Conceptual Framework and Accounting Standards Quiz 1 Reviewer

Accounting

system or discipline

Accounting Process

has the ultimate purpose of generating general purpose financial statements that provide info about economic entities that is used as basis for the formulation of economic decisions

Financial Reporting

process of communicating the set of financial statements and other financial information to help the users create financial decisions

Internal Users

active owners of business enterprises and management that use financial information for internal decision-making purposes

Active Owners and Managers

use financial information to decide whether to continue or to liquidate, to infuse additional investments, to borrow from creditors and to change business methods and strategies, etc.

Internal Users

users who ready access to specific types of accounting information

Management Accounting

branch of accounting designed to meet the information needs of internal users

Active Owners and Managers

because of their actual involvement in the operations of the business, these users may require that the information be communicated and made available to the in a form fitting their specific decision-making needs

Financial Reporting

focuses not on the needs of the internal users but on the information needs of those who do not have ready access to readily available information about an entity

External Users

- inactive owners

- creditors

- lendors

- suppliers

- potential investors

- taxing authorities

- regulatory bodies

- employees

- employee unions

- financial analysts

- financial advisers

- financial consultants

- general public

External Users

users other than the management entity who do not have ready access to financial reports and rely heavily on negotiations and regulations to obtain information about a business enterprise

Internal Users

- active owners

- management

Financial Statements

general-purpose financial reports provided to external users

Financial Accounting

broad branch of accounting that provides general-purpose financial reports to the external users

External Users

users that are not part of management but still have diversified information needs

Inactive Owners

delegate the stewardship of the enterprise's resources to the management and they use the financial statements to keep track of the enterprise's financial condition and performance to make decisions whether they should hold/sell their equity interests

Present and Potential Creditors

assess the ability of the company to pay its loans and the interest attaching to such loans

Suppliers

determine whether the cost of such goods and services will be paid when due

they use financial information as they are dependent upon the continuation of the company as a major customer

Employees

these users evaluate the financial status of the company to assess the latter's ability to provide remuneration, retirement benefits, and employment opportunities

Customers

have an interest in information about the continuance of an enterprise, especially when they have a long-term involvement with, or are dependent on, the enterprise as their supplier

Business Entity

subject to government regulations mainly for the interest of public investors and other parties dealing with it

Government and its agencies

rely on financial info to determine whether business entities comply with prescribed rules and regulations (laws)

Government and its agencies

rely on financial info to collect the correct amount of taxes, to determine taxation policies, and to set basis for national income and similar statistics

Public

interested in financial info about the trends and the range of business entities' economic activities, as the general direction of business growth is indicative of the nation's economic status

Direct Users

use financial info as a tool to protect their own interest in the interprise

Direct Users

- owners

- managers

- creditors

- suppliers

- customers

- employees

- taxing authority

Indirect Users

may use accounting information to provide advice to or protect the interest of a direct user

Indirect Users

- regulatory agencies

- labor unions

- financial and legal consultants

Monetary Unit

generally the unit of measure used in communicating accounting info

Quantitative/Measurable Information

focuses on the entity's economic resources, economic obligations, changes in economic resources and economic obligations brought about by income and expenses and other transactions

Reporting Entity

also known as accounting entity

may be a business enterprise, a government unit, a not-for-profit organization, an individual, a unit within an enterprise, a group of entities, and any other unit that is considered to have a personality different from the personality of its owners, members, and employees

Accounting Entity Concept

separates the company from its owners and other stakeholders

Accounting Entity

capable of controlling its own economic resources and incurring economic obligations

Financial Accounting

broadest branch of accounting focused on the needs of external users

Financial Accounting

branch of accounting concerned with the recognition, measurement, and communication of economic resources, economic obligations, and changes in economic resources and economic obligations

Financial Statements

financial reports that summarize the recognition, measurement, and communication of economic resources, economic obligations, and changes in economic resources and economic obligations

Financial Accounting

assumes that the external users have common info needs

i.e., to evaluate the business entity's profitability, liquidity, and stability

Financial Accounting

should conform to the accounting standards

Accounting Standards

main purpose is to ensure the relevance and reliability provided to the external users

Financial Statements

used by internal users to evaluate an entity's performance and financial condition to better perform their planning and control functions

Management Accounting

branch of accounting that serves the info needs of internal users

Management Accounting

helps the users with making and implementing short-term and long-range plans for the enterprise

Management Accounting

helps the users make routine and major economic decisions because the info required by the management may vary based on the specific needs at a particular time

Management Accounting

not structured and not necessarily conforming to the accounting standards

Cost Accounting

concerned with the measurement and recognition of cost of services provided or product manufactured

Cost Accounting

while helpful for service businesses, it is more ordinarily associated with manufacturing companies as a tool of both financial accounting and management accounting

Tax Accounting

concerned with the computation of taxes and preparation of tax returns submitted to a taxing authority

Government Accounting

branch of accounting that encompasses of analyzing, classifying, summarizing, and communicating all transactions involving the receipt and disposition of government funds and property and interpreting the results thereof

Bookkeeping

refers to only one phase of accounting

the recording phase

Auditing

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 Statements

are developed internally within a business enterprise and are considered the representation of a company's management

Auditing

because there may be conflict between the interest of the management and the interest of other users, ________ performs an attest function to lend credibility to the financial statements

International Accounting Standards Committee (IASC)

created in 1973 to recognize and act upon the need to bring the system of measurement and communication of economic activities into common basis

International Accounting Standards (IAS)

uniform set of global accounting standards developed by IASC

it was used from 1973 to 2001

International Accounting Standards Board (IASB)

IASC reconstituted in 2001

under the umbrella of the International Financial Reporting Standards Foundation

IFRS Foundation

a not-for-profit, public interest organization established to develop a single set of high-quality, understandable, and enforceable, and globally accepted accounting standards, and to promote and facilitate adoption of the standards

International Accounting Standards Board (IASB)

immediately after is reconstitution, they took the 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

International Accounting Standards Board (IASB)

implemented an improvements project to reduce/eliminate alternatives, redundancies, and conflicts within the IAS to deal with some convergence issues, and to make other improvements

International Accounting Standards (IAS)

originated from the IASC

improved or revised by the IASB

International Financial Reporting Standards (IFRS)

originated from the IASB

International Financial Reporting Standards (IFRS)

includes:

• specific international financial reporting standards

• interpretations made by the international financial reporting interpretations committee (IFRIC)

• international accounting standards (IAS)

• interpretations made by the standing interpretations committee (SIC)

International Financial Reporting Interpretations Committee (IFRIC)

committee that helps the IASB interpret and apply the IFRS

Standing Interpretations Committee (SIC)

the body that interpreted the works of the IASC

International Accounting Standards Board (IASB)

at the present time, they still issue new standards and major amendments to the existing IFRS

IFRS Foundation Mission Statement

to communicate financial information that achieves transparency, accountability, and efficiency to financial markets around the world

International Financial Reporting Standards (IFRS)

bring transparency by enhancing the international comparability and quality of financial info, enabling investors and market participants to make informed economic decisions

International Financial Reporting Standards (IFRS)

strengthen accountability by reducing info gap between the investors and the people to who they have entrusted their investments (management of the entity)

Management

accountable to regulators

International Financial Reporting Standards (IFRS)

contribute to economic efficiency by helping investors identify opportunities and risks, thus improving capital allocation

Financial Reporting Practices

dynamic

influenced by the complicated transactions that result innovative business practices that evolve from changes in economic, political, and even cultural environment

Financial Reporting Standards

shall continuously be reviewed, amended, and revised, when necessary, for the purpose of faithfully communicating in the most relevant manner the results of economic transactions of reporting entities

International Financial Reporting Standards (IFRS)

required in more than 140 jurisdictions and permitted in many more

IFRS Foundation

one of its primary functions is to govern and oversee the activities of its standard-setting body, the IASB

IFRS Foundation

its trustees safeguard the independence of the IASB and ensure the financing of the organization

IASB 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. issuing the standard

Issue Item

identified by the IASB to its agenda after considering the relevance of information to the users and the reliability of the info that could be provided, whether existing guidance is available, and the possibility of increasing convergence to address the users' demand for better quality info

Working Group

established after the IASB decides whether to conduct the project alone or jointly with another standard setter

Discussion of the Working Group

contained in a discussion paper (although not mandatory) that includes a comprehensive overview of the issue, possible approaches in addressing the issue; the preliminary views of its authors or the IASB and an invitation to comment

Discussion of the Working Group

the issue being discussed may result from a research project being carried by another standard setter or it may be an active agenda carried out by the IASB

Discussion of the Working Group

if the issue originates from another standard setter, the publication of the discussion paper requires a simple majority vote of the IASB members

Discussion of the Working Group

the discussion of all technical issues takes place in public sessions (public meetings, public hearings, and public round tables) where Q&A sessions are conducted

Discussion of the Working Group

the IASB considers comments received on the discussion paper, results of staff research and recommendations, and suggestions by the IFRS Advisory Council, working groups and accounting standard setters and also suggestions arising from public education sessions

Exposure Draft

developed and voted upon after receiving the comments on the discussion paper

Exposure Draft

IASB's main vehicle to consult the interested public

Exposure Draft

a proposed standard or a proposed amendment to a standard

Comment Period (for exposure draft)

major projects: 120 days

IFRIC interpretations: 60 days (but may be less in urgent cases)

Exposure Draft

IASB makes revisions on the draft after considering the comments

when deemed necessary, a second draft is developed and published

Exposure Draft

after reaching conclusion on the issues covered, the pre-ballot IFRS is sent to selected parties for review; after which, a near final draft is posted on the IASB's website

Balloting

circularizing the near final reporting standard to the IASB's members requires individual final review and approval of the draft

Exposure Draft

the approved pronouncement is posted to the IASB's limited access website for an initial period of about ten days, after which the draft is freely available online

After issuance of an IFRS

the IASB holds regular meetings with interested parties to address some unanticipated issues relating to implementation

After issuance of an IFRS

the IASB may initiate studies in light of its review of the application of the standard, changes in the financial reporting environment and regulatory requirements and comments received about the quality of the IFRS

such studies may result in items being added to the IASB's agenda

International Financial Reporting Standards (IFRS)

principle-based

International Financial Reporting Interpretations Committee (IFRIC)

organized to interpret specific issues when the standards do not include specific authoritative guidance

International Financial Reporting Interpretations Committee (IFRIC)

succeeded the Standing Interpretations Committee (SIC) and consists of 14 voting members who act independently and are not representing any organization or association

1981

before this year, the Philippines did not have a formal process for the development of accounting practices

Philippine Institute of Certified Public Accountants (PICPA)

the accredited professional organization of CPAs in the Philippines

Philippine Institute of Certified Public Accountants (PICPA)

organized the Accounting Standards Council (ASC)

Accounting Standards Council (ASC)

formalized the standard setting process in the Philippines

Accounting Standards Council (ASC)

formed on November 18, 1981 to study the accounting standard-setting process in the Philippines