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Chapter 1: Framework of Accounting

The document provides an overview of the framework of accounting, which defines key concepts and terms used in preparing financial statements. It discusses the objective of financial statements, which is to provide useful information to users, and the elements included in financial statements such as assets, liabilities, equity, income and expenses. It also covers accounting assumptions, implicit assumptions, qualitative characteristics of financial statements, and users' information needs. The framework establishes guidelines but does not override specific accounting standards.

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Mhae Duran
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66 views

Chapter 1: Framework of Accounting

The document provides an overview of the framework of accounting, which defines key concepts and terms used in preparing financial statements. It discusses the objective of financial statements, which is to provide useful information to users, and the elements included in financial statements such as assets, liabilities, equity, income and expenses. It also covers accounting assumptions, implicit assumptions, qualitative characteristics of financial statements, and users' information needs. The framework establishes guidelines but does not override specific accounting standards.

Uploaded by

Mhae Duran
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Financial Accounting 301

Chapter 1: Framework of accounting

Definition and purpose of the framework of accounting


It is a summary of the terms and concepts that underline the preparation and presentation of
financial statements. Its purpose is to assist the Financial Reporting Standards Council (FRSC) and those
who are interested in the work of FRSC, auditors, preparers and users of financial statements.

Status of the framework of accounting


It is not a Philippine Accounting Standard (PAS) and Philippine Financial Reporting Standards
(PFRS), and hence does not define standards for any particular measurement or disclosure issue. Nothing
in the framework overrides any specific PAS and PFRS. In case of conflict, the requirements of the PAS
and PFRS prevail over those of the framework of accounting.

Scope of the framework of accounting

1. Objective of Financial Statements-


To provide information about the financial position, performance and changes in financial
position of an enterprise that is useful to a wide range of users in making economic decisions.

a. Basic Financial Statements-


o Statement of Financial Position
o Income Statement
o Statement of Cash Flows
o Statement showing either:
- All changes in Equity, and
- Changes in Equity except those arising from Transactions with
Equity Holders acting in their capacity as Equity Holders.
o Notes, comprising a summary of significant accounting policies and other explanatory
notes

b. Elements of Financial Statements


Financial position:

Assets - is a resource controlled by the enterprise as a result of past events and


from which future economic benefits are expected to flow to the
enterprise.
Liabilities - is a present obligation of the enterprise arising from past events, the
settlement of which is expected to result in an outflow from the
enterprise of resources embodying economic benefits.
Equity - is the residual interest in the assets of the enterprise after deducting all
its liabilities.

Performance:

Income - encompasses both revenues and gains. Revenue arises in the course of
the ordinary activities of an enterprise. Gains represent other items that
meet the definition of income and may or may not arise in the course of
the ordinary activities of the enterprise.
Expenses - encompasses losses as well as those expenses that arise in the course
of the ordinary activities of the enterprise.

c. Recognition:
Asset recognition-
It is probable that future economic benefits will flow to the enterprise and the
cost or value of the asset can be measured reliably.

Liability recognition-
It is probable that an outflow of economic benefits will be required for the
settlement of a present obligation and the amount of obligation can be measured reliably.

Income recognition-
It is probable that future economic benefits will flow to the enterprise and the
economic benefits can be measured reliably.

Expense recognition-
It is probable that a decrease in future economic benefit has occurred and the
decrease in economic benefits can be measured reliably.

d. Measurement:

Historical Cost, Current Cost, Realizable (settlement) Value, and Present Value.

2. Accounting Assumption - basic notion or fundamental premises on which the accounting


process is based - Going Concern

3. Implicit Assumptions -
a. Accounting Entity
b. Time Period
c. Monetary Unit

4. Qualitative Characteristics of Financial Statements


These are the attributes that make the information provided in financial statement useful to
users.
o Fundamental qualitative characteristics – pertains to content of the financial statements
a. Relevance
b. Faithful representation

o Enhancing qualitative characteristics – pertains to presentation of the financial statements


c. Understandability
d. Comparability
e. Verifiability
f. Timeliness

USERS AND THEIR INFORMATION NEEDS

Investors, Employees, Lenders, Suppliers and Other Trade Creditors, Customers, Government
and their Agencies, and Public.

Philippine Accounting Standards (PAS)

PAS NO. TITLE


Preface to Philippine Financial Reporting Standards (PFPS)
PAS 1 Presentation of Financial Statements
PAS 2 Inventories
PAS 7 Cash Flow Statements
PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
PAS 10 Events After Balance Sheet Date
PAS 11 Construction Contracts
PAS 12 Income Taxes
PAS 16 Property, Plant and Equipment
PAS 17 Leases
PAS 18 Revenue
PAS 19 Employee Benefits
PAS 20 Accounting for Government Grants and Disclosure of Government Assistance
PAS 21 The Effects of Changes in Foreign Exchange Rates
PAS 23 Borrowing Costs
PAS 24 Related Party Disclosures
PAS 26 Accounting and Reporting by Retirement Benefit Plans
PAS 27 Consolidated and Separate Financial Statements
PAS 28 Investments in Associates
PAS 29 Financial Reporting in Hyperinflationary Economies
PAS 31 Interest in Joint Ventures
PAS 32 Financial Instruments: Disclosure and Presentation
PAS 33 Earnings Per Share
PAS 34 Interim Financial Reporting
PAS 36 Impairment of Assets
PAS 37 Provisions, Contingent Liabilities and Contingent Assets
PAS 38 Intangible Assets
PAS 39 Financial Instruments: Recognition and Measurement
PAS 40 Investment Property
PAS 41 Agriculture

Philippine Financial Reporting Standards (PFRS)

PFRS NO. TITLE


PFRS 1 First-Time Adoption of Philippines Financial Reporting Standards
PFRS 2 Share-Based Payment
PFRS 3 Business Combinations
PFRS 4 Insurance Contracts
PFRS 5 Non-Current Assets Held for Sale and Discontinued Operations
PFRS 6 Exploration and evaluation of mineral resources
PFRS 7 Financial Instruments: Disclosures
PFRS 8 Operating Segments

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