TECHNOLOGICAL INSTITUTE OF THE PHILIPPINES (A.Y. 2022 – 2023 )
ACCTG 016: CONCEPTUAL FRAMEWORK & ACCOUNTING STANDARDS
✧˚ ༘ ⋆｡˚ PRELIM
MR. WILFRED LOZANO
✧˚ ༘ ⋆｡˚
1ST YEAR – 2ND SEMESTER
SECTION: ACTCY12S1
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Conceptual Framework
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Conceptual Framework
It is a summary of the terms and concepts that underlie
the preparation and presentation of financial statements
for external users.
It sets out:
the objective of financial reporting
the qualitative characteristics of useful financial
information
a description of the reporting entity and its boundary
definitions of an asset, a liability, equity, income and
expenses
criteria for including assets and liabilities in financial
statements
(recognition) and guidance on when to remove them
(derecognition)
measurement bases and guidance on when to use them
concepts and guidance on presentation and disclosure
Conceptual Framework – Purpose
To assist the Board to develop IFRS Standards
(Standards) based on consistent concepts, resulting in
financial information that is useful to investors, lenders
and other creditors
To assist preparers of financial reports to develop
consistent accounting policies for transactions or other
events when no Standard applies or a Standard allows a
choice of accounting policies
To assist all parties to understand and interpret
Standards
Conceptual Framework – Status
Provides concepts and guidance that underpin the
decisions the Board makes when developing Standards
Not a Standard
Does not override any Standard or any requirement in a
Standard
Chapter 1 – The Objective of Financial
Reporting
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Objective of financial reporting
To provide financial information that is useful to users in
making decisions relating to providing resources to the
entity
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Users’ decisions involve decisions about
Buying, selling or holding equity or debt instruments
Providing or settling loans and other forms of credit
Voting, or otherwise influencing management’s actions
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To make such decisions, users assess
Prospects for future net cash inflows to the entity
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Management’s stewardship of the entity’s economic
resources
To make both these assessments, users need
information about both
The entity’s economic resources, claims against the
entity and changes in those resources and claims
How efficiently and effectively management has
discharged its responsibilities to use the entity’s
economic resources
Chapter 2 – Qualitative Characteristics of
Useful Financial Information
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For information to be useful it must both be relevant and
provide a faithful representation of what it purports to
represent.
Relevance and faithful representation are the
fundamental qualitative characteristics of useful
financial information, and the guiding concepts that apply
throughout the revised Conceptual Framework.
It relates to the content or substance of financial
information.
Relevance
Information is relevant if it is capable of making a
difference to the decisions made by users.
Financial information is capable of making a difference in
decisions if it has predictive value or confirmatory
value.
Materiality
Information is material if omitting, misstating or obscuring
it could reasonably be expected to influence the
economic decisions that primary users of financial
statements.
Faithful representation
Information must faithfully represent the substance of
what it purports to represent.
A faithful representation is, to the maximum extent
possible, complete, neutral and free from error.
A faithful representation is affected by level of
measurement uncertainty.
Prudence
Neutrality is supported by the exercise of prudence.
Prudence is the exercise of caution when making
judgements under conditions of uncertainty.
Prudence does not allow for overstatement or
understatement of assets, liabilities, income or expenses.
Enhancing qualitative characteristics
Verifiability
TECHNOLOGICAL INSTITUTE OF THE PHILIPPINES (A.Y. 2022 – 2023 )
ACCTG 016: CONCEPTUAL FRAMEWORK & ACCOUNTING STANDARDS
✧˚ ༘ ⋆｡˚ PRELIM
MR. WILFRED LOZANO
✧˚ ༘ ⋆｡˚
1ST YEAR – 2ND SEMESTER
SECTION: ACTCY12S1
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Comparability
Understandability
Timeliness
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Cost constraint
The benefit of providing the information needs to justify
the cost of providing and using the information
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Chapter 3 – Financial Statements and the
Reporting Entity
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Reporting Entity
An entity that is required, or chooses, to prepare financial
statements.
Not necessarily a legal entity—could be a portion of an
entity or comprise more than one entity.
Financial statements
Statement of financial performance; statement of
changes in equity
Statement of cash flows; statement of financial position
Notes to financial statements
Accounting assumptions
Going concern – In the absence of evidence as to no
longer to continue business, the accounting entity is
viewed to be continuing in operation indefinitely.
Accounting entity – The entity is separate from the
owners, managers, and employees who constitute the
entity.
Time period – Indefinite life of an entity is subdivided into
accounting periods.
Monetary unit – Different accounts should be stated in
terms of a unit of measure.
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Asset
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.
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.
Liability
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.
Income
Increases in assets, or decreases in liabilities, that result
in increases in equity, other than those relating to
contributions from holders of equity claims.
Expense
Decreases in assets, or increases in liabilities, that result
in decreases in equity, other than those relating to
distributions to holders of equity claims.
Chapter 5 – Recognition and
Derecognition
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Recognition
The process of capturing for inclusion in the statement of
financial position or the statement(s) of financial
performance an item that meets the definition of an asset,
a liability, equity, income or expenses.
Expense recognition:
1) Cause and effect association;
2) Systematic and rational allocation; and
3) Immediate recognition
Derecognition
The removal of all or part of a recognized asset or liability
from an entity’s statement of financial position.
Chapter 6 – Measurement
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Chapter 4 – The Elements of Financial
Statements
NEW: A present obligation of the entity to transfer an
economic resource as a result of past events. An
obligation is a duty or responsibility that the entity has no
practical ability to avoid.
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Historical measurement bases
Historical cost provides information derived, at least in
part, from the price of the transaction or other event that
gave rise to the item being measured.
Historical cost of assets is reduced if they become
impaired and historical cost of liabilities is increased if
they become onerous.
One way to apply a historical cost measurement basis to
financial assets and financial liabilities is to measure
them at amortized cost.
Current value measurement bases
Value in use (for assets) and Fulfilment value (for
liabilities) – Reflects entity-specific current expectations
about the amount, timing and uncertainty of future cash
flows.
Current cost – reflects the current amount that would be
paid to acquire an equivalent asset and received to take
on an equivalent liability.
TECHNOLOGICAL INSTITUTE OF THE PHILIPPINES (A.Y. 2022 – 2023 )
ACCTG 016: CONCEPTUAL FRAMEWORK & ACCOUNTING STANDARDS
✧˚ ༘ ⋆｡˚ PRELIM
MR. WILFRED LOZANO
✧˚ ༘ ⋆｡˚
1ST YEAR – 2ND SEMESTER
SECTION: ACTCY12S1
the entity's future cash flows and, in particular, their
timing and certainty.
Chapter 7 – Presentation and Disclosure
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Classification
It is the sorting of assets, liabilities, equity, income, and
expenses on the basis or similar characteristics.
Aggregation
The adding together of assets, liabilities, equity, income
and expenses that have similar or shared characteristics
and are included in the same characteristics.
Chapter 8 – Presentation of Financial
Statements (Statement of Financial Position)
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— PAS 1 —
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Objective
Prescribe the basis for presentation of general-purpose
financial statements, to ensure comparability both with
the entity's financial statements of previous periods and
with the financial statements of other entities.
Overall framework and responsibilities for the
presentation of financial statements.
Guidelines for their structure and minimum
requirements for the content of the financial
statements.
Standards for recognizing, measuring, and disclosing
specific transactions are addressed in other Standards
and Interpretations.
Scope
Applies to all general-purpose financial statements, that
are based on Philippine Financial Reporting Standards.
General purpose financial statements are those intended
to serve users who do not have the authority to
demand financial reports tailored for their own
needs.
Purpose
The objective of general-purpose financial statements is
to provide information about the financial position,
financial performance, and cash flows of an entity that
is useful to a wide range of users in making economic
decisions.
To meet that objective, financial statements provide
information about an entity's:
Assets, liabilities, and equity
Income and expenses, including gains and losses
Other changes in equity
Cash flows
That information, along with other information in the
notes, assists users of financial statements in predicting
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Components
A complete set of financial statements comprises:
A statement of financial position as at the end of the
period
A statement of comprehensive income for the period
A statement of changes in equity for the period
A statement of cash flows for the period
Notes, comprising a summary of significant accounting
policies and other explanatory information
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 when it reclassifies items in its financial
statements.
Overall Considerations
Fair Presentation and Compliance with PFRSs
Going Concern
Accrual Basis of Accounting
Consistency of Presentation
Materiality and Aggregation
Offsetting
Comparative Information
Frequency of Reporting
Statement of Financial Position
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Current/Noncurrent Distinction
An entity must normally present a classified statement of
financial position, separating current and noncurrent
assets and liabilities.
Only if a presentation based on liquidity provides
information that is reliable and more relevant may the
current or noncurrent split be omitted.
Current assets
An entity shall classify an asset as current when:
It expects to realize the asset, or intends to sell or
consume it, in its normal operating cycle
It holds the asset primarily for the purpose of trading
It expects to realize the asset within twelve months
after the reporting period
The asset is cash or a cash equivalent (as defined in
IAS 7) unless the asset is restricted from being
exchanged or used to settle a liability for at least twelve
months after the reporting period.
An entity shall classify all other assets as non-current.
CURRENT ASSETS
NON–CURRENT ASSETS
TECHNOLOGICAL INSTITUTE OF THE PHILIPPINES (A.Y. 2022 – 2023 )
ACCTG 016: CONCEPTUAL FRAMEWORK & ACCOUNTING STANDARDS
✧˚ ༘ ⋆｡˚ PRELIM
MR. WILFRED LOZANO
✧˚ ༘ ⋆｡˚
1ST YEAR – 2ND SEMESTER
Cash
and
cash
equivalents
Accounts receivable
Prepaid expenses
Inventory
Marketable securities
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Land
Property,
plant,
and
equipment (PP&E)
Trademarks
Long-term investments
Goodwill
Current liabilities
An entity shall classify a liability as current when:
It expects to settle the liability in its normal operating
cycle
It holds the liability primarily for the purpose of trading
The liability is due to be settled within twelve months
after the reporting period
The entity does not have an unconditional right to
defer settlement of the liability for at least twelve months
after the reporting period
An entity shall classify all other liabilities as non-current.
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SECTION: ACTCY12S1
Issues on Refinancing
An entity classifies its financial liabilities as current when
they are due to be settled within twelve months after the
end of the reporting period, even if:
The original term was for a period longer than twelve
months
The intention is supported by an agreement to refinance,
or reschedule the payments, on a long-term basis is
completed after the end of the reporting period and
completed before the financial statements are authorized
for issue.
If the entity has the discretion to refinance or to roll
over the obligation for at least twelve months after
the end of the reporting period under an existing loan
facility, it classifies the obligation as non-current, even if
it would be due within a shorter period.
Breach of a Loan Covenant
If a liability has become payable on demand because an
entity has breached an undertaking under a long-term
loan agreement on or before the end of the reporting
period, the liability is current, even if the lender has
agreed, after the end of the reporting period and
before the authorization of the financial statements for
issue, not to demand payment as a consequence of the
breach.
However, the liability is classified as non-current if the
lender agreed by the end of the reporting period to
provide a period of grace ending at least 12 months
after the end of the reporting period, within which the
entity can rectify the breach and during which the lender
cannot demand immediate repayment.
Chapter 9 – Presentation of Financial
Statements (Statement of Comprehensive
Income)
— PAS 1 —
Statement of Comprehensive Income
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Presentation
An entity shall present all items of income and expense
recognized in a period:
In a single statement of comprehensive income, or
In two statements: a statement displaying components of
profit or loss (separate income statement) and a second
statement beginning with profit or loss and displaying
components of other comprehensive income (statement
of comprehensive income).
Components of Comprehensive Income
Profit and Loss
Income minus expenses including tax expense and any
income or loss from discontinued operations.
Other Comprehensive Income
Items of income and expenses including reclassification
adjustments (RA) that are not included in profit and loss
as required by a standard or interpretation.
There are two types of OCI items, those that are
reclassified to profit or loss (RA) and those that are
reclassified to Retained Earnings (RE).
OCI includes the following:
Unrealized gain or loss on equity investments measured
at FVOCI (RE)
Unrealized gain or loss on debt investments measured at
FVOCI (RA)
Unrealized gain or loss from derivative contracts
designated as cash flow hedge (RA)
Revaluation Surplus (RE)
Remeasurement gains and losses for defined benefit
plans (RE)
Change in fair value arising from credit risk for financial
liabilities measured at FVPL (RE)
Translation gains and losses of foreign operations
Information in the Statement of Comprehensive
Income
As a minimum, the statement of comprehensive income
shall include line items that present the following amounts
for the period:
1. Revenue
2. Finance costs
3. Share of the profit or loss of associates and
joint ventures accounted for using the equity method
4. Tax expense
TECHNOLOGICAL INSTITUTE OF THE PHILIPPINES (A.Y. 2022 – 2023 )
ACCTG 016: CONCEPTUAL FRAMEWORK & ACCOUNTING STANDARDS
✧˚ ༘ ⋆｡˚ PRELIM
MR. WILFRED LOZANO
✧˚ ༘ ⋆｡˚
1ST YEAR – 2ND SEMESTER
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5. A single amount comprising the total of:
The post-tax profit or loss of discontinued operations
The post-tax gain or loss recognized on the
measurement to fair value less costs to sell or on the
disposal of the assets or disposal group(s) constituting
the discontinued operation
6. Profit or loss
7. Each component of other comprehensive income
classified by nature
8. Share of the other comprehensive income of
associates and joint ventures accounted for using the
equity method
9. Total comprehensive income.
Statement of Comprehensive Income
Information in the Statement of Comprehensive
Income
An entity shall disclose the following items in the
statement of comprehensive income as allocations of
profit or loss for the period:
Profit or loss for the period attributable to:
Minority interest, and
Owners of the parent
Total comprehensive income for the period attributable to:
Minority interest, and
Owners of the parent
SECTION: ACTCY12S1
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Notes to the Financial Statements
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Statement of Comprehensive Income
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An entity shall present either an analysis of expenses
using a classification based on either the nature of
expenses or their function within the entity, whichever
provides information that is reliable and more relevant.
Nature of expense method
Expenses are aggregated in the income statement
according to their nature and are not reallocated among
various functions within the entity.
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Function of expense or cost of sales method
Classifies expenses according to their function as part of
cost of sales or, for example, the cost of distribution or
administrative activities.
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An entity shall not present any items of income and
expense as extraordinary items, either on the face of the
income statement or in the notes
Statement of Changes in Equity and Notes
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An entity shall present a statement of changes in equity
showing in the statement:
Total comprehensive income for the period, showing
separately the total amounts attributable to owners of the
parent and to minority interest
For each component of equity, the effects of
retrospective
application
or
retrospective restatement recognized in accordance
with PAS 8
The amounts of transactions with owners in their capacity
as owners, showing separately contributions by and
distributions to owners
For each component of equity, reconciliation between
the carrying amount at the beginning and the end of
the period, separately disclosing each change
An entity shall present, either in the statement of
changes in equity or in the notes, the amount of
dividends recognized as distributions to owners
during the period, and the related amount per share.
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The notes must:
Present information about the basis of preparation of the
financial statements and the specific accounting policies
used
Disclose any information required by PFRSs that is not
presented on the face of the statement of financial
position, income statement, statement of changes in
equity, or statement of cash flows
Provide additional information that is not presented on
the face of the statement of financial position, income
statement, statement of changes in equity, or statement
of cash flows that is deemed relevant to an
understanding of any of them
Notes should be cross-referenced from the face of the
financial statements to the relevant note.
The notes should normally be presented in the following
order:
A statement of compliance with PFRSs
A summary of significant accounting policies applied,
including:
The measurement basis (or bases) used in preparing the
financial statements; and
The other accounting policies used that are relevant to an
understanding of the financial statements
Supporting information for items presented on the face of
the statement of financial position, income statement,
statement of changes in equity, and statement of cash
flows, in the order in which each statement and each line
item is presented.
Other disclosures, including:
Contingent liabilities and unrecognized contractual
commitments
Non-financial disclosures, such as the entity’s financial
risk management objectives and policies
Disclosure of judgments
TECHNOLOGICAL INSTITUTE OF THE PHILIPPINES (A.Y. 2022 – 2023 )
ACCTG 016: CONCEPTUAL FRAMEWORK & ACCOUNTING STANDARDS
✧˚ ༘ ⋆｡˚ PRELIM
MR. WILFRED LOZANO
✧˚ ༘ ⋆｡˚
1ST YEAR – 2ND SEMESTER
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SECTION: ACTCY12S1
An entity must disclose, in the summary of significant
accounting policies or other notes, the judgments, apart
from those involving estimations, that management has
made in the process of applying the entity's accounting
policies that have the most significant effect on the
amounts recognized in the financial statements.
Transactions with Alternatives
Transactions
Interest
Interest paid
Interest received
Dividends
Dividends paid
Dividends received
Chapter 10 – Presentation of Financial
Statement of Cash Flows
Income Tax
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Noncash Transactions
Investing and financing transactions that do not require
the use of cash or cash equivalents shall be excluded
from the statement of cash flows.
Noncash investing and financing transactions shall be
disclosed elsewhere in the financial statements either in
the notes to financial statements or in a separate
schedule or in a way that provides all relevant information
about these transactions.
Operating
Operating
Financing
Investing
Financing
Operating
Operating
Investing
Operating
Indirect Method
Profit before interest and income taxes
Add: Non-cash expenses
Add: Loss on disposal of assets
Less: Gain on Disposal of Assets
Add/Less: Decrease/Increase in Current Assets
Add/Less: Increase/Decrease in Current
Liabilities
Net cash from operating activities
cash payments of an entity during a period.
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Alternative
Direct Method and Indirect Method
Direct Method
Cash receipts from customers
Cash paid to suppliers
Cash paid to employees
Cash paid for other operating expenses
Interest paid
Income taxes paid
Net cash from operating activities
Statement of Cash Flows
A statement
of cash flows
is
a
component of
financial
statements
summarizing
the
operating,
investing,
and financing
activities of
an entity.
The primary
purpose
of
the statement
of cash flows
is to provide relevant information about cash receipts and
Classification of Cash Flows
Operating activities
These are the cash flows derived primarily from the
principal revenue producing activities of the entity.
Investing activities
These are the cash flows derived from the acquisition
and disposal of long-term assets and other investments
not included in cash equivalent.
Financing activities
These are the cash flows derived from the equity capital
and borrowings of the entity.
Primary
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Cash and Accrual Basis
Cash basis
Income is recognized when received regardless of when
earned.
Expense is recognized when paid regardless of when
incurred.
Does not recognize accounts receivable, accounts
payable, accrued income, deferred income, accrued
expense, and prepaid expense.
Accrual basis
Income is recognized when earned regardless of when
received.
Expense is recognized when incurred regardless of when
paid.
Recognize accounts receivable, accounts payable,
accrued income, deferred income, accrued expense, and
prepaid expense.