CONCEPTUAL FRAMEWORK AND

ACCOUNTING STANDARDS
Module 1: Standard-setting Bodies, the Accountancy Profession
and the Conceptual Framework for Financial Reporting

1st semester, SY 2020-2021

Prepared by:

ANNY CLOVERIES M. GABAYAN

Faculty, College of Business and Accountancy
Palawan State University
Email: acgabayan@psu.palawan.edu.ph
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Table of Contents
Module 1: Standard-setting Bodies, the Accountancy Profession and the Conceptual Framework for
Financial Reporting ................................................................................................................................................................... 2

Module Overview................................................................................................................................................... 2
Lesson 1: Development of Financial Reporting Framework, Standard-setting Bodies and Regulation
of the Accountancy Profession ........................................................................................................................................ 2

Learning Outcomes ............................................................................................................................................... 2

Reaching Out ............................................................................................................................................................ 2

Developing Your Skills ......................................................................................................................................... 3

Testing Your Skills .............................................................................................................................................. 10

Answer Key ............................................................................................................................................................. 11

Assignment ............................................................................................................................................................. 11
Lesson 2: Conceptual Framework for Financial Reporting ................................................................................ 12

Learning Outcomes ............................................................................................................................................ 12

Reaching Out ......................................................................................................................................................... 12

Developing Your Skills ...................................................................................................................................... 12

Testing Your Skills .............................................................................................................................................. 19

Answer Key ............................................................................................................................................................. 20

Assignment ............................................................................................................................................................. 20

References ....................................................................................................................................................................... 21
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Module 1: Standard-setting Bodies, the Accountancy Profession and the

Conceptual Framework for Financial Reporting

Module Overview
In this module, we will study the financial reporting framework applied in the Philippines. This module
is separated into two lessons and each is organized as follows:

Learning outcomes Lists down all your objectives corresponding to the lessons in this
module.
Reaching out Introduces you to the lesson and motivates you to engage you in
studying.
Developing your skills This is the center of the module. This mainly includes a lecture to read,
illustrations, suggested web sites to visit and other learning
experiences.
Testing your skills Summarizes everything you need to do within the two weeks, including
assignments, quizzes and problem-solving activities.
Answer key Provides the correct answers and solutions to the activities. This
ensures that you get your feedback immediately after answering and
solving the activities. Solve first before opening this part. Integrity is a
professional accountant’s ethic!
Assignment This further evaluates what you have learned in this module.
References Includes all cited sources in writing this module.

Lesson 1: Development of Financial Reporting Framework, Standard-setting

Bodies and Regulation of the Accountancy Profession
3 hours
Learning Outcomes
By the end of this lesson, you will be able to:

 Discuss the development and functions of the standard-setting bodies

 Describe the regulation and environment of the accounting profession in the Philippines

Reaching Out
In your basic accounting subject, you were introduced to the generally accepted accounting principles.
You were taught to strictly follow these principles in preparing and presenting a company’s financial
statements. Did you know that from these principles come a specific set of accounting standards now
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applied and followed globally? Businesses and professionals in the Philippines follow this whole set of
accounting standards.

These accounting standards are carefully formulated, discussed and issued by our standard-setting
bodies which are composed of experts in the Accountancy profession.

You will learn in this lesson who are these standard-setting bodies, how they are formed and what
they do. Moreover, you will be introduced to the regulations and the environment of the Accountancy
profession, which is where you will be and what you shall be doing in the future.

Before moving on to the lecture, let me ask you this question then share your honest thoughts:

In what kind of work environment do you see yourself in five years? Is it in a large
company, a small business, in the government, in education, or any other environment?

Developing Your Skills

Development and Functions of the Standard-Setting Bodies

THE IFRS FOUNDATION

The IFRS Foundation, or the International Financial Reporting Standards Foundation, is a not-for-
profit international organization responsible for developing a single set of high-quality global
accounting standards, known as the IFRS Standards. It has a three-tier governance structure
illustrated as follows:

IFRS Foundation Monitoring Board Public accountability 3

IFRS Foundation Trustees Governance 2

IASB
Independent standard-setting 1
IFRIC
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Each body in the illustration above is defined below:

 IFRS Foundation Monitoring Board – a group of capital market authorities responsible for
setting the form and content of financial reporting. These capital market authorities are the
regulators of the industries under their jurisdictions. They come from different parts of the
world to represent and carry out their own mandates regarding investor protection, market
integrity and capital formation. Their purpose is to provide a formal link between the Trustees
and public authorities in order to enhance the public accountability of the IFRS Foundation.
 IFRS Foundation Trustees – are responsible for the governance and oversight of the IASB,
including the Constitution and due process for the development of the accounting standards.
Each Trustee is expected to have an understanding of, and be sensitive to, international issues
relevant to the success of the IASB in its development of IFRS Standards.
 IASB – is the independent standard-setting body of the IFRS Foundation. This will be further
defined in the succeeding topic.
 IFRIC – or the IFRS Interpretations Committee, is the interpretative body of the IASB, which
works with the Board in supporting the application of IFRS Standards. If somebody raises a
question on the application of a Standard, the Committee responds to this question with the
help of the Board. The Committee also does other work at the request of the Board.

High-quality financial information is the lifeblood of capital markets

Accounting standards are a set of principles companies follow when they
prepare and publish their financial statements, providing a standardised
way of describing the company’s financial performance. Publicly
accountable companies (those listed on public stock exchanges) and
financial institutions are legally required to publish their financial reports in
accordance with agreed accounting standards.
Source: ifrs.org/about-us/who-we-are

The IASB is governed and overseen by Trustees from around the world (IFRS Foundation Trustees) who
in turn are accountable to a monitoring board of public authorities (IFRS Foundation Monitoring
Board).

THE INTERNATIONAL ACCOUNTING STANDARDS BOARD

The IASB, or International Accounting Standards Board, is an independent group of professionals with
recent practical experience in setting accounting standards, in financial reporting and in the accounting
education. It is a standard-setting body composed of its board members. The board members develop
and publish International Financial Reporting Standards (IFRS), a single set of high-quality,
understandable, enforceable and globally accepted accounting standards. The IFRS contains all
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accounting standards that a company must follow in preparing and presenting its financial statements.
Throughout this course, you will gain an understanding of each of these accounting standards.

The IASB is organized under the IFRS Foundation, or the International Financial Reporting Standards
Foundation.

THE INTERPRETATIONS COMMITTEE PROCESS

The IFRIC, formerly known as the SIC or the Standards Interpretations Committee, supports the IASB in
the implementation of the IFRS Standards. If a requirement in a Standard or a whole Standard is vague
or some issue determined by professionals or other experts arises, the matter is handled by the IFRIC.
The process is illustrated below:

Source: https://www.ifrs.org/supporting-implementation/how-the-ifrs-interpretations-committee-helps-implementation/

You are encouraged to know more of the projects, resources and updates of the IFRS Foundation
by signing up to their website www.ifrs.org. Registration is free! Also, their history can be accessed
at https://www.ifrs.org/about-us/who-we-are/#history. See how their operations progressed
through the years!

THE FINANCIAL REPORTING STANDARDS COUNCIL

You have previously learned that the international accounting standards is developed by the IASB. In
the Philippines, we have the FRSC, or the Financial Reporting Standards Council. This was
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established by the PRC, or the Professional Regulation Commission, through the IRR of RA 9298, or
the Philippine Accountancy Act of 2004. The function of the FRSC is to assist the Board of Accountancy
(BOA) in carrying out its power and function to issue accounting standards in the Philippines.

The FRSC carries on the decision made by the Accounting Standards Council (ASC), its predecessor, to
converge Philippine Financial Reporting Standards (PFRS) with the IFRS Standards issued by the
IASB. Therefore, today, we are complying with the IFRS Standards. However, adoption of these
international accounting standards in the Philippines still undergo a process. When the IASB releases
exposure drafts of IFRS proposals, the FRSC invites local experts to comment on these. When the IFRS
Standard is finally published, the FRSC adopts it as a Philippine Financial Reporting Standard (PFRS).

Similarly, a Philippine Interpretations Committee (PIC) was formed by the FRSC. It adopts issuances
by the IFRIC.

The IFRS Standards and issuances of the IFRIC, when finalized, are adopted by the FRSC and the PIC.
These are submitted to the BOA and PRC for approval.

The FRSC has full discretion in developing and pursuing the technical agenda for setting accounting
standards in the Philippines. Financial support is received principally from the PICPA Foundation or the
Philippine Institute of Certified Public Accountants Foundation, Inc.

You can access the whole list of PFRS adopted from IFRS through PICPA’s website at picpa.org.ph.
Open the LINKS tab, click ACCOUNTING STANDARDS (FRSC), and then click PFRSs.

Become familiar with the standard-setting bodies’ functions before you step into the profession. Early
knowledge is an advantage!

Regulation and Environment of the Accounting Profession in the Philippines

THE PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCYThe Professional Regulatory Board
of Accountancy (the “Board”), is formed under the supervision and administrative control of the PRC,
or the Professional Regulation Commission. The Board is composed of a chairman and six members
appointed by the President of the Philippines. From the six members, one is elected as the Vice
Chairman.

Currently, the members of the Board are the following:

 Noe G. Quiñanola as the Chairman

 Thelma S. Ciudadano as the Vice Chairman
 Marko Romeo L. Fuentes
 Gloria T. Baysa
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 Samuel B. Padilla
 Arlyn S. Villanueva
 Gervacio I. Piator

The members of the Board were appointed from a

list of recommendations by the PRC and from a list
of nominees submitted by the Philippine Institute of
Certified Public Accountants (PICPA).

There are a number of specific powers, functions and

responsibilities of the Board set out in the
Accountancy Act. The Board’s overall function is to
regulate the practice of accounting profession in the
Philippines. This mainly includes supervision of the licensure examination and the professional’s
registration, review of the practices adopted by auditors, ensuring compliance of academic institutions
to the requirements prescribed by CHED in coordination with the Board, and punishment to violators
of the Accountancy Act and its rules and regulations.

THE ACCREDITED PROFESSIONAL ORGANIZATION OF PROFESSIONAL ACCOUNTANTS IN THE

PHILIPPINES

The PICPA, or the Philippine Institute of Certified Public Accountants, is the accredited national
professional organization of CPAs by the PRC. PICPA is a registered non-stock corporation divided into
geographical divisions which are subdivided into regional divisions further subdivided into chapters
which handles membership within the chapter’s area/location. CPAs practicing their profession in
Palawan are members of the PICPA Palawan Chapter.

The objectives of PICPA are as follows:

 To promote and maintain high professional and ethical

standards among accountants;

 To advance the science of accounting;

 To develop and improve accountancy education;

 To encourage cordial relations among accountants, and

 To protect the Certificate of Certified Public Accountant

granted by the Republic of the Philippines
The Logo of PICPA
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The National Office of PICPA is composed of 21 Board members, of whom each region and each sector
(Public practice, Commerce & Industry, Education and Government) is fairly represented. These Board
members elect the officers who will be heading the National Office. The following are their roles:

 President
 Executive Vice President
 Vice President for Public Practice
 Vice President for Commerce and Industry
 Vice President for Education
 Vice President for Government
 Vice President for Operations
 Secretary
 Assistant Secretary
 Treasurer
 Assistant Treasurer

The National Office sets the overall directions and policies, and each sector identifies the specific
professional needs and plans the current and future directions accordingly.

Similarly, each region and each chapter has their own respective governing council. At their respective
levels, the regions and the chapters take care of implementing PICPA's policies and/or projects as
determined or planned by the sectors.

SECTORS OF THE PRACTICE OF ACCOUNTANCY PROFESSION AND THE ACCREDITATION

REQUIREMENTS

When the RA 9298 or the Accountancy Act came into form, the accountancy profession was formally
recognized as a composition of four sectors, namely:

 Public practice – offer services such as:

o the audit or verification of financial
transaction and accounting records; or
o the preparation, signing, or certification
for clients of reports of audit, balance
sheet, and other financial, accounting and
related schedules, exhibits, statements or
reports which are to be used for
publication or for credit purposes, or to be
filed with a court or government agency, or to be used for any other purpose; or
o the design, installation, and revision of accounting system; or
o the preparation of income tax returns when related to accounting procedures; or
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o when he/she represents clients before government agencies on tax and other matters
related to accounting or renders professional assistance in matters relating to
accounting procedures and the recording and presentation of financial facts or data.

CPAs engaged in public practice shall be accredited as such by the PRC and the Board of
Accountancy renewable every three years. The CPA-applicant shall provide a proof that he/she
had at least 3 years meaningful experience in any of the areas of the accountancy profession
before being issued with a Certificate of Accreditation.

 Commerce and industry – involved in decision

making requiring professional knowledge in the
science of accounting, or when such employment
or position requires that the holder thereof must
be a certified public accountant.

CPAs preparing the financial statements of a

private organization shall be accredited by the
PRC and the Board of Accountancy after submitting the necessary requirements, including
compliance with the Continuing Professional Development (CPD) requirements. Accreditation
is required before signing the organization’s financial statements and the attached Certificate
of Compilation Services.

 Education/Academe – in an educational institution

which involve teaching of accounting, auditing,
management advisory services, finance, business law,
taxation, and other technically related subjects

CPAs practicing their profession in the academe shall be

accredited by the PRC and the Board of Accountancy after
submitting all the necessary requirements for accreditation.

 Government – appointed to a position in an

accounting professional group in government or in a
government–owned and/or controlled corporation,
including those performing proprietary functions, where
decision making requires professional knowledge in the
science of accounting, or where a civil service eligibility as a
certified public accountant is a prerequisite.

Continuing Professional Development (CPD) refers to the inculcation, assimilation and acquisition of
knowledge, skills, proficiency and ethical and moral values, after the initial registration of a professional
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that raise and enhance the professional’s technical skills and competence. This consists of activities
which maintain and improve the qualities of a professional accountant.

Voluntary compliance with the CPD program is an effective and credible means of ensuring
competence, integrity and global competitiveness of professionals in order to allow them to continue
the practice of their profession. A professional must earn a required number of CPD credit units before
he can renew his license and accreditations.

Testing Your Skills

Now that you are familiar with the standard-setting bodies and the accounting profession, you can
already answer the following activity. Fill in the appropriate term on the spaces provided in each
statement.

1. The IFRS Foundation is responsible for developing a single set of high-quality global
accounting standards, known as the ______________________.
2. ____________________________________________ is the first level of the IFRS Foundation’s governance
structure.
3. The IFRS Foundation Monitoring Board is represented by ______________________________ from
different parts of the world who regulate their industries in their own jurisdictions. They
enhance the _________________________ (a level of the governance structure) of the IFRS
Foundation.
4. The _________________ supports the IASB in the application of IFRS Standards. It provides
interpretations on the requirements that have been raised in question.
5. The ___________, or the _______________________________________________________________________, is
the local counterpart of the IASB in developing and implementing accounting standards in the
Philippines.
6. The Board of Accountancy is composed of a ______________________ and _______ members
appointed by the President of the Philippines.
7. The Board of Accountancy was formed by the ____________ to _____________________ the practice
of accounting profession in the Philippines.
8. One of the objectives of PICPA is to promote and maintain high
________________________________________________________ among accountants.
9. The accountancy profession is divided into four sectors, namely ____________________________,
____________________________________________, _________________________________ and
______________________________.
10. CPD credit units must be earned by a CPA to ensure his competence, integrity and
_____________________________________ to allow them to continue the practice of their profession.

(Finish completing all the statements first before turning to the next page.)
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Answer Key
Let’s check your answers! Each completed statement corresponds to one point, totalling to 10 points
for the whole test.

1. IFRS Standards
2. Independent standard-setting
3. Capital market authorities; public accountability
4. IFRIC or IFRS Interpretations Committee
5. FRSC; Financial Reporting Standards Council
6. Chairman; six
7. PRC; regulate
8. High professional and ethical standards
9. Public practice; Commerce and Industry; Education/Academe; Government
10. Global competitiveness

Assignment
As your final evaluation in this lesson, answer the following question in three or more sentences:

Now that you know the four sectors of the accounting profession, which one are you interested
to engage in? Why?
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Lesson 2: Conceptual Framework for Financial Reporting

3 hours
Learning Outcomes
By the end of this lesson, you will be able to:

 State the objective and status of the conceptual framework

 Explain the qualitative characteristics of financial reporting

 Define the elements of financial statements

 State the recognition and derecognition criteria and the measurement bases used in
financial reporting

 Discuss the concepts of capital and capital maintenance

Reaching Out
After learning about the standard-setting bodies and their development of accounting standards
which we know as the IFRS/PFRS, you are now ready to be introduced to the conceptual framework.
The Conceptual Framework for Financial Reporting consists of ideas and objectives that serve as the
basis for developing the Standards. It sets out the fundamental concepts of financial reporting. It helps
to ensure that the Standards are conceptually consistent and that similar transactions are treated the
same way to provide useful information for investors, lenders and other creditors.

Let us use the term “Standards” in referring to the IFRS or PFRS.

Before you get to learn each specific Standard, you must first know the Conceptual Framework. This
embodies the general principles applied in each Standard. It is the so-called “pillar” of the Standards.
Take note, however, that the Conceptual Framework is not a Standard. It is the basis of the Standards.

Developing Your Skills

Objective and Status of the Conceptual Framework
The Conceptual Framework contains the concepts for 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.

The purpose of the Conceptual Framework is to:

a. Assist the IASB in developing the Standards that are based on consistent concepts;
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b. Assist preparers of financial statements to develop consistent accounting policies when no

Standard applies to a particular transaction or other event, or when a Standard allows a choice
of accounting policy; and
c. Assist all parties to understand and interpret the Standards.

The financial statements provide information about an entity’s economic resources and claims, plus
their changes. See the illustration below:

What to report Where to report

Economic resources and claims (ER&C) Statement of financial position

Changes in ER&C resulting from financial performance Statement of comprehensive income

Changes in cash flows Statement of cash flows

Changes in ER&C not resulting from financial performance Statement of changes in equity

To meet the objective of general purpose financial reporting, the IASB may sometimes specify
requirements that depart from aspects of the Conceptual Framework. If the IASB does so, it will explain
the departure in the Basis for Conclusions on that Standard.

The Conceptual Framework may be revised from time to time on the basis of the IASB’s experience of
working with it. Revisions of the Conceptual Framework will not automatically lead to changes to the
Standards. Any decision to amend a Standard would require the IASB to go through its due process
for adding a project to its agenda and developing an amendment to that Standard.

Qualitative Characteristics of Useful Financial Information

There are two types of characteristics for financial information to be useful:

FUNDAMENTAL ENHANCING

Verifiability Comparability
Faithful
Relevance
representation

Understandability Timeliness
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 FUNDAMENTAL QUALITATIVE CHARACTERISTICS

o Relevance – Relevant financial information is capable of making a difference in the
decisions made by users. Information may be capable of making a difference in a
decision even if some users choose not to take advantage of it or are already aware of
it from other sources. The concept of materiality applies in this characteristic.
Materiality is the entity-specific aspect of relevance based on the nature or magnitude,
or both, over the items to which the information relates in the context of the entity’s
financial report. It determines how significant an item is in the financial statements.

o Faithful representation – Financial information must not only be relevant, but must
also faithfully represent what it aims to represent. To determine if a financial
information is faithfully represented, it must have the following three characteristics:
complete, neutral and free from error.

 ENHANCING QUALITATIVE CHARACTERISTICS

o Verifiability – This means that independent and knowledgeable observers are able
to verify the information, in a consensus. Although it may not be necessarily a
complete agreement, they just have to verify that a financial information is faithfully
represented.

o Comparability – Financial information should be comparable between different

entities or time periods. It enables users to identify and understand similarities in,
and differences among, items. Comparability is not uniformity. For information to be
comparable, like things must look alike and different things must look different.

o Understandability – Financial information must be classified and presented clearly

and concisely to make it understandable.

o Timeliness – Financial information is available in time to influence the decision of

users of financial information. Generally, the older the information is the less useful it
is.
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Elements of Financial Statements

DEFINITION

Previously, economic resources and claims and their changes were defined. The elements of financial
statements are linked to these. This is summarized below:

ITEM DISCUSSED ELEMENT DEFINITION

Economic resource Asset A present economic resource controlled by the entity as a
result of past events.
An economic resource is a right that has the potential to
produce economic benefits.
Claim Liability A present obligation of the entity to transfer an economic
resource as a result of past events.
Equity The residual interest in the assets of the entity after
deducting all its liabilities.
Changes in ER&C Income Increases in assets, or decreases in liabilities, that result in
reflecting financial increases in equity, other than those relating to
performance contributions from holders of equity claims.
Expenses Decreases in assets, or increases in liabilities, that result in
decreases in equity, other than those relating to
distributions to holders of equity claims.
Other changes in - Contributions from holders of equity claims, and
ER&C distributions to them.
- Exchanges of assets or liabilities that do not result in
increases or decreases in equity.

Financial information, in terms of the elements of financial statements, is classified as follows:

Assets

Financial
Liabilities
position

(Balance sheet &

Financial Cash flow statement) Equity
information

Income
Financial
performance
Expenses
(Income statement &
Cash flow statement)
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RECOGNITION CRITERIA

Recognition represents the question WHEN. It is necessary to know WHEN to recognize or show
certain items in the financial statements.

This is the general criteria used in recognizing the elements:

 It is probable that any future economic benefit associated with the item will flow to or from
the entity; and
 The item's cost or value can be measured with reliability.

Based on these general criteria, each element’s recognition criteria are as follows:

Asset’s recognition criteria:

a. It is probable that the future economic benefits will flow to the entity; and
b. The asset has a cost or value that can be measured reliably.

Liability’s recognition criteria:

a. It is probable that an outflow of resources embodying economic benefits will result from the
settlement of a present obligation; and
b. The amount at which the settlement will take place can be measured reliably.

Income’s recognition criteria:

a. An increase in future economic benefits related to an increase in an asset; or

b. A decrease of a liability has arisen that can be measured reliably.

Expenses’ recognition criteria:

a. A decrease in future economic benefits related to a decrease in an asset; or

b. An increase of a liability has arisen that can be measured reliably.

DERECOGNITION CRITERIA

Derecognition is the removal of all or part of a recognized asset or liability from an entity’s statement of
financial position.

Derecognition normally occurs when that item no longer meets the definition of an asset or of a
liability:

 for an ASSET, derecognition normally occurs when the entity loses control of all or part of the
recognised asset; and
 for a LIABILITY, derecognition normally occurs when the entity no longer has a present
obligation for all or part of the recognised liability.
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MEASUREMENT OF THE ELEMENTS

Measurement represents the question HOW MUCH should we recognize the asset, liability, equity,
income or expense.

The following measurement bases are used:

Historical cost Fair value

Measurement
bases
Value in use and
Current value
fulfilment value

Current cost

 Historical cost – This is most commonly used today. This is the price of the element at the
date of the transaction. The historical cost of an asset when it is acquired or created is the
value of the costs incurred in acquiring or creating the asset, comprising the consideration paid
to acquire or create the asset plus transaction costs. The historical cost of a liability when it is
incurred or taken on is the value of the consideration received to incur or take on the liability
minus transaction costs.

 Current value – This is the value of the element at every measurement date (or at balance
sheet reporting date). This value changes because of changing estimates in cash flows or other
factors. Current value measurement bases include:

o Fair value - Fair value is 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.
o Value in use and fulfilment value (or the present value) – Value in use is the present
value of the cash flows, or other economic benefits, that an entity expects to derive
from the use of an asset and from its ultimate disposal. Fulfilment value is the present
value of the cash, or other economic resources, that an entity expects to be obliged to
transfer as it fulfils a liability.
o Current cost - Like historical cost, it is an entry value. It reflects prices in the market in
which the entity would acquire the asset or would incur the liability.
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Concepts of Capital and Capital Maintenance

CONCEPTS OF CAPITAL

There are two concepts of capital:

1. Financial capital – This is adopted by most entities in preparing their financial statements.
Examples of these financial concepts are invested money or invested purchasing power.
Financial capital is synonymous with the net assets or equity of the entity.
2. Physical capital – One examples of a physical concept is operating capability. Physical capital
is regarded as the productive capacity of the entity based on units of output per day, for
example.

An entity selects one concept of capital. Through this, it determines their measurement basis and their
accounting model that will be used in preparing their financial statements.

CONCEPTS OF CAPITAL MAINTENANCE

Following the concepts of capital, there are also two concepts of capital maintenance:

1. Financial capital maintenance – This concept states that a profit is earned only if the amount
of the net assets at the end of the period exceeds the amount of net assets at the beginning
of the period.
2. Physical capital maintenance – This concept states that a profit is earned only if the physical
productive capacity at the end of the period exceeds the physical productive capacity at the
beginning of the period.

For your further reading on the Conceptual Framework for Financial Reporting,
you may find its full text here:

https://www.ifrs.org/issued-standards/list-of-standards/conceptual-framework/
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Testing Your Skills

After learning about the Conceptual Framework, you can now answer the following activity. On the
space provided before each statement, in capital letters, write TRUE if you believe that the statement
is true and FALSE if you believe it is false.

1. The Conceptual Framework is the first standard included in the IFRS.

2. One of the purposes of the Conceptual Framework is to assist the IASB in developing the
Standards.
3. Under the concept of physical capital maintenance, profit is earned only if the physical
productive capacity at the end of the period exceeds that at the beginning of the period.
4. Value in use is the present value of a liability, while fulfilment value is the present value of an
asset.
5. Enhancing qualitative characteristics is not required for a financial information to be useful.
6. Decreases in liabilities that result in increases in equity is an expense.
7. An asset is derecognized when the entity loses control of such asset.
8. For a financial information to be faithfully represented, it must be complete, neutral and free
from error.
9. An asset is recognized when it is probable that the future economic benefits associated with
the asset will flow to the entity and its cost can be measured reliably.
10. Claims are presented as assets in the statement of financial position.

(Finish answering all the questions first before turning to the next page.)
 Module 1: Standard-setting Bodies, the Accountancy Profession and the Conceptual Framework
20
for Financial Reporting

Answer Key
Let’s check your answers! This test is equivalent to a total of 10 points.

1. FALSE
2. TRUE
3. TRUE
4. FALSE
5. FALSE
6. FALSE
7. TRUE
8. TRUE
9. TRUE
10. FALSE

Assignment
As your final evaluation in this lesson, answer the following questions:

What is the difference between historical cost and current value measurement bases? Explain in
one to two sentences. (3 points)

Write the recognition criteria for each element of financial statements: (8 points)

An asset is recognized when:

A liability is recognized when:

An income is recognized when:

An expense is recognized when:

 Module 1: Standard-setting Bodies, the Accountancy Profession and the Conceptual Framework
21
for Financial Reporting

Why do you think it is important for accountants to know about the Conceptual Framework for
Financial Reporting? State your answer in two to three sentences. (5 points)

You have just finished Module 1. Look forward to the next module!

References
IFRS Foundation: Who we are. Retrieved from https://www.ifrs.org/about-us/who-we-are/#about-us

IFRS Foundation: Our structure. Retrieved from https://www.ifrs.org/about-us/our-structure/

How the IFRS Interpretations Committee helps implementation. Retrieved from

https://www.ifrs.org/supporting-implementation/how-the-ifrs-interpretations-committee-helps-
implementation/#process

About FRSC and PIC. Retrieved from

http://picpa.org.ph/frsc.html?article=About%20FRSC%20and%20PIC&page=FRSC

Republic Act No. 9298, the “Philippine Accountancy Act of 2004”

PICPA History. Retrieved from

http://picpa.org.ph/content.html?article=History&page=About&main_menu=about

New members and officers of the Government Association of Certified Public Accountants [Image].
Retrieved from https://punto.com.ph/new-members-and-officers-of-the-government-association-of-
certified-public-accountants/

International Accounting Standards Board. (2010, September). Conceptual Framework for Financial
Reporting [pdf]. IFRS Foundation. www.ifrs.org

Silvia. (2019). The Conceptual Framework for Financial Reporting. Retrieved from
https://www.ifrsbox.com/conceptual-framework-financial-reporting/

DTTL, IASPlus. Conceptual Framework for Financial Reporting 2018. Retrieved from
https://www.iasplus.com/en/standards/other/framework