Hello mga students, sa video lecture na ito, pag-usapan natin yung cost constraint in providing a useful financial information. So eto yung tinatawag natin na limitation. Now, sa isa kong video lecture, yung lumang version, isa po ito sa mga slides na pinakita ko sa inyo when I explain the limitation, when I discuss the cost constraint.
Ang sinasabi po kasi, in summary or in short, When we talk of limitation or when we talk of this constraint, it should be balanced between the cost and the benefit. The benefit derived should always exceed the cost of providing it. Okay?
What this means is that if we are going to provide information, the benefit should be more favorable as compared to the cost. that is incurred in providing that information. Although, as I said here, the evaluation, however, is a judgmental process.
Now, to add on this one, and to discuss the source of this explanation, let's go to the conceptual framework because this is where our explanation comes from. And since we have a few paragraphs coming from the conceptual framework, short paragraphs pinning up gonna pull out the manha you on parallel and makita po nino ano so on 2.39 chapter 2 non conceptual framework sinasabi po kasi doon cost is a pervasive constraint pag sinabi natin na pervasive constraint deba parang ano ang ibig nito sabihin sir o para matulungan kayo maintindihan ano ba ang pervasive ano ba ang constraint. Oh, tinulungan ko na, no, meron akong screenshot dito. we took the definition of pervasive and the definition of constraint. Oxford language says that when we say pervasive, especially of an unwelcome influence or physical effect is spreading widely throughout an area or a group of people.
So pervasive, these are their synonyms, prevalent, penetrating, pervading, permeating, extensive. ubiquitous ubiquitous okay or sabi na natin ano influential okay kasi especially of an unwelcome influence so pervasive now pag sinabi nating constraint a limitation or restriction so ibig nitong sabihin pag sinabi natin yung cost as a pervasive constraint ito po ay isang limitation isang restriction ano at influential restriction influential limitation one. in providing the accounting information.
Okay? Ang sabi po dito sa in-underline ko, reporting financial information imposes costs. And it is important that those costs are justified by the benefits of reporting that information. Dahil magbibigay tayo, magpoprovide tayo ng financial information, meron po tayong gagastusin doon. Pero dapat, yung benefits will outweigh the cost in providing that information okay next what else is being said in the conceptual framework what is being said in 2.40 providers of financial information expend most of the effort involved in collecting processing verifying and disseminating financial information but users ultimately bear those costs in the in the form of reduced returns because who are the providers of financial information It is the one coming from the company.
Sabi na natin, ito yung mga accounting personnel na nagre-record yung mga transactions. And they are involved. Yung effort nila involved in collecting.
Pangungulekta ng mga information na yun. Pagpo-proseso nun. Pagbe-verify, tama ba yun?
Pagbe-disseminate ng financial information. Alam nyo kasi, yung isang financial statement, bago po yun lumabas, katakot-takot na verification ang ginagawa dyan. First, inside the company, we have internal auditors or corporate internal auditors that are involved in the financial audit.
They check if the information is accurate that we will be able to get out. Then, here comes our external auditors, third persons that also check the financial information. Are the financial statements that we will prepare correct to be reasonable?
we will have reliance on the on the financial statements or the financial information. So marami pong involved, madaming efforts dyan. Okay, users of financial information also incur costs.
So, it's not just the providers who exert effort and spend money, but also the users of financial information. Because they also analyze and they interpret the information provided. And remember, we are talking of general purpose financial statements.
Okay? General, available for everyone that intends to use the financial information. There are costs incurred in analyzing and interpreting those information. So, they also spend money.
The problem is if the information is not provided. They may incur additional costs to obtain that information elsewhere or estimate it. Let's say that the providers of capital, investors or debtors, usually they rely on the financial statements for decision making. What happens if it is not provided timely? or hindi ito na provide at all meron tayong tinatawag sa audit ng mga tenta nati-tenta yung mga financial statements so or tentative so hindi ito agad-agad nagiging available so syempre crucial yung financial statements doon sa mga users so they need that for decision making they may be able to estimate it so they may incur additional cost pag hindi siya nagiging available okay that is why it is a pervasive constraint no pervasive limitation In 2.41, we have a conceptual framework.
the fundamental or the qualitative characteristic of relevance and faithful representation present for the for the financial information to be useful for decision making this results in more efficient functioning of capital markets and a lower cost of capital for the economy as a whole an individual investor lender or other creditor also receives benefits by making more informed decisions. meron akong in-emphasize, meron akong in-underline. However, yun nga lang, it is not possible for general-purpose financial reports to provide all the information that every user finds relevant.
Ang assessment ng relevant ba ito sa akin may be different from the other users. Kasi maaring relevant ito sa akin, hindi ito relevant sa'yo kasi iba naman yung tinitignan ko sa tinitignan mo. Okay?
So, general purpose financial statement hindi po possible ano na lahat ng mga information ay magiging relevant sa lahat ng mga users maaring selected lang maaring iba ilan or select sa mga selected financial information that is available to the general public or to every users may be relevant to them and not necessarily relevant to the others okay oh sa 2.42 eto naman although eto ano medyo may related naman related to the development or the proposal of the standards, which is what is italized here. But first, it says here, in applying the cost constraint, the board assesses whether the benefits of reporting particular information are likely to justify the cost incurred to provide and use that information. So, it was also mentioned earlier that the benefits will outweigh the cost.
So, sabi dito, the board assesses. That is why, judgmental po yan. It is a judgmental process.
So, the assessment depends on the users. Or, dito, the board is in the position to assess. Okay?
Now, basahin ko lang po ito, but this is more of developing or proposing standards. When applying the cost constraint in developing a proposed standard, the board seeks information from providers of financial information users auditors academics and other others about the expected nature and quantity of the benefits and costs of the standard in most situations assessments are based on a combination of quantitative and qualitative information so this is very important financial statements That's why we have notes to the financial statements because some of the non-financial information may be useful to the users and those are qualitative information. hindi po puro figures okay now last item doon sa conceptual framework that tackles the cost constraint constraint no because of the inherent subjectivity different individuals assessments and of the costs and benefits of reporting particular items of financial information will vary okay oh This is what I'm saying.
Maybe earlier, in terms of the relevance, there are information... information that may be relevant to me and not to you. Same thing when it comes to assessment because once again, the evaluation is judgmental in process.
So, we are not both in assessment. Does the benefit outweigh the cost? It may differ in assessment to other people, to other groups of individuals. So, it will really vary, the assessment. Therefore, the board seeks to consider costs and benefits in relation to financial reporting generally and not in relation to specific or select individuals or reporting entities.
We are talking about this generally. That does not mean that assessments of costs and benefits always justify the same reporting requirements for all entities. Differences may be appropriate because of the different sizes of entities, different ways of raising capital, either public or private, and different user needs or other factors.
Kasi hindi naman po ang mga organizations pare-parehas ng industry, pare-parehas ng laki. Yung iba maliliit lang naman as compared sa iba na malilaki. So magkakaiba talaga pagdating sa assessment.
At yung differences nila may be explained because of their differences in sizes. in ways of raising capital, and the user's needs, and many more. Okay? So, basically, this is the detailed expound on the cost constraint. But, in a short explanation, in a short discussion, when we say cost constraint, there should be a balance between the cost and the benefits.
Okay? So, that's all for our discussion on the cost constraint. If you have any questions, please let me know so I can assist you. But until then, I'll see you around. Bye-bye!