CONCEPTUAL FRAMEWORK:

Objective of Financial Reporting

Prepared by:

Jasmin G. Gura, CPA, MBA

Stanley T. Sabuya, CPA, MBA
The Conceptual Framework
The Conceptual Framework sets out the
terms and concepts that underlie the
preparation and presentation of financial
statements for external users.
The FRSC’s Conceptual Framework for
Financial Reporting is based on the
IASB’s Conceptual Framework for
Financial Reporting which serves as a
guide to the IASB in developing and
reviewing accounting standards and in
resolving accounting issues not
addressed directly in existing Standards.
The IASB recognizes that financial
statements may differ from country to
country. Such differences are caused by
a variety of social, economic and legal
circumstances and by different national
requirements.
Purpose of the Philippine
Conceptual Framework
1.Assist the IASB to develop IFRS
Standards based on consistent concepts
2.Assist preparers of financial statements
to develop consistent accounting policy
when no Standard applies to a particular
transaction or other event or where an
issue is not yet addressed by an IFRS
3.Assist preparers of financial
statements to develop accounting policy
when a Standard allows a choice of
accounting policy
4.Assist all parties to understand and
interpret the IFRS Standards
Authoritative Status of the
Conceptual Framework
The Conceptual Framework is not a
PFRS and therefore does not prescribe
any measurement or disclosure
requirements. If there is a conflict
between a PFRS and the Conceptual
Framework, the requirement of the
PFRS will prevail.
Hierarchy of reporting standards
1.PFRSs
2.Judgment
When making the judgment:
 Management shall consider the following:
a.Requirements in other PFRS’s dealing with similar
transactions.
b.Conceptual Framework
 Management may consider the following:
a.Pronouncements issued by other standard-setting
bodies
b.Other accounting literature and industry practice
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 will result in
information that is relevant and reliable.
Users of Financial Information
1. Primary users
2. Other users

Primary users:
1. Existing and potential investors
2. Lenders and other creditors
Other users:
1. Employees
2. Customers
3. Government and their agencies
4. Public
Scope of Revised Conceptual
Framework
Objective of Financial Reporting
The overall objective of accounting is to
provide quantitative financial information
about a business that is useful to
statement users particularly owners and
creditors in making economic decisions.

Target users
1.Primary users
2.Management
Specific Objectives of Financial
Reporting
1.To provide information that is useful
to those making investing and credit
decisions about providing resources to
the entity.
2.To provide information that is useful
in assessing the cash flow prospects of
the entity.
3. To provide information about entity
resources, claims and changes in
resources and claims.
Accrual Accounting
Accrual basis of accounting means that
the effects of transactions and other
events are recognized when they occur
(and not as cash is received or paid)
and they are recorded in the accounting
records and reported in the financial
statements of the periods to which they
relate.
Under accrual basis, income is
recognized when earned rather than
when cash is collected; and expenses
are recognized when incurred rather
than when cash is paid.
Limitations of Financial Reporting
1.General purpose financial reports do
not and cannot provide all information
for user needs.
2.General purpose financial reports are
not designed to show the value of an
entity.
3.General purpose financial reports are
intended to provide common
information.
4. General purpose financial reports are
based on estimate and judgment to a
large extent.
Management Stewardship
Financial reporting provides information
useful in assessing management’s
stewardship or the effectiveness of the
entity’s management.
References:

Valix, C., Peralta, J., Valix, C.A. (2020). Conceptual Framework and
Accounting Standards. Manila City, Phils. GIC Enterprises & Co.,
Inc.

Millan, Z.V. (2018). Conceptual Framework and Accounting

Standards. Baguio City, Phils. Bandolin Enterprises.