IMPORTANT:
● Professional Regulatory Board of Conceptual framework provides foundation for
Accountancy Resolution No. 44 s. 2022
Adoption of the International Financial
Reporting Standards (IFRS) Sustainability
Disclosure Standards for General Purpose
Financial Statements and Renaming Financial
Reporting Standards Council (FRSC) to Financial
and Sustainability Reporting Standards Council
(FSRSC)
● Financial info primary users are present and
potential equity investors, lenders, other
creditors
● Accounting standards are more applicable
to financial accounting
● Accounting standards - guidelines,
procedure, and rules on how to report
financial info properly, basehan; the basis;
main purpose to ensure relevance of
financial info
● IAS 7 - Cash and Cash Equivalents
● IAS 2 - Inventories
● IAS 41 - Agriculture
● IAS 16 - Property plant and eqpt
● IASB has no authority to require the
compliance of businesses, it’s the governing
bodies (WB, IOSCO etc. to promote the
standards to the firms.
● Project summary - dun makikita yung
comments about the draft and sinasabi din
kung ano yung kasama
● Prior to 2001, PAS were based on FASB of
USA (prior 2001 because the PH transition
to IAS was made on a staggered basis,
effective from 2001)
● Kapag may part ng standard na hindi
applicable sa PH they may delete and not
revised the part and sometimes may
pinapalitan lang na words para maging
necessary na sa PH
IFRS Conceptual Framework for Financial
Reporting 2018
CONCEPTUAL FRAMEWORK
History
● April 1989 - framework was created and
approved to be used by IASC Board
● July 1989 - framework was published
● April 2001 - framework was adopted by
IASB
● Sept. 2010 - Conceptual framework for
financial reporting 2010 approved by IASB
● March 2018 - Conceptual framework for
financial reporting 2018 (the framework)
published
For specific situations we must use the IAS,
but if there is no standard governing a particular
transaction then use the concepts in the
conceptual framework. (if wala parin pwede na
gamitin yung policies made by preparers but
policies namana are also in lined w/ CE)
standards that:
- Contribute to transparency by enhancing
the international comparability and quality
of financial information, enabling investors
and other market participants to make
informed economic decisions.
- Strengthen accountability by reducing the
information gap between the providers of
capital and the people to whom they have
entrusted their money.
- Contribute to economic efficiency by
helping investors to identify opportunities
and risks across the world, thus improving
capital allocation.
Ch1: The Objective of General Purpose
Financial Accounting
General Purpose financial reports
● do not and cannot provide information
about general economic conditions and
expectations, political events and political
climate, and industry and company
outlooks.
● Not designed to show the (real) value of a
reporting entity, but they provide
information to help existing and potential
investors, lenders and other creditors to
estimate the value of the reporting entity.
● Other users:
○ Management
○ Other parties, such as regulators and
members of the public other than
investors, lenders and other
creditors may also find general
purpose financial reports useful.
(customers, employees, owners)
Ch2: The Qualitative Characteristics of Useful
Financial Information
Financial information is more quantitative
information that should contain qualitative
information so that it could be useful to users.
In framework 2010, relevance and reliability.
Materiality - based on judgement; differ per
company; will only be relevant if meet the terms of
the threshold
Direct verification - go to store of the recorded
material to verify and match the correct amount
Indirect verification - limitations as to direct
verification; recalculations
- Enhances faithful representation
C2C - consistent yung ginamit na basis;
consistency entails comparability
Understandability - is more on relevance
Timeliness entails more on relevance of info that it
enhances
Cost benefit analysis - benefit > cost
Ch3: Financial Statements and the Reporting
Entity
- New chapter in the 2018 version
Perspective adopted in financial statements
● Financial statements provide information
about transactions and other events viewed
from the perspective of the reporting entity
as a whole, not from the perspective of any
particular group of the entities, existing or
potential investors, lenders or other
creditors.
Reporting Entity or Business
- Provider / responsible person in preparing
FS
- An entity that is required or chooses to
prepare financial statements.
- Can be a single entity or a portion of an
entity, or can comprise more than one
entity.
- not necessarily a legal entity. (can be legal
entity or not)
Note: If the question is “reporting entity is a legal
entity” it is TRUE, however, if it is constructed as
“reporting entity is necessarily a legal entity.” it is
FALSE.
Types of FS (parent subsidiary relationship)
Consolidated FS - provide information about
assets, liabilities, equity, income and expenses of
both the parent and its subsidiaries as a single
reporting entity. (iisang fs nalang ipepresent)
Unconsolidated FS - Designed to provide
information about the parents, assets, liabilities,
equity, income and expenses and not about those
of its subsidiaries. (they will have their own fs
parent and subsidiaries)
Combined FS - Financial statement on
which the reporting entity comprises two or more
entities that are not all linked by a parent-
subsidiary relationship.
Ch4: Elements of Financial Statements
ASSETS controlled by the company.
● Right That have the potential to produce
economic benefits take many forms,
including:
○ Rights that correspond to an
obligation of another party.
■ rights to receive cash
■ rights the receive goods and
services
■ rights to exchange economic
resources with another party
on favorable terms.
■ Rights to benefit from an
obligation of another party to
transfer an economic
resource if a specified
uncertain future event
occurs.
○ Rights that do not correspond to an
obligation of another party.
■ Rights over physical objects
such as property, plant and
equipment, or inventory
use.Examples of such rights
are a right to use a physical
object or a right to benefit
from the residual value of a
leased object.
■ Rights to use intellectual
property.
Paragraph 4.8
An entity’s right to obtain the economic
benefits produced by such goods or services exists
momentarily until the entity consumes the goods or
services.
Paragraph 4.9
Not all of an entity’s rights are assets of that
entity.
Paragraph 4.10
An entity cannot have a right to obtain
economic benefits from itself.
Paragraph 4.11
In principle, each of an entity’s rights is a
separate asset. However, for accounting purposes,
related rights are often treated as a single unit of
account that is a single asset.
Paragraph 4.12
In many cases, the set of rights arising from
legal ownership of a physical object is accounted
for as a single asset. Conceptually, the economic
resource is the set of rights, not the physical object
Paragraph 4.13
In some cases, it is uncertain whether a right exists.
Until that existence uncertainty is resolved—for
example, by a court ruling—it is uncertain whether
the entity has a right and, consequently, whether an
asset exists.
● Potential to produce economic benefit.
○ A ride can meet the definition of an
economic resource, and hence can
be an asset even if the probability
that it will produce economic
benefits is low.
○ An economic resource could
produce economic benefits for an
entity by entitling and enabling it to
do, for example, one or more of the
following:
 ■ Receive contractual cash at a specified amount does not imply
flows or another economic that the other party must recognize
resource. an asset or measure it at the same
■ Exchange economic amount.
resources with another party ○ An entity’s duty or responsibility to
on favorable terms. transfer an economic resource is
■ Produce cash inflows or conditional on a particular feature
avoid cash outflows. action that the entity itself may take.
■ Received cash or other (IAS 20 - PPE)
economic resources by ○ It is uncertain whether an obligation
selling the economic exists. (IAS 37 - Liab uncertainties)
resource. ○ Types of Obligations:
■ Extinguish liabilities by ■ Legal Obligations - obligation
transferring the economic based on contract, legislation
resource. for similar means and are
legally enforceable by the
● Control party to whom they are
Paragraph 4.19 owed.
Assessing whether control exists helps to - Backed up by law
identify the economic resource for which the entity (promissory note,
accounts. bonds payable,
mortgage payable,
Paragraph 4.20 accounts payable)
An entity controls an economic resource if it ■ Constructive Obligations -
has the present ability to direct the use of the Obligations from an entity’s
economic resource and obtain the economic customary practices,
benefits that may flow from it. published policies, or specific
statements if the entity has
Paragraph 4.23 no practical ability to act in a
For an entity to control an economic manner inconsistent with
resource, the future economic benefits from that those practices, policies or
resource must flow to the entity either directly or statements.
indirectly rather than to another party. - Not based on law
- Based on policies
Paragraph 4.22 (environmental clean
Control of an economic resource usually up, warranties)
arises from an ability to enforce legal rights.
● Transfer of an Economic Resource
Paragraph 4.24 ○ The obligation must have the
Having exposure to significant variations in potential to record the entity to
the amount of the economic benefits produced by transfer an economic resource to
an economic resource may indicate that the entity another party (parties)
controls the resource ○ An obligation is still a liability even if
the probability of a transfer of an
Paragraph 4.25 economic resource is low.
A principal may engage an agent to arrange ○ Obligation to transfer an economic
sales of goods controlled by the principal. If an resource include:
agent has custody of an economic resource ■ Obligations to pay cash.
controlled by the principal, that economic resource ■ Obligations to deliver goods
is not an asset of the agent. or provide services.
■ Obligations to exchange
Note: Who owns the asset, consignor (principal) or economic resources with
consignee (agent)? Asset is owned by the another party on unfavorable
consignor; pwede bawiin ni principal yung asset terms.
anytime; kapag nabenta ang matatanggap lang ni ■ Obligations to transfer an
consignee is commission. economic resource if a
specified uncertain future
LIABILITIES event occurs.
● Obligation ■ Obligations to issue a
○ duty or responsibility that an entity financial instrument if that
has no practical ability to avoid. financial instrument will
○ Requirement for one party to oblige the entity to transfer
recognize a liability and measure it an economic resource.
 ○ ALTERNATIVES: Instead of fulfilling
an obligation to transfer an
economic resource to the party that
has a right to receive that resource,
entities sometimes decide to:
■ Settle the obligation by
negotiating a release from
the obligation.
■ Transfer the obligation to a
third party.
■ Replace the obligation to
transfer an economic
resource with another
obligation by entering into a
new transaction. (debt
restructuring)
● Present obligation is a result of past
events.
○ A present obligation exists as a
result of past events only if:
■ The entity already obtained
the economic benefits for
taking an action.
■ As a consequence, the entity
will only have to transfer an
economic resource that it
would not otherwise have
had to transfer.
● The enactment of
legislation is not in
itself sufficient to give
an entity a present
obligation.
● A present obligation
can exist even if a
transfer of economic
resources cannot be
enforced until some
point in the future.
UNIT OF ACCOUNT
- rights or group of rights, the obligation or
group of obligations, or the group of rights
and obligations, to which recognition
criteria and measurement concepts are
applied
- Selected to provide useful information,
which implies that:
- The information provided about the
asset or liability and about any
related income and expenses must
be relevant.
- The information provided about the
asset or liability and about any
related income and expenses must
faithfully represent the substance of
the transaction or other event from
which they have arisen.
- Treating a set of rights and obligations as a
single unit of account differs from
offsetting (generally is not allowed) assets
and liabilities.
- Possible units of account include:
- An individual right or individual
obligation.
- All right, all obligations or all rights
and all obligations arising from a
single source, for example, a
contract.
- A subgroup of those rights and or
obligations.
- A group of rights and or obligations
arising from a portfolio of similar
items.
- A group of rights and our obligations
arising from a.Portfolio of dissimilar
items.
- A risk exposure within a portfolio of
items–if a portfolio of items is
subject to a common risk.
Executory Contracts
- A contract, or a portion of a contract, that is
equally unperformed–neither party has
fulfilled any of its obligations or parties have
partially fulfilled their obligations to an equal
extent. (Executory if unperformed yet.)
- Establish a combined right and obligation to
exchange an economic resource. (if there
are still liab)
- If either party fulfills its obligation under the
contract, the contract is no longer
executory.
EQUITY
Different classes of equity claims, such as ordinary
shares and preference shares, may confer on their
holders different rights, for example the rights to
receive some or all of the following from the entity:
- Dividends, if the entity decides to pay
dividends to eligible holders.
- The proceeds from satisfying the equity
claims, either in full on liquidation, or in part
at other times.
- Other equity claims.
INCOME AND EXPENSES
Income - ginamit sa standard; encompasses
revenue (ordinary course of business) + gain (not
arising ordinary course of business);
Expenses - under this is losses
Ch5: Recognition and Derecognition
Uncertainty
(Relevance)
● Existence Uncertainty - uncertain whether
an asset or liability exists. (record ko ba or
not kasi baka hindi pa nakarecord; does it
exist? Baka hindi pa siya i-recognized)
(Faithful Representation)
● Measurement Uncertainty - for an asset or
liability to be recognized, it must be
measured. In many cases, such measures
must be estimated. (only if u know it is
 existing; the only problem is kung what
amount must it be recorded)

Recognition - process of capturing the financial

statements of an item that meets the definition of
one of the elements of the financial statements.

Derecognition
● Accounting requirements for the recognition
aimed to faithfully represent both:
○ Any assets and liabilities retained
after the transaction or other event
that led to the derecognition
(Including any asset or liability
acquired, incurred or created as part
of the transaction or other event)
○ The change in the entity's assets
and liabilities as a result of that
transaction or other event.