CHAPTER 1 PRETEST accounting issue.

But if we have a specific

accounting standards that prevail, we use it.
The standards issued by the IASB are the International
Financial Reporting Standards. Public practice of accounting does not involve an
 IASB is the international counterpart of FRSC. employer-employee relationship, while private practice
 In conjunction with the International Financial involves an employer-employee relationship.
Reporting Standards, FRSC adopted all the  Public practice – these are accountants working in
standards made by IASB, and later on it was called a firm (SGV, etc.)
Philippine Financial Reporting Standards.  Public practice – the relationship between the
accountant towards his or her clients is only on a
Changes to reporting standards are primarily made in contractual basis.
response to common needs.  Private practice – government accounting,
 Any type of changes and any type of amendments academe
a standard has, that is due to the users’ needs.  Private practice – accountants working in a
 Any standards or the conceptual framework itself company (Jollibee, etc.)
talks about prevailing financial statements for the  Private practice – contract between the accountant
common needs. and the company
 Our main goal as accountants is to cater the  Private practice – contract between client and the
common needs of our users, not a specific need by company
a particular user.
 ‘Doing financial statements solely because this General purpose financial statements are those
government needs it’ is not allowed in accounting. statements that cater to the common needs of external
 Accountants are preparing financial statements for users.
the common needs because we don’t want to be  In financial reporting, we don’t cater to the specific
biased. needs of our users, rather, we focus more on the
general or common needs of our external users.
Accounting policies prescribed by a regulatory are
sometimes referred to as regulatory standards. The primary objective of financial reporting is to provide
 Regulatory parties – government information useful in assessing the amounts and timing
of future cash flows, to provide information about
BOA consists of a chairperson and 6 members economic resources, claims to those resources, and
appointed by the President of the Philippines. changes in those resources, and to provide information
 The members of the BOA undergo process of that is useful in making investment and credit decisions.
nomination by PICPA (official organization of  The secondary objective of financial reporting is to
accountants). PICPA gives 5 nominees per provide information useful in assessing
vacancy. After PICPA submits its nominees, it will management’s stewardship or the effectiveness of
go to PRC BOA, and BOA will lessen the nominees the entity’s management.
into three. Then the President of the Philippines will  Our roles as accountants are we gather information,
choose in each vacancy. summarize transactions, put it into financial
 The president has a term of 3 years. Every term, a statements, and give it to our users for them to
member must rest for 1 year. But any member of arrive at a decision.
the BOA can only be part of the BOA for a
maximum of 12 years. A financial report includes the financial statements plus
other information provided outside the financial
In the absence of a standard that specifically applies to statements.
a transaction or event, management shall use its  Financial report is broader than financial statement.
judgment in developing and applying an accounting  There are a lots of financial reports other than
policy. financial statement.
 Any accountants’ judgment or the management’s
judgment itself is okay to apply if we do not have Prudence is the use of caution when making estimates
certain accounting standard we can apply. under conditions of uncertainty, such that assets or
 Hierarchy in applying accounting treatment in a income are not overstated and liabilities or expenses are
particular accounting issue: accounting standards, not understated.
conceptual framework, judgment  Very skeptic in prudence
 Whenever there is confusion on how much we
For financial statements to be useful, they should be should report our assets and liabilities, as well as
prepared using reporting standards that are generally our income and expenses, don’t overstate our
acceptable. assets and income. While don’t measure liabilities
 Generally accepted accounting principles – and expenses if we don’t have source if how much
these are accounting principles and accounting is lacking.
concepts that is applied here in the Philippines and  If we overstate our assets and income, it will look
internationally. good on paper.
 Generally accepted accounting principles is another  If we understate our liabilities and expense, it will
way on how we can report or address any also look good on paper.

notes by frey angeleigh galvezo

Changes in accounting policies are disclosed in the  Derecognition – eliminating transactions or
notes. elements from financial statements
 Changing in accounting policies – when you deal  Fully depreciated: 0 or salvage value
with your inventories. for example, you are selling  formula of computing the depreciation expense:
computer parts (inventory). in the treatment of your (cost – salvage value) ÷ useful life
inventory, kung kayo ay gumagamit ng FIFO (first in,  salvage value or residual value – the cost that
first out) sa first year of operation, but hindi na you can get if you sell the equipment at the end of
nagw-work ang FIFO sa second year of operation its useful life
so you want to switch with specific identification  if it doesn’t have a salvage value, its value is 0.
(anything will go out first).
CHAPTER 1
Classifying involves the grouping of similar and
interrelated items into their respective classes through The Need for Financial Reporting
posting in the ledger.
 Posting is the process. Accounting
 It is a service activity. Its function is to provide
When measurement is unaffected by estimates, the quantitative information, primarily financial in nature,
items measured are said to be valued by fact. about economic entities that is intended to be
 How do we identify historical cost? By estimates or useful in making economic decisions.
facts.  FRSC defines accounting as a service activity.
 If it is fact, the information is available; there is a Our main service to cater the financial needs of
direct resource or a basis to that estimate our clients.
 If it is estimate, there is no direct information that  It is an art. It is an art of recording, classifying,
says how much. In using estimate, you can use summarizing in a significant manner and in terms of
your judgment. money, transactions and events which are, in part
at least, of a financial character, and interpreting
The accounting standards used in the Philippines are the result thereof.
the PFRSs, which are based on IFRS. The PFRSs  Aspects of Accounting: Recording, Classifying,
comprise the following: (1) PFRSs, (2) PASs, and (3) Summarizing, Interpreting
Interpretations.  recording – journals
 PFRS are more modern standards compared to  classifying – ledgers
PAS.  summarizing – financial statements and other
 PAS is made by FASB (Financial Accounting accounting reports
Standards Board).  interpreting – e.g., comparative financial
statements explained to clients for them to
Auditing is the process of evaluating the make a decision
correspondence of certain assertions with established  It is a process. It is the process of identifying,
criteria and expressing an opinion. measuring, and communicating economic
 Auditing starts when accounting ends. information to permit informed judgments and
 The work of an auditor involves corroborating decisions by users of the information.
available information whether the amounts or the  Process does not have an ending.
contents of the financial statements speaks the  Our role as accountant ends when the
truth and nothing but the truth. business also ends.
 The work of an auditor is to check if the financial  Most acceptable and/or most used definition of
statements prepared by the accountants are correct. accounting
 All the three definitions above talks about economic
Bookkeeping is the process of recording the accounts or information and financial information. It is because
transactions of an entity. an accountant handles the financial aspect of the
 A bookkeeper cannot sign financial statements, business.
only an accountant.  They also talk about decision making.

International Financial Reporting Interpretations Accounting – it is the process of identifying, measuring,

Committee (IFRIC) and communicating economic information to permit
 It is an accounting body that issue interpretations informed judgments and decisions by users of the
about the standards for the users to understand. information. (American Association of Accountants)

Recognition is the process of including the effects of an ASPECTS OF ACCOUNTING

accountable event in the financial statements.
 To check whether is qualified for recognition, did it Identifying
meet the definition of asset, liabilities, equity,  It is the process of analyzing events and
income, and expense? Would it provide useful transactions to determine whether or not they will
information? be recognized.
 Recognition – it qualifies to be part of the financial  Recognition – refers to the process of
statements including the effects of an accountable event in
the statement of financial position or the

notes by frey angeleigh galvezo

 statement of comprehensive income through a  changes in fair values and price levels
journal entry.  obsolescence
 Two criteria for us to recognized a  technological changes
transaction or an account: It would provide  vandalism
useful information; It must meet the definition  Internal events – events that do not involve an
of an asset (it is the resources owned and external party; contracting with yourself
controlled by an entity that will help to the  Production – the process by which resources
inflow of resources; has future economic are transformed into finished goods
benefits), liability (credits of the entity), equity  conversion of raw materials into finished
(residual interest), income, and expenses. products
 All the assets our entity has come from our  production of farm products
creditors and the owners.  Casualty – an unanticipated loss from
 sole proprietorship – owner’s equity disasters or other similar events
 partnership – partner’s capital (name capital)  loss from fire, flood, and other
 corporation – shareholders’ equity (most catastrophes
complex)
 Accountable event – one that affects the assets, Measuring
liabilities, equity, income or expenses of an entity  it involves assigning numbers, normally in monetary
 Accountable event – it is also known as economic terms, to the economic transactions and events.
activity  measurement bases: historical cost, fair value,
 Economic activity – it is the subject matter of present value, realizable value, current cost,
accounting inflation-adjusted value
 Only economic activities are emphasized and  historical cost and fair value are the common
recognized in accounting. Sociological and measurement bases that we are using
psychological matters are not recognized.  financial statements are said to be prepared using a
 Non-accountable events are not recognized but mixture of costs and values.
disclosed only in the notes, if they have accounting  cost include historical cost and current cost, while
relevance. values include fair value, present value, realizable
 Disclosure only in the notes is not an application of value, inflation-adjusted value
the recognition process. A non-accountable event  the use of estimates is essential in providing
that has an accounting relevance may be recorded relevant information. thus, financial statements are
through a memorandum entry. said to be a mixture of fact and opinion.
 Any accountable event can be an external event or  when measurement is affected by estimates,
an internal event. the times measured are said to be valued by
 External events – events that involve an entity and opinion.
another external party; the entity transacts with a  estimates of uncollectible amounts of
third party outside the entity. receivables
 Exchange (reciprocal transfer) – an event  depreciation and amortization expenses,
wherein there is a reciprocal giving and which are affected by estimates of useful
receiving of economic resources or discharging life and residual value
of economic obligations between an entity and  estimated liabilities, such as provisions
an external party.  retained earnings, which is affected by
 sale various estimates of income and
 purchase expenses
 payment of liabilities  when measurement is unaffected by estimates,
 receipt of notes receivable in exchange for the items measured are said to be valued by
accounts receivable fact.
 Non-reciprocal transfer – a “one way”  ordinary share capital valued at par value
transaction in that the party giving something  land stated at acquisition cost
does not receive anything in return while the  cash measured at face amount
party receiving does not give anything in
exchange. Communicating
 donations  it is the process of transforming economic data into
 gifts or charitable contributions useful accounting information, such as financial
 payment of taxes statements and other accounting reports, for
 imposition of fines dissemination to users.
 theft  it involves interpreting the significance of the
 provision of capital by owners processed information.
 distributions to owners  three aspects of the communicating process of
– FASB (ASC) 845 accounting
 External event other than itself – involves  recording – refers to the process of
changes in the economic resources or systematically committing into writing the
obligations of an entity caused by an external identified and measured accountable events in
party or external source but does not involve the journal through journal entries.
transfers of resources or obligations.

notes by frey angeleigh galvezo

  classifying – involves the grouping of similar  Types of accounting information classified as to
and interrelated items into their respective users’ needs:
classes through postings in the ledger.  General purpose accounting information –
 summarizing – putting together or expressing provided under financial accounting; designed
in condensed form the recorded and classified to meet the common needs of most statement
transactions and events; includes the users; governed by generally accepted
preparation of financial statements and other accounting principles (GAAP – anywhere,
accounting reports anyone can use or apply it to their transactions;
 interpreting – the processed information involves to avoid being biased) represented by the
the computation of financial statement ratios Philippine Financial Reporting Standards
 some regulatory bodies, such as the bangko sentral (PFRSs)
ng pilipinas (bsp), require certain financial ratios to  Special purpose accounting information –
be disclosed in the notes to financial statements directing or for single use; designed to meet
 the basic purpose of accounting is to provide the specific needs of particular statement users;
information that is useful in making economic it is provided by other types of accounting
decisions other than financial accounting
 economic entities use accounting to record
economic activities, process data, and disseminate Sources of information in financial statements
information intended to be useful in making  Information in the financial statements is not
economic decisions obtained exclusively from the entity’s accounting
 economic entity – it is a separately identifiable records. Some are obtained from external sources.
combination of persons and property that uses or  fair value measurements
controls economic resources to achieve certain  resolutions of uncertainties
goals or objectives  future lease payments
 not-for-profit entity – one that carries ot some  contractual commitments
socially desirable needs of the community or
its members and whose activities are not Accounting as science and art
directed towards making profit  As a social science, accounting is a body of
 business entity – one that operates primarily knowledge which has been systematically gathered,
for profit classified and organized.
 economic activities – activities that affect the  As a practical art, accounting requires the use of
economic resources (assets) and obligations creative skills and judgment.
(liability), and consequently, the equity of an
economic entity Accounting as an information system
 production – the process of converting  Accounting identifies and measures economic
economic resources into outputs of goods and activities, processes information into financial
services that are intended to have greater reports, and communication these reports to
utility than the required inputs decision makers.
 exchange – the process of trading resources
or obligations for other resources or obligations Accounting as a language of business
 consumption – the process of using the final  Accounting is often referred to as a “language of
output of the production process business” because it is fundamental to the
 income distribution – the process of communication of financial information
allocating rights to the use of output among
individuals and groups in society Creating and Critical thinking in accounting
 savings – the process of setting aside rights to  Creative thinking – involves the use of imagination
present consumption in exchange for rights to and insight to solve problems by finding new
future consumption relationships (ideas) among items of information;
 investment – the process of using current most important in identifying alternative solutions
inputs to increase the stock of resources  Critical thinking – involves the logical analysis of
available for output as opposed to immediately issues, using inductive or deductive reasoning to
consumable output test new relationships to determine their
 after you summarize the financial information effectiveness; most important in evaluating
through our financial statements, you need to alternative solutions
communicate that financial statement to any user.  Creative skills and judgment are exercised in
 Types of information provided by accounting: problem solving. Steps in problem solving:
 Quantitative information – information 1. recognizing a problem
expressed in numbers, figures, quantities, or 2. identifying alternative solutions
units 3. evaluating the alternatives
 Qualitative information – information 4. selecting a solution from among the
expressed in words or descriptive form alternatives
 Financial information – information 5. implementing the solution
expressed in money; combination of
quantitative and qualitative

notes by frey angeleigh galvezo

ACCOUNTING CONCEPTS  the benefit must always exceeds the cost, para
 Double-entry system sa point of view natin, may gain
 each accountable event is recorded in two  Accrual Basis of accounting
parts – debit (receive) and credit (let go)  the effects of transactions and other events are
 Going concern assumption recognized when they occur (and not as cash
 the entity is assumed to carry on its operations is received or paid)
for an indefinite period of time  recorded in the accounting records and
 we view an entity as continuing its operations reported in the financial statements of the
indefinitely (no ending) periods to which they relate
 the only time a corporation, a business or an  the receipt of cash is not taken into
entity will be put into an end is if it faces consideration when we record or recognize
liquidation or dissolution (it affirms that a transactions
business ends)  kahit hindi pa bayad, it is already recognized
 the measurement basis involving mixture of  opposite of cash basis of accounting (we
costs and values is appropriate only when the recognized income when received, we
entity is a going concern recognized expense when paid; used when
 realizable value – the appropriate filing BIR records)
measurement basis if the entity is a liquidating  more accurate and relevant financial
concern (e.g., estimated selling price less statements
estimated costs to sell for assets and expected  Historical cost concept (Cost principle)
settlement amount for liabilities  the value of an asset is determined on the
 Separate entity (Accounting entity/Business entity basis of acquisition cost
concept/Entity Concept)  the cost of an asset on the date of acquisition
 the entity is viewed separately from its owners upon payment (new amount)
 the personal transactions of the owners among  e.g., sept. 1, you bought a printer of 30000
themselves or with other entities are not (historical cost)
recorded in the entity’s accounting records  this concept is not always maintained
 it defined the area of interest of the accountant  some PFRSs require the departure from this
 Stable monetary unit (Monetary unit assumption) concept, such as when inventories are
 assets, liabilities, equity, income, and measure at net realizable value (NRV) rather
expenses are stated in terms of a common unit than at cost when applying the “lower of cost
of measure, which is the peso in the and NRV” measurement
Philippines; convert it into peso if it is not in  Consistency concept
peso  the financial statements are prepared on the
 the purchasing power of the peso is regarded basis of accounting principles that are applied
as stable or constant and that its instability is consistently from one period to the next.
insignificant and therefore ignored (if the  changes in accounting policies are made only
inflation rate increases, the purchasing power when required or permitted by the PFRSs or
decreases, and vice versa) when the change results to more relevant and
 to be useful, accounting information should be reliable information
stated in a common denominator  we must be consistent, but inevitable changes
 Time Period (Periodicity/Accounting Period) must be disclosed to notes to financial
 the life of the entity is divided into series of statements
reporting periods (monthly, annually, semi-  we must remain consistent (it is the way) to
annually) maintain comparability (it is the goal)
 an accounting period is usually 12 months and  Matching principle (Association of cause and
may either be a calendar year (starts on effect)
January 1 and ends on December 31 of that  costs are recognized as expenses when the
same year) or a fiscal year (covers 12 months related revenue is recognized
but starts on a date other than January 31)  e.g., cost of good sold (for example: sept. 1,
period. nagbenta ka ng sampung ballpen na you
 Materiality concept bought for 5 pesos, but you sell it for 10 pesos.
 information is material if its omission or sales is 100 pesos. cost of goods sold is 50
misstatement could influence economic pesos. gross profit is 50 pesos. – dapat on the
decisions same day na nag-report ka ng sale na 100,
 it is a matter of professional judgment and is doon din papasok ang cost of goods sold, kasi
based on the size and nature of an item being expense ang cost of goods sold––dapat
judged nagma-match sila)
 a transaction might be material to one entity,  Realization
but immaterial to another entity  it is the process of converting non-cash assets
 Cost-benefit (e.g., land, equipment) into cash or claims for
 the cost of processing and communicating cash
information should not exceed the benefits to  the concept that deals with revenue recognition
be derived from it

notes by frey angeleigh galvezo

  most of the times, we realize when we are in other examples are casualty losses and
liquidation process, and if we have more impairment losses)
liabilities than cash.  Concept of Articulation
 Prudence  all of the components of a complete set of
 it is the use of caution when making estimates financial statements are interrelated
under conditions of uncertainty, such that  the preparation of a worksheet (and the
assets or income are not overstated and eventual completion of the financial statements)
liabilities or expenses are not understated recognizes that the financial statements are
 the one which has the least effect on equity is fundamentally interrelated and interact with
chosen each other
 it is applying the sense of caution in  e.g., when evaluating an entity’s ability to
determining what amount to use in the generate future cash flows, all the financial
transactions statements should be used and not only the
 the exercise of prudence does not allow the statement of cash flows
deliberate understatement of assets or  receivables and payables in the statement
overstatement of liabilities in order to create of financial position provide information on
hidden reserves because the financial expected cash receipts and cash
statements would not be faithfully represented disbursements in future periods
 cookie jar reserve – example of a hidden  income and expenses in the statement of
reserve profit or loss and other comprehensive
 it is a form of fraudulent reporting income provide information on the entity’s
wherein during periods of high profits, ability to generate cash flows from its
liabilities are overstated through operations
excessive provisions of expenses or  information on issued and unissued
non-recognition of income shares in the statement of changes in
 in subsequent periods, when the entity’s equity provides information on the
financial performance is poor, the availability of equity financing
“cookie jar reserve” is reversed to  information on historical changes in cash
income in order to report high profits and cash equivalents in the statement of
 management engages in such fraud cash flows helps users assess future
because of various reasons, which may sources and uses of funds
include smoothing earnings in order to  the notes to financial statements provides
secure bonuses over time, defer profits information on the quality of earnings (e.g.,
to the periods when they are evaluated whether income or expenses are realized
for promotion or for election as members or unrealized or whether they are
of the board of directors, or to show recurring or non-recurring
profits when other entities belonging to  Full disclosure principle
the same industry show declining  recognizes that the nature and amount of
financial performance information included in the financial statements
 Expense recognition concepts/principles reflect a series of judgmental trade-offs
(different ways on how we recognize expense)  the trade-offs strive for sufficient detail to
 matching concept (direct association of costs disclose matters that make a difference to
and revenues) – when recognizing expense, users, yet
the related revenue is also recorded on the  the trade-offs strive for sufficient
same period; costs that are directly related to condensation to make the information
the earning of revenue are recognized as understandable, keeping in mind the costs
expenses in the same period the related of preparing and using it
revenue is recognized  Entity theory
 systematic and rational allocation – costs  the accounting objective is geared towards
that are not directly related to the earning of proper income determination
revenue are initially recognized as assets and  proper matching of costs against revenues is
recognized as expenses over the periods their the ultimate end
economic benefits are consumed, using some  emphasizes the income statement and is
method of allocation; an example is when we exemplified by the equation “Assets =
depreciate assets; when the equipment is Liabilities + Capital”
deteriorating, we recognize depreciation  Proprietary theory
expense (as we use a particular asset, we also  the accounting objective is geared towards the
recognize depreciation from that); other proper valuation of assets
examples are amortization, expensing of  emphasizes the importance of the balance
prepayments, and effective interest method sheet and is exemplified by the equation
 immediate recognition – costs that do not “Assets – Liabilities = Capital”
meet the definition of an asset, or ceases to  Residual Equity Theory
meet the definition of an asset, are expensed  applicable when there are two classes of
immediately (e.g., water bill, electricity bill–they shares issued, i.e., ordinary and preferred
are automatically recognized as an expense;

notes by frey angeleigh galvezo

  the equation is “Assets – Liabilities – Preferred Financial accounting vs. Financial reporting
Shareholders’ Equity = Ordinary Shareholders’  they both focus on general purpose financial
Equity” statements
 applied in the computation of book value per  financial reporting endeavors to promote principles
share and return on equity that are also useful in “other financial reporting”
 Fund Theory  “other financial reporting” comprises information
 the accounting objective is neither proper provided outside the financial statements that
income determination nor proper valuation of assists in the interpretation of a complete set of
assets but the custody and administration of financial statements or improves users’ ability to
funds make efficient economic decisions
 the objective is directed towards cash flows,  financial statements – the structured representation
exemplified by the formula “cash inflows – of an entity’s financial position and results of its
cash outflows = fund” operations
 used in government accounting and fiduciary  financial statements – the end product of the
accounting accounting process and the means by which
information gathered and processed are
Accounting concepts – refer to the principles upon periodically communicated to users
which the process of accounting is based  financial report – includes the financial statements
Accounting assumptions (accounting postulates) – plus other information provided outside the financial
fundamental concepts or principles and basic notions statements that assists in the interpretation of a
that provide the foundation of the accounting process complete set of financial statements or improves
users’ ability to make efficient economic decisions
Accounting theory – logical reasoning in the form od a  financial reporting – the provision of financial
set of broad principles that (i) provide a general frame of information about an entity that is useful to external
reference by which accounting practice can be users, primarily the investors, lenders, and other
evaluated and (ii) guide the development of new creditors, in making investment and credit decisions
practices and procedures; the organized set of concepts  primary objective of financial reporting is to provide
and related principles that explain and guide the information about an entity’s economic resources,
accountant’s action in identifying, measuring, claims to those resources, and changes in those
communicating accounting information; comprises the resources
Conceptual Framework and the Philippine Financial  secondary objective of financial reporting is to
Reporting Standards (PFRSs) provide information useful in assessing the entity’s
management stewardship (i.e., how efficiently and
 Most accounting concepts are derived from the effectively the entity’s management has discharged
Conceptual Framework and the Philippine Financial its responsibilities to use the entity’s economic
Reporting Standards (PFRSs) resources
 However, some accounting concepts are implicit,
meaning they are not expressly stated in the 2. Management accounting
Framework or PFRSs but are generally accepted  refers to the accumulation and communication of
because of their long-time use in the profession. information for use by internal users or
management
Common branches of accounting  an offshoot of management accounting is
1. Financial accounting – the branch of accounting that management advisory services which includes
focuses on general purpose financial statements services to clients on matters of accounting, finance,
 General purpose financial statements – those business policies, organization procedures, product
statements that cater to the common needs of costs, distribution, and many other phases of
external users, primarily the potential and business conduct and operations
existing investors, and lenders and other  if the financial accounting follows PFRS,
creditors management accounting follows management’s
 governed by the Philippine Financial Reporting objectives, rules, and regulations
Standards  caters to internal users
 in preparation of the general purpose financial  the product of management accounting is
statements, we apply Philippine Financial Reporting management reports (whatever management
Standards (PFRS–new standards, PAS–some of reports the internal users needed, management
these are used today, Interpretations–if there are accountants will provide)
issues or point of clarifications on the standards,
the PIC issue interpretations for any users to 3. Cost accounting
understand easily the standards)  the systematic recording and analysis of the costs
 broader than management accounting of materials, labor, and overhead incident to
 caters external and internal users production
 the product of financial accounting is general  e.g., manufacturing business (handles raw
purpose financial statements materials, labor, overhead)
 systematic recording and analysis of the costs of
materials (to produce finished goods), labor,

notes by frey angeleigh galvezo

 overhead (not directly to the main expenses; e.g., 12. Accounting research
utility expense, factory rent) incident to production  the careful analysis of economic events and other
 related to production variables to understand their impact on decisions
 includes a broad range of topics, which may be
4. Auditing related to one or more of the other branches of
 the process of evaluating the correspondence of accounting, the economy as a whole, or the market
certain assertions with established criteria and environment
expressing an opinion thereon  if there are issues or point of clarifications existing
 checking the credibility and correctness of financial about accounting, this is a choice for us to carefully
statements prepared by an accountant analyze the different accounting events related to
 audit is the systematic process of objectively the issue and also other variables that has a direct
obtaining and corroborating evidence in the subject impact to that certain issue
matter (financial statements)  it is to find solution to the existing issue, or to state
 checking of the financial statements whether they recommendations
are aligned with the standards and/or they
corroborate with the actual evidences provided Bookkeeping vs. Accounting
 Bookkeeping – more on procedural; it is the
5. Tax accounting process of recording the accounts or transactions of
 the preparation of tax returns and rendering of tax an entity; the book must be updated on time;
advice, such as the determination of the tax normally ends with the preparation of the trial
consequences of certain proposed business balance
endeavors  Accounting – preparation of financial statements;
 income tax - most common tax return require the interpretation of the significance of the
 why is there a need to pay income tax? it is processed information
because the taxation laws are stating that the  Accounting is more broader than bookkeeping.
benefits that we receive from the income must be
paid to the government (it is like giving back to the ACCOUNTANCY – refers to the profession or practice
government) of accounting

6. Government accounting Four sectors in the practice of accountancy

 the accounting for the government and its
instrumentalities, placing emphasis on the custody Under R.A. 9298 also known as the “Philippine
of public funds, the purposes for which those funds Accountancy Act of 2004,” (all professional accountants
are committed, and the responsibility and or all individuals exercising the accountancy profession
accountability of the individuals entrusted with must adhere to this law) the practice of accounting is
those funds sub-classified into the following:
 Commission on Audit - states auditor; auditor of
government agencies  Practice of Public Accountancy
 does not involve an employer-employee
7. Fiduciary accounting relationship between the accountant and the
 the handling of accounts managed by a person client
entrusted with the custody and management of  involves the rendering of audit or accounting
property for the benefit of another related services to more than one client on a
fee basis
8. Estate accounting  working in a firm
 the handling of accounts for fiduciaries who wind up  For example, you are auditing the financial
the affairs of a deceased person statements of JFC Corp. You are not the
employee of JFC Corp., rather you are an
9. Social accounting (social and environmental employee of the auditing firm.
accounting or social responsibility reporting)  Practice of Commerce and Industry
 the process of communicating the social and  previously called as private accountancy
environmental effects of an entity’s economic  employed within a company or a business
actions to the society  refers to employment in the private sector in a
position which involves decision making
10. Institutional accounting requiring professional knowledge in the
 the accounting for non-profit entities other than the science of accounting and such position
government required that the holder thereof must be a
certified public accountant
11. Accounting systems  Practice in Education/Academe
 the installation of accounting procedures for the  employment in an educational institution which
accumulation of financial data and designing of involves teaching of accounting, auditing,
accounting forms to be used in data gathering management advisory services, finance,
business law, taxation, and other tecnically
related subjects

notes by frey angeleigh galvezo

  if you are teaching accounting or any board-  PFRSs are accompanied by guidance to assist
related subjects, you are considered working in entities in applying their requirements. A guidance
a education/academe sector states whether it is an integral part of the PFRSs. A
 Practice in the Government guidance that is an integral part of the PFRSs is
 employment or appointment to a position in an mandatory
accounting professional group in the
government or in a government-owned and/or The need for reporting standards
controlled corporation, including those  For financial statements to be useful, they should
performing proprietary functions, where be prepared using reporting standards that are
decision making requires professional generally acceptable Otherwise, each entity would
knowledge in the science of accounting, or have to develop its own standards.
where civil service eligibility as a certified  If that is the case, every entity may just present any
public accountant is a prerequisite asset or income it wants and omit any liability or
 if you are working in accounting department of expense it does not want.
any government agency (COA – audit  Financial statements would not be comparable, the
government agencies) risk of fraudulent reporting is heightened, and
economic decisions based on these financial
USERS OF ACCOUNTING INFORMATION statements would be grossly incorrect.
Two major types of accounting users  For this reason, entities should follow a uniform set
 External Users – users outside the company or of reporting standards when preparing and
entity; third parties presenting financial statements.
 Customers – they want to assess if they will
have a long-term relationship with that The term “generally acceptable” means that either:
company; they want to know whether that  the standard has been established by an
company will continue its operations authoritative accounting rule-making body, e.g., the
 Creditors – they want to know if the company PFRSs adopted by the FRSC; or
has the ability to pay  the principle has gained general acceptance due to
 Potential Investors – they want to know if practice over time and has veen proven to be most
they’ll be able to gain dividends useful, e.g., double-entry recording and other
 Government – they want to know if they are implicit concepts
able to pay taxes on time; and for regulatory
purposes  The process of establishing financial accounting
 Academe – they want to share to their standards is a democratic process in that a majority
students... (for example, a teacher used JFC of practicing accountants must agree with a
as an example. A teacher will give you a copy standard before it becomes implemented.
of financial students of a company outside, and
will make you audit it.) Hierarchy of Reporting Standards
 Public – they want to know if a company can  When selecting its accounting policies, an entity
sustain their needs in a long-run; considers the following in descending order:
 Internal Users – connected or within the entity 1. PFRSs
 Management – they want to know the financial 2. management shall use its judgment
position and performance for them to have a  in making judgment
basis on what to change, on how to run the a. management shall refer to, and consider the
business; for them to continuously upgrade the applicability of the requirements in PFRSs dealing
business; for them to efficiently and effectively with similar and related issues
run the business b. the conceptual framework
 Employees – they want to know if the c. management may also consider the
company can pay you your salary and give you pronouncements of other standard-setting bodies
benefits d. management may also consider the accounting
 Owners or Stockholders – owners want to literature and accepted industry practices
know if the business is still gaining profit;
stockholders (term used in revised corporation  selection of appropriate accounting policies –
code) and shareholders (used in accounting) entity’s management
want to know if the company earns more and  proper application of accounting principles –
more as years go by, by that, you will know if professional judgment of the accountant
your dividends will get bigger and bigger.
Accounting Standard Setting Bodies and Other
Accounting standards Relevant Organizations
 The Philippine Financial Reporting Standards 1. Financial Reporting Standards Council (FRSC)
(PFRSs) represent the generally accepted  it is the financial accounting standard setting body
accounting principles (GAAP) in the Philippines in the Philippines created under the Philippine
 The PFRSs are Standards and Interpretations Accountancy Act of 2004 (R.A. No. 9298)
adopted by the Financial Reporting Standards  before FRSC, there is Financial Accounting
Council (FRSC). They comprise PFRSs, PASs, Standards Board (FASB) – they issue PAS
Interpretations  they issue PFRS

notes by frey angeleigh galvezo

 total of 15 members – 14 regular members, and 1  they also monitor pawnshops, lending institutions,
chairman (term of 3 years, renewable for another 3 because we also don’t want na sumusobra ang
years) interest na pinapatong ng isang institution or
pawnshop
2. Philippine Interpretations Committee (PIC) 7. Cooperative Development Authority (CDA)
 a committee formed by the Accounting Standards  influences the selection and application of
Council (ASC), the predecessor of FRSC, with the accounting policies by cooperatives
role of reviewing the interpretations of the
International Financial Reporting Interpretations Accounting policies prescribed by a regulatory body
Committee (IFRIC) for approval and adoption by (e.g., BSP, CDA) are sometimes referred to as
the FRSC regulatory accounting principles
 they issue the interpretations
 they review the interpretations coming from the INTERNATIONAL ACCOUNTING STANDARDS
International Financial Reporting Interpretations
Committee (IFRIC) for their approval and then International Accounting Standards Board (IASB)
whether the FRSC will adopt  international counterpart of FRSC
 it is the standard-setting body of the IFRS
3. Board of Accountancy (BOA) Foundation (they want to regulate the accounting
 it is the official professional regulatory board process; they want to produce generally accepted
created under R.A. No. 9298 to supervise the accounting principles; they want to create uniform
registration, licensure and practice of accountancy standards that we can use) with the main objectives
in the Philippines of developing and promoting global accounting
 their responsibility revolves on the before standards
(supervise schools, offering accountancy program;  established in April 1, 2001 as part of the
supervise the CPALE), during (monitor those who International Accounting Standards Committee
are exercising the profession), and after of an (IASC)
accountant  IASB has no former names. It has been IASB since
 total of 7 members – 1 chairman, 6 members (they then.
can come in any field of accounting; all four practice  IFRSs: IFRS, IAS, Interpretations
of accountancy are equally represented)  IASC foundation – non-profit organization based in
 they work together in preparing the questions on Delaware, USA and is the parent of the IASB,
CPALE (one member to one subject) which is based in London
 they can elect a vice chairman with a term of 1 year  July 1, 2010 – the IASC Foundation was renamed
 maximum of 12 years term to International Financial Reporting Standards
Foundation
4. Securities and Exchange Commission (SEC)  June 1973 – IASC was founded
 it is the government agency tasked in regulating  ten national jurisdictions – Canada, Australia,
corporations and partnerships, capital and Ireland, Mexico, Germany, UK, Japan, US,
investment markets, and the investing public. Netherlands
 protect state public
 member of IOSCO Process of Accounting (the steps before we can
 some SEC rulings affect the accounting formally issue a standard)
requirements of entities and the adoption and 1. the staff identifies and reviews issues associated with
application of accounting a topic and considers the application of the Conceptual
Framework to the issues (before you can issue a
5. Bureau of Internal Revenue (BIR) standard, there must be a current or existing issue first);
 administers the provisions of the National Internal 2. study of national accounting requirements and
Revenue Code (old tax law that we use in the practice, including consultation with national standard-
Philippines, but some provisions are still used) setters (can go to BIR, and get their opinion);
 TRAIN Law - new tax law 3. consulting the trustees and the Advisory Council
 it is the government agency that is tasked to do the about the advisability of adding the topic to the IASB’s
tax (any tax; e.g., income tax, estate tax, value- agenda;
added tax) 4. formation of an advisory group to give advice to the
 in accounting, we use accrual basis. for BIR, they IASB on the project;
use cash basis 5. publishing a discussion document for public comment;
 these provisions do not always reflect the goals of 6. publishing an exposure draft for public comment;
financial reporting 7. publishing with an exposure draft a basis for
 they do at times influence the choice of accounting conclusions and the alternative views of any IASB
methods and procedures member who opposes publication;
8. consideration of all comments received;
6. Bangko Sentral ng Pilipinas (BSP) 9. holding a public hearing and conducting field tests, if
 it influences the selection and application of necessary; and
accounting policies by banks and other entities 10. publishing a standard, including (i) a basis for
performing banking functions conclusions, explaining, among other things, the steps in
the IASB’s due process and how the IASB dealt with

notes by frey angeleigh galvezo

public comments on the exposure draft, and (ii) the Materiality judgments apply only to items that are
dissenting opinion of any IASB member. recognized but not to those that are unrecognized.

Other relevant international organizations The more significant the qualitative factors are, the
1. International Financial Reporting Interpretations higher the quantitative thresholds will be. Thus, an item
Committee (IFRIC) with a zero amount can be material in light of qualitative
 it is a committee that prepares interpretations of thresholds. (directly proportional relationship of the
how specific issues should be accounted for under qualitative factors and quantitative thresholds)
the application of IFRS
 former Standards Interpretations Committee (SIC) The Conceptual Framework is concerned with the
provision of financial information to primary users.
2. IFRS Advisory Council
 previously known as the Standards Advisory The fundamental qualitative characteristics are
Council (SAC) relevance and faithful representation.
 it is a group of organizations and individuals with an
interest in international financial reporting The enhancing qualitative characteristics are
 members are appointed by IFRS Foundation comparability, verifiability, timeliness, and
 advising on priorities within the IASB’s work understandability.
program
 members are appointed by the IFRS foundation Standards prevail over the Conceptual Framework.
which also appoints members to the IASB
Comparability is the goal and consistency is the means
3. International Federation of Accountants (IFAC) to achieve it.
 it is a non-profit, non-governmental, non-political
organization that represents the worldwide Information is understandable if it is presented in a clear
accountancy profession and concise manner.
 its mission is to develop and enhance the
profession to provide services of consistently high Offsetting is generally not appropriate because it
quality in the public interest combines dissimilar items.
 open to all accountancy bodies recognized by law
of consensus Financial concept of capital states that capital is
regarded as the invested money or invested purchasing
4. International Organization of Securities power.
Commissions (IOSCO)
 it is an international body of security commissions Physical concept of capital states that capital is
regarded as the entity’s productive capacity.
MOVE TO IFRSs
 Federal Accounting Standards Board (FASB) – U.S. The going concern principle is the only underlying
national standard setting body assumption mentioned in the Conceptual Framework.

THE FUTURE OF IFRSs Qualitative characteristics are the qualities or attributes

 Norwalk Agreement – memorandum of that make financial accounting information useful to the
understanding FASB and IASB entered into users.

CHAPTER 2 PRETEST Consolidated financial statements are reported by a

parent and subsidiaries.
All changes in an entity’s economic resources and
claims to those resources result from the entity’s Combined financial statements are reported by two or
financial position. more entities not linked by parent-subsidiary relationship.

The qualitative characteristics of useful information The capital maintenance approach or net assets
apply only to the financial information provided in the approach means that net income occurs only after the
financial statements. capital used from the beginning of the period is
maintained.
According to IFRS Practice Statement 2 Making
Materiality Judgements, cost is not an important CHAPTER 2
consideration when making materiality judgments.
(because in materiality, we look into its size and nature) Purpose of the Conceptual Framework
 The Conceptual Framework describes the objective
When making materiality judgments, a quantitative of, and the concepts for, general purpose financial
assessment alone is not always sufficient to conclude reporting.
that an item of information is not material. (because 1. assist the IASB in developing standards that are
there is qualitative assessment pa) based on consistent concepts (conceptual
framework is the root of every standard that we
already have; conceptual framework contains all

notes by frey angeleigh galvezo

 general provisions that we can use in a particular CONCEPTS THAT UNDERLIE GENERAL PURPOSE
item or transaction) FINANCIAL REPORTING
2. assist prepares in developing consistent accounting
policies when no standard applies to a particular THE OBJECTIVE OF FINANCIAL REPORTING
transaction or other event, or when a standard  to provide financial information about the reporting
allows a choice of accounting policy (to supplement entity that is useful to existing and potential
any standards); and investors, lenders and other creditors in making
3. assist all parties in understanding and interpreting decisions about providing resources to the entity
the standards (helps the users to understand and  the foundation of the Conceptual Framework
comprehend well the financial statements).
Primary users (primary source of capital)
Foundation for the Development of Standards  existing and potential investors
 promote transparency by enhancing the  lenders and other creditors
international comparability and quality of financial  these users cannot demand information
information directly from reporting entities and must rely on
 the IASB wants a uniform accounting treatment general purpose financial statements for much
all over the world of their financial information
 how an entity manages or uses its resources;  general purpose financial reports do not
how the fund was used directly show the value of a reporting entity
 presentation and disclosure chapter–it  however, they provide information that helps
mandates us to disclose whatever financial users in estimating the value of an entity
information  Conceptual Framework – establishes the
 reporting financial statements concepts that underlie those estimates and
 strengthen accountability by reducing the judgments
information gap between providers of capital and
the entity’s management Decisions about providing resources to the entity
 lessen the information gap between the  the primary users’ decisions about providing
reporting entity and providers of capital resources to the entity involve decisions on:
(creditors, investors) a. buying, selling, or holding investments
 they want to be assured that the company will b. providing or settling loans and other forms of
pay on time or give their dividends credit; or
 contribute to economic efficiency by helping c. exercising voting or similar rights that could
investors to identify opportunities and risks around influence management’s actions relating to the use
the world, thus improving capital allocation. the use of the entity’s economic resources
of a single, trusted accounting language lowers the
cost of capital and reduces international costs  these decisions depend on the investor/lender/other
creditor’s expected returns (e.g., investment income
Status of the Conceptual Framework or repayment of loan)
 The Conceptual Framework is not a Standard. If  expectations about returns, in turn, depend on
there is a conflict between a Standard and the assessments of the entity’s (i) prospects for future
Conceptual Framework, the requirement of the net cash inflows and (ii) management
Standard will prevail stewardship (two concepts: liquidity––the entity
 To meet the objectives of general purpose financial has the ability to pay short term obligations––and
reporting, a Standard sometimes contains solvency––long term obligations)
requirements that depart from the Conceptual  to make these assessments, investors, lenders and
Framework. In such cases, the departure is other creditors need information on:
explained in the ‘Basis for Conclusions’ on that a. the economic resources of the entity, claims and
Standard. against the entity and changes in those resources
 The Conceptual Framework may be revised from and claims
time to time based of the IASB’s experience of b. how efficiently and effectively the entity’s
working with it. However, revisions do not management has utilized the entity’s economic
automatically result to changes in the Standards – resources
not until after the IASB goes through its due
process of amending a Standard Information on Economic resources, Claims, and
Changes (Economic Phenomena)
Scope of the Conceptual Framework  Financial position
 The Conceptual Framework – concerned with  shows the as of status
general purpose financial reporting.  information on economic resources (assets)
 General purpose financial reporting – involves the and claims against the reporting entity
preparation of general purpose financial statements (liabilities and equity)
 Changes in economic sources and claims
 financial performance
 information on financial performance (income
and expenses) and other transactions and
events that lead

notes by frey angeleigh galvezo

Economic resources and Claims 1. Fundamental qualitative characteristics – make
 Information about the nature and amounts of an information useful to users; usefulness of the information
entity’s economic resources (assets) and claims  Relevance
(liabilities and equity) can help users to identify the  can make a difference in the decisions of users
entity’s financial strengths and weaknesses  Predictive value – can help users in making
 that information can help users in assessing the predictions about future outcomes
entity’s  Confirmatory value (feedback value) – helps
 liquidity and solvency users in confirming their previous predictions
 needs for additional financial and how  Materiality
successful it is likely to be in obtaining that  information is omitting, misstating or
financing (if whether they will add funds) obscuring it could reasonably be expected
 management’s stewardship on the use of to influence decisions that the primary
economic resources (how efficient and users of a specific entity’s general
effectively the entity) purpose financial statements make on the
 All these contribute to the assessment of the basis of those financial statements
entity’s ability to generate future cash flows. For  we measure by its size and nature
example:  ‘entity-specific’ aspect of relevance
 information on currently maturing receivables  depends on the facts and circumstances
and obligations can help users assess the surrounding a specific entity
timing of future cash flows  Conceptual Framework and the Standards
 information about the nature of economic do not specify a uniform quantitative
resources can help users assess whether a threshold for materiality.
resource can produce future cash flows  it is a matter of judgment
independently or only in combination with other  IFRS Practice Statement 2 Making
resources Materiality Judgments provides a non-
 information on liquidity and solvency can help mandatory guidance that entities may
users assess the entity’s ability to obtain follow in making materiality judgments
additional financing. Overleverage (use of too  Materiality Process: Identify (requirement
much debt) may cause difficulty in obtaining of the standards), Assess (could
additional financing influence the users’ decisions, size and
 information about priorities and payment nature, quantitative and qualitative
requirements of claims can help users predict factors), Organize (for understandability),
how future cash flows will likely to be Review (allows entity to step-back)
distributed among the claims  Faithful representation
 the information provides a true, correct and
Changes in economic resources and claims complete depiction of the economic
 these result from phenomena
 financial performance (income and expenses)  Completeness – all information necessary for
 other events and transactions users to understand the phenomenon being
 information on financial performance – helps users depicted is provided
assess the entity’s ability to produce return from its  Neutrality – information is selected or
economic resources presented without bias or not manipulated to
 information on the variability of the return helps increase profitability that users will receive it
users in assessing the uncertainty of future cash favorably or unfavorably; supported by
flows prudence
 information based on accrual accounting – provides  Free from error – does not mean that the
better basis for assessing an entity’s financial information is perfectly accurate in all respects;
performance than information based solely on cash no errors in the description and in the process
receipts and payments during the period
 information on past cash flows – helps users 2. Enhancing qualitative characteristics – enhance
assess the entity’s ability to generate future cash the usefulness of information; should be maximized to
flows by providing users a basis in understanding the extent possible
the entity’s operating, investing and financing  Comparability
activities, assessing its liquidity and solvency, and  helps users identify similarities and differences
interpreting other information about its financial between different sets of information that are
performance provided by a single entity but in different
periods (intra-comparability) or different
QUALITATIVE CHARACTERISTICS entities in a single period (inter-comparability)
 it identifies the types of information that are likely to  Verifiability
be most useful to the primary users in making  if different users could reach a general
decisions using an entity’s financial report agreement as to what the information purports
 apply to information in the financial statements as to represent (consensus)
well as to financial information provided in other  Direct verification – involves direct
ways observation

notes by frey angeleigh galvezo

  Indirect verification – checking the inputs to a  unconsolidated financial statements – a reporting
model or formula and recalculating the outputs entity is the parent alone
using the same methodology  combined financial statements – a reporting entity
 Timeliness comprises two or more entities that are not all
 if it is available to users in time to be able to linked by a parent-subsidiary relationship (e.g., two
influence their decisions subsidiaries)
 Understandability  individual financial statements – subsidiary alone
 it is presented in a clear and concise manner  unconsolidated financial statements cannot be used
 financial reports are intended for users as substitute for consolidated financial statements
 who have reasonable knowledge of
business activities THE ELEMENTS OF FINANCIAL STATEMENTS
 who are willing to analyze the information  ASSETS
diligently  a present economic resource controlled by the
entity as a result of past events
The Cost Constraint  an economic resource is a right that has the
 Cost – it is a pervasive constraint on the entity’s potential to produce economic benefits
ability to provide useful financial information  Control
 the entity has the exclusive right over the
FINANCIAL STATEMENTS AND THE REPORTING benefits of an asset and the ability to
ENTITY prevent others form accessing those
benefits
Objective and scope of financial statements  if one party controls an asset, no other
 to provide financial information about the reporting party controls that asset
entity’s assets, liabilities, equity, income and  Right
expenses that is useful in assessing  has the potential to produce economic
 the entity’s prospects for future net cash benefits
inflows  normally arise from law, contract or similar
 management’s stewardship over economic means
resources  an entity cannot have a right to obtain
economic benefits from itself
Reporting Period (monthly, quarterly, etc.)  each right is a separate asset
 Comparative information  the asset is the set of rights and not the
 at least one preceding reporting period physical object
 Forward-looking information  Potential to produce economic benefits
 provide information about past events, possible  the presence or absence of expenditure is
future transactions, and other events not necessary in determining the
 financial statements do not typically provide existence of an asset
this information about management’s  need not be certain
expectations and strategies for the reporting  LIABILITIES
entity  present obligation of the entity to transfer an
 Perspective adopted in financial statements economic resource as a result of past events
 perspective of the reporting entity  obligation
 duty or responsibility that an entity has no
Going concern assumption practical ability to avoid
 the entity has neither the intention nor the need to  legal obligation – results from contract,
end its operations in the foreseeable future legislation, or other operation of law
 if this is not the case, the entity’s financial  constructive obligation – results from an
statements are prepared on another basis (e.g., entity’s action that create a valid
measurement at realizable values rather than expectation on others that the entity will
mixture of costs and values) accept and discharge certain
 underlying assumption in the previous version of responsibilities
the conceptual framework  always owed to another party
 transfer of an economic resource
The reporting entity  obligation that has the potential to require
 one who owns the financial statements the transfer of an economic resource to
 one that is required, or chooses, to prepare another party and not the future economic
financial statements, and is not necessary a legal benefits that the obligation may cause to
entity be transferred
 sometimes an entity controls another entity  need not be certain
 parent – controlling entity  pay cash, deliver goods, render services
 subsidiary – controlled entity  exchange assets with another party on
 consolidated financial statements – a reporting unfavorable terms
entity comprises both the parent and its  issue a financial instrument that obliges
subsidiaries viewed as a single reporting entity the entity to transfer an economic
resource

notes by frey angeleigh galvezo

  present obligation as a result of past events
 the entity has already obtained economic
benefits or taken an action
 as a consequence, they entity will transfer
an economic resource
 executory contracts
 equally unperformed––neither party has
fulfilled any of its obligations, or both
parties have partially fulfilled their
obligations to an equal extent
 establishes a combined right and
obligation to exchange economic
resources, which are interdependent and
inseparable
 EQUITY
 residual interest in the assets of the entity after
deducting all its liabilities
 reserves – amounts set aside for the
protection of the entity’s creditors or
stakeholders from losses
 INCOME
 increases in assets, or decreases in liabilities,
that result in increases in equity, other than
those relating to contributions from holders of
equity claims
 EXPENSES
 decreases in assets, or increases in liabilities,
that result in decreases in equity, other than
those relating to distributions to holders of
equity claims

notes by frey angeleigh galvezo