1. Introduction to Financial Reporting Flashcards
Defined as:
- a service activity
- an information system that measures, processes and communicates financial information about an economic entity.
- a process of identifying, measuring and communicating economic information to permit informed judgments and
decisions by users of the information. - an art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are of a financial character and interpreting the results thereof.
Accounting
Three Forms of Business Organizations
(1) Sole Proprietorship
(2) Partnership
(3) Corporation
Identify if:
A. Sole Proprietorship
B. Partnership
C. Corporation
- Ownership:
(1) single owner
(2) owned by stockholder
(3) owned by two or more persons - Manner of Creation
(1) created by law
(2) may operate without any formal
organizing/operating procedure
(3) partner’s agreement - Funding
(1) Partner’s contribution (money,
property, industry) to a common
fund
(2) Through sales of shares of stocks
(3) Proprietor’s contribution - Extent of liability
(1) personally liable for all debts of the
business
(2) Not personally liable for the
corporation’s debts.
(3) personally liable for all debts of the
business - Transfer of Ownership
(1) must have consent from all
partners
(2) exercise right of succession
- Ownership
1. Sole Proprietorship
2. Corporation
3. Partnership - Manner of Creation
1. Corporation
2. Sole Proprietorship
3. Partnership - Funding
1. Partnership
2. Corporation
3. Sole Proprietorship - Extent of liability
1. Sole Proprietorship
2. Corporation
3. Partnership - Transfer of Ownership
1. Partnership
2. Exercise right of succession
GAAP
Generally Accepted Accounting Principles
Represents the rules, procedures, practice and standards followed in the preparation and presentation of financial statements.
GAAP: Generally Accepted Accounting Principles
PICPA
Philippine Institute of Certified Public Accountants
National professional organization of CPA’s in the Philippines
PICPA: Philippine Institute of Certified Public Accountants
FRSC
Financial Reporting Standards Council
Accounting standard setting body created by PRC upon recommendation of BOA to assist BOA in carrying out its powers and functions provided under
R.A. No. 9298.
FRSC: Financial Reporting Standards Council
The main function is to establish and improve accounting standards that will
be generally accepted in the Philippines.
constitute the highest hierarchy of
GAAP in the Philippines.
FRSC: Financial Reporting Standards Council
Approved statements of the FRSC are known as
PAS: Philippine Accounting Standards
PFRS: Philippine Financial Reporting Standards
PIC
Philippine Interpretations Committee
Formed by the FRSC in August 2006 and has replaced the Interpretations Committee (IC) formed by the ASC in May 2000.
PIC: Philippine Interpretations Committee
The role of the _____ is to prepare interpretations of PFRS for approval by the FRSC and to provide timely guidance on financial reporting issues not specifically addressed in current
PFRS.
PIC: Philippine Interpretations Committee
IASC
International Accounting Standards Committee
Independent private sector body, with the objective of achieving uniformity in the accounting principles which are used by business and other organizations for financial reporting around the world.
IASC: International Accounting Standards Committee
- to formulate and publish in the public interest accounting standards to be
observed in the presentation of financial statements - to promote their worldwide acceptance and observance.
- To work generally for the improvement and harmonization of regulations,
accounting standards and procedures relating to the presentation of financial
statements.
objective of IASC
IASB
International Accounting Standards Board
now replace the IASC
IASB
- publishes standards in a series of pronouncements called International Financial Reporting Standards of IFRS
- has adopted the body of standards issued by IASC
IASB: International Accounting Standards Board
The pronouncements of the IASC continue to be designated as
IAS: International Accounting Standards
standard – setting process
- Includes in the correct order research, discussion paper, exposure draft and accounting standards
IASB: International Accounting Standards Board
Standards issued by other standard setting bodies such as USA FASB (Financial Accounting Standards Board) and IASB are considered.
IFRS: International Financial Reporting Standards
Factors considered in moving to IAS
(1) Support of international accounting standards by Philippine organizations such as SEC, BOA, and PICPA.
(2) Increasing internalization of business which has heightened interest in common language for financial reporting.
(3) Improvement of international accounting standards or removal of the free choices of accounting treatments
(4) Increasing recognition of international accounting standards by the World bank and World Trade Organization
The FRSC: Financial Reporting Standards Council issues a series of pronouncements called
PFRS: Philippine Financial Reporting Standards
True or False:
(1) PFRS corresponds to IFRS
(2) PFRS are numbered different as their counterpart IFRS
(3) Philippine Accounting Standards corresponds to IASB.
(4) PAS are numbered the same as their counterpart IAS.
(5) Philippine Interpretations Committee corresponds to IFRIC (International Financial Reporting Interpretations Committee)
- True
- False ; numbered the same
- False : IAS
- True
- True
is a summary of the terms and concepts that underlie the preparation and presentation of financial statements for external use.
Conceptual Framework
Intended to guide standard setters, preparers and users of financial information in the preparation and presentation of statements
Conceptual Framework
True or False:
In the absence of a standard or an interpretation that specifically applies to a transaction, management shall consider the applicability of the Conceptual Framework in developing and applying an accounting policy that results in information that is relevant and reliable
True
True or False:
In case of conflict, IAS shall prevail
over the Conceptual Framework
False ; IFRS - International Financial Reporting Standards
4 Qualitative Characteristics
(1) Understandability
(2) Relevance
(3) Reliability
(4) Comparability
Under Reliability:
(1) Faithful representation
(2) Substance over form
(3) Neutrality
(4) Prudence
(5) Completeness
4 Accounting Constraints:
(1) Timeliness
(2) Cost-benefit
(3) Balance between qualitative characteristics
(4) Fair presentation
Elements of Financial Statements
- Financial Position
(1) Assets
(2) Liabilities
(3) Equity - Financial Performance
(1) Income
(2) Expense
Other Elements as defined by SFAC
(1) Investments by owners
(2) Distribution to owners
(3) Comprehensive Income
(4) Revenues
(5) Expenses
(6) Gains
(7) Losses
are increases in equity of a particular business enterprise resulting from transfers to the enterprise from other entities of something of value to
obtain or increase ownership interests (or equity) in it.
Investment by owners
True or False:
Assets, most commonly received as
investments by owners, may also include services or satisfaction or conversion of liabilities of the enterprise.
True
is a decrease in equity of a particular business enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise to owners.
decrease ownership interest (or equity) in an enterprise.
Distribution to owners
is the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non owner
sources.
It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
Comprehensive Income
are inflows or other enhancements of assets of an entity or settlements of its
liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations.
Revenues
are outflows or other consumption or using up of assets or incurrences of
liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations.
Expenses
are increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during
a period except those that result from revenues or investments by owners
Gains
are decreases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from expenses or distributions to owners.
Losses
Complete Set of Financial Statements in American Setting
(1) Financial Position
(2) Earnings (net income)
(3) Comprehensive Income (total non owner change in equity)
(4) Cash flows during the period
(5) Investment by and distributions to owners during the period.
Complete set of financial statements in Philippine Setting
(1) Statement of Financial Position
(2 Statement of Comprehensive Income
(3) Statement of Changes in Equity
(4) Statement of Cash Flows
(5) Notes to Financial Statements (comprising a summary of significant accounting policies and other explanatory notes)
Five Measurement basis
(1) Historical cost
(2) Current cost
(3) Realizable value
(4) Present Value
(5) Current market Value
Four Recognition Principle
(1) Asset recognition principle
(2) Liability recognition principle
(3) Income recognition principle
(4) Expense recognition principle
Under Expense Recognition Principle:
a. Matching of cost with revenue
b. Systematic and Rational Allocation
c. Immediate Recognition
d. Non-Matching Principle
Two Concepts of Capital
(1) Transaction Approach
(2) Capital Maintenance Approach
Under Capital Maintenance approach:
a. Financial Capital Maintenance
b. Physical Capital Maintenance
