CFAS

• Definition of Accounting:

  • Accounting is a service activity that provides quantitative financial information about economic entities for making economic decisions
• Overall objective of accounting:

  • Provide quantitative financial information about a business useful to statement users, particularly owners and creditors, in making economic decisions
• Accountancy profession in the Philippines:

  • To practice, finish a Bachelor of Science in Accountancy and pass a government examination by the Board of Accountancy
  • Board of Accountancy prepares and grades the Philippine CPA examination offered twice a year
  • Certified Public Accountants, firms, and partnerships must register with the Board of Accountancy and Professional Regulation Commission
• International Accounting Standards:

  • IASC aims for uniformity in accounting principles used globally for financial reporting
  • Approved statements are International Accounting Standards (IAS)
  • IASB replaces IASC
• Philippine Financial Reporting Standards (PFRS):

  • Issued by the Financial Reporting Standards Council
  • Includes Philippine Financial Reporting Standards, Philippine Accounting Standards, and Philippine Interpretations
• Conceptual Framework for Financial Reporting:

  • Document by IASB underlying the preparation of financial statements
  • Provides theoretical foundation for accounting standards
• Qualitative characteristics of financial statements:

  • Fundamental: Relevance, Faithful representation
  • Enhancing: Understandability, Comparability, Verifiability, Timeliness
• Reporting period:

  • Period when financial statements are prepared for general purpose financial reporting
  • Annual financial statements are required, while interim statements are optional
• Accounting assumptions:

  • Going concern, accounting entity, time period, monetary unit
• Going concern assumption:

  • Entity is viewed as continuing in operation indefinitely
  • Financial statements are prepared assuming the entity will continue operating
• Time period assumption:

  • Requires dividing the indefinite life of an entity into accounting periods
  • Traditionally, the accounting period is one year or twelve months
• Monetary unit assumption:

  • Assets, liabilities, equity, income, and expenses are stated in the local currency
  • Assumes the currency's stability and quantifiability
• A person may lack capacity due to an impairment or disturbance in the functioning of the mind or brain, but still retain some mental abilities.
• Capacity can be temporary or permanent.
• The purpose of the assessment is to determine whether the person has capacity at the time of decision-making, not whether they have ever had capacity.
• There are two ways to assess capacity: by asking questions (interview) or through observation.
• Elements of financial statements:

  • Assets
  • Liabilities
  • Equity
  • Income
  • Expenses
• Asset:

  • Present economic resource controlled by the entity as a result of past events
  • Economic resource is a right that has the potential to produce economic benefits
  • Aspects of asset definition: right, potential to produce economic benefits, control
• Rights that correspond to an obligation of another party:

  • Right to receive cash, goods or services
  • Right to exchange economic resources with another party on favourable terms
  • Right to benefit from an obligation of another party to transfer economic resource if a specified uncertain future event occurs
• Rights that do not correspond to an obligation of another party:

  • Right over physical objects (e.g., right to use a property or right to sell an inventory)
  • Right to use intellectual property
• Potential to produce economic benefits:

  • Asset may be sold, leased, transferred or exchanged for other assets
  • Used to produce goods or provide services
  • Used to enhance the value of other assets
  • Used to promote efficiency and cost savings
  • Used to settle a liability
• Control:

  • Entity has exclusive right over the benefits of an asset
  • Ability to prevent others from accessing those benefits
  • Control does not mean ensuring the resource will produce economic benefits in all circumstances
• Liability:

  • Present obligation of the entity to transfer an economic resource as a result of past events
  • Aspects of liability definition: obligation, transfer of an economic resource, present obligation as a result of past events
• Obligation:

  • Duty or responsibility that an entity has no practical ability to avoid
  • Legal obligation or constructive obligation
  • Obligation is always owed to another party
• Transfer of an economic resource:

  • Liability is the obligation that has the potential to require the transfer of an economic resource to another party
  • Obligation's potential to cause a transfer of economic benefits need not be certain
  • Obligation already exists and would require the entity to transfer an economic resource
• Present obligation as a result of past events:

  • Present obligation exists if the entity has already obtained economic benefits or taken an action
  • Entity will or may have to transfer economic resource that it would not otherwise have had to transfer
• Equity:

  • Residual interest in the assets of the entity after deducting all its liabilities
  • Applies to all entities regardless of form
• Income:

  • Increases in assets, or decreases in liabilities, that result in increase in equity
  • Excludes contributions from holders of equity claims
• Expenses:

  • Decreases in assets, or increase in liabilities, that result in decrease of equity
  • Excludes distributions to the entity’s owners
• Measurement bases:

  • Historical cost
  • Current value (fair value, value in use and fulfilment value, current cost)
• Historical cost:

  • Consideration paid to acquire the asset plus transaction cost
  • Consideration received to incur the liability minus transaction costs
• Current value:

  • Reflects changes in values at the measurement date
  • Includes fair value, value in use for assets and fulfilment value for liability, current cost
• Fair Value:

  • Price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date
  • Not adjusted for transaction costs
• Value in use and fulfilment value:

  • Value in use: present value of the cash flows that an entity expects to derive from the use of an asset
  • Fulfilment value: present value of the cash or other economic resources that an entity expects to be obliged to transfer as it fulfils a liability
• Current cost:

  • Cost of an equivalent asset at the measurement date plus transaction costs
  • Cost of an equivalent liability at the measurement date minus transaction costs
• Consideration when selecting a measurement basis:

  • Nature of information provided by a particular measurement basis
  • Qualitative characteristics, cost constrain, and other factors
• Frequency of reporting:

  • Financial statements are prepared at least annually
• If an entity changes its reporting period longer or shorter than one year, it shall disclose:

  • The period covered by the financial statements
  • The reason for using a longer or shorter period
  • The fact that amounts presented in the financial statements are not entirely comparable
• Comparative Information:

  • An entity must present comparative information in respect of the preceding period for all amounts reported in the current period's financial statements
  • As a minimum, an entity presents two of each of the statements and related notes
  • For example, when an entity presents its current year financial statements, the preceding year financial statements shall also be presented as comparative information
• Additional Statement of Financial Position:

  • A complete set of financial statements includes an additional statement of financial position when certain instances occur
  • Instances include applying an accounting policy retrospectively, making a retrospective restatement of items in financial statements, or reclassifying items in financial statements
  • The instance must have a material effect on the information in the statement of financial position at the beginning of the preceding period