CFAS Reviewer - Conceptual Framework Valix PDF

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CHAPTER 1: THE ACCOUNTANCYPROFESSIONAccount Standards Council (ASC) 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.American Institute of Certifie...

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CHAPTER 1: THE ACCOUNTANCY PROFESSION Account Standards Council (ASC) 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. American Institute of Certified Public Accountant (AICPA) Accounting is the 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 financial character, and interpreting the results thereof. American Accounting Association (AAA) “Accounting refers to the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information”. IMPORTANT POINTS (ACCOUNTING) 1. Quantitative 2. Financial in nature 3. Useful in decision making COMPONENTS OF ACCOUNTING A. Identifying- Accountable or Non- Accountable  Accountable- has an effect on assets, liabilities and equity.  Non- Accountable- cannot be quantified or expressed in terms of a unit of measure.

B. Measuring- Assigning of peso amounts based on Historical cost and Current Value. “Philippine peso”- unit 

HISTORICAL COST- original acquisition cost of an asset.  CURRENT VALUE  Fair Value- estimated price at which an asset can be sold or a liability settled in an orderly transaction to a third party under current market conditions.  Value in Use- the net present value of a cash flow or other benefits that an asset generates for a specific owner under a specific use.  Fulfillment Value- is the present value of the cash flows that an entity expects to be obliged to transfer as it fulfils an obligation.  Current Cost- is the concept that assets and liabilities be measured at the current value at which they could be sold or settled as of the current date. C. Communicating- Preparing and distributing accounting reports to potential users of accounting information. “Universal language of business”.  Recording (journalizing)  Classifying (posting to ledger)  Summarizing (financial statement)

THE ACCOUNTANCY PROFESSION EXTERNAL AND INTERNAL TRANSACTION  

External Transaction- involving one entity and another entity. Internal Transaction- involving the entity only. (production and casualty) a. Production- resources and transformed into products. b. Casualty- sudden and unanticipated loss from fire, flood other natural disaster.

Republic Act no. 9298 also known as “Philippine Accountancy Act of 2004” – Law regulating the practice of accountancy in the Philippines. BOARD OF ACCOUNTANCY (BOA)

 Responsible for preparing and grading the Philippine CPA examination.  Offered twice a year (May and October)

PROFESSIONAL REGULATION COMMISSION (PRC)  Minimum of 3 years SECURITIES AND EXCHANGE COMMISSION (SEC)  shall not register any corporation related for the practice of public accountancy.

3 MAIN AREAS a. Public Accounting- render independent and expert financial service to the public.  Auditing (primary service)  Taxation  Management advisory services b. Private Accounting- Employed in a business entity.  Controller- highest accounting officer  Internal auditor  Chief accountant  staff c. Government Accounting- the custody and administration of the government.

CONTINUING PROFESSIONAL DEVELOPMENT (CPD)  Republic Act No. 10912- law mandating and strengthening the CPD for all regulated professions.  Inculcation and acquisition of advance knowledge, skill, proficiency and other lifelong learning.  120 CPD credit units required for accreditation of a CPA to practice the accountancy profession.  15 CPD credit units for renewal of CPA license.  Mandatory for CPA  Permanently exempted upon reaching the age of 65 years. ACCOUNTING VS AUTING ACCOUNTING VS BOOKKEEPING ACCOUNTING VERSUS ACCOUNTANCY FINANCIAL ACCOUNTING VS MANAGERIAL ACCOUNTING

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)  Present the rules, procedures, practice and standards followed in prep and presentation of FS.  Political process

FINANCIAL REPORTING STANDARDS COUNCIL (FRSC)  Main Function is to establish and improve accounting standards that will be GAAP  Replaces ASC  Created by PRC  The approved statements of FRSC are known as PHILIPPINE ACCOUNTING STANDARDS (PAS) OR PHILIPPINE FINANCIAL REPORTING STANDARDS (PFRS)  15 Members (Chairman and 14 representatives) PHILIPPINE FINANCIAL REPORTING STANDARDS (PFRS)  This was issued by FRSC ACCOUNTING STANDARDS COUNCIL (ASC)  They formed IC in May 2000 PHILIPPINE INTERPRETATIONS COMMITTEE(PIC)  Prepare interpretations of PFRS for approval by the FRSC  Give authoritative guidance on issues that are likely to receive unacceptable treatment  Formed by FRSC in August 2006  Replaced INTERPRATIONS COMMITTEE (IC) INTERNATIONAL FINANCIAL REPORTING INTERPRETATIONS COMMITTEE (IFRIC)  Counterpart of PIC in United Kingdom  Replaced the STANDING INTERPREATIONS COMMITTEE (SIC) INTERNATIONAL ACCOUNTING STANDARDS COMMITTEE (IASC)  Private sector  Formed June 1973  Location in London, UK  Its objective is to achieve the uniformity in the accounting principles for financial reporting around the world. INTERNATIONAL ACCOUNTING STANDARDS BOARD(IASB)  Replaces the IASC  Publishes standards called IFRS  Continue to be designated as “International Accounting Standards” INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

 To achieve the goal of one uniform and globally globally accepted financial reporting standards.  January 2005  From 1997 USA GAAP to IFRS

CHAPTER 2: CONCEPTUAL FRAMEWORK (objective of financial reporting)   

Describes the concepts for general purpose financial reporting. Attempt to provide theoretical foundation for accounting. CF is not an IFRS

a) Contribute to transparency b) Strengthen accountability c) Contribute to economic efficiency Purposes of Revised CF  To assist IASB to develop IFRS based on consistent concept.  To assist preparers of financial statement  To develop accounting policy when a standard allows a choice of an accounting policy  To assist all parties to understand and interpret the IFRS standards USERS OF FINANCIAL INFORMATION A. Primary Users- include the existing and potential investors, lenders and other creditors. B. Other Users- Employees, customers, governments and their agencies, and the public.

Scope of Revised Conceptual Framework a. Objective of financial reporting b. Qualitative characteristics of useful financial information c. Financial statements and reporting entity d. Elements of financial statements e. Recognition and derecognition f. Measurement

g. Presentation and disclosure h. Concepts of capital and capital maintenance OBJECTIVE OF FINANCIAL REPORTING The overall objective of financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making economic decisions about providing resources to the entity. Target Users Scope of Revised Conceptual Framework - Existing and potential investors - Lenders - Other creditors -

Employees Customers Governments and their agencies

SPECIFIC OBJECTIVES OF FINANCIAL REPORTING a. Making decisions about providing resources to the entity b. Cash flow prospects c. Resources, claims and changes in resources and claims

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Liquidity- Liquidity refers to the availability of cash or cash equivalents to meet shortterm operating needs. Solvency- directly relates to the ability of an individual or business to pay their long-term debts including any associated interest.

ACCRUAL ACCOUNTING Under the accrual basis, the effects of transactions and other events are recognized when they occur and not as a cash is received or paid. MANAGEMENT STEWARDSHIP Information about how efficiently and effectively management has discharged its responsibilities to use the entity’s economic resources.

CHAPTER 3: CONCEPTUAL FRAMEWORK (QUALITATIVE CHARACTERISTICS) 2 Classifications:  Fundamental qualitative characteristics  Enhancing qualitative characteristics...