Accounting Principles (Introduction to GAAP)

ACCOUNTING PRINCIPLES

When we look at a dictionary to know what is meant by principles, we’ll encounter words like doctrines, beliefs, dogmas, philosophies, creeds and similar words.

In Accounting, there is the so-called Generally Accepted Accounting Principles or GAAP.  These GAAPs are the doctrines, creeds, dogmas we apply and follow in the accounting practice.

The GAAP guides the bookkeepers and accountants in the recording, measuring and reporting the transactions, events and activities of the organization.

Accounting data are recorded and measured, and Financial Statements are presented fairly in accordance with GAAP.  That’s why auditors when expressing an opinion, they state “to fairly present the financial statements … in conformity with generally accepted accounting principles.”

GAAP are developed and continues to evolve thru experiences, occurrences or happenings in the business world, and careful study and research of those in the accounting profession especially by authoritative bodies.  Its development and evolution are influenced by changes in economic conditions, business practices, needs of the users of the accounting information, and many more.

The GAAP in the Philippines are embodied in our Philippine Accounting Standards (PAS) and Philippine Financial Reporting Standards (PFRS). The authoritative body which oversees GAAP in the Philippines is the FRSC.  They adopted the PAS and PFRS from the IASs and IFRSs of IASB.

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Basic Accounting Concepts and Principles

ACCOUNTING CONCEPTS

According to dictionary “concepts” means ideas; or generalized notions or views or impressions.  

Applying to Accounting, Accounting Concepts would refer to abstract ideas or assumptions which sets, governs, regulates and standardizes practices in the accounting world. 

ACCOUNTING PRINCIPLES (Introduction to GAAP)

When we look at a dictionary to know what is meant by principles, we’ll encounter words like doctrines, beliefs, dogmas, philosophies, creeds and similar words. 

In Accounting, there is the so-called Generally Accepted Accounting Principles or GAAP.  These GAAPs are the doctrines, creeds, dogmas we apply and follow in the accounting practice... read more 

FRAMEWORK 

Financial Reporting Standards (IFRS-PFRS) are based on a Framework, which addresses the concepts underlying the information presented in general purpose financial statements. 

The Framework also provides a basis for the use of judgement in resolving accounting issues. 

Financial Reporting Standards sets out recognition, measurement, presentation and disclosure requirements dealing with transactions and events that are important in general purpose financial statements.

However, it is important to note that the framework provides structure and direction to financial accounting and reporting and does not directly prescribe GAAP. It provides underlying foundation for accounting standards.

Although the Framework sets out the concepts that underlie the preparation and presentation of financial statements for external users, the Framework is not an International Financial Reporting Standards and hence does not define standards for any particular measurement or disclosure issue.

Be reminded that IASB recognizes that there may be a conflict between the Framework and IFRS.  In those cases where there is conflict, the requirements of the IFRS prevail over those of the Framework.  

Take note that the Framework is being introduced here for us to learn and study the basic concepts of financial accounting and reporting which are basically the fundamentals of accounting.

Scope of the Framework

The Framework deals with the following:

• Basic Set of Financial Statements  

• Objective of Financial Statements

• Financial or Accounting Elements 

• Definition, Recognition and Measurement of the elements of Financial Statements   

• Basic Accounting Assumptions

• Qualitative Characteristics 

• Constraints on Relevant and Reliable information 

Concern of the Framework

The framework is concerned with general purpose financial statements.

Such financial statements are prepared and presented at least annually and are directed towards the common information needs of a wide range of users.   

Many users have to rely on the financial statements should, therefore, be prepared and presented with their needs in view. 

        DIAGRAM OF CONCEPTUAL FRAMEWORK 



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