FINANCIAL ANALYSIS

AND REPORTING
INTRODUCTION
01 Definition of Accounting
02 The Conceptual Framework
▪ The Objectives of Financial Statements
▪ Underlying assumptions
▪ Qualitative Characteristics of Financial
Statements
▪ Elements of Financial Statements
▪ Recognition of the Elements of F/S
▪ Measurement of the Elements of F/S
INTRODUCTION
03 Purpose of Accounting Standards
04 Financial Reporting Standards Council
(FRSC)
ACCOUNTING…
❑ Accounting is the art of recording, classifying,
summarizing, and interpreting financial transactions of a
business to provide meaningful financial information.

❑ Accounting is a systematic process of identifying,

measuring, recording, and communicating financial
information to enable users to make informed economic
decisions.
ACCOUNTING…
❑ Accounting is the process of recording, classifying, and
summarizing in a significant manner and in terms of
money, transactions, and events which are, in part at least,
of a financial character, and interpreting the results
thereof. American Institute of Certified Public Accountants (AICPA)

❑ Accounting involves the preparation and presentation of

financial statements that provide information about an
entity’s financial position, performance, and changes in
financial position that is useful to a wide range of users in
making economic decisions. International Accounting Standards Board
(IASB)
 GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
❑ GAAP refer to a common set of accounting principles,
standards, and procedures issued by the Financial
Accounting Standards Board (FASB).

❑ FASB is an independent
organization responsible for
establishing accounting and
financial reporting standards in
the United States.
 GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
❑ As applied in the Philippines

✓ Philippine Financial Reporting

Standards (PFRS)

✓ Philippine Accounting
Standards (PAS)
PAS 1 – Presentation of Financial Statements
❑ Statement of Financial Position
❑ Statement of Financial Performance
❑ Statement of Cash Flow
CONCEPTUAL FRAMEWORK
❑ Is a structured theory or set of guidelines that
establishes the fundamental principles and
concepts used in the preparation and
presentation of financial statements.

❑ It serves as a foundation for developing

accounting standards and guides
accountants in resolving accounting issues
that are not directly addressed by existing
standards.
COHERENT CONSISTENT
 B
Which of the following best describes the purpose of the
Conceptual Framework of Accounting?
A. To provide a comprehensive list of accounting standards
and regulations
B. To serve as a basis for developing and interpreting
accounting standards and resolving accounting issues
C. To offer specific guidance on tax calculations and financial
forecasting
D. To establish a uniform accounting system for all
industries and countries
OBJECTIVES OF FINANCIAL STATEMENTS
❑ are centered on providing useful and relevant financial
information to various stakeholders who rely on this
information for decision-making.
❑ The primary objective is to offer a clear and accurate
representation of an entity's financial position,
performance, and changes in financial position (Cash Flow
Statement) over a period of time.
ACCOUNTING CONCEPTS & PRINCIPLES
❑ are the foundational guidelines that govern how
financial transactions are recorded, reported,
and interpreted. They ensure consistency,
reliability, and transparency in financial
reporting, making it easier for users to
understand and compare financial statements
ACCOUNTING CONCEPTS
❑ECONOMIC/ ACCOUNTING ENTITY
❑ACCRUAL BASIS OF ACCOUNTING UNDERLYING

❑GOING CONCERN ASSUMPTIONS

❑MONETARY UNIT
❑TIME PERIOD
ACCOUNTING CONCEPTS
❑ ECONOMIC/ ACCOUNTING ENTITY
The personal transactions of the owner are SEPARATE
from that of the business he/she owns.
CASH BASIS OF
❑ ACCRUAL BASIS OF ACCOUNTING ACCOUNTING
Recognized when their effects occur rather than
when cash flows arise.
➢ REVENUE is recorded when earned.
➢ EXPENSES are recoded when it happens.
Regardless of when cash is received or paid.
ACCOUNTING CONCEPTS
❑ GOING CONCERN
The company will continue operating indefinitely until
the foreseeable future, and that company closure is
not imminent.

❑ MONETARY UNIT/ MONEY MEASUREMENT

Transactions are express in a monetary unit of
measure.
ACCOUNTING CONCEPTS
❑ TIME PERIOD/ PERIODICITY ASSUMPTION
Transactions are summarized and reported at regular
time intervals.

➢ CALENDAR YEAR JANUARY 01 – DECEMBER 31

➢ FISCAL YEAR Any starting point + 12 months

 A
A company provides services to a client in December
but doesn't receive payment until January. Under the
accrual basis of accounting, the revenue should be
recorded:

A. In December when the service was provided

B. In January when the payment was received
C. In December if the client is expected to pay
D. Never, as the payment hasn't been received yet
ACCOUNTING PRINCIPLES
❑HISTORICAL COST PRINCIPLE
❑FULL DISCLOSURE PRINCIPLE
❑MATCHING PRINCIPLE
❑REVENUE RECOGNITION PRINCIPLE
❑MATERIALITY
❑CONSERVATISM
❑OBJECTIVITY
ACCOUNTING PRINCIPLES
❑ COST PRINCIPLE
Amounts shown in financial reports are
HISTORICAL COST.
❑ FULL DISCLOSURE PRINCIPLE
Sufficient information for informed judgments.
❑ MATCHING PRINCIPLE
Matching revenues with expenses to know the
profit of the business.
ACCOUNTING PRINCIPLES
❑ REVENUE RECOGNITION PRINCIPLE
Recognize when goods are sold or services
are rendered, regardless of cash receipt.

❑ MATERIALITY
In accounting, materiality refers to the impact of an
omission or misstatement of information in a
company’s F/S on the user of those statements. If it
is PROBABLE that users of F/S would have altered
their actions if the information had not been
omitted or misstated, then the item is considered to
be material.
ACCOUNTING PRINCIPLES
❑ CONSERVATISM
If there are two acceptable alternatives in a
situation, choose the alternative that will
result in lesser income or resource.

❑ OBJECTIVITY
Recording and reporting process should be
performed with independence which is free
from bias.
 D
Which of the following accounting principles requires
that expenses be recorded in the same period as the
revenues they helped to generate?

A. Historical Cost
C. Conservatism
B. Revenue
Recognition D. Matching
QUALITATIVE CHARACTERISTICS OF F/S
❑ are the attributes that make the information
provided in financial statements useful to users.

❑ These characteristics ensure that the financial

information is relevant, reliable, and easily
understood, enabling stakeholders to make
informed economic decisions.
Fundamental Enhancing
Qualitative Qualitative
Characteristics Characteristics
 QUALITATIVE CHARACTERISTICS

Fundamental Enhancing
Qualitative Qualitative
Characteristics Characteristics

Faithful
Relevance
Representation V ERIFIABILITY

Predictive value Complete C OMPARABILITY

Confirmatory Neutral
U UNDERSTANDABILITY
value

Free from error

T IMELINESS
 D
Company XYZ is preparing its financial statements. The
company is considering whether to report a newly developed
technology as an asset, even though it has not yet generated
any revenue. Which qualitative characteristic should the
company prioritize in making its decision?

A. RELEVANCE C. COMPARABILITY
B. TIMELINESS D. FAITHFUL
REPRESENTATION
 C
Which of the following best explains why the Conceptual Framework of
Accounting emphasizes FAITHFUL REPRESENTATION as a fundamental
qualitative characteristic?
A. To ensure that financial information is easily comparable
across different companies
B. To guarantee that financial statements are prepared in
accordance with regulatory requirements
C. To ensure that financial information accurately reflects
the economic reality of transactions
D. To simplify the preparation of financial statements for
small businesses
ELEMENTS OF FINANCIAL STATEMENTS
❑ ASSETS
Assets are resources controlled by the entity as a result of past
events and from which future economic benefits are expected to
flow to the entity.
❑ LIABILITIES
Liabilities are present obligations of the entity arising from past
events, the settlement of which is expected to result in an outflow
of resources embodying economic benefits.
❑ EQUITY
Equity represents the residual interest in the assets of the
entity after deducting liabilities. It is essentially the
ownership interest in the business.
ELEMENTS OF FINANCIAL STATEMENTS
❑ INCOME
Income is the increase in economic benefits during the
accounting period in the form of inflows or enhancements of
assets, or decreases in liabilities that result in increases in
equity, other than those relating to contributions from equity
participants.

❑ EXPENSES
Expenses are decreases in economic benefits during the
accounting period in the form of outflows or depletions of
assets or incurrences of liabilities that result in decreases in
equity, other than those relating to distributions to equity
participants.
RECOGNITION OF THE ELEMENTS OF F/S
❑ PROBABILITY OF FUTURE ECONOMIC BENEFIT
✓ It is probable that any future economic benefit
associated with the item will flow to or from the
entity.

❑ RELIABLE MEASUREMENT
✓ The item’s cost or value can be measured
reliably.
 C
When determining whether an item should be recognized in the
financial statements, which of the following criteria must be met
according to the Conceptual Framework of Accounting?
A. The item must be measurable and able to generate future
economic benefits.
B. The item must be legally enforceable and not subject to
change.
C. The item must be relevant and capable of being reliably
measured.
D. The item must be significant and reviewed by an external
auditor.
MEASUREMENT OF THE ELEMENTS OF F/S
❑ Historical Cost
✓ The amount of cash or cash equivalents paid or
the fair value of the consideration given to
acquire an asset at the time of its acquisition.

❑ Current Cost
✓ The amount of cash or cash equivalents that
would be required to acquire an asset
currently, or the amount that would be
needed to settle a liability at the current time.
MEASUREMENT OF THE ELEMENTS OF F/S
❑ Realizable (Settlement) Value
✓ The amount of cash or cash equivalents that
could currently be obtained by selling an asset
in an orderly transaction, or the amount that
would be paid to settle a liability.
❑ Present Value
✓ The present value of the future cash flows that
an asset is expected to generate, or that will
be required to settle a liability, discounted at a
specific rate.
MEASUREMENT OF THE ELEMENTS OF F/S
❑ Fair Value
✓ 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.
PURPOSE OF ACCOUNTING STANDARDS
✓ are authoritative rules and guidelines that
govern how financial statements are prepared
and presented.

✓ The primary purpose of accounting standards

is to ensure consistency, transparency, and
reliability in financial reporting, which is crucial
for stakeholders like investors, creditors,
regulators, and the public.
FINANCIAL REPORTING STANDARDS COUNCIL
✓ a key regulatory body responsible for
overseeing and developing accounting
standards within a specific jurisdiction.

✓ Its primary role is to ensure that financial

reporting standards are aligned with
international best practices and meet the
needs of users of financial statements, such as
investors, creditors, and regulators.