BM1802

ACCOUNTING STANDARDS

Nature and Purpose

The performance of the activities in the accounting process is governed by accounting standards. The overall
purpose of accounting standards is to identify proper accounting practices for the preparation and presentation
of general purpose financial statements. The availability of accounting standards that are relevant, objective
and feasible ensure comparability and uniformity in financial statements based on the same financial
information.

Generally Accepted Accounting Principles

Generally accepted accounting principles (GAAP) encompass conventions, rules, and procedures necessary to
define what is the accepted accounting practice. These principles become generally accepted by agreement,
often tacit agreement, rather than by formal derivation from a set of postulates and basic concepts.

Simply stated, these principles have been developed on the basis of experience, reason, custom, usage, and
practical capacity. GAAP represents rules, procedures, practice, and standards followed in the presentation of
financial statements. These principles serve as laws which must be followed in the preparation of financial
reports.

Setting of International Accounting Standards

Previously, accounting standards are set by the International Accounting Standards Committee (IASC). The
IASC is an independent private-sector body, with the objective of achieving uniformity in the accounting
principles which are used by business and other organizations for financial reporting around the world.

The IASC was formed in 1973 through an agreement made by professional accountancy bodies from Australia,
Canada, France, Germany, Mexico, the Netherlands, the United Kingdom and Ireland, and the United States of
America.

The IASC has the following objectives:

a. To formulate and publish in the public interest accounting standards to be observed in the presentation
of financial statements and to promote their worldwide acceptance and observance.
b. To work generally for the improvement and harmonization of regulations, accounting standards and
procedures relating to presentation of financial statements.

The approved statements of the IASC are known as International Accounting Standards (IAS).

The International Accounting Standards Board (IASB) now replaces the IASC. The IASB is an independent,
private-sector body that develops and approves International Financial Reporting Standards (IFRS). The
IASB operates under the oversight of the IFRS Foundation.

The IASB has complete responsibility for all technical matters including:
• Full discretion in developing and pursuing its technical agenda, subject to certain consultation
requirements with the IFRS Foundation and the public
• The preparation and issuing of IFRS (except interpretations) and exposure drafts, following the due
process
• The approval and issuing of interpretations developed by the International Financial Reporting
Interpretations Committee (IFRIC) (previously Standing Interpretations Committee).

The IASB, despite superseding the IASC, has adopted the body of standards issued by the IASC. The
pronouncements of the IASC continue to be designated as IAS.

The IFRS is a set of standards intended to bring about greater transparency and a higher degree of
comparability in the financial reporting process. This moves the advocacy further to achieve the goal of one (1)
uniform and globally accepted financial reporting standards.

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Accounting Standards Applicable in the Philippines

In the Philippines, the Professional Regulation Commission (hereinafter referred to as the Commission) upon
the recommendation of the Board of Accountancy (hereinafter referred to as the Board), in keeping with the
implementation of Republic Act No. 9298 or the Philippine Accountancy Act of 2004, created an accounting
standard-setting body known as the Financial Reporting Standards Council (FRSC).

The FRSC is composed of 15 members with a Chairman, who had been or presently a senior accounting
practitioner in any of the scope of accounting practice, and 14 representatives from the following:
a. Board of Accountancy 1
b. Securities and Exchange Commission 1
c. Bangko Sentral ng Pilipinas 1
d. Bureau of Internal Revenue 1
e. A major organization composed of preparers
and users of financial statements 1
f. Commission on Audit 1
g. Accredited National Professional Organization of CPAs
Public practice 2
Commerce and Industry 2
Academe/Education 2
Government 2 8

Total 14

The Chairman and the members of the FRSC shall have a term of three (3) years renewable for another term.

The development of generally accepted accounting principles in the Philippines is initially formalized through
the creation of the Accounting Standards Council (ASC). The FRSC now replaces the ASC. The main function
of the FRSC is to establish and improve accounting standards that will be generally accepted in the country.

The accounting standards promulgated by the FRSC constitute the highest hierarchy of generally accepted
accounting principles in the Philippines. The FRSC has adopted the pronouncements made by the IASB and
approves the implementation of the local version of the standards. The approved statements of the FRSC are
known as Philippine Accounting Standards (PAS) for IAS and Philippine Financial Reporting Standards
(PFRS) for IFRS.

Under the FRSC, the Philippine Interpretations Committee (PIC) has been established to replace the
Interpretations Committee formed by the Accounting Standards Council. The roles of the PIC include:
• Preparing interpretations of PFRS for approval by the FRSC; and
• Providing timely guidance on financial reporting issues not specifically addressed in current PFRS.

Interpretations are intended to provide guidance in matters where confusion or divergent opinion or application
is expected because the standards do not provide specific and clear guidelines.

In summary, PFRS, the prevailing accounting standards for financial reporting in the Philippines, collectively
refers to the following:
• PFRS which corresponds to IFRS (numbered in the same manner)
• PAS which corresponds to IAS (numbered in the same manner)
• Philippine Interpretations which corresponds to Interpretations of IFRIC and Standing Interpretations
Committee and Interpretations developed by the PIC.

The detailed list of all effective PFRS is presented below.

No. Name Issued

International Financial Reporting Standards
IFRS 1 First-time Adoption of International Financial Reporting Standards 2008*

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IFRS 2 Share-based Payment 2004

IFRS 3 Business Combinations 2008*
IFRS 4 Insurance Contracts 2004
Will be superseded by IFRS 17 effective January 1, 2021
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations 2004
IFRS 6 Exploration for and Evaluation of Mineral Assets 2004
IFRS 7 Financial Instruments: Disclosures 2005
IFRS 8 Operating Segments 2006
IFRS 9 Financial Instruments 2014*
IFRS 10 Consolidated Financial Statements 2011
IFRS 11 Joint Arrangements 2011
IFRS 12 Disclosure of Interests in Other Entities 2011
IFRS 13 Fair Value Measurement 2011
IFRS 14 Regulatory Deferral Accounts 2014
IFRS 15 Revenue from Contracts with Customers 2014
IFRS 16 Leases 2016
IFRS 17 Insurance Contracts 2017
International Accounting Standards
IAS 1 Presentation of Financial Statements 2007*
IAS 2 Inventories 2005*
IAS 3 Consolidated Financial Statements 1976
Superseded in 1989 by IAS 27 and IAS 28
IAS 4 Depreciation Accounting
Withdrawn in 1999
IAS 5 Information to be Disclosed in Financial Statements 1976
Superseded by IAS 1 effective July 1, 1998
IAS 6 Accounting Responses to Changing Prices
Superseded by IAS 15, which was withdrawn December 2003
IAS 7 Statement of Cash Flows 1992
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 2003
IAS 9 Accounting for Research and Development Activities
Superseded by IAS 38 effective July 1, 1999
IAS 10 Events after the Reporting Period 2003
IAS 11 Construction Contracts 1993
Superseded by IFRS 15 effective January 1, 2018
IAS 12 Income Taxes 1996*
IAS 13 Presentation of Current Assets and Current Liabilities
Superseded by IAS 39 effective July 1, 1998
IAS 14 Segment Reporting 1997
IAS 15 Information Reflecting the Effects of Changing Prices 2003
Withdrawn December 2003
IAS 16 Property, Plant and Equipment 2006*
IAS 17 Leases 2003*
Will be superseded by IFRS 16 effective January 1, 2019
IAS 18 Revenue 1993*
Superseded by IFRS 15 effective January 1, 2018
IAS 19 Employee Benefits (1998) 1998
Superseded by IAS 19 (2011) effective January 1, 2013
IAS 19 Employee Benefits 2011 2011*
IAS 20 Accounting for Government Grants and Disclosure of Government 1983
Assistance
IAS 21 The Effects of Changes in Foreign Exchange Rates 2003*
IAS 22 Business Combinations 1998*
Superseded by IFRS 3 effective March 31, 2004

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IAS 23 Borrowing Costs 2007*

IAS 24 Related Party Disclosures 2009*
IAS 25 Accounting for Investments
Superseded by IAS 39 and IAS 40 effective 2001
IAS 26 Accounting and Reporting by Retirement Benefit Plans 1987
IAS 27 Separate Financial Statements (2011) 2011
IAS 28 Investments in Associates and Joint Ventures (2011) 2011
IAS 28 Investments in Associates
Superseded by IAS 28 (2011) and IFRS 12 effective January 1, 2013
IAS 29 Financial Reporting in Hyperinflationary Economies 1989
IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial 1990
Institutions
Superseded by IFRS 7 effective January 1, 2007
IAS 31 Interests in Joint Ventures 2003*
Superseded by IFRS 11 and IFRS 12 effective January 1, 2013
IAS 32 Financial Instruments: Presentation 2003*
IAS 33 Earnings per Share 2003*
IAS 34 Interim Financial Reporting 1998
IAS 35 Discontinuing Operations 1998
Superseded by IFRS 5 effective 1 January 2005
ISA 36 Impairment of Assets 2004*
IAS 37 Provisions, Contingent Liabilities and Contingent Assets 1998
IAS 38 Intangible Assets 2004*
IAS 39 Financial instruments: Recognition and Measurement 2003*
Superseded by IFRS 9 effective 1 January 2018 where IFRS 9 is applied
IAS 40 Investment Property 2003*
IAS 41 Agriculture 2001
*last revision date

Other Standard-setting Bodies

In the Philippines, the Commission upon the recommendation of the Board, in keeping with the implementation
of Republic Act No. 9298 or the Philippine Accountancy Act of 2004, created an auditing standard-setting body
known as the Auditing and Assurance Standards Council (AASC).

The AASC is composed of 15 members with a Chairman, who had been or presently a senior practitioner in
public accountancy, and 14 representatives from the following:
a. Board of Accountancy 1
b. Securities and Exchange Commission 1
c. Bangko Sentral ng Pilipinas 1
d. Commission on Audit 1
e. An association or organization of CPAs in
active public practice of accountancy 1
f. Accredited National Professional Organization of CPAs
Public practice 6
Commerce and Industry 1
Academe/Education 1
Government 1 9

Total 14

The Chairman and members of the AASC shall be bound by the same terms as the Chairman and members of
the FRSC. The AASC is particularly focused on the standards for the practice of public accountancy; hence,
resulting into more members coming from this sector.

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The Commission, upon the recommendation of the Board, also created an Education Technical Council (ETC)
to assist the Board in carrying out its powers and functions. The ETC will assist the Board in the attainment of
the objective of continuously upgrading the accountancy education in the Philippines to make the Filipino CPAs
globally competitive.

The ETC shall be composed of seven (7) members with a Chairman, who had been or presently a senior
accounting practitioner in the academe/education, and six (6) representatives from the following:
a. Board of Accountancy 1
b. Accredited National Professional Organization of CPAs
Public practice 1
Commerce and Industry 1
Academe/Education 2
Government 1 5

Total 6

The term of office for the ETC is similar to the FRSC and AASC. The ETC shall have the following functions:
a. Determine a minimum standard curriculum for the study of accountancy to be implemented in all schools
offering accountancy as an undergraduate degree;
b. Establish teaching standards, including qualifications of members of the faculty of schools and colleges
of accountancy;
c. Monitor progress of the program on the study of accountancy and undertaking measures for the
attainment of a high quality of accountancy education in the country; and
d. Periodically evaluate the performance of educational institutions offering accountancy education.

References

Valix, C. T. (2015). Theory of Accounts (Vol. 1). Manila, Philippines: GIC Enterprises & Co. Inc.
Valix, C. T. (2017). Financial Accounting (Vol. 1). Manila, Philippines: GIC Enterprises & Co., Inc.
Republic of the Philippines. (2003). Republic act no. 9298. Retrieved on August 23, 2018 from
https://boa.com.ph/wp-content/uploads/2014/10/Accountancy-Law.pdf

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