Conceptual Framework and Accounting Standards Weeks 1-3

Study Notes

Established in June 1973, the International Accounting Standards Committee (IASC) aims for uniformity in accounting principles globally.
Development of International Accounting Standards (IAS) was initiated by a group dedicated to creating specific standards.
The IASC evolved into the International Accounting Standards Council, which further developed International Financial Reporting Standards (IFRS).

The Professional Regulation Commission (PRC) oversees the Board of Accountancy (BOA).
The Financial Reporting Standards Council (FRSC) was recommended to assist the BOA in establishing widely accepted accounting standards in the Philippines.
Philippine Accounting Standards (PAS) and Philippine Financial Reporting Standards (PFRS) are in place to align with international standards.

Financial reporting's primary goal is to provide relevant financial information for decision-making.
Specific objectives include offering insights into resource provision, cash flow assessment, and understanding financial positions and performance.
It assists primary users: owners/investors, managers, lenders/creditors, and suppliers, while additional users include employees, customers, and the government.

Financial reports cannot furnish exhaustive information or definitively determine an entity's value.
They offer common data but may not address all users' specific information needs.
Prepared based on estimates and judgments, they may lack precision.

Fundamental Characteristics:
- Relevance: Information's capacity to influence decisions through predictive and confirmatory value.
- Faithful Representation: Information must accurately reflect transaction effects, encompassing completeness, freedom from error, and neutrality.
Enhancing Characteristics:
- Verifiability: Different users should arrive at the same conclusions using evidence.
- Comparability: Identifying and understanding similarities and differences within reporting periods and across entities.
- Consistency: Using the same accounting methods across periods.
- Understandability: Information should be readily comprehensible to users.
- Timeliness: Information must be available when needed to influence decisions.
- Cost and Time Constraints: The benefits of information should exceed the costs incurred in obtaining it.

Going Concern: The entity is expected to continue operations indefinitely unless indicated otherwise.
Accounting Entity: Separation of the accounting entity from its owners and managers.
Time Period Assumption: Reporting is subdivided into equal-length periods.
Monetary Unit Assumption: Financial statement elements are reported in a stable currency (e.g., peso).

Assets: Resources controlled by the entity from past events.
Liabilities: Current obligations to transfer resources due to past events.
Equity: Residual interest in assets after deducting liabilities.
Income: Increases in assets or reductions in liabilities leading to equity increases, excluding owner contributions.
Expenses: Decreases in assets or increases in liabilities resulting in reductions in equity.

Accrual Basis: Income is recognized when earned, and expenses when incurred, regardless of cash flow.
Matching Principle: Expenses incurred to generate revenue should be recognized in the same period.
Recognition Methods:
- Cause and Effect Association: Direct matching of revenue and related expenses.
- Systematic Allocation: Expenses recognized over periods benefiting from the asset.
- Immediate Recognition: Costs expensed outright when associating with revenue is difficult.

Derecognition: Removal of assets or liabilities from financial statements.
Historical Cost: Assets valued at acquisition cost plus transaction costs.
Current Value/Currents Cost: Assets and liabilities measured at fair value, value in use, or fulfillment value, reflecting current market conditions.

The framework establishes principles for preparing and presenting financial statements, aiding in transparency and consistency in financial reporting.