• Decisions to change certain business

strategies
Lesson 1: The Need for • Decisions on granting remunerations for
Financial Reporting employees

Information in business is vital for it to Also, these users of financial information have
survive. These pieces of information need to be READY ACCESS to the specific things they would
synthesize in order for it to be used in decision like to know. Because of their actual involvement in
making. And because we are in a dynamic society, the operations of the business, these users of
the users of the business information need it to be financial information require information to be tailor-
up-to-date and relevant. Now, let’s look into the fitted to their specific needs, thus the most suitable
nature of accounting information and the different branch of accounting for them is MANAGERIAL
users of financial information. ACCOUNTING. The following are examples of
INTERNAL USERS OF FINANCIAL
INFORMATION.
Nature of Accounting
Accounting is the systematic recording of
financial transactions and presentation of the
related information of the appropriate persons.
Also, it is identified as a process as it performs the
specific task of collecting, processing and
communicating financial information. In doing so, it
follows some definite steps like collection of data
recording, classification summarization, finalization
and reporting. The ultimate purpose of the
accounting process is to generate GENERAL
PURPOSE FINANCIAL STATEMENTS about the
economic transactions of a business. When
accountants are going to communicate these
financial statements, it is called FINANCIAL
REPORTING. The purpose of which is to provide
relevant and timely financial information to the
stakeholders of the business.

Users of Accounting Information

To appreciate well the different users of On the other hand, there are users of
financial information, we are going to classify them accounting information that do not have ready
whether they are EXTERNAL OR INTERNAL access to the financial reports of the business.
users. They rely heavily on the different regulatory
reportorial requirements that they can get from
business. They are called EXTERNAL USERS. The
Internal users use financial information for
general-purpose reports that these users get are
internal decision-making, meaning they use the
called FINANCIAL STATEMENTS which are end
information to evaluate the entity’s performance,
product of a broad branch of accounting called
prepare different financial plans and implement
FINANCIAL ACCOUNTING. We are going to
business decisions. The following are some
discuss the different types of financial statements
examples of where internal users apply accounting
and how are they prepared as we go on through
information:
this course.
• Decisions to borrow funds
External users of financial information have
diversified needs. Some of them include:
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1. How are businesses act as stewards of
the entity’s resources?
2. Keeping track of the financial condition
and performance of the entity (this is to
know if they are going to hold or they
are going to sell their investments)
3. Grant loans and the ability to pay the
corresponding interest to it
4. How can businesses pay their currently
maturing obligations?
5. Do businesses pay their taxes and other
regulatory financial obligations?
The best example of external users of financial
information is the PUBLIC. These users are
interested on the trends and range of the
businesses’ economic activities. Further, they
would like to know if the business is growing and
will be continuing in the unforeseeable future (you
know, going concern)
These are some other examples of external users
of accounting information:
DIRECT AND INDIRECT USERS OF
FINANCIAL INFORMATION
Aside from classifying whether a user is an
external or internal user, we can also classify them
whether they are direct or indirect users. Users with
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direct interest use financial information to protect
their own interest in the enterprise. They include
the owners, managers, creditors, suppliers and
employees. On the other hand, users with indirect
interest use financial information to provide pieces
of advice to the direct users of financial information.
These includes labor unions, legal consultants and
other financial agencies which could provide
assistance to customers, lenders and/or suppliers.
BRANCHES OF ACCOUNTING
As you have learned in your senior high
school, there are different branches of accounting.
These will be reviewed intensely in your other
accounting course, Financial Accounting and
Reporting. For CFAS, we are just going to dwell on
these to have a grasp on the different branches of
accounting:
• FINANCIAL ACCOUNTING VS.
MANAGEMENT ACCOUNTING
• COST ACCOUNTING AS A SUBTOPIC OF
BOTH FINANCIAL ACCOUNTING AND
MANAGEMENT ACCOUNTING
• ACCOUNTING VS. BOOKKEEPING VS.
AUDITING
• TAX ACCOUNTING AND GOVERNMENT
ACCOUNTING
FINANCIAL ACCOUNTING VS. MANAGEMENT
ACCOUNTING
Below is a comprehensive comparison of financial
accounting and management accounting:
IS COST ACCOUNTING PART OF FINANCIAL
ACCOUNTING OR MANAGERIAL
ACCOUNTING?
ANSWER: BOTH
Cost accounting is needed in financial
accounting to calculate cost of the product. In cost
accounting, we study about variable costs, fixed
costs, semi-fixed costs, overheads and capital cost.
The cost of the product will be the one that will
appear on the financial statements of the business.
On the other hand, cost accounting can be used to
control the cost (or resources) of a business. This is
used to efficiently and effective allocate the scarce
resources of an entity. With this, cost accounting is
also used in management accounting. Therefore,
cost accounting is both a subset of financial
accounting and management accounting.
ACCOUNTING VS. BOOKKEEPING VS.
AUDITING
According to https://kilcoyneaccountants.ie/, the
difference of accounting, bookkeeping and auditing
are as follows:
Bookkeeping: This is the recording of all
transactions up to and preparing the financials, the
P&L, income statements and balance sheets.
• This is the mechanical part of the whole
process
Accounting: This is where it all comes together.
The accountant is the one telling the story of the
business. They point out the trends, they know the
ratios and can foretell the future. Their job is to
understand the past to help the clients and/or
employer prepare for the future.
• This is more on the analytical part of the
process.
Auditing: They do the one thing everyone else
cannot, they can audit and verify the work of the
others. They can certify financials.
• This is more on the checking part of the
process
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GOVERNMENT ACCOUNTING AND TAX
ACCOUNTING
Government accounting deals with the
general record keeping and preparation of financial
reports for the government and its agencies. It also
includes the preparation of budgets and
accountability reports. This accounting is generally
required by government and its agencies, both local
and national. On the other hand, tax accounting
deals with the preparation of tax returns as well as
providing tax advice to businesses. We should take
note that all businesses are required to file tax
returns. Some taxpayers may require the
professional advice of a tax practitioner regarding
the management of taxes.
*** END of LESSON 1***
Lesson 2: Standard Setting Body
For the start of our lesson this week,
we are going to look into one of the
important organization in the standard
setting process – the IFRS Foundation.
According to their website, this is a brief
description of their organization.
The IFRS Foundation is a not-for-
profit, public interest organization
established to develop a single set of high-
quality, understandable, enforceable and
globally accepted accounting standards—
IFRS Standards—and to promote and
facilitate adoption of the standards. IFRS
Standards are set by the IFRS
Foundation’s standard-setting body, the
International Accounting Standards Board.
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.
MISSION STATEMENT OF THE IFRS
FOUNDATION
Our mission is to develop IFRS Standards that
bring transparency, accountability and
efficiency to financial markets around the
world. Our work serves the public interest by
fostering trust, growth and long-term financial
stability in the global economy.
• IFRS Standards bring transparency by
enhancing the international comparability
and quality of financial information,
enabling investors and other market
participants to make informed economic
decisions.
• IFRS Standards strengthen accountability
by reducing the information gap between
the providers of capital and the people to
whom they have entrusted their money.
Our Standards provide information needed
to hold management to account. As a
source of globally comparable information,
IFRS Standards are also of vital importance
to regulators around the world.
• IFRS Standards contribute to economic
efficiency by helping investors to identify
opportunities and risks across the world,
thus improving capital allocation. Use of a
single, trusted accounting language lowers
the cost of capital and reduces international
reporting costs for businesses.
IFRS Standards are currently required in more
than 140 jurisdictions and permitted in many
more.
The IFRS Foundation's three-tier
structure
The IFRS Foundation has a three-tier
governance structure, based on an
independent standardsetting Board of experts
(International Accounting Standards Board),
governed and overseen by Trustees from
around the world (IFRS Foundation Trustees)
who in turn are accountable to a monitoring
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board of public authorities (IFRS Foundation
Monitoring Board).
The IFRS Advisory Council provides advice
and counsel to the Trustees and the Board,
whilst the Board also consults extensively with
a range of other standing advisory bodies and
consultative groups.
THE CONSULTATIVE BODIES OF THE
IFRS FOUNDATION
Developing accounting standards for the
global economy is a collaborative exercise
founded on transparency, full and fair
consultation, and accountability.
The Due Process Handbook of the
IFRS Foundation —the blueprint for the
standard-setting process, which ensures
that IFRS Standards are developed free
from undue influence—requires that the
Board consider the perspectives of those
affected by IFRS Standards globally. To
enable us to consult widely, we work
closely with a wide network of advisory
committees and bodies, representing the
many different stakeholder groups that
have an interest in and are affected by
financial reporting. These groups and
bodies are important channels for us to
gather input on our work; the groups
enable us to efficiently consult with
interested parties from a range of
backgrounds and geographical regions.
Advisory bodies
Accounting Standards Advisory Forum
(ASAF)
• Consists of national standard-setters and
regional standard –setting bodies that
contributes to the development of globally
 accepted and high-quality accounting Reporting Standards which involves
standards interested individuals and organizations
around the world.
IFRS Advisory Council (Advisory Council)
The due process comprises the following
• formal advisory body to the Trustees of the stages:
IFRS Foundation and the International
Accounting Standards Board (Board). It 1. Setting the agenda
consists of a wide range of representatives, 2. Planning the project
comprising individuals and organisations 3. Developing and publishing discussion paper
with an interest in international financial
4. Developing and publishing the exposure
reporting.
draft
5. Developing and publishing the standard
Standing consultative groups 6. After the standard is issued

SETTING THE AGENDA

In addressing users’ demand for better quality

information, the IASB identifies an issue item
to its agenda after considering the following:

1. Relevance to users of the information

and the reliability of information that could
be provided 2. Existing guidance
available
3. The possibility of increasing convergence
4. The quality of IFRS to be developed
5. Resource constraints

PLANNING THE PROJECT

Other Advisory boards The IASB raises and discusses potential
agenda items with other standard setters and
interested parties, the IFRS advisory council
and the IFRS interpretations committee, and
staff research. A working group is then
established. When considering whether to
add an item to its active agenda the IASB
may determine that it meets the criteria to be
THE STANDARD SETTING PROCESS included in the annual improvement process.
The IASB assesses the issue against criteria
The Standard Setting Process Adopted by the such as
International Accounting Standards Board
(IASB) 1. Clarifying
2. Correcting
3. Well defined and sufficiently narrow in
The IASB follows an International scope that the consequences of the
consultation process, the “due process” in proposed change have been considered
developing the International Financial
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 4. Completed in a timely basis
5. All criteria must be met to qualify as an item
to be included in the annual improvement
process
DEVELOPING AND PUBLISHING THE
DISCUSSION PAPER
Discussion of a working group is
contained in a discussion paper that includes
comprehensive overview of the issue,
possible approaches in addressing the issue,
the preliminary view of its authors or the IASB
and an invitation to comment for usually 120
days. The issue being discussed may result
from a research project being carried by
another standard setter or it may be an active
agenda carried out by the IASB. The decision
of all technical issues takes place in public
sessions where question and answers are
conducted
DEVELOPING AND PUBLISHING AN
EXPOSURE DRAFT
The IASB considers comments
received on the discussion papers, results
and suggestions of the working group arising
from public educations sessions. An
exposure draft is developed and voted upon.
The IASB normally allows a period of 120
days for comment of an exposure draft. The
project team summarizes and analyzes the
comments received for the IABS’s
deliberation. The IASB is required to consult
the IFRS advisory council and maintains
contact with various groups of constituents.
The exposure draft is the IASB’s main vehicle
to consult the interested public.
DEVELOPING AND PUBLISHIING THE
STANDARD
The IASB makes revisions on the draft
after considering the comments on the
exposure draft. When deemed necessary, a
second exposure draft is developed and
published, following the same process
described above. Upon reaching conclusion
on the issues covered in the exposure draft,
the pre-ballot IFRS is send to selected parties
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for review; after which, near final draft is
posted on the IASB’s website. Balloting,
which is circularizing the near final reporting
standard to the IASB’s members requires
individual review and approval of the draft the
approved pronouncement is posted to the
IASB’s website for an initial period of about
ten days, after which, the draft is freely
available online.
AFTER ISSUING THE STANDARD
After issuance of an IFRS, the IASB
holds regular meetings with interested parties
to address some unanticipated issues relating
to implementation. The IASB may initiate
studies in the light of its review of the
application of standard, changes in the
financial reporting environment and regulatory
requirements and comments received about
the quality of the IFR. Such studies may result
in items being added to the IASB’s agenda.
THE STANDARD SETTING IN THE PHILIPPINES
Before 1981 – the Philippines do not have a
formal process for the development of
accounting practices. Accounting principles
then were patterned in actual business
practices, mostly based on the accounting
practices and principles developed by the
United States of America
Late 1981 – the Philippine Institute of Certified
Public Accountants, the accredited
professional organization of Certified Public
Accountants in the Philippines, organized the
Accounting Standards Council (ASC) that
formalized the standard setting process in the
country. The main function of ASC was to
establish and improve Generally Accepted
Accounting Principles in the Philippines. The
accounting standards developed by the ASC
were known as the Statements of Financial
Accounting Standards (SFAS). These
standards were based on existing practices,
research and studies undertaken by IFRS
Advisory council, the statements of the IASB
committee, and Financial Accounting
Standards Board of the United States of
America.
The ASC was composed of eight members,
representing the following organizations;
PICPA,
Securities and Exchange Commission,
Bangko Sentral ng Pilipinas, Board of
Accountancy and Financial Executives of the
Philippines
1997 – 2000 – the Philippine transition to the
IAS and IFRs was gradually made, the ASC
developed Accounting standards already
based in the International Accounting
Standards
2001 – the ASC adopted most of the
standards developed by IASC
2005 – the ASC adopted in full the
International Accounting Standards
2006 - The Board of Accountancy regulates
the practice of accountancy in the
Philippines, established the Financial
Reporting Standards Council (FRSC) to
replace and take over the functions of
ASC. The FRSC should be composed
of a chairman and 14 members
representing the following organizations:
Board of Accountancy, SEC, BSP, BIR,
COA, Financial Executives of the
Philippines and accredited PICPA
members. The FRSC formed the
Philippine Interpretations Committee
(PIC) to provide the council assistance
in establishing and improving Financial
Reporting Standards in the Philippines.
The PIC issues implementation
guidelines on PFRS.
The PFRS consists of:
1. PFRS adopted from the IFRS
2. PAS adopted from the IAS
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3. Philippine Interpretations which are adopted
from IFRIC and the SIC and the
interpretations of the PIC
The PFRS set out the recognition,
measurement, presentation and disclosure
requirements dealing with transactions and
events that are important in general
purpose financial transactions. They may
also set out such requirements for
transaction and events that arise mainly in
specific industries. The PFRSs are
developed through a due process that
involves members of PICPA, financial
executives, regulatory authorities,
members of the academe and other
interested individuals. Due process
normally but not necessarily involves the
following steps:
1. Consideration of the pronouncement of
IASB
2. Formation of a task force, when deemed
necessary, to give advice to the FRSC
3. Issuing for comment an exposure draft
approved by a majority of the FRSC
members; comment period will be at least
60 days, unless a shorter period (not less
than 30 days) is considered appropriate by
the FRSC
4. Consideration of all comments received
within the comment period and when
appropriate, preparing a comment letter to
the IASB
5. Approval of a standard or an interpretation
by a majority of the FRSC members
To this date, the FRSC is continuously
monitoring the revisions of and the
amendments to the IFRSs to ensure that
improvements in the IFRSs are being made
effective in the Philippines. Other that the
FRSC, the Board of Accountancy monitors the
implementation of the PFRS.
Lesson 3: The Conceptual Framework for
Financial Reporting
Week 3
Conceptual Framework – is a summary of the
terms and concepts that underlie the preparation of
financial statements. It is an attempt to
provide an overall theoretical foundation for
accounting which will guide standard setters,
preparers and users of financial information in
the preparation of financial statements.
Another definition:
• The conceptual framework for
financial reporting is a complete,
comprehensive and single document
promulgated by the International Accounting
Standards Board.
• As to its, importance, nature, scope,
we will discuss them one by one in the
succeeding topics.
Important notes about conceptual framework:
• The conceptual framework is not a
standard. It only serves as a reference in
developing and applying the standards.
• In cases of conflict, The Philippine
Financial Reporting Standards shall prevail.
The conceptual framework is concerned with
general purpose financial statements.
Purpose and Status of the Financial Conceptual
Framework
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As a background on the evolution of the
Conceptual Framework, let us have a walkthrough
on some important dates and events:
The International Accounting Standards Board (the
IASB or the Board) issued the revised
Conceptual Framework for Financial Reporting
(the revised Conceptual Framework) on 29
March 2018. The revised version includes
comprehensive changes to the previous
Conceptual Framework, issued in 1989 and partly
revised in 2010. The previous Conceptual
Framework (the 2010 Conceptual Framework) was
criticized for its lack of clarity, the exclusion of
certain important concepts and for being outdated
in terms of the IASB’s current thinking. Following
the IASB’s agenda consultation in 2011, the
Conceptual Framework project was added to the
IASB’s work plan in September 2012. Since then,
the IASB has issued a discussion paper in July
2013 and an exposure draft in June 2015. In
revising the Conceptual Framework, the Board was
looking to underpin high level concepts with
sufficient detail for it to set standards and to help
others to better understand and interpret the
standards.
Status and purpose of the Conceptual
Framework
As a reminder, the Conceptual Framework is not a
standard, and none of the concepts override the
concepts or requirements in any standard. The
purpose of the Conceptual Framework is:
• to assist the Board in developing
standards,
• to help preparers develop consistent
accounting policies where there is no
applicable standard in place, and
• to assist all parties understand and
interpret the standards
The revised conceptual framework includes
new concepts, provides updated definitions
and recognition criteria. It has eight (8)
chapters apart from an introduction and a
glossary:
 When buying jeans, the first thing that I look into is
the brand, taking into consideration also is the
price but that is just secondary when you are not
on budget, right?. In my case, I will prefer, in the
order of priority, 1) Levis, 2) Lee and 3) Jag. So
Levis is in my top 1 list, why Levis? It has been
there for a long period of time; I have been using it
and not only me, also my family. It has been
tested and proven through time that it last longer
than the other brands.

So what am I getting into? It is a trusted Brand, it

has QUALITY and it has CREDIBILITY.

Lesson 3: Objective of General Purpose Financial

Reporting and Qualitative characteristics of useful In the same light, I would like to compare the
financial information financial statements (F/S) that a CPA has
Week 4 painstakingly prepared for one accounting cycle
LEARNING CONTENT with utmost care. If the F/S will be the basis for
making decisions, it is a MUST that is prepared by
someone who is knowledgeable on some
accounting rules and procedures. In other words,
it must be characterized with QUALITY to make it
a credible basis for making a decision.

How can we achieve that? Let us discuss them

one by one as we go along.

QUALITATIVE CHARACTERISTICS
• Are the attributes that make the
information provided in the F/S useful to
users
• Contribute to the decision
usefulness of financial reporting information
Qualitative Characteristics of Useful Financial • Distinguish better information from
Information inferior information for decision-making
purposes
Financial statements must meet some
characteristics or attributes in order for the
information to become more useful and
meaningful. These are divided into two (2) groups:
 the Fundamental Qualitative characteristics;
and  the Enhancing Qualitative characteristics.

Preview!!!
Why do you think QUALITY is a very important
element relating to financial information?

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Qualitative characteristics are subdivided into
two(2) considered either as:
1. Fundamental or
2. Enhancing
The fundamental qualitative characteristics are:
1) Relevance and
Faithful Representation
*Financial information to be useful must possess
relevance and faithful representation.
What is Relevance?
Briefly explained, relevance means capacity of
information to influence a decision. By way of
example, the Income statement is a tool that gives
management relevant information about the results
of operations of the business for a certain period of
time, while the statement of financial position gives
relevant information about the solvency and
liquidity of the business for short to long term. In
other words, relevance simply means the financial
information is related or pertinent to the economic
decision.
When do we say that financial information is
Relevant?
 When it has Predictive Value and
Confirmatory Value
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*When financial information can help users to plan
or predict correctly the outcome of events in the
future, it has predictive value.
*Financial information has confirmatory value if it
provides feedback about previous evaluations.
Information with predictive value also has
confirmatory value. Both terms are interrelated.
An example is the revenue for this year will be
used to predict the revenue next year while it can
also be used to compare revenue predictions in
the past years. The first part of the sentence
making forecast of future revenues by using the
revenue figure at present is predictive value while
is confirmatory value is comparing predictions or
forecasts made in the past. Both predictive and
confirmatory value result will be used to correct or
improve processes for the future.
The conceptual framework states that Materiality is
an entity-specific aspect of relevance. Materiality
depends on the facts and circumstances
surrounding a specific entity. The Conceptual
Framework and the Standards do not specify a
uniform quantitative threshold for Materiality.
Materiality is a matter of judgment. This has been
thoroughly discussed in your F A R subject.
How do we define Faithful Representation?
 achieved when the amount is clearly and
accurately described as an estimate.

The Enhancing Qualitative Characteristics that will

add to the reliability and usefulness of financial
information are:

Faithful Representation means that financial

reports must present economic events measured
in words in numbers. To be useful, financial
information must show in substance and in form
the actual effects of transactions.
Examples:
1) When a Sales of P10,000,000 is recorded
only as P5,000,000 is the opposite of faithful
representation. Another example is when an
ending Inventory of P2,000,000 is recorded only as
P200,000 is also an opposite of faithful
representation.

2) The recognition of an Impairment Loss to

1. Comparability– means the ability to bring
record the destruction of a building by typhoon
together for the purpose of noting points of
is an example of Faithful Representation.
likeness and differences. Comparability is
achieved by presenting information for at least two
To achieve the goal of Faithful Representation,
(2) accounting periods. When preparing financial
financial information must have all of the following
statements for the year 2019, there is another
characteristics:
column for year 2018.
• Completeness– is the result of
Comparability can be achieved by adhering to the
adequate disclosure. To be complete,
principles of Consistency.
financial statements shall be
accompanied by Notes to Financial
Comparability can be:
Statements that provides in narrative form
and description of the items presented in
the financial statements and other items that
do not qualify for recognition.
• Neutrality– means free from bias.
The financial statements must not favor the
needs of just one specific user. Financial
Statements must be general purpose in
nature. To be neutral is to be fair.
• Freedom from Error – does not
mean perfectly accurate in all respects.
Freedom from error means that there are no a) Intracomparability or horizontal
omissions in description of the transactions comparability. The example given in number 1
and events, the process used to produce above is horizontal comparability or within the
the financial information has been selected same organization
and applied with no errors in the process.
In making estimates, Freedom from error is
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b) Intercomparability or dimensional
comparability– is done between and among
different enterprises. If I want to compare the
performance of all banks in the Philippines in terms
of their loan portfolio, I have to dig into their Audited
Financial Statements and make interviews with
their top management. Comparably,
intercomparability is more difficult to achieve that
intracomparability.
presented, it will be useless if the user does
not understand it.
*Classifying, characterizing and presenting
information clearly and concisely makes it
understandable (par
2.24, Conceptual Framework). For information to
be useful, it must be adapted to the users’ range of
knowledge and understanding.

2. Verifiability – an in formation is
verifiable in the sense that it is supported by
evidence so that when another person will
look into it and make his own computations
using the same methods, he will arrive at
the same amount. Verifiability means that
different knowledgeable and independent
observers could reach an agreement or a
consensus that a particular depiction is a
faithful representation.

3. Timeliness –“Aanhin pa ang damo

kung patay na ang kabayo?” or “Timeliness
is next to Godliness”. Simply put, timeliness
means that financial information should be
made available to the users on time to
influence their decisions. What happened in
the past would become the basis of what
would happen in the future.

Example of Timeliness : If the annual stockholders’

meeting is scheduled on April 15, annual audit
reports should be distributed as early as the first
week of first of March to give the stockholders
ample time to review the financial and other
information. During annual stockholders’
meetings, major decisions are made to formulate
the policies for future plans. The financial
statements play a major role in this decision-
making exercise.

4. Understandability –
understandability relies on two factors,
quality of the information and quality of the
user. Even though the information is well

ACCT 1013 – Conceptual Framework and Accounting Standards | 12

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