Financial Reporting and the Standard Setting Process

IASC

-International Accounting Standards Committee

-created in 1973

-made to create a set of uniform global accounting standards called the IAS*

-was reformed as the IASB**—International Accounting Standards Board—in 2001 under the
umbrella of the IFRS Foundation

*even if improved or revised by the now-IASB, they are still called IAS. Meanwhile, standards
originally made by the IASB are called IFRS

**still issues new standards and major amendments to the existing IFRSs

IFRS Foundation

-International Financial Reporting Standard

-non-profit organization created to develop a single high-quality, understandable, enforceable,

and globally accepted accounting standards—the IFRS—and to promote and facilitate the
adoption of these

IFRSs

• Include:
o Specific IFRS
o Interpretations made by the IFRIC—International Financial Reporting
Interpretations Committee—the body that interprets the works of the IASB; it has
14 voting members
o IAS
o Interpretations made by the SIC—Standing Interpretations Committee—the body
that interpreted the works of the IASC.

Mission Statement

To communicate financial information that achieves transparency, accountability, and efficiency

Transparency

-done by enhancing international comparability and quality of financial information, enabling

investors and market participants to make informed economic decisions
Accountability

-done by reducing the information gap between investors and management of companies—
whom they have entrusted their investments with

Efficiency

-done by helping investors identify opportunities and risks—improving capital allocation

Since financial reporting practices changes along the business environment and needs of the
users [of reports], financial reporting standards will also continuously evolve to ensure that
economic transactions of entities are faithfully communicated in the most relevant manner.

The Standard Setting Process Adopted by the IASB

-these processes are governed and overseen by the IFRS foundation as one of its primary
functions

• Due Process in the development of Financial Reporting Standards

1. Setting the agenda

-IASB identifies an issue in its agenda after considering the relevance of the
information to users and the reliability of the information that could be provided

2. Planning the project

-IASB decided whether to conduct the project alone or jointly with another
standard-setter [question: what are the other internationally-acclaimed and
accepted standard-making body? Some countries have independent standard-
setters—US, for example.]

-a working group is established, which may include members of staff from other
accounting standard setters

3. Developing and publishing the discussion paper

-a discussion paper includes an overview of the issue and ways to address it, the
preliminary views of its authors or the IASB, and an invitation to comment

-the issue discussed may be from a research project by another standard setter or
an active agenda by the IASB

-if the issue is from another standard setter, the publication of the discussion
board needs a majority vote of the IASB members

-discussions of issues happen in public sessions where Q&A also occurs

 4. Developing and publishing the exposure draft

-exposure draft is the proposed standard or amendment to a standard. It is a way

to consult the interested public

-major projects usually need 120 days for comment period

-IFRIC interpretations take about 60 days—or less, if urgent

-revisions on the draft may be made after consideration of the comments. As such,
a second exposure draft may be developed and published

5. Developing and publishing the standard; and

-once conclusion about issues in the exposure draft has been made, a pre-ballot
IFRS is sent to selected parties for review. Afterwards, a near final draft is posted
on the IASB’s website

-balloting is the process of circularizing the near final reporting standard to IASB
members. It requires individual final review and approval of the draft

6. Issuance of the standard

-approved standard or amendment is initially posted to the IASB’s limited access

website for about ten days. Afterwards, is will be freely available online.

The Standard Setting Process in the Philippines

Before 1981

-no formal process for the development of accounting practices in the Philippines

-accounting principles were based on actual business practices—mostly those according to the
accounting principles and standards developed by the USA

Later Part of 1981—November 18, 1981

-PICPA organized the ASC—Accounting Standards Council—that formalized the standard

setting process in the Philippines

PICPA

-Philippine Institute of Certified Public Accountants

-accredited professional organization of CPAs in the country

ASC

-formed on November 18, 1981 to study the accounting standard-setting process in the
Philippines

-main function: establish and improve the GAAP in the Philippines

-standards they developed were known as SFAS—Statements of Financial Accounting

Standards—and were based on existing practices, pieces of literature, and research. The
statements of the IASC and the FASB—Financial Accounting Standards Board of the USA were
also considered

• 8 Members of the ASC

1. PICPA
2. SEC
3. BSP
4. BOA
5. Financial Executives of the Philippines

1997

-ASC decided to base their standards on the IAS than those of the US

1997-2000

-actual standards based on the IAS were developed

2001

-ASC adopts most of the standards developed by the IASC

2005

-full adoption of the IAS in the Philippines

Other Acronyms to Remember

1. BOA

-regulates the practice of Accountancy in the Philippines

-established the FRSC in 2006 to replace and takeover the functions of the ASC

2. FRSC

-Financial Reporting Standards Council

 -has a chairman and 14 members: BOA, SEC, BSP, BIR, COA, PICPA, and the Financial
Executives of the Philippines

3. PIC

-founded by the FRSC in November 2006

-goal: to aid the Council improve and establish the financial reporting standards in the
Philippines by issuing guidelines on how to follow them

4. PFRS

-consists of the specific PFRS adopted from the IRFS

-PAS, adopted from the IAS

-Philippines Interpretations—which are interpretations of the IFRIC and the SIC, and the
interpretations of the PIC

-set out the recognition, measurement, presentation, and disclosure requirements dealing
with transactions and events that arise mainly in specific industries

-developed through a process involving members of the PICPA, Financial Executives,

regulatory officers, members of the academe, and other individuals and organizations

Due process involves:

1. consideration of pronouncement of IASB

2. Formation of a task force, if necessary, to advise the FRSC
3. Issuing an exposure draft from comment that requires the approval of the majority
of the FRSC members. Comment is at least 60 days unless shorter period not less
than 30 days is stated by the FRSC
4. Consideration of all the comment and preparation of a comment letter to the
IASB, when appropriate
5. Approval of a standard or an interpretation by the majority of the FRSC members

💡 Current liabilities are those obligations that the company is to pay within the forthcoming
year—meaning, long-term debts that will be paid the forthcoming year can be considered as one.