Conceptual Frameworks and Accounting Standards

RA 9298: The Philippine Accountancy Act of 2004 Qualifications:

-stipulates that the Professional Regulatory Board 1. Must be natural born Filipino Citizen
of Accountancy (PRBOA), which operates under the 2. Must be a duly registered CPA with atlest
Professional Regulations Commission (PRC) is 10 yrs. Of experience in any field of
responsible for the regulations of the professional accountancy
accountant in the Philippines. 3. Must not be convicted of any crimes
including moral turpitude.
Areas of Accountancy
4. Must not be a director or officer in any
1. Academe school that offers the BSA course.
a. 2 or 3 sem = I year of service
Process:
2. Public
a. Managerial and above= 1 yr: 1 1. PRC will shortlist the 5 to 3 nominees.
b. Below Managerial= 3 yrs : 1 2. President will choose the members.
3. Commerce and Industry 3. Maximum of 12 yrs. To serve the board.
4. Government 4. After 2 yrs of consecutive reappointment,
he/she needs at least 1 cooling period.
Philippine Regulations Commission
PRBOA  Financial Reporting Standards Council
- Oversees a particular profession
(FRSC)
Professional Regulatory Board of Accountancy
 Standards council tasked for the adoption
(PRBOA)
of IFRS and IAS in the Philippines
- 7 members including the chairman  16 members
- Chairman is appointed or revoked by the
Auditing and Assurance Standards Council (AASC)
President of the Philippines
 Philippine Standards Accounting (PSA)
Members:
 Philippine Framework for Assurance
1 vice chairman: 1 yr: 1 term Engagement (PFAE)
 17 members
5 members: 3 yrs: 1 term
Financial Accounting Standards Board (FASB)
Electing a Chairman
- The Financial Accounting Standards Board
National Accredited Professional Organization has the authority to establish and interpret
(NAPO) generally accepted accounting principles
(GAAP).
Philippine Institute of the Certified Public
Accountant (PICPA) IFRS  PFRS

 Within 60 days prior to the term of the IAS PAS

incumbent member, they shall have the 5
IFRIC  PIC INTERPRETATIONS
nominees submitted to the Philippine
Interpretations Committee (PIC)
Conceptual Frameworks and Accounting Standards
INTERNATIONAL Indirect Users: provides assistances or advice to
the direct users.
 IFRS Foundation > International
Accounting Standards Board (IASB) – 22 Branches of Accounting
members
1. Financial Accounting: focuses on external
 IFRS Interpretations Committee
users
 Advisory Council
2. Management Accounting: Focuses on
International Organization of Securities Internal Users
Commission – in 271 countries in the world 3. Cost Accounting: measurement and
recognition of cost of services provided and
Formation of a Standard products manufactured.
1. Agenda - identify the issues and problems 4. Tax Accounting
2. Issuance of exposure draft for public 5. Government Accounting
comments 6. Bookkeeping: refers to the recording stage
3. Consideration of comments 7. Auditing : independent examination of
4. IFRS issuance ( with a majority vote; 9 financial Information
members) CHAPTER 2
*interpretations committee will interpret the Purpose of the Conceptual Framework
gray areas
- Describe the objective of and the concept
FASB- PFRS includes IFRS, IAS and Interpretation for general purpose financial reporting.
FRSC a. Assist the IASB to develop IFRS that are
based on consistent concepts.
1. Considers the IASB b. Assist preparers to develop consistent
2. Exposure draft accounting policies when no standards
3. Consideration of Comments applies to a particular transaction.
4. Issuance of the PFRS c. Assist all parties to understand and
interpret the standard.
*all standards are based on the conceptual
frameworks. Objective of General Purpose Financial
Reporting
CHAPTER 1
a. Provide financial information about the
Types of Users
entity that is useful to existing and potential
External Users: not directly involve on managing investor, lenders and other in making a
the entity decision about providingfunds/ resources to
the entity.
Internal Users: uses the information for internal b. Used by: Employees, government and
decision making public
Direct Users: protect their own investment or
interest
Conceptual Frameworks and Accounting Standards
Liquidity- ability or availability of cash in the
near future
Solvency- availability of cash over long term to
pay liabilities as they fall due
Profitability- general cash flows from existing
resource base
Financial Flexibility- ability to adjust to
unexpected downturns
Financial Position- information about entity’s
resource and claims
Comprehensive income- changes in entity’s
resource and claims
* Accrual Accounting is the basis
4. Income: increases asset, decreases liability.
Except those that were contributed by the equirt
participants.
a. Revenues: Principal operation activities of the
business
- carrying value of the revenue is not subtracted by
the cost of asset
b. Gains- subtracted from the carrying value of the
asset.
5.Expenses: Decreases the asset, increases liability-
other than those that were distributed to the
equity participant
a. Expenses- arises from normal operations
b. losses- other then expenses (equipment
depreciation)

1. Asset: present economic resource Capital Maintenance Approach

a. right - There is profit only if the physical
b. potential economic benefits productive capacity of the entity at the end
c. control of the period exceeds the physical
productive capacity at the beginning of the
same period.
2. Liability: present obligation
a. Based on past event
Net assets, beg xxx
b. outflow of resources (transfer of economic
Net Income(loss) xxx(xxx)
benefits)
Contributions from xxx
Distributions to (xxx)
3. Equity- residual interest (E= A-L)
Net assets xxx
a. claims that did not meet the definition of
liability
Physical Concept of capital
b. owners= equity participants
- Operational assets
Example:
Productive Capacity, beg xxx
Bonds payable Net Income(loss) xxx(xxx)
Fair value= 1,200,000 Contributions from xxx
Face Value= 1,100,000 Contributions to (xxx)
Liability- 1,100,000 Productive capacity, end xxx
Equity- 100,000

*compound instrument: composed of equity and

liability
Conceptual Frameworks and Accounting Standards
QUALITATIVE CHARACTERISTICS PAS 1: Presentation of Financial Statement

A. Fundamental
1. Relevance
a. Predictive Value
(forecast/predictive)
b. Confirmatory (feedback)
c. MATERIALITY
2. Faithful Representation (PRUDENCE)
a. Neutral
b. Complete- free from bias
2.1 window dressing- overstating
the income and understating
expense
c. free from error
B. Enhancing
1. Verifiability- same method and
principles
2. Comparability- key: consistency
a. Inter-comparability (1) horizontal- 2
periods (2) vertical- same period
b. Intra-comparability- industry
analysis (same industry- same size)
3. Understandability- responsibility and
purpose
a. Notes to financial statements
(disclosures)
4. Timeliness- Reliability (timely and valid)
Scope
1. To apply the standard in applying the IFRS
(PFRS)
2. Recognition, measurement, classification,
and presentation principles in preparing the
financial statements.
3. Structure of Financial Statements
4. Does not apply to financial statements
under the PAS 34 (Interim FS)
Objective
1. Requirement for presentation- minimum
requirements
2. Show stewardship of the management
3. Use as a basis of user for the decision
making
A. General Purpose Financial Statements
- Provides information of the reporting entity
financial position, performance and cash
flows.
B. Materiality
- Omission or commission of information will
affect the financial statements
C. Offsetting- General Rule not allowed
a. Should not affect the asset and liability
b. Should not offset income/expense
EXCEPTIONS

1. Recognition 1. Required by the standard

a. Initial Recognition  PAS 19: Employee Benefits
b. Subsequent Recognition - Long term benefits
2. Measurement - Defined benefit obligation
a. Historical Cost- including historical cost - Plan Asset
b. Current Cost- Fair value, value in use, 2. Immaterial/Insignificant
fulfillment value. - Judgment /disclosure
3. The same transactions
- Equity investment at fair value through
profit and loss.
Conceptual Frameworks and Accounting Standards
D. Profit/loss – Net Income (Net Loss)
- INCOME-EXPENSES
E. Other Comprehensive (Income after tax)
- Items of income profit/loss and directly
reported in equity.
a. Revaluation surplus
b. Unrealized Gain/loss- changes in FV
c. Foreign Exchange Translation gain(loss)
1. Asset (liab)- closing rate
2. Income or expense- average rate
d. Re-measurement gain/loss defined
Benefit Plan
1. Defined Benefit Obligation (DBO) –
due to changes in actuarial
assumptions
2. Plan Asset- difference of actual
return and return based on high
quality corporate bonds.
e. Effective portion of hedging transaction
using cash flow hedge.
F. Comprehensive income (CI)
- Sum of amount in profit or loss and other
comprehensive income
- P&L +OCI=CI
G. PFRS includes
- PFRS (IASB)
- PAS
- Interpretations(IFRIC;SIC)
H. Reclassification of Entries
- To classify, one item to another item
I. Adjusting entries (no errors)
- Update the balances
J. Correcting Entries(w/errors)
- To correct classification, measurement and
values of the accounts
COMPONENTS OF FINANCIAL STATEMENTS (PAS1)
1. Components of financial position
a. Asset
b. Liability
c. Equity
*as of specific date
2. Statement of financial comprehensive
income / statement of profit and loss
(income statement)
a. Income
b. Expense
c. OCI items (net of tax)
*for a period of time
3. Statement of Cash flows
a. Operating
b. Investing
c. Financing
*for a period of time
4. Statement of changes in Owner’s equity
5. Notes to financial statement
- accompanying information of all FS
components
a. explanation of events/transactions
b. nature of business
c. compliance with pfrs
d. accounting standards applied
e. accounting policies adopted
f. judgement and estimates
6. Statement of Financial Position
- the beginning of earliest period presented
as a result of retrospective application of
the entity.
a. A change in accounting estimates
(prospective; current and future)
b. A change in accounting Policy
(retrospective;prior,current and future)
Conceptual Frameworks and Accounting Standards
STATEMENT OF FINANCIAL POSITION Criteria For Current Liabilities

Naming convention: 1. Held for trading

Name of the company and/or logo 2. Expected to be settled within normal
Statement of Financial Position operating cycle
As at / as of (ending period) 3. Expected to be settled within 12 months after
reporting period
Line ItemS 4. Entity does not have an unconditional right to
(a) property, plant and equipment (NCA) NCA defer, the settlement of obligation for atleast
(b) investment property (NCA) NCA 12 months of the reporting period.
(c) intangible assets (NCA) NCA a. Payable on Demand
(d) financial assets (excluding amounts EI b. Breach of contract (breached contracts
shown under (e), (h), and (i)) DI
needs refinancing)
(e) investments accounted for using the NCA
equity method Refinancing agreement
(f) biological assets NCA
(g) inventories CA - on or before the end of the reporting period
(h) trade and other receivables CA for atleast 12 months after the reporting
(i) cash and cash equivalents CA period.
(j) assets held for sale CA
(k) trade and other payables Discretion to refinance
(l) provisions
(m) financial liabilities (excluding amounts a. the entity has discretion (NCL)
shown under (k) and (l)) b. the entity does not have the discretion (CL)
(n) current tax liabilities and current tax
assets, as defined in IAS 12 EI >NI = DISCOUNT
(o) deferred tax liabilities and deferred tax NCA
assets, as defined in IAS 12 NI>EI=PREMIUM
(p) liabilities included in disposal groups Nominal Interest/ Stated Interest=
(q) non-controlling interests, presented
received/paid
within equity
(r) issued capital and reserves attributable Effective Interest = earned
to owners of the parent.

Criteria for Current Assets Face value xxx

1. Cash and Cash Equivalents Unamortized discount (xxx)

CV XXX
2. Expected to be collected within the normal
operating cycle (TRADE)
Face value xxx
3. Expected to be collected within 1 yr. after
the reporting period (current portion of long Unamortized premium xxx
term receivables) CV XXX
4. Held for trading (inventories.
FA@FVTPL,NCAHFS)