Sunday, November 22, 2015
Philippine Interpretations Committee
Introduction and Preface to
PFRSs (Summarized Discussion)
Introduction
The Financial Reporting Standards Council (FRSC)
was established by the Board of Accountancy (BOA or
the Board) in 2006 under the Implementing Rules and
Regulations of the Philippine Accountancy Act of
2004 to assist the Board in carrying out its power
and function to promulgate accounting standards
in the Philippines. The FRSC's main function is to
establish generally accepted accounting principles
in the Philippines.
The FRSC is the successor of the Accounting
Standards Council (ASC). The ASC was created
in November 1981 by the Philippine Institute of
Certified Public Accountants (PICPA) to establish
generally accepted accounting principles in the
Philippines. The FRSC carries on the decision made by
the ASC to converge Philippine accounting standards
with the international accounting standards issued by
the International Accounting Standards Board (IASB).
The FRSC
The FRSC consists of a Chairman and members who
are appointed by the BOA and include representatives
from the Board of Accountancy (BOA), Securities
and Exchange Commission (SEC), Bangko Sentral
ng Pilipinas (BSP), Financial Executives Institute of
the Philippines (FINEX), and Philippine Institute of
Certified Public Accountants (PICPA). The FRSC has
full discretion in developing and pursuing the technical
agenda for setting accounting standards in the
Philippines. Financial support is received principally
from the PICPA Foundation.
The FRSC monitors the technical activities of the IASB
and issues Invitations to Comment on exposure drafts
of proposed IFRSs as these are issued by the IASB.
When finalized, these are issued as Philippine Financial
Reporting Standards (PFRSs). The FRSC similarly
monitors issuances of the International Financial
Reporting Interpretations Committee (IFRIC) of the
IASB, which it adopts as Philippine Interpretations.
The FRSC issues news releases to announce the
issuance of final Standards and Interpretations,
expsoure drafts and other matters which are posted in
the Philippine Accounting Standards section of the
PICPA website (www.picpa.com.ph).
The FRSC formed the Philippine Interpretations
Committee (PIC) in August 2006 to assist the FRSC in
establishing and improving financial reporting standards
in the Philippines. The role of the PIC is principally to
issue implementation guidance on PFRSs. The PIC
members were appointed by the FRSC and
include accountants in public practice,
the academe and regulatory bodies and users of
financial statements. The PIC replaced
the Interpretations Committee created by the ASC in
2000.
Preface to Philippine Financial Reporting Standards
The Preface to Philippine Financial Reporting
Standards sets out the objectives and due process of
the FRSC and explains the scope, authority and timing
of application of Philippine FRSs.
This preface is issued to set out the objectives and due
process of the Financial Reporting Standards Council
and to explain the scope, authority and timing of
application of Philippine Financial Reporting Standards.
1. The Financial Reporting Standards Council (FRSC)
was established by the Board of Accountancy (BOA or
the Board) in 2006 under the Implementing Rules and
Regulations of the Philippine Accountancy Act of 2004,
to assist the Board in carrying out its power and
function to promulgate accounting standards in the
Philippines. BOA appointed Chairman and members of
the FRSC which include representatives from the
Securities and Exchange Commission (SEC), the
Bangko Sentral ng Pilipinas (BSP), the Board of
Accountancy (BOA), the Financial Executives of the
Philippines (FINEX) and the Philippine Institute of
Certified Public Accountants (PICPA). The approval of
Philippine Financial Reporting Standards (PFRSs),
Philippine Interpretations, and related documents, such
as the Framework for the Preparation and Presentation
of Financial Statements, exposure drafts and other
discussion documents is the responsibility of the FRSC.
2. The FRSC is the successor of the Accounting
Standards Council (ASC). The ASC was created in
November 1981 by the Philippine Institute of Certified
Public Accountants (PICPA) to establish generally
accepted accounting principles in the Philippines. The
creation of the ASC was endorsed by the SEC, BSP,
the Professional Regulation Commission through the
Board of Accountancy, and the FINEX. The ASC made
a decision in 1997 to converge Philippine Accounting
Standards with International Accounting Standards
issued by the International Accounting Standards
Committee (IASC), which was later succeeded by the
International Accounting Standards Board (IASB).
3. Once it was established, the FRSC resolved that all
Standards and Interpretations issued by the ASC
continue to be applicable unless and until they are
amended or withdrawn by the FRSC.
Objectives of the FRSC
4. The main function of the FRSC is to establish
generally accepted accounting principles in the
Philippines. In achieving this objective, the FRSC
considers Standards issued by the IASB.
5. The FRSC carries on the decision of the ASC to
converge Philippine Accounting Standards with
International Accounting Standards issued by the IASB.
The objectives of the FRSC in this respect are:
a) to develop, in the public interest, a single set of high
quality, understandable and enforceable accounting
standards that require high quality, transparent and
comparable information in financial statements and
other financial reporting to help participants in various
capital markets and other users of the information to
make economic decisions;
b) to promote the use and rigorous application of those
standards; and
c) to work for the convergence of Philippine Accounting
Standards with International Financial Reporting
Standards (IFRSs) issued by the IASB.
Scope and Authority of PFRSs
6. The FRSC issues its Standards in a series of
pronouncements called Philippine Financial Reporting
Standards (PFRSs). These consist of
a) Philippine Financial Reporting Standards (PFRSs) -
these correspond to International Financial Reporting
Standards (IFRSs);
b) Philippine Accounting Standards (PAS - these
corresponds to International Accounting Standards
(IASs); and
c) Philippine Interpretations - these correspond to
Interpretations of the International Financial Reporting
Interpretations Committee (IFRIC) of the IASB and the
Standing Interpretations Committee (SIC) of the IASC;
these also include Interpretations developed by the
PIC.
7. The FRSC achieves its objectives primarily by
developing and issuing Philippine Financial Reporting
Standards (PFRSs) and promoting the use of these
standards in general purpose financial statements and
other financial reporting. Other financial reporting
comprises information provided outside financial
statements that assists in the interpretation of a
complete set of financial statemtns or improves user's
ability to make efficient economic decisions. In
developing PFRSs, the FRSC considers its objective of
convergence with IFRSs issued by the IASB.
8. PFRSs set out recognition, measurement,
presentation and disclosure requirements dealing with
transactions and events that are important in general
purpose financial statements. They may also set out
such requirements for transactions and events that
arise mainly in specific industries. PFRSs are based on
the Framework, which addresses the concepts
underlying the information presented in general
purpose financial statements. The objective of
the Framework is to facilitate the consistent and logical
formulation of PFRSs. The Framework also provides a
basis for the use of judgment in resolving accounting
issues.
9. PFRS are designed to apply to the general purpose
financial statements and other financial reporting of all
profit-oriented entities. Profit-oriented entities include
those engaged in commercial, industrial, financial and
similar activities, whether organized in corporate or in
other forms. They include organizations such as mutual
insurance companies and other mutual cooperative
entities that provide dividends or other economic
benefits directly and proportionately to their owners,
members or participants. Although PFRSs are not
designed to apply to not-for-profit activities in the
private sector, public sector or government, entities with
such activities may find them appropriate.
10. PFRSs apply to all general purpose financial
statements. Such financial statements are directed
towards the common information needs of a wide range
of users, for example, shareholders, creditors,
employees and the public, at large. The objective of
financial statements is to provide information about the
financial position, performance and cash flows of an
entity that is useful to those users in making economic
decisions.
11. A complete set of financial statements includes a
balance sheet, an income statement, a statement
showing either all changes in equity or changes in
equity other than those arising from capital transactions
with owners and distributions to owners, a cash flow
statement, and accounting policies and explanatory
notes. In the interest of timeliness of cost
considerations and to avoid repeating information
previously reported, an entity may provide less
information in its interim financial statements than in its
annual financial statements. PFRS 34, Interim Financial
Reporting, prescribes the minimum content of complete
or condensed financial statements for an interim period.
The term financial statements' includes a complete set
of financial statements prepared for an interim or
annual period, and condensed financial statements for
an interim period.
12. In some cases, PFRSs permit different treatments
for given transactions and events. Usually, one
treatment is identified as the 'benchmark
treatment' and the other as the'allowed alternative
treatment'. The financial statements of an entity may
appropriately be described as being prepared in
accordance with PFRSs whether they use the
benchmark treatment or the allowed alternative
treatment.
13. The FRSC's objective is to require like transactions
and events to be accounted for and reported in a like
way and unlike transactions and events to be
accounted for and reported differently, both within an
entity over time and among entities. Consequently, the
FRSC intends not to permit choices in accounting
treatment. Also, the FRSC has reconsidered, and will
continue to reconsider, those transactions and events
for which PFRSs permit a choice of accounting
treatment with the objective of reducing the number of
those choices.
14. Standards approved by the FRSC include
paragraphs in bold type and plain type,which have
equal authority. Paragraphs in bold type indicate the
main principles. An individual standard should be read
in the context of the objective stated in that standard
and this Preface.
15. Interpretations of PFRSs are intended to
give authoritative guidance on issues that are likely to
receive divergent or unacceptable treatment, in the
absence of such guidance.
16. PAS 1, Presentation of Financial
Statements, includes the following requirement:
"An entity whose financial statements comply with
PFRSs shall make an explicit and
unreserved statement of such compliance in the notes.
Financial Statements shall not be described as
complying with PFRSs unless they comply with all the
requirements of PFRSs."
17. Any limitation of the scope of a PFRSs is made
clear in the standard.
Due Process
18. PFRSs are developed through a due process that
involves members of PICPA, financial executives,
regulatory authorities, academics and other interested
individuals and organizations. Due process for projects
normally, but not necessarily involves the following
steps:
(a) consideration of pronouncements of the IASB;
(b) formation of a task force, when deemed necessary,
to give advice to FRSC;
(c) issuing for comment and exposure draft approved
by a majority of the FRSC members; comment period
will be at least 60 days, unless a shorter period (not
less than 30 days) is considered appropriate by the
FRSC;
(d) consideration of all comments received within the
comment period and, when appropriate, preparing a
comment letter to the IASB; and
(e) approval of a standard or an interpretation by a
majority of the FRSC members.
(f) Each final standard and interpretation shall be
submitted to the PRC through BOA for approval, after
which the pronouncements become operative from the
effective date stated therein.
Timing of Application of PFRS
19. PFRSs apply from a date specified in the document.
New or revised PFRSs set outtransitional
provisions to be applied on their initial application.
20. The FRSC has no general policy of exempting
transactions occurring before a specific date from the
requirements of new PFRSs. When financial
statements are used to monitor compliance with
contracts and agreements, a new PFRSs may have
consequences that were not foreseen when the
contract or agreement was finalized. For example,
covenants contained in banking and loan agreements
may impose limits on measures shown in a borrower's
financial statements. The FRSC believes the fact that
financial reporting requirements evolve and change
over time is well understood and would be known to the
parties when they entered into agreement. It is up to the
parties to determine whether the agreement should be
insulated from effects of a future PFRS, or, if not, the
manner in which it might be renegotiated to reflect
changes in reporting rather than changes in the
underlying financial condition.
21. Exposure drafts are issued for comment and the
proposals are subject to revision. Until the effective
date of a PFRS, the requirements of any PFRS that
would be affected by proposals in an exposure draft
remain in force.