Mater Dei College | Tubigon, Bohol | (038)508-8106

College of Accountancy, Business and Management - Business Department

Course Title Conceptual Framework and Accounting Standards Course No. AE 102
Instructor Ma. Angelica C. Balatucan, CPA, MSA Schedule 10:30-12:00 TF

Week 1
Course Learning Outcome Explain the various theoretical concepts in the development of the Financial
Accounting Framework
Student Learning Outcomes 1. Identify the concepts related to the Accountancy Profession
2. Describe the practice of accountancy profession in the Philippines
3. Explain the role of the various standard-setting bodies in the Philippines

Learning Content
THE ACCOUNTANCY PROFESSION

Introduction
Welcome to the first week of this course Conceptual Framework and Accounting Standards. In this course, we will learn
the conceptual framework in accounting and the standards in the preparation of financial statements. Obtaining a copy
of the textbook in Conceptual Framework and Accounting Standards is a must to understand better the topics included in
this module. For this week, we will learn about the accountancy profession.

Lesson Content

Definitions of Accounting

☑Accounting as an Information System. Accounting is a service activity. Its function is to provide quantitative
information, primarily financial in nature, about economic entities, that is intended to be useful in making
economic decisions. -Accounting Standards Council (ASC)

The first definition emphasizes that accounting is a service activity and that Information provided by
accounting could be classified into 3 types:
• Quantitative information - this is information that is expressed in numbers, quantities or units
• Qualitative information - this is information that is expressed in words
• Financial information - this information is expressed in terms of money

☑Accounting as an Art. Accounting is an art of recording, classifying and summarizing in a significant manner
and in terms of money, transactions and events which are in part at least of a financial character and
interpreting the results thereof. - American Institute of Certified Public Accountants (AICPA)

The second definition emphasizes the following:

1. Recording - The accounting term for recording is journalizing. All the accountable events are recorded
in a journal.
2. Classifying - The accounting term for classifying is posting. All accountable events that are recorded
in the journal are then classified or posted to a ledger.
3. Summarizing - the items that are journalized and posted are summarized in the five basic financial
statements.
☑Accounting as a Science. Accounting is the process of identifying, measuring and communicating economic
information to permit informed judgments and decisions by users of the information. –American Accounting
Association (AAA)

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 Mater Dei College | Tubigon, Bohol | (038)508-8106
College of Accountancy, Business and Management - Business Department
The third definition emphasizes the following:
1. Identifying - the process of recognition or non-recognition of business activities as accountable events.
Stated differently, this is the process which determines if an event has accounting relevance. This is the
analytical component.
An event is quantifiable when it has an effect on assets, liabilities and equity. Only economic activities
are emphasized and recognized in accounting. Economic activities of an entity are referred to as
transactions.
2. Measuring - the process of assigning monetary amounts to the accountable events. This is the technical
component. If the accounting information to be useful, it must be expressed in terms of a common
financial denominator. Financial statements without monetary amounts would be expressed in terms of
a common financial denominator.
The Philippine peso is the unit of measuring accountable economic transactions.
The measuring bases are historical cost and current value.
o Historical cost – the original acquisition cost and the most common measure of financial
transactions.
o Current value – includes fair value, value in use, fulfillment value and current cost.
3. Communicating - As we could notice with the above definitions, one main similarity between the three is
the impact of communication. In order to be useful, accounting information should be communicated to
the different decision makers. Communicating accounting information is achieved by the presentation of
different financial statements. This is the formal component.

Overall Objective of Accounting

“To provide quantitative financial information about a business that is useful to statement users particularly
owners and creditors in making economic decisions”. An accountant’s primary task: “To supply financial
information so that the statement users could make informed judgment and better decision.

Accounting and other Disciplines

A. Accounting and Auditing

Accounting Auditing
Accounting embraces auditing Auditing is an area of accounting specialization
Constructive Analytical
Accounting ceases when the financial statements (FS) are Auditing starts when the accounting ends
already prepared
Identify, classify, and summarize financial information, the Examines the FS to ascertain conformity with GAAP
end-product of which is the FS.
B. Accounting and Bookkeeping
Accounting Bookkeeping
Conceptual Procedural
“Why” of accounting “How” of accounting
C. Accounting and Accountancy
Accounting Accountancy
In reference only to a particular field of accountancy The profession of accounting practice
D. Financial Accounting and Managerial Accounting
Financial Accounting Managerial Accounting
Recording of business transactions and the eventual Accumulation and preparation of financial reports
preparation of FS intended for internal and external users intended for internal users only

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 Mater Dei College | Tubigon, Bohol | (038)508-8106
College of Accountancy, Business and Management - Business Department
The Accountancy Profession

Republic Act No. 9298 “Philippine Accountancy Act of 2004” – the law regulating the practice of accountancy in
the Philippines.

Qualifications to practice the accountancy profession:

1. Finish a degree in BSA
2. Pass the CPA licensure examination

Board of Accountancy (BOA) – body authorized by law to promulgate the rules and regulations affecting the
practice of the accountancy profession in the Philippines. – are responsible for preparing and grading the CPA
examination

Practice of Public Accountancy

Requirements:
1. Registered CPAs in the Philippines
2. At least three years of meaningful experience in any areas of public practice including taxation
3. Certificate of accreditation to be issued only upon showing that such registrant complies with (2) above
4. Register with the Board of Accountancy and Professional Regulation Commission for the practice of
accountancy

Areas of Accountancy Practice

Where are CPAs employed? What are services performed by CPAs?
Public Individual practitioners, small accounting firms and • Auditing (or external auditing) – examination of
Accounting large multinational organizations that render financial statements by independent CPA for
independent and expert financial services to the the purpose of expressing and opinion as to the
public. fairness with which the financial statements are
prepared. It is the attest function of
independent CPAs.
• Taxation – preparation of annual income tax
returns and determination of tax consequences
of certain proposed business endeavors.
• Management advisory services – services on
matters of accounting, finance, business
policies, organization procedures, product costs,
distribution, and others
Private CPAs employed in business entities in various • Maintaining records
Accounting capacity as accounting staff, chief accountant, • producing the financial reports
internal auditor and controller (the highest • preparing budgets
accounting officer) • controlling and allocating the resources of the
entity
• • determination of various taxes obliged by the
entity to pay
Government CPAS are employed in the government: • Custody and administration of public funds
Accounting • Bureau of Internal Revenue (BIR)
• Commission on Audit (COA)
• Department of Budget and Management (DBM)
• Securities and Exchange Commission (SEC)
Bangko Sentral ng Pilipinas (BSP)

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 Mater Dei College | Tubigon, Bohol | (038)508-8106
College of Accountancy, Business and Management - Business Department
Continuing Professional Development
Continuing Professional Development (CPD) – the inculcation and acquisition advanced knowledge, skill,
proficiency, and ethical and moral values after the initial registration of the CPA for assimilation into
professional practice and lifelong learning.
Republic Act No. 10912 – law mandating and strengthening the continuing professional development program
for all regulated professions, including the accountancy profession.

CPD credit units – CPD credit hours required for the renewal of the CPA license and accreditation of a CPA to
practice the accountancy profession every three years. All CPAs are required to comply with 120 CPD credit units
in a compliance period of three years. Exemption from CPD requirements for renewal of license: CPAs who
reached 65 years of age. (Exemption not applicable for accreditation to practice the accountancy profession)

Generally Accepted Accounting Principles (GAAP)

- Are “rules, procedures, practice and standards followed in the preparation and presentation of financial
statements”
- Refers to a common set of accounting principles, standards, and procedures that companies use to
compile their financial statements
- Are a combination of authoritative standards (set by policy boards) and simply the commonly accepted
ways of recording and reporting accounting information.
- Were developed based on experience, reason, custom, usage, and practical necessity
Accounting standards are necessary so that financial statements are meaningful across a wide variety of
businesses; otherwise, the accounting rules of different companies would make comparative analysis almost
impossible.

Purpose of 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 particularly the measurement of assets and liabilities.

Financial Reporting Standards Council

- Replaces the Accounting Standards Council (ASC).
- Is the accounting standard-setting body created by the Professional Regulation Commission upon
recommendation of the Board of Accountancy to assist the Board of the Accountancy in carrying out its
powers and functions provided under Republic Act No. 9298.
- Its main function: to establish and improve accounting standards that will be generally accepted in the
Philippines
The approved statements of the FRSC are known as Philippine Accounting Standards (PAS) or Philippine
Financial Reporting Standards (PFRS).

Composition of FRSC
The FRSC is composed of 15 members with a Chairman who had been or is presnetly a senior accounting
practitioner and 14 representatives from the following:
Board of Accountancy 1
Securities and Exchange Commission 1
Bangko Sentral ng Pilipinas 1
Bureau of Internal Revenue 1
Commission on Audit 1
Major organization of preparers and users of financial statements – Financial 1
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 Mater Dei College | Tubigon, Bohol | (038)508-8106
College of Accountancy, Business and Management - Business Department
Executives Institute of the Philippines (FINEX)
Accredited national professional organization of CPAs:
Public Practice 2
Commerce and Industry 2
Academe or Education 2
Government 2
Total 14
The chairman and the members of the FRSC shall have a term of 3 years renewable for another term. Any
member of the ASC shall not be disqualified from being appointed to the FRSC.

Philippine Interpretations Committee

- Was formed by the FRSC in August 2006 and has replaced the Interpretations Committee or IC formed
by the Accounting Standards Council in May 2000.
- Its role is to prepare interpretations of PFRS for approval by the FRSC and to provide timely guidance on
financial reporting issues not specifically addressed in the current PFRS.

The counterpart of the PIC in the United Kingdom is the International Financial Reporting Interpretations
Committee (IFRIC) which has already replaced the Standing Interpretations Committee (SIC).

International Accounting Standards Committee

- Is an independednt private sector body created in June 1973, with the objective of achieving uniformity
in the accounting principles which are used by business and other organizations for financial reporting
around the world.
Objectives of IASC:
a. To formulate and publish in the public interest accounting standards to be observed in the presentation of
financial statements and to promote their worldwide acceptance and observance.

b. To work generally for the improvement and harmonization of regulations, accounting standards and
procedures relating to the presentation of financial statement.

International Accounting Standards Board

- Repalced the IASC.
- Publishes standards in a series of pronouncements called as International Financial Reporting Standards
or IFRS. However, the IASB has adopted the body of standards issued by the IASC. The pronouncements
of the IASC continue to be designated as International Accounting Standards or IAS.
- Its standard-setting process includes the correct order research, discussion paper, exposure draft and
accounting standard.

Move towards IFRS

In the past years, most of the Philippine standards issued are based on American accounting standards. At
present, the FRSC has adopted in their entirety all IAS and IFRS. The move towards IFRS is essential to achieve
the goal of one uniform and globally accepted financial reporting standards.

The Philippines is fully compliant with IFRS effective January 2005, a process which was started back in 1997 in
moving from USA GAAP to IFRS.

The following factors are considered in deciding to move totally to international accounting standards:
a. Support of interntional accounting standards by Philippine organizations, such as the Philippine SEC,
Board of Accountancy, and PICPA.
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COURSE LEARNING MODULE | 2nd Semester, 2021-2022
 Mater Dei College | Tubigon, Bohol | (038)508-8106
College of Accountancy, Business and Management - Business Department
b. Increasing internationalization of business which has heightened interest in a common language for
financial reporting.
c. Improvement of international accounting standards or removal of free choices of accounting standards.
d. Increasing recognition of international accounting standards by the World Bank, Asian Development
Bank and World Trade Organization.

Philippine Financial Reporting Standards

- Issues standards in a series of pronouncements called “Philippine Financial Reporting Standards” or
PFRS.
- Collectively include all of the following:
a. Philippine Financial Reporting Standards (PFRS) , which correspond to IFRS
b. Philippine Accounting Standards (PAS), which correspond to IAS
c. Philippine Interpretations which correspond to Interpretations of the IFRIC

Review Questions
Recall the lesson and try to answer the following review questions:
1. What are the important points made in the definition of accounting?
2. Explain why accounting has been called the “universal language of business”.
3. What are the kinds of CPAs offered by CPAs in the practice of public accounting?
4. What do you understand by the Continuing Professional Development of CPAs?
5. What constitute GAAP in the Philippines?
6. Explain the purpose of accounting standards.
7. Explain why the Philippines has moved totally from American accounting standards to international
accounting standards?

Exercises
Exercise 1.
A. Identify what is being described by the following statements.
1. It is the law regulating the practice of accountancy in the Philippines.
2. It is the body authorized by law to promulgate rules and regulations affecting
the practice of the accountancy profession in the Philippines.
3. It is the standard-setting body in the Philippines at the present time.
4. It is the area of the accountancy profession in which accountants are employed
in various capacity as accounting staff, chief accountant or controller.
It is the age in which a CPA will be permanently exempted from renewal of CPA
5.
License.
6. It is the accounting that is concerned with general-purpsoe reports on financial
position and financial performance.
7. It is the primary service of CPAs in the public practice.
8. It is the type of accounting that emphasizes developing accounting for use
within an entity.
9. It is the area of accounting that is focused on the process of recording and the
management of all financial transactions incurred by the government which
includes its income and expenditures.
10. These are like laws that must be followed in financial reporting.

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 Mater Dei College | Tubigon, Bohol | (038)508-8106
College of Accountancy, Business and Management - Business Department
B. Determine if the statement is true or false by writing your answer on the space provided.

1. Accounting information is both quantitative and qualitative.

2. Sociological and psychological matters are quantifiable.
The three main areas in the practice of accountancy profession are financial
3.
accounting,
managerial accounting and corporate accounting.
4. The Department of Budget and Management are represented in FRSC.
5. The IASB was formed to enforce IFRS in foreign countries.
6. The standards published by IASB are called IFRS.
7. Financial accounting emphasizes reporting to management.
8. Managerial accounting need not follow generally accepted accounting
principles while financial accounting must follow GAAP.
The primary responsibility for properly applying GAAP lies with the internal
9.
auditor.
GAAPs derive their credibility and authority from general recognition and
10.
acceptance by the accountancy profession.

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COURSE LEARNING MODULE | 2nd Semester, 2021-2022
 Mater Dei College | Tubigon, Bohol | (038)508-8106
College of Accountancy, Business and Management - Business Department
Course Title Conceptual Framework and Accounting Standards Course No. AE 102
Instructor Ma. Angelica C. Balatucan, CPA, MSA Schedule 10:30-12:00 TF

Week 2
Course Learning Outcome Explain the various theoretical concepts in the development of the Financial
Accounting Framework
Student Learning Outcomes 1. Describe the purpose and usefulness of a Conceptual Framework
2. Explain the authoritative status of a Conceptual Framework
3. Determine the users of financial information
4. Explain the objectives of financial reporting

Learning Content
THE CONCEPTUAL FRAMEWORK

Introduction
Welcome to the second week of this course Conceptual Framework and Accounting Standards. This week is all about the
overview of the Conceptual Framework. This lesson aims to orient the students on the purpose, content and authoritative
status of the Conceptual Framework, including the explanation of the objective of financial reporting, which is the first
component of the scope of the Revised Conceptual Framework.

Lesson Content

OVERVIEW OF THE CONCEPTUAL FRAMEWORK

Conceptual Framework for financial reporting

✔is a complete, comprehensive, and single document promulgated by the IASB
✔ is a summary of the terms and concepts that underlie the preparation and presentation of FS for external
users
✔describes the concepts for general-purpose financial reporting
✔is an attempt to provide an overall theoretical foundation for accounting
✔ is intended to guide standard-setters, preparers, and users of financial information in the preparation
and presentation of statements
❌is not an accounting standard and cannot override any specific IFRS

Purposes of Revised Conceptual Framework

a. To assist the International Accounting Standards Board to develop IFRS based on consistent concepts.
b. To assist preparers of financial statements to develop consistent accounting policy when no Standard
applies to a particular transaction or other event or where an issue is not yet addressed by an IFRS.
c. To assist preparers of financial statements to develop accounting policy when a Standard allows a choice
of an accounting policy.
d. To assist all parties to understand and interpret the IFRS.

Authoritative Status of the Conceptual Framework

☑ If a standard or interpretation that specifically applies to a transaction, the standard or interpretation
overrides the Conceptual Framework.
☑ In the absence of a standard or an interpretation, the management shall consider the applicability of the
Conceptual Framework.
☑ In case where there is conflict, the requirements of the IFRS shall prevail over the Conceptual Framework.
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 Mater Dei College | Tubigon, Bohol | (038)508-8106
College of Accountancy, Business and Management - Business Department
Users of Financial Information

Users of accounting information are classified into two namely:

1. Primary Users
– need information about the resources and claims against resources of the entity.
– Are the parties to whom general-purpose financial reports are primarily directed.
a. Existing and potential investors – are concerned with the risk inherent in and return provided by
their investments.
o Investors need information to help them determine whether they should buy, hold or sell.
o Shareholders are also interested in information which enables them to assess the ability of the
entity to pay dividends.
b. Existing and potential lenders and other creditors – are interested in information which enables
them to determine whether their loans, interest thereon and other amounts owing to them will be
paid when due.
2. Other Users – are users of financial information other than the existing and potential investors,
lenders, and other creditors. Other users are so-called because they are parties that may find the
general-purpose financial reports useful, but the reports are not directed to them primarily.
a. Employees – are interested in information about the stability and profitability of the entity. They
are interested in information which enables them to assess the ability of the entity to provide
remuneration, retirement benefits and employment opportunities.
b. Customers – have an interest in information about the continuance of an entity especially when
they have a long-term involvement with or are dependent on the entity.
c. Government and other agencies– are interested in the allocation of resources and therefore the
activities of the entity. These users require information to regulate the activities of the entity,
determine taxation policies and as a basis for national income and similar activities.
d. Public – Entities make substantial contribution to the local economy in many ways including the
number of people they employ and their patronage of local suppliers. Financial statements assist
the purpose by providing information about the trend and the range of its activities.

SCOPE OF THE CONCEPTUAL FRAMEWORK

A. Objective of Financial Reporting
B. Qualitative Characteristics of useful financial information
C. Financial Statements and Reporting Entity
D. Elements of the Financial Statements
E. Recognition and derecognition
F. Measurement
G. Presentation and Disclosure
H. Concepts of Capital and Capital Maintenance

A. OBJECTIVE OF FINANCIAL REPORTING

Financial Reports encompass
✔ financial statements (e.g. statement of financial positions, income statement, statement of cash flows)
✔ other financial information (e.g. summary of important financial figures, analysis of financial statement
ratios) and
✔nonfinancial information (e.g. description of major products, listings of corporate officers)

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 Mater Dei College | Tubigon, Bohol | (038)508-8106
College of Accountancy, Business and Management - Business Department
Overall objective of financial reporting:
“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”.

Specific Objectives:
1. To provide information useful in making decisions about providing resources to the entity
• that is useful to present and potential investors and creditors and other users in making rational
investment, credit, and similar decisions
2. To provide information useful in assessing the cash flow prospects of the entity
• to help present and potential investors and creditors and other users to assess the amounts, timing,
and uncertainty of prospective cash receipts.
3. To provide information about entity resources, claims and changes in resources and claims
• financial position – the information about the entity’s economic resources and claims against the
reporting entity (assets, liabilities and equity at a particular moment in time)
• financial performance (or results of operations) – changes in economic resources and claims (revenue,
expenses and net income or loss for a period of time)

Accrual Accounting

✔ depicts the effects of transactions and other events and circumstances on an entity’s economic resources
and claims in the periods in which those effects occur even if the resulting cash receipts and payments occur in a
different period.

✔ income is recognized when earned regardless of when received and expense is recognized when incurred
regardless of when paid

Limitations of Financial Reporting

a. General purpose financial reports do not and cannot provide all the information that existing and potential
investors, lenders and other creditors need.

b. General purpose financial reports are not designed to show the value of an entity, but the reports provide
information to help the primary users estimate the value of the entity.

c. General purpose financial reports are intended to provide common information to users and cannot
accommodate request for information.

d. To a large extent, general purpose financial reports are based on estimate and judgement rather than exact
depiction.

Management Stewardship
Information about how efficiently and effectively management has discharged its responsibilities to use the
entity’s economic resources helps users to assess management stewardship of those resources. Such
information is also useful for predicting how management will use the entity’s economic resources in future
periods.

Hence, the information can be useful for assessing the entity’s prospects for future net cash flows.

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 Mater Dei College | Tubigon, Bohol | (038)508-8106
College of Accountancy, Business and Management - Business Department
Review Questions
Recall the lesson and try to answer the following review questions:
1. What are the purposes of the Revised Conceptual Framework?
2. Explain the authoritative status of the Conceptual Framework.
3. Who are the users of financial information and what are their information needs?
4. What is the scope of the Revised Conceptual Framework?
5. What is the overall and specific objectives of financial reporting?
6. What are the limitations of financial reporting?

Exercises
Exercise 2.
A. Identify the users of information described by the following statements.
1. need information on trends and recent developments where an entity makes a
substantial contribution to the local economy providing employment and using local
suppliers.
2. are interested in information that enables them to assess whether their loans, the
related interest thereon, and other amounts owing to them will be paid when due.
3. require information on risk and return provided by their investment.
4. need financial information to help them make decisions on what to do with their
investments.
5. are interested in an entity's financial information for taxation and regulatory purposes.
6. are interested in the company’s ability to pay liabilities upon maturity (solvency).
need information to assess the company's potential for success and profitability, and
7.
whether to continue, improve or drop it.
8. are after the ability of the company to pay salaries and provide employee benefits.
9. become interested in the company’s ability to continue its existence and maintain
stability of operations when there is a long-term involvement or contract between
them and the company.
are interested in information which enables them to assess the ability of the company
10.
to pay dividends.
B. Determine if the statement is true or false by writing your answer on the space provided.

1. The purpose of the Revised Conceptual Framework is to assist regulatory agencies in

issuing rules and regulations for a particular industry.
2. The Conceptual Framework describes the concepts for general-purpose financial
reporting.
3. The Conceptual Framework has the highest level of authority.
4. The Conceptual Framework applies only when the IASB develops new standards.
5. In the absence of a standard or an interpretation that specifically applies to a
transaction, the Conceptual Framework shall be followed.
6. One of the purposes of the Conceptual Framework is to provide definitions of key
terms and fundamental concepts.
7. The Conceptual Framework should be based on the fundamental truth derived from
the law of nature.
8. Financial reporting shall provide information about the liquidation value of an entity.
9. Financial reporting pertains to information about business industries, rather than to
individual entities or an economy as a whole or to members of society as consumers.
10. Under the Revised Conceptual Framework, during a period when an entity is under the
direction of a particular management, financial reporting provide information about
entity performance but not management performance.

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