CONCEPTUAL

FRAMEWORK
SHEILA S. SAMBAJON
• The primary users need information about the resources
of the entity not only to assess an entity's prospects for
future net cash inflows but also how effectively and
efficiently management has discharged their
responsibilities to use the entity's existing resources
 CONCEPTUAL FRAMEWORK

• Is a system of ideas and objectives that lead to the creation

of a consistent set of rules and standards.
• The rule and standards set the nature, function and limits of
financial accounting and financial statements.
 Benefits of Conceptual
Framework
1. Build on and relate to an established body of concepts and objectives
2. Provide framework for solving new and emerging practical problems
3. Increase financial statement users’ understanding of financial reporting
4. Enhance comparability among companies financial statements
 THREE LEVELS OF
CONCEPTUAL FRAMEWORK
• RECOGNITION, MEASUREMENT, AND DISCLOSURE
CONCEPTS
• QUALITATIVE CHARACTERISTICS AND ELEMENT OF
FINANCIAL STATEMENTS
• THE OBJECTIVE OF FINANCIAL REPORTING
 ASSUMPTIONS,
THIRD LEVEL
PRINCIPLES,
AND
CONSTRAINT

QUALITATIVE
CHARACTERISTICS
SECOND LEVEL
AND ELEMENTS

FIRST LEVEL
OBJECTIVES
 FIRST LEVEL

• THE OBJECTIVE OF FINANCIAL REPORTING

 OBJECTIVES
The basic objectives are to provide information that:

1) Is useful to those making investment and credit

decisions.
2 Is useful in assessing future cash flows.
3) Is about enterprise resources, claims to resources, and
changes in them.
 SECOND LEVEL

• QUALITATIVE CHARACTERISTICS
• ELEMENT OF FINANCIAL STATEMENTS
 QUALITATIVE
CHARACTERISTICS
Primary Qualities of Accounting:
• Relevance
• Faithful representation- complete, neutral & free from error
Secondary Qualities of Accounting
• Comparability
• Consistency
 ELEMENTS
1. ASSETS 1.COMPREHENSIVE
2.LIABILITIES INCOME
3.EQUITY 2.REVENUE
4.INVESTMENT BY 3. GAINS
OWNERS 4.EXPENSE
5.CONTRIBUTION 5.LOSSES
BY OWNERS
 THIRD LEVEL

• RECOGNITION
• MEASUREMENT
• DISCLOSURE CONCEPTS
RECOGNITION
• ASSUMPTIONS
 ECONOMIC ENTITY ASSUMPTION/ ACCOUNTING ENTITY
ASSUMPTION/ SEPARATE ENTITY ASSUMPTION- THE
BUSINESS SHOULD BE SEPARATE AND DISTINCT FROM ITS
OWNER
 GOING CONCERN- “CONTINUOUS” “ INDEFINITE LIFE”
 MONETARY UNIT
 TIME PERIOD ASSUMPTION/ PERIODICITY- “ EQUAL
LENGTH”
 ACCRUAL BASIS –
MEASUREMENT ‘EVENT”
VS. CASH BASIS “
MONEY INVOLVE”

• PRINCIPLES
REVENUE RECOGNITION- RECOGNIZED INCOME IN THE PERIOD
WHEN IT IS EARNED, REGARDLESS IF IT IS COLLECTED OR NOT.
EXPENSE RECOGNITION – RECOGNIZED EXPENSE IN THE
PERIOD WHEN IT IS INCURRED, REGARDLESS IF IT IS PAID OR
NOT.
MATCHING PRINCIPLE – INCOME AND EXPENSE
• March 1, 2021 You received the payment from customer
• March 5, 2021 Rendered services to customer
• March 2, 2021 you received a bill from Meralco
• March 8, 2021 You paid the Meralco bill
• March 3, 2021 you bought supplies
• March 10, you used the supplies
DISCLOSURE

• CONSTRAINT
 COST-BENEFIT
MATERIALITY
INDUSTRY PRACTICES
CONSERVATISM/ PRUDENCE