Financial Reporting

Standards
LEARNING OBJECTIVES:
• Explain the process of accounting standards setting
Conceptual
• Explain the purpose of accounting standards
Framework for
• State the purpose, status, and scope of the Conceptual
Framework
Financial
• State the objectives of financial reporting
• Explain briefly the qualitative characteristics of useful
Reporting
information and how they are applied in financial reporting
• Define the elements of financial statements and state their
recognition criteria and their derecognition.
• State the measurement bases used in financial reporting.
OBJ. 1 Explain the process of accounting standards setting

International Accounting Standards Board

IASC - International Accounting Standards Committee

- Formed in the year 1973
- Incorporated last March 2001 in USA
- Not-for-profit corporation, which is an
independent accounting standard setter based in
UK

IASB - International Accounting Standards

- Effective April 2001, assumed accounting standards
setting responsibilities

The linkage between the IFAC was lost starting 2001. 3

OBJ. 1 Explain the process of accounting standards setting

International Accounting Standards Board

Serves as a mechanism for
formal interaction between
capital market authorities
and the IFRS foundation

Development and
publication of IFRSs
including for SMEs,
Provides a forum
through open andfor
organizations
transparent dueand individuals
process
with an interest
including public in
international financial
consultative documents
reporting
OBJ. 2 Explain the purpose of accounting standards

Accounting Standards

released in the form of pronouncements called International

Financial Reporting Standards.

“Authoritative statements of how particular types

of transaction and other events should be
reflected in financial statements.”

Are International Financial Reporting Standards Mandatory?

OBJ. 2 Explain the purpose of accounting standards

Accounting Standards

Why is there a need for International Accounting

Standards?

1. For comparability
2. For basis for those who do not have national
standard-setting body
OBJ. 2 Explain the purpose of accounting standards

Accounting Standards development in the Philippines

Reasons for the adoption of the Philippines to IAS

1. Support of IAS by Philippine Organizations

2. Increasing internalization of business
3. Improvement of IAS
4. Increasing Recognition of IASB
OBJ. 3 State the purpose, status, and scope of the Conceptual Framework

Conceptual Framework

Conceptual
• The primary purpose of the Conceptual Framework
was to assist the IASB in the development of future
Framework for
IFRSs and in its review of existing IFRSs

• The Conceptual Framework may also assist

Financial
Reporting
preparers of financial statements in developing
accounting policies for transactions or events not
covered by existing standards
OBJ. 3 State the purpose, status, and scope of the Conceptual Framework

Objectives of Conceptual Framework

1. To guide the FASB in establishing accounting standards

2. To provide a frame of reference for resolving accounting
questions in situations where a standard does not exist
3. To determine the bounds for judgment in the preparation
of financial statements
4. To increase users’ understanding of and confidence in
financial reporting
5. To enhance comparability

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OBJ. 3 State the purpose, status, and scope of the Conceptual Framework

Status of Conceptual Framework

The Framework is not a Standard and does not override
any specific IFRS.

• In the absence of a Standard or an Interpretation that

specifically applies to a transaction, management must use its
judgment in developing and applying an accounting policy that
results in information that is relevant and reliable.

• Consider the definitions, recognition criteria, and measurement

concepts for assets, liabilities, income, and expenses in the
Framework.
OBJ. 3 State the purpose, status, and scope of the Conceptual Framework

Scope of the Conceptual Framework

Concerned with GENERAL PURPOSE FINANCIAL REPORTING
The Framework addresses:
1. the objective of general purpose financial reporting
2. qualitative characteristics of useful financial information
3. financial statements and the reporting entity
4. the elements of financial statements
5. recognition and derecognition
6. Measurement
7. presentation and disclosure
8. concepts of capital and capital maintenance
OBJ. 4 State the objectives of financial reporting

Objectives of Financial Reporting

General Objective:

Provide information that is useful to

present and potential investors,
creditors (lenders), and other users in
making rational investment, credit,
and similar decisions

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OBJ. 4 State the objectives of financial reporting

Objectives of
Objectives of Financial
Financial Reporting
Reporting

Derived External User Objective:

Provide information that is useful to

present and potential investors, creditors,
and other users in assessing the amounts,
timing, and uncertainty of prospective cash
receipts from dividends and interest, and
the proceeds from the sale, redemption, or
maturity of securities or loans
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OBJ. 4 State the objectives of financial reporting

Objectives of Financial Reporting

Derived Company (Internal) Objective:

Provide information to help

management in assessing the amounts,
timing, and uncertainty of prospective
net cash inflows to the related company

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OBJ. 4 State the objectives of financial reporting

Objectives of Financial Reporting

Provide information about a company’s

economic resources, obligations, and
owners’ equity.

Provide information about a company’s

comprehensive income (financial
performance) and its components.

Provide information about a

company’s cash flows
(economic resources).

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