ACCOUNTING CONCEPTS AND PRINCIPLES

ASSUMPTIONS OR POSTULATES ACCOUNTING STANDARDS

- general frame of reference by which - EXPLICIT – CONCEPTUAL FRAMEWORK FOR
accounting practice can be evaluated and FINANCIAL REPORTING and
they serve as guide in the development of - PFRS (PHILIPPINE FINANCIAL
new practices and procedures REPORTING STANDARDS) - Financial and
- provide reasonable assurance that Sustainability Reporting Standards
information communicated to users is Council (FSRSC) – GAAP
prepared in a proper way PFRS (PHILIPPINE FINANCIAL REPORTING
STANDARDS) - Financial and
BASIC ACCOUNTING CONCEPT Sustainability Reporting Standards
Source from the STANDARDS (PFRS), Council (FSRSC) are standards and
CONCEPTUAL FRAMEWORK FOR FINANCIAL interpretation adopted by FRSC – consist of
REPORTING, or general acceptance due to a) PFRS
long time use b) PHILIPPINE ACCOUNTING STANDARD (PAS)
C) INTERPRETATIONS
SEPARATE ENTITY CONCEPT – business is
distinct from its owners IFRS – INTENATIONAL FINANCIAL REPORTING
HISTORICAL COST CONCEPT – assets are STANDARD
recorded at acquisition cost IASB – INTERNATIONAL ACCOUNTNG
GOING CONCERN ASSUMPTION – STANDARDS BOARD
assumed to continue existing for an
indefinite period of time GENERALLY ACCEPTABLE
LIQUIDATING CONCERN – net selling - standard has been stablished by an
price authoritative accounting standard-setting
MATCHING – bought but not use – remain as body
asset – if use or revenue is recognized – - principle has gained general acceptance
expense due to practice overtime and proven to be
ACCRUAL BASIS OF ACCOUNTING – most useful
except cash flow information
- Income is recognized when earned SEC - Securities and Exchange
rather than collected, expenses is Commission
recognized when incurred rather BIR - Bureau of Internal Revenue
than paid BSP - Bangko Sentral ng Pilipinas
PRUDENCE OR CONSERVATISM – CDA - Cooperative Development
judgement – favorable or not favorable Authority
TIME PERIOD – calendar year or business
year (fiscal year). Interim Period CONCEPTUAL FRAMEWORK FOR FINANCIAL
STABLE MONETARY UNIT – quantifiability REPORTING is not a standard, serves as
aspect- unit -P general frame of reference in developing or
- stability of the peso assumption applying the standards
MATERIALITY AND AGGREGATION –
material if omission or misstatement can
influence economic decision – professional FUNDAMENTAL QUALITATIVE
judgement CHARACTERISTICS
COST BENEFIT (COST CONSTRAINT) –
every cost has benefit and it should not 1. Relevance:
exceed – balance o Relevance refers to how helpful
FULL DISCLOSURE PRINCIPLE – sufficient the information is for financial
details of information decision-making processes.
o It must possess:
CONSISTENCY CONCEPT – consistent
applying of standard
  Confirmatory value: o Avoid unnecessary complexity
Provides information or jargon.
about past events. 6. Comparability:
 Predictive value: Offers o Comparability enables users
predictive power to compare information
regarding possible across different entities or
future events. time periods.
o For example, a company’s o Consistent accounting methods
strong quarterly results are enhance comparability.
relevant to creditors’ decisions
on extending credit.
 Materiality: omission or
misstatement can
influence economic
decision
2. Representational Faithfulness
(Reliability):
o Also known as reliability, it
reflects how accurately
information reflects a
company’s resources,
claims, and transactions.
o To be representationally
faithful, information must be:
 Complete: Financial
statements should not
exclude any transactions.
 Neutral: Minimize bias
(subjectivity and
estimation are inevitable,
but neutrality is sought).
 Free from error: Strive
for accuracy and
minimize mistakes.

ENHANCING QUALITATIVE
CHARACTERISTICS

3. Verifiability:
o Verifiability ensures that
information can
be independently verified by
others.
o It allows users to assess the
reliability of reported data.
4. Timeliness:
o Timeliness means providing
information in a timely
manner.
o Users need up-to-date data for
effective decision-making.
5. Understandability:
o Information should be
presented in a way that users
can comprehend.