Professional Documents
Culture Documents
IAS
International Accounting Standards
Objective:
> Uniformity of accounting principles all around the world
IFRS
International Financial Reporting Standards
PRC
Professional Regulation Commission
BOA
Board of Accountancy
> gumagawa ng board exam
> incharge sa education ng accountancy
Recommended to make
Main Function:
Establish and improve accounting standards that will be generally accepted in the Philippines
CONCEPTUAL FRAMEWORK
> Summary of the terms and concepts that underlie the preparation and presentation of financial
statements
> definition, concepts, policy, foundation ng accounting
> used as basis for the development and revision of accounting standards
Basic Purpose:
> Assist IASB to develop IFRS
> Assist preparers of FS to develop consistent accounting policy when no standards applies to a
particular transaction
> Assist preparers of FS to develop accounting policy when a standard allows a choice of an
accounting policy.
Tinuturuan kang mamili
> Assist all parties to understand and interpret IFRS.
1. Owner / Investors
the one who puts in capital in a business
2. Manager
the one who is responsible for running the business
3. Lenders and other creditors
Assesses the paying ability of the business (borrower)
4. Supplier
offers goods for the sale of the business
1. Employees
Assesses the ability of the company to grant their demands
2. Customers
Assesses the ability of the company to continuously supply the goods they buy
3. Government
Assesses the correct payment of taxes and filing of all required documents
SCOPE OF THE REVISED CONCEPTUAL FRAMEWORK
Chapter
1. Objective of Financial Reporting
2. Qualitative Characteristics of Useful Financial Information
3. Financial Statements and Reporting Entity
4. Elements of Financial Statements
5. Recognition and Derecognition
6. Measurement
7. Presentation and Disclosure
8. Concepts of Capital and Capital Maintenance
- Provide information useful in assessing the cash flow prospects of the entity
Statement of Changes in Cash Flow
- Provide information about entity resources, claims and changes in resources and claims
Statement of Changes Financial Position Income Statement
> Not designed to show the value of an entity but these reports provide information to help the
primary users estimate the value of the entity.
> Intended to provide common information to users and cannot accommodate every request for
information.
CHAPTER 2
Qualitative Characteristics
Qualities or attributes that makes information useful to users
Classifications:
(a.) Fundamental QC
Hindi pwedeng mawala
Content / substance
(b.)Enhancing QC
Increases the usefulness of the information
Presentation / form
FUNDAMENTAL
1. Relevance- capacity of information to influence a decision
Ingredients:
1. Predictive Value- help users correctly forecast outcome of events
2. Confirmatory Value- enables users to confirm or correct earlier expectations
Example:
1st quarter= 2M (confirmatory value)
4
Whole Year = 8M (predictive value)
Ingredients:
1. Completeness- presented to facilitate understanding and avoid implication.
Standard of adequate disclosure
All significant and relevant information shall be report
Substance over form- present transactions based on economic substance and not their legal forms
Prudence- exercise care and caution when dealing with uncertainties in the overstatement of FS
items. MAG-INGAT KA!!! (opo mag iingat po)
Asset / Income - X overstated
Liability / Expenses - X understated
Conservatism - in case of doubt choose alternative that has the best effect on equity
ENHANCING QC (VCUT)
1. Verifiable- different observers could reach consensus
Using same evidences, same conclusion
Results can be duplicated by using the same method
Cost- constraint- benefit derived from the information should exceed the cost incurred in obtaining
information.
Reporting Entity
Entity that prepares financial statements
Reporting Period
Period of financial statements
Annual basis (Jan 1- Dec 31)
ACCOUNTING ASSUMPTION
Going concern / Continuity Assumptions
Accounting entity is viewed as continuing in operation indefinitely in the absence of
evidence in the country
Explicit assumption
“You are my forever” ayiiee haha
Liability
Present obligation of an entity to transfer an economic resource as a result of past
events (duty/ responsibility) pay cash, deliver goods, render services,
Exchange economic resources on unfavorable terms
Equity
Residual interest in the assets after deducting liabilities
Yan nalang natitira
Assets - Liabilities = Equity
Income
Increases in assets or decreases in liabilities that results in increase in equity, other than those
relation to contributions from equity holders
Revenue + Gains = Income
Revenue
Arises in the course of ordinary activities
Gains
Other items that meets the definition of income but not aries in the course of ordinary
activities
Gain on sale
Expenses
Decrease in asset or increase in liabilities that result in decreases in equity, other than those
relating to distributions to equity holders.
Expense + Loss = Expense
Expense
Arises in the course of ordinary activities.
Losses
Do not arise in the course of ordinary regular activities
Loss on Sale
Accrual Basis
Recognize income when earned regardless of collection
Recognize expense when incurred regardless of payment.
Expense
Matching Principle
cost incurred in order to generate revenue must be recognize in the same period.
* Immediate Recognition,
Expensed outright because of difficult associating w/ revenue.
wala na talaga
Salary Expense
Derecognition
removal of all or part from the Financial Statement
Chapter 6 MEASUREMENTS
Measurements
quantifying in monetary terms the element of FS
Categories:
1. Historical Cost
2. Current Value
a) Fair Value
price that would be received / paid between market participants.
Exit Price / Exit value
Liab = present Value
Ibebenta mo
Classification
sorting of assets, liab, equity, income, expenses
Aggregation
Adding together A, L, E, I, E
January 1. December 31
Asset 1,500,000 2,500,000
Liab. 1,000,000. 1,200,000
Add. 400,000
Withdrawal. . 300,000
A= L + E
A-L=E
1,500,000. 2,500,000
(1,000,000). (1,200,000)
500,000. -. 1,380,000. = 800,000
Add. 400,000
NI. ? 700,000
With. (300,000)
Equity 800,000
1,300,000
(800,000)
500,000
400,000
? 400,000
(300,000)
500,000
FINANCIAL POSITION
Financial Statements
Means by which the information accumulated and processed in financial accounting is
periodically communicated to the users
End product/ main output of accounting process
General purpose
Prepared for use by the general public
Objectives
Provide information about the financial position, financial performance and cash flows of an
entity that is useful to a wide range of users in making economic decisions
Responsibility
Management has the primary responsibility for the preparation and presentation of FS
COMPLETE SET OF FS
Statement of financial position
Income statement & statement comprehensive income
Statement of changes in Equity
Statement of Cash flows
Notes
GENERAL FEATURES
Going Concern / Continuity
Accounting entity is viewed as continuing in operation indefinitely in the absence of evidence in
the contrary
Accrual Basis
Recognize income when earned regardless of collection
Recognize expense when incurred regardless of payments
Materiality
Depends on the relative size and nature of omission
Offsetting
Gen Rule:
Offsetting is not allowed
Exception:
If permitted by PFRS
Frequency
Annual
Uniformity
Consistency in presentation
Fair Presentation
Achieved if financial statements are prepared in accordance with PFRS
Inappropriate accounting policies
Cannot be rectified by the disclosure in the notes
Comparative Information
Present current period figures along with figures from the preceding period
Third statement of financial position?
Applied an accounting policy retrospectively
Made retrospective restatement of items in the financial statement
Reclassification should be disclosed
IDENTIFICATION OF FS
Name of the Reporting Entity
Date of the end of the reporting period or the period covered by the financial statements
Presentation Currency
Current Assets
Cash or Cash equivalents unless restricted or used to settle a liability for at least 12 months
after the reporting period
Asset is for trading / in the course of business (inventory)
Expects to realize assets within the after the reporting period (Accounts Receivable)
Intends to use the assets within the normal operating cycle (supplies)
Non-Current Assets
Not current assets
Current Assets
Expected to be settled within the normal operating cycle
Liability is for trading
Due to be settled within twelve months after the reporting period
Entity does not have an unconditional right to defer settlement of the liability for at least 12
months after the reporting period
Ex: Accrued expense - interest payable
Current Assets
Not current liabilities
Covenants
Attached to borrowing arrangements which represent undertakings by the borrower
Breach of covenants
Current liabilities
Non-current if
The lender has agreed on or before the end of the reporting period to provide grace
period for ending at least 12 months after the end of the reporting period
Equity
Residual interest in the assets of the entity after deducting all of the liabilities
Net assets
Terms
Owners’ Equity - Sole Proprietorship
Partner’s Equity - Partnership
Share’s Equity- Corporation
Items of income and expense including reclassification adjustments that are not recognized in
profit or loss as required or permitted by PFRS
Components:
Gain / Loss from translating financial statements of a foreign operation
Unrealized gain / loss on derivative contracts designated as cash flow hedge
Unrealized gain / loss on debt investment measured at FVOCI (bonds - utang)
retained earnings
ACCOUNTING POLICY
Specific principle, basis, convention, rule, and practice used by an entity in preparing and
presenting the financial statements
WHY?
Required by an accounting standard
Change will result to a more relevant or reliable information
Treatment
Retrospectively / Retroactively
Applying the new accounting policy as if that policy had always been applied
Any change is reported as adjustment to the opening balance of Retained Earnings in
the earliest period presented.
Prospectively
Applying the new accounting policy after the date of change
Only used when retrospective application cannot be used (1st year - operation)
Financial Asset
Cash
Contractual right to receive cash or another financial asset from another entity
Contractual right to exchange financial instruments with another entity under conditions that
are potentially favorable
Equity instrument of another entity
Example:
Cash
Receivables
Option to purchase shares at less than market price
Investment in shares or equity instruments
Nonfinancial Asset
Physical Assets
Inventory
Intangible assets
Patent
Prepaid Expense
Future economic benefit not cash or another financial asset
Right of use asset
Does not give rise to present right to receive cash or another financial asset
Financial Liability
Deliver cash or other financial assets to another entity
To exchange financial instrument with another entity under conditions that are potentially
unfavorable
Payables
Nonfinancial Liabilities
Deferred Revenue
Warranty Obligations
outflow of economic benefits is delivery of goods and services, not cash or another
financial asset
Income Tax Payable
Imposed by law, not by contract
Constructive Obligations
Not by contracts
Equity Instrument
Any contract that evidences residual interest in the assets of an entity after deducting all of the
liabilities
Financial Liability
Dividends
Interest expense
DERECOGNITION
Financial Asset
Contractual rights to the cash flows of the financial asset have expired, or
Financial asset has been transferred and the transfer qualities for derecognition of risks
and rewards of ownership
Financial Liability
Extinguished (Paid)