Financial Reporting Framework & Accounting

Development of Financial Reporting Framework and Standard-Setting Bodies

• Accounting identifies, measures, and communicates data to enable informed judgments and decisions
• Accounting serves by providing quantitative, primarily financial, data about economic entities for decision-making
• Accounting records, classifies, summarizes transactions/events with a financial aspect, and interprets the results
• Quantitative, financial, and useful for decision-making

Components of Accounting

• Identifying is the analytical process of determining which events/transactions to recognize; not all business activities are accountable
• Recognition includes the effects of accountable events in financial statements via journal entries
• Accountable events have an effect on assets, liabilities, or capital
• Subject matter of accounting is economic activity, especially measuring economic resources/obligations

Types of Economic Activities

• External events involve the entity and another party
• Exchange involves sale, purchase, payment of liabilities, or receipt of notes
• Non-reciprocal include donations, gifts, taxes, theft, fines, or distribution to ownership
• External events involve changes in fair value, price levels, obsolescence, or technology
• Internal events do not involve an external party
• Production is the conversion of raw materials to finished products
• Casualty is a sudden, unanticipated loss from fire, flood, etc

Measuring

• Assigning numbers, usually in monetary terms, to the monetary transactions and events.
• The Philippine peso is the unit of measuring accountable economic transactions.
• Measurement Bases include historical cost, fair value, present value, net realizable value, current cost and inflation-adjusted costs

Communicating

• Transforms economic data into accounting information for financial statements and reports for users
• Involves interpreting the significance of processed information
• Accounting communication involves recording, classifying, and summarizing
• Recording systematically commits identified and measured accountable events in the journal
• Classifying groups similar items into classes via postings to the ledger
• Summarizing expresses transactions and events in condensed form, including financial statements preparation
• Interpreting involves financial statement ratio computation

Purpose of Accounting

• Provides useful information for making economic decisions and inform decisions regarding the entities underlying economics
• Accounting assists in capital allocation and providing reliable information contributes to the overall the economy

Branches of Accounting

• Financial Accounting focuses on recording transactions and report preparation based on accounting standards
• It is a process of preparing reports for internal and external parties
• Financial statements are the means of communication to those parties
• Financial statements include statement of financial position, income statement, cash flows statement, changes in equity, and related disclosures
• Management Accounting involves partnering in decision making, performance management systems, expertise in financial reporting to assist organizations strategy
• Cost Accounting deals with collection and control of the cost in producing specific goods and services
• Auditing is an independent examination that ensures fairness and reliability of reports submitted outside the business
• Government Accounting identifies sources and uses of government funds.

More Branches of Accounting

• Tax Accounting prepares tax returns considering proposed business transactions tax consequences.
• Accounting Education involves accountants being researchers, professors or reviewers for guaranteed continuation of the profession.

Accounting Information

• Financial reporting communicates the set of financial statements and other financial information
• The purpose of general-purpose financial reporting is to provide financial information useful to stakeholders making decisions in providing resources to the entity

Objective of Financial Reporting

• General-purpose financial statements should aim to provide useful information at the least cost to a wide audience
• Equity investors and creditors have urgent is the primary users with needs for assessing a company's ability to generate cash and protect assets.
• Resources is equal to accountability plus impartiality.
• The entity perspective separates the company from investors, so assets belong to the company, not specific creditors/shareholders
• Decision-usefulness means financial statements should assist investors with prospective cash inflows (dividends/interest) and proceeds from security sales/redemption

Facilitating Capital Allocation

• Investors require relevant information and a faithful representation in order to make comparisons across any geography
• Comparability can be ensured by having the presence a single body setting quality accounting standards
• Followed by consistency in application, common disclosure, and common high-quality auditing practices
• Common approach regulatory review and enforcement
• Education and training of market participant
• Common, standardized systems for delivery
• A common approach to law and corporate governance around the world

Users of Accounting Information

• Internal users are the business owners and management (direct access)
• They use the information for making decisions
• For evaluation, operational planning, liquidation, capital infusion, borrowing, changing business strategies, or deciding on employee compensation
• Managerial accounting is designed to meet the information needs of internal users
• External users include inactive owners, creditors/lenders, suppliers, investors, authorities, bodies or analysts
• They use the information to keep track of an entities financial condition to decide whether to hold or sell interest.
• Direct include owners, creditors, managers etc
• Indirect users include regulators, unions, etc they use financial information as a tool to secure an interest in financial reporting

Accounting Entity

• Reporting entity is an alternative name
• Accounting entity separates personality of the enterprise from it's stakeholders
• Can control available resources and incur obligations

Development of Accounting Standards

• Accounting Standards: A network of rules and guidelines that represent the accounting principles, which defines the practice of financial reporting at all times
• It's main purpose is to ensure financial relevance

Need for International Accounting Standards

• Accounting reports are needed that can compare to each other
• Accounting reports are also needed to be consistent, such that profits numbers from different countries are similarly reported
• There is a need to bring into common basis, the system of measurement of economic activities,

Organizations in the Promulgation of Accounting Standards

• From 1973-2000, international bodies urged the adoption of a single set of standards.
• These international bodies included the World Bank, IMF, international organizations for commissions, economic development
• Later, the international Accounting Standards Committee(IASC) was formed, and issued uniform accounting standards.
• IASC issued/promoted the use and adoption of standards.
• In 2001, the IASC was replace by the International Accounting Standards Board (IASB), which is based in London
• It was objected to developing of a single yet understandable set of accounting principles
• They have revised the IAS and created new standardized called international financial reporting standards.
• IASB has no authority to complying with the standards

The IFRS Foundation

• There are 22 trustees
• Provides oversight to IASB
• Appoints members for 3 years with renewals
• Reviews effectiveness
• Helps fundraising efforts

IFRS Foundation Objectives

• Develop a single set of high quality, global accounting standards for use in capital markets
• Promote rigorous application of those standards
• Account for needs of SMEs in economies of different types
• Facilitate the convergence of national accounting standards and IFRSs

International Accounting Standards Board

• The IASB is also the ASB
• IFRS advisory council advises on the major policies and technical issues

IFRS Interpretations Committee

• Also known as IFRIC
• Has 14 voters of members
• They help the IASB with resolution of finical reporting within the framework of IFRS

The IASB's Objectives:

• Interpret IFRSs and provide timely help on financial reporting in the context of the IASB's Framework.
• Regard convergences of national accounting standards so that accounting standards are of high quality.
• Publish draft after clearance for public comment and consider the comment before finalizing integration
• Report standard-setting those that oversee them

International Organizations

• International Organization of Securities Commissions (IOSCO) and the ISAB has a role in international standard-setting
• The ISAB is responsible for creating accounting standards.

Due Process for Developing Reporting Standards

• The IASB has an open and transparent due process
• Independent standard setting board over seen by a diverse body of trustees
• There's Engagement with leaders
• Collaboration to community.

The Formal Due Process for the BOARD and the INTERPRETATIONS COMMITTEE

• Specifies minimum steps to be taken for activities
• Identifies the non-monetary steps
• Identifies optional steps

Setting Agenda

• To implement it's process, the IASB six step to develop
• Research is conducted
• Preliminary views are raised
• Public hearings are held
• Exposure draft is issued
• Comment period is 120 days major
• Final standard issues
• Post-implementation review

Characteristics of the IASB

• The IASB is an open, transparent, and independent process.
• Has 16 members
• Renewable terms
• Is apart of any other group
• Full time members must sever all ties with their former employers

The IASB issues three major types of pronouncements

• The International financial reporting standards
• Conceptual framework
• Financial reporting interpretations
• The IASB has no regulatory mandate and no enforcement mechanism
• Regulation of environment of accounting the Philippine

Accounting Standards in the Philippines

• As of November 18,1981 The Philippine Institute of CPAS and the accounting standards council to improve accounting standards
• Board on the existing practice in the Philippine
• Research and studies by the council
• Internationally available literature
• Statements issued by other bodies ISAB and FASB
• December 22, 2004, SEC stated they need to adapt the ISAB in audited financial statements.
• In 2004 there as and accountancy act enacted .
• In 2006 FRSC was established to replace ASC body, the financial standards council.

Steps to develop standards by the FRSC(Philippine Financial Reporting Standards Council)

• Process ----Steps in developing standards by the FRSC:
• Consideration of pronoucement of IASB
• Formation of a task force to give advise to the FRSC
• Issuing for comment an exposure draft approved by majority of the FRSC members
• < at least 60 days, unless a shorter period of not less than 30 days is considered appropriate>
• Consideration of all comments and preparation of Comment letter to the IASB
• Approval of standard or interpretation by majority of FRSC members