THE CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING

Notes and Quizzers: Theories of Accounts (IFRS Based) Empleo, 2016

THE CONCEPTUAL FRAMEWORK is not a

LENDERS determine whether their loan and
Philippine Financial Reporting Standard the interest will be paid when due.
(PFRS).
- When there may be conflict between SUPPLIERS AND OTHER TRADE CREDITORS
the Conceptual Framework and a PFRS, determine whether the amounts owing to them
the requirements of the PFRS shall will be paid when due.
prevail.
CUSTOMERS are interested about the
THE CONCEPTUAL FRAMEWORK ASSISTS continuance of an entity
THE FOLLOWING:
● The IASB in promulgating International GOVERNMENT AND ITS AGENCIES are
FInancial Reporting Standards (IFRS) interested in the activities of the enterprise to
● The FRSC in adopting the IFRSs determine taxation policies.
● The preparers of the financial
statements PUBLIC
● The auditors in expressing an opinion
as to the fairness of the presentation of
the financial statements QUALITATIVE CHARACTERISTICS OF
● The users of the financial statements ACCOUNTING INFORMATION
● Other parties interested in the work of
the IASB and the FRSC FUNDAMENTAL QUALITATIVE
CHARACTERISTICS
OBJECTIVE OF FINANCIAL STATEMENTS
● RELEVANCE
is to provide information about an entity’s
enterprise
● FAITHFUL REPRESENTATION
Financial Position Financial Performance
ENHANCING QUALITATIVE
Other information that CHARACTERISTICS
may be of interest to
Cash Flow
the users in making ● COMPARABILITY
economic decisions
● VERIFIABILITY

USERS OF FINANCIAL INFORMATION ● TIMELINESS

PRIMARY USERS ● UNDERSTANDABILITY

EXISTING POTENTIAL INVESTORS,

LENDERS, AND OTHER CREDITORS make ELEMENTS OF ELEMENTS OF
decisions about providing resources to the entity. RELEVANT FAITHFUL
They buy and sell and hold equity and debt INFORMATION REPRESENTATION
instruments and expect and receive returns on
these investments. CONFIRMATORY
VALUE (FEEDBACK COMPLETENESS
OTHER USERS VALUE)

LENDERS need information to determine PREDICTIVE VALUE NEUTRALITY

whether they should buy, hold, or sell.
FREEDOM FROM
MATERIALITY
OWNERS assess the ability of the enterprise to ERROR
pay dividends.

EMPLOYEES assess the ability of the enterprise to ELEMENTS OF FINANCIAL STATEMENTS

provide remuneration, retirement benefits and
employment opportunities.
ELEMENTS OF ELEMENTS OF
FINANCIAL FINANCIAL
THE CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
Notes and Quizzers: Theories of Accounts (IFRS Based) Empleo, 2016

POSITION PERFORMANCE MEASUREMENT BASES FOR FINANCIAL

STATEMENT ELEMENTS
ASSETS INCOME
HISTORICAL COST (Acquisition Cost)
LIABILITY EXPENSE
CURRENT COST (Fair Market Value)
EQUITY
PRESENT VALUE (Discounted Value using an
Imputed Interest Rate)
ESSENTIAL CHARACTERISTICS OF AN ASSET
ECONOMIC RESOURCE REALIZABLE VALUE (Generally measured as
CONTROLLED BY THE PAST ACTION Expected Selling Price Less Estimated Cost of
ENTERPRISE Disposal)

PROBABLE INFLOW OF FUTURE ECONOMIC

BENEFIT
CONCEPTS OF CAPITAL

ESSENTIAL CHARACTERISTICS OF A LIABILITY FINANCIAL CAPITAL is the net assets or equity

of the entity, measured in nominal monetary
PRESENT OBLIGATION PAST ACTION
units or units of constant purchasing power

PROBABLE FLOW OUTFLOW OF RESOURCES

EMBODYING ECONOMIC BENEFITS
INCOME is the increase in economic benefits
during the accounting period in the form of
increase in assets or decrease in liabilities, that
result in increase in equity.
● REVENUE is earned from primary
operations
● GAINS are earned from incidental
transactions
EXPENSES are decreases in economic benefits
during the accounting period in the form of
decrease in assets or increase in liabilities, that
result in decrease in equity.
● EXPENSES are incurred in primary
operations
● LOSSES are incurred from incidental
transactions
RECOGNITION is the process of presenting a
financial statement element on the face of the
financial statements. The recognition process
starts with the process of journalization.
GENERAL RECOGNITION CRITERIA
PHYSICAL CAPITAL is the operating capability
of the entity, regarded as the productive capacity
of the entity. The concept of physical capital
requires the adoption
CONCEPTS OF CAPITAL MAINTENANCE
FINANCIAL CAPITAL MAINTENANCE is when
a profit is earned only if the financial (money)
amount of the net assets at the end of the
period exceeds the financial (or money) amount
of the net assets at the beginning of the period,
after excluding the effects of transaction with
owners.
PHYSICAL CAPITAL MAINTENANCE is when a
profit is earned only if the physical productive
capacity (or operating capability) of the entity (or
the resources or funds needed to achieve that
capacity) at the end end of the period exceeds the
physical productive capacity at the beginning of
the period, after excluding the effects of
transactions with owners.

The event results to a probable inflow to or

outflow from the enterprise of resources
embodying economic benefits (PROBABLE)

The element has a cost or value that could reliably

measured (MEASURABLE)