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REVISED
CONCEPTUAL
FRAMEWORK

...

The Conceptual framework for Financial Reporting is
a complete, comprehensive, and single document
promulgated by the International Accounting
Standards Board
...
Special
Purpose reports (International Accounting Standards)
are outside the scope of the framework
...


Contribute to Transparency
International comparability and quality
of financial information

Strengthen Accountability

Provides the foundation for Standards

Reducing information gap between
providers of capital and people whom they
entrusted their money
...


REVISED CONCEPTUAL FRAMEWORK
BASIC PURPOSE

To serve as guide in developing future PFRS and as a guide
in resolving accounting issues not directly addressed by
existing PFRS
...

o Nothing in the Conceptual Framework
overrides
any
specific
International
Financial Reporting Standard
...

o In the absence of a standard or an
interpretation that specifically applies to a
transaction, management shall consider the
applicability of Conceptual Framework in
developing and applying an accounting
policy that results in information that is
relevant and reliable
...


Preparers
of Financial
Statements

- To develop consistent accounting policy
when no Standard applies to a particular
transaction or other event where an issue is
not addressed by IFRS
...


All
Parties

- To understand and interpret International
Financial Reporting Standards
...


PRIMARY USERS

OTHER USERS

Primary users cannot require reporting
entities to provide information directly
to them
...


Existing and
Potential Investors
Existing and
Potential Lenders
and other Creditors
...


Concern: Liquidity and
Solvency

Employees

Concern: Stability and profitability

Are users of Financial Information other
than the Primary Users
...


Government
and their agencies

Concern: Regulation

Public

Concern: Various reasons

NOTE!
International Financial Reporting Standards are created by International Accounting Standards Board
International Accounting Standards are created by International Accounting Standards Council

SCOPE OF REVISED CONCEPTUAL FRAMEWORK

Objective of financial reporting
Qualitative characteristics of useful financial information
Financial statements and reporting entity
Elements of Financial Statements
Recognition and Derecognition
Measurement
Presentation and Disclosure
Concepts of capital and capital maintenance
Financial Information
- Anything related to the financial activities
and performance of a business
...

- Data of monetary transactions that is
helpful to users
...

- Provides insight and transparency into a
company’s financial position and its
operations
...


Financial Statements
- Are written records that convey the
business activities and the financial
performance of an entity
...


Financial Statements
Financial Highlights

Financial Reporting

Encompasses

Includes nonfinancial information
such as description of major products
and a listing of corporate officers and
directors
...


Specific Objectives

To provide information useful in assessing the
cash flow prospects of the entity
...


LIMITATIONS
REPORTING

OF

FINANCIAL

1
...

2
...

3
...

4
...


CONCEPTUAL FRAMEWORK
Qualitative Characteristics
Fundamental Characteristics
Relevance

Qualities or attributes of
the Content or Substance
of Financial accounting
information that is useful
to users
...


Revised Conceptual Framework
Reintroduced the concept of PRUDENCE
...

Prudence is synonymous to Conservatism
...

▪ Materiality (also known as doctrine of convenience)
is not an ingredient of relevance but rather a specific
aspect of relevance
...

▪ Strict adherence to GAAP is not required when the
items are not significant enough to affect the
evaluation, decision and fairness of the FS
...

(e
...
recognition of an impairment loss on PPE)
...

▪ Comparability is the goal while Consistency is the
means of achieving the goal
...

Means, “in case of doubt, record any loss and do not
record any gain
...


Relevance

Faithful Representation

COST CONSTRAINT
The benefit derived from the information should exceed the
cost incurred in obtaining the information
...


Financial Statements and Reporting Entity
Statement of Financial Position

Complete Set of Financial Statement

Statement of Financial Performance
Statement of Cash Flows

The objective of financial statements is
to provide financial information about
the reporting entity’s assets, liabilities,
equity, income and expenses that is
useful in assessing:

Statement of Changes in Equity

• Future net cash inflows

Notes to Financial Statements

• Management’s Stewardship

REPORTING ENTITY
CONSOLIDATED FINANCIAL STATEMENTS

Types of Financial Statements

UNCONSOLIDATED FINANCIAL STATEMENTS
COMBINED FINANCIAL STATEMENTS

Accounting Cycle

Both the parent and its subsidiary
Parent alone
Two or more entities combined but not
linked by a parent and subsidiary
relationship

1
...
Journalizing
3
...
Preparation of Unadjusted Trial Balance
5
...
Preparation of adjusted trial balance
7
...
Journalizing and posting of closing entries
9
...
Journalizing and closing of reversing entries

REPORTING ENTITY
Required or chooses to prepare financial statements
...
Traditionally, Calendar year of 12 months
or 12-month Fiscal year
...
It is a period
that is shorter than a full 12-month fiscal year
...


Reportable business segment of an entity

ACCOUNTING ASSUMPTIONS

EXPLICITLY STATED

IMPLICITLY STATED

Also known as “ACCOUNTING POSTULATES” are fundamental premises
that serves as foundation to avoid misunderstanding but to enhance the
usefulness of Financial Statements
...


ACCOUNTING ENTITY

The transaction of the entity should not be merged with personal transaction of
owners, employees, and managers
...
A calendar year (12-month)
is one period in an indefinite life of the company
...


REVISED CONCEPTUAL FRAMEWORK
Elements of Financial Statements

ASSET

Revised Definition:
Present economic resources
controlled by an entity as
a result of past events
...


The main changes clarifies that an asset is not an
inflow of economic benefits rather it is the
economic resources controlled by the entity
...


Receive contractual Cash flows
...

Control may arise if an entity
enforces legal rights
...

If there is not legal rights,
control can still exist if an
entity has other means of
ensuring that no other party can
benefit from an asset
...

Receive cash by selling the economic resource
...


EXAMPLES OF ASSETS
11
...
Accounts Receivable
13
...
Inventories
15
...
Financial Instruments
17
...
Investment Property
19
...
Government Grant

1
...
Intangible Assets
3
...
Marketable Securities
5
...
Fixtures and Furniture
7
...
Loan Receivable
9
...
Treasury Notes/Bills/Bonds

NOTE!
Tangibility and Ownership are
not essential characteristics of
assets
...


LIABILITY
OBLIGATIONS

Revised Definition:
Present obligation of an
entity to transfer an
economic resource as a
result of past events
...

To pay cash
Deliver goods or non-cash resources
...

Exchange economic resources with another party
on unfavorable terms
...


Old Definition: 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 the
resources embodying economic
benefits
...


Obligations exist as a result of past events of both of the following
conditions are met:
1
...

2
...


EXAMPLES OF LIABILITIES
11
...
Warranty
13
...
Bonds Payable
15
...
Loans Payable
17
...
Mortgages
19
...
Long-term debt

1
...
Unearned Revenue
3
...
Income Tax Payable
5
...
Dividends Payable
7
...
Bank loans
9
...
Contingent liabilities

EQUITY

Old Definition:
Residual interest in the
assets of the enterprise
after deducting all its
liabilities
...
It is a
residual definition
...


Increases in assets or decreases in
liabilities that results in increases in
equity, other than those relating to
contributions from equity holders
...


ENTITY THEORY OF ACCOUNTING
(Asset = Liability + Capital)
PROPRIETORY THEORY OF ACCOUNTING
(Capital = Asset - Liability)

REVENUE
Encompasses

Revenue always arises in the ordinary
course of the business
...
g Sales, Fees,
Interest, Dividends, Royalties and Rent)

GAIN
Represents other items that meet the
definition of income and do not arise in
the course of the ordinary business
activities
...
Unrealized Gain or loss on financial asset measured at Fair value through other
comprehensive income
...
Gain or Loss from translating the financial statements of a foreign operation
...
Revaluation Surplus during the year
...
Unrealized gain or loss from derivative contracts designated as cash flow hedge
...
Remeasurements of defined benefit plan including actuarial gain or loss on
defined benefit obligation
...


Cause and Effect relationship

Encompasses

Expenses arises in the ordinary course
of business activities while losses do not
arise in the course of ordinary regular
activities of business
...

It means that expense is recognized when the revenue is already
recognized
...


MATCHING
PRINCIPLE
In accordance with Generally
Accepted Accounting Principle
(GAAP), requires that any
business expenses incurred
must be recorded in the same
period as related revenues
...


LOSSES

Systematic and Rational allocation

It is also called, “Systematic and Rational Allocation”
...
For example, Depreciation, a piece
of machine used in production would be depreciated over its
useful life, with portion of its cost recognized as an expense
during the year
...
An expense produces no future economic benefit
...
If the cost does not qualify or ceases to qualify as an asset
...


RECOGNITION and DERECOGNITION
New Recognition Criteria for the elements of Financial Statement
Recognition is the process of
capturing for inclusion in
the Financial Statements
an item that meets the
definition of an asset,
liability, equity, income or
expenses
...
It occurs when an item
no longer meets the definition of
an asset or a liability
...

Recognition does not focus anymore on how probable economic benefits will
flow to or from the entity and that the cost can be measured reliably
...


Increase in Assets
Increase in Equity

RECOGNITION OF INCOME
Decrease in Liabilities
Decrease in Assets

Decrease in Equity

RECOGNITION OF EXPENSE
Increase in Liabilities

MEASUREMENT
Under the Revised Conceptual Framework, measurement is
defined as quantifying in monetary terms the elements in the
financial statements
...


The International Accounting Standards
Board did not mandate a single
measurement basis because the different
measurement bases could produce useful
information under different circumstances
...


Current Value

It is the updated measurement
of historical cost
...


Value in use for asset

Present Value of the cash flow that an entity expects to derive from the continuing
use of an asset and from the ultimate disposal
...


Also known as replacement cost
...


PRESENTATION AND DISCLOSURE
Presentation and disclosure is a communication tool
about assets, liabilities, equity, income and expenses
...

Financial statements must be understandable and comparable
...


CLASSIFICATION
Means sorting of assets, liabilities, equity, income and expenses
on the basis of similar characteristics
...

ASSETS and LIABILITIES
INCOME and EXPENSES

AGGREGATION
Refers to adding together of assets,
liabilities, income, expense, and equity that
have similar characteristics and that are
included in the same classification
...


CONCEPTS OF CAPITAL AND CAPITAL MAINTENANCE
FINANCIAL PERFORMANCE
Transaction Approach

Traditional preparation of an income statement
...

Financial Capital Concept

Also known as “Net asset approach”

“when the nominal amount of the net assets at the
end of the year exceeds the nominal amount of the
net assets at the beginning of the period, after
excluding distributions to and contributions by
owners during the period
...


Ending Capital
Add: Dividends or Withdrawal
Less: Beginning Capital
Less: Additional Investment
NET INCOME
Financial Capital uses the Historical
cost as its measurement, while Physical
Capital uses the Current cost

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