CONCEPTUAL FRAMEWORK AND

ACCOUNTING STANDARDS
The conceptual framework outlines the objectives of financial
reporting and the qualities of good accounting information,
precisely defines commonly used terms such as asset and
revenue, and provides guidance about appropriate recognition,
measurement, and reporting.

In accounting, the goal of a conceptual framework is to give

everyone a common language and way of thinking about financial
reporting. It gives a set of basic ideas and rules that help with
making financial statements and putting them together. It also
helps with understanding and analyzing financial information.

Definition of Accounting

1.Accounting Standards Council

 It is a service entity
 provides quantitative information, primarily financial in
nature, that is intended in useful for making economic
decisions

2.Committee on Accounting Terminology of the American

Institute of Certified Public Accountant
Art of recording, classifying and summarizing

3.American Accounting Association in its Statement of Basic

Accounting Theory
Process of identifying, measuring, communicating economic
information

Important points:
Accounting is about quantitative information, primarily financial in
nature, and it is useful in decision making

American Accounting Association says the very purpose of

accounting is to provide quantitative information to be useful in
making an economic decision.

COMPONENTS:
1.Identifying – Analytical component
2.Measuring – Technical component
3.Communicating – Formal component

Accounting as an information system

Financial Reports tells the performance of the entity in
terms of profit or losses (Income Statement) and its
standing in financial terms (Balance Sheet)

Overall Objective:
 Accounting provides quantitative financial information that is
useful in making economic decisions
 Accountant’s primary task is to supply financial information

Creative thinking – identifying alternative solutions

Critical thinking – evaluating alternative solutions

Accounting concepts

 Double-Entry system – recorded in two parts, debits and

credits
 Going Concern - indefinite period of time
o Mixture of Costs and values
o Liquidating concern – realizable value○
 Separate Entity
o Viewed separately from its owners
 Stable Monetary Unit (Monetary Unit Assumption)
o Common Unit of Measure
o Peso
 Time Period
o Life of entity
o Calendar year or a fiscal year period○
 Materiality concept
o Information is material if its omission or misstatement
could influence economic decisions.
 Cost-Benefit
o The cost of processing and communicating should not
exceed the benefits derived from it.
 Accrual Basis of Accounting
o Events are recognized when they occur regardless
when they are paid or not.
 Historical Cost Concept
o The value of asset is determined in acquisition cost

 Concept of Articulation
o Components of complete set of Financial Statement is
interrelated
o Preparation of worksheet
 Full Disclosure Principles
o Recognizes nature and amount of information included
in Financial Statement
 Consistency Concept
o Financial statements are prepared based on the
accounting principles approved by PFRS that are
applied consistently from one period to another.
 Matching
o Cost is recognized as expense when related revenue is
recognized
 Entity Theory
o Proper income determination
o Emphasizes income statement and the accounting
equation A = L + E
 Proprietary Theory
o Proper Valuation of asset
o Emphasizes Balance sheet and A – L = E
 Residual Equity Theory
o Two classes of shared issue (Ordinary and
Preferences)
o Book value of share and return on equity
o Assets – Liabilities – Preferred Shareholder’s Equity =
Ordinary Shareholder Equity
 Fund Theory
o Custody and administration of funds
o Cash Flow
o Cash inflow – cash outflows = funds
 Realization
o Process of converting non cash asset into cash or claims
for cash
o Revenue Recognition

 Prudence
o The use of caution when making estimates under
conditions of uncertainty, such as assets and income is
not overstated, and liability and expense is not
understated
o Equity is a least affected

Expense Recognition Principle

 Matching concept
o Cost that are directly related in earning revenue is
recognized as expenses in the same period where the
related revenue is recognized
 Systematic and rational allocation
o Cost that are not directly related to the earning of
revenue is initially recognized as assets and recognized
as expense when the benefits is consumed.
 Immediate recognition
o Do not meet the definition of an asset or ceases to
meet the definition of an asset, are expensed
immediately
Financial statements
An end product of all accounting process

Financial Reports
Is same with financial statements but it includes other
information/financial reports that provide outside the
financial statement

Management stewardship – how effectively and efficiently the

entity’s management to discharged its responsibility to the
entity’s economic resources

PROCESS

Identifying

 Recognition or nonrecognition of business activities as

accountable
 It determines what transaction to be record
 An events in accountable or quantifiable if such events affect
assets, liabilities and equity
 Only economic activities are recognized in accounting
 External Transactions are transactions of economic events
involving one entity to another entity
 Internal Transactions are transactions of economic events
involving only within the entity
o Production – resources transformed into products
o Casualty – sudden or unanticipated loss from act of
god

Measuring
  -Quantifications of business transactions into financial terms
by using monetary unit
 -Historical cost and current value
 Historical is the most common measurement
 Unit- Philippine Peso

Communicating
 Process of preparing and distributing accounting reports to
potential users of Accounting information
 Universal language of Business
 Recording/Journalizing-maintaining a record of all economic
activities
 Classifying-sorting or grouping of similar and interrelated
economic transaction
o Posting to the ledger
 Summarizing-Preparation of financial statements

REPORTING STANDARDS

Republic Act No. 9298

 Philippine Accountancy Act of 2004
 Law regulating the practice of accountancy in the Philippines

Board of Accountancy (BOA)

 Body authorized by law to promulgate rules and regulations
affecting the practices of the accountancy profession
 Responsible for preparing the CPA examination
o Offered twice a year
o May and October

Limitations of Practice of Public Accountancy

 Public accountant shall registered certified public accountants
in the Philippines
 Registrant has acquired a minimum of 3 years of meaningful
experience in any of the areas of public accounting
Accreditation to practice public accounting
 Issuance of Certificate of Registration to practice public
accountancy have valid of 3 years and renewable every 3
years
 Areas of Accountancy
o Public Accountancy
o Private Accountancy
o Government Accountancy

Continuing Professional Development (CPD)

 Republic Act No. 10912
 -Refers to the inculcation and acquisition of advanced
knowledge, skill, proficiency, and ethical and moral values
under the initial registration of the CPA
 Raises and enhances the technical skill and competence of
the CPA
 Credit Units
o Refers to the CPD credit hours required for the renewal of
CPA license and accreditation of CPA
o 120 CPD units for 3 years
o Excess CPD unit will not credited for the next 3 years,
except credit units earned for Masteral and doctoral grades

Exemption
 65 years old

Accounting vs. Auditing

 Accounting
o Constructive in nature
o Ceases when financial statements are already prepared
 Auditing
o Analytical
o Begins when the work of the accountant ends
o It examines the financial statements to ascertain whether
they are in conformity with generally accepted accounting
principles
Accounting vs. Bookkeeping
 Accounting
o Conceptual and concerned with the why, reason or
justification for any action adopted
 Bookkeeping
o Procedural and largely concerned with development and
maintenance of accounting records
o How of accounting
o Procedural element of accounting as arithmetic is the
procedural element of mathematics
o Process of recording the accounts and transactions
o Normally ends with trial balance

Financial Accounting vs. Managerial Accounting

 Financial Accounting

o Concerned with the recording of business transactions and

the eventual preparation of Financial Statements
o Focuses in Financial Statements
o Emphasizes reporting to creditors and investors (external
users)

 Managerial Accounting

o Accumulation and preparation of financial reports to

internal users
o Emphasizes developing accounting information for use
within an entity.

 Generally Accepted Accounting Principles (GAAP)

o Accounting rules, procedures and practices
 o Develop on the basis of experience, reason, custom, usage
and practical necessity
o Represent the rules, procedures, practice and standards
followed for preparing Financial Statements (FS)

 Purpose of accounting standards

o It identify proper accounting practices for the preparation
and presentation of financial statements
o creates common understanding between preparers and
users of FS
o It ensures comparability and uniformity in FS based in
financial information

 Professional Regulation Commission (PRC)

o Conducts and administers licensure examination to aspiring
professionals
o Regulates and supervises the practice of the professions
exercised in partnership with the 43 Professional
Regulatory boards (PRB).
o Leg of Board of Accountancy (BOA)

 Financial Reporting Standards Council (FRSC)

o Replaces Accounting Standard Council (ASC)

o Accounting standard-setting body created by PRC to
assist BOA in carrying on its powers and functions
provided under R.A No. 9298
o Main Function:
 Establish and improve accounting standards that will
generally accepted in the Philippines
 Constitute highest hierarchy
o Approved statements:
 Philippine Accounting Standards (PAS)
 Philippine Financial Reporting Standards (PFRS)
 Represent GAAP
 interpretation
 Philippine Interpretation Committee (PIC)

o Formed by FRSC in August 2006

o Replaced the Interpretation Committee or IC formed by
ASC in May 2000
o It prepare interpretation of FRSC and provide timely
guidance on financial reporting issues not specifically
addressed current PFRS
 To give guidance and interpretation on issues that
receive unacceptable treatment because the standards
did not provide clear and specific rules and guideline
o Counterpart
 International Financial Reporting Interpretations
Committee (IFRIC)
 It replaced the Standing Interpretations Committee
(SIC)

 Auditing and assurance standards council (AASC)

o Created by PRC by the recommendation of BOA
o To assist BOA in establishing and promulgation of
auditing standards in Philippines
o Philippine standards and practice statements

 Philippine Institute of Certified Public Accountants (PICPA)

o Only accredited national professional organizations of
CPAs in the Philippines
o It established for the benefit and welfare of the CPAs, the
advancement of their profession, and the a
o attainment of their professional ends

 International Accounting Standards Committee (IASC)

o Independent private sector
o Formed in June 1973
o Headquarters in London, United Kingdom
o Objectives:
 Achieving uniformity in the accounting principles
  establishing and disseminating in the public interest
accounting standards that should be followed when
presenting financial accounts, as well as promoting
their adoption and adherence on a global scale.
 to work on improving and harmonizing rules,
accounting guidelines, and processes pertaining to the
presentation of financial accounts.

 International Accounting Standards Board (IASB)

o Replaces IASC
o Published standards in a series of pronouncements called
International Financial Reporting Standards (IFRS)
o Adopted the body of standards issued by IASC
o Process:
 Setting the agenda.
 Planning the project
 Developing and publishing the discussion paper
 Developing and publishing the exposure draft
 Developing and publishing the standard
 Hold regular meetings

 Move towards IFRS

o Moving towards IFRS will achieved the goal of one
uniform and globally accepted financial reporting
standards
o January 2005
o Factors to consider
 Supported by Philippine organization, such as
Philippine SEC, BOA and PICPA
 Increasing internalization of business which has
heightened interest in a common language for
financial reporting
 Improvement of international accounting standards
or removal of the free choices of accounting
treatments
 Increasing recognition of international accounting
standards by the World Bank, Asian Development
Bank and World trade Organization
FRAMEWORK: GAAP VS. IFRS
GAAP
 Management not required to prioritize framework it if no
standard is available
 Different objectives for business entities versus non business
entities
 Accrual and going concern basis not emphasized
 Has hierarchy: (1) Relevance and Reliability as
Primary qualities, (2) Comparability as
Secondary quality, (3) Understandability, treated as user-
specific
 Based in the past but moving towards object- oriented
approach

IFRS
 Management explicitly required to prioritize framework if no
standard available
 One objective for different business entities
 Accrual and going concern basis emphasized
 No hierarchy
 Principles-based

Hierarchy of Reporting Standards

1. PFRS
2. In the absence of PFRS, management shall use it judgement
 Requirements of PFRS dealing with similar and related
issues
 Conceptual Framework

AREAS OF ACCOUNTING
 Public Accounting
 o Composed of individual practitioners, small accounting
firms and large multinational organizations
o Services to offer:
Auditing
 Examination of financial statements for the purpose
of expressing an opinion as to the fairness with
which the financial statements are prepared
 Bureau of Internal Revenue, banks and other lending
institutions, and creditors requires audited financial
statements
Taxation
 Preparation of annual income tax returns and
determination of tax consequences of certain
proposed business endeavors
 Accountant should familiar with the tax law and
regulations, and changes
Management advisory services
 Services offer
 Private Accounting
 Advice on installation of computer system
 Quality control
 Installation and modification of accounting system
 Budgeting
 Forward planning and forecasting
 Design and modification of retirement plans
 Advice on mergers and consolidation

 Private Accounting
o Accounting staff, chief accountant, internal auditor and
controller
o Controller – highest accounting officer
o Objective
 Assist management in planning and controlling the
entity’s operations
o Services
 Maintaining the records
 Producing financial reports
 Preparing budget
  Controlling and allocating resources
 Determination of the various taxes the entity is
obliged to pay

 Government Accounting
o Analyzing, classifying, summarizing and communicating
all transaction involving the receipt and disposition of
government funds and property and interpreting the
results thereof
o Custody and administration of public funds
o Branches of Government:
 Bureau of Internal Revenue
 Commission on Audit
 Department of Budget and Management
 Securities and Exchange Commission
 Bangko Sentral ng Pilipinas

Management Accounting – Management advisory service

Auditing – Evaluating
Fiduciary – handling of accounts managed by entrusted person
with the custody and management of property for the benefit of
another
Estate accounting – handling of accounts of fiduciaries who wind
up the affairs of a deceased Person

Accounting system – installation of accounting procedure for

accumulation of financial data and designing of accounting form
for data gathering
Accounting Research – careful analysis of economic events and
other variables to understand their impact on decisions