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Assumptions Scope of Conceptual Framework: 1. Going Concern

This document outlines key assumptions and concepts in financial reporting, including the going concern assumption, accounting entity concept, time period assumption, and monetary unit assumption. It discusses the objective and scope of the conceptual framework, which provides the overall theoretical foundation for financial statement preparation and presentation. Key elements covered include users of financial information, objectives of financial reporting regarding financial position and financial performance, and accrual accounting. Limitations of financial reporting are also noted.

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Jonathan Navallo
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51 views2 pages

Assumptions Scope of Conceptual Framework: 1. Going Concern

This document outlines key assumptions and concepts in financial reporting, including the going concern assumption, accounting entity concept, time period assumption, and monetary unit assumption. It discusses the objective and scope of the conceptual framework, which provides the overall theoretical foundation for financial statement preparation and presentation. Key elements covered include users of financial information, objectives of financial reporting regarding financial position and financial performance, and accrual accounting. Limitations of financial reporting are also noted.

Uploaded by

Jonathan Navallo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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c) Government and their agencies -

CHAPTER 2: allocation of resources and regulation of


ASSUMPTIONS activities of the entity
Basic notions or fundamental premises d) Public - about the trend and the range
of its activities
1. GOING CONCERN - Continuing in operation
indefinitely; assets normally recorded at cost SCOPE OF CONCEPTUAL
FRAMEWORK
2. ACCOUNTING ENTITY – entity is separate
a) Objective of financial reporting
and distinct; fair presentation of financial
b) Qualitative characteristics of useful
statements
financial information
c) Definition, recognition, and
3. TIME PERIOD - indefinite life is subdivided
measurement of the elements
into time/accounting periods
d) Concepts of capital and capital
 Accounting period/fiscal period - one maintenance
year/twelve months that does not end on
December 31
 Calendar year – 12-month period ends FINANCIAL REPORTING
Dec. 31 Provision of financial information about an
 Natural business year – 12-month period entity to external users in making economic
ends on any month when the business is decisions
at the lowest or experiencing slack  other means of communicating
season information that relates directly or
indirectly to the financial accounting
4. MONETARY UNIT process
 Quantifiability aspect - a unit of measure  includes nonfinancial information
which is the peso in the Philippines
 Stability Peso postulate - purchasing OBJECTIVE OF FINANCIAL
power is stable and constant
REPORTING
a) To provide financial information that is
CONCEPTUAL FRAMEWORK useful to existing and potential investors,
Summary of terms and concepts in preparation lenders, and other creditors in making
and presentation of financial statements decisions about providing resources to
a) To provide an overall theoretical the entity; “why”, purpose or goal
foundation b) To provide information that is useful in
b) For development and revision of assessing the amount, timing and
standards uncertainty of prospects for future net
c) Does not define standard for any cash inflows to the entity
particular measurement or disclosure
issue
FINANCIAL POSITION
 Info about the entity’s economic
USERS OF FINANCIAL resources and the claims against the
INFORMATION reporting entity
1. Primary users – to whom general purpose of  Assets, liabilities and equity of an entity
financial reports are primarily directed  Can help users to assess the entity’s
a) Existing and potential investors - risk liquidity, solvency and the need for
and return provided by their investment additional financing
b) Lenders and other creditors - Liquidity - availability of cash in the
determine whether their loans, interest near future
will be paid when due Solvency - availability of cash over a
long term
2. Other users
a) Employees - stability and profitability of FINANCIAL PERFORMANCE
the entity
 Revenue, expenses and net income or
b) Customers - continuance of the entity
loss for a period of time
 Level of income earned by the entity
 Helps to understand the return that the
entity has

ACCRUAL ACCOUNTING
 Effects are recognized when they occur
and not as cash is received or paid
 The financial performance of an entity
shall be measured in accordance with
accrual accounting

LIMITATIONS OF FINANCIAL
REPORTING
a) Do not and cannot provide all of the
information
b) Not designed to show the value of an
entity
c) Provides common information
d) Based on estimate and judgment rather
than exact depiction

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