CONCEPTUAL FRAMEWORK

and ACCOUNTING STANDARDS

AC 1101
 Course Structure
 1. Financial Statement Reporting (7 hours)
 a) Introduction: Conceptual Framework
 b) PAS 34 – Interim Financial Reporting
 c) PAS 7 – Cash Flow Statements
 d) PAS 1 – Presentation of Financial Statements
 e) PFRS 1 – First Adoption of PFRS
 f) PFRS for SME’s – Definition and Criteria
 2. Inventories, Performance Reporting and Accounting Changes (7 hours)
 a) PFRS 15 – Revenue
 b) PFRS 5 – Discontinued Operation
 c) PAS 33 – Earnings per Share
 d) PAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors
 e) PAS 2 – Inventories
 3. Fixed Assets/Investment Property (8.5 hours)
 a) PAS 16 – Property, Plant and Equipment
 b) PAS 23 – Capitalization of Borrowed Costs
 c) PAS 40 – Investment Property
 d) PAS 36 – Impairment of Assets
 e) PAS 38 – Intangible Assets
 f) PFRS 5 – Noncurrent asset held for sale
 MIDTERM DEPARTMENTAL EXAMINATION
 4. Group Accounts (3 hours)
 a) PAS 27 – Separate Financial Statements
 b) PAS 28 – Investment in Associates
 c) PFRS 11 – Joint Arrangement
 d) PAS 24 – Related Party Disclosures
 5. Employee Benefits/ Share-Based Payments/Contingencies (5 hours)
 a) PAS 19R – Employees Benefits
 b) PAS 26 – Accounting and Reporting by Retirement Benefits Plan
 c) PFRS 2 – Share-Based Computations
 d) PAS 37 – Provisions, Contingent Liabilities and Contingent Assets
 6. Insurance/Leases/Etc (11 ours)
 a) PFRS 17 – Insurance
 b) PAS 41 – Agriculture
 c) PAS 11 – Construction Contracts
 d) PFRS 16 – Leases
 e) PAS 20 – Accounting for Government Grants and Disclosure of Government Assistance
 f) PAS 29 – Financial Reporting in Hyperinflationary Economies
 g) PAS 12 – Income Taxes
 h) PAS 10 – Events After the Balance Sheet Date
 i) PAS 14 – Segment Reporting
 j) PFRS 3 – Business Combinations
 7. Financial Instruments: Disclosure and Presentation (5 hours)
 a) PAS 32 – Financial Instruments: Disclosure and Presentation
 b) PFRS 9 (new) – Financial Instruments
 c) PAS 21 – The Effect of Changes in Foreign Exchange Rates
 FINAL EXAMINATION/ GROUP PRESENTATION OF CONCEPT MAP PRESENTATION
 IASC – International Accounting Standards Committee. A foundation formed as a not-for-
profit corp. incorporated in the state of Delaware, USA in March 2001. It is the parent
entity of the IASB based in London, UK.
 IASB – International Accounting Standards Board. Its objective is to achieve
convergence in the accounting principles that are used by businesses and other
organizations for financial reporting around the world. Effective April 1, 2001, the IASB
assumed accounting standard setting responsibilities from its predecessor body, the IASC.
 IASB publishes its Standards in a series of pronouncements called International
Financial Reporting Standards (IFRS)
 Accounting Standards – are authoritative statements of how particular types of
transaction and other events should be reflected in financial statements. Compliance with
accounting standards will normally be necessary for the fair presentation of financial
statements.
 Philippine ASC moves to IAS
 Starting 1996, the ASC issued accounting standards that were based on IAS (i.e., standards
on retirement benefit costs, borrowing costs, construction contracts, revenues and earning
per share).
 The ASC considered the following factors in deciding to move to International
Accounting Standards (IAS):
 1. Support of IAS by Philippine organization.
 2. Increasing internationalization of business.
 3. Improvement of IAS. The IASB completed a comparability and improvements
project, which aimed at the removal of free choices of accounting treatments permitted
in certain of the IAS.
 4. Increasing recognition of IASB standards. International financial institutions, such
as the World bank and Asian Development Bank prefer that borrowers use IAS. The
World Trade Organization (WTO), issued a statement of support for IASC initiatives to
harmonize accounting standards.
 Development in Philippine Accounting Standards
 ASC Approves Re- Issuance of PASs of previously Issued SFASs
 The Accounting Standards Council (ASC), the precursor of the Financial Reporting
Standards Council (FRSC), approves the re-issuance of the Philippine Accounting
Standards (PASs) of previously issued Statements of Financial Accounting Standards
(SFASs).
 ASC Approves Issuance of New and Revised Accounting Standards
 Philippine Accounting Standards (PASs) correspond to the adopted
International Accounting Standards (IASs).
 Philippine Financial Reporting Standards (PFRSs) correspond to the
adopted International Financial Reporting Standards (IFRSs).
 SFASs and SFAS/IASs not superseded by revised IASs and new IFRSs will
be re-issued as PASs
 IASB’s CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
2018 (CONCEPTUAL FRAMEWORK)
 Conceptual Framework – is a set of interrelated concepts, explicit or
implicit, underlying the procedures of financial accounting. It includes a
statement of objectives; a set of definitions; a specification of the desirable
qualitative characteristics of financial information; a specification of what
to measure; and a set of rules concerning how to measure.
 Users of Financial Information:
 1. External users – are individuals and others that have current or potential interest in the
reporting entity but are not involved in the daily operations of the entity. These users may include
owners, stockholders, creditors, potential investors, suppliers, customers, government agencies,
trade associations and the public. Their information needs is served by financial accounting.
 2. Internal users – are individuals who have different special goals that are designed to help the
entity attain its overall strategies and mission. These users may include the board of directors,
CEOs, CFOs, VPs, business unit managers, plant managers and the supervisors. Management
accountants design and use an information system that primarily helps in planning and control
decisions.
 Elements of Financial Statements:
 1. Assets, liabilities and equity – relate to a reporting entity’s financial position.
 2. Income and expenses - relate to a reporting entity’s financial performance.
 Financial position:
 Assets (new) - a present economic resource controlled by the entity as a result of past events. An
economic resource is a right that has the potential to produce economic benefits. (Old) A
resource controlled by the entity as a result of past events and from which future economic
benefits are expected to flow to the entity.
 Liability – (new) a present obligation of the entity to transfer an economic
resource as a result of past events. An obligation is a duty of responsibility that
an entity has no practical ability to avoid. (Old) a present obligation of the
entity arising from past events, the settlement of which is expected to result in
an outflow from the entity of resources embodying economic benefits.
 Equity – is the residual interest in the assets of the enterprise after deducting
all its liabilities. They are claims against the entity that do not meet the
definition of a liability.
 Financial performance
 Income – is increases in assets, or decreases in liabilities, that result in
increases in equity, other than those relating to contributions from holders of
equity claims.
 Expenses – are decreases in assets, or increases in liabilities, that result in
decreases in equity, other than those relating to distributions to holders of
equity claims.
 Recognition and Derecognition
 Recognition – is the process of capturing, for inclusion in the statement of the
financial position or the statement(s) of financial performance, an item that meets
the definition of an asset, a liability, equity, income or expenses.
 The initial recognition of assets or liabilities arising from transactions or other
events may result in the simultaneous recognition of both income and related
expenses. For example, the sale of goods for cash results in the recognition of both
income(from the recognition of one asset – the cash) and an expense ( from the
derecognition of another asset – the goods sold)
 Derecognition – is the removal of all or part of a recognized asset of liability from
the entity’s statement of financial position. Derecognition normally occurs when
that item no longer meets the definition of an asset or of a liability:
 a) for an asset, derecognition normally occurs when the entity loses control of all or
part of the recognized asset; and
 b) for a liability, derecognition normally occurs when the entity no longer has a
present obligation for all or part of the recognized liability.
 Measurement
 Elements recognized in financial statements are quantified in monetary terms. A
measurement basis is an identified feature, for example, historical cost, fair value,
value in use and fulfillment value or current cost – of an item being measured.
 Two categories of measurement basis:
 1. Historical cost measures – provide information about elements that is derived
form the historical price of the transaction or event that gave rise to the item for
measurement; for an asset, this would be the cost incurred in acquiring creating the
asset. For a liability, this would be the value of the consideration received to
incur/take on liability.
 2. Current value measures – provide monetary information about elements, using
information updated to reflect conditions at the measurement date. Measurement
bases may include fair value, value in use for assets, fulfillment value for
liabilities and current cost.
 Fair value – the price that would be received to sell an asset, or paid to transfer a
liability, in an orderly transaction between market participants at the measurement
date.
 INTERIM FINANCIAL REPORTING
 (PAS/IAS 34)
 Objective of PAS /IAS 34
 The objective of PAS 34 is to prescribe the minimum content of an interim
financial report based on the prescribed principles for recognition and
measurement in complete or condensed FSs for an interim period.
 Interim financial report – means a financial report containing either a
complete set of FSs or a set of condensed FSs for an interim period.
 Interim period – is a financial reporting period shorter than a full financial year.
 Scope of PAS/IAS 34
 PAS 34 applies if an entity is required or elects to publish an interim financial
report in accordance with PFRS or IFRS.
 PAS 34 does not mandate which entities should be required to publish interim
financial reports, how frequently or how soon after the end of the interim period.
 Government, securities regulators, stock exchanges, and accountancy bodies often require entities
whose debt or equity securities are publicly traded to publish interim financial reports. The
IFRs are encouraged to conform to the recognition, measurement, and disclosure principles as
prescribed in PAS/IAS 34.
 Publicly traded entities are encouraged to:
 a) provide interim financial reports at least as of the end of the first half of their financial year.
 b) make their IFRs available not later than 60 days after the end of the interim period.
 Contents of an Interim Financial Report
 The complete set of financial statements includes the following:
 a. a statement of financial position as at the end of the period;
 b. a statement of comprehensive income for the period;
 c. a statement of changes in equity for the period;
 d. a statement of cash flows for the period;
 e. notes comprising a summary of significant accounting policies and other explanatory
information; and
 f. a statement of financial position as at the beginning of the earliest comparative period when an
entity applies an accounting policy retrospectively or makes a retrospective restatement of items in
its financial statements or reclassifies items in its FSs.
 Minimum Components of an Interim Financial Report
 An IFR shall include, at a minimum, the following components:
 a. a condensed statement of financial position;
 b. a condensed statement of profit or loss and other comprehensive income;
 c. a condensed statement of changes in equity;
 d. a condensed statement of cash flows; and
 e. selected explanatory notes.
 Form and Content of an Interim Financial Report
 If an entity publishes a complete set of financial statements in its interim financial report, the form
and content of those statements shall conform to the requirements of PAS 10 for complete set of
financial statements.
 If an entity publishes a set of condensed financial statements in its interim financial reports, those
condensed statements shall include, at a minimum, each of the headings and subtotals that were
included in its most recent annual FSs and the selected explanatory notes as required by PAS/IAS 10.
 If the statement that presents the components of profit and loss for an interim period, an entity shall
present the basic and diluted earnings per share for the period.
 If an entity presents item of profit or loss in a separate statement , it should present basic and
diluted earnings per share in that statement.
 Significant Events and Transactions
 The following is a list of events and transactions for which disclosure would be required if
they are significant:
 a. write-down of inventories to net realizable value and the reversal of such write-down;
 b. recognition of a loss from the impairment of financial assets, property, plant, and
equipment, intangible assets, or other assets, and the reversal of such impairment loss;
 c. the reversal of any provision for the cost of restructuring;
 d. acquisition and disposal of items of property, plant, and equipment.
 e. commitments for the purchase of property, plant, and equipment;
 f. litigation settlements;
 g. correction of prior period errors;
 h. changes in business or economic circumstances that affect the fair value of the entity’s
financial assets and financial liabilities, whether those assets or liabilities are recognized at
fair value or amortized value;
 i. any loan default or breach of a loan agreement that has not been remedied on or before
the end of the reporting period;
 j. related party transactions;