
b. Two statements – income statement and SCI
STATEMENT OF CASH FLOWS
- Information on the inflows and outflows
of cash and cash equivalents
OPERATING ACTIVITIES
- Events that enter into the determination
of profit or loss
INVESTING ACTIVITIES
- Assets not normally identified with
normal operating cycle
FINANCING ACTIVITIES
- Affects non-trade liabilities, and
shareholders’ equity
DIRECT METHOD
- Enumerates the major classes of gross
operating cash receipts and payments
INDIRECT METHOD
- Presents cash flows from operations by
reconciling profit or loss before income
tax to operating cash flows
ACCOUNTING POLICIES
ACCOUNTING POLICIES
- Specific principles, bases, conventions,
rules, and practices applied by an
entity in preparing and presenting FS
HIERARCHY:
1. IFRS specifically applies to transaction
– apply the IFRS
2. Absence of IFRS – judgment (relevant and
reliable)
- Reliable – faithful
representation, substance over
form, neutral & free from bias,
prudent, and complete
- Consider the applicability of: (in
descending order)
a. IFRS similar & related
issues
b. Definition, recognition
criteria, measurement
concepts in the CF
c. Recent pronouncements
 2. Analyze the transactions, and for record
in the journal.
3. Post journal entries to applicable ledger
GENERAL FEATURES FOR THE PRESENTATION OF
accounts.
FINANCIAL STATEMENT
4. Unadjusted Trial balance
1. Fair presentation & Compliance w/
5. Adjusting entries are journalized and
PFRS/IFRS
posted
2. Going concern
6. Adjusted trial balance
3. Accrual basis
7. Financial statement
4. Materiality & Aggregation
8. Closing entries
5. Offsetting
9. Post-closing trial balance
6. Frequency of reporting
10. Reversing entries are journalized and
7. Comparative Information
posted
8. Consistency of Presentation

Business transactions are documented

FAIR PRESENTATION & COMPLIANCE WITH PFRS
- Business documents / source documents
- An entity achieves fair presentation by
such as sales receipts, purchase
compliance with applicable IFRS
invoice, check vouchers
- Explicit and unreserved statement of
such compliance in the notes
Analyzation of the transaction, recording in the
- An entity cannot rectify inappropriate
journal
accounting policies either by disclosure
- ‘Book of original entry’
of the accounting policies used or by
- Transactions must influence the element
notes
of the financial statements and meet
the criteria of recognition
ACCRUAL BASIS
- Double entry accounting system – every
- Transactions and events are recognized
debit, there is a credit, and must be
when they occur
equal
- all financial statement, except for cash
- Two types of journal:
flow
a. General Journal (Two column
journals)
MATERIALITY & AGGREGATION
b. Special Journal
- If item is immaterial (insignificant) it
is aggregated with other items either on
Posting to the ledger
the face or in the notes
- Ledger is a complete listing of all the
accounts used in the chart of accounts.
COMPARATIVE INFORMATION
- Pencil footing – account balances of
- two sets of all components of financial
each account are calculated at the
statements are presented
bottom and gets its total
RETROSPECTIVE ADJUSTMENT
Unadjusted trial balance
- for prior period errors?
- Equality of debits and credits
- three SFP shall be presented
- any resulting adjustment from the
Adjusting entries are journalized and posted
change in accounting policy shall be
- Matching principle – to match revenue
reported as an adjustment to the
and expenses in the period in which they
opening balance of retained earnings
occur.
- Time period principle – accounting
CHANGE IN ACCOUNTING ESTIMATE
records and activities can be divided
- revision of the estimate does not
into separate time periods.
relate to prior periods
- Affects one real account and one nominal
- not a correction of an error
account
1. Prepayments
2. Accruals
3. Noncash expenses
REVIEW OF THE ACCOUNTING CYCLE (Depreciation, amortization,
impairment)
ACCOUNTING CYCLE/PROCESS
- Series of steps to be completed during
an accounting period
- Repeated in the same order every
reporting period

FINANCIAL STATEMENTS
- End results of the accounting process
- Main source of financial information for
most decision by the management

STEPS IN ACCOUNTING PROCESS:

1. Business transactions are documented