Chapter 1: The Need for Financial Reporting that of its owners and other stakeholders.

An
accounting entity is capable of controlling its
Accounting Process- has the ultimate purpose own economic resources and incurring
of generating general purpose financial economic obligations.
statements that provide information about
economic entities that is to be used as basis Branches of Accounting
for the formulation of economic decisions.
Financial Accounting
Financial Reporting- it is the communication of
financial statements and other financial - Broadest branch of accounting
- Focused on the needs of external users.
information, to provide useful financial - Concerned with the recognition,
information to an entity’s stakeholders. measurement, and communication of
economic resources and economic
- As discussed in the new Conceptual obligations.
Framework (March 2018), it should not focus - Assumes that the external users have
on only the needs of internal users but on the common information needs to evaluate
information needs of those external users. the business entity’s profitability,
liquidity, and stability.
Internal Users- are users who have ready - Should conform to the accounting
access to specific types of accounting standards as developed by standard
information. Example: active owners and setting bodies.
managers. - Internal users use financial statements
to evaluate an entity’s performance and
External Users- are users who do not have financial condition to better perform their
ready access to financial reports and rely planning and control functions.
heavily on negotiations and regulations to
Management Accounting
obtain information about a business enterprise.
Example: inactive owners, creditors, lenders - Serves the information needs of internal
and suppliers, potential investors, taxing users.
authorities, regulatory bodies, employees and - Managers and active owners use
employee unions, financial analysts, financial accounting information in making and
advisers and consultants, and the general implementing short-term and long-range
plans for the enterprise.
public.
- Internal users use accounting
Direct Users- are users with direct interest use information in making routine and major
economic decisions.
financial information as a tool to protect their
- The information provided is not
own interest in the enterprise and includes structured and not necessarily
owners, mangers, creditors, suppliers, conforming to the accounting standards
customers, employees, and taxing authorities. because it may vary based on the
specific needs at a particular time.
Indirect Users- are other users of accounting
information to provide advice or protection of Cost Accounting
the interest of a direct user, and include
regulatory agencies, labor unions, financial and - Concerned with the measurement and
recognition of const of services provided
legal consultants.
or products manufactured
Reporting Entity- or sometimes called an - It is more ordinarily associated with
manufacturing companies as a tool of
accounting entity, may be a business
both financial accounting and
enterprise, a government unit, a not-for-profit management accounting.
organization, an individual, a unit within an
enterprise, a group of entities, and any other Tax Accounting
unit that is considered to have a personality
different form the personality of its owners, - Concerned with the computation of
members, and employees. taxes and preparation of tax returns
submitted by a taxing authority.
Accounting Entity Concept- the concept that
separates the personality of the enterprise from
Government Accounting
- Encompasses the process of analyzing,
classifying, summarizing, and
communicating all transactions involving
the receipt and disposition of
government funds and property and
interpreting the results thereof.
- System adopted by government units
and some gov’t agencies.
Careers in Accounting
- Public Practice
- Commerce and Industry
- Academe/Education
- Government
Bookkeeping- refers to only one phase of
accounting, the recording phase.
Auditing- a discipline of accounting. It refers to
an independent examination of the financial
statements conducted by a certified public
accountant for the purpose of rendering an
opinion as to the fairness of the presentation of
the financial statements.
FINANCIAL REPORTING AND THE
STANDARD-SETTING PROCESS
1973- The International Accounting Standards
Committee was created. The IAS Committee
developed a set of uniform global accounting
standards called the International Accounting
Standards (IAS), and promoted the use and
application of these standards.
2001- The IAS Committee was reconstituted as
the International Accounting Standards Board
(IASB), under the umbrella of the International
Financial Reporting Standards Foundation
(IFRS Foundation). The IFRS is a not-for-profit,
public interest organization established to
develop a single-set of high-quality,
understandable, enforceable, and globally-
accepted accounting standards, called the
IFRS Standards, and to promote and facilitate
adoption of the standards.
- The IASB took initiative to undertake an
improvements project in the light of queries
and criticisms raised in relation to the IAS by
securities regulators, professional accountants,
and other interested parties.
- The objectives of these improvement
projects were to reduce or eliminate
alternatives, redundancies, and conflicts within
the IAS, to deal with some convergence
issues, and to make other improvements.
- The Standards that originated from the
works of the IASB were the International
Financial Reporting Standards (IFRSs)
The IFRS include the following:
- Specific International Financial
Reporting Standards
- Interpretations made by the International
Financial Reporting Interpretations
Committee (IFRIC, the body that
interprets the works of the IASB)
- International Accounting Standards
- Interpretations made by the Standing
Interpretations Committee (SIC, the
body that interpreted the works of the
IAS Committee.)
The over-all objective of the IFRS Foundation
is to communicate financial information that
achieves transparency, accountability, and
efficiency to financial markets around the
world.
The IFRS Standards bring
- Transparency by enhancing the
international comparability and quality of
financial information, enabling investors
and market participants to make
informed economic decisions.
- Accountability by reducing information
gap between the investors and the
people to whom they have entrusted
their investments (the management of
the entity) the management is likewise
accountable to regulators.
- Efficiency by helping investors identify
opportunities and risks, thus improving
capital allocation.
IFRS’s Due Process:
1. Setting the agenda
2. Planning the project
3. Developing and publishing the
discussion paper
4. Developing and publishing the exposure
draft
5. Developing and publishing the standard
6. The standard is issued.
The IFRSs are principle-based and not
procedure-based.
STANDARD SETTING PROCESS IN THE
PHILIPPINES
Late 1981- Philippine Institute of Certified
Public Accountants organized the Accounting
Standards Council (ASC) that formalized the
standard setting process in the country.
Accounting Standards Council
- Formed on November 18. 1981
- Studies the accounting standard-setting
process in the Philippines.
- Main function was to establish and
improve the generally accepted
accounting principles in the country.
- The accounting standards it developed
were known as the Statements of
Financial Accounting Standards (SFAS),
and were based on existing practices,
research, and studies undertaken by the
council, available national and
international accounting literatures,
statements by the then IASC, and the
Financial Accounting Standards Board
(who governed the practice of GAAP) of
the United States.
- Composed of eight members: PICPA,
Securities and Exchange Commission,
Bangko Sentral ng Pilipinas, Board of
Accountancy, and Financial Executives
of the Philippines.
1997- ASC made the decision to move fully to
the International Accounting Standards.
197-2000-the ASC developed accounting
standards already based on the IAS.
2001- it adopted most of the standards that
had been developed by the IASC.
2005- the year the ASC set for the full adoption
of the IAS in the Philippines.
- The IASC and later the IASB improved
and revised the IASs and the IFRSs.
The Board of Accountancy- is the body that
regulates the practice of accountancy in the
PH.
Philippine Accountancy Act: Republic Act 9298
Financial Reporting Standards Council
- Established by the BoA in 2006
- Aimed to replace and take over the
functions of the ASC.
- Carries on the decision of the ASC to
converge PH Accounting Standards with
the IFRS.
- The FRSC shall be composed of 15
members, one chairman and 14
members representing the following
organizations
o BoA, SEC, BSP, BIR, FINEX,
COA, PICPA.
- The FRSC formed the Philippine
Interpretations Committee on November
2006. They issue the implementation
guidelines on Philippine Financial
Reporting Standards.
Philippine Financial Reporting Standards
- Specific Philippine Financial Reporting
Standards, which are adopted from the
IFRS
- Philippine Accounting Standards (PAS),
which are adopted from the IAS
- Philippine Interpretations, which are
adopted from the interpretations of the
IFRIC and the SIC and the
interpretations of PIC.
- Sets out the recognition, measurement,
presentation, and disclosure
requirements dealing with transactions
and events that are important in general
purpose financial transactions.
- They may also set out such
requirements for transactions and
events that arise mainly in specific
industries.
PFRS’ Due Process
a. Consideration of pronouncement of
IASB.
b. Formation of a task force, when deemed
necessary, to give advice to the FRSC
c. Issuing for comment an exposure draft
approved by a majority of the FRCS
members, comment period will be at
least 60 days, unless a shorter period
(not less than 30 days) is considered
appropriate by the FRSC.
d. Consideration of all comments received
within the comment period, and, when
appropriate, preparing a comment letter
to the IASB; and
e. Approval of a standard or an
interpretation by a majority of the FRSC
members.