LECTURE NOTES

Financial Reporting Standards Council (FRSC)
Creation and Function
• Established by the Board of Accountancy (BOA) in 2006
under the Implementing Rules and Regulations of the
Philippine Accountancy of 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. In
achieving this objective, the FRSC considers Standards
issued by the IASB.
• The FRSC is the successor of the Accounting Standards
Council (ASC), which 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 Composition
The FRSC is composed of a chairman, who had been or
presently a senior accounting practitioner in any scope of
accounting practice, and 14 representatives from:
• Board of Accountancy - 1
• Securities and Exchange Commission - 1
• Bangko Sentral ng Pilipinas - 1
• Bureau of Internal revenue - 1
• Commission on Audit - 1
• A major organization of preparers and users of financial
statements (currently, FINEX)
• Accredited national professional organization (APO) of
CPAS (currently, PICPA):
Public Practice - 2
Commerce and Industry - 2
Academe or Education - 2
Government - 2
Appointment and Term of office
The Chairman and members of the FRSC are appointed by
the PRC upon the recommendation of the BOA in
coordination with the APO.
All members of the Financial Reporting Standards Council
(FRSC) including the chairman shall have a term of 3 years
and is renewable for another term.
Consideration of IFRSs issued by IASB
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.
(b) Philippine Accounting Standards (PASs) [these
correspond to International Accounting Standards
(lASs)]; 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.
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.
Philippine Interpretations Committee
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
PFRSs.
The PFRSs
• 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 and it
provides a basis for the use of judgment in resolving
accounting issues.

The FRSC issues news releases to announce the issuance

of final Standards and Interpretations, exposure drafts and
other matters which are posted in the Philippine
Accounting Standards section of the PICPA website
(www.picpa.com.ph).
FRSC pronouncements

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)];

Page 1 of 4
Scope of the PFRSs
• PFRSs 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.
• 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.
Accounting alternatives
• 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.
• 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.
Structure of the PFRSs
• 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 the Preface to
PFRS.
• Any limitation of the scope of a PFRSs is made dear in
the standard.
REVIEW QUESTIONS
1. Which statement is correct regarding the Financial
Reporting Standards Council (FRSC)
a. Established by PICPA in 2006 under the
Implementing Rules and Regulations of the
Philippine Accountancy of Act of 2004.
b. The main function is to establish generally
accepted auditing standards in the Philippines.
c. The Chairman and members of the FRSC are
appointed by the president of the Philippines upon
the recommendation of the PRC in coordination
with the APO.
d. The FRSC is the successor of the Accounting
Standards Council (ASC) which was created in
November 1981 by the Philippine Institute of
Certified Public Accountants (PICPA).
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Due Process
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 involve the following steps:
(a) consideration of pronouncements of the IASB;
(b) formation of a task force, when deemed necessary, to
give advice to the FRSC;
(c) issuing for comment an 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.
Timing of Application of PFRS
• PFRSs apply from a date specified in the document.
New or revised PFRSs set out transitional provisions to
be applied on their initial application.
• 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
the agreement. It is up to the parties to determine
whether the agreement should be insulated from the
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.
• 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.
- done -
2. Which of the following is a characteristic of the
Financial Reporting Standards Council (FRSC)?
a. Any member of the ASC shall be disqualified from
being appointed to the FRSC
b. FRSC members are required to render service to
the Council on a full-time basis.
c. FRSC members serve without compensation for a
term of three years, which can be renewed for
another three-year periods.
d. FRSC members should be CPAs.
3. Financial Reporting Standards Council (FRSC) has
a. 14 members with a Chairman
b. 15 members with a Chairman
c. 16 members with a Chairman
d. 8 members with a Chairman
4. The chairman of the FRSC should have been or
presently a senior practitioner in
a. Public accountancy
b. Commerce and industry
c. Academe
d. Any scope of accounting practice
5. Which of the following government agency is not
represented in FRSC?
a. Bangko Sentral ng Pilipinas
b. Securities and Exchange Commission
c. Bureau of Internal Revenue
d. Commission on Higher Education
6. Which of the following is represented in FRSC?
a. FINEX
b. Bureau of Fisheries
c. Insurance Commission
d. Commission on Higher Education
7. Which of the following bodies is responsible for
reviewing accounting issues that are likely to receive
divergent or unacceptable treatment in the absence of
authoritative guidance, with a view to reaching
consensus as to appropriate accounting treatment?
a. Auditing and Assurance Standards Council (AASC)
b. Financial Reporting Standards Council (FRSC)
c. Philippine Interpretations Committee (PIC)
d. PICPA
8. The PIC members were appointed by the ____ and
include accountants in public practice, the academe
and regulatory bodies and users of financial
statements
a. SEC c. BOA
b. PRC d. FRSC
9. The pronouncements of FRSC provide the highest
authoritative pronouncements on accounting
principles. The authority of these pronouncements
rests upon
a. The rules and regulations of the SEC
b. Its management and their internal accounting staff
c. Their general acceptability
d. The integrity of the Council
10. The FRSC issues its Standards in a series of
pronouncements called PFRSs. These consist of
a. PFRSs c. Philippine Interpretations
b. PASs d. All of these
11. Which statement is incorrect regarding Philippine
Financial Reporting Standards (PFRSs)?
a. PFRSs set out recognition, measurement,
presentation and disclosure requirements dealing
with transactions and events that are important in
general purpose financial statements.
b. PFRSs are designed to apply to the general
purpose financial statements and other financial
reporting of all profit-oriented entities.
c. PFRSs are designed to apply to not-for-profit
activities in the private sector.
d. All of the above
12. 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.
Any limitation of the scope of a PFRS is made clear in
the standard.
a. True, True c. False, False
b. False, True d. True, False
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13. The FRSC employs a "due process" system which
a. Is an efficient system for collecting dues from
members.
b. Enables interested parties to express their views
on issues under consideration.
c. Identifies the accounting issues that are the most
important.
d. Requires that all accountants must receive a copy
of financial standards.
14. Arrange in proper order the due process for projects of
FRSC:
I. Issuing for comment an 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
II. Consideration of pronouncements of the IASB
III. Formation of a task force, when deemed
necessary, to give advice to the FRSC
IV. Approval of a standard or an interpretation by a
majority of the FRSC members
V. Consideration of all comments received within the
comment period and, when appropriate, preparing
a comment letter to the IASB
a. I, II, III, IV and V c. II, III, I, V and IV
b. III, II, I, V and IV d. II, III, V, I and IV
15. Which is not part of the accounting standard-setting
process in the Philippines?
a. Preparation of a draft of proposed Philippine
Financial Reporting Standards (PFRS) by a Task
Force organized by the Chairman.
b. Exposure of the proposed draft for comments and
suggestion to PICPA members, FINEX members
and other interested parties.
c. Approval of the final PFRS by the Profession
Regulation Commission.
d. Publication in the Official Gazette or in newspaper
of general circulation of the proposed draft.
16. Which statement is true about the IASB’s development
of IFRSs?
a. The IASB gives precedence to the balance sheet
over Profit or Loss.
b. The IASB gives precedence to fair value accounting
over amortized cost.
c. Both a and b.
d. Neither a nor b.
17. Which of the following statements describes the effects
of adopting high-quality accounting standards?
a. Elimination of earnings management.
b. Higher abnormal returns.
c. Less volatility of accounting numbers.
d. The adoption of high-quality accounting standards
by countries with weak regulatory environments
will enable them to strengthen their capital
markets.
18. Which of the following statements reflects one of the
benefits of adoption of International Financial
Reporting Standards (IFRS) by different countries?
a. Earnings management is eliminated.
b. Cost of capital is lower for firms.
c. There are no economic consequences when firms
switch to IFRS from existing GAAP.
d. Volatility of earnings calculated using IFRS is zero.
 19. Which is incorrect concerning the FRSC?
a. The FRSC replaced the ASC as the standard setting
body in the Philippines
b. The FRSC is composed of 15 members with a
Chairman and 14 representatives from various
sectors
c. The Chairman and members of the FRSC shall
have a term of 3 years renewable for another term
d. Any member of the ASC shall be disqualified from
being appointed to the FRSC
20. Which of the following is a characteristic of the
FRSC?
a. Majority of the FRSC members should come from
CPA firms
b. All FRSC members must be CPAs
c. FRSC members are required to render service to
the Council on full-time basis
d. All four sectors of the accountancy profession are
represented in the FRSC
21. Which is correct concerning the FRSC?
a. The FRSC replaced the ASPC as the standard
setting body in the Philippines
b. The FRSC is composed of 15 members with a
Chairman including 10 representatives from PICPA.
c. The Chairman and members of the FRSC shall
have a term of 3 years renewable for another
term.
d. Any member of the ASC shall be disqualified from
being appointed to the FRSC
22. The role of the Philippine Interpretations
Committee (PIC) is principally to issue
implementation guidance on PFRSs.
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.
a. True, True
b. True, False
c. False, False
d. False, True
23. What are the accounting principles commonly
known as?
a. Standards
b. Methods
c. Rules
d. Regulations
24. Which statement is(are) correct regarding
Philippine Financial Reporting Standards (PFRSs)?
a. PFRSs set out recognition, measurement,
presentation and disclosure requirements dealing
with transactions and events that are important in
general purpose financial statements.
b. PFRSs are designed to apply to the special purpose
financial statements and other financial reporting
of all profit-oriented entities.
c. PFRSs are designed to apply to not-for-profit
activities in the private sector.
d. All of the above
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25. PFRSs approved by the FRSC include paragraphs in
bold type and plain text. In relation to the PFRS
paragraphs in bold type, are the following
statements true or false?
(1) Bold-type paragraphs should be given greater
authority than the paragraphs in plain text.
(2) Bold-type paragraphs indicate the main principles
of the standard.
Statement 1 Statement 2
a. False True
b. True True
c. False False
d. True False
26. The period of exposing the draft of a proposed
PFRS will be at least sixty (60) days, unless a
shorter period is considered appropriate by the
FRSC. The shorter period should be
a. Not less than 30 days
b. 30 days no more less
c. Less than 30 days
d. More than 30 days but not exceed 59 days
27. Due process for projects of FRSC normally includes
the following, except
a. Consideration of pronouncement of the IASB.
b. Formation of a task force, when deemed
necessary, to give advice to the FRSC.
c. Issuing for comment an exposure draft approved
by at least eight members of the Council;
comment period will be at least sixty days.
d. Approval of a standard or an interpretation by all
of the Council members.
28. The process of establishing financial accounting
standards
a. Is a democratic process in that a majority of
practicing accountants must agree with a standard
before it becomes implemented.
b. Is a legislative process based on rules promulgated
by government agencies.
c. Is based solely on economic analysis of the effects
each standard will have if it is implemented.
d. Is a social process which incorporates political
actions of various interested user groups as well as
professional research and logic.
29. International Financial Reporting Standards
(IFRSs) include:
a. Standards and Interpretations approved by the
IASB
b. International Accounting Standards (IASs)
c. SIC Interpretations
d. All of the above
30. The role of International Financial Reporting
Standards (IFRS) and International Accounting
Standards (IAS) is
a. To reduce possible number of accounting
differences
b. To produce globally recognized standards
c. Both of the above
d. Neither of the above
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