CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS (AE 14)

LEARNING MATERIAL

UNIT NUMBER/ HEADING: MODULE 2/INTRODUCTION TO

CONCEPTUAL FRAMEWORK
LEARNING OUTCOMES:
At the end of the unit, the students will be able to:
a. Define conceptual framework and identify its purpose and
scope;
b. Identify the objective and limitations of financial reporting;
c. Differentiate and discuss the qualitative characteristics of
accounting information;
d. Enumerate and define the elements of financial statements;
e. Understand the different underlying assumptions of financial
statements and reporting entity; and
f. Differentiate recognition and measurement of accounts

INTRODUCTION:
This module will focus on the discussion of the conceptual framework
for financial reporting. It will discuss the purpose of the conceptual
framework and how it will be used for the preparation and presentation of
financial statements especially when no IFRS standards applied to a specific
transaction.
I hope that at the end of this learning material, your understanding of
the course and its conceptual framework will be widened and enhanced.
Enjoy learning!

Activating Prior Learning

Before we proceed with the discussion proper about conceptual

framework, I want you to watch the video of the interview of Hans
Hoogervorst, Chairman of the International Accounting Standards Board, on
the debriefing of the Revised Conceptual Framework for Financial Reporting.
You can click on the link below to redirect you to the video.

https://www.youtube.com/watch?v=KkFcpdPwK-I

Or, you can read the article published by the IFRS News and Events
regarding the completion of the revisions of IASB conceptual framework on
this link:

https://www.ifrs.org/news-and-events/2018/03/iasb-completes-revisions-to-its-conceptual-
framework/

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 Presentation of Content

The content of these modules will be presented through the copy of the
powerpoint presentation of the Instructor taken from the website of
IFRSbox. Important ideas and principles are already in the slides below. If
you want a detailed discussion on the topics, you can visit the links below:

https://www.ifrsbox.com/ifrs-conceptual-framework-2018/

https://www.youtube.com/watch?v=v56_VJkjAX4

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 Application

Your task:

I. Enumerate the 8 chapters discussed in the Conceptual Framework

for Financial Reporting and give a brief discussion on each topic.
II. Using a Venn Diagram, compare recognition from measurement.

RECOGNITION MEASUREMENT

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 Feedback

I. Choose the best answer from the following choices.

1. What is the authoritative status of the Conceptual Framework?
a. The Conceptual Framework has the highest authority.
b. In the absence of a standards or an interpretation that specifically
applies to a transaction, the Conceptual Framework shall be
followed
c. In the absence of a standard or an interpretation that specifically
applies to a transaction, management shall consider the
applicability of the Conceptual Framework in developing and
applying an accounting policy that results in information that is
relevant and faithfully represented
d. The Conceptual Framework applies only when the IASB develops
new standards
2. The Conceptual Framework is intended to establish
a. GAAP in financial reporting
b. The meaning of “present fairly in accordance with GAAP”
c. The objective and concepts for use in developing standards of
financial accounting and reporting
d. The hierarchy of sources of GAAP
3. A Conceptual Framework should
a. Lead to uniformity of financial statements
b. Eliminate alternative accounting principles
c. Guide multinational entities in developing generally accepted
auditing standards
d. Define the basic objectives, terms and concepts of accounting
4. Which is not a purpose of the Conceptual Framework?
a. To provide definitions of key terms and fundamental concepts
b. To provide specific guidelines for resolving situations not covered
by existing accounting standards
c. To assist accountant in selecting among alternative accounting and
reporting methods
d. To assist the International Accounting Standards Board in the
standard-setting process
5. In the Conceptual Framework for Financial Reporting, what provides
the “why” of accounting?
a. Measurement and recognition concept
b. Qualitative characteristic of accounting information
c. Element of financial statement
d. Objective of financial reporting
6. The underlying theme of Conceptual Framework is
a. Decision usefulness

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 b. Understandability
c. Timeliness
d. Comparability
7. The objectives of financial reporting
a. Is the foundation for the Conceptual Framework
b. Includes the qualitative characteristics of useful information
c. Is not found in the Conceptual Framework
d. All of these are correct choices regarding the objective of financial
reporting
8. Which of the following is not a benefit associated with the Conceptual
Framework?
a. A Conceptual Framework should increase users’ understanding
and confidence in financial reporting
b. Practical problems should be more quickly solvable
c. A coherent set of accounting standards should result
d. Business entities will need far less assistance from accountants
9. Which statement is not true concerning the Conceptual Framework?
a. The Conceptual Framework should be a basis for standard-setting
b. The Conceptual Framework should allow practical problems to be
solved more quickly
c. The Conceptual Framework should be based on fundamental truth
derived from the law of nature
d. The Conceptual Framework should increase users’ understanding
and confidence in financial reporting
10. The overall objective of financial reporting is to provide
information
a. That is useful for decision making
b. About assets, liabilities and equity of an entity
c. About financial performance during a period
d. That allows owners to assess management performance

Summary of the Unit

Conceptual Framework is a summary of the terms and concepts that

underlie the preparation and presentation of financial statements for
external users
The Conceptual Framework’s scope include the following: (a) Objective
of financial reporting; (b) Qualitative characteristics of useful financial
information; (c) Financial statements and reporting entity; (d)
Elements of financial statements; (e) Recognition and derecognition; (f)

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 Measurement; (g) Presentation and disclosure; (h) Concepts of capital
and capital maintenance
The objective of general purpose financial reporting is to provide
financial information useful to investors, lenders and other creditors
for decision-making.
The qualitative characteristics of useful financial information includes
fundamental characteristics of Relevance and Faithful Representation
an enhancing characteristics of Verifiability, Comparability,
Understandability and Timeliness. (VCUT)
The financial statements that will be reported by a reporting entity
includes Statement of Financial Position, Statement of Financial
Performance, Statement of Cash Flows, and Statement of Changes in
Equity.
The elements of financial statements include Assets, Liabilities,
Equity, Income and Expenses
Recognition is the inclusion of an element of financial statements;
derecognition is the removal of asset/liability from the statement of
financial position while measurement basis is the selection of the
methodology for measuring an element of FS

Student’s Reflection on Learning

This part of the module will be a time for you to look back, and reflect on what
you have learned from this unit. Though, this will not be checked and
recorded, I would appreciate if you will do this wholeheartedly and with all
seriousness.

Answer the following questions and put your answers in the space provided.

1. Did you learn what you expect to learn?

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 2. How might you use what you learned in the future in your life or
profession?

References:

 Valix, C. T., Peralta, J.F & Valix C. A. M. (2020). Conceptual

Framework and Accounting Standards. Manila, Philippines: GIC
Enterprises & Co.. Inc.
 Ballada, W., & Ballada S. (2020). Conceptual Framework and
Accounting Standards. Manila, Philippines: DomDane Publishers.
 https://www.ifrsbox.com/ifrs-conceptual-framework-2018/
 https://www.youtube.com/watch?v=v56_VJkjAX4
 https://www.ifrs.org/news-and-events/2018/03/iasb-completes-revisions-to-its-conceptual-
framework/
 https://www.youtube.com/watch?v=KkFcpdPwK-I

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