Conceptual Framework and Accounting Standards Weeks 1-3

Questions and Answers

What is the main objective of the International Accounting Standards Committee (IASC)?

To achieve uniformity of accounting principles around the world (correct)

To provide premium services to audit firms

To promote the use of local accounting practices

To assist governments in tax assessments

Which organization was created to assist the Board of Accountancy (BOA) in the Philippines?

International Financial Reporting Standards (IFRS)

Financial Reporting Standards Council (FRSC) (correct)

International Accounting Standards Committee (IASC)

Professional Regulation Commission (PRC)

Which of the following groups are considered primary users of financial reports?

Competitors and Regulators

Government and Customers

Owners/Investors and Lenders/Creditors (correct)

Employees and Suppliers

What is a key function of the International Financial Reporting Standards (IFRS)?

To assist in developing consistent accounting policies Signup and view all the answers

What does the Financial Reporting Standards Council (FRSC) primarily focus on in the Philippines?

Developing and improving generally accepted accounting standards Signup and view all the answers

What is the primary goal of accounting?

To provide financial information for decision-making Signup and view all the answers

Which of the following is NOT a limitation of financial reporting?

It is designed to show the exact value of an entity Signup and view all the answers

What characteristic enhances the usefulness of financial information?

Enhancing qualitative characteristics Signup and view all the answers

Which element of financial statements provides information regarding resources and claims?

Statement of financial position Signup and view all the answers

What does predictive value in financial information aim to achieve?

Assist users in estimating future cash flows Signup and view all the answers

Study Notes

Conceptual Framework and Accounting Standards

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).

Accounting Regulation in the Philippines

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.

Purpose and Objectives of Financial Reporting

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.

Limitations of Financial Reporting

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.

Qualitative Characteristics of Useful Financial Information

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.

Key Assumptions in Accounting

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).

Elements of Financial Statements

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.

Recognition and Measurement Principles

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 and Measurement Bases

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.

Conclusion

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

Description

This quiz covers the foundational concepts of accounting standards established by the International Accounting Standards Committee, including key objectives and major standards like IFRS and IAS. Test your understanding of the evolution and purpose of these standards in achieving global accounting consistency.