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cONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

The document defines accounting and its key components. Accounting involves identifying, measuring, and communicating financial information to allow for informed decision making. It discusses the purpose of accounting, the accounting profession, generally accepted accounting principles (GAAP), accounting standards, and the conceptual framework that underlies financial reporting. The overall objective of financial reporting is to provide useful information to investors, lenders and other creditors for decision making.

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Mary Grace Bermudez
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44 views

cONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

The document defines accounting and its key components. Accounting involves identifying, measuring, and communicating financial information to allow for informed decision making. It discusses the purpose of accounting, the accounting profession, generally accepted accounting principles (GAAP), accounting standards, and the conceptual framework that underlies financial reporting. The overall objective of financial reporting is to provide useful information to investors, lenders and other creditors for decision making.

Uploaded by

Mary Grace Bermudez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Conceptual Framework

and Accounting
Standards
Definition of Accounting

► Accounting Standards Council


► Accounting is a service activity.
► Committee on Accounting Terminology of the American Institute of Certified
Public Accountants
► Accounting is the art of recording, classifying and summarizing in a
significant manner and in terms of money, transactions and events
which are in part of at least of a financial character and interpreting
the results thereof.
► American Accounting Association
► Accounting is the process of identifying, measuring and communicating
economic information to permit informed judgement and decision by
users of the information.
Purpose of Accounting

► The very purpose of accounting is to provide quantitative information to be


useful in making an economic decision.

Quantitative
information

Financial in
nature

Useful in decision
making
Components of the Accounting

► Identifying = Analytical
► Measuring = Technical
► Communicating = Formal
Identifying

► Recognition or nonrecognition
► Business activities as “accountable” events.
► Event is accountable or quantifiable when it has an effect on Assets,
Liabilities and Equity.
► Economic activities
► External or internal transactions
Measuring

► Assigning peso amounts to the accountable economic transactions and


events.
► PHP = Philippine Peso
► Measurement bases are historical cost and current value
► Historical cost: the original acquisition cost
► Current value: fair value, value in use, fulfillment value and current cost.
Communicating

► Process of preparing and distributing accounting reports to potential users of


accounting information.
► Accounting has been called the “universal language of business”
► Recording or Journalizing: process of systematically maintaining a record of all
economic business transactions after they have been identified and measured.
► Classifying: sorting and grouping of similar and interrelated economic transactions
► Summarizing: preparation of financial statements
The Accountancy Profession

► Republic Act No. 9298


► Philippine Accountancy Act of 2004
► Law regulating the practice of accountancy in the Philippines
► In the Philippines
► Degree in BS Accountancy
► Board examination given by the Board of Accountancy
► Board of Accountancy
► The body authorized by law to promulgate rules and regulations affecting the
practice of accountancy profession in the Philippines.
► BOA is responsible for preparing and grading the Philippine CPA examination.
Certified Public Accountants 3 main
areas of practice
► Public Accounting
► Render independent and expert financial services to the public.
► Auditing, Taxation, and Management Advisory Services
► Private Accounting
► Employment in business entities as accounting staff, chief accountant, internal
auditor and controller
► Government Accounting
► Involves receipt and disposition of government funds and property
► The focus is on the custody and administration of public funds.
► BIR, COA, DBM, SEC, BSP
Accounting vs. …

► Accounting vs. Auditing


► Accounting: constructive
► Auditing: analytical
► Accounting vs. Bookkeeping
► Accounting: conceptual
► Bookkeeping: procedural
► Accounting vs. Accountancy
► Accountancy: profession
► Financial Accounting vs. Managerial Accounting
► Financial Accounting: Internal and External Users
► Managerial Accounting: Internal Users only
Generally Accepted Accounting
Principles (GAAP)
► Represent the rules, procedures, practice and standards followed in
the preparation and presentation of financial statements.
► Like laws that must be followed in financial reporting
Accounting Standards

► The overall purpose of accounting standards is to identify proper accounting


practices for the preparation and presentation of financial statements.
► ACCOUNTING STANDARDS CREATE A COMMON UNDERSTANDING BETWEEN
PREPARERS AND USERS OF FINANCIAL STATEMENTS
Financial Reporting Standards Council
(FRSC)
► The accounting standard setting body created by the Professional Regulation
Commission (PRC) upon the recommendation of the BOA.
► The main function is to establish and improve accounting standards that will
be generally accepted in the Philippines.
► Accounting Standards promulgated by the FRSC = Highest Hierarchy
► Philippine Accounting Standards (PAS) and Philippine Financial Reporting
Standards (PFRS)
► Approved statements of the FRSC
► At present, the FRSC has adopted in their ENTIRETY all International
Accounting Standards (IAS) and International Financial Reporting Standards
(IFRS).
► To achieve uniformity in the global setting
CONCEPTUAL FRAMEWORK

► The conceptual framework for financial reporting is a complete,


comprehensive and single document promulgated by the IASB.
► Summary of the terms and concepts that underlie the preparation of FS for
external users
► Theoretical foundation for accounting
► Provides foundation for Standards that:
► Contribute to transparency
► Strengthen accountability
► Contribute to economic efficiency
Authoritative status of Conceptual
Framework
► In the absence of a standard or an interpretation that specifically applies to a
transaction, consider the applicability of the Conceptual Framework in
developing and applying an accounting policy that results in information that
is relevant and reliable.
Users of Financial Information

► Primary Users
► Investors, Lenders, Other Creditors
► Parties to whom general purpose financial reports are primarily directed.
► Other Users
► Employees, customers, governments, public
► Residual definition
► May use the general purpose financial reports that are not directed to them
primarily
Objective of Financial Reporting

► The overall objective of financial reporting is to provide financial


information about the reporting entity that is useful to existing and
potential investors, lenders and other creditors in making decisions
about providing resources to the entity.
► To provide information that is useful for decision making
► Investment decisions
► Assessing the cash flow prospects of the entity
► Resources, claims and changes in resources and claims.

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