FINANCIAL ACCOUNTING AND ACCOUNTING STANDARDS

Outline
Definition of Accounting The Financial Statements Users of Financial Information Responsibility for financial statements Generally Accepted Accounting Principles Accounting standard setting organizations

Definition of Accounting
The American Accounting Association defines accounting as follows: Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information.

Identifying
Analytical component Recognition of accountable events --events that have effect on the assets, liabilities and equity Economic activities
External transactions Internal transactions

Measuring
The technical component Assigning of peso amounts to the accountable economic transactions and events The measurement bases are historical cost, current cost, realizable value and present value.

Communicating
The formal component The process of preparing and distributing accounting reports to potential users of accounting information The language of the business Includes the recording, classifying and summarizing aspects of accounting

Financial Accounting
Primarily concerned with the recording of business transactions and the eventual preparation of financial statements. Focuses on general purpose reports known as financial statements. Intended for internal and external users Emphasizes reporting to creditors and investors

Components of Financial Statements

1. 2. 3. 4. 5. 6. Statement of Financial Position Income Statement Statement of Comprehensive Income Statement of Changes in Equity Statement of Cash Flows Notes, comprising a summary of significant accounting policies and other explanatory notes

Users of financial information

Classification Primary users
the parties to whom general purpose financial reports are primarily directed
Existing and potential investors Lenders and other creditors

Other users
Employees Customers Governments and their agencies Public

Existing and potential investors

concerned about the risk inherent in their investments, return provided by their investments, ability of the enterprise to pay dividends; to decide on whether they should buy, hold or sell their investments.

Lenders and other creditors

interested in information that enables them to determine whether their loans, and the interest attaching to them, will be paid when due to decide on whether to grant or extend the loan application.

Employees
interested in information about the stability and profitability of their employers; ability of the enterprise to provide remuneration, retirement benefits and employment opportunities; to decide on whether to stay or look for other employment opportunities.

Customers
concerned about the continuance of the enterprise especially when they have a long-term involvement with, or are dependent on, the enterprise.

Governments and their agencies

interested in the allocation of resources and therefore the activities of the enterprise; require information to regulate the activities of the enterprise, determine taxation policies and as a basis for national income and similar statistics.

Public
FS may assist the public by providing information about the trends and recent developments in the prosperity of the entity and the range of its activities.

Responsibility for financial statements

The management of an entity has the primary responsibility for preparing and presenting the entitys financial statements. This responsibility is noted in the auditors report in most countries.

Responsibility for financial statements

The auditors responsibility is to form an express an opinion as to whether the financial statements prepared, in all material respects, in accordance with IFRS. The fact that financial statements are audited does not relieve management of its fundamental responsibility for preparing and presenting the financial statements.

Generally accepted accounting principles

Conventions, rules and procedures in accounting that have been accepted on the basis of experience, reason, custom, usage and practical necessity Rules, procedures, practice and standards followed in the preparation and presentation of financial statements

Accounting standards setting organizations

Philippines Accounting Standards Council (ASC) Statements of Financial Accounting Standards (SFAS)

Accounting standards setting organizations

Financial Reporting Standards Council

Philippine Financial Reporting Standards

Accounting standards setting organizations

Philippine Interpretations Committee
Prepare interpretations of PFRS for approval by the FRSC and in the context of the conceptual framework to provide timely guidance on financial reporting issues not specifically addressed in current PFRS.

International Counterpart
International Accounting Standards Committee replaced by International Accounting Standards Board

Financial Reporting Standards Council

Philippine Interpretations Committee

International Financial Reporting Interpretations Committee

Philippine Financial Reporting Standards

Philippine Financial Reporting Standards (PFRS) which corresponds to International Financial Reporting Standards (IFRS) Philippine Accounting Standards (PAS) which correspond to International Accounting Standards (IAS) Philippine Interpretations which correspond to Interpretations of the IFRIC, Standing Interpretations Committee and interpretations developed by Philippine Interpretations Committee

End