The Framework sets out the underlying assumptions of financial statements:
- Accrual Basis.The effects of transactions and other events are recognized when they occur, rather than when cash or its equivalent is received or paid, and they are reported in the financial statements of the periods to which they relate.
- Going Concern.The financial statements presume that an enterprise will continue in operation indefinitely or, if that presumption is not valid, disclosure and a different basis of reporting are required.
The FRSC conceptual framework mentions two assumptions only. However, it is widely believed that an inherent trait of the financial statements are the basic assumptions of:
- Accounting Entity. The business is separate from the owners, managers, and employees who constitute the business. Therefore transactions of the said individuals should not be included as transactions of the business.
- Time Period. Financial reports are to be prepared for one year or a period of twelve months.
- Monetary unit. There are two aspects under this assumption. First is the quantifiability of the peso, meaning that the elements of the financial statements should be stated under one unit of measure which is the Philippine Peso. Second is the stability of the peso, means that there is still an assumption that the purchasing power of the peso is stable or constant and that instability is insignificant and therefore ignored.
Qualitative Characteristics of Financial Statements
These characteristics are the attributes that make the information in financial statements useful to investors, creditors, and others. The Framework identifies four principal qualitative characteristics: