BF 2

• Topics


  • A. Financial Statements Defined
  • B. The Generally Accepted Accounting Principles
  • C. Qualitative Characteristics of Financial Statements
  • D. The International Accounting Standards
  • E. International Financial Reporting Standards
  • F. Philippine Financial Reporting Standards
  • G. Stockholders and Stakeholders
  • H. Ethical Issues in Finance
• Learning Objectives


  • Know the generally accepted principles and standards that governs the practice of accounting and finance.
  • Distinguish the similarities and differences between company's stakeholders and shareholders.
  • Appreciate the importance of financial statements prepared by an organization as a tool for reviewing its performance through different stakeholders.
  • Address various ethical issues involving the practice of finance as a profession.
• Financial Statement


  A record that gives a picture or description of how an individual, a business or an organization looks in terms of financial health
• Types of Financial Statements

  • Statement of Financial Position
  • Statement of Comprehensive Income
  • Statement of Cash Flows
  • Statement of Owner's Equity

  
• Financial statements summarize all the financial activities within a specified period of time and can be prepared either quarterly, semi-annually or annually.
• Generally Accepted Accounting Principles (GAAP)

  A standard practice for businesses in presenting financial statements to maintain the continuity of information and uniformity of presentation across international borders
• Relevant information


  Information that will impact the user's decisions when made available
• Relevant information


  Information that has both confirmatory and predictive value
• Finance manager's task


  Ensure that information is useful to users for economic decision-making
• Materiality


  A practical rule in accounting which dictates that strict adherence to the GAAP is not required when the items are not significant enough to affect the evaluation, decision and fairness of the financial statements
• Faithful Representation


  Requires proper accounting for all transactions in which the amount that should be reflected on record should be the actual amount involved in the transaction that took place, and has three characteristics; complete, neutral and error-free
• Substance Over Form


  Relevance of information should be prioritized over format in the presentation of financial information
• Conservatism


  When decision makers have to choose between alternatives, the alternative that has the least effect on equity should be chosen
• Comparability


  Can be compared with similar information about other entities and with similar information about the same entity for another period or another date
• Understandability


  Needs to be comprehensive and reported in an easy-to-understand manner
• Consistency


  Requires that accounting principles and methods used by the firm should be uniform from one accounting period to another
• Verifiability


  Financial information is verifiable when there is enough evidence so that various users of a financial report will arrive at the same conclusion which can be done through a direct or indirect verification
• Timeliness


  Financial information should be made available to the users in a timely manner
• Cost Constraint


  The benefit gained by a firm from the information should outweigh the cost associated with obtaining the information
• International Accounting Standards (IAS)


  Standards set on how financial transactions should be recorded and reflected in financial statements
• Many countries, including the Philippines require publicly traded companies to follow the IAS in financial reporting.
• International Financial Reporting Standards (IFRS)

  Established in order to have a common standards that will be followed by entities across international borders regarding financial reporting
• Factors considered by the Philippines in adhering to IAS and IFRS

  • Gained support from the SEC, BOA and PICPA
  • Increasing internationalization of businesses
  • Enhancement of IAS and IFRS
  • Recognition of IAS and IFRS by the WB, ADB, WTO
• Benefits of adhering to IAS and IFRS

  • Companies gain access to foreign capital markets
  • Domestic capital markets gain credibility and attractiveness to foreign investors
  • Same global accounting standards for multinational companies in preparing financial reports
  • Financial data is easily understood by users
  • Processing of data becomes less costly
  • Sharing of financial data among users is more transparent
  • Acceptability from regulatory agencies
  • Ensure continuity and knowledge is easily shared across countries thru a very well coordinated trainings
  • Credentials of professionals are comparable
• Reasons for accounting variation

  • Meeting both political and economic constraints
  • Accounting practices varies among nations
  • Differences on economic and social frameworks, acquired education of accounting professional and operation of each country's capital market
• Philippine Financial Reporting Standards (PFRS)

  Series of standards issued by Financial Reporting Standard Council (FRSC) pertaining to preparation of financial reports in consonance to the IAS and IFRS
• Companies required to follow the full PFRS

  • Listed Companies - large and/or publicly accountable companies
  • Financial Institutions
  • Separate Company Financial Statements
• Accounting standards required for SMEs

  • SMEs that are above the specified size thresholds use full PFRS
  • SMEs that are below those size but are not micro-sized may choose to use full PFRS or PFRS for SMEs
  • SMEs that are micro-sized entities have the option to use the income tax basis accounting standards or the PFRS for SMEs
• Shareholder


  Also called stockholder, is a person who bought shares of stock of a corporation
• Stocks


  Represent ownership of a company
• Stakeholder


  Everyone who has an interest or a stake on how the business is performing or how it is managed
• Internal Stakeholders


  • Employees
  • Shareholders
  • Top Management
  • Dept. Managers
  • Labor Unions
  • Board of Directors
• External Stakeholders


  • Customers
  • Suppliers
  • Government
  • Competitors
  • Financial Institutions
  • Potential Investors
• Finance managers are expected to adhere to high ethical standards.
• Ethics


  A set of rules or norms on what is right or wrong; good or bad thinking, behavior or judgment
• Ethical Decision Model


  • Identify the ethical issue
  • Identify actions for handling the situations
  • Identify the people affected
  • Analyze how these affect the people involved
  • Decide which actions to take
• Ethical Issues in Finance

  • A. Full Disclosure and Transparency - a dilemma of full disclosure and transparency while maintaining confidentiality
  • B. Professional Duty versus Company Standards - torn between meeting company standards and adhering to ethical standards brought by fear on not meeting the company standards
  • C. Individual Judgment versus Demand from Clients - confronted with demands from certain clients that are unethical in nature
  • D. Misrepresentation - must present all material facts since it would have changed or could affect any decision made by the stakeholders
  • E. Conflict of Interest - arises when someone has a self-serving interest which make him or her an unreliable source