Conceptual Framework

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FRAMEWORK FOR THE PREPARATION
AND
PRESENTATION OF FINANCIAL STATEMENTS

PURPOSE AND STATUS OF THE FRAMEWORK

The FRSC Framework for the Preparation and Presentation of Financial Statements describes the basic concepts by which financial statements are prepared. The Framework serves as a guide to the Board in developing accounting standards and as a guide to resolving accounting issues that are not addressed directly in Philippine Accounting Standards or Philippine Financial Reporting Standards or Interpretations. The purpose of the framework as outlined is to:

a. Assist the Financial Reporting Standards Council (FRSC) in developing accounting standards that represent generally accepted accounting principle;

b. Assist the FRSC in its review and adoption of existing International Accounting Standards;

c. Assist preparers of the financial statements in applying FRSC Statements of Financial Accounting Standards and in dealing with topics that have yet to form the subject of an FRSC statement;

d. Assist auditors in forming an opinion as to whether financial statements conform with Philippine GAAP;

e. Assist users of financial statements in interpreting information contained in the financial statements prepared in conformity with Philippine GAAP;

f. Provide those who are interested in the work of the FRSC with information about its approach to the formulation of Statements of Financial Accounting Standards

Scope of the Framework:

• Defines the objective of financial statements;
• Identifies the qualitative characteristics that make information in financial statements useful; and • Defines the basic elements of financial statements and the concepts for recognizing and measuring them in financial statements. • Concepts of capital and capital maintenance.

General Purpose Financial Statements

The Framework addresses general purpose financial statements including consolidated financial statements that a business enterprise prepares and presents at least annually to meet the common information needs of a wide range of users external to the enterprise. Therefore, the Framework does not necessarily apply to special purpose financial reports such as reports to tax authorities, reports to governmental regulatory authorities, prospectuses prepared in connection with securities offerings, and reports prepared in connection with business combinations.

Users and their Information Needs

The principal classes of users of financial statements are present and potential investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies and the general public. All of these categories of users rely on financial statements to help them in decision making.

While financial statements cannot meet all of the information needs of these user groups, there are information needs that are common to all users, and general-purpose financial statements focus on meeting these needs.

Responsibility for Financial Statements

The management of an enterprise has the primary responsibility for preparing and presenting the enterprise's financial statements.

The Objective of Financial Statements

The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions.

Financial Position

The financial position of an enterprise is affected by the economic resources it controls, its financial structure, its liquidity and solvency, and its capacity to adapt to changes in the environment in which it operates. The balance sheet presents this kind of information.

Performance

Performance is the ability of an enterprise to earn a profit on the resources that have been invested in it. Information about the amounts and variability of profits helps in forecasting future cash flows from the...
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