CHAPTER 1- ENVIRONMENT OF FAR  Risk capital and return

Accounting- information system, social science  Evaluate management

Financial accounting  Economic resources- grown or diminish
process of developing general purpose financial  Ability to generate cash and the timing and
statements and reporting general-purpose accounting certainty of its generation.
information to external users. 2. Employees
 Stability and profitability
Accountants- communicators  Remunerations, retirement benefits, and
Accountancy- art of communicating employment oppurtunities.
Financial statements- form of communication 3. Lenders
 Ability to paid in due
Differences of FS country to country Similar to ↓
-differences in social, economic, and legal
circumstances. 4. Suppliers and other trade creditors
-setting national requirements  Amounts owing to them will be paid in due

External highly summarize compared to internal 5. Customers

information.  Long terms involvement with or are dependent
Company does not disclose every detail of its internal on, the enterprise.
financial dealings to outsiders. B. Internal decision makers
 Managers of buss entity
External Financial Accounting- guide by established body of  Have power to obtain whatever economic
standards or principles that are designed to carefully define information they need.
what information a firm must disclose to outsiders.
 MANAGEMENT ACCOUNTING- process of
providing accounting information they need.
IASB- International Accounting Standards Boards
- Narrowing difference by seeking harmonize regulations,
THE NEED TO DEVELOP STANDARDS
accounting standards, and relating to the
General- purpose financial statements
preparation and presentation of financial statements
Accounting profession- attempt to develop set of standards.
Accounting standards
Financial statement about ACCOUNTING MODEL
- provides guidelines and limits for FR.
- Recoverable historical cost
- comparability
- Nominal financial capital maintenance concept
By defining which methods to use and how much information
- Other models (meet the object. of providing info,
to disclose,
needed for economic decisions)
- accounting standards save times and money for
accountants.
OBJECTIVES OF FINANCIAL STATEMENTS
- Users learn one set of accounting rules
- Provide financial information
- Useful in decisions
DEVELOP & SOURCES OF FINANCIAL REPORTING
- Resources to the entity
International Accounting Standards Board (IASB) 1973
- Develop worldwide accounting standards
Decisions: - Harmonize conflicting national standards
- Equity or debt instrument (investors) - Formal rel’ship with NATIONAL ACCOUNTING
- Credit (lenders, banks) STANDARDS SETTERS from countries.
- Managements actions Accounting Variations among Countries
Assess:
No two systems are exactly alike
- Future net cash
- bcoz of environments they serve
- Management stewardship
- Stages of economics development: SUBSISTENCE,
Information needed:
BARTER ECONOMIES, to HIGLY COMPLEX
- Resources and claims
INDUSTRIAL SOCIETIES
- How efficiently and effectively managements has.
- Economic conditions: private ownership, degree of
industrialization, rate of inflation, level of economic
USERS
growth
A. External users- rely on general purpose financial
- Educational systems, legal systems, political systems,
statements to make invenstments, credit, and public
and sociocultural characteristics
policy decisions
Ex. Muslim di not permit INTEREST.
1. Inventors- help them control the business and make
investment decisions.
IASB’s objective
- Raise the quality and consistency of FR B. The Expectation Gap
- Platform of high quality and improved standards -fraudulent reporting cases
- Greater transparency - accounting cannot be responsible for every financial
- High degree of comparability catastrophe and it must continue to meet the needs of the
society
Accounting Standards-setting in the Philippines - Considerable resources will required and will prove to
BEFORE: (1981) be more costly to society.
US- GAAP based (principles)
FASB based (board) C. FINANCIAL REPORTING ISSUES
PICPA (institute of accountants) → ASC (council) →  Non-financial measurements
SFAS (statements) o Ex. customers satisfaction indexes, backlog
information, rejection rates, companies
NOW: 1997-2004 until today efforts.
IASC (IASB 2001) → IFARS (standards)
 Forward looking information
o Cannot forecast
o Based historical cost and accumulation of past
SOURCES OF ACCOUNTING STANDARDS
events
A. International Accounting Standards Board (IASB) {IASC –
 Soft assets
council}
o Intangible soft assets
International Reporting Standards (IFRS) 2001 above
o Ex. know-how and market dominance, expertise
International Accounting Standards (IAS) bef. 2001
and chain management, brand image
D. CONSTRAINTS ON USEFUL FINANCIAL REPORTING
Standard-setting due Process
 Cost- Benefit Balancing
Exposure draft → “Basis for Conclusions” to
o Cost of implementing a standard will not exceed
“Exposure Draft and Standards” → Published
the benefits. (IASB)
dissenting opinion by board.
o Cost of collecting, processing, auditing, and
communicating the information.
B. Financial Reporting Standards Council (FRSC) (ASC
o Losing competitive advantage by disclosing info.
before)
 Balance between quali and quanti characteristics
PRC → FRSC
 True and Fair View Presentation
R.A. 9298
Other organization
C. Securities and Exchange Commission (SEC) ENHANCING THE EXISTING SYSTEM OF FINANCIAL REPORT.
- legal authority to prescribe accounting principles.  Investor- more details
 Companies- complexity in complying
D. Philippine Institute of Certified Public Accountant (PICPA)
- forefront in the standard setting activities in the ETHICS
country. Acceptance by its members of a responsibility for
E. Other professional associations the interest of those it serves
a. FINEX- high level of financial executives Code of Ethics- guidelines for practicing
b. IMA- managerial cost accountancy accountants.
F. Bureau of Internal Revenue (BIR) Accountants- recognize and understand ethical
- administer the provisions of the Internal Revenue issues, consequences of each alternative, ensure
relevant, reliable, comparable and consistent
Code.
financial info to the best of the users
MAJOR CHALLENGES IN FINANCIAL REPORTING External Auditors exhibits the highest standards
ENVIRONMENT and reinforcements
A. IFRS/PRFS in a Political Environment
User groups: ROLE OF EXTERNAL AUDITORS
a. Business entities - External auditors, a CPA is an independent professional
b. Financial comm who conducts the audit in accordance with the
c. Preparers standards on auditing
d. Government - Reasonable assurance that there are not material
e. Industry accounts misstatements in those financial statements
f. CPAs and Accounting firms - “AUDIT OPINION”
g. Professional organization (PICPA, ACPAPP)
h. Industry publics
i. Academicians