PPT-Environment-of-Financial-Accounting-and-Reporting.pptx

Environment of financial accounting

1. Environment of Financial Accounting and Reporting

2. 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 .

3. Financial Accounting Focus on external users Must follow GAAP/IFRS and prescribed formats Focus on company-wide reports Historical perspective Focus on precision, objectivity and verifiability Mandatory for external reports Management Accounting Used by internal users Not mandated to follow GAAP/IFRS May focus on segments to meet needs of users Emphasis on future Focus on relevance and timeliness Not mandatory for external reporting

4. Financial Accounting - process of developing and reporting general purpose financial statements to various users

5. Users of financial information External users* Investors Lenders Suppliers Customers Government Employees Public Internal users Executives Managers Supervisors According to the Conceptual Framework: “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.

6. Objective of Financial Reporting

7. 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.

8. 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.

9. 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.

10. Development and source of standards 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.

11. Development and source of 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).

12. Development and source of 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&page=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).

13. Organizations influencing financial and reporting standards

14. national government regulatory agency charged with supervision over the corporate sector, securities and investment instruments market, and the protection of the investing public. Securities and Exchange Commission (SEC) supervises and regulates the licensure and practice of the accountancy profession Board of Accountancy (BOA) Next slide

15. is the accredited national professional organization for certified public accountants Philippine Institute of Certified Public Accountants (PICPA) mandated to assess and collect all national internal revenue taxes Bureau of Internal Revenue (BIR) Next slide

16. Issues in Financial Reporting

17. 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. Business Entities Preparers Financial Community Government CPAs and Accounting firms Professional Organizations Public Academicians Industry Associations

18. 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.

19. 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 Financial Reporting Issues

20. Standard-setting due process

21. Due Process The IASB due process has the following elements: Independent standard-setting board; Thorough and systematic process for developing standards; Engagement with investors, regulators, business leaders, and the global accountancy profession at every stage of the process; and Collaborative efforts with the worldwide standard-setting community.

22. Due Process Illustration 1-4 International Standard-Setting Structure

23. 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/conceptual-framework/fact-sheet-project-summary-and-feedback-statement/conceptual-framework-project-summary.pdf