ACCOUNTING

PRINCIPLES &
CONCEPTS
DEVELOPMENT OF ACCOUNTING / AUDITING STANDARDS
Development of accounting /
auditing standards
 International Accounting Standards Committee

 Philippine Institute of Certified Public Accountants

 Accounting Standards Council

Development of accounting /
auditing standards
 ASC – 1981 by PICPA
 Responsible for GAAP (generally accepted accounting principles)

 Auditing Standards and Practices Council (ASPC)

 Set the auditing standards in the Philippines.
 Nature of Accounting Principles
Generally Accepted Accounting Principles
 Ground rules for financial reporting
 Are convention, rules and procedures necessary to define what is
accepted accounting practice.
 These principles have developed on the basis of experience,
reason, custom, usage and practical necessity.
 They originate from a combination of tradition, experience and
official decree.
 Are some arbitrary
 May change over time
 Must be clearly understand and observe by all participants
Accounting Principles (are the rules and guidelines that companies must

and Auditing Standards

follow when reporting financial data)

 Sources of GAAP in the Philippines

 The SFAS issued by ASC (statement of financial accounting standards)(
Accounting Standards Committee)
 Accounting principles issued by the PICPA.
 The opinions published by other authorities
 Common practices used on business
 SEC, Insurance Commission, BSP, Stock Exchange, Public Service
Commission and BIR
Accounting Principles

 1. Basic Financial Statements (asc)

 Balance sheet, income statement, statement of retained earning,
statement of cash flows and related notes,

 Regulates (MAINTAIN) the form and content of the financial statement.

Accounting Principles
 2. business Combination - when an acquirer obtains control of a business
 Purchase
Steps in applying the acquisition method are:
 Identification of the 'acquirer'
 Determination of the 'acquisition date’
 Recognition and measurement of the identifiable assets acquired, the liabilities assumed and any
non-controlling interest (NCI, formerly called minority interest) in the acquire
 Recognition principle. Identifiable assets acquired, liabilities assumed, and non-controlling
interests in the acquiree, are recognized separately from goodwill
 Measurement principle. All assets acquired and liabilities assumed in a business combination
are measured at acquisition-date fair value
 Recognition and measurement of goodwill or a gain from a bargain purchase
Accounting Principles

 Pooling-of-interest method - technique of recording a merger or

acquisition, whereby the assets and liabilities of the two companies are
summed together and then netted

 Goodwill - is a long-term (or noncurrent) asset categorized as an

intangible asset. Goodwill arises when a company acquires another
entire business.

 Straight-line method used for amortization - this is the process of

recording the interest expense associated with a bond equally each
accounting period until its maturity date.
Accounting Principles

 3. consolidation
 Consolidated financial statement
 Total liabilities exceed 50m
 Parent company:
 Have securities sold to public
 Is a financial intermediary
 Issues commercial paper
Accounting Principles

 4. marketable securities
 Should be carried at a lower of the aggregated cost or market value

 5. Inventories
 Stated at lower cost market
 Market is determined by replacement cost
Accounting Principles

 6. property, plant and equipment

 Evaluated at cost less depreciation allowance
 Depreciated over the life of the asset

 7. capital
 In excess of par
 Treasury stocks

 8. provisions and reserves

 Deferred tax accounting
Additional GAAP

 Business entity concept – recorded separately from the stakeholder

 Cost concept – asset and service actual cost
 Reliability or objective principles –reliable data, accurate, unbiased
 Going-concern concept - assumption
 Time-period concept – current and regular intervals
 Stable-monetary-unit concept – monetary terms
 Comparability principles - comparable
Additional GAAP

 Revenue (realization) principles – should be recorded

 Matching principles – timing of expense recognition,
 Adequate disclosure principles - should report enough information
 Materiality concept – relative important of an item in the event
 Conservation concept – over or understated the fact
 Consistency principles – follow the method in constant
 Professional Judgement - professionalism