ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
Chapter 1: THE ACCOUNTANCY PROFESSION
ACCOUNTING
Accounting Standards Council definition of accounting:
 Accounting is a service activity. The accounting
function is to provide quantitative information,
primarily financial in nature, about economic
entities, that is intended to be useful in making
economic decisions.
Committee on Accounting Terminology of AICPA definition
of accounting:
 Accounting is the art of recording, classifying and
summarizing in a significant manner in terms of
money, transactions and events which are in part at
least of a financial character and interpreting the
results thereof.
American Accounting Association in its Statement of Basic
Accounting Theory definition of accounting:
 Accounting is the process of identifying, measuring
and communicating economic information to permit
informed judgement and decision by users of
information.
American Accounting Association definition of accounting
that has stood the test of time:
 The very purpose of accounting is to provide
quantitative information to be useful in making
economic decisions.
ACCOUNTING COMPONENTS
1. IDENTIFYING as the Analytical Component
 Recognition or nonrecognition of business
activities as “accountable” events.
 An event is accountable or quantifiable if it
affects the assets, liabilities and equity.
 Only economic activities (may be external
or internal transactions) are recognized in
accounting.
2. MEASURING as the Technical Component
 Assigning of peso amounts to accountable
economic events.
 Historical Cost – original acquisition cost
and the most common measure of financial
transactions.
 Current Value – includes fair value, value in
use, fulfillment value and current cost.
3. COMMUNICATING as the Formal Component
 Preparing and distributing accounting
reports to potential users of accounting
information.
Accounting is the “Universal Language of Business”
Recording/Journalizing – process of systematically
maintaining a record of all business transactions after being
identified and measured.
Classifying – sorting of similar and interrelated economic
transactions into their respective classes. Thus, accomplished
by posting to the ledger (group of accounts which are
systematically categorized).
Summarizing – preparation of financial statements.
FINANCIAL STATEMENTS
 Statement of Financial Position
 Statement of Comprehensive Income
 Statement of Cash Flows/
 Statement of Changes in Equity
 Notes to Financial Statements
THE ACCOUNTANCY PROFESSION
Republic Act No. 9298 – Philippine Accountancy Act of 2004
 law regulating the practice of accountancy in the
Philippines.
Republic Act No. 10912 – Continuing Professional
Development (CPD) Act of 2016
 law mandating and strengthening the continuing
professional development program for all regulated
professions, including accountancy profession.
 Acquisition of advanced knowledge, skill and
proficiency.
 Raises and enhances the technical skill and
competence of CPA’s.
CPD CREDIT UNITS
 Renewal is every 3 years
 Under BOA, all CPA’s regardless of are of
sector/practice should comply with 120 CPD CREDIT
UNITS (mandatory), for accreditation of a CPA to
practice the profession
 For renewal of license, ONLY 15 CPD CREDIT UNITS
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
 65 years old are EXEMPTED for renewals
Board of Accountancy (BOA)
 the body authorized by law to promulgate rules and
regulations affecting the practice of the accountancy
profession in the Philippines.
 In charge of preparing and grading PH CPA
examination held every May and October each year.
Limitations of Public Practice
 Should be passer of CPALE and be registered CPA’s
in the Philippines.
 Minimum of three (3) years meaningful experience
 Involved agencies are PRC & BOA only.
Certified Public Accountants generally practice their
profession in three main areas, namely:
a. PUBLIC ACCOUNTING – renders independent and
expert financial service to the public.
 AUDITING – examination of FS by
independent CPA for opinions as to
fairness.
 TAXATION – includes preparation of annual
tax returns and determination of tax
consequences.
 MANAGEMENT ADVISORY SERVICES –
offers advices on installation of computer
system, quality control, installation and
modification of accounting system,
budgeting, forward planning and
forecasting.
b. PRIVATE ACCOUNTING – CPAs employed in business
entities, major objective is to assist management
planning and controlling operations
 Accounting Staff
 Chief Accountant
 Internal Auditor
 Controller (highest accounting officer)
c. GOVERNMENT ACCOUNTING
 Accounting of all transactions involving
the receipt and disposition of
government funds and property and
interpreting results thereof.
 Focus is the custody and
administration of public funds.
 Bureau of Internal Revenue (BIR)
Commission on Audit (COA)
Securities and Exchange Commission
(SEC)
Bangko Sentral ng Pilipinas (BSP)
Definition of Terms:
Auditing – starts after preparation of FS.
Bookkeeping – procedural, concerned with development and
maintenance of accounting records. The “how” of accounting.
Accountancy – the profession of accounting practice.
Accounting – reference only to particular field of
accountancy.
Financial Accounting - recording business transactions and
preparation of financial statements.
Managerial Accounting – accumulation and preparation of
financial reports for internal users only, it emphasizes
developing accounting information for use within the entity
only.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)
 Accounting rules, procedures and practices
 Represent the rules, procedures, practice, and
standards followed in the preparation and
presentation of financial statements.
 Principles have developed on the basis of
experience, reason, custom, usage, and practical
necessity.
 Overall Purpose of Accounting Standards:
o The overall purpose of accounting
standards is to identify proper accounting
practices for the preparation and
presentation of financial statements.
 Formally GAAP – Now Philippine Accounting
Standards (PAS)/ Philippine Financial Reporting
Standards (PFRS)
Financial Reporting Standards Council (FRSC)
promulgates PAS/PFRS
Composition of FRSC (composed of 15 members)
Board of Accountancy (BOA) 1
Securities and Exchange Commission (SEC) 1
Bangko Sentral ng Pilipinas (BSP) 1
Bureau of International Revenue (BIR) 1
Commission on Audit (COA) 1
Major organization of preparers and users
of financial statements –
Financial Executive Institute of
the Philippines (FINEX)
1
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

Accredited national professional organization of

CPAs: 2 The PAS are numbered the same as their
Public Practice 2 counterpart in IAS
Commerce and Industry 2
Academe or Education 2 c. Philippine Interpretations which correspond to
Government Interpretations of the IFRIC and Interpretations
14 developed by the PIC
Total

+ The Chairman who is presently a Senior Accounting

Practitioner
An accountant’s primary task is to supply financial
*They shall have a term of 3 years renewable for another
information so that the statement users could make
term
informed judgement and better decision.
 The Philippine Interpretations Committee (PIC) was
formed by the FRSC in August 2006 and has
replaced the Interpretations Committee (IC) formed
by ASC in May 2000.
 PIC prepares interpretations of PFRS for approval by
the FRSC.
 International Accounting Standards Committee
(IASC)
o counterpart of PIC in the International
Financial Reporting Board (IASB)
o private sector body, with the objective of
achieving uniformity in accounting
principles around the world.
o Formed in June 1973

 International Financial Reporting Board (IASB)

o Replaced the International Accounting
Standards Committee (IASC)
o The IASB publishes standards in a series of
pronouncements called International
Financial Reporting Standards (IFRS)
o However, the IASB has adopted the body
standards issued by the IASC which
pronouncements continue to be designated
as International Accounting Standard (IAS)
o Declared that merits of proposed standards
are assessed from a position if neutrality

 In the past years, most PAS are based on American

accounting standards. At present, the FRSC has
adopted entirely all IAS and IFRS.

 Philippine Financial Reporting Standards (PFRS) Chapter 2: OBJECTIVES OF FINANCIAL REPORTING

a. PFRS which correspond to IFRS
History of the Framework
The PFRS are numbered the same as their  April 1989 - Framework for the preparation
counterpart in IFRS and presentation of financial statements (the
Framework) was approved by IASC Board
b. PAS which correspond to IAS  July 1989 - Framework was published
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
 April 2001 - Framework adopted by the IASB
 September 2010 - Conceptual Framework for
Financial Reporting 2010 approved by the IASB
 March 2018 - Conceptual Framework for
Financial Reporting 2018 (the Framework) published
The Conceptual Framework for Financial Reporting is a
complete, comprehensive and single document promulgated
by the IASB
CONCEPTUAL FRAMEWORK defined
 It is a summary of the terms and concepts that
underlie the preparation and presentation of
financial statements for external users.
 Describes the concepts for general purpose financial
reporting
 Provide an overall theoretical foundation for
accounting.
Conceptual Framework provides the foundation for
standards that:
a) Contribute to transparency by enhancing the
international comparability and quality of
information.
b) Strengthen accountability by reducing the
information gap between the providers of capital
and the people to whom they have entrusted their
money.
c) Contribute to economic efficiency by helping the
investors or the users o the financial statement to
identify opportunities and risks across the world.
PURPOSES OF REVISED CONCEPTUAL FRAMEWORK
a) To assist the International Accounting Standards
Board (IASB) to develop IFRS based on consistent
concepts.
b) To assist preparers of financial statements to
develop consistent accounting policy.
c) To assist preparers of financial statements to
develop accounting policy when a standard allows a
choice of an accounting policy.
d) To assist all parties to understand and interpret the
IFRS Standards.
AUTHORITATIVE STATUS
 Conceptual Framework is not an accounting
standard.
 If there is a standard or an interpretation that
specifically applies to a transaction, the standard or
interpretation overrides the Conceptual Framework.
 In the absence of a standard or an interpretation
that specifically applies to a transaction,
management shall consider the applicability of the
Conceptual Framework in developing and applying
an accounting policy that results in information that
is relevant and reliable.
 Nothing in the CONCEPTUAL FRAMEWORK overrides
any specific IFRS, ACCOUNTITNG STANDARDS
ALWAYS PREVAIL.
USERS OF FINANCIAL INFORMATION/TARGET USERS
PRIMARY USERS
Provides resources to the entity. Parties to whom
general purpose financial reports are primary directed.
Existing and potential investors
- Concerned with the risk inherent in and
returned provided by their investment.
Lenders and other creditors
- Ae interested in information which enables
them to determine whether their loans,
interests, and other amounts owed into
them will be paid when due.
SECONDARY/OTHER USERS
Users of financial information other than existing
and potential investors, lenders, and other creditors.
Thus, reports are not primarily directed to them.
Employees
- Interested in the information on the
stability and profitability of the entity for
their benefits.
Customers
- Have interest in information about the
continuance of an entity.
Government agencies
- Interested in the allocation of resources and
activities of the entity.
Public
- Interested in the substantial contribution to
the local economy (number of employment
and patronage of local suppliers).
SCOPE OF REVISED CONCEPTUAL FRAMEWORK
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
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
6. Measurement
7. Presentation and disclosure
8. Concepts of capital and capital maintenance
OBJECTIVES OF FINANCIAL REPORTING
(Forms the foundation of the Conceptual Framework)
 The overall objective of financial reporting is to
provide financial information useful for decision
making.
 Financial reporting is the provision of financial
information about an entity to external users that is
useful to them in making economic decisions and for
assessing the effectiveness of the entity’s
management.
 Financial reports also include nonfinancial
information such as description of major products
and a listing of corporate officers and directors.
Annual Financial Statements – principal way of
providing financial information to external users.
SPECIFIC OBJECTIVES OF FINANCIAL REPORTING
 To provide information useful in making decisions
about providing resources to the entity
 To provide information useful in assessing the cash
flow prospects of the entity
 To provide information about entity resources,
claims and changes in resources and claims (refers to
assets, liabilities, capital/equity, and performance of
the entity).
Economic Decisions
 Investors need general purpose financial reports in
order to enable them in making decisions whether to
but, sell, or hold equity investments, provide/settle
loans and other forms of credit.
Assessing Cash Flow Prospects
 Decision about buying, selling o holding equity
instruments depend on the returns that they expect
from an investment.
 Decisions about providing/settling loans and other
forms of credit depends on principal and interest
payments or other returns they expect.
 Consequently, financial reporting should provide
information useful in assessing the amount, timing
and uncertainty of prospects for future net cash
inflows to the entity.
ECONOMIC RESOURCES AND CLAIMS
Financial Position – information about the entity’s
economic resources (asses) and the claims (liability & equity)
against reporting entity.
Otherwise stated, information about financial
position can help users to assess the entities liquidity,
solvency, and the need for additional financing.
Liquidity – the availability of cash in the
near future to cover currently maturing
obligations.
Solvency – the availability of cash over a
long-term to meet financial commitments
when they fall due.
FINANCIAL PERFORMACE - Comprises revenue, expense and
net income or loss for a period of time. Thus, it is the level of
income earned by the entity through the efficient and
effective use of its resources.
USEFULNESS OF FINANCIAL PERFORMANCE
a) Information about financial performance helps users
to understand the returns that the entity has
produced on the economic resources.
b) Information about the return the entity has
produced provides an indication of how well
management has discharged its responsibilities to
make efficient and effective of the entity’s economic
resources.
c) Information about past financial information is
usually helpful in predicting the future returns on
the entity’s economic resources.
d) Information about financial performance during a
period is useful in assessing the entity’s ability to
generate future cash inflows from operation.
Accrual Accounting
 Used to measure financial performance of the entity.
 Under the accrual basis, the effects of transactions
and other events are recognized when they occur
and not as cash is received or paid.
 Income is recognized when earned regardless of
when received and expense is recognized when
incurred regardless of when paid.
LIMITATIONS OF FINANCIAL REPORTING
a) General purpose financial report do not and cannot
provide all of the information that existing and
potential investors, lenders and other creditors
need.
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

b) not designed to show the value of an entity but the

reports provide information to help the primary
users estimate the value of the entity.
c) Intended to provide common information to users
and cannot accommodate every request for
information
d) To a large extend, reports are based on estimate and
judgement rather than exact depiction

Management Stewardship
 Information about how efficiently and effectively
management has discharged its responsibility to use
the entity’s economic resources helps users to assess
management stewardship of those resources.
 Such information is also useful for predicting how
management will use the entity’s economic
resources in future periods.

Chapter 3: QUALITATIVE CHARACTERISTICS

QUALITATIVE CHARACTERISTICS
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
- Are the qualities or attributes that make financial
accounting information useful to others.
- The objective is to ensure that the information is
useful to the users in making economic decisions.
- Classified into fundamental qualitative
characteristics and enhancing qualitative
characteristics.
FUNDAMENTAL QUALITATIVE CHARACTERISTICS
- Relates to the contents or substance of financial
information.
- RELEVANCE and FAITHFUL REPRESENTATION
APPLICATION OF QUALITATIVE CHARACTERISTICS
1. Identify economic phenomenon or transactions that
has a potential to be useful.
2. Identify the type of information about phenomenon
or transactions that would be most relevant and can
be faithfully represented.
3. Determine whether the information is available.
RELEVANCE
 Capacity of information to influence a
decision.
 To be relevant, the financial information
must be capable of making a difference in
decision made by users.
 Information that does not bear on an
economic decision is useless.
e.g. Statement of Financial Position
– Financial Position, Income
Statement – Performance
Ingredients of Relevance
a. Predictive Value – financial
information can be used as an
input to processes employed by
users to predict future value. Thus,
financial information has predictive
value if it can help users accurately
predict outcome of events.
b. Confirmatory Value – financial
information provides feedback
about previous evaluations. Thus,
it enables users confirm or correct
earlier expectations.
o However, information has both predictive
and confirmatory value because it is
interrelated.
FAITHFUL REPRESENTATION
Materiality
- practical rule in accounting which
dictates that strict adherence to GAAP
is not required when items are not
significant enough to affect the
evaluation, decision, and fairness of the
financial statements.
- The doctrine of convenience
- A quantitative threshold linked to
quantitative characteristics of
relevance.
- The relevance of information is
affected by its nature and materiality.
Materiality is a relativity – materiality of an item
depends on relative size rather than absolute size.
What is material for one entity might be not for
another.
Item Material – an item is material if knowledge of it
could reasonably affect or influence the economic
decision of the primary users of the financial
statements.
New Definition from the IASB: Information is
material if the omission, misstatement and
obscuring of the information could reasonably
affect the economic decision of primary users.
a. Could reasonably be expected to
influence/Reasonability
b. Obscuring Information – presentation
of financial information is not readily
understood nor clearly expressed.
Thus, characterized by deliberate
vagueness, ambiguity and
abstruseness.
c. Primary Users – include the existing
and potential investors, lenders and
other creditors.
Factors of Materiality
 Depends on the magnitude and nature of
the financial information.
Relative Size of an Item – in relation to the
total of the group to which the item belongs
is taken into account.
Nature of the Item – may be inherently
material because by its very nature it affects
economic decision.
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
 Means that financial reports represent
economic phenomena or transaction in
words and numbers. Thus, descriptions and
figures must match what really existed.
 The actual effects of the transactions shall
be properly accounted.
Ingredients of Faithful Representation
a. Completeness – requires that
relevant information should be
presented in a way that facilitates
understanding and avoids
erroneous implication. Financial
Statements shall be accompanied
by notes to financial statement
(notes provide necessary
disclosures by Philippine Financial
Reporting Standards).
o Standard of adequate disclosure / Principle
of full disclosure
- This results to completeness.
- Means that all significant and
relevant information leading to the
preparation of FS shall be clearly
reported.
- Best ascribed by disclosure of any
financial facts significant enough to
influence the judgement of
informed users.
b. Neutrality – neutral depiction is
without bias in the preparation or
presentation of financial
information. Thus, the information
is directed to the common needs
of many users and not to the
particular needs of specific users.
To be neutral is to be fair.
o Prudence – the exercise of care and caution
when dealing with the uncertainties in the
measurement process such that assets or
income are not overstated and liabilities or
expenses are not understated.
Neutrality is supported by the exercise of
prudence.
o Conservatism – is synonymous with
prudence. This means that when
alternatives exist, the alternative which has
the least effect on equity should be chosen.
“in case of doubt, record any loss and do
not record any gain”
 Contingent Loss – “provision” if
the loss is probable and the
amount can be reliably measured.
 Contingent Gain – is not
recognized but disclosed only.
Expressions of Conservatism
"Anticipate no profit and provide for probable and
measurable loss."
"In the matter of income recognition, the accountant
takes the position that no matter how sure the
businessman might be in capturing the bird in the
bush, he, the accountant, must see it in the hand."
"Don't count your chicks until the eggs hatch".
c. Free from Error – there are no
errors or missions in the
description of the phenomenon or
transaction. Thus, an estimate of
an unobservable value cannot be
determined to be accurate or
inaccurate so this does not mean
to be perfectly accurate in all
respects.
o Measurement uncertainty – present during
estimations and affects faithful
representation if the level of uncertainty in
providing an estimate is high.
o Substance over form – transactions and
events are accounted in accordance with
their substance and not merely their legal
form.
Substance over form is not considered a separate
component of faithful representation because it
would be redundant.
Faithful Representation inherently represents the
substance of an economic phenomenon or
transaction rather than merely representing the
legal form.
Example of substance over form:
An example is when the lessee leased property from
the lessor The terms of the lease provide that the lease transfers
ownership of the asset to the lessee by the end of the lease
term. In form, the contract is a lease as popularly understood.
But in substance, in reality, if the "transfer of ownership
provision" is to be considered, the real intent of the parties. is an
installment purchase of an asset by the lessee from the lessor.
Accordingly, the lessee shall record an acquisition of right of use
asset and set up a liability to the lessor. The periodic rental is
conceived as an installment payment representing interest and
principal.
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
ENHANCING QUALITATIVE CHARACTERISTICS
- This relates to the presentation or form
of the financial information.
- Intended to increase the usefulness of
the financial information that is
relevant and faithfully represented.
1. VERIFIABILITY
 Means that different knowledgeable and
independent observers could reach consensus,
although not necessarily complete agreement,
that a particular depiction is a faithful
representation.
 Verifiability implies consensus
Types of Verification
1. Direct Verification – verifying through direct
observation. E.g. counting cash
2. Indirect Verification – checking inputs to a
model, formula, or other technique and
recalculating the inputs using the same
methodology.
2. COMPARABILITY
 the ability to bring together for the purpose of
noting points of likeness and difference.
 Uniform application of accounting method
within an entity (the quality of information that
allows comparisons within a single entity
through time or from one accounting period to
the next, also known as horizontal comparability
or intracomparability) or between and across
entities (the quality of information that allows
comparisons between two or more entities
engaged in the same industry, also known as
intercomparability or dimensional
comparability.)
Ingredient of Comparability
a. Consistency – not the same as
comparability. This refers to the use of the
same method for the same item, either
from period to period within an entity or in
a single period across entities.
Comparability is the goal and consistency
help to achieve the goal. It is the uniform
application of accounting method from
period to period within an entity.
Thus, it is inappropriate for an entity to leave
accounting policies unchanged when better and acceptable
alternatives exist.
3. UNDERSTANDABILITY
 Requires that financial information must be
comprehensible or intelligible if it is to be most
useful.
 Clear and concise presentation of information.
 This is very essential because a relevant and
faithfully represented information may prove
useless if it is not understood by users.
4. TIMELINESS
 Financial information must be available or
communicated early enough when a decision is
to be made.
 Generally, the older the information, the less
useful.
o Cost constraint on useful information
- Cost is a pervasive constraint on the
information that can be provided by
financial reporting
- In other words, the cost constraint is a
consideration of the cost incurred in
generating financial information against the
benefit to be obtained from having the
information.
- The benefit derived from the information
should exceed the cost incurred in obtaining
the information.
- However, the evaluation of the cost
constraint is substantially a judgmental
process. Assessing whether the cost of
reporting outweighs or falls short of the
benefit is difficult to measure and becomes
a matter of professional judgment.
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
Chapter 4: FINANCIAL STATEMENTS AND REPORTING
ENTITY UNDERLYING ASSUMPTIONS
GENERAL OBJECTIVE OF FINANCIAL STATEMENT
Financial statements provide information about
economic resources of the reporting entity, claims against the
entity and changes in economic resources and claims.
Financial statements provide financial information about an
entity’s assets, liabilities, equity, income and expenses useful
to users of financial information in:
a) Assessing future cash flows to the reporting entity.
b) Assessing management stewardship of the entity’s
economic resources.
The financial information is provided in the following:
1. Statements of Financial Position, by recognizing
assets, liabilities and equity
2. Income Statement, by recognizing income and
expenses
3. Statement of Cash Flows, by recognizing cash flows
from operating, investing and financing activities
4. Statement of Changes in Equity, by recognizing
contributions from equity holders and distribution to
equity holders
5. Notes to Financial Statement, by recognizing
disclosures required by accounting standards
TYPES OF FINANCIAL STATEMENT
1. Consolidated Financial Statements – prepared when
the reporting entity comprises both the parent and
its subsidiaries as a single reporting entity. Parent
has the control over the entity.
2. Unconsolidated Financial Statements – prepared
when the reporting entity is the parent alone.
3. Combined Financial Statements – prepared when
the reporting entity comprises two or more entities
that are not linked by a parent and subsidiary
relationship.
Reporting Entity
 Entity that is required or chooses to prepare
financial statements. Thus, it is not necessarily a
legal entity.
Reporting Period
 The period when financial statements are prepared
for general purpose financial reporting.
 Financial statements must be prepared on an annual
basis or a period of 12 months.
 Assets, liabilities and equity = end of reporting
period
Income and expenses = during the reporting period
UNDERLYING ASSUMPTIONS
 Accounting assumptions or accounting postulates
are the basic notions or fundamental premises on
which accounting process is based.
 Serve as the foundation or bedrock of accounting to
avoid misunderstanding but rather enhance the
understanding and usefulness of the financial
statements.
GOING CONCERN (explicit in the conceptual framework)
 The going concern or continuity assumption means
that in the absence of evidence to the contrary, the
accounting entity is viewed as continuing operation
indefinitely.
 The going concern postulate is the very foundation
of cost principle. Thus, assets are normally recorded
at cost.
ENTITY CONCEPT/ACCOUNTING ENTITY
(implicit in the conceptual framework)
 The entity is separate and distinct from its owners
and other business enterprises.
 Accordingly, transactions of the entity shall not be
merged with the personal transactions of the
owners.
 Each business is an independent accounting entity.
 When a parent and subsidiary relationship exists,
consolidated financial statements are prepared in
recognition of single economic/accounting entity.
PEIODICITY CONCEPT/TIME PERIOD
 Concept behind providing financial accounting
information about economic activities at specific
time periods.
 This assumption requires that the indefinite life of an
entity is subdivided into accounting periods which
are usually of equal length for the purpose of
preparing financial statements.
 Thus, during the lifetime of an entity, accountants
produces financial statements at arbitrary points in
time in accordance with periodicity.
MONETARY UNIT
 The financial statements should be stated in terms of
a common financial denominator.
Two Aspects of Monetary Unit:
ACCOUNTING CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

1. Quantifiability Aspect – means that the assets,

liabilities, equity, income and expenses should
be stated in terms of a unit.
2. Stability of the Peso – purchasing power of peso
is stable and that its instability is insignificant.