Environment of Financial Accounting and Reporting

Environment of Financial
Accounting and
Reporting
Introduction
Accounting
• is a service activity whose function is to provide
quantitative information, primarily financial in
nature, about economic entities, that is intended
to be useful in making economic decision.
Financial Accounting Management Accounting
• Focus on external users • Used by internal users
• Must follow GAAP/IFRS and • Not mandated to follow GAAP/IFRS
prescribed formats
• May focus on segments to meet
• Focus on company-wide reports needs of users
• Historical perspective • Emphasis on future
• Focus on precision, objectivity and • Focus on relevance and timeliness
verifiability
• Not mandatory for external reporting
• Mandatory for external reports
Financial Accounting
- process of developing and reporting general
purpose financial statements to various users
Users of financial information
External users* Internal users
• Investors • Executives
• Lenders • Employees • Managers
• Suppliers • Public • Supervisors
• Customers
According to the Conceptual Framework:
• Government “The primary users of general purpose financial
reporting are present and potential investors, lenders and
other creditors.”
This is because they have the most critical and immediate
need for information in financial reports as providers of
capital.
Objective of Financial Reporting
The need to develop standards
• There are various users of financial accounting
information which could have both coinciding and
conflicting needs.
• To meet these needs and the stewardship reporting
responsibility of management, companies prepare a
single set of general purpose financial statements.
The need to develop standards
• In order for different users to easily understand financial
across companies, the accounting profession has
attempted to develop a set of standards that are generally
accepted and universally practiced.
Development and source of standards
• Standards in accounting and information
disclosure can be influenced by the environment
for which it is implemented – the economic,
social and political factors.
• And among nations, there maybe several
differences, as well as similarities.
• In today’s business conduct where globalization has
become a trend, financial statements that would be able
to reach users all over the world may be crucial.
• As a result, accounting practices are pushing towards a
global standard. In an attempt to harmonize conflicting
national standards, IASC (now IASB) was formed in
order to develop globally accepted accounting standards.
International Accounting Standards Board (IASB)
• is an independent, private-sector body that develops and
approves International Financial Reporting Standards (IFRSs)
• formerly known as International Accounting Standards Committee (IASC)
• https://www.ifrs.org/groups/international-accounting-standards-board/
International Financial Reporting Standards (IFRSs)

• are the standards and interpretations approved by IASB
• includes both IFRSs, IASs and interpretations.
• the newer standards are referred to as IFRS while the older ones
(approved when IASB was still IASC) are referred to as IAS
(International Accounting Standards).
Financial Reporting Standards Council (FRSC)
• main function is to establish generally accepted accounting principles in
the Philippines. Local counterpart of IASB.
• formerly known as Accounting Standards Council (ASC)
• http://www.picpa.com.ph/frsc.html?article=About%20FRSC%20and%20PIC&pag
e=FRSC&main_menu=AboutFRSC
Philippine Financial Reporting Standards (PFRSs)

• are the standards and interpretations approved by FRSC. These are the
standards adopted from IFRS.
• includes both PFRSs, PASs and interpretations.
• the newer standards are referred to as PFRS while the older ones
(approved when FRSC was still ASC) are referred to as PAS (Philippine
Accounting Standards).
Organizations influencing
financial and reporting
standards
Securities and Exchange Commission Board of Accountancy (BOA)
(SEC)
Next slide
national government regulatory agency

charged with supervision over the supervises and regulates the
corporate sector, securities and investment licensure and practice of the
instruments market, and the protection of accountancy profession
the investing public.
Philippine Institute of Certified Public
Bureau of Internal Revenue (BIR)
Accountants (PICPA)
Next slide
is the accredited national mandated to assess and collect

professional organization for all national internal revenue
certified public accountants taxes
• Association of Certified •Government Association
Public Accountants in of Certified Public
Commerce and Industry Accountants
ACPACI GACPA
ACPAPP nACPAE
• Association of • National Association of
Certified Public Certified Public
Accountants in Public Accountants in
Practice Education
Issues in Financial
Reporting
A. IFRS/PFRS in a Political Environment
• User groups may want particular economic events accounted for or reported in
a particular way. This is why they make it a way to participate in the
formulation of standards or to try to influence or persuade the formulator of
them.
Preparers
Academicians
Professional Organizations
Financial Community
Public Business Entities
Industry Associations
Government
CPAs and Accounting
firms
B. Financial Reporting Issues
• Nonfinancial measurements. Financial reports failed to provide some key
performance measures widely used by management, such as customer
satisfaction indexes, backlog information, reject rates on goods purchased, as
well as the results of companies’ sustainability efforts.
• Forward-looking information. Financial reports failed to provide forward-
looking information needed by present and potential investors and creditors.
• Soft assets. Financial reports focused on hard assets (inventory, plant assets)
but failed to provide much information about a company’s soft assets
(intangibles). The best assets are often intangible.
• Timeliness. Companies only prepared financial statements quarterly and
provided audited financials annually. Little to no real-time financial statement
information was available.
Financial Reporting Issues
• Understandability. Investors and market regulators were raising concerns
about the complexity and lack of understandability of financial reports.
• Cost-Benefit Balancing. The cost of providing financial information must not
exceed its benefits.
• Balance between Qualitative Characteristics. Trade-off between qualities of
financial information might be necessary for it to be useful in decision making.
• The Expectations Gap. What the public thinks accountants should do vs.
what accountants think they can do
Standard-setting due
process
Due
Due Process
Process
The IASB due process has the following elements:
1. Independent standard-setting board;

2. Thorough and systematic process for developing standards;
3. Engagement with investors, regulators, business leaders, and
the global accountancy profession at every stage of the process;
and
4. Collaborative efforts with the worldwide standard-setting
community.
Due
Due Process
Process
Illustration 1-4
International
Standard-Setting
Structure
References:
Empleo, P., & Robles, N. (2017). Intermediate
Accounting Series I. Mandaluyong City:
Millenium Books, Inc.
Valix, C., Peralta, P., & Valix, C. (2017).
Financial Accounting Part Series. Manila: GIC
Enterprises.
Cabrera, E., Ocampo, R., & Cabrera, G.
(2018). Conceptual Framework and
Accounting Standards. Manila: GIC
Enterprises.
Kieso, D. et al. Intermediate Accounting. John
Wiley & Sons, Inc.
https://www.ifrs.org/-/media/project/conceptua
l-framework/fact-sheet-project-summary-and-f
eedback-statement/conceptual-framework-proj
ect-summary.pdf

Environment of Financial Accounting and Reporting

Uploaded by

Copyright:

Available Formats

Environment of Financial Accounting and Reporting

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Environment of Financial Accounting and Reporting

Uploaded by

Copyright:

Available Formats

Environment of Financial

International Financial Reporting Standards (IFRSs)

Philippine Financial Reporting Standards (PFRSs)

national government regulatory agency

is the accredited national mandated to assess and collect

1. Independent standard-setting board;

You might also like