CONCEPTUAL FRAMEWORK

AND ACCOUNTING STANDARDS

FREYA WYAN SILVA-DELA CRUZ, CPA,MBA
Learning Outcomes
At the end of this session, the students should be able to:
1. Define accounting and the process involved in it.
2. Discuss the brief history of accounting.
3. Explain the importance of accounting information to external and
internal decision-makers.
4. Describe the nature of the accounting profession and the major areas
of professional practice.
5. Discuss the importance of basic professional values and ethical
behavior on the part of accounting professionals.
6. Describe how teams of diverse gender enhance decision making and
financial reporting.
What is Accounting?
• Accounting is the art of recording, classifying and
summarizing in a significant manner under terms of
money, transaction and events, which are in part at
least of a financial character, and interpreting the
results thereof. - American Institute of Certified Public
Accountants (AICPA)

Recording Classifying Summarizing Interpreting

What is Accounting?
• Accounting is a service activity. Its function is to
provide quantitative information, primarily financial in
nature, about economic entities that is intended to be
useful in making decisions. -Accounting Standards
Council
• Accounting is the process of identifying, measuring
and communicating economic information to permit
informed judgment and decision by users of the
information. – American Accounting Association
 THE ACCOUNTING PROCESS

Identifying Measuring Communicating

Select economic Assign peso amounts to Prepare and distribute accounting reports
events economic transactions (Implicit are the recording, classifying, and
(transactions) summarizing aspects of accounting)
Four Aspects of Accounting

Recording Classifying Summarizing Interpreting

RECORDING

Writing down of business transactions chronologically

in the books of account as they transpire.
Four Aspects of Accounting

Recording Classifying Summarizing Interpreting

CLASSIFYING

Sorting similar and related business transactions into

the three categories of assets, liabilities, and owner’s
equity.
Four Aspects of Accounting

Recording Classifying Summarizing Interpreting

SUMMARIZING

Preparing the financial statements from the

transactions recorded in the books of account to meet
the information needs of its users.
Four Aspects of Accounting

Recording Classifying Summarizing Interpreting

INTERPRETING

Representing the qualitative and quantitative financial

information about the business transactions in a
language comprehensible to the users of financial
statements.
 History of Accounting
• Records in stones, clay tablets, papyrus, cards, punched cards, magnetic tapes
• Romans – elaborate records but no system of bookkeeping yet
• Italians (14th-15th century) – fathers of modern accounting. They learned
numerals and basics of arithmetic from the Arabs.
• Double-entry accounting
• Fra Luca Pacioli (Italian monk)
Summa de Arithmetica Geometria Proportionis
et Proportionalista
• Accounting Variations in the Countries
• Financial Reporting Standards Council (FRSC) formerly Accounting Standards
Council (ASC) – accounting standard setting body on the Philippines
(Philippine Accountancy Act of 2004)
Who are the users
of financial
information and
why do they need
them?
Users of Financial Information

• Investors/Owners/Stockholders
• Employees
• Financial Institutions/Creditors External Decision
• Suppliers and Other Trade Creditors Makers
• Customers
• Government and their Agencies
• Public
• Management Internal Decision
Makers
Specific Objectives of Financial Reporting
The overall objective of financial reporting is to
“provide information that is useful for decision
making”.
Specifically, the Conceptual Framework for Financial
Reporting states the following objectives:
a. To provide information useful in making decisions
about providing resources to the entity.
b. To provide information useful in assessing the
prospects of future net cash flows to the entity.
c. To provide information about entity resources,
claims and changes in resources and claims.
 ACCOUNTING PROFESSION

1. Practice in Public Accountancy (Audit Services, Taxation Services,

Management Consulting Services, Business Recovery and
Insolvency Management)

2. Practice in Commerce and Industry (External Financial

Reporting, Internal Reporting, Taxation and Internal Auditing)
3. Practice in the Government
4. Practice in Education/Academe
 BASIC PROFESSIONAL VALUES AND ETHICS
1. Integrity – straightforward and honest in performing professional
services
2. Objectivity – fair and does not allow prejudice or bias, conflict of
interest or influence of others to override objectivity
3. Professional Competence and Due Care – competent professional
services based on up-to-date developments in practice, legislation
and techniques.
4. Confidentiality – does not use or disclose any information without
proper and specific authority unless there is a legal or professional
right to do so
5. Professional Behavior – maintain good reputation of the profession
6. Technical Standards- carry out professional services in accordance
with the relevant technical and professional standards
 GENDER DIVERSITY IN THE ACCOUNTING
PROFESSION

Activity:
In groups of three, look for one research on gender
diversity in accounting practice.
On our next meeting, be ready to describe how teams of
diverse gender enhance decision making and financial
reporting.
 TYPES OF BUSINESSES

1.Service is a type of business operation engaged in the

rendering of services.
 TYPES OF BUSINESSES

2. Trading/Merchandising is a type of business

engaged in buying and selling goods.
• Wholesale Merchandiser
• Retail Merchandiser
 TYPES OF BUSINESSES

3. Manufacturing is engaged in the production of

items to be sold. This type of business operation is
involved in the purchasing and converting of raw
materials to finished goods.
 TYPES OF BUSINESSES

4. Hybrid Companies are those involved in more than

one type of activity (manufacturing, merchandising,
service).
 LEGAL FORMS OF BUSINESS
ORGANIZATION

1.Sole/ Single Proprietorship is a business owned and

managed by only one person.
ADVANTAGES
• Ease of entry and exit
• Full ownership and control
• Tax savings
• Few government regulations
DISADVANTAGES
• Unlimited liability
• Limitations in raising capital
• Lack of Continuity
 LEGAL FORMS OF BUSINESS
ORGANIZATION

2. Partnership is a business organization owned and managed by two

or more people who agree to contribute money, property or
industry to a common fund for the purpose of earning a profit.

ADVANTAGES
• Ease of formation
• Additional sources of capital
• Management base
• Tax implication
DISADVANTAGES
• Unlimited liability
• Lack of Continuity
• Difficulty of transferring
ownership
• Limitations in raising capital
 LEGAL FORMS OF BUSINESS
ORGANIZATION
3.Corporation is an artificial being created by law and is a legal entity
separate and distinct from its owners.

ADVANTAGES DISADVANTAGES
• Limited Liability • Time and cost of formation
• Unlimited Life • Regulation
• Ease in transferring ownership • Taxes
• Ability to raise capital
 THREE TYPES OF BUSINESS ACTIVITIES

1. Financing activities are activities that include obtaining

resources from and returning resources to owners as well
as obtaining resources through borrowings (short-term or
long-term) and repayments of the amounts borrowed.
 THREE TYPES OF BUSINESS ACTIVITIES

2. Investing activities include the acquisition and

disposition of property, plant and equipment and other
long-term assets and debt and equity instruments of other
enterprises that are not considered cash equivalents or
held for dealing or trading purposes.
 THREE TYPES OF BUSINESS ACTIVITIES

3. Operating activities are principal revenue-producing

activities of an enterprise and include delivering or
producing goods for sale and providing services.
 BOOKKEEPING DISTINGUISHED FROM
ACCOUNTING
Accounting
1. Includes bookkeeping
2. Also includes much more such as the design of an information
system that meets the user’s needs, preparation of financial
reports and analysis of financial information
Bookkeeping
1. Involves only the recording of economic events
2. Is just one part of accounting