Intermediate Accounting 1 by Justin Philip Batao

Chapter 1

Contents
Preface
About the Author
Introduction
Study Strategies
List of PAS and PFRS

Overview of Accounting Standards and Financial Reporting in the Philippines

Establishment of Accounting Standards
GAAP and Conceptual Framework
Basic Accounting Theories
MULTIPLE CHOICE
CHAPTER - ASSETS

Preface

Intermediate Accounting 1 textbook include the following information related to assets:

Importance of Assets: It would emphasize the significance of assets in financial reporting and decision-making
processes. Assets represent the resources available to a business and play a crucial role in determining its
financial health.

Definition of Assets: The preface would provide a definition of assets, which would be consistent with the
explanation I provided earlier. It would explain that assets are economic resources controlled by an entity and
have future economic benefits that can be measured in monetary terms.

Asset Recognition and Measurement: It would briefly touch upon the criteria for recognizing and initially
measuring assets. This may include discussing concepts such as historical cost, fair value, and the relevance and
reliability of financial information.

Asset Valuation: The preface might introduce the concept of asset valuation and the methods used to determine
the value of assets, such as cost allocation (depreciation, amortization), impairment assessments, and
revaluation.

Asset Categories: It would outline the different categories or classifications of assets, including current assets,
long-term investments, property, plant, and equipment (PP&E), and intangible assets. The preface may mention
that these categories are important for organizing and presenting asset information in financial statements.

Link to Financial Statements: The preface might discuss how assets are reflected in the balance sheet and how
they contribute to the overall financial position of a company.

About the Author

Introduction

Study Strategies
Studying an accounting book effectively involves actively engaging with the material, understanding the
concepts, and applying them to practical examples. Here are some steps to help you study an accounting book:
1. Set Clear Goals: Define your objectives and set specific goals for your study session. Determine what you
want to achieve and how much material you plan to cover.

2. Establish a Study Schedule: Create a study schedule that suits your learning style and availability. Allocate
dedicated time for studying accounting, ensuring regularity and consistency in your study sessions.

3. Read Actively: Start by reading the text actively rather than passively. Take notes, underline or highlight
key points, and ask questions as you go along. Try to understand the main concepts and principles being
presented.

4. Break Down Complex Concepts: If you encounter complex concepts or terms, break them down into
simpler terms or seek additional explanations. Use external resources such as online tutorials, videos, or
accounting websites to gain further clarity.

5. Practice with Exercises and Examples: Many accounting books include practice exercises and examples.
Work through these exercises to apply the concepts you've learned. Practice is crucial for reinforcing
your understanding and developing problem-solving skills.

6. Seek Real-Life Applications: Connect the accounting concepts to real-life situations and scenarios. This
will help you grasp the practical implications and relevance of the principles. Look for case studies,
practical examples, or real-world business scenarios that demonstrate the application of accounting
concepts.

7. Test Your Knowledge: Regularly assess your understanding by testing yourself with review questions or
quizzes provided in the book or by creating your own. This will help you identify areas where you may
need further study.

8. Review and Summarize: Periodically review the material you've covered. Summarize the key concepts in
your own words to reinforce your understanding. Consider creating summary notes, flashcards, or mind
maps to consolidate your knowledge.

9. Collaborate and Discuss: Engage in discussions with classmates, study groups, or online communities.
Explaining concepts to others and discussing different perspectives can enhance your understanding and
help you clarify any misconceptions.

10. Seek Clarification: If you come across challenging or unclear topics, don't hesitate to seek clarification.
Reach out to your instructor, peers, or online forums for assistance. It's important to address any
confusion early on to avoid misconceptions that could hinder your progress.

11. Review Previous Topics: Accounting concepts are often interconnected. Periodically review and revisit
previous topics to reinforce your understanding and ensure a cohesive understanding of the subject
matter.
 12. Monitor Progress: Track your progress and periodically evaluate your understanding of the material.
Identify areas where you need further focus and adjust your study plan accordingly.

Remember, studying accounting requires consistent effort, active engagement, and regular practice. By following
these steps, you can effectively study an accounting book and build a solid foundation of knowledge and skills in
the field of accounting.

List of PAS and PFRS

List of some Philippine Accounting Standards (PAS) that are part of the Philippine Financial Reporting Standards
(PFRS) framework:

PAS 1: Presentation of Financial Statements

PAS 2: Inventories
PAS 7: Statement of Cash Flows
PAS 8: Accounting Policies, Changes in Accounting Estimates, and Errors
PAS 10: Events After the Reporting Period
PAS 16: Property, Plant and Equipment
PAS 17: Leases
PAS 18: Revenue
PAS 19: Employee Benefits
PAS 21: The Effects of Changes in Foreign Exchange Rates
PAS 23: Borrowing Costs
PAS 24: Related Party Disclosures
PAS 27: Separate Financial Statements
PAS 28: Investments in Associates and Joint Ventures
PAS 32: Financial Instruments: Presentation
PAS 33: Earnings per Share
PAS 36: Impairment of Assets
PAS 37: Provisions, Contingent Liabilities, and Contingent Assets
PAS 38: Intangible Assets
PAS 39: Financial Instruments: Recognition and Measurement
PAS 40: Investment Property
PAS 41: Agriculture

PFRS 1: First-time Adoption of Philippine Financial Reporting Standards

PFRS 2: Share-based Payment
PFRS 3: Business Combinations
PFRS 4: Insurance Contracts
PFRS 5: Non-current Assets Held for Sale and Discontinued Operations
PFRS 6: Exploration for and Evaluation of Mineral Resources
PFRS 7: Financial Instruments: Disclosures
PFRS 8: Operating Segments
PFRS 9: Financial Instruments
PFRS 10: Consolidated Financial Statements
PFRS 11: Joint Arrangements
PFRS 12: Disclosure of Interests in Other Entities
PFRS 13: Fair Value Measurement
PFRS 14: Regulatory Deferral Accounts
PFRS 15: Revenue from Contracts with Customers
PFRS 16: Leases
PFRS 17: Insurance Contracts (to replace PFRS 4)
PFRS 18: Revenue
PFRS 19: Employee Benefits
PFRS 20: Accounting for Government Grants and Disclosure of Government Assistance
PFRS 21: The Effects of Changes in Foreign Exchange Rates
PFRS 23: Borrowing Costs
PFRS 24: Related Party Disclosures
PFRS 25: Income Taxes
PFRS 26: Accounting and Reporting by Retirement Benefit Plans
PFRS 27: Separate Financial Statements
PFRS 28: Investments in Associates and Joint Ventures
PFRS 29: Financial Reporting in Hyperinflationary Economies
PFRS 30: Disclosures in the Financial Statements of Banks and Similar Financial Institutions
PFRS 31: Interests in Joint Ventures
PFRS 32: Financial Instruments: Presentation
PFRS 33: Earnings per Share
PFRS 34: Interim Financial Reporting
PFRS 36: Impairment of Assets
PFRS 37: Provisions, Contingent Liabilities and Contingent Assets
PFRS 38: Intangible Assets
PFRS 39: Financial Instruments: Recognition and Measurement
PFRS 40: Investment Property
PFRS 41: Agriculture

Overview of Accounting Standards and Financial Reporting in the Philippines

Accounting standards and financial reporting are governed by the Financial Reporting Standards Council (FRSC)
and the Philippine Financial Reporting Standards (PFRS). The FRSC is responsible for the development and
adoption of accounting standards in the country.

The PFRS is based on the International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board (IASB), with some modifications to suit local requirements. The adoption of IFRS
aims to enhance the transparency, comparability, and quality of financial reporting in the Philippines.

Here are some key aspects of accounting standards and financial reporting in the country:

1. Philippine Financial Reporting Standards (PFRS): PFRS is the main set of accounting standards in the
Philippines. It comprises a series of standards and interpretations that provide guidance on various
accounting topics, including recognition, measurement, presentation, and disclosure of financial
transactions and events. PFRS is applicable to all entities, including listed companies, financial
institutions, and non-profit organizations.
 To align with global reporting practices, the ASC began adopting the International Financial Reporting
Standards (IFRS) issued by the IASB. The PFRS is a set of standards that incorporates both the IFRS
and specific Philippine amendments.

 PFRS Framework: The PFRS framework provides guidance on the recognition, measurement,
presentation, and disclosure of financial information. It sets out the principles for preparing and
presenting financial statements in accordance with the framework.

 Financial Reporting Standards: The PFRS consists of a series of standards that cover various
aspects of financial reporting, including the presentation of financial statements, accounting for
revenue, leases, financial instruments, and employee benefits, among others. These standards
provide specific guidance on how to account for different transactions and events.

 SME Standards: The Philippine Financial Reporting Standards for Small and Medium-sized
Entities (PFRS for SMEs) is a simplified set of standards designed specifically for smaller entities.
It provides a streamlined version of the full PFRS, tailored to the needs and resources of SMEs.

 Mandatory Adoption: PFRS is mandatory for all listed companies in the Philippines, as well as
entities in the banking and financial sector. Other entities, such as non-profit organizations and
government-owned or controlled corporations, may also be required to follow PFRS or a
modified version of it.

2. Philippine Accounting Standards (PAS): PAS consists of standards and interpretations that were issued
prior to the adoption of IFRS. Some of these standards have been superseded or converged with IFRS,
while others remain applicable to specific circumstances or industries. PAS is primarily relevant for
entities that have not yet fully transitioned to PFRS.

3. Emerging Issues Task Force (EITF) Resolutions: The ASC also issues EITF Resolutions, which provide
guidance on emerging accounting issues or specific situations not covered by existing standards. These
resolutions are intended to address industry-specific concerns or temporary accounting challenges until
formal standards are developed.

4. Philippine Interpretations Committee (PIC) Interpretations: The PIC, a subcommittee of the ASC, issues
interpretations to clarify the application of PFRS. These interpretations provide guidance on specific
accounting issues and assist entities in achieving consistent and appropriate financial reporting.

The PIC was established as a technical committee under the Financial Reporting Standards Council
(FRSC) in the Philippines. The FRSC is responsible for adopting accounting standards and interpretations.
The PIC issues authoritative interpretations and guidance on the application of the PFRS in specific
circumstances.

5. Amendments and Updates: The ASC continuously monitors developments in accounting standards and
makes amendments or updates to align with new IFRS pronouncements or address local requirements.
These amendments are issued through the issuance of new standards, revisions to existing standards, or
the adoption of IASB's updates to IFRS.
 6. Philippine Securities and Exchange Commission (SEC): The SEC is the regulatory body responsible for
enforcing financial reporting standards in the Philippines. It requires companies to submit audited
financial statements prepared in accordance with PFRS as part of their annual reports.

7. Philippine Institute of Certified Public Accountants (PICPA): The PICPA is the national professional
organization of certified public accountants in the Philippines. It plays a crucial role in promoting
compliance with accounting standards and providing guidance to its members.

8. Auditing Standards: Auditors in the Philippines follow the Philippine Standards on Auditing (PSA), which
are based on the International Standards on Auditing (ISA) issued by the International Auditing and
Assurance Standards Board (IAASB). These standards provide guidelines for conducting audits and
expressing opinions on financial statements.

Compliance with accounting standards and financial reporting requirements in the Philippines is essential for
ensuring transparency, accountability, and the reliability of financial information. It facilitates comparability
among companies and improves the confidence of investors, stakeholders, and the general public in the financial
statements of organizations operating in the country.

Establishment of Accounting Standards

Accounting standards are primarily formed and issued by the Accounting Standards Council (ASC), a body
established under the supervision of the Board of Accountancy (BOA) and the Professional Regulation
Commission (PRC). The process of forming accounting standards in the Philippines generally follows these steps:

1. Identifying the Need: The ASC identifies the need for new accounting standards or revisions to existing
ones. This can be prompted by factors such as changes in international accounting standards, emerging
accounting issues, or developments in business practices.
2. Research and Consultation: The ASC conducts research and consultation with various stakeholders,
including accounting professionals, regulators, preparers, auditors, academics, and professional
organizations such as the Philippine Institute of Certified Public Accountants (PICPA). This phase involves
analyzing the potential impact of proposed changes and considering the local context.
3. Drafting the Exposure Draft: Based on the research and consultation, the ASC prepares an Exposure Draft
(ED) that outlines the proposed accounting standard or revision. The ED includes the objective, scope,
key provisions, and any significant changes from existing standards. It also includes a period for public
comment.
4. Public Exposure and Comment: The ASC publishes the ED for public exposure, allowing interested parties
to provide feedback, comments, and suggestions within a specified period. This feedback is crucial in
shaping the final accounting standard.
5. Review and Analysis: The ASC reviews the comments received during the exposure period and assesses
their implications. They evaluate the technical merits, practicality, and relevance of the proposed
accounting standard or revision.
6. Finalization and Issuance: Taking into consideration the feedback and analysis, the ASC finalizes the
accounting standard or revision. It is then approved and issued as a Philippine Financial Reporting
Standard (PFRS) by the BOA and PRC. The ASC also ensures proper dissemination of the newly issued
accounting standard to the accounting profession, preparers, auditors, and other stakeholders

It is important to note that the Philippines has adopted the International Financial Reporting Standards (IFRS) as
the basis for its financial reporting framework. The ASC, therefore, closely aligns the Philippine Accounting
Standards with the corresponding IFRS to ensure consistency with international practices while considering local
requirements and circumstances.

GAAP and Conceptual Framework

The generally accepted accounting principles (GAAP) are known as the Philippine Financial Reporting Standards
(PFRS), which encompass both the Philippine Accounting Standards (PAS) and the International Financial
Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). The PFRS serves as
the set of accounting standards that are recognized and followed in the country.

The Conceptual Framework for Financial Reporting in the Philippines provides the foundational principles and
concepts that guide the development and application of the PFRS. It outlines the fundamental objectives of
financial reporting, the qualitative characteristics of useful financial information, the definition and recognition
criteria for elements of financial statements, and other principles that underpin the preparation and
presentation of financial reports.

The Conceptual Framework serves as a guide for the Philippine standard-setting bodies, such as the Accounting
Standards Council (ASC) and the Financial Reporting Standards Council (FRSC), in developing and revising the
PFRS. It ensures that the accounting standards are based on a coherent and consistent set of principles and
concepts.

The relationship between GAAP (PFRS) and the Conceptual Framework in the Philippines is similar to the
relationship described in the previous response. The Conceptual Framework provides the conceptual basis for
the development of the accounting standards (PFRS), while the PFRS represents the specific rules and
requirements that are derived from the principles and concepts outlined in the Conceptual Framework.

It's important to note that the Conceptual Framework is not a standalone standard itself but a guiding document
that influences the development and interpretation of accounting standards in the Philippines, specifically the
PFRS.

CONCEPTUAL FRAMEWORK

the conceptual framework for accounting is primarily established through the Philippine Financial Reporting
Standards (PFRS) framework. The PFRS framework provides the fundamental concepts and principles that guide
the preparation and presentation of financial statements in the country.

The PFRS framework is based on the International Financial Reporting Standards (IFRS) developed by the
International Accounting Standards Board (IASB). It outlines the objectives, qualitative characteristics, elements
of financial statements, recognition, measurement, and presentation and disclosure requirements.
Here are the key components of the conceptual framework for accounting in the Philippines:

1. Objective of Financial Reporting: The objective of financial reporting is to provide information about an
entity's financial position, performance, and cash flows that is useful for economic decision-making by
various users of financial statements.
2. The qualitative characteristics of useful financial information are the characteristics that are likely to be
most useful to existing and potential investors, lenders, and other creditors in making decisions about
the reporting entity based on financial information.

FUNDAMENTAL QUALITATIVE CHARACTERISTICS

The fundamental qualitative characteristics of useful financial information are relevance and faithful
representation. For financial information to be considered useful, both characteristics must be present.

a. Relevance: Financial information is relevant if it has the potential to impact the decisions made by
users. It should have predictive value and/or confirming value and be material.

 Predictive Value: Information has predictive value if it can be used by users to make predictions about
future outcomes.
 Confirming Value: Information has confirming value if it provides feedback on evaluations previously
made by users.
 Materiality: Information is material if its omission or misstatement could influence users' decisions based
on financial information.

b. Faithful Representation: Financial information must faithfully represent the reported economic
phenomena to be useful. Faithful representation requires completeness, neutrality, and freedom from
error.

 Completeness: Financial information should include all necessary information for users to understand
the reported economic phenomena, including descriptions and explanations.
 Neutrality: Financial information should be presented without bias in selection or presentation.
 Freedom from Error: Financial information should be free from errors in the selection or application of
the reporting process and should not contain errors or omissions in describing economic phenomena.

ENHANCING QUALITATIVE CHARACTERISTICS

The enhancing qualitative characteristics, which maximize the usefulness of relevant and faithfully
represented information, include comparability, verifiability, timeliness, and understandability.

a. Comparability: emphasize that information is more valuable when it can be compared with similar
information from other entities or different time periods. Comparability enables users to identify
similarities and differences among items. Consistency, which involves using the same methods for the
same items over time or across entities, is important in achieving comparability.
b. Verifiability: Verifiability implies that different knowledgeable and independent observers can reach a
consensus that a particular depiction of financial information is faithfully represented. It does not require
complete agreement, but rather a reasonable level of consensus among informed observers.
 c. Timeliness: Timeliness refers to providing information to users in a timely manner, allowing it to
influence their decision-making. Timely information is more relevant and useful, as outdated information
may lose its value.
d. Understandability: Information is considered understandable if it is classified, characterized, and
presented clearly and concisely. Both PAS and PFRS acknowledge that even well-informed and diligent
users may require the assistance of advisors to comprehend complex and difficult phenomena.

COST CONSTRAINT

it is a pervasive constraint on financial reporting information. It states that the benefits derived from
reporting financial information should exceed the costs associated with obtaining and presenting that
information. Both PAS and PFRS consider the costs and benefits of financial reporting at a general level,
rather than at the individual reporting entity level. This constraint ensures that the resources invested in
financial reporting are justified by the benefits derived from the information provided.

3. Elements of Financial Statements: The PFRS framework defines the elements of financial statements,
such as assets, liabilities, equity, income, expenses, gains, and losses. These elements provide the
building blocks for preparing financial statements.

4. Recognition and Measurement: The framework guides the recognition and measurement of elements in
financial statements. It provides principles for determining when to recognize assets, liabilities, income,
and expenses and how to measure them (e.g., historical cost, fair value, amortized cost).

The commonly used measurement attributes are as follows:

a. Historical cost: This measurement attribute refers to the original transaction price or cost at which an
asset was acquired or a liability was incurred. It represents the value recorded at the time of the
transaction and is not subsequently adjusted for changes in fair value.
b. Current cost: Current cost is the amount that would be required to acquire or produce an asset at the
current date. It considers the replacement cost of the asset or a similar asset in the market.
c. Net realizable value: Net realizable value is the estimated selling price of an asset in the ordinary
course of business, less the estimated costs of completion, disposal, and any applicable selling expenses.
It is commonly used for the measurement of inventories or accounts receivable.
d. Current market value: Current market value represents 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. This measurement attribute is used when there is an active market for the asset or
liability.
e. Present value of future cash flows: This measurement attribute involves discounting the future cash
flows associated with an asset or liability to their present value. It considers the time value of money and
is often used for measuring financial instruments, such as bonds or leases.

Prudence is a principle embedded in the PFRS framework. It emphasizes the exercise of caution in
making judgments and estimates, recognizing uncertainties, and ensuring that assets and income are not
overstated.
 5. Presentation and Disclosure: The framework sets out guidelines for the presentation and disclosure of
financial information. It addresses the structure, format, and content of financial statements, as well as
the disclosure requirements to provide relevant and meaningful information to users.

6. Concepts of Capital Maintenance: The conceptual framework recognizes two concepts of capital
maintenance: financial capital maintenance and physical capital maintenance. Financial capital
maintenance is concerned with maintaining the nominal value of capital, while physical capital
maintenance is concerned with maintaining the operating capacity of an entity.

BASIC ACCOUNTING THEORIES

Basic Accounting Theories provide the foundation for the development of accounting principles and standards.
They help establish the principles and guidelines that govern the recognition, measurement, presentation, and
disclosure of financial information. Here are some key theories and concepts in accounting:

Accrual Accounting: Accrual accounting recognizes revenue when it is earned and expenses when they are
incurred, regardless of when the cash is received or paid. This principle ensures that financial statements reflect
the financial performance and position of an entity more accurately.

Going Concern Concept: The going concern concept assumes that an entity will continue its operations in the
foreseeable future. This assumption allows assets and liabilities to be recorded at their historical cost and
supports the use of accrual accounting.

Historical Cost Principle: According to the historical cost principle, assets and liabilities should be recorded at
their original cost when acquired or incurred. This principle provides objectivity and verifiability to financial
information.

Revenue Recognition Principle: The revenue recognition principle determines when and how revenue should be
recognized. It states that revenue should be recognized when it is realized or realizable, and earned. This
principle guides the timing of revenue recognition.

Matching Principle: The matching principle states that expenses should be recognized in the same period as the
revenues they helped generate. This principle ensures that the financial statements reflect the appropriate
relationship between revenues and expenses.

Consistency Principle: The consistency principle requires entities to use the same accounting methods and
principles consistently over time. Consistency enhances comparability and allows users to make meaningful
comparisons between financial statements of different periods.

Materiality Concept: The materiality concept states that financial information should be disclosed if its omission
or misstatement could influence the decisions of users. This concept allows accountants to focus on significant
information and avoid unnecessary detail.
LEGEND: Sagot ko pero mali

Multiple Choice
1. Who is responsible for setting accounting standards in the Philippines?
a) Securities and Exchange Commission (SEC)
b) Bangko Sentral ng Pilipinas (BSP)
c) Philippine Institute of Certified Public Accountants (PICPA)
d) Financial Reporting Standards Council (FRSC) developed on 2006

2. Which set of accounting standards is followed in the Philippines?

a) International Financial Reporting Standards (IFRS)
b) Generally Accepted Accounting Principles (GAAP)
c) Philippine Financial Reporting Standards (PFRS)
d) Philippine Accounting Standards (PAS)

3. Which entities are required to comply with PFRS in the Philippines?

a) Publicly listed companies
b) Large private companies
c) Banks and financial institutions
d) All of the above

4. What is the role of the Philippine Interpretations Committee (PIC) in accounting standards?
a) Develop and issue interpretations of PFRS
b) Set accounting standards for small and medium-sized entities
c) Monitor compliance with accounting standards
d) Conduct research on emerging accounting issues

5. How often are accounting standards reviewed and updated in the Philippines?
a) Every year sagot ko pero mali
b) Every three years
c) Every five years
d) As needed

6. Which organization is responsible for the implementation and enforcement of accounting standards in
the Philippines?
a) Securities and Exchange Commission (SEC)
b) Bangko Sentral ng Pilipinas (BSP)
c) Philippine Institute of Certified Public Accountants (PICPA)
d) Financial Reporting Standards Council (FRSC).
7. How are accounting standards in the Philippines aligned with international standards?
a) PFRS is completely identical to IFRS
b) PFRS is similar to IFRS with some modifications
c) PFRS is loosely based on IFRS
d) PFRS has no connection to IFRS

8. What is the objective of PFRS in the Philippines?

a) To provide detailed guidelines for every accounting transaction
b) To simplify financial reporting for small businesses
c) To ensure the transparency and comparability of financial statements
d) To promote the use of historical cost as the only measurement basis

9. Which organization is responsible for conducting public consultations on proposed accounting standards
in the Philippines?
a) Securities and Exchange Commission (SEC)
b) Bangko Sentral ng Pilipinas (BSP)
c) Philippine Institute of Certified Public Accountants (PICPA)
d) Financial Reporting Standards Council (FRSC).

10. How are changes to PFRS communicated to the public and stakeholders in the Philippines?
a) Through official announcements in newspapers
b) Through the website of the Financial Reporting Standards Council (FRSC)
c) Through direct communication to accounting professionals
d) Through annual seminars and conferences

11. Which statement best describes the status of Philippine accounting standards compared to international
standards?
a) Philippine accounting standards are more stringent than international standards.
b) Philippine accounting standards are less stringent than international standards.
c) Philippine accounting standards are on par with international standards.
d) Philippine accounting standards are not relevant globally.

12. How are small and medium-sized entities (SMEs) in the Philippines affected by accounting standards?
a) SMEs are exempt from following any accounting standards.
b) SMEs must comply with a simplified version of accounting standards.
c) SMEs can choose to follow either PFRS or local accounting principles.
d) SMEs are required to follow the same accounting standards as larger entities.

13. What is the primary purpose of the Philippine Financial Reporting Standards for SMEs (PFRS for SMEs)?
a) To provide exemption from financial reporting requirements for SMEs.
b) To reduce the burden of accounting compliance for SMEs.
c) To encourage SMEs to adopt international accounting standards.
d) To promote uniformity in financial reporting across all entities.

14. Which entity is responsible for ensuring compliance with accounting standards by banks and financial
institutions in the Philippines?
a) Bangko Sentral ng Pilipinas (BSP)
b) Philippine Deposit Insurance Corporation (PDIC)
 c) Securities and Exchange Commission (SEC)
d) Financial Reporting Standards Council (FRSC)

15. How do accounting standards contribute to the credibility of financial statements in the Philippines?
a) By providing a standardized framework for preparing financial statements
b) By imposing strict penalties for non-compliance with accounting standards
c) By requiring independent audits of financial statements
d) By ensuring the use of fair value measurement for all assets and liabilities

16. Which organization is responsible for reviewing and endorsing proposed accounting standards in the
Philippines?
a) Securities and Exchange Commission (SEC)
b) Bangko Sentral ng Pilipinas (BSP)
c) Philippine Institute of Certified Public Accountants (PICPA)
d) Financial Reporting Standards Council (FRSC)

17. How are accounting standards in the Philippines influenced by international developments?
a) The Philippines adopts international standards without any modifications.
b) The Philippines ignores international developments in accounting standards.
c) The Philippines selectively adopts international standards with modifications.
d) The Philippines follows a completely independent set of accounting standards.

18. How are financial statements prepared in the Philippines influenced by accounting standards?
a) Financial statements must comply with the accounting standards issued by the SEC.
b) Financial statements must comply with the generally accepted accounting principles in the
Philippines.
c) Financial statements must comply with PFRS or other approved accounting standards.
d) Financial statements must comply with the guidelines issued by the Bureau of Internal Revenue
(BIR).

19. The process of forming accounting standards in the Philippines generally follows:
a) A top-down approach
b) A bottom-up approach
c) A collaborative approach
d) A centralized approach.

20. Which organization plays a key role in the process of forming accounting standards in the Philippines?
a) Securities and Exchange Commission (SEC)
b) Bangko Sentral ng Pilipinas (BSP)
c) Philippine Institute of Certified Public Accountants (PICPA)
d) Financial Reporting Standards Council (FRSC)

21. What is the first step in the process of forming accounting standards in the Philippines?
a) Identifying emerging accounting issues
b) Conducting research and analysis
c) Drafting exposure drafts for public consultation
d) Issuing final accounting standards
22. How are accounting standards in the Philippines developed?
a) Through legislation enacted by the Philippine Congress
b) By the Securities and Exchange Commission (SEC) in consultation with the FRSC
c) By the Financial Reporting Standards Council (FRSC) in collaboration with stakeholders
d) Through the adoption of international accounting standards without modifications

23. What role do public consultations play in the process of forming accounting standards in the Philippines?
a) They provide an opportunity for stakeholders to review and comment on proposed standards.
b) They enable the SEC to enforce compliance with accounting standards.
c) They determine the final accounting standards without any revisions.
d) They ensure alignment with international accounting practices.
24. Accrual accounting is based on which fundamental principle?
a) Recognition principle
b) Matching principle
c) Objectivity principle
d) Cost principle

25. Which of the following best describes accrual accounting?

a) Recording transactions when cash is received or paid
b) Recording transactions when revenues are earned or expenses are incurred
c) Recording transactions based on the historical cost of assets and liabilities
d) Recording transactions based on the estimated market value of assets and liabilities

26. The going concern concept in accounting assumes that:

a) The company will continue its operations indefinitely.
b) The company will cease its operations in the near future.
c) The company's financial statements are prepared on a cash basis.
d) The company's financial statements are prepared on an accrual basis.

27. The going concern concept is particularly relevant for:

a) Non-profit organizations.
b) Start-up companies.
c) Small businesses.
d) All companies, regardless of size or industry.

28. The historical cost principle in accounting states that assets should be recorded at:
a) Their fair market value at the time of acquisition.
b) Their estimated replacement cost.
c) The original cost incurred to acquire them.
d) The current market value at the end of the reporting period.

29. The historical cost principle is primarily concerned with the valuation of:
a) Current liabilities.
b) Tangible assets.
c) Intangible assets.
d) Shareholders' equity.

30. The revenue recognition principle is based on the concept of:

 a) Materiality.
b) Conservatism.
c) Substance over form.
d) Matching.

31. The primary body responsible for setting accounting standards in the Philippines is the:
a) International Accounting Standards Board (IASB)
b) Securities and Exchange Commission (SEC)
c) Financial Reporting Standards Council (FRSC)
d) Philippine Institute of Certified Public Accountants (PICPA)
.

32. The Conceptual Framework in the Philippines provides guidance on:

a) The measurement of assets and liabilities.
b) The presentation and disclosure of financial statements.
c) The recognition and derecognition of revenue.
d) The overall objectives, qualitative characteristics, and elements of financial statements.

33. Which of the following is a qualitative characteristic of financial information under GAAP in the
Philippines? If may enhancing before qualitative charac then A
a) Understandability
b) Currency
c) Timeliness
d) Relevance

34. According to the Conceptual Framework, which of the following is an essential element of financial
statements?
a) Investments
b) Expenses
c) Changes in equity
d) Economic resources

35. The Conceptual Framework in the Philippines states that financial statements should be prepared on the
basis of:
a) Historical cost
b) Fair value
c) Net realizable value
d) Present value.

36. The primary objective of financial statements, as stated in the Conceptual Framework, is to provide
information about the:
a) Entity's financial position, performance, and cash flows.
b) Entity's economic resources and obligations.
c) Entity's governance and internal control.
d) Entity's compliance with regulatory requirements.

37. The Conceptual Framework in the Philippines emphasizes the importance of which of the following
characteristics for financial reporting?
 a) Consistency
b) Predictability
c) Materiality
d) Reliability

38. Which of the following is a key objective of financial reporting according to the Conceptual Framework?
a) Enhancing social responsibility
b) Maximizing shareholder wealth
c) Ensuring compliance with tax regulations
d) Providing useful information to users

39. In the Philippines, if there is a conflict between a specific accounting standard and the Conceptual
Framework, which should prevail?
a) The accounting standard
b) The Conceptual Framework
c) The opinion of the auditor
d) The preference of the management

40. Under GAAP in the Philippines, which organization has the authority to issue interpretations and rulings
on accounting standards?
a) Securities and Exchange Commission (SEC)
b) Philippine Institute of Certified Public Accountants (PICPA)
c) Financial Reporting Standards Council (FRSC)
d) Bureau of Internal Revenue (BIR)