1.

CFAS INTRODUCTION TO IASB

IASB- means International Accounting Standards Board
March 2001 – the IASC (International Accounting Standards Committee) foundation was formed as a
not profit corporation. Incorporated in the state of Delaware USA.
This foundation is a PARENT ENTITY of IASB (International Accounting Standards Board) which is an
Independent accounting standards-setting buddy based in the UK
TAKE NOTE: the IASB is emerged from the IASC foundation
April 1, 2001- IASB assumed that accounting standard setting responsibilities from its predecessor
body, the International Accounting Standards Committee (IASC)
Objective – is to achieve convergence in the accounting principles that are used by business and other
organizations for financial reporting around the world.

IASC – formed on 1973 – this is formed through an agreement made by the professional accounting
buddies from (Australia, Canada, Germany, France Japan, Mexico, the Netherlands, UK, Ireland and
USA

Between 1983-2000 – there was a membership link between the IASC or IFAC ( International
Federations of Accountants)

IASB is emerged from IASC foundation. It’s a different buddy or a different private sector from IASC
and this emerged last 2001. This is originally from or based on UK. This was formed to create a single
set of global accounting standards. Its goal is to issue IFRS (International Financial Reporting
Standards) which is based on conceptual framework.

Remember: that the goal of IASB is to make the IASB or our standard

IASB is came from IASC

IASC change its name to IFRS foundation in January 1, 2010 which means ( International Financial
Reporting Standard)
In 2008-2010---- the foundation made a constitution review and they have concluded to split the
governance into two parts.
Part 1 – is Governance and Public Accountability resulting to creation of monitoring board. This will
monitor the IFRS
Part 2 – is enhancing public accountability, stakeholder engagement and operational effectiveness that
also resulted to IASB, the creation of Vice Chairs Trustees of IFRS foundation, and Streamline the
names involved in the organization.
IASC – is change to IFRS foundation
SAC (Standards Advisory Council) is change to IFRS Advisory Council
IFRIC (IFR interpretation committee) is change to IFRS Interpretations Committee
IASB Structure
IASB Structure- This is designed to support those attributes consider desirable to establish the
legitimacy of a standards-setting organization. Like the representativeness of the decision-making
buddy, the independence of its members and the technical expertise.

Monitoring board – the primary purpose is to serve as a mechanism for formal interaction between
capital market authorities and the IFRS foundation.
• This is the link between trustees and public authorities.
• March 1, 2010- the monitoring board comprise the EU (European Union Commission), JFSA
(Financial Service Agency of Japan) SEC (US Security of Exchange Comission) and the
emerging market committee of the International Organization of securities commissions and
technical committee of the IOCO
The main responsibilities of the monitoring board are participating in the process for appointing trustees
and approving the appointment of trustees according to the guidelines set out in the IFRSF constitution.
REMEMBER that – the monitoring board oversees the IFRS foundation so they also appoint who the
trustees are in this foundation. So the trustees from IFRS foundation will have to report to the monitoring
board annually. So they will prepare the annual written report to the board.
The monitoring board - will also review and provide advice to the trustees on their fulfillment of the
responsibilities set out in the IFRSF constitution.
IFRS foundation- 22 trustees to maintain geographical balance. We have 6 trustees from asia and
oceania, 6 from Europe and 6 from north America. 1 from Africa and south America and we have 2
from any area.
• This trustees are people from different professional backgrounds like auditors, preparers of FS,
users of FS, those from the academe and other official the serves in public interest.
• The trustees from IFRS foundation will have to appoint members of the IASB or the board. Also
the IFRIC, the IFRS advisory council. This trustees will monitor the effectiveness, budgets and
secure funding for the IASB
• IASB will have to inform the trustees about the result of its work.

IFRS (International Financial Reporting Standards) foundation principal Objectives:

• To develop a single set of high quality, understandable, enforceable and globally accepted
international reporting standards (IFRS) through its standard-setting body, the IASB
• To promote of the use and rigorous application of those standards
• To take account of the financial reporting needs of emerging economies and small and medium
sizes (SMEs)
• To bring about the convergence of national accounting standards and IFRS to high-quality
solutions.
IASB – is the people whoa are appointed by the trustees of the IFRS foundation.
• We have 16 people here the;
• Chairman and 15 are the members- ( the qualification is not necessarily auditors but have to be
professionals and they have enough competence in practical experience. So that they can
represent the best available combination of technical expertise and diversity of international
business and market experience)
• Main responsibility – is to prepare and issue IFRS and that’s for the large corpo. Also for IFRS
for SMEs (Small Medium Enterprises)
• Normally meetings of the board will have to be held in public and webcasts. So in fulfilling its
standards setting duties the IASB follow through open and transparent do process of which
publication of the consultative documents such as discussion papers, exposure drafts for public
comments is really an important component. So the IASB engages closely with all the
stakeholders around the world including the investor, analyts, regulators, business leaders,
accounting standards setters and the accountancy profession.
IFRS Advisory council – which is formerly known as Standards Advisory council has 40 members.
• This provides a forum for the participation of organizations and individuals with an interest in
international financial reporting to participate in the standards setting process.
• This IFRS advisory council meets with the IASB at least 3 times a year, and 2 days in each time.
In those meetings, are also open for the public.
• The IASB is required to consult the IFRS advisory council in advance of board decisions on
major projects.
• The trustees of IFRS foundation must consult the IFRS advisory council in advance of any
proposed changes to the constitution.
• Take note: IFRS advisory council – gives advice to the IASB and the IFRS trustees.
IFRS Interpretations committee- formerly known as IFRIC
• This is an interpretative buddy of the IASB
• Have 14 members voting. Appointed by the trustees and drawn again from different countries
and different professional backgronds
• The mandate of the interpretations committee is to review on a timely basis widespread
accounting issues that have arisen within the context of current IFRS and to provide authoritative
guidance (IFRICs) on those issues.
 • IASB issued the IFRS with the advice and help with the advisory council and then the IFRS
interpretations committee will interpret the IFRS and they will have to provide guidance related
to the IFRS
Working Groups or technical working groups- formed by IASB to give advice on major agenda projects.
This will only be formed if there is any possible projects that IASB is planning. If ever they need one
they will form a technical working group which will follow and open due process which will meet regularly
and they will follow different IASB standards process applying the principles of the concstitutions
foundation.

SUMMARIZE:
IASB structure
Monitoring Board- which is incharge of linking between the trustees of IFRS foundation and the
outsiders or public authorities. Also, monitors the IFRS foundation.
IFRS foundation- are composed of trustees which were approved and appointed by the monitoring
board and this foundation trustees are those that will report to the monitoring board regarding their
projects and everything they do annually they will going to report to the monitoring board. They also
appoint and approved the members of IASB and the interpretations committee and the council and they
also monitor the effectiveness, budget and securing also the funds that will be used in IASB
The IFRS foundation trustees will also ask for advice from the advisory council if they would make
changes with their constitution.
The IASB that has 16 member will prepare and issue the IFRS with the advice of IFRS advisory council.
They will also approved how it is to be interpreted.
IASB to be able to really produced the IFRS they have to create the TECHNICAL WORKING GROUP
which will follow the different procedures and guidelines as to how to prepare the standards and advice
the IASB as to what the output come of the making of the IFRS.
IFRS will ask guidance from the IASB

IASB standard setting Process

-Identify and review the issues.
• The staff are asked to identify and review the issues associated with potential agenda topics and
to consider the framework for the issues. National accounting requirements and practices are
studied and views about the issues are exchanged about the national standards setters.
-IFRS foundation trustees and IFRS advisory council are consulted.
• About the topics and the priorities about the agenda
-IASB is required to carry out a public consultation.
• Normally we have to called a webcats. The consultation is normally held every 3 year
-Advisory group is formed
• Generally called as a working group which will advice the IASB and its staff on the projects
-Exposure draft
• A discussion document is published for public comment and usually called discussion paper
which will often include the boards preliminaries views on some issues of the projects and These
exposure drafts will be approved by at least 9 votes or 10 once there are 16 members of the
IASB. This will comments or public comment will be publish including their decenting opinions.
And their alternative views. This will be basis as conclusions and publish within the exposure
draft.
• All comments received within the comment period, discussion documents and exposure drafts,
are considered and discussed in open meetings and conduct field test
-Approval of STANDARD
 • The standard is usually approved by at least 9 voted or 10 once there are 16 members of the
IASB.

2. Accounting Standards
Accounting Standard
• What are the accounting standard issues by the IASB?
• IFRS ( International Financial Repoting Standards)
Accounting Standards are authoritative statements of how particular types of transactions and other
events should be reflected in Financial statements.

HIERARCHY OF ISSUES
IASB – IFRS #1-17
IASC - #1-41
IFRS/IFRIC- Interpretations and various numbers

Are International Financial Reporting Standards Mandatory? No

-IASB – No authority to require compliance (IASB is not a government institution it has no authority
to require compliance, your country may follow the IFRS but if it is not legally required for your country
to follow the IFRS so the IASB cannot require the company to prepare in accordance to IFRS)
-if your country have legal backing like European union. Where they required really legally to prepare
consolidated FS using the IFRS hence the company and the European union are require prepare in
accordance with IFRS.
TAKE NOTE:
-Not all countries are applying IFRS, Not all countries require companies to prepare FS using IFRS

-A set of financial statements can only be described as complying with IFRSs if they comply
with all existing IFRSs and IFRICs, plus all existing IASCs and SICs.
-Companies and or securities legislation in many countries requires management and directors
of publicly -traded companies to prepare financial statements in accordance with IFRS
-many but not all countries but normally this are required to publicly traded companies ( small, medium
enterprises
-The accountancy profession is committed to promoting and supporting compliance with IFRS
by preparers and auditors of financial information.
-Where IFRS are required accounting standards or an enterprise chooses to comply with IFRS
the requirements of all IFRS be regarded as MANDATORY.

TAKE NOTE:
whether is it mandatory or not, this is what we should remember where IFRS are the required standard
in that country or if the enterprise choose to comply IFRS even it is not require in their country then the
requirements of all IFRS should be regarded now as MANDATORY.

In developing accounting standards that will be generally accepted in the Philippines. The accounting
standards can through that the course of the financial reporting standards council considered standards
issued by other standard setting buddies such as the US. The Accounting standard consider the
following factors in deciding to move to the International Accounting Standard and first will be:

PHILIPPINE ASC moves to IAS

 • Support of International Accounting Standards (IAS) by the Philippine Organization
- The Philippine security and exchange commission in his revised securities act Rule 48.
Rules and regulations covering the form and content of financial statements specifically
included IAS (International Accounting Standards) and his hierarchy of generally
accepted principles.

• Increasing Internalization of Business.

- The increase will include the validation of business and it cross-border financing has a
high tent of interest to a common language for financial reporting. More and more
Philippine companies are not sticky capital abroad and to go countries other than the US
such as Hongkong, Singapore and Europe. For International Accounting Standards have
increasingly acceptable

• Improvement of International Accounting Standards (IAS)

- The International Accounting Standards Council which is now The International
Accounting Standards Board completed a comparability and improvement project which
was aimed after the removal of free choices of accounting treatments permitted in certain
of the International Accounting Standards.

• Increasing recognition of Accounting Standards Board ( IASB) Standards

- International Financial Institution such as the world bank and Asian development bank
prefer that borrowers use international accounting standards. The world trade
organization, the premiere entities for trade and investment liberalization issued a
statement for international accounting standards council have initiative to harmonize
accountancy standards.

In the Philippines point of view the IASC (International Accounting Standards Committee) is equivalent
to ASC (Accounting Standards Council)
- We know that IASC issued the IAS and in the Philippine the ASC issues the PAS (
Philippine Accounting Standards) which is found of SFAS ( Statement of Financial
Accounting Standards)
- We know that the IASB (International Accounting Standards Board) issued the IFRS
(International Financial Reporting Standards)
the Philippines the IASB is equivalent to FRSC or (Financial Reporting Standards Council)
• the FRSC issues the PFRS (Philippine Financial Reporting Standards)

IFRS (international) = PFRS (Philippines)

IAS (international) = PAS (Philippines)

Hierarchy of Issues
✓ FRSC - PFRS, #1-17
✓ ASC - PAS, #1-41
✓ IC/ PIC - Interpretations, Various numbers
Take Note: If you are a Philippine multinational company (company outside the Philippines), we should
always follow IFRS. Ex. If IFRS conflict with PFRS, then follow the IFRS.

3 Cfas Overview 1

Conceptual Framework Overview

• It is an ANALYTICAL TOOL that is used to get a comprehensive understanding of a

phenomenon which can be used in different fields of work and is not commonly used to
visually explain the key concepts or variables and the relationships between them that need
to be studied.
EXAMPLE OF A CONCEPTUAL FRAMEWORK OF A PROCESS FLOW
1. We should start to input the financial transactions
2. These Inputs are processed through recording, posting, and preparation of financial
statements.
3. And the final output will be called as a financial statements
The conceptual framework in Accounting
• Is a body of concepts, terms, and assumptions that set out the concepts that underlie the
preparation and presentation of financial statements for external users.
Conceptual Framework
• A system of ideas and objectives that lead to the creation of a consistent set of rules and
standards.
• Specifically in accounting, the rule of standards set the nature, functions and limits of financial
accounting and financial statement.
Framework of Accounting
• An overall theoretical foundation for accounting which will guide standard-setters, preparers
and users of financial information in the preparation and presentation statements.
Foundations in the Preparation of FS
• As foundation in preparing our FS there is 2 the:
Conceptual Framework
PFRS in Philippines/IFRS in international
(in preparing we must look into consideration the conceptual framework also to prepare the
financial statements we must look into consideration the conceptual framework and PFRS and
IFRS)
DEFINITION OF THE CONCEPTUAL FRAMEWORK
1. Visual representation
2. Body of concepts, terms and assumptions
3. A system of ideas
4. Theoretical foundation as guide to the setters, preparers and users.
Purpose of Conceptual Framework for Financial Reporting
a. Assist the International Accounting Standards Board (Board) to develop IFRS that are
based on consistent concepts.

Take note: IASB issues the IFRS so the framework assist the preparation of the IFRS that are
based on the consistent concept.

Take note: the framework is not a standard it is just a basis for preparing the standards so
nothing in the conceptual framework overrides any standards or any requirement in the
standards

b. Assist preparers of financial reports to develop consistent accounting policies for

transactions or other events when no Standard applies to a particular transaction or other
event, or when a Standard allows a choice of accounting policies

For example: we don’t have specific standards for cash so we just look into the framework if it
fits the principles, concepts and the terms, and assumptions their in the framework then that will
be our GUIDE us preparers of the FS

c. Assist all parties to understand and interpret Standards

• Since we know that the standards are based from the framework so will be able to understand
if we understood the basis

The conceptual framework provides the foundation for standards that:

TAEE (Transparency, Accountability, Economic, Efficiency)
Transparency- Contribute to Transparency in enhancing the international comparability and quality
of financial information, enabling investors and other market participants to make informed economic
decisions.
Accountability- strengthen accountability by reducing the information gap between the providers of
the capital and the people to whom they have entrusted their money.
Economic & Efficiency- Contribute to economic efficiency by helping investors to identify
opportunities and risks across the world, thus improving capital allocation.

Specific Objectives of Conceptual Framework (IFRS foundation)

Developing & Reviewing – Assist the FRSC/IASB in developing future PFRS/IFRS and reviewing
existing PFRS/IFRS
Promoting harmony- Assists the FRSC/IASB in promoting harmonization of regulations, accounting
standards, and procedures relating to the presentation of FS by providing a basis for reducing the
number of alternative accounting treatments permitted by FRSC/IASB
Developing National Standards- Assists the national standard-setting bodies in the development of
national standards.
Applying IFRS & Dealing – Assists preparers of FS in applying the PFRS/IFRS and dealing with topics
that have yet to form the subject PFRS/IFRS
Forming Opinion- Assists auditors in forming an opinion as to whether FS comply with PFRS/IFRS
Interpreting Info- Assists users of FS in interpreting the information contained in FS prepared in
compliance with PFRS/IFRS
Providing Info- Provide those who are interested in the work of FRSC/IASB with information about its
approach to the formulation of PRFS/IFRS

Scope of the Conceptual Framework

• Objective of Financial Statements
• Qualitative characteristics
• Definition, recognition and measurement of the elements from which financial statements are
constructed.
• Concepts of capital and capital maintenance

4.Chapter 1 - Objectives of Financial Reporting

Chapter 1- Objective of Financial Reporting
Introduction
The objective of general-purpose financial reporting forms the foundation of the Conceptual
Framework. Other aspects of the Conceptual Framework- the qualitative characteristics of and the cost
constraint on, useful financial information, a reporting entity concept, elements of financial statements,
recognition and derecognition, measurement, presentation and disclosure—flow logically from the
objective.
 • When we say financial reporting all of this pertains to the preparation of the general purpose
financial statements.All other aspects from the conceptual framework we have been seeing
like the characteristics, the constraint, useful financial information, and reporting entity concept,
and so on all of this flow logically from the objective.
OBJECTIVE OF FINANCIAL REPORTING
To provide financial information that is useful to users in making decisions relating to providing
resources to the entity
• Take note: this financial information are for the users
Who are these users for the financial information?
• Users of the financial information
Primary Users
-Existing and potential Investors
(Investors, if they invest in the company they become owners. So they have owners claim
so their investment increases the asset and the owners equity)
-Lenders and other creditors
(when they invest in the company, the asset will increase and as well as the liability of the
company. The assets of the firm are financed by creditors in a form of liabilities and our
owners. And also the form of owners equity A=L+OE)
-Since this two groups are the financers of the companies asset hence this are the primary
users.

Other Users
-Employees
-Customers
-Government and their agencies
-Public
REMEMBER: The users use this financial information in making decisions.
Users decisions involve:
• Buying, selling or holding equity or debts instruments.
-when we say equity those are shares and debt instruments like bonds. The primary and other
users will have to think whether they have to invest to sell or buy or hold this shares.

• Providing or settling loans and other forms of credit.

-This pertains normally to the creditors.

• Voting or otherwise influencing management actions

For the users make this decisions, users need to assess:
-The users decisions actually depends on the returns that existing and potential investors, lenders and
other creditors. Example the dividends, principal, interest payment, the market price and etc.
• Prospects for future net cash inflows to the entity
• Managements stewardship of the entity's economic resources
• Or can they trust the one who is running the business

To make both these assessments, users need information about both

• The entity economic resources, claims against the entity, and changes in those resources
and claims.

• How efficiently and effectively management has discharged its responsibilities to use the entity’s
economic resources
STATEMENT OF FINANCIAL POSITION
Economic resources and claims
 -Information about the nature and amounts of a reporting entity’s economic resources and claims
can help users to identify the reporting entitys financial strengths and weaknesses. That
information can help users to assess the reporting entitys liquidity and solvency, its needs for
additional financing and how successful it is likely to be in obtaining that financing. That
information can also help users to assess managements stewardship of the entity’s economic
resources. Information about priorities and payment requirements of existin claims helps users
to predict how future cash flows will be distributed among those with a claim against the reporting
entity.

(This report that will tell us about the economic resources and claims is what we call the
statement of financial position. You can find the resources their and the assets, and the
claims which are the creditors claim and liabilities and the owners claim which is the owners
equity.)

ASSETS = RESOURCES
LIABILITIES = CREDITOR’S CLAIM
OWNERS EQUITY – OWNERS CLAIM

STAMENT OF CHANGES IS EQUITY

Changes in economics resources and claims
• Changes in a reporting entity’s economic resources and claims result from that entity’s financial
performance and from the other events or transactions such as issuing debt or equity
instruments. To properly assess both the prospects for future net cash inflows to the reporting
entity and managements stewardship of the entity’s economic resources, users need to be able
to identify those two types of changes.
• (we can find here the results of operations which is the profit or loss of the financial performance
and other events related to our equity like issuing our share or the like)
❖ The issue about reporting some entity’s financial performance helps users to understand the
return that the entity has produced on its economic resources. Information about the return the
entity has produced can help users to assess managements stewardship of the entity’s
economic resources. Information about the variability and components of that return is also
important, especially in assessing the uncertainty of future cash flows. Information about a
reporting entity’s past financial performance and how its management discharged its
stewardship responsibilities is usually helpful in predicting the entity’s future returns on its
economic resources.

Income Statement/ Profit or Loss Statement

Financial performance reflected by accrual accounting

REMEMBER: that the users for them to be able to understand the company’s ability to generate return
from the use of economic resources. The users will have to get information from the financial
performance and there is information which is reflecting the financial performance of a company using
the accrual accounting in a form of a Income statement or the profit or loss statement.
Take note: as you remember that we prepare the income statement or profit or loss statement showing
the financial performance of the firm using the accrual basis – meaning we have to report the revenues
when earned and that expenses when incurred. It depends on the period on that the effects occur. It
doesn’t depend on when you receive cash or you pay cash. That is important because information
about a reporting entity’s economic resources and claims and changes in its economic resources and
claims during a period provides a better basis for assessing the entity’s past and future performance
than information solely about cash receipts and payments during that period.
REVENUE WHEN EARNED. EXPENSES WHEN INCURRED

CASH FLOWS STATEMENT

Financial performance reflected by past cash flows
-Information about a reporting entity’s cash flows during a period also helps users to assess the entity’s
ability to generate future net cash inflows and to assess managements stewardship of the entity’s
economic resources. That information indicates how the reporting entity obtains and spends cash
including information about its borrowing and repayment of debt, cash dividends or other cash
distributions to investors and other factors that may affect the entity’s liquidity or solvency. Information
about cash flows helps users understand a reporting entity’s operations, evaluate its financing
and investing activities, assess its liquidity or solvency and interpret other information about
financial performance.
Changes in economic resource and claims not resulting from financial performance.
-A reporting entity’s economic resources and claims may also change for reasons other than financial
performance such as issuing debt or equity instruments. Information about this type of change is
necessary to give users a complete understanding of why the reporting entity’s economic resources
and claims changed and the implications of those changes for its future financial performance.
Information about use of the entity’s economic resources
-About how effectively and efficiently the entity’s management has discharged its reponsibilties to use
the entity’s economic resources helps users to assess management’s stewardship of those resources
in future periods. Hence, it can be useful for assessing the entity’s prospects for future net cash inflows
 Example of this management responsibility to use entity's economic resources includes protecting
of resources or asset from the unfavorable effects of economic factors that arise like changes in
price, technological changes and other things that affected the company like laws and regulations
and (whatever contractual provisions).

5. Chapter 2 - Qualitative Characteristics (3 PARTS)

Part 1 – Qualitative Characteristics
The qualitative characteristics of useful financial information discussed in this chapter identify the types
of information that are likely to be the most useful to existing and potential investors. Lenders and other
creditors for making decisions about the reporting entity on the basis of information in its financial report
(financial information).
• Qualities and attributes that make financial accounting information useful to the users.
Classification of Qualitative Characteristics

• Fundamental Qualitative Characteristics (relevance and faithful representation)

- Relevance

✓ the capacity of the information to influence a decision

✓ The information must be capable of making a difference in the decisions made
by users.
✓ Related of pertinent to economic decision
-
• Ingredients of fundamental qualities
The Financial information is capable in making in a difference in decisions if it has the 2 or either
of them:

- Predictive Value
✓ If it can be used as an input to processes employed by users to predict future
outcome

Take note: the information did not to be a prediction or a forecasts (hindi kailangan
forecasted ang information. The historical information can be useful for it to predict
the future. So, the information has predictive value.The users will use the past
information to predict the future)

✓ EXAMPLE: If potential investors are interested in purchasing ordinary shares of

love company they may analyze its current resources and claims to those
resources, its dividend payments, and its past income performance to predict the
amount, timing and uncertainty of love company’s future cash flows.

- Confirmatory Value
✓ Provides feedback about previous evaluations-
(You can get feedback about your previous evaluations maybe you have hunch
initially about what status of the company is or what will happen maybe in the future
but because of what you have seen in the information your guess or hunch is
affirmed. It gives feedback on how you will evaluate the company)

✓ EXAMPLE: When love company issues its year end financial statements, it
confirms or changes past (present) expectations based on previous evaluation.
The predictive value an confirmatory value is actually interrelated, so normally that has
information that is predictive value also has confirmatory value. ( ex: revenue information in the
current year which can be used as a basis to prepare or predict revenue in the future and can also be
used by revenue predictions for the current that was made past. The results or those comparison can
help the users to correct and improve the process that were used to make the previous predictions)

We know that relevance is achieved when this information influence the decisions of a user but what is
relevant to one, may not be the same with another firm hence we have this aspect of relevance which
we call MATERIALITY – this aspect is an entity specific unlike the ingredients of predictive and
confirmatory value regardless of what size the company is all information has to be predictive or
confirmatory value.
Relevant – is the information material significant and the size of that should or the magnitude or the
nature should depend on each of the company so there is no quantitative hold or cut off that the IASB
determined as to what is the amount for it to be considered material and hence relevant to that large
corporation or to micro small medium enterprises. There is no such quantitative trust hold.

- Faithful Representation

Financial reports represent economic phenomenon or transactions in words and

numbers. (for it to be useful and financial information may not be only represents relevant
phenomena but also represents the substance of the phenomena for it to be truthful)

Descriptions and figures must watch what really existed of happened. (if the figures
their stated that they have plenty of money then its really true and when you check the
bank there is really a plenty of money and it really existed. Whatever event that was in
the declaration it was really happened)

It is a necessity because most users have neither the time nor the expertise to evaluate
the factual content of the information. (you don’t have to check again if its really true so
we have to assume that if the FS has faithful representation then we believe what was
written their
• Ingredients of fundamental qualities

- Completeness
✓ All information
(necessary for a user to understand the phenomenon being depicted aside from
financial information that also incldes description and informations)

✓ Relevant information should be presented in a way that facilitiates

understanding and avoids erroneous implication
(when we say all relevant information if numerical is not enough so we need to
have..)

✓ Adequate disclosure standard or the principle of full disclosure.

(like presenting other explanation or descriptions in the notes to financial
statements. We have to completely present everything not only number some
other significant facts like maybe quality or the nature of an items or the factor or
the circumstances that might affect the quality of the nature or the process or
whatever events or narrative that you can include in the FS if the numbers of the
financial statements are not enough to what really depict to the status of the
company)

- Neutrality
A neutral depiction of your financial information is without bias in the selection or
presentation of the financial information meaning it is not slanted or waited or emphasize
or otherwise manipulated. Like profitability or maybe it is not profitable so that you can
lesser tax. That is being bias not a neutral because you want to the decision not because
you want to make a difference but because deliberately manipulate the figures so that the
users have different decisions.
 ✓ Without Bias

✓ Should not favor one to the detriment of another party

✓ Synonymous with all-encompassing “principle of fairness”

It is also supported by PRUDENCE

o Prudence
-you are careful or cautious when making judgement under the conditions of
uncertainty. (Remember: that not all informations stated in the FS have really historical
cost like it really have the receipt for that some of the figures are based on the estimates
judgement like there is base on fair value or based on how you divide to get the debt of
depreciation or amortization.)

o Do not overstate asset & income

o Do not understate liabilities & expenses

- Free from error

✓ There are no errors or omissions in the description of the phenomenon
(we do not omit something or intentionally omit something or unintentional because
of being irresponsible especially when the amount is too big)

✓ And the process used to produce the reported information has been selected
and applied with no errors in the process.
(take note there is some financial information which is not really the exact amount
like we just really need to estimate it to make judgement and estimate it. Like it is
not 100% perfect estimate it. At least fairly correct. Then It is free from error)

• Applying the fundamental qualitative characteristics

- Information must both be relevant and provide a faithful representation of what it
purports to represent if it is to be useful (you don’t have to say if it is relevant but not
faithfully represented or faithfully represented but not relevant. It should be both relevant
and faithfully represented) Neither a faithful representation of an irrelevant
phenomenon nor an unfaithful representation of a relevant phenomenon helps
users make good decisions.

✓ First, Is to identify an economic phenomenon, information about which is capable

of being useful to users of the reporting entity’s financial information
✓ Second, identify the type of information about that phenomenon that would be
most relevant
✓ Third, determine whether that information is available whether it can provide a
faithful representation of the economic phenomenon.

- From this three steps if still we cannot achieve the three relevant and faithful
representation then we just go back to the first and second and third and do the cycle
again and again until we achieved the qualitative characteristics for our financial
information

- In applying the qualitative characteristics their should be both the faithful representation
and the relevant but there is TRADE OFF

✓ Trade off between relevance and faithful representation sometimes and there
are some cases for example for you just to provide the information useful. We may
get highly relevant information but how to get the amount is highly uncertain to get
the amount. It is prone to error the estimate amount it is highly 100% relevance
and faithful representation is you just have to sway it.

• Enhancing Qualitative Characteristics

 - Comparability
✓ Ability to bring together for the purpose of noting points of likeness and
difference

✓ Comparability within an entity (intracomparability ) or between and across

entities (intercomparability)
(like you compare the past and present, you compare from one branch to another
branch intra and if you compare with another companies that is inter. The report
that are normally present as comparable we have at least two periods to the
previous year or the present year.)

✓ Principle of consistency helps to achieve comparability

- Consistency
Consistency, although related to comparability is not the same. Consistency refers to the
use of the same methods for the same items, either from period to period within a
reporting entity or in a single period across entities. Comparability is the goal; consistency
helps to achieve that goal.

(So you are just consistent of what accounting method to use from. For example you are
presenting 2 years, previous and current year. And you present a first in first out method
in the inventory. In a previous year you have to present it in the same method in the
current year.)

- Verifiablity
✓ Different knowledgeable and independent observers could reach consensus,
although not necessarily complete agreement, that a particular depiction is a
faithful representation.

✓ Direct verification and indirect verification

✓ Ex. Of direct – counting cash
✓ Ex. Of direct – recalculating ending inventory

(so we can verify not only one stakes that you this much building then you can be verified
and then you have document, title, you have whatever records that can prove, that this
figure that has been presented in your financial report is actually true they actually existed)

-Timeliness
✓ Financial information must be available or communicated early enough when a
decision is to be made
✓ The older the information, the less useful
✓ What happened in the past would become the basis of what would happen in the
future.
(the information like ten years ago is not necessarily relevant now in the present)

- Understandability
✓ Requires that financial information must be comprehensible or intelligible
✓ The information should be presented in a form and expressed in terminology that
a user understands
✓ Classifying, characterizing and presenting information “clearly and concisely”
makes it understandable
✓ Requires reasonable knowledge of business and economic activities

• Applying the enhancing qualitative characteristics

- Maximize to the extent possible

- Iterative process with no prescribe order
- Trade off between enhancing qualitative characteristics
( applying this for is actually a iterative process that does not follow the prescribe order
unlike,)
• Cost constraint on useful information
 ✓ The benefit derived from the information should be exceed the cost incurred in obtaining
the information.

⚫ (Cost is a pervasive constraint on the information that can be provided by financial

reporting.Reporting financial information imposes costs, and it is important that
those costs are justified by the benefits of reporting information, These are several
types of costs and benefits to consider.)

Benefit > Cost

BENEFITS is greater than cost

In an effort to achieve 100% qualitative characteristic there is constraint. The

constraint is cost, the benefit of generating information that is useful should exceed the
cost of collecting these information. We should not spend too much cost just to get 100%
financial report that will result to a loosing end.
➢ The cost must be lesser than the benefit

We don’t have perfect performance because has financial report

Example
– the use cost model vs revaluation model for PPE
- The use of model for PPE
- The use of cost model vs fair value model for the biological assets

Note: Cost model doesn’t incur much cost; recommended for small companies and
businesses.

BENEFIT OVER COST

6. Chapter 3 - Financial Statements & Reporting Entity

Objective and scope of Financial Statements

The objective of financial statements is to provide financial information about the reporting
entity's assets, liabilities, equity, income and expenses that is useful to users of financial
statements in assessing the prospects for future net cash inflows to the reporting entity and
in assessing managements stewardship of the entity's economic resources.

That information is provided:

(a) in the statement of financial position, by (where we) recognize the assets, liabilities and
equity;
 (b) in the statement of financial performance, whereby we recognized income and expenses;
and
(c) in the other statements and notes, by presenting and disclosing information about:

i. recognize assets, liabilities, equity, income and expenses, including information

about their nature and about the risk arising from those recognized assets and
liabilities;

ii. asset and liabilities that have not been recognized, including information about their
nature and about the risk arising them;
➢ Note: maybe they're contingent assets and liabilities, future assets
and liabilities, that's why they are disclosed in the notes.

iii. Cash flows; ( which are found in your statement of cash flows)

iv. Contributions from holders of equity claims and restrictions to them; (which are found
in your statement of changes in equity and other information )

v. The methods, assumptions judgments used in estimating the amounts presented or

disclosed, and changes in those methods, assumptions and judgments.

Reporting Period
When we prepare our financial statement there has to be a reporting Period. Like what is the date there
in your financial statements

The indefinite life of an enterprise is subdivided into time periods.

➢ The life of the business is indefinite and we cannot just wait to prepare the financial
report until the end of the life of the business so we subdivide the life of the business
into time.

Therefore we make a year to subdivide it:

✓ Calendar
✓ Fiscal Year
✓ Natural Business Year
✓ Interim

Financial statements are prepared for a specified period of time (we call that one the reporting period) and
provide information about:

(a) Assets at liabilities - including the unrecognized assets and liabilities - and equity that existed at the
end of the reporting period, or during the reporting period; and

(b) income and expenses for the reporting period.

Note: Remember from the statement of financial position where you find the asset, liabilities, and
equity, it is written as as of or at the end of , like December 31 or as of December 31 2020 or 2021.

Whereas for the income and expenses when we prepare the financial report, presenting income
and expenses, it is, for the period ended, for the year ended, for the quarter ended, because it is for
the whole period.

Aside from this when we prepare our financial report, normally we have to prepare or prepare
comparative information for at least one preceding reporting period . Like if we have to prepare
the December 31 2021 financial statements, we have to present also the previous year so December
31 2020. That's to make sure that the financial report or comparative. you can also present more than
one periods - two or three .
Information about possible future transactions in other possible future events (like forward-looking
information) is included in the financial statements only if it:

(a) relates to the entity's assets or liabilities - including the unrecognized assets or liabilities - or
equity that existed at the end of the period, Or during the reporting period, or to the income
expenses for the reporting period; and
(b) is useful to users of the financial statements.

Take Note: Normally these are presented in your notes. For example of this is, if an asset or liabilities
measured by estimating future cash flow, sometimes we call this one, the value in use . We do not use
the cost based on the official receipts we use the future estimated cash flows so therefore its futuristic
right but it’s estimated. Financial statements do not typically provide this type or forward-looking
information. Remember that we normally provided using based on historical cost but if there such
thing as like this, we have to also include in our notes that we did some estimation of future cash flow
for a certain asset.

Financial statements include informations about transactions and other events that have occurred after
the end of the reporting period if providing that information is necessary to meet the objective of financial
statements.

Perspective adopted in financial statements

Financial statements provide information about transactions and other events viewed from the
perspective of the reporting entity as a whole, not from the perspective of any particular group of the
entity’s existing or potential investors, lenders or other creditors.

Basic Assumption

Going Concern
➢ The accounting entity is viewed as a continuing in operation indefinitely.
➢ The very foundation of the cost principle.

Reporting entity
➢ An entity that is required or chooses to prepare FS
➢ Parent or subsidiary
◼ If there is a parent subsidiary relationship, the reporting entity is the parent. The parent
is required to prepare the consolidated FS.
⚫ Consolidated FS - both the parent and its subsidiaries (required)
◆ All financial information of both the parent corporation and its
subsidiaries.
◆ Required in IFRS

◼ The parent ,as a reporting entity, can also choose to prepare an unconsolidated FS
(but it is not required)
⚫ Unconsolidated FS - the parent alone (not required)
◆ A separate FS where in it is just financial information about the parent
corporation alone

◼ If we don’t have a parent-subsidiary relationship (associates)

⚫ Combined FS - two or more entities that are not all linked by a parent-subsidiary
relationship.
7. Chapter 4 - Elements of Financial Statements

Statement of Financial Performance

➢ Income
➢ Expense

Statement of Financial Position

➢ Asset
➢ Liability
➢ Equity
Table 4.1 - The elements of financial statements

Item discussed in Chaper 1 Element Definition or description

1. Economic resource
Asset A present economic resource
controlled by the entity as a
result of past events.

An economic resource is a right

that has the potential to produce
economic benefits.
2. Claim
Liability A present obligation of the entity
to transfer an economic
resource as a result of past
events.

Equity The residual interest in the

assets of the entity after
deducting all its liabilities.
3. Changes in economic
resources and claims, Income Increase in assets, or decrease
reflecting financial in liabilities, that result in
performance increase in equity, other than
those relating to contributors
from holders of equity claims.

Expenses Decrease in assets, or increase

in liabilities, that result in
decreases in equity, other than
those relating to distribution to
holders of equity claims.
4. Other changes in - Contributors from folders of
economic resources and equity claims, and distributions
claims to them.
- Exchanges of assets or
liabilities that do not result in
increase or decrease in equity.

1. ASSET (Economic Resource )

➢ 3 Aspects (Right, Control, Potential)
◼ Right
◆ Rights that have the potential to produce economic benefits take many forms, including;

⚫ Rights that correspond to an obligation of another party

✓ Rights to receive cash
✓ Rights to receive goods and services
✓ Rights to exchange economic resource with another party on favorable terms
✓ Rights to benefit from an obligation of another party to transfer an economic
resource if a specified uncertain future events occurs
 ⚫ Rights that do not correspond to an obligation of another party
✓ Rights over physical objects, such as PPE or inventories
✓ Rights to use intellectual property

Ways to obtain rights:

 Establish by contracts, legislation or similar means
 By acquiring or creating know-how that is not in public domain
 Through obligation of another party
◼ That arises because the other party has no practical ability to act in a manner
inconsistent with its customary practices, published policies or specific
statements.

Remember: NOT ALL RIGHTS ARE ASSETS

❖ Not all of an entity’s rights are asset of that entity - to be assets of the entity, the
rights must have both the potential to produce for the entity economic benefits
beyond the economic benefits available to all other parties and be controlled by the
entity.
◆ Example: you have right to use the road, but the road is not controlled by
you, so it is not classified as an asset

In principle, each of the entity's rights is a separate except. However, for accounting purposes,
related rights are often treated as a single unit of account that is a single asset. For example legal
ownership of a physical object may give rise to several rights, including:

(a) The right to use the object;

(b) The right to sell rights over object;

(c) The rights to pledge rights over the object; and

(d) Other rights not listed in (a)- ( c)

Note: Asset is a SET of rights

Potential to produce economic benefits

An economic is a right that has the potential to produce economic benefit
◆ Does not need to be certain, or even likely

◆ As long as the right already exist with at LEAST ONE circumstance, it would produce
economic benefit

◆ (Even if) the probability to produce economic benefit is LOW

➢ However, it might affect the;
◆ What information to provide about the asset;
◆ How to provide that information including the decision of when an asset to be
recognized and how it is measured

An economic resource could produce economic benefit for an entity by entitling or enabling it to do, for
example one or more of the following:

(a) receive contractual cash flows or another economic resource;

(b) exchange economic resource with another party on favorable terms;

(c) produce cash inflows or avoid cash outflows by, for example:
i. using economic resource either individually or combination with other economic
resource to produce goods or provide services;

ii. or using economic resource to enhance the value of other economic resource; or
 iii. leasing the economic resource to another party;

(d) receive cash or other economic resource by selling the economic resource; or

(e) extinguished liabilities by transferring the economic resource.

◼ Control
◆ Links an economic resource to an entity

⚫ It has present ability to:

✓ Direct the use of the economic resource and
✓ Obtain economic benefits that may flow from it.

⚫ It has present ability to prevent other parties from:

✓ Directing the use of economic resource and
✓ Obtaining economic benefits that may flow from it.

Note: It follows that, if one party controls an economic resource, no other

party control that resource. A certain object can be an asset only of one entity,
not shared by other entity or party.

◼ Potential

2. LIABILITY (Claim)
➢ For a liability to exist, there is 3 criteria which must all be satisfied
i. An entity has an OBLIGATION
ii. The obligation is to TRANSFER AN ECONOMIC RESOURCE
iii. The obligation is a PRESENT obligation that exists as a result of PAST events

◼ Obligation
◆ Is a duty or responsibility that an entity has no practical ability to avoid
◆ Owed to another party/ies
◆ Identity of the party/ies may not be known
❖ Party A (obligation) = Party B (asset) not always the case
 Party A may recognize liability while party B may not if there is difference in
recognition and measurement criteria

How obligation arise

i. Contract, legislation, or similar means
ii. Customary practices, published policies or specific statements
a) If an the entity has no practical ability to act in manner in consistent with those usual
practice (their policies and statements), their obligation will arise.
b) Constructive obligation

◼ Transfer an economic resource

◆ Must have potential to require the entity to transfer an economic resource to another
party/ies

◆ Does not need to be CERTAIN

◆ Obligation already exists anf that, in at least ONCE CIRCUMASTANCE, it would

require transfer of economic resource

◆ Probability of a transfer is LOW

➢ However, it might affect the decision on:
 What information to provide about the liability;
  How to provide that information including decisions whether the liability is to be
recognized or measured

Obligations to transfer an economic resource include, for example:

(a) obligation to pay cash.

(b) obligation to deliver goods or provide services.

(c) obligation to exchange economic resources with another party on unfavorable terms. Such
obligation include, for example, a forward contact to sell an economic resource on terms that are
currently unfavourable or an option that entitles another party to buy an economic resource from
the entity.

(d) obligation to transfer an economic resource if the specified uncertain future event occurs.

(e) obligations to issue financial instrument if the financial instrument will oblige the entity to
transfer an economic resource.

Instead of fulfilling an obligation to transfer an economic resource to the party that has a right to receive
that resource, entities sometimes decide to , for example:

(a) settle the obligation by negotiating a release from the obligation;

i. circumstances like asking to be released from the obligation (condonation)

(b) transfer the obligation to a third-party; or

(c) replace that obligation to transfer an economic resource with another obligation by entering
into a new transaction.

◼ Present obligation as a result of past events

⚫ A present obligation exists as a result of past events only if:

(a) The entity has already obtained economic benefits are taken and action; and

(b) As a consequence, the entity will or may have to transfer an economic resource that
it would not otherwise have to transfer. Example: a company has a customary practice

A present obligation can exist even if a transfer of economic resources cannot be enforced until
some point in the future. For Example , a contractual liability to pay cash may exist now even if the
contract does not require a payment until a future date (still has future obligation). Similarly , a
contractual obligation for an entity to perform work at a future date may exist now even if the
counterparty cannot required the entity to perform the work until the future date .

Asset and Liabilities

➢ Unit of Account - Right or group of rights or obligation or group of obligations to which the
recognition criteria and measurement concepts are applied.

➢ Executory Contract - A contract , for portion of a contract , that is equally underperformed- neither
party has fulfilled any obligations , are both parties have partially fulfilled their obligations to an
equal extend. (Not yet executed/ performed)

➢ Substance of Contractual Right & Contractual Obligation - Substance over form. Example:
Renting
3. EQUITY
➢ In other words, they are claims against the entity that do not meet the definition of liability.
◼ Take Note: The company’s asset has two claimants: the creditors in a form of liability and
the owners in a form of equity

Different classes of equity claims , such as ordinary shares and preference shares , make confirm on
their holders different rights, for example, rights to receive some or all of the following from the entity:

(a) dividends, entity decides to pay dividends to eligible holder; (Note: there must be a
declaration that the company’s will pay dividends)

(b) the proceeds from satisfying the equity claims, leader in full on liquidation, part of other times;
or

(c) other equity claims.

4. INCOME and EXPENSES

i. Income
➢ Contribution from holders are not considered as income (Like, issue additional shares)
ii. Expense
➢ Distribution to holders are not considered expenses ( Like, dividends decrease equity
but it’s a distribution to the holders/ owners)

Income and expenses are the elements of financial statements that relate to an entity's financial
performance. Users of financial statements need information about both an entity's financial position
and its financial performance. Hence, although income and expenses are defined in terms of changes
in assets and liabilities, information about income and expenses is just as important as information
about assets and liabilities.

Different transactions and other events generate income and expenses with different
characteristics. Providing information separately about income and expenses with different
characteristics can help users of financial statements to understand the entity's financial performance
.

5. OTHER CHANGES IN ECONOMIC RESOURCES AND CLAIMS (non-income, non-expense)

➢ Contributions from holders of equity claims , and see them .
◼ Examples:
✓ Investments in the Ordinary Shares, Preference Shares
✓ Dividends
➢ Exchanges of assets or liabilities that do not result in increases or decreases in equity.
◼ Examples:
✓ Receivable is paid with other receivable (from oral to written)
✓ Accounts is replaced with notes receivable (change in asset but doesn’t result to
decrease and increase of equity)

8. Chapter 5 - Recognition and Derecognition

Recognition of Elements

Recognition is the process of capturing, for inclusion in the statement of financial position or
the statement(s) of financial performance, an item that meets the definition of an asset, a liability, equity,
income or expenses.
➢ Recognizing means you include your FS. Before items included in FS, you have to
make the journal entries first. The beginning of recognition is when you record your
debit or credit in the journal entries and its ending would be its inclusion in the
 financial statements, whether its in the financial position or the financial
performance.

Recognition involved to depicting the item in one of those statements- either alone or in
aggregation with other items- in words and by a monetary amount, and including that amount in one
or more totals in that statement. (Alone = one item, Aggregation= group of items)
➢ Example: Accounts Receivable, an item on its own alone, or you can group the
accounts receivable with all other receivable (aggregation)- notes, advances.

The amount at which an asset, a liability, or equity is recognized in the statement of financial
position is referred to as its ‘carrying amount.’

Diagram. Assets, liabilities, and equity are elements of which the financial statements are reported in
the statement of financial position
Recognition Criteria
Only items that meet the definition of an asset, a liability or equity are recognized in the statement
of financial position. Similarly, only items that meet the definition of income or expenses are recognized
in the statement of financial performance. However, not all items that meet the definition of one of those
elements are recognized .
➢ An asset or liability is recognized only if recognition of that asset or liability and of any resulting
income, expenses or changes in equity provides user of financial statement with information
that is useful with:
(a) A relevant information about the asset or liability and about any resulting income,
expenses or changes in equity.
(b) A faithful representation of the asset or liability and about any resulting income,
expenses for changes in equity.
Note: Not recognized in the statement of financial position or financial performance does not mean not
recorded in the journal. They are not presented in the statement of financial position or performance,
however, they can be presented in the notes of the FS.

Cases with no relevant Information

➢ Existence uncertainty - is uncertain whether an asset or liability exists.
➢ Low probability - an asset or liability exists, but the probability of an inflow or outflow
of economic benefits is low.
Cost Constraint in Recognition Decision
❖ Preparers = cost in obtaining relevant measure of an asset or liability
❖ Users = cost in analyzing and interpreting the information provided.
 Judge whether to recognize an item but constrained by cost
◼ An asset or liability is recognized if the benefits of the information provided to users of the FS
by recognition are likely to justify the cost of providing and using that information.
◼ In some cases, the cost of recognition may outweigh its benefits. If that is the case, then we
are constrained. We don’t want cause to be more than the benefits that we can get .
DERECOGNITION
The removal of all or part of a recognized asset or liability from an entity's statement of financial
position. Occurs when NO LONGER MEETS the definition of an asset or liability.
❖ Asset = entity loses control
❖ Liability = entity no longer has present obligation
Aim of Derecognition
Conceptual framework stated that the accounting requirements for the recognition into faithfully
represent both:
(a) any assets and liabilities retained after the transaction or other event that led to the
derecognition (including any asset or liabilities acquired , incurred or created as part of
transaction or other event); and
(b) the change in the entity's assets and liabilities as a result of that transaction or event.

9. 1. Chapter 6 - Measurement of Elements

What is measurement?
In Accounting, measurement is a quantifying in monetary terms the elements recognized.
Measurement of Elements
The process of determining the monetary amounts at which the elements of the financial
statements are to be recognized and carried in the balance sheet and income statement.
Bases for Measurement of Elements (IFRS 2018)
✓ Historical cost
✓ Fair value
✓ Values in Use/ Fulfillment Value
✓ Current cost
As to which of the different measurement bases will be selected, the company has to
consider the qualitative characteristic of a useful financial information as well as the cost constraints
of generating such information .
According to a revised conceptual framework in 2018, paragraph 6-3, standard may need to
describe how to implement the measurement bases selected in that standard . That description
could include:
(a) Specifying techniques that may or must be used to estimate in measure applying a
particular measurement basis
(b) specifying a simplified measurement approach that is likely to provide information
similar to that provided by a preferred measurement basis
(c) explaining how to modify a measurement basis
Two Categories of Measurement Bases
Remember that the conceptual framework have four (4) measurement bases, but the revised
conceptual framework in 2018 categorize this for bases into two categories:
i. Historical Cost
✓ Cost at initial recognition
✓ Base on the PAST
 ii. Current Value
✓ Cost at measurement date (PRESENT)
◼ Fair Value
◼ Value in Use/ Fulfillment value
◼ Current Cost
Historical Cost
Historical cost principle suggests that assets and liabilities are recorded on the balance sheet at
original cost, even if the value of the asset changes over time . But this principle is often criticized for
its accuracy . Since the value of an asset or liability can change over time.
Therefore, there is a principle called the full disclosure principle which states that you should
include all the information about an entity's financial statements that would affect a reader's
understanding of those statements.
To be technical, in the revised Conceptual Framework in 2018 paragraphs 6.7 and 6.8. Historical
cost measures provide monetary information about assets, liabilities and related income and expenses,
using information derived, at least in part, from the price of the transaction or other event that gave rise
to them.
This means that:
Assets, the cost incurred or value of the consideration given for acquiring or creating the asset. Past
purchase exchange price
Liability, value of the consideration received to incur or take on a liability.

Historical Cost of an Asset

➢ is not measured one time big time
◼ Initial Measurement (at the time of acquisition)
✓ Past Purchase Exchange Price
◼ Subsequent Measurement (at the reporting date)
◆ Initial Measurement must be updated so Subsequent Measurement is used
✓ Net Realizable Value (AR)
❖ Gross Accounts receivable reduced by the allowance for doubtful accounts
or allowance for bad debts
✓ Amortized Cost (LR)
❖ Gross amount of loan receivable deducted by any unearned interest
income
✓ Net Book Value (PPE / ITA)
❖ Gross amount of the original acquisition cost of PPE and intangible asset
deducted by the accumulated depreciation or accumulated amortization
✓ Carrying Amount (any asset reduced by impairment)
❖ All of the amount it caries at the Financial statement is carrying amount,
reducing asset to impairment
As stated in revised Conceptual Framework in 2018 paragraph 6-7 the historical cost of an asset is
updated overtime to depict, if applicable:
(a) The consumption of part or all of the economic resource that constitutes the asset
(depreciation or amortization).
(b) Payment received that extinguish part or all of the asset:
(c) The effect of event that cause part or all of the historical cost of the asset to be no longer
recoverable (impairment); and
 (d) Accrual of interest to reflect any financing component of the asset.

Historical Cost of a Liability

◼ Initial Measurement (at the time of acquisition)
✓ Value of the consideration received to incur or take on a liability
◼ Subsequent Measurement (at the reporting date)
✓ Amortized Cost or carrying amount
To be technical, Conceptual Framework in 2018 paragraph 6-8 states that the historical cost of a liability
is updated over time to defect, if applicable:
(a) Fulfillment of part or all of the liability, for example, by making payments that extinguish part
or all of the liability or by satisfying an obligation to deliver goods;
(b) The effect or events that increase the value of the obligation to transfer the economic
resources needed to fulfill the liability to such an extent that the liability becomes onerous.
i. A liability is onerous if the historical cost is no longer sufficient to depict the
obligation to fulfill the liability; (make the best estimate of the liability)
(c) Accrual of interest to reflect any financing component of the liability

9. 2. - Measurement of Elements
Current Value
Current value measures
Provide monetary information about assets, liabilities and related income and expenses, using
information updated to reflect conditions at the measurement date.
Note: Current Value is different from the subsequent measurement of the historical cost.
Subsequent measurement consider the past record, the initial measurement plus/minus of the changes.
In current value, forget about the initial measurement; just update the value of the asset or liability,
reflecting what is the current condition now in the market.
◆ Fair Value
Revised conceptual framework in 2018 paragraph six - 12 sates that the fair value is the
price that would be received to sell an asset, or paid to transfer a liability, in an orderly
transaction between market participants at the measurement date.
Fair value reflects the perspective of market participants, participants in a market to
which the entity has access. (market participants are both buyers and sellers)
To simplify, Fair value may or may not be equivalent to the selling price (many buyers
and sellers, willing and not forced). While the selling price is the price that is set by one buyer
and one seller (something they both agreed upon).

◆ Value in use for assets/ Fulfillment value for liabilities

 Value in Use
➢ Is the present value of the cash flows, or other economic benefits, that an entity
expects to derive from the use of an asset and from its ultimate disposal .
 Fulfillment Value
➢ Is the present value of the cash, other economic resources, an entity expects
to be obliged to transfer as it fulfills a liability.
 ◆ Current Cost
The current cost of an asset is the cost of an equivalent asset at the
measurement date, comprising the consideration that would be paid at the
measurement date plus the transaction costs that would be received for an equivalent
liability at the measurement date minus the transaction cost that would be incurred at
the date.
✓ Current causes like historical cost, is an entry value: it reflects prices in the market in which
the entity would acquire the asset or would incur the liability.
✓ Hence, it is different from fair value, value in using fulfillment value which are exit values.
✓ However, unlike historical cost, current costs reflects conditions at the measurement date.

9.3. - Measurement of Elements

Summary of Information provided by particular measurement bases
ASSET LIABILITY
Historical Cost (Entry Value) Historical cost (including Consideration received (net of
transaction costs), the extent transaction cost) for taking on
*Entry value is the amount that
consumed or uncollected and the unfulfilled part of the liability,
you record
recoverable. (includes shipping increased by excess of
cost) estimated cash outflows over
consideration received.
*Cost in the past when you
acquired it (Includes interest accrued on
any financing component)
Fair Value (Exit Value) Price that would be received to Price that would be paid to
sell the asset (without transfer the unfulfilled part of the
(Market participants)
deducting transaction costs liability (not including
*Exit Value is the value that on disposal). transaction costs that would be
appears on the FS incurred on transfer).

Value in Use (Exit Value) Present value of future cash Present value of future cash
flows from the use of the asset flows that will arise in fulfilling
(Entity Specific)
and from its ultimate disposal the unfulfilled part of the liability
(after deducting present value (including the present value of
of transaction cost on transaction costs to be incurred
disposal). in fulfillment or transfer)
Current Cost (Entry Value) Current costs (including
Current cost (net of transaction
transaction costs) to the extent
costs) that would be currently
and consumed or uncollected received for taking on the
and recoverable . unfulfilled part of the liability,
increase by excess of estimated
*Cost if you replace it in the
cash outflows over that
present
consideration.
Asset is found at the Statement of Financial Position*
Liabilities is found at the Statement of Financial Position*
Asset
Statement of Financial Performance - Initial Recognition -
Historical Cost Fair Value Value in Use Current Cost
Market- participant Entry- specific
assumptions assumptions
None None
Difference between Difference between
consideration paid and consideration paid and
fair value of the asset fair value of the asset
acquired . acquired .
 Transaction costs on Transaction costs on
acquiring the asset. acquiring the asset.

Note: Income or expenses may arise on the initial recognition of an asset not acquired on market
term.
Income or expenses may arise in the market in which an asset is acquired is different from the
market that is the source of the prices used when measuring the fair value of the asset.
Statement of Financial Performance -Sale or consumption of the asset -
Historical Cost Fair Value Value in use Current Cost
Market- participant Entry- specific
assumptions assumptions
Expenses equal to Expenses equal to the Expenses equal to Expenses equal to
historical cost of the fair value of the assets value and use of the current cost of the
asset sold or sold or consumed. assets sold or asset sold or
consumed. consumed consumed.
Income received Income received Income received Income received
(gross or net) (gross or net) (gross or net) (gross or net)
Expenses for Expenses for Expenses for
transaction cost on transaction costs on transaction cost on
selling the asset. selling the asset. selling the asset.

Note: Consumption of the asset is typical reported through cost of sales the depreciation or
amortization.
Statement of Financial Performance -Interest Income-
Historical Cost Fair Value Value in use Current Cost
Market- participant Entry- specific
assumptions assumptions
Interest income, at Reflected in income Reflected in income Interest income,
historical rates, and expenses from and expenses from current rates.
updated if the asset changes in fair value changes in value in use
bears variable interest.
(could be identified (could be identified
separately) separately)

Statement of Financial Performance -Impairment-

Historical Cost Fair Value Value in use Current Cost
Market- participant Entry- specific
assumptions assumptions
 Expenses arising Reflected in income Reflected in income Expenses arising
because historical cost and expenses from and expenses from because current cost is
is no longer changes in fair value changes in value in use no longer recoverable.
recoverable.
(could be identified (could be identified
separately) separately)

9.4. - Measurement of Elements

Liabilities
Statement of Financial Performance -Initial Recognition-
Historical Cost Fair Value Fulfillment Value Current Cost
Market- participant Entry- specific
assumptions assumptions
None Difference between Difference between None
consideration received consideration received
and fair value of the and fulfillment value of
liability the liability
Transaction costs on Transaction costs on
incurring or taking on incurring or taking on
the liability. the liability.

Note: Income or expenses may arise on the initial recognition of a liability incurred or taken on
not on market terms.
Income or expenses may arise if the market in which a liability is incurred or taken on is different
from the market that is the source of the price used when measuring the fair value of the liability.
Statement of Financial Performance -Fulfillment of the liability -
Historical Cost Fair Value Fulfillment Value Current Cost
Market- participant Entry- specific
assumptions assumptions
Income equal to the Income equal to fair Income equal to Income equal to the
historical cost of the value of the liability fulfillment value of the current cost of the
liability fulfilled (reflects fulfilled. liability fulfilled. liability fulfilled (reflects
historical historical
consideration) consideration)
Expenses for costs Expenses for costs Expenses for costs Expenses for costs
incurred in fulfilling the incurred in fulfilling the incurred in fulfilling the incurred in fulfilling the
liability. liability. liability . liability.
(Could be presented (could be presented (could be presented (could be presented
gross or net .) gross or net . If gross, gross or net . If gross, gross or net . If gross,
historical consideration historical consideration historical consideration
could be presented could be presented could be presented
separately.) separately.) separately.

Statement of Financial Performance -Transfer of the liability -

Historical Cost Fair Value Fulfillment Value Current Cost
Market- participant Entry- specific
assumptions assumptions
Income equal to Income equal to fair Income equal to fair Income equal to the
historical cost of the value of the liability value of the liability current cost of the
liability transferred transferred. transferred. liability transferred
(reflects historical (reflects historical
consideration) consideration)
Expenses for costs Expenses for costs Expenses for costs Expenses for costs
paid (including paid (including paid (including paid (including
transaction cost) to transaction cost) to transaction cost) to transaction cost) to
transfer the liability transfer the liability transfer the liability transfer the liability
(Could be presented Could be presented Could be presented Could be presented
gross or net ) gross or net ) gross or net ) gross or net )

Statement of Financial Performance -Interest Expense-

Historical Cost Fair Value Fulfillment Value Current Cost
Market- participant Entry- specific
assumptions assumptions
Interest expenses, at Reflected in income Reflected in income Interest expense,
historical rates, and expenses from and expenses from current rates.
updated if the liability changes in fair value changes in fulfillment
bears variable interest. value (could be
(could be identified
identified separately)
separately)

Statement of Financial Performance -Effect of events that cause a liability to become onerous-
Historical Cost Fair Value Fulfillment Value Current Cost
Market- participant Entry- specific
assumptions assumptions
Expenses equal to the Reflected in income Reflected in income Expenses equal to the
excess of the estimated and expenses from and expenses from excess of the estimated
cash outflows over the changes in fair value changes in fulfillment cash outflows over the
historical cost of the value current cost of the
(could be identified
liability, or a liability, or a
separately) (could be identified
subsequent change in subsequent change in
separately)
that excess that excess

Statement of Financial Performance -Values Changes-

Historical Cost Fair Value Fulfillment Value Current Cost
Market- participant Entry- specific
assumptions assumptions
Not recognized except Reflected in income Reflected in income Income and expenses
to the extent that the and expenses from and expenses from reflecting the effect of
liability is onerous. changes in fair value changes in fulfillment changes in prices
value (holding gains and
For financial liabilities -
holding losses)
income and expenses
from changes in
estimated cash flows.
Factors to consider when selecting a measurement basis:
✓ Relevance
✓ Characteristics of Assets and Liabilities
✓ Contribution to future cash flows
 ✓ Faithful representation
✓ Enhancing qualitative characteristics and the cost constraint
More than one measurement basis
✓ May have more than one
✓ In most cases, the most understandable way to provide that information is:
(a) To use a single measurement basis both for the asset or liability in the statement of
financial position and four related income and expenses in the statements of financial
performance;
(b) To provide in the notes additional information applying a different measurement basis.
 However, in some cases, that information is more relevant or result in a more faithful
representation of both the entity's financial position and its financial performance through the
use of:
(a) A current value measurement basis for the asset or liability in the statement of financial
position; and
(b) A different measurement basis for the related income and cyst in the statement for profit
or loss
Measurement of Equity
➢ The total carrying amount of equity (total) is not measured directly.
➢ It equals the total carrying amounts of all recognized assets less total of the carrying amounts
of all recognize liabilities .
➢ Measure directly the individual classes of the equity and some components but not all.
Note: It may be appropriate to measure directly the carrying amount of some individual
classes of equity like ordinary shares, the preference shares, and some components of equity
like to those in the revaluation surplus.
Since it is residual, it can be positive or negative

10. Chapter 7 - Presentation & Disclosure

Why is proper presentation and disclosure important?
➢ Effective communication
➢ Relevance
 ➢ Faithful representation
➢ Understandability
➢ Comparability
Proper way of presenting and disclosing your financial information gives way to Effective
communication. Effective communication makes the information more relevant and it will
contribute to a faithful representation of your assets liabilities equity income and expenses. Once
we have properly presented and disclosed the relevant information it also enhances the
understandability and comparability of the information in the financial statements.
Effective communication of information in Financial Statements requires:
(a) Focusing in presentation and disclosure objectives and principles rather than focusing on
rules:
i. Note: In IFRS, we are principle-based and rule-based unlike the GAAP
(b) Classifying information in a manner that group similar items and separate the similar items:
and
(c) Aggregating information in such a way that is not obscure either by unnecessary detail or
by excessive aggregation.
Objectives and Principles of Presentation and disclosure
A balance is needed between:
➢ Relevance
➢ Faith representation
➢ Comparability
Principles of effective communication on FS
⚫ Effective communication in financial statements is also supported by considering the
following principles:
(a) Entity - specific if information is more useful than standardized descriptions,
sometimes referred to as “boilerplate”;
(b) Duplication of information in different parts of the financial statements is usually
unnecessary and can make financial statements less understandable.

Classification
Classification is the sorting of assets, liabilities, equity, income or expenses on the basis of shared
characteristics for presentation and disclosure purposes.
➢ Characteristics
✓ The nature of the item;
✓ Its role (or function) within the business activities conducted by the entity, and
✓ How it is measured
Note: Group together similar items, never classify dissimilar items (can obscure relevant
information, which result to irrelevant information that can affect faithful representation).
Classification of Assets
 Current Assets - Expected to be useful within a year or operating cycle from reporting date.
 Non-Current Assets - Expected to be useful for more than a year from reporting date.
Examples:
◆ Reporting date (year-end) : December 31, 2020
◆ Cut-off date (current) : December 31, 2021
◆ Transaction date: February 14, 2020 for Note Receivable; If due date is July 14, 2021, it is still a
current asset.
Remember that: Counting for 1 year is from the reporting date (not from transaction date), so
all transaction that happened from January 1, 2020 to December 31, 2020 - its reporting date is
December 31, 2020. (it will become a non-current asset if it exceeds the cut-off date) Ex. Due date
is July 14, 2021 however, it was realized / paid in January 1, 2022 or July 14, 2022
Examples:
Current Assets
➢ A cash that is readily available for use
➢ Accounts Receivable and other receivables
➢ Inventories
➢ Prepayments
➢ Short-term investments
➢ Other current assets
Non- Current Assets
➢ A cash that is set aside to buy a property
➢ Long-term receivables
➢ Long-term investments
➢ Property, Plant and Equipment
➢ Intangible assets
➢ Other non-current assets
Classification of Liabilities
 Current Liabilities - Expected to be paid within a year from reporting date
 Non-Current Liabilities - Expected to be paid beyond one year from the reporting date
Examples:
Current Liabilities
➢ Accounts payable
➢ Accrued liabilities
➢ Short-term debt
➢ Current portion of a long-term debt
Non-Current Liabilities
➢ Long-term debt
➢ Bonds payable
➢ Mortgage payable
Classification of Equity
 Ordinary Shares - Without preferential rights
 Preference Shares - With preferential rights

Classification of Income and Expenses

 Through Profit or loss - Income/ expenses from normal operations
- Indicator of financial performance
 Through Other Comprehensive Income (OCI) - gains/ losses from normal operations
Aggregation
Aggregation is the adding together of assets, diabetes, equity, income or expenses that have
share characteristics and are included in the same classification.
✓ Makes information more useful because it summarize the large volume of detail
✓ However, it conceals (some) the details, because you don’t write all account title -
group them together in one classification
Examples of Aggregation of Assets
➢ Cash and Cash equivalents
◆ Petty Cash Fund
◆ Cash on Hand
◆ Cash in Bank
◆ Treasury Bills
➢ Trade and other receivables
➢ Financial Assets at Fair Value
➢ Payments
Principle of Materiality and Aggregation

11. Chapter 8- Concepts of Capital an Capital Maintenance

Concepts of Capital
Financial Concept of Capital
✓ Capital is regarded as the invested money or invested purchasing power.
✓ Capital is synonymous to equity, net assets or net worth.
Physical Concept of Capital
✓ Capital is regarded as the entities productive capacity.
✓ E.g. units of output per day