The need for reporting standards 

For financial statements to be useful, they should be prepared using reporting standards that
are generally acceptable. Otherwise, each entity would have to develop its own standards. If that is the
case, every entity may just present any asset or income it wants and omit any liability or expense it does
not want. Financial statements would not be comparable, the risk of fraudulent reporting is heightened,
and economic decisions based on these financial statements would be grossly incorrect. For this reason,
entities should follow a uniform set of reporting standards when preparing and presenting financial
statements.
The term "generally acceptable" means that either:
 1. the standard has been established by an authoritative accounting rule-making body, i.n. the IFRs
adopted by the FRSC; or
2. the principle has gained general acceptance due to practice over time and has been proven to be
most useful, e.g., double entry recording and other implicit concepts.
The process of establishing financial accounting standards is a democratic process in that a majority of
practicing accountants must agree with a standard before it becomes implemented.

Hierarchy of Reporting Standards

When selecting its accounting policies, an entity considers the following in descending order: 
1. Philippine Financial Reporting Standards (PFRSS) ECU A Uibeng
2 In the absence of a PFRS that specifically applies to a transaction or event, management shall use its
judgment in developing and applying an accounting policy that results in information that is relevant and
reliable.
In making the judgment,
1. management shall refer to, and consider the applicability of the following sources in descending
order: The requirements in PFRSS dealing with similar and related issues;
b. The Conceptual Framework.
2. management may also consider the following:
a. Pronouncements of other standard-setting bodies
 b. Accounting literature and accepted industry practices
(PAS 8.7-12)
The term "shall" as used in the PFRSs means 'must' or it is required, while the term "may" means it is
optional or 'may or may not'. 
Although the selection of appropriate accounting policies is the responsibility of the entity's
management, the proper application of accounting principles is most dependent upon the professional
judgment of the accountant.
Accounting policies prescribed by a regulatory body (e BSP, CDA) are sometimes referred to as
regulatory accounting principles.
International Accounting Standards
The International Accounting Standards Board (IASB) is to standard setting body of the IFRS
Foundation with the main objectives of developing and promoting global accounting standards. The IASB
was established in April 1, 2001 as part of the International Accounting Standards Committee (IASC
Foundation. The IASC Foundation is a non-profit organization based in Delaware, USA and is the parent
of the IASB, which is based in London. On July 1, 2010, the IASC Foundation was renamed to
International Financial Reporting Standards Foundation or IFRS Foundation,

The standards issued by the IASB are the International Financial Reporting Standards (IFRSs), composed
of the following:
1. International Financial Reporting Standards (IFRSs) 
2. International Accounting Standards (IAS)
 3. Interpretations

Due process

IERSS are developed through an international due process The ves accountants and other various
interested individuals d organizations from around the world. Due process normally involves the
following steps: 
1. The staff identifies and reviews issues associated with a topic and considers the application of
the Conceptual Framework to the issues: 
2. 2 Study of national accounting requirements and practice, including consultation with national
standard-setters:
3. Consulting the Trustees and the Advisory Council about the advisability of adding the topic to
the IASB's agenda: nation of an advisory group to give advice to the IASB on 
4. Formation of an advisory group to give advice to the IASB on the project
5.  Publishing a discussion document for public comment; 
6.  Publishing an exposure draft for public comment 
7. Publishing with an exposure draft a basis for conclusions and the alternative views of any IASB
member who opposes publication: 
8.  Consideration of all comments received: 
9. Holding a public hearing and conducting field tests, if necessary; and
10.  Publishing a standard , including a basis for conclusions, explaining, among other things, the
steps in the IASB's due process and how the IASB dealt with public comments on the exposure
draft, and (i) the dissenting opinion of any member. 
Approved by at least 8 votes of the IASB if there are fewer than 14 members, or by 9 if there are 14
members
Other relevant International organizations
 1. International Financial Reporting Interpretations Committee (IFRIC) - is a committee that prepares
interpretations of how specific issues should be accounted for under the application of IFRS where:
a. The standards do not include specific authoritative guidance; 
 b. There is a risk of divergent and unacceptable accounting practices
The IFRIC is composed mostly of technical partners in audit firms but also includes preparers and users.
In 2002, IFRIC replaced the former Standing Interpretations Committee (SIC) which had been created by
the IASC. All of the SIC Interpretations have been adopted by the IASB.
2 IFRS Advisory Council (previously known as the Standards Advisory Council 'SAC) - is a group of
organizations and individuals with an interest in international financial reporting. The Advisory Council's
role includes advising on priorities within the IASB's work program. The IASB is required to consult with
the Advisory Council in advance of any board decisions on major projects that it wishes to add to its
agenda.
Members of the Advisory Council are appointed by the IFRS Foundation which also appoints members to
the IASB. These members are drawn from different geographic locations and have a wide variety of
backgrounds, including users, preparers, academics, auditors, analysts, regulators and professional
accounting bodies.

International Federation of Accountants (IFAC) - is a non profit, non-governmental, non-political

organization of accountancy bodies that represents the worldwide accountancy profession. Its mission is
to develop and enhance the profession to provide services of consistently high quality n the public
interest. Membership to the IFAC is open to all Accountancy bodies recognized by law or consensus
within their countries

4. International Organization of Securities Commissions (IOSCO) - is an international body of security

commissions, The Philippine SEC is a member of IOSCO.
Move to IFRSS
Prior to the full adoption of the IFRSs in 2005, the accounting standards used in the Philippines were
previously based on US GAAP, i.e, the Statements of Financial Accounting Standards issued by the
Federal Accounting Standards Board (FASB), the US. national standard setting body.
The move to IFRSs was primarily brought about by the increasing acceptance of IFRSs world-wide and
increasing internationalization of businesses thereby increasing the need for a common financial
reporting standards that minimize, if not eliminate, inconsistencies of financial reporting among
nations. 
"A good example of inconsistent national financial reporting is that of German car manufacturer
Daimler-Benz AG (prior to its merger with Chrysler), Daimler-Benz obtained a listing of its shares in the
US in 1993, and in so doing needed to report under both U.S. GAAP and German GAAP While one might
expect that the profit reported would be similar (as it was exactly the same set of economic transactions
being presented), this was not the case. The company reported a huge loss of $1 billion under US GAAP,
while at the same time reporting a profit of $370 million under its own domestic German GAAP. This
difference was simply the result of different accounting practices being used by different countries. Such
significant differences undermine the usefulness of financial statements." 

The future of IFRS

A significant milestone towards achieving the goal of having one set of global standards was reached in
October 2002 when the FASB and the IASB entered into a memorandum of understanding called the
"Norwalk Agreement" 0IECE UMtIti 
In this Agreement the FASB and the IASB formalized their commitment to the convergence of U.S. GAAP
and IFRS by agreeing to use their best efforts to:
 a make their existing financial reporting standards fully compatible as soon as practicable, i.e, minimize
differences, and 
b. coordinate their future work programs to ensure that once achieved, compatibility is maintained.

Since the publication of the Norwalk Agreement, the IASB and FASB have been working together with
the common goal of producing a single set of global accounting standards. "In a public statement issued
in January 2017, the outgoing (US) SEC Chair expressed support for the development of high-quality,
globally accepted accounting standards, and suggested that the (US) SEC support further efforts by the
FASB and IASB to converge their accounting standards to enhance the quality and comparability of
financial reporting." 

Changes in reporting standards

 Once established, financial reporting standards are continually reviewed, revised or superseded.
Changes to reporting standards are primarily made in response to users' needs. Users' needs for
financial information change, and so must financial reporting standards in order to continually provide
useful information. Legal, political, business and social environments also influence changes in reporting
standards. Regulatory bodies, lobbyists, laws and regulations, and changes in economic environments
affect the choice of accounting treatment provided under the reporting standards.

Status of the Conceptual Framework 

The Conceptual Framework is not a Standard. If there is a conflict between a Standard and the
Conceptual Framework, the requirement of the Standard will prevail.
The hierarchy guidance above means that in the absence of a PFRS 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 useful information.
To meet the objectives of general purpose financial reporting, a Standard sometimes contains
requirements that depart from the Conceptual Framework. In such cases, the departure is explained in
the 'Basis for Conclusions' on that Standard. The Conceptual Framework may be revised from time to
time based on the IASB's experience of working with it. However, revisions do not automatically result
to changes in the Standards
not until after the IASgoes through its due process of amending a Standard
Scope of the Conceptual Framework

The Conceptual Framework is concerned with general purpose financial reporting, General purpose
financial reporting involves the preparation of general purpose financial statements.
1 The objective of financial reporting
2.  Qualitative characteristics of useful financial information
3.  Financial statements and the reporting entity
4.The elements of financial statements 
5. Recognition and derecognition
6. Measurement
7. Presentation and disclosure
8. Concepts of capital and capital maintenance

The Objective of Financial Reporting

 "The objective of general purpose financial reporting is to provide financial information about the
reporting entity that is useful to existing and potential investors, lenders and other creditors in making
decisions about providing resources to the entity."
This objective is the foundation of the Conceptual Framework. All the other aspects of the Conceptual
Framework revolve around this objective.

Primary users
The objective of financial reporting refers to the following, so called the primary users:
1. Existing and potential investors, and
2.  Lenders and other creditors

These users cannot demand information directly from reporting entities and must rely on general
purpose financial reports for much of their financial information needs.
Accordingly, they are the primary users to whom general purpose financial reports are directed to.
 Lenders refer to those who extend loans (eg, banks), The Conceptual Framework is concerned with
general purpose financial reporting. General purpose financial reporting (or simply 'financial reporting')
deals with providing information while other creditors refer to those who extend other forms of credit
(eg, supplier) that caters to the common needs of the primary users. Therefore, general purpose
financial reports do not and cannot provide all the information needs of primary users. These users will
need to consider other sources for their other information needs (for example, general economic
conditions and expectations, political events and political climate, and industry and company outlooks).
 The information needs of individual primary users may differ and possibly conflict. Accordingly, financial
reporting aims to provide information that meets the needs of the maximum number of primary users.
Focusing on common needs, however, does not prohibit the provision of additional information that is
most useful to a particular subset of primary users.
Other users, such as the entity's management, regulators, and the public, may find general purpose
financial reports useful However, such reports are not primarily directed to these users.
General purpose financial reports do not directly show the value of a reporting entity. However, they
provide information that helps users in estimating the value of an entity. Providing useful information
requires making estimates and judgments. The Conceptual Framework establishes the concepts that
underlie those estimates and judgments.

Decisions about providing resources to the entity

 The primary users' decisions about providing resources to the entity involve decisions on:
a. buying, selling or holding investments, 
b. providing or settling loans and other forms of credit: or
c. exercising voting or similar rights that could influence management's actions relating to the use of the
entity's economic resources
These decisions depend on the investor/ender/other creditor's expected returns (.g., investment income
or repayment of loan). Expectations about returns, in turn, depend on assessments of the entity's (i)
prospects for future net cash inflows and (ii) management stewardship. To make these assessments,
investors, lenders and other creditors need information on the economic resources of the entity, claims
against the entity and changes in those resources and claims, and how efficiently and effectively the
entity's management has utilized the entity's economic resources
Information on Economic resources, Claims, and Changes 
General purpose financial reports provide information on a reporting entity's 
a Financial position - information on economic resources (assets) and claims against the reporting entity
(liabilities and equity); and
b. Changes in economic resources and claims - information on financial performance (income and
expenses) and other transactions and events that lead to changes in financial position.
Collectively, these are referred to under the Conceptual Framework as the economic phenomena.

Economic resources and Claims 

Information about the nature and amounts of an entity's economic resources (assets) and claims
(liabilities and equity) can help users to identify the entity's financial strengths and weaknesses. That
information can help users in assessing the entity's:
 a. Liquidity and solvency,
b. Needs for additional financing and how successful it is likely to be in obtaining that financing, and
c. Management's stewardship on the use of economic resource
> Liquidity refers to an entity's ability to pay short-let obligations, while solvency refers to an entity's
ability to m its long-term obligations,
All of these contribute to the assessment of the entityability to generate future cash flows. For example: 
-Information on currently maturing receivables and obligation can help users assess the timing of future
cash flows.
- Information about the nature of economic resources can help users assess whether a resource can
produce future cash flow independently or only in combination with other resources
- Information on liquidity and solvency can help users asses obtain additional financing the entity's
ability. Overleveraged (use of too much debt) may cause difficulty in obtaining additional financing
Information about priorities and payment requirements of claims can help users predict how future cash
flows will likely to be distributed among the claims.
Changes in economic resources and claims
 Changes in economic resources and claims result from:
 a. financial performance (income and expenses), and 
b. other events and transactions.
Information on financial performance helps users assess the entity's ability to produce return from its
economic resources Return provides an indication on how well management has efficiently and
effectively used the entity's resources. 
Information on the variability of the return helps users in assessing the uncertainty of future cash flows.
For example significant fluctuations in reported profits may indicate financial instability and uncertainty
on the entity's ability to generate cash flows from its operations.

Information based on accrual accounting provides a better basis for assessing an entity's financial
performance than Information based solely on cash receipts and payments during the period
Information on past cash flows helps users assess the entity's ability to generate future cash flows by
providing users a basis in understanding the entity's operating Investing and financing activities,
assessing its liquidity or solvency, and interpreting other information about its financial performance.
Economic resources and claims may also change for reasons aside from financial performance, such as
issuing debt or equity instruments. Information on these types of changes is necessary for a complete
understanding of the entity's changes in Economic resources and claims and the possible impact of
those changes on the entity's future financial performance.

Information about use of the entity's economic resources 

Information on how efficiently and effectively the entity's management has discharged its
responsibilities to use the entity's economic resources helps users assess the entity's management
stewardship. This information also helps in predicting how efficiently and effectively the entity's
resources will be used in future periods; thus, helping in the assessment of the entity's prospects for
future net cash inflows.
 Examples of management's responsibilities to use the entity's economic resources include safeguarding
those resources and ensuring the entity's compliance with laws, regulations and contractual provisions. 

Summary:
The decisions of primary users are based on assessments of an entity's prospects for future net cash
inflows and management stewardship. To make these assessments, users need information on the
entity's