CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS CONRADO T. VALIK, BSC, LLB. ‘CPAReview Schodl the eat Liste Mester Touerated Bar efUiePaipines JOSE F. PERALTA, BBA, MBA, DBA erie’ Public Acmusiant reedent and Dean Philpisie Schoo of Basiness Adminstration ‘OHRISTIAN ARIS M. VALIX, BSME, BSA ‘Atoos fase et Eagar Greate ‘Aucistent Review Dsccce and CPA Revcewer CPA Rerey Bette Pinte 2030 EditionCopyright 2020 by Conrado T. Valix Jose F. Peralta Christian Aris M. Valix Any onpy of thi book ot bearing the signature of one of the authors on this page is unauthorized and sball be Considered a6 proceeding from an ‘Mega sure r fite “ALLEICHTS RESERVED 1saN:978-621-416-085-3, Published & Printed by: GIC ENTERPRISES & CO.,INC, ‘National Bost Development Bear Resi ‘TOM Recofvena Geapee Palippines PREFACE ‘Thin neo book is in accordane withthe memorandum of the (Commission on Higher Education required forthe dogros of Tacheler of Science im Ansountancy. The book covers description of the Accountancy Profession, the Conceptual Framework, an introduction to the preparation of financial stataments and coneiee dacustion ‘ofall Philippine Acoounting Standards ox PAS and Philippine Financial Reporting Standards or PFRS related to financial ‘accounting The book will introduce the Bachelor of Seisnc in Accountancy students tothe wide world of accounting standerde knew os International Financial Reporting Standards er IFRS. Moreover, the book will provide « cold foundation for the Bachelor of Geiuce in Accountancy students before taking ‘up the three intermediate or Gnaneial accounting subjects VALIX PERALTA VALTX January 2020Accounting Standards tong econ st clay es dsced a ea PAS 1 20 24 8 20 38 4 36 a7 38 0 a dards related t0 financial ified ta thie new beck: ‘Prosontation of Snancial statements Iavontorioe Seazement of ath Bows ‘Accounting policies shenat otimate and errors vents after the ropoting period Income taxes Property, plant and equipment Broploree benefite ‘Accounting for government gront and Giselosiee of government assistance Borrowing costs elated party disclosures Investment in anaoelatan Finenciel reporting in hyperinflationary ecomany in necounting Financial instruments proentatin ‘arnings per ohare Interim finals) reporting Tmpeirment of ebgety Provisions, contingent Liabilities end contingent aasts Intangible ansets Investment property Agricalture PrRS 1 IFRIC 1 " a9 int time adoption of PERS Shere-based payment Noncurrent aasate held for eale and Aiscontinued operation Exploration and evaluation of mineral Operating segments Financial instruments Fair value measurement Revenue from contracts with euston Lessee Changes in existing decommiceioning, restoration and similar Ushilites Members shares in cooperative entities and similar instruments Distribution of noneceh aeoote to owners Batinguishing financial abilities with equity Instrumente ‘The occounting stardarde relaled to advanced accounting a ‘not covered inthis new hook but ar taken up in an advanced cecunting course.CONTENTS CHAPTER 1 ‘THE ACCOUNTANCY PROFESSION Definition of scoounting "The nocountaney profsbion — public accounting, private accounting end government agcouating Limitation ofthe practic of public arsountaney ‘cerediation to practice pubic acsountaney Continuing profesional development PD credit ait Generally accepted nooounting principtes inapcial Reporting Standards Counal Philippine Interpretations Commitice Titernational Acsouating Standards Comrnitie International Aasouating Standards Board Internatioral Financial Reperting Interpretations Committee CHAPTER 2 CONCEPTUAL FRAMEWORK Objective of financial reporting Definition of Conceptual Pramework urpases of Concoptial Frameverk Seage of Conceptual Pramework. Objective of financial reporting Limitations of Snancial reporting aCHAPTER 3 _ ‘CONCEPTUAL FRAMEWORK Qualitative characteristics Fundamental qulitative characesstios aoe ati Feithfl representation “Enhancing quabative chacacteritct Comparability Understandabiity Versabiey Timelinese (Coa covstexint on wail information CHAPTER 4 86 CONCEPTUAL FRAMEWORK Financial etatomonts and roporti Underlying essumptions Goneca]sbjctive of fnancialettaomente ‘Types of anvil statements Reporting eatity Roporsng period Going concoca, cspuating entity, ‘time period and monetary w eaity sssumption CHAPTER 5 100 CONCEPTUAL FRAMEWORK Elements of financial statements Definition of asset Defiton of bier Definition of oquity Definition of inom Definition of expense CHAPTER 6 CONCEPTUAL FRAMEWORK Recognition and measurement na DeSinition of recognition Recognition ortanie Point of cale income recognition ‘Expenee recornition Cause and efactnosoestion Systematic and rational allocation Immediate recognition Derecognition Definisian of messuremeat ‘Moacuroment breee Historical cost Gurrent vale air value Value in use Fulfillment value Current oat CHAPTER 7 136 CONCEPTUAL FRAMEWORK Presentation and disclosure Concepts of capital Physial capital conceptus CHAPTER 8 PRESENTATION 01 JF FINANCIAL STATEMENTS position Dein ria terme Pee aman wate Green finn eaten a Dees tamer ffnancal position Pets fet Cont td ont ct Debat of Mag Comte ant bien Belson tout Meee ne Rope ie eee af mca posion tartans faeces of el pan SE Sour he ened of Sosa oon CHAPTER 9 180 PRESENTATION OF FINANCIAL STATEMENTS ‘Statement of comprehensive income PASI Definition of incame statement Definition of comprebeneve income Componente of prot or lees Cempraais of ee comprehen income dae ies in the statement of eemprshensive income Funesonal presentation of iacome sistement Netra presentation of income statment CHAPTER 10 ne STATEMENT OF CASH FLOWS PAST Definition of statement of cash flows ih nd cash equivalents Operating netvitien Invosting activities Finapeing activitioe [Nonesth investing and Gnancing actinties CHAPTER 11 28 ACCOUNTING POLICIES, ESTIMATE AND ERRORS 8 Definition of eccounting policy Change in acrountine policy Definition of accounting estimate (Change in accounting estimate Prive period errors CHAPTER 12 38 EVENTS AFTER THE REPORTING PERIOD PAS 10 Definition of eventa afer rpoeting period Adjusting events Nonadjusting eventsCHAPTER 13 wm RELATED PARTY DISCLOSURES PASS Deion cf rund rain Beamples of related pertioe ‘Required claciomures about related party trancactions ‘Example of unrelated parties CHAPTER 14, a INVENTORIES PAS? Definition of invontorieg Cost of inventories ost formulae ~ FIFO and average method Measurersent of invenicry at LONRV CHAPTER 15 au PROPERTY, PLANT AND EQUIPMENT PAS 16 ation opera nd eaiment Rewcaln ef per pt tal oy Mesure reper al wa Sot py tal ein rection Sip erin” Pa tL pent Pee moun hula nd Stee ine prduin math ue ne tod eth ee meted ean ae ie CHAPTER 16 a GOVERNMENT GRANT Pasie Doition of government grant ‘Hovognition and: measurement Government grant related to aot Government grant related to income ‘Aecounting foe goverament grant Government assistance Disclonuros relate to government grant CHAPTER 17 355 BORROWING costs PAS 23 Definition of borrowing cost Qualifying aaset ‘Accounting for borrowing cost Disclosures related to borrowing cost CHAPTER 18 a3 INVESTMENT IN ASSOCIATES PAS 28 Definition of antociats Definition of significant influence Bquity method of assounting ‘Bycoat coat and exeasn fair value Impairmont of investment in associate Discontinuance of equity method Equity method not applicableCHAPTER 19 be IMPAIRMENT OF ASSETS PAsae Dein fmptrment Heer a of rryerabe amount Fai vals less conto pow Values woe ocopiton of impairment hos Reversal of inpairmeat lose Detiiten of cas generating wait Irspaiment of ush generating unit CHAPTER 20 au INTANGIALE ASSETS PAS 38 Definition of intangible ascot Recognition of intangible abeet ‘Meacuroment of intangiblo eset j Internally generated intangible esset Agertastion of intangible asset, ‘Amertaation pericd ‘Useful ie of intangible asset Amortization method Impairment f intangible asset Derecngnition of intangible aacet Research and development cost ‘Accounting for research cost ‘Accounting fr development coat CHAPTER 21 up INVESTMENT PRorEnTy Pas.40 Deion of Savstment prope Defiitin of ownersceured poner Examolesof ivestnant property Racpition of invertnot property Meanatoment of imvestnent propery Farle of vine! pope feasuremert of trans ce esnem property Doreognison of ivertont property CHAPTER 22 470 AGRICULTURE, PAS 41 ‘Definition of bologieal seset and agriculzural produce Agricultural activity ‘Recognition apd measurement of biological ‘asset and agriculsural produce Boaror plants Boarer animals Animalelated recreational sctvitiosCHAPTER 23 PROVISION, CONTINGENT LIABILITY AND ASSEy PAST Definition of provision Recognition of proviion Meararement of provision Contingent ability ‘Treatment of eontingent ibility Contingent aseet ‘Treatment of contingent asset CHAPTER 24 ox FINANCIAL INSTRUMENIS - PRESENTATION PAS 32 Defietin of inansil metrament ‘Financial cot and Sansal ability Bauity inverument ‘Compound inane} instrument CHAPTER 25 ia INCOME TAXES. PAS 12 ‘Accounting income end taxable income Permanent and tempor Defered tex intitty 7 Sereces ‘Deferred tax asset Measure roentof deferred tex eset and Liability CHAPTER 26 ses EMPLOYRE BENESITS PAS I9 Definition of empleyee benefits Racagnition and meneurement ofa ‘employee benefits Postorplayment benotite Deaned contrivaticn plan Defined tenet plan Service cost, net inte ir value of pian anoets Projected enett obligation Otter long-term employee beneica ‘Termination benefita ‘and remeasurement CHAPTER 27 586 EARNINGS PER SHARE PAS a3 Potential ordinary Presentation of warnings per shar: CHAPTER 28 608 INTERIM FINANCIAL REPORTING PAS 34 Definition of interim reposting Prequency of interim Components of interim finanelal report Bane principles of interim reportingCHAPTER 29 REPORTING IN HYPERI PAS 30 Definition of hyperinflation Menetary and nonmonetay Hams Cpnctant peso accounting Gainer loos 00 purchasing rower ‘Procedures for restatement CHAPTER: 30 FIRST TIME ADOPTION OF PFRS PRES 1 ‘irs: PFRS Grencial statements les: tie adopter ‘Opening PFHS statement of fnencal psitin CHAPTER 31 ‘SHARE-BASED PAYMENT. PFRS# Baul setied and cash ‘Share options cognition and measurement of sharo options ‘Recoenition and measurement of share appreciation righte tld share-bnsod paymont INFLATIONARY ECONOMY: sir 68 OBAPTER 32 ors NONCURRENT ASSET HELD FOR SALE PERS 6 i Definition of noncurrent asset held for sale Gonditions for classification an hed foe slo Measurement of roncurrent sas eld for eale Precentation of nonourrent enwot held for ale CHAPTER 33 087 DISCONTINUED OPERATION PFRSS Definition of dissontinusd oporation Presentation in the income stetement Presentation in the stabement of financial postion CHAPTER 34 700 EXPLORATION AND EVALUATION OF MINERAL RESOURCES: PERS 6 Definition of exploration and evaluation of mineral resouroes Exploration and evaluation aasot Exploration cost ‘Accounting for exploration asset1 CHAPTER 35 a OPERATING SEGMENTS PFRS# Desniton ef operncg sent (Cites hem fpetatle operating been! his operating decion mar . Secreta acoed fro reportable semen CHAPTER 36 ™ FINANCIAL INSTRUMENTS Measurement of financial ascet PFRS 9 Initial and eabsequs? moaourement of financial asset Financial aset at fai value through profit or lesse ‘Financial asset at fair value through other ‘comprubensive income Debt inveatment nt emortned cot ‘Debt investment at fair value through other comprehensive inecme CHAPTER 37 138 YAIR VALUE MEASUREMENT PERS 13 Definition of fair value ‘Valuation method fer measuring fee valuo Fair value Kievazchy os CHAPTER a8 ue REVENUE FROM CONTRACTS WITH CUSTO! PERS 15 , mae CCore principle of revenue recognition Fivesiep model for revenue recognition Definition of contract, performance oblization and transaction price Recoynition of ravens a @ point in time Recognition of revenue over ime Sale with a sight of return Consignment areangement Bill and hold arrangement ‘Customer loyalty program CHAPTER 39 10 LEASES ‘PFRS 16 Definition of lense Operating lease model for lessee Finance leave model for losses Measurement of right of use asset Meanurement of lease lnbilty Operating lease model for lessor Finance lence model for lessorCHAPTER 40 ™ TRIC INTERPRETATIONS TeRIC joning, restoration and Changes in existing decommissioning, ‘smiles Labltice TeRIC 2 Members) shares in cot Tnstruments Ist 17 Distribution of aoacash assets to owners IFRIC 19 [Extinguishing financial Lables with equity instrumenta CHAPTER 1 THE ACCOUNTANCY PROFESSION ‘TECHNICAL KNOWLEDGE Toundersiond the definition of accounting. ‘To identify the overall objective of cxrmunting To describe the practice ofthe eccountaney profession in the Philippines. To understand the Continuing Professional Development in ‘he field of accounting. To know'the meaning of generally accepted accounting principles. To identify the standard -seting body inthe Philippines. To describe the creation of the International Accounting Standards Board. To know the meoning of IFRS.DEFINITION OF ACCOUNTING ‘the Aczountig Stapiide Coane! provides the flowing definition: Aennuntng i series oxi Tntended t be weful ix making ronomic decision: merge A poner temo eo ae a Itch te port late aaa charac nd inking ‘arene hr. ‘The Americen Accounting Association in ite Statemont of asic Ancunting Theory Gefines accouating a8 follows: preparer Important points ‘The following important pointe made in the definition of accounting should be noted One ~ Accounting is sboutsquantitetive infrmatin, ‘Two ~ Theinformation i key tobe Finaialininatuts. Three ~ Tas information should be wseful indecision ‘aking ‘The dafintin that hao etond the toe of ie i the definition sven by the Amorian Axeunting Atcoation. ‘ronan leueizehnge sea The definition lao states that aceounsing bas a number of component, camely, 4 Idontisfing as the onalptice! component. 5. Measuring as tho fechnical component. ©. Communicating as the formal component. Tdentifying [Net all busines octibities are accountable. For example, the hisinig of employees, the death ofthe entity president end the entering into w contract are all business [stivites but such oventa are not accountable becase they In other words, the eubjoct mater of accounting i sonore activity or the measurement of economic reeourcee afd economic obligations Bate cepenrc activins fre eraphasized and recognized in ean sata erenceseternal and intarnal ranaetions Broek emattaglarenere! veg incernal. ee Pe oes mera Sores mes | ee TE eo ‘e. Payment of taxes to the government cco event tnvoluing the ny Intern trensactions are the economic ectivitics that take piace satielywitn the easy. Production and casualty leas are examples of intoraal ‘soneaetioa. plat emanate ined siting SCARS TANS ea aay eed oo a act of God Miaruriag 8 the assigning of peso amounts ‘conic iraneetions no beats {racountng information isto be ust) t must be expressed iteons oft commen nana dewaiaece Final esemons wit moelary asus fared unntlibie or neamprekends “OS® ooo ine at het af meneurng accountable ‘The measurement bate are storia rst ncurent ue fon meer of al Saat and themes li ana euro cot 802, olue in use flfillmen! 4 Communienting ein weve pte sn atten Seniesa meen A tem elereoe i ‘strounting haa | Implicit in tho communication process axe the recording, classifying and eummarizing aspect of accounting, eens (Clasitying in accomplished by posting tothe ledger. ‘The leciger a group of accounts which aro systeraatically fir i eens sms af expense aoa [Benscarisagin th.somrtonffnancta adios hi neat te stent of nec psa acme Temctent selena of cnprehe eter en of {agit apulg oe notin ooh foo Accounting 08 an information system erties nt ini ‘ivities, processes information into reports and gonmuniuet the repos to deci makers ‘A ley product of thi information eyatom ia 6 ost of nancial statements fbout an entity to Financial reports tel us how well an entity i performing in termvef profit ane less and where stands in nancial terms,vera objective af accounting sack is to supply financial ‘An acoountents primacy ould ma? informed entity tht he tere * ‘adgment aad beter devon et ‘he esac fern is ison-seele voor geen are ftoreted i fina) Tovestorn and the centr) in making AMPOEER and ‘Sfaeant como dss "THE ACCOUNTANCY PROFESSION law regulating the _asprouent, Replat No. 928 he La ro pct of asnuntsy isthe PLP ‘This law is known athe Pippine A>ountancy Act of 2008 Accountancy hes doveepod ans profession aitsning estates ‘cuivalent to that oflaw and medicine In the Philippines, in order to qualify to practice the ‘accountarcy profesion, a person rust finish a dogroe in Bachelor of Seana in Aceontaney end passa very dificult, evernmoa! geamiaation given bythe Dear of Accountancy. Tha Board of Accuntancy isthe body cuthorized by Taw 10 remulgoi rele and regulation ofecting the practice ofthe ‘ecourtaney profes inthe Plippines ‘The Board of Ascountany i reeponsble for preparing and rang the Philippine CPA examination icone cei i tle, one iM anlener enn Oster iauionicd ae t ‘around the ecuntry. ca ‘Limitation of tho practice of public accountancy Singloprecttoners and partaerships forthe practice of public sccountancy shal be regiatored cried pass czouatant i te Pigg =e ‘A certificate of screditation shall be iasued ta cetisiod pubic sccountanta in ube practice only upon showing in acccdance ‘with rules and rogulations promulgated by the Boar of ‘Accountancy and approved Uy the Professional Regulation (Commission that wch registrant hs aoqired «rani of three years of moaningll exprionce in eny ef the ares of publis practice indading tation ‘The Securities and change Commission thall not rogister “any corporation ormaze fe hs price of publ ecu, Accreditation to practice public accountancy ‘Ceri publi acsountarta, Sms and parnerships of certiied public accountants, snelading parinere and sta! member thereof are required to register with the Board of cmountancy and Profesional Regulation Commision for the peace of Dubie samaneancy CCoctfcate of Registration to practice public aooountanzy ‘which shall be valid for 8 years and renewable every years upon payrent of required fees, Cortifiod Public Assountante goxerally practice their profession in three main arees, nazely: Public aspunting 2. Private accounting © Government accountingPUBLICACCOUNTING ecru ‘The fel of puble monrtine oT Sountng fre And large of individual practoer er insopndent deport ‘talon pesto, re js fer thete Kinds of servicns, Pate scout 0 anager 96 fac eae mst egnanteg Ere have me Bef hese were. Asa satter ‘Sparta desir or Auditing rinnary service offred “ting bs tatonly bon te pinay ct yaaa es Jucitng ov ecerrl ating ithe examination of facial a ee adent eed public osoansan fr the emo cisions Actually, exteranl auditing is the attest function of Etpendine Coan teow of Interns] Roveaas eguires cuit frend Tiiemenitsscnnpany the Bing aoa iecae tex et, nha ond othr lending nations equoaty requir ‘sat ty ao independent OVA bore granting & loch to he Sareower Creditors and proypestive ive ‘lanes cv nies antl ta Prone place considerable 8 ba making eonomie ‘Taxation setter sm ne Cy er Tan G24 et nvr vt tin ma ya a Te re ec nd ety, pi Sooke GC aaa icons ot eal 8 Management advisory services ion ete Fon aio ace une the Rea ee ean Tham magento wre has ay orci overagy it inetd poeraly tree ty sen mat : aay rn lp rt and pertions Specifically, management advisory services include: ‘Arco on installation of somputer oysters ‘Quality contrel ae Tnwtallaer ar modiScation of ecoouting sytem Budgeting Forward planning and fxeceting Design and todication of retirement plans ‘Admee on mergers and conmalidatons PRIVATE ACCOUNTING ‘Muny Cortfed Publie Arcruntante are sraplyed in business fntities in various capacity as accounting staff. chie! ‘ecountant, internal auditor and contre ‘The highest secounting oie in an entity i known as the controler pepper ‘The major objective of the private accountant is to easiat management in planning end controlling the entity's ‘opera Private accounting includes maintaining the records, producing the financial reports, preparing the budgels and ‘oatrolling and alloating the resources ofthe entity. ‘The private accountant has alao the responsiblity the detormination ofthe various taxes the entity is obliged to ey.goverment accounting isthe custody and of gow Dolado of pee fan centage nary st asin Many Certified Public ‘beaches ofthe Buen of Intra Bevea® © Commision 7 Au r © Departnont of Budget and Morseeme SCE and Brchenee Commission Bongus Sentral re Pipices CONTINUING PROFESSIONAL DEVELOPMENT (CPD) Republic Act No. 10912 ia ihe low mandating’ ond Eezagthen(ng te continu profesional development Prottam for alt rigulcted professions, including the Seeauntanty profession abide by the 2 continuing profeeronal cevlopment tobe promulgated by the Board of 2, subject to the approval of the Profeesional on, in eoordnation with the acredibed nal organization of certified public Gentine profil development noises and enhances the echnical skill and comprience of the Cerlified Public 10 CPD credit units ‘The CPD cre unit refer othe CPD erdit hour equized {ar the rnowal of CPA lcene ad acuiation a practise the accountancy pofeason every thee 924 Under the new BOA Resolution, all Certified Public ‘Accountantorezariless of eres o sector of practic shal be required to comply with 120 CPD eredit units {The Continuing Profasioual Development is required for the renewal of CPA license and aceradiation of CPA to practice {he eocountancy pression. ‘As recently promulgated, only 15 CPD credit units are equiva forthe reveal of CPA license However, 120 CPD credit units are required for accreditation of a CPA te pratice tho eecountanay profession. Beco ereit unite earned shall not be carried over tothe nowt theeo-yoar period, except credit units earned for ‘ractoral and doctoral degrees 1 tr to be empbasignd that the Continuing Professional Developaient kas become mandatory for Certified Public Accountant Exemption from CPD ACPA shall be permanently exempted from CPD equiroments upon recching the age 07 65 your. However, this exemption applied only to the renewal of CPA license and not for the purpooy ef ocerediation to practice the ‘accountancy profession, uAccounting vereus auditing In. broed sonee, sxpuning embrace ewdiing, Auditing ie one ofthe areas of esvantingsPecelination, ranting i exeertial conetrucive oon finreial etatoments ery Ina limited sense, 2:2 ‘ature Aesountine ceo Already prepared, (On the other hand, auditing is oralstical. The work of an Gui beatae when the work of the accountant onde, ‘Afr the Financial statements are prepared, tho auditor wi begin to penne the task of vetng ‘The auditer examines the financial elatements to secertain Wrbether taoy ate in conformity mith generally accepted ‘tsountig principle. Accounting versus bookkeeping - Bookkeeping is procedural and largely concerned with byslopmeat end maintenanes of asountiog reo Booldeeping ie the “how” ef sesountng. ‘Accounting is conceptual and is concerned with the why, reason oe Jostiflestion fr any action adopted. Bookkeeping is a procedural element of accounting a acithmet> is 2 procedural dament of mathematics. Accounting versus accountancy Broadly spenking. the evo tonne are eynonynous becrute they bath fer othe ene feld of aceounting theory and pact Technietlly speaking however accountant Seen pete ie taney refers tothe ‘Accounting is wed in reference only to ae caly to a particular field of Seay SRA ate et eung tt ‘Financial accounting versus managerial accounting Financial occounting in primarily concerned with Focordine ef bunineseteanseticas aod the eremea Deeperaien of nana statement Financial accounting focuses on general purpoes reperts Ancona financial statement ialerded fr tral and Financial eccovating ie the area of accounting that cmphasies reporting to cree and fneatrs. ‘Managerial accounting isthe accumulation and peeparstion of Gnaacial reports for internal users aly counting if the sree of eveloping accounting Information for wie within an entity (GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ‘Accounting has evolved throvgh ie changing with the reeds fof secery. An now typet cf trenseetions enur in trade and commerce, accountants develop rales ene precedurce for rowoeding ther ‘These accounting'rules, procedures and practices came to ‘be Known as Benevally accepted aceeunling principles ot ‘simply GAAP, ‘Tho principles have daveloped on tas basis of experiance, reason, custom, usage and proctical neces Generally accepted accounting prinsipos ropreser he rls Sroceduree, practice and franderds Lellowea in the preperation and pesenltion of Saancal satemeats CGonorally scsepied semantne placinles er ik as that ‘Sust be Yellow i Sandal poring ‘Te pieces of xtbishing GAAP i pital proces which Tofporetee police acon of vanous Interest aver ‘Zoupn as wel cs profesional jeden? a ad research,standards ating sendarde Isto Hoty parpote of acta gvor the PEEPAEAON ang Purpose of account The ow proper accounting P Prowntaton of Goan . between peer eat of anets and kaibioe eran sno stolen re ane ton ‘Sm on te snze Sl ioration. FINANCIAL REPORTING STANDARDS COUNCIL, reboncnt of generally sceped 4a the Pains enue aially thru the Seiden ofthe Acsountng Standards Councl or ASC «Fear fapring Sands Coe oF FRSC non ‘ines ie Acantng Swarts Cone ‘The FASO iste accountng standard esiting body created ty the Professional Regulation Commission upon ‘commendation f te Board of Accountancy to assist the ‘Board of Assnurtancy in earring out its powers and functions provided under RA. Act No. 9286 ‘The mais function is to establish and improve accountie standard that wil be generally ocaped in the Philippines ‘The accounting standards promulgated by the Pingncal Reporting Standards Courell constitute the "highest ‘iorarchy" of rexealyacoepted eaoanting principles in thé Phlippine ‘The approved statements of the FRSC aro known Peoyoe Aerating Stns o AG ed Boe Fhatia feprtag Seances agen u Composition of FRSC ‘The FRSC i composed of 15 members with a Chairman wh ‘Tig FRSC in compoved of 18 members witht Chaiesen who is Prosonty aeenie aconating practice Fre a gst werent tnd 3 reprenoatatives fr 1 1 1 1 i ‘The Chairman and members of the FRSC shall have «tere £3 years ronowable fer another term, Any member of the 8G) shal ot be disualid from being appeinte to the Philip Interpretations Committee ‘The Philippine Interpretations Committe or PIO was formed Uy the HRSG Tet Keane 2006 and han placed the tations Committe or 1 fermed by the, Account Stardards Counel in Nay 2000, Z : ‘Thorlo he PIG to pepe interpretation of PFE fur ‘approval ty the FRSC and provide tie guidance Gh ‘flaca Zaporsng meee re peste iced furore PER In ether nords, interpretations are intended to give quiere idan gnu Cate bo neine cud provide specs ead cearct nist sod wldoes ‘Tao counterpart of the PIC in the United King ithe Intornatinal Finance! Reporting Interpretations Comes gr IFRIC whieh hee already ropleced the Stancing Intorprtasione Committee or SIC. raINTERNATIONAL ACEO ie ee ‘The International Asante Shes 2 Otho obec of Maan pep a slg onitea versa ee nae etary bun oy Aantal, Canada, omega ete erie Fray ren ele Uaee ao Ge mc sein nonin Ua Kingdom. Objectives of ASC tropomnenpubte inthe pacers acting Tofrmulis tatfeariel inch presentation of Sancta seem ae pone ek weeds sssptanet ao rn il ri * pmb tierra iE eee {INTERNATIONAL ACCOUNTING STANDARDS BOARD ‘Te Internaticnal Ascounting Standards Beard or IASB now replaces the International Aovuating Stendarde Coramstioe or TASC. ‘The IASA publisher andards ina series of pronouncements called Intemational nancial Reporting Stancerde oe IFRS. ‘However, the IASB has adopted th bey of etandarde insu Bowers he red che body ofetandarde inewed The prenguncenein of he IASC cout be designated at “Internlinal esouning Senco er 8. The IASB standaracttng prose incudes tn the comet tenia orler earch, disuaion paper, esporure dro ond ‘Move toward IFRS ing standardy thet will be generally ‘eccepied im the Philippinos, standards inaged by other standard siting bodies wach aa the USA Fiaansal Aceounting ‘Standards Board (FASB) ard ths IASI are conaidered. In the past years, most of the Philippine standards ioued ‘re baced on Amerisan accounting standards, AL present, the FRSC has adopted in their entirety all International Accounting Standards and Isternational Finoxciel Reporting Standords ‘The move towand IFRS is essential ta achieve the goal of one uniform and globally acepted financial reporting sandarde ‘The Philippines is fully compliant with TFRS effective January 2005, @ pooees which was started back in 1987 in smeving from USA GAAP to IFRS, ‘The following factors are considered in deciding to move totally » international escounting standards ‘4 Support of international accounting standards by Philippine crgaisatices, auch aa the Philippine SEC, Board of Arcountaney and PICPA. », Increasing internalizetion of businoas sehich ae heightened interest in a common language fo fnaccial reporting. Improvement of international accounting standards oF removal of five choles of nemanting treatnenta 4. Tocreasing recognition of internationel accounting standarde by the World Bank, Asian Development Banke fend Werld Trade Organization. aPhilippine Financial Reporting ‘Standards Rapeting Standarda Coun isnina wna ‘ings iinet Sp Fa genet ting ‘The Phitppine Financial Reporting Include al of the flowin tanderde collectively porting Standards which 4% Philippine Finance yaad Ficanciel Roperting correspond to Internation Sandan se Philigine Fiance! Reporting Standards ere Tae Estep tuner nea Finansal Reporting Standart bb Philippine Accounting Standards which correopond to Internation) Aacounting Standards, ecoutng Stns 36 numero! the TE PENEEEY Snerpen an atrmtioal Acooating Stands Philippine Interpretations which correspond co Interpretations of the IFRIC and the Standing Interpretations Committee, and Interprevations developed ty the Phsppine Interpeetations Commie. 8 QUESTIONS L Define accounting. 2. What re the importa points me accounting? in tho dafnition of 3. Baplain "denifyine” as a component of accunting. 4. What are transactions? 5. Distinguish external trai tuanstetions tions and internal 6. When io tensacticn acpuntable a @uanifible? 1. Brolin “measuring” as » component of acounting? 8, What are the measurement bases used in gecunting? $8. Beplain “tommunisatng” ae component of eccounting. 10, Explain recording, classifying and summarizing in relation tthe communisting component of assouning. 11, Eeplain why accounting has been called the Caniversal Tanguage of business” 12 Beplain eosunting es on information system. 18. What isthe vocal objective of aseunting? 1M. Dosorte the acsountaney prvesin 18, What ie RA. No, 92067 16. What do you understand by the Beard of Aeountany? 17. Explain tho limitation of the practice of public ‘accountancy, Frydon of seomtancy. 18 Bap the aecrditason # Praetee ss in the practice of the 19, raat are the three main 8 accountancy profession 20, Explain pubic accounting. CPAs 21. Wnt are the thre Kinds of errs offtrd WY CPA in ‘he pretie of pubic apaunting 29. Explein auting 123, Doverbe the taxtion serie offered by CPA. 24, Explain management edvsery seins 25. What are some uansgement advisory cevices offered by, ces? 25, Explain private acounting ‘77 Replain government accounting. 28, What de you undertand ty che Continuing Professional Development of CPAs? 30, What i the meaning ef CPD ered uit? {30.How many CPD crit wit are reguted?” 21, What i the purpose of the required CPD credit units? 82, What ie the exmption fom the CPD requirements? 28 Distingsch eosuating ad eutine {54 Distinguih aesvamsng and eckeeping, 96, Distinguish scouting and scoountaney, 20 96, What is Ginencial acoountng? ‘5, What ss managerial accounting? ‘58, What is the meaning of generally accepted accounting principle or GAAP? 89, What constitute GAAP ia the Philippines? 40, Explain the purpose of ecoounting standards, 42, What isthe composition of FRSC? 48: What do you understand about PIC and IFRIC? 44. What do you understand about the International ‘Acccunting Standarde Committee? 45, Whot are the rein abjetives ofthe LASC? 46, What is IASB? 41. What do you undovatond by IFRIC? 48, Explain why the Philippines hee moved totally from American accounting standarde to atcounting standards fernational 1 hy th “Intornaional Financial 480, What are calloctively included in "Philippine Fibenciat Reporting Standards"?PROBLEMS jo (ACP) Problem 1-1 Multiple chcioe MY ide sivity and the rial in nature, 1 Arousal aly Spurl athe Shoei Stonomieentey BE esting defination in staple oromie doses 4. ofthe flowing donb eaounking, e=o¥pt ‘A sence acy ferent of basis ‘a tau see reer a3 et srnetan penis sede inthe dfnition of accountng {ude all of te lowing, except 4. Accuntne ifaatin io guanitatv. £ Actouatine information ts both quantitative and queer cg. TebutSne information i financial in aatare. &. Aounund intrmetin i uct in deen ‘Thin szonting preceniatheraogition or conzecorition cf sin actin we tcoutae eds . a 2 Bema © Commontating Reporting 5 Ware teens iat ae teensy ain which other ‘entities participate? tee sis ei Baers events tera evans © Curent events ©. Obigning ent 8. Which is tneorsect in relation ta an accountable event? Am event in acuntatle whan it has an elton am teh oreaaly = . The subject mater of asounting i the measurement ‘eonomic rescuer and ebgetoee © Oni seongmicaatviie ary emphasioed and ecogaised é ‘7 What le the measuring component in the ¢efinition of accounting? ‘The receniton or nontecmition of business acti 1 unable ata = >. Thosseigang of peap amount tothe asoustable events ©! Tho prepaztion and dintibution of accountng eee {2 taory of aacunting nrcatinn 4. The preparation of wut report by CPAs. ‘8 The most common Gnncial ettribute used in measuring financial mtormetion is Historica cnet & Curren: aos & Fair value Value’ te 0. The communicating process of ascounting insludes all of the flowing, except 4 Recording B Chasaitying 4 Interpreting 10. What isthe overall objective of aecunting? ‘To provide the information that the managers of an e2onomic entity need to control the operations. . To provide information thet the ereditors oan uso in deciding whether t9 grant leans to an entity. ‘To measure the periodeinsome ofthe economic entity. ‘To provide quontitative nancial information tbat wt ‘entity that is uel in making economies desist, 23robtom 2 mul 1. Wha Ta 038 Sele 2 BA No 5 ERG sis scounteney e Boaad of Accountancy, Dyblie Accountants Bates fa att of cried Publi © ne tee eee $ Pebncal epee Seals oa ride cgee main rena in ho Peace of Ce aya am cn ean ain counting and manager SSE ection and manmeeril accounting 1 ucting, texeion fog. managerial eccountang and a. BeBe NS ncing priate accounting an goverament Sunt Wpich statment incorrect in ration tothe practic “Yeas ‘secountancy? paul ractitiongrs for the practice of publi & Sing Rag all be registered GBAm fa the fala " rele partnerships formed forthe practice © Batlle eecounteney shal be repatered CPAs So tt Eilipoine RRR nt aoe Cmniaion cane cepa Siar RS Na aaa a HEEFT crane ae 5.CBAs azo Hoensed by «4 Problem 1.3 Multiple choice (ACE) 1, Whet isthe sandardat inthe Phipps at the present time? | th" body in the Phi Accounting Standards Council 'b Auditing and Assurance Standerds Council & Philippine Accounting Standards Board a. Financial Reporting Standards Cowell 2. All ofthe flowing are represented in FRSC, exeept 1 Board of Accountancy 1, Securitas and Bxchenge Commission ©. Commission on Auait 4 Department of Budgs: and Monagement 8.The Philippine Financial Reporting Standards collectively include 8. PERS corresponding to IFRS, BAS corrosponding to LAS © Philippine Interpretations corresponding to IFRIC and SIC Interpretations and’ Interpretal developed by Pc 4. Accounting standard-setting has been charsctarzed da ‘a A politieal process 1 Uaing the caiontiic method © Pure doductive reasoning A legal process 5. GAAP in an abbreviation for & Gonerally authorized accounting procedures b, enerally applied accounting procedures © Generally seceptod auditing pracicss 4. Ganorally secepted accounting principles 25i publle pzectice? (6. What is the primary mvin OPA = . Audioe © Fee sane & Ghncolieee 1. amountans explored £2 counting beengngel in ution in various capacity ay sence ontrller are said Pinan aacunting 1 acsountancy profersion thet OU i sat toe pete of spolvaing, lasting, ‘Sammerising and communcating all i amcalving {he otiang slopstign at woyerament funds ane fropeny and interpreting the rests ‘Inte eutiing © eee uct ©. Governumat scounting ow many CPD crit nia are required fir gcredttion Sf prac the asennsony rosso? 4.120 unite 5300 unite "6 ante a Ts wnt 0 ACPA shallb permaneasly exempied fem renewal of CPA Problem L-t Multiple chotce (IFRS) ie neon nui Stars re f Banine 01s tp eemege Pe SA oes ot ag ee amen 4. Th devtep acoantng tannin for oantsie that do tov have thar own ehadardsatise bole 2."The International Accounting Standards Board {Was tho prodecasor 4 the IASC. 1X. Gan overrule the USA GAAP when their policies iangre. «Trois the ute of high quality end understandable ‘accounting standards 4. Has its headquarters in Genova 8 The IASB declared that the merits of proposed standards Fi tpntion f noua Ton, ponion of mataral 4g Based on possibie impact oa behavice 4. Based on arguments of ebtyiot 4. The standard-setting process includes in the correct order @ Exposure draft, vesearen, discus accounting standard b Research, exposure draft, discuscion paper and gecountigstandure Sead « Hesoarch discussion paper, exposure: draft standard 4 ssa ag Fesearch, exposure draft and 8. The IASB omplaye a due process system which Ta an afficiont aystem for collecting dues from '. Enables intoroated partics to express their views oa lniuea under soncidoration. Montifies the accounting issuee that aze the most importa 4. Requires that al! CPAs must receive & copy of IFRS. a7aby IASB? due proves in wamdardant in OF i ae ae Abert oe oo Fe oe ceca andar arin eet anne nsendertesing - +The standards published by LASB are all eer See pt © Ree pet en Smt «eer se oe Sn wndarde, what ina ponte danger pol plays to BE ein Sovbpine aS? 4. aun reporting standards are 20 Seemed etn may nnn tenders © To craps become aie, ERED lg se aotorey wo eect fis, 1 tealy generally 9 Accounting standard-etting be dewcbed asa poll pronss which ects * Sais! act of vac intersted woe croup Telex profact of reactch ed lg. te Bibund snp on reonarh and empinel nding. 4. i democratic In the sonee that x majority of feeountante mat agree with a standard before it eomes enforebie: 10.LFRIC Interpretation invued by LASB. © Cover issues where unsatisfactory or conflicting interpretations have developed 4. All of those ae true about TFRIC Intorprotations Problem 1+ Multiple chotee (AA) 1. Pinca acunting i cnn wich ‘General punpens exports on financial poiion x Sauna prem anon” Soarcil ont pel repertory manage Special reports fr incon tt comets «Lenora pape report co Chee sae prea 2 Financial accounting ean be broadly defined nthe area ‘counting the prepares en 1% General purpose financial statements to be used by parties internal to the entity. Financial statements to be used by investor © General purpose financial statements to be used by pprtice both iternal nel xtareal to te’ 4 Fingacial statements t9 be used primstily by ‘management 4 Financial accounting emphasizes reporting a. Management Regulatory bodies © Internal auditors 41 Crediters and invostore 4. Managerial accounting emphasizes 1. Reporting financial information to externa users 1 Ropering to the SEC & Expertice in data processing Developing aevunting infrmaton frum mith ax 8. Whi ratrontia trae mpading ante and frac) ‘& Managerial ascounsng is generally more procice, v act follow geacrally Accopted accounting principles while financial fering mt tor GAA ‘The capbacs on manaveral ncurses relevance and the emphisas cn uncial ssounting stalinProblem 1-6 Multiple ehoice oe 7 see vi onal wed se een st TANG tome DEES gad court FREES, quthority from a Sct leg te fom ene sneahek capi aay the ecewsay mee a ayn tet oie «2 es rt be lied i FESS reg ng bd mh Ks ‘eck of wu aco a ube nd Pose ca ne oy. i ih Soa "fo aot apply to amall and , Riasieaett bean ‘aa ‘2 Proper application of accounting principles ie moat Sspandent upon ® @ {L Pesenjcgmens th acuntant “4 Once an accountng standard han been establishod The pandard i contcully reviewed to see if os Bi Made stipe omen elton Tin laa ronewag te andar i hen othe tatoo sxc wnat a. Hegde ef omnes rues that ne isons Gecko made ote vn The primary responsibilty for proper GAAP he Erlery responsi for propery applying a. Extornal auditor © Interal auditor & Management 4. National eccounting organization a0 CHAPTER 2 CONCEPTUAL FRAMEWORK Objective of financial reporting TECHNICAL KNOWLEDGE ‘To know the nature of the Revised Conceptual Framsuork. {To describe the purpose ond usefulness of Conceptual Framework To understand the outhoritotive status of a Concepteal Framework, ‘To understand the objective of financial reporting. ‘To know the limitations of fnanciat reporting, a1FRAMEWORK CONCEPTUAL’ cial Reporting is q a ng hen wy meee rae Sots ea iain aeeanel = sual Framework is rs ome rte eeereremen segeon ei eet hn Coin sears prepares speed end ree ea of sonanting ci ier fe te delet Te seaetinbiean of provowlyieted meeouncing anderde Cantal Fromeuork wil sein iar tnd sg den fs vo hong ul be ade tothe cant as ‘The Conceptual Framework provides the foundation for Standards hat & Gonribute to transparency by @nhancing internationall ‘emparsbility nd quality Sinencal information. 1, Birenstheh cccountabilty byfitucing information pa tetneen the providers of cptal andthe people ta whoa thoy have enfanted thes ne. Purposes of Revited Concoptual Framework ‘4 To ansint tho International Accounting Standards Board 1, (To tenian preparore of financ yen no Standard apples ® particular tranmaction cr oener event of whero an inoue isnot yot addeeaed by an IFES, © Me ae prepare of anil easements de sna Standard allows e “oounting eam lpr fo unrvnd end trp tho ERS Authoritative status of Conceptual Framawork Xt there i a somdard or an interpretation tat apecialy applies to a transaction, the standard ox interpretation overrides the Conceptual Promewark. In the absence of o standard or an interpretation that specifenlly applios to a transaction, aaaagement shall concider the applicability of the Conceptuat Framewor in developing ond applying an accounting policy that results in information that ie relevant and reliable However, its to be stad that the Conceptual Fronecork is not m Internetional Financial Reporting Standard, Nothing in the Conceptuot Framework overrides any opie International Financial Reporting Standard Tn case where there is a conflict, the requirements of the Taternational Finensial Reporting Standards shall preval over |e Conceptual Frametvorh.formation Users of financial nf i Reporting {or Finarci ‘Under the Conoeptul Brame re eget ino tne, te mary ier © Odher use| ‘The : ‘The ther users inetude fe ata omy Frumary users ial information ae te parties to ‘The primary users of fnancal ins ‘primarily anct ire seportingentition fo ch primary wm cnt eu emting ein Pea a gore foe how auch cf the Elon nner’ Existing and potential Investors suing and potential investor ars cencorned with the risk Eire inendrecurn prone Shir avevtnet, ‘The javestors need information to help them determine ‘whotber they shold buy ol o al Sarohldert are luo snteeated in information which ‘exabice thom to agooas the ability of tho entity ¢ pay dividends, Landers and other ereditors Beisting and potential lenders and other creditors are ‘nfoested in iformation which enables them te determine ‘whether their loans, interest thereon and other amoul® ‘wine to ther willbe paid when due, a4 Other users By rotiduel dofiition, “other users’ are usere of fans) other than the existing ue panel sect lenders and other creditors, re sea Otker wero are so called because they are partis that may find the general purpose financial reporte useful bu dhe ‘eparie are nol directed lo them primoriy. Employees Employees are interestod in information abvat the stability and protitability of the entity ‘The employees are interested in informetion which eaabloe them to aasess the ability of the eatiiy to provide remuneration, rotixement bonefite end emplosment Customers Customers havo an interest in information about the continuance of an ontity expecially when they have a long-term involvement with or are dependent on the entity, Governments and their agencies Governments and thei agencics ae interosedin the allocation of rescurecs and thorefore the activities ofthe encty. ‘Those users requirs information to regulate the activities of the entity, determine taxation policies and as a basis for ‘ational ieome and similar statistics, Public “Entitioe afoot members ofthe public in a variety af ways, For example, entitios moke substantial contribution to the Iooal éeonomy in many wars including the number af people ‘they employ and their patronage of lecal supplion, Financial etatements may assist the public by providing information akout tho trend snd the range af Its mites, 38ork samen Scope of Revised Concept! FF Objective of Sil WFO SN gl inane information ire cnnracertn of foo atone eat hen fra at Monmoreert eure racniaion md te enasce ances fr TING (OBJECTIVE OF FINANCIAL REPOR’ rebe oper “the cbjective of fancilaeporting isthe "why", purpose or foal of ascunting inte provision of nancial nformaton ke eal em et to them in ao ven the cvs She eniye eereroms. ‘the penepal way of providing financial information to ‘Seana wore Crongn the anal financial statements lowever financial reporting enspasses no: only nasil fatanecs vt also tee tention such ae Enel Nhlghta summary of important financial fures eoales of nari women nd senfeent ration ‘Financial rpots elo inched nonfinoncat- information suck 2 deccrption cf maior profusis and a listing of corporat® ofcers aad dirctors a8 Target users Pau pig dd ery ot tg iar fie pnt tea nd compose the primary User group. foes Ca ‘Asn matter of fac, the primary sera offrancial information ‘are the parties that pri Moreover, inormaton that mest the nee of Brimary sr tity mel he needs oh sere fmplepeer, customers, gvernnenie aod het spec ‘The management of a reporting entity is also intrested in ‘Bnoncial information shout the entity Howaver, management need - nancial reporte bocause if is oble to obtain of ore ditional financial information internally, Spe objectives of financial reporting Phe otra eben of nan \urfornetion ta wal for desion mong P=tee ‘The Conceptual Framework places wore emphasia en the importance of providing informatien needed to asses the ‘management stewardship ofthe entity’ economic tenures, Accordintly, the specie objectives of financial reporting are: 4 To provide information upafl in making decisions abeut Providing resources to the entity. = ‘To prove information usoful in assessing the cash low prospects of the entity, © Toprovide information akout entity resourves, claimsand ‘changes in resources ond cling, 87Economic decisions cendlpoe Existing and pol ral eerste in ag i Se ce made * a other res tenders 108 28 Cable them Existing and potential fr ovder t9 en cil eo andthe S27 ingenious Bone of ott Assessing cash flow prospects eating ders and sed psn lenders ‘Seeveazore abu previdng oF wei lang and ft Era of exodus capend oa te princi! © ‘Siprnence or ocherroture that they expect, conuogunty, Seana eporting sox provide nfosation Seperate be nouns ning an owas of ‘Sunilety, decisions By Beonomie resources and claims CGenersl purpose fsancel reports provide information about the faonciel position of reporting entity. ion is information about the entity's economiie, pes eer eanccememereenseeng = giasip (beso cod cge ote cok = sae eis ts endl pn i a Hil Tinbitice and equity ofan entity at a particular moment in time. ehrwig sae, inition shot nancial potion can ‘er to nasa the entity liquicty, sloncy and the need for additional financing * Liquidity io the availability of cash inthe near fare to corer futently maturing ebligetions, the availability of cash over Jane term wo matt wncial commitimenta when they fall die Information about prionties and payment requirements of existing claims cam belp users to predict hom fatare cash flows will be disisibuted among those with s claim against the reporting entity ‘Changes in oconomic resources and claims General purpose financial reports also provide informetion soost the fe ofteneasinsendother eens be canes 38 économie reeources and claims, sae in scnomie ‘Neh a vung elt or eal iatmenee ‘The financiol performance of an entity comprises revenue, exponses and not income er loss fora peri! of time Inter words financial performance isthe level acne Apart seis tanh te tee ay ite resources, ‘Th financial performance an entity ie alaokaowet resla of operations nd is portrayed in the income stanton end ‘Statement of comprehensive income,nce financial perfor™a! ues ace bai tiene vous nancial prior oe ed on the Innate siren oT Son eure cys the entity Bat eas: soteme effet ard ee ilies t= i Tea er fcr 3 once i usully cil perform ri ere fare on tho entity's RISE ree the Bture eotars® force dicing # peri ia Indgmaton shot Ce bit eer Fleck {af from operations ‘Acerual accounting ‘Usefulness of ec acne cep a fof eats end soa and areumance ob eo tt rt ine in tx pion in whic tone flats rae to realing cash rcs nal penis oar {Sra tere prin eee aes Sinn le acral canting macs tance i Spica wes are ons chen Informtion about Sansa performance weasured i tera wilh era asuating poids «tetera for ancnsing yet and future perioraence than information fclely about cash receipts ene paymente during « period. 40 Limitations of financial reporting 4 General purpose financial reports do not and cannot provide all of the information that exiting and potential Investors, lendeza and other eraitars sd ‘Those unern need to consider pertinent information from ‘other sources, for example, general economic conditions, politcal evente and indusiy outiec. General purpose fnancial reports are act deslened to show the valus of an entity but the reports provide information ta hlp the primary users etimote the value ofthe entity. (General purpose financial reports are intone to provide carmon information to users and cannot accommodate every requst for information ‘To largo exteat, eeneral purpose fnsnsial reports ere ‘aved on estimate and jtdgment rather thas enect depiction ‘Management stewardship Information shout how efficiently and effectively management bas disherged ita responsibilitis touse the eniitye een esparons helps users to asseee management stewardship of those resources, Such information is also useful for predicting how ‘management will use the-entity's economic resburiea 1a fiture poriede, nc, the information can be uaefl fr assessing the entity Droopecte for future aot cach flows. For example, management can dacde not to disgonc or sell {investments when prices are declining in order to avoid realized Iootes aQUESTIONS 1. Wat inthe esi f OPS the perposes of ? 5 Fromeorh? Conceptual . poised Conceptual oe ins of the Conceptuat — 1 their informetion needs, eae Jr information needs ote ett Conceptual Fromeser 4. What ie the scope ofthe Reise E . 1. Beplain menial reporting ; What i the overall objective of financial reporting 2. What ar the epeie oben of Snancial reporting, 10 Eeplain Snare pion: 11 Baplain Luly and olency 12 Bxpin Enancal performance 13, Haplain seecaal accounting 14 Explain management seowardahip ofthe entity's economic 18. Wot ae the Lnitatins of Goancal reporting? a PROBLEMS Problema-1 Multiple choice (RS) A. Which stats sent in. true about the Conceptual Framework for Fineadil Neportog? 8. The Concepsua Framewore io nt a Standard. Tae Const Fs General purpowe nancial reporting. 1h cit of coult, te reqalremeni ofthe IFRS Ireral over the Conerptusl Fraserere 4, Beton stetomeate ar tran eboutth Coceaa 42 Which io not a purvore of the Revised Conceptust ‘© Toamisé the IASB té develop IFRS based on consistent goncopt To assist preparers to levlep consistent acmunting policy when no Standerd applies to a particulne Eransuotion oz when Standard sllows'a choice of sacsounting policy. ¢, To assit af partice to understand and interpret the Standerda, 4. To asset regulatory agencies in iatuing rules and ‘galations for a particular industry. 8. The scope of tho Revised Conceptual Framework ‘comprises how many ehaptare? a. Eve oS © Seren a Fight 4.'Sho Conceptual Framework provides the foundation fr Standards that «darter teint Seca aes mtr Sean oleae a ee 2 St Sec see ran Siares gear 2 SPRL et amps ieee[FRS) a oc abe Conceptual atu o tr highest lovel of rotation that Conceptual that janagement shall voneeptsel Problem 2-2 MultiPl 1 what ie the nathortat Frumeaort? Soave ee speach i aaa Ere eile ik sper ear snes ons when te a Rete ang «pial Pnanoh wens oh me cot ‘or wse in developing ce Tetietices end concepts fr wee Im deve poner ene aa The erersy of scurs of © A Cencoptual Framework cbault Ne ewan pic int teh st, : Top generally ag eel ate Cuil etc vanced ‘a, Bekee ne bose bjectives, torms and concepte of aoe 4. Which is not «puapee of the Conepinal Fromenork? a To provide definitions of key terns and fundamental concen 1b, Te prove specie guidelines for resolving situations sot covered by existing amounting standards. © Te sans ecountants fn selecting smong alternative secnuniing and reporting methods. 4. Te asa the International Aecounting Standards ‘Beard in the standar-eting proseas “ Problem 28 Multiple choice (LAA) 1.Im the Conceptual Framework for Financial Rape ‘that provides the hy of eae a .: a. Messurement and recognition concept b. Qualitative eheractrste of accountng information Element of financial statement Objective of financial reporting 2.The undoriying theme ofthe Conceptual Framework fe 4 Decision unotuin 8. he objective of Emancial reporting fe. Is the foundation for the Conceptual Framework BB Incades te qualitative cherscteriton of eeful 6, Winet found in the Consoptua! Framework a Ast ahos re cone ches regard te eipive inanciel reporting ‘Wich of the flowing is not m benoit asccciatd with the Conceptual Brame woek® 4 A-Conceotual Framework should ince: spleen an tens tnaneel pe . Bratkal problems shonla be more q. in GA oheren wet of coounting sandstds should ee, 4, Basie entton wil need far lene eainonee Bec, sccounsants, 4. Which statement in mot ewe concerning Ue Ooncepual Fratmewor 4%. The Conceptual Framewark should be © basis for ondaod set 3 The Concepiuel Framework should allow pectin! pelan i be at ied more quiely. ho Conceptual Framework should be based on fendameniel truch derived from tho law of naire. ‘The Conceptual Framework show ineroas uns! anderatending and condense io fincneal reporting. “6cP) ice (M Problem 24 Multiple SOO cae flowing? 1 taf Goal eet ne tors agescioa 4 Centers operat Sake eke ac wt ne 3 Gates fran ine 2. The primary users of 6 ‘pase Eng md ani er cin © st chien, uname 6 ier eee Dia aeaaes a be Seroes a. Eas ond poral entire ‘users for whom 2. Wi up i ata te AL ‘se eens aro repel? i Soa & Soplew 4. BREPSS ae enteral mere of Goal a user of finan! 4. Wai ofthe fillovi eon internat information? Board of Dicectars fh Shereholder © Holder of bonds 4, Cretor with long-term contract — hae er ose intron oH : ‘by their investment, baa © Eapuyes & Tastes Catone “0 in information about the Bea ey lt ny nor ten lief cn ll i aut eee tn benefits ted employment epportunier 2. Customers Berane © Governments and their 4. Bmployeon ! 17. These users are interested in information :hit enables {hem to attesn whether thei lonna, the related (niet thereon and other smourts owing te thea wil he ald I Hateers ao other crditore Teale creditors Owners © ge em nnd a aman nt Jeong: term ixvolvement with oF are dependent on the ay & Siipaer | fue , teks 0 are interested in information in order to ‘the ccliitis of an entity, devermine taxetioa rad provide a busts for national stattia, 8 Governments and theie Major organization of aes & Bureau of Tntaraal Revese Department of Finence 10 These users neod information en trends und recent dexslopments where an entity mabey 9 scbscantil conlsbution to the leal economy pronccg caploratay find sing local suppliers? Tho public & Governed thir agency 4. Enivate eatiiee agS retin 1 de ro ME Tm ened oat eae Reuse bid a see Rt Eel Seem mneen ‘i i ing hasbeen on Ser, gnuce gun hm ng 2M ges nao eae rs is, lenders and other Namaste jai inant, endore nd ob creditors sige al ween 4 Tedpenent CPAs u rece et op a Tring spt Teint amen Sen S ehiey 4. See

rocognizes rovenue shea cash is recived 4. is one ofthe implicit sseumptions 9. The mos: useful information in predicting future cach 4 Taformation stout curent cath Sows care ing Sted saat costing @ Infrmacionropecing th eccuntng pobces 4. Informetion reparcing the snus eisiad by wane 1 wid variety of eeosuctingpalise 10, The accrual basis f accounting is ost useful for 1 Determining the amount of ineame tax lability. L. Predisting the shor-em nancial performance. & Preficting the long-tsrm Gmansial perermunce, 4 Determining the amount of dirdonde tobe declared. “CPA Adapted) pte choice (I Problem 2-6 Bulsipl 1 he ote of asa ee a lA Sarge ete ng orien bated em 2. Wich st repnting Hl putz Pine pe en sun ose . eg nt roe infrmation cement wefan evalu a provice information useful Sepang bal > Binal eet and oar Aecsion. estes, coi i a RSE ng eal provide information ofa ‘Bramenag ch Bow rere ‘a Which of the flowing i wot an objective of financial reportag? Tp provide information about an entity’ assets and claims agen thos eoatt by, To provide infermation that i weful in assessing an nays aout and es of cash cg To prude infoenton that is usful in Tending and inverting decisions 4. To provide informatio shout the iguidetion value of an eas 4. Financial reporting pertains to information about ‘% Individua! bosinoa ontition, rather than te indusiron an economiy asa whole of to meiabace of eciety coneumers. 'b Business industri, rather than to indvidual entiios fx an eccremy ase whol orto merabere feet a9 Individ 1 Business entities, industries, and an femonomy #6 a whole, rather then to member of society 4. Aa eonomy ts whol and to mambere of sey a0 conrunser, eather thas to ladividudl sacs or indowenen 8. Under tho Revised ‘Conceptual Framemerk, during a period when aa entity is under the direction of a Pasticular menace, Gnancial reporting prow information about iid Entity performance and management performance 1b. Management performance but aot entity performance © Entity performance but not management perfvrmance 4 Neither entity performance nor management performanceCHAPTER 3 RAMEWORK CONCEPTUAL FRO ties Qualitative chara TECHNICAL KNOWLEDGE To identify the qualitative characteristics of accounting Information. Te identify sh fendamentol qualitative characteristics, To identity the exkancing qualitative characteris ‘Tounderiond the coat contrat on useful information. QUALITATIVE CHARACTERISTICS In deciding which information to include in Gnenciel samen, Under the Conceptual Framework for Finaacial Reporting. ‘qualitative characteriatica are classified into jundamental Gualitative characteristics and enhancing qualitative Characteristics, Fundamental qualitative characteristics ‘The fundamental qualitative characteristics relate to the ‘content or substance ef nancial information. ‘The fundamental qualitative characteriatice are relevance and easil mprauntions Information must be both glevantand faithflly represented ‘fits to bo useful Neither a faichful representation of an irrelevant ‘Phooomenoe nor an unfathfal representation of a relevant. ‘Phogomenoa hips users make good decisions. Application of qualitative characteristics ‘The most efficient and effective process of applying the fundamental qualitstive characteristics would usualy be: First, identify an sconomic:phonoexenon thet has the potent to be useful a annie cnt Bateson ett ae atte eT ‘Third, determine whether the iiformation is available!Been sevence i the canal of the asinine a ‘Tobe relevant the Grane nbemetangmit De that the financial other words, relevance 60670 TE he oth ade Ti nt a person He oe dese 1 onan economic decision i Information thot does not beor oe st be relevent to the decition sry, tate of ancl postion Bec example red hamneal potion, and th income ran detent ib detarmuing PPT anCe scaly, the epringe pr shar nfcaetion i ore More speically, te afoe por shave in determining the Seeusnenne of ive Ingredients of relevance ee ts task Sectemnmy cant ter Financial inferoton has tig vif i ay il to tse cher oemstion has predictive valu! Te ocher words, fncelin wl sralypreiig 2 ne For example, information about fzancial position and past performance is fequenily used in predicting dividend a1 ‘Tage pavmeaia nd the ability oft enti to oot matting commitment ‘Ta net cath rrovied by operating activitie is valuable in predicting loan peyren or Cea, feel el pens lg ae res Inthe word faecal nformatos bat thon nas ae fren For ocala nat income measure has enfirmatay value ican hep tarehloes sahout an entity's ablity to generate earnings, tes information bn Lth predictive and onfirmatoryvelue ‘he predictive an contrary ees of tater Sc intocrelated, ‘An exemple in an intorim income statement which provides {ondback akout income te date and serves ny a bass fot predicting the annual income. ‘he interim income ettemest. for the Gist quar shows ‘it income of P2000 0; Tass te cnomstery vlan If this tend gontoues forthe entire year, i logical to susume that tha aet income afer four quarters ofe yur Soul be BS,00000, Thue s the predictive vce Materi evil Us practi ich dictaten gaeten ae an = ‘The materiality concept is also known as the doctrine of Material is really a quanciatiye "threshold linked ve lovely 19 the qualitaton characterage of rlvance, | 7 The relevance of information is difected by its nature ond materials. nother worés, mata i on Gin nature be magni Information relates ef rleranc aned Sonrte Sena othe ‘The Conceptual Peemework does not specify a uniform ‘Quantitative threshold for tanteriaity or predetermine what ‘could be material in particular station,