CHAMIE YVONNE T.

CARIÑO
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
SUMMARY OF CONCEPTUAL FRAMEWORK

CONCEPTUAL FRAMEWORK

A conceptual framework can be defined as a system of ideas and goals that leads to the creation
of a consistent set of rules and standards. Specifically, in accounting, the rules and standards
define the nature, function, and boundaries of financial accounting and financial reporting.

1. THE OBJECTIVE OF FINANCIAL REPORTING

• To provide financial information that is useful to users in making decisions

relating to providing resources to entity.

2. QUALITATIVE CHARACTERISTICS OF USEFUL FINANCIAL

INFORMATION

• The fundamental qualitative characteristics contained in the Conceptual

Framework there are two types these are the relevant and faithful representation.

• RELEVANCE- is capable of making a different decisions if it’s a predictive

value or confirmatory value.

❖ PREDICTIVE VALUE- Information has a predictive value if it can

help users to make predictions about future outcomes.
❖ CONFIRMATORY VALUE- it refers to feedback about past/previous
evaluations.
❖ MATERIALITY- is an entity specific aspect of the relevance.

• FAITHFUL REPRESENTATION- This information is faithfully represented if

it is factual.

❖ COMPLETENESS- all information for user’s to have a complete

understanding of the financial statements that is provided.
❖ NEUTRALITY- avoid bias.
❖ FREE FROM ERROR- no errors or omissions.

• ENHANCING QUALITATIVE CHARACTERISTICS – These four

qualitative characteristics make the information more useful. But they can't make
useless information useful.

❖ COMPARABILITY – refers to the user’s ability to distinguish the

similarities and differences.
❖ VERIFIABILITY- It refers to the user's ability to ensure that the
information accurately represents what was intended and that the
measurement method selected was used without bias.
❖ TIMELINESS – Information should received at the right time.
❖ UNDERSTANDABILITY- The information must classified and clearly
stated to. sometimes, the information is hard to understand.

3. FINANCIAL STATEMENTS AND THE REPORTING ENTITY

 • Provide the information about an entity assets, liabilities, equity, income and
expenses useful to users of financial statements.
✓ REPORTING PERIOD- financial statements are prepared for general purpose
financial reporting
✓ REPORTING ENITY- is an entity that is required to prepare a financial
statements.
✓ GOING CONCERN- under this concept, the business is assumed to continue to
exist for an indefinite period of time
✓ OBLIGATION- means a duty or responsibility.

4. THE ELEMENTS OF FINANCIAL STATEMENTS

• To provide the information about the assets, liabilities, equity, income, and
expense.

❖ ASSETS- are the economic resources you control that have resulted from
past events.
❖ LIABILITIES- present obligations that have resulted from past events
and can require you to give up resources when setting them.
❖ EQUITY- residual interest in the assets of the entity after deducting all of
the liabilities.
❖ INCOME- increases in economic benefits during the period in the form of
increase in assets or decrease in liabilities, that result in increases in equity
, excluding those relating to investments by the owner.
❖ EXPENSE- arise in the course of the ordinary activities of a business

5. RECOGNITION AND DERECOGNITION

❖ RECOGNITION- The amount of an asset, a liability or equity is recognized in
the statement of financial position is reported as carrying amount.
❖ DERECOGNITION- is defined as the removal of all or part of a recognized
asset or liability from the statement of financial position. Is an asset occurs when
the entity loses control of all or part of the assets.

6. MEASUREMENT

❖ Is defined as quantifying in monetary terms the elements in the financial

statements.
❖ Historical Cost- Assets are initially recorded at their acquisition cost.

• CURRENT VALUE-current value provides information updated to reflect conditions at

the measurement date.

❖ FAIR VALUE- Reflects the current expectations of market participants regarding

the amount, timing, and uncertainty of future cash flows.
❖ VALUE IN USE- reflect the current expectations of the particular entity
regarding quantity, timing, and uncertainty of future cash flows.
❖ FULLFILLMENT VALUE FOR LIABILITY- reflect the current expectations
of the particular entity regarding quantity, timing, and uncertainty of future cash
flows.
❖ CURRENT COST - Paid to collect an equal asset. To obtained to tackle an equal
liability.

7. PRESENTATION AND DISCLOSURE

 ❖ The presentation and disclosure can be an effective communication tool about the
information in financial statements.

❖ CLASSIFICATION- is the sorting of assets liabilities ,income, equity, and

expense in the basis of shared.

8. CONCEPTS OF CAPITAL AND CAPITAL MAINTENANCE

❖ The financial concept of equity is used by most organizations when preparing

financial statements. In the financial concept of capital, such as money invested or
purchasing power invested, capital is synonymous with a company's net worth or
equity. According to the physical concept of capital, such as operating capacity,
capital is considered to be the capacity of an enterprise, for example, in terms of
output per day.