International Financial Reporting Standards and Philippine
Financial Reporting Standards
Definition of IFRS
IFRS – International Financial Reporting Standards
International Financial Reporting Standards (IFRS) is a set of
accounting standards developed by an independent, not-for-profit
organization called the International Accounting Standards Board
(IASB).
GOAL OF IFRS
- is to provide a global framework for how public
companies prepare and disclose their financial
statements.
- provides general guidance for the preparation of financial
statements, rather than setting rules for industry-specific
reporting.
The IFRS: History and Purpose
History:
The IFRS began as an attempt to harmonize accounting
across the European Union, but the value of harmonization
quickly made the concept attractive around the world. They are
occasionally called by the original name of International
Accounting Standards (IAS). The IAS were issued between 1973
and 2001 by the Board of the International Accounting Standards
Committee (IASC). On April 1, 2001, the new IASB took over
the responsibility for setting International Accounting Standards
from the IASC. During its first meeting the new Board adopted
existing IAS and Standing Interpretations Committee standards
(SICs). The IASB has continued to develop standards calling the
new standards the IFRS.
The IFRS: History and Purpose
Purpose:
The IFRS is designed as a common global language for
business affairs so that company accounts are understandable and
comparable across international boundaries. They are a
consequence of growing international shareholding and trade. The
IFRS is particularly important for companies that have dealings in
several countries. They are progressively replacing the many
different national accounting standards.
Transition of Philippine Standard from US GAAP to PFRS
Philippine Standards were patterned after US GAAP.
However, in 1997, the accounting standard setting body in the
Philippines decided to start a program to move fully to
International Accounting Standards issued by the International
Standards Committee (IASC) and since then has continued its
adoption of International Accounting standards. Ins November
2004, The Philippine Accounting Standards Council (ASC)
approved the adoption of revised IAS, called Philippine
Accounting Standards (PAS) and the International Financial
Reporting Standards (IFRS) issued the International Accounting
Standard Board (IASB) called Philippine Financial Accounting
Standards (PFRS) with first implementation effective January 25
of the following year.
Accounting Standards Defined
Is a common set of principles, standards, and procedures that
define the basis of financial accounting policies and practices.
It improves the transparency of financial reporting in all countries.
In United States, The Generally Accepted Accounting Principles
from the set of accounting standards widely accepted for
preparing financial statements.
International companies follow the IFRS, which are set by the
IASB and serve as the guideline for non-US GAAP companies
reorting financial standards.
Objectives of Accounting Standards
- To provide a standard set of accounting policies,
valuation norms and disclosure requirements, on basis of
which financial statements should be prepared.
- To make financial statements more meaningful and
comparable.
- To harmonize the diverse accounting policies and
practices in order to ensure standardization in preparation
of financial statements.
- To enable the comparability of financial statements and
thereby improve reliability and usefulness of financial
statements.
Standard Setting
International Financial Reporting Standards (IFRS) are
developed through an international consultation process, The “due
process”, which involves interested and organisations from
around the world.
Standard Setting Process
The “due process” comprises six (6) stages,
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 standards
6. After the IFRS is issued
INTRODUCTION TO ACCOUNTING
AICPA Definition of Accounting
“ the art of recording, classifying, and summarizing in a
significant manner and in terms of money, transactions and events
which are, in part at least of financial character, and interpreting
the results thereof.”
American Institute of Certified Public Accountants (AICPA)
Nature and Scope of Accounting
1. Accounting is considered an art
• Accounting is considered an art because it requires the
use of skills and creative judgment. One has to be
trained in this discipline to be able to perform accounting
functions well.
• Accounting is also considered a science because it is a
body of knowledge. However, accounting is not an exact
science since the rules and principles are constantly
changing (improved).
2. Accounting involves interconnected "phases"
• Recording pertains to writing down or keeping records
of business transactions. Classifying involves grouping
similar items that have been recorded. Once they are
classified, information is summarized into reports which
we call financial
statements.
3. Concerned with transactions and events having financial
character
• For example, hiring an additional employee is qualitative
information with no financial character. Hence, it is not
recorded. However, the payment of salaries, acquisition
of an office building, sale of goods, etc. are recorded
because they involve financial value.
Two types of Financial Information
1. Financial
financial information that primary
deals with recording transaction that has something to do
with monetary value.
2. Non – Financial Accounting
• Non financial reporting is the disclosure of a company's
social, environmental and human rights information. ...
For investors and Stakeholders, non-financial
reporting is also a way to reinforce the stability and
predictability of the firm's performance on
financial markets.
4. Business transactions are expressed in terms of money
They are assigned amounts when processed in an
accounting system. Using one of the examples, it is not enough to
record that the company paid salaries for April. It must include
monetary figures – say for example, P20,000 salaries expense.
5. Interpreting the results
Interpreting results is part of the phases of accounting.
Information is useless if they cannot be interpreted and
understood. The amounts, figures, and other data in the financial
reports have meanings that are useful to the users.
Different Bodies of Accountancy
Scope and Limitations
A Scope Limitation is a restriction on the applicability
of an auditor's report that may arise from the inability to obtain
sufficient appropriate evidence about a component in the financial
statements. ... Some scope limitations arise for reasons that are
beyond the control of the client, such as fire and flood.
Branches of Accounting Profession
1. Financial accounting,
2. Managerial accounting,
3. Cost accounting,
4. Auditing,
5. Taxation,
6. Accounting Information System,
7. Fiduciary, and
8. Forensic Accounting.
Branches of Accounting Profession
1. Financial Accounting
Financial accounting involves recording and
classifying business transactions, and preparing and
presenting financial statements to be used by internal
and external users.
In the preparation of financial statements, strict
compliance with generally accepted accounting
principles or GAAP is observed. Financial accounting is
primarily concerned in processing historical data.
2. Management Accounting
Managerial or management accounting focuses
on providing information for use by internal users, the
management. This branch deals with the needs of the
management rather than strict compliance with generally
accepted accounting principles.
Managerial accounting involves financial
analysis, budgeting and forecasting, cost analysis,
evaluation of business decisions, and similar areas.
3. Cost Accounting
Sometimes considered as a subset of
management accounting, cost accounting refers to the
recording, presentation, and analysis of manufacturing
costs. Cost accounting is very useful in manufacturing
businesses since they have the most complicated costing
process.
Cost accountants also analyze actual and
standard costs to help managers determine future courses
of action regarding the company's operations.
4. Auditing Accounting
External auditing refers to the examination of financial
statements by an independent party with the purpose of expressing
an opinion as to fairness of presentation and compliance with
GAAP.
Internal auditing focuses on evaluating the adequacy of a
company's internal control structure by testing segregation of
duties, policies and procedures, degrees of authorization, and
other controls implemented by management.
 5. Tax Accounting
Tax accounting helps clients follow rules set by tax
authorities. It includes tax planning and preparation of tax returns.
It also involves determination of income tax and other taxes, tax
advisory services such as ways to minimize taxes legally,
evaluation of the consequences of tax decisions, and other tax-
related matters.
6. AIS Accounting
Accounting information systems (AIS) involves the
development, installation, implementation, and monitoring of
accounting procedures and systems used in the accounting
process. It includes the employment of business forms, accounting
personnel direction, and software management.
7. Fiduciary Accounting
Fiduciary accounting involves handling of accounts managed
by a person entrusted with the custody and management of
property of or for the benefit of another person. Examples of
fiduciary accounting include trust accounting, receivership, and
estate accounting.
8. Forensic Accounting
Forensic accounting involves court and litigation cases, fraud
investigation, claims and dispute resolution, and other areas that
involve legal matters. This is one of the popular trends in
accounting today.
Some of the most famous certifications include the:
1. Certified Public Accountant (CPA),
2. Certified Management Accountant (CMA),
3. Certified Internal Auditor (CIA),
4. Certified Financial Planner (CFP), and
5. Certified Information Systems Auditor (CISA).
6. Certified Financial Analyst (CFA)
Forms or Types of Accounting
1. Financial Accounting
2. Public Accounting
3. Government Accounting
4. Forensic Accounting
5. Management Accounting
6. Tax Accounting
7. Internal Auditing
Forms or Types of Accounting
1. Financial Accounting
This field is concerned with the aggregation of financial
information into external reports. Financial accounting requires
detailed knowledge of the accounting framework used by the
reader of a company's financial statements, such as Generally
Accepted Accounting Principles (GAAP) or International
Financial Reporting Standards (IFRS). Or, if a company is
publicly-held, it requires a knowledge of the standards issued by
the government entity
2. Public Accounting
This field investigates the financial statements and
supporting accounting systems of client companies, to provide
assurance that the financial statements assembled by clients fairly
present their financial results and position. This field requires
excellent knowledge of the relevant accounting framework, as
well as an inquiring personality that can delve into client systems
as needed.
3. Government Accounting
This field uses a unique accounting framework to create
and manage funds, from which cash is disbursed to pay for a
number of expenditures related to the provision of services by a
government entity. Government accounting requires such a
different skill set that accountants tend to specialize within this
area for their entire careers.
4. Forensic Accounting
This field involves the reconstruction of financial
information when a complete set of financial records is not
available. This skill set can be used to reconstruct the records of a
destroyed business, to reconstruct fraudulent records, to
convert cash-basis accounting records to accrual basis, and so
forth. This career tends to attract auditors. It is usually a
consulting position, since few businesses require the services of a
full-time forensic accountant. Those in this field are more likely to
be involved in the insurance industry, legal support, or within a
specialty practice of an audit firm.
5. Management Accounting
This field is concerned with the process of accumulating
accounting information for internal operational reporting. It
includes such areas as cost accounting and target costing. A career
track in this area can eventually lead to the controller position, or
can diverge into a number of specialty positions, such as cost
accountant, billing clerk, payables clerk, and payroll clerk.
6. Tax Accounting
This field is concerned with the proper compliance with
tax regulations, tax filings, and tax planning to reduce a
company's tax burden in the future. There are multiple tax
specialties, tracking toward the tax manager position.
7. Internal Auditing
This field is concerned with the examination of a
company's systems and transactions to spot control weaknesses,
fraud, waste, and mismanagement, and the reporting of these
findings to management. The career track progresses from various
internal auditor positions to the manager of internal audit. There
are specialties available, such as the information systems auditor
and the environmental auditor.
Accounting consists of three basic activities
it:
• identifies,
• records , and
• communicates the economic events of an organization to
interested users.
Accounting Process income and expenditure accounts come to NIL. The net balance
The accounting process is a series of activities that of these entries represents the profit or loss of the company,
begins with a transaction and ends with the closing of the books. which is finally transferred to the owner’s equity or
Because this process is repeated each reporting period, it is capital.
referred to as the accounting cycle and includes these major 9. Post-Closing Trial Balance
steps: Identify the transaction or other recognizable event. Post-closing Trial Balance represents the
balances of Asset, Liabilities & Capital account.
The following table lists down the steps followed in an These balances are transferred to next financial year as an
accounting process – opening balance.
2. Posting in Journal
On the basis of the gathered data, you pass journal Conceptual Framework and Financial Reporting
entries using double entry system in which debit and credit The Objective of General Purpose Financial Reporting
balance remains equal. This process is repeated throughout the Objective:
accounting period. The objective of general purpose financial reporting is
3. Posting in Ledger Accounts to provide financial information about the reporting entity that is
Debit and credit balance of all the above useful to existing and potential investors, lenders and other
accounts affected through journal entries are posted creditors in making decisions about providing resources to the
in ledger accounts. A ledger is simply a collection of all entity.
accounts. Usually, this is also a continuous process for the
whole accounting period. Purpose:
4. Preparation of Trial Balance General-purpose financial statements are issued
As the name suggests, trial balance is a throughout the year to aid investors and creditors in their decision
summary of all the balances of ledger accounts making process. A set of general-purpose financial statements
irrespective of whether they carry debit balance or includes a balance sheet, income statement, statement of owner's
credit balance. Since we follow double entry system of equity/retained earnings, and statement of cash flows.
accounts, the total of all the debit and credit balance as
appeared in trial balance remains equal. Usually, you need to QUALITATIVE CHARACTERISTICS OF USEFUL
prepare trial balance at the end of the said accounting period. FINANCIAL INFORMATION
5. Posting of Adjustment Entries The revised framework distinguishes between two types
In this step, the adjustment entries are first of qualitative characteristics that are necessary to provide useful
passed through the journal, followed by posting in information:
ledger accounts, and finally in the trial balance. Since in 1. Fundamental qualitative characteristics
most of the cases, we used accrual basis of accounting to (relevance, timeliness, verifiability and
find out the correct value of revenue, expenses, assets and understandability)
liabilities accounts, we need to do these adjustment 2. Enhancing qualitative characteristics
entries. This process is performed at the end of each ( comparability, timeliness, verifiability and understanding)
accounting period. Fundamental Qualitative Characteristics
6. Adjusted Trial Balance Relevant:
Taking into account the above adjustment financial information is capable of making a difference
entries, we create adjusted trial balance. Adjusted trial to the decision made by users. In order to make difference,
balance is a platform to prepare the financial statements financial information has predictive value, confirmatory value or
of a company. both.
7. Preparation of Financial Statements The revised Framework carries forward the notion of
Financial statements are the set of statements materiality as an element of “relevance”. How ever, the Boards
like Income and Expenditure Account or Trading have clarified that materiality is an entity-specific aspect of
and Profit & Loss Account, Cash Flow Statement, relevance based on the nature of magnitude of items to which the
Fund Flow Statement, Balance Sheet or Statement information relates, which cannot be specified in general terms to
of Affairs Account. With the help of trial balance, we put encompass every situation.
all the information into financial statements. Financial Faithful representation replaces the previously used
statements clearly show the financial health of a firm by term “reliability”. the Boards determined there is lack of
depicting its profits or losses. common understanding of reliability. Financial information that
8. Post-Closing Entries faithfully represents economic phenomena has three
All the different accounts of revenue and characteristics: It is complete, It is neutral, It is free from error
expenditure of the firm are transferred to the
Trading and Profit & Loss account. With the
result of these entries, the balance of all the accounts of
Users of Financial Reporting
We all know that Accounting is the language of business.
It’s essential for the top management people to understand basic
accounting principles because it can help them understand the
financial health and performance of the company at any given
time. So that they can capitalize on it and make advantageous
decisions for the future of the business.
Internal users are owners, managers, and employees.
External users are people outside the business entity
(organization) who use accounting information. Examples of
external users are suppliers, banks, customers, investors, potential
investors, and tax authorities.
The following list identifies the more common users of
financial statements, and the reasons why they need this
information:
Company management. ...
Competitors. ...
Customers. ...
Employees. ...
Governments. ...
Investment analysts. ...
Investors. ...
Lenders.
Definition of Economic Resources
Under the accrual basis of accounting, expenses are matched
with the related revenues and/or are reported when the expense
occurs, not when the cash is paid.
Financial Performance Reflected by:
Accruals are adjustments for:
1) revenues that have been earned but are not yet recorded in
the accounts, and
2) expenses that have been incurred but are not yet recorded in
the accounts.
The accruals need to be added via adjusting entries so
that the financial statements report these amounts.
Past Cash Flow or Cash Accounting:
Cash accounting is an accounting method in which
payment receipts are recorded during the period they are received,
and expenses are recorded in the period in which they are actually
paid.
Cash accounting is an accounting method in which
payment receipts are recorded during the period they are received,
and expenses are recorded in the period in which they are actually
paid.
Management Stewardship
Stewardship. A traditional approach of accounting that places an
obligation on stewards or agents, such as directors, to provide
relevant and reliable financial information relating to resources
over which they have control but which are owned by others,
such as shareholders.

Economic resources are the factors used in producing goods or

providing services. In other words, they are the inputs that are
used to create things or help you provide services. Economic
resources can be divided into
Human Resources,
such as labor and management, and
Nonhuman resources,
such as land, capital goods, financial resources, and technology.

Types of Economic Resources

Economists divide the factors of production into four categories:
Land, labor, capital, and entrepreneurship.

The first factor of production is land, but this includes any

natural resource used to produce goods and services.
Financial Performance Reflected by:

Accrual Accounting
Accounting method that records revenues and expenses
when they are incurred, regardless of when cash is exchanged.

The term "accrual" refers to any individual entry

recording revenue or expense in the absence of a cash transaction.

Under the accrual basis of accounting, revenues are

reported on the income statement when they are earned. ...