NOTES ON Conceptual

Framework and Accounting

Standards
Course Topics:
Overview of Accounting
 Conceptual Framework for Financial Reporting
 History, Development and Functions of the Standard-Setting Bodies
 Regulation and Environment of the Accounting Profession in the Philippines
 PAS 1: Presentation of Financial Statements

Course Description :
 This is a course covering the key principles and underlying theories in the IASB’s Conceptual
Framework for Financial Reporting.
 This course reviews the key concepts and principles that assist in understanding the IASB's
Conceptual Framework for Financial Accounting. Students are expected to prepare and present
financial statements and related note disclosures in accordance with the Philippine Financial Reporting
Standards.

OVERVIEW OF ACCOUNTING

INTRODUCTION
This section will introduce you to the definition of accounting, its basic purpose, some accounting principles,
accounting concepts, and accounting terminology. Some of the basic accounting terms that you will learn include
revenues, expenses, assets, liabilities, income statement, statement of financial position and statement of cash
flows.

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LESSON 1: Definition of Accounting
Accounting is the “process of identifying,
measuring and communicating economic
information to permit informed judgments and
decisions by users of the information.” (American
Association of Accountants)
Three important activities included in the definition of
accounting:
 IDENTIFYING
 MEASURING
 COMUNICATING
Identifying is the process of analyzing events and
transactions to determine whether or not they will be
recognized (Millan, 2018).
 Recognition refers to the process of including the
effects of an accountable event in the statement of
financial position or the statement of comprehensive
income through a journal entry.
 Only accountable events are recognized
(journalized).
 An accountable event is one that affects the
assets, liabilities, equity, income or
expenses or an entity. It is also known as
economic activity, which is the subject
matter of accounting.
 Non-accountable events are not recognized but
disclosed only in the notes, if they have accounting
relevance. The disclosure only in the notes is not an
application of the recognition process.
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Internal events– are events that do not involve an
external party.
Types of internal events
1. Production- the process by which resources are
transformed into finished goods. Ex conversion of raw
materials into finished products, production of farm
products, etc.
2. Casualty- an unanticipated loss from disasters and
other similar events. Ex loss from fire, flood, earthquakes
and other catastrophes.
Measuring involves assigning numbers, normally in
monetary terms, to the economic transactions and events.
Several measurement bases used in accounting, include,
but not limited to:
1. Historical cost
2. Fair value
3. Present value
4. Realizable value
5. Current cost
6. Sometimes inflation-adjusted cost
The most commonly used is historical costs, which is
usually combined with the other measurement bases.
Accordingly, financial statements are said to be prepared
using mixture of costs and values.
Costs include historical cost and current cost while
values include the other measurement bases.
Valuation by fact or opinion
The use of estimates is essential in providing relevant
information. Thus, financial statements are said to be a
mixture of fact and opinion. When measurement is
affected by estimates, the items measured are said to be
valued by opinion.
Examples:
1. Estimates of uncollectible amounts of
receivables.
2. Depreciation and amortization expenses, which
are affected by estimates of useful life and
residual value.
3. Estimated liabilities, such as provisions.
4. Retained earnings, which is affected by various
estimates of income and expenses.
When measurement is unaffected by estimates, the items
measured are said to be valued by fact. Examples:
1. Ordinary share capital at par value
2. Land stated at acquisition cost
3. Cash measured at face amount
Communicating is the process of transforming
economic data into useful accounting information, such as
financial statements and other accounting reports, for
dissemination to users. It also involves interpreting the
significance of the processed information.
The communicating process of accounting involves three
aspects:
1. Recording- refers to the process of systematically
committing into writing the identified and measured
accountable events in the journal through journal entries.
2. Classifying- involves the grouping of similar and
interrelated items into their respective classes through
posting in the ledger.
3. Summarizing- putting together or expressing in
condensed from the recorded and classified transactions
and events. This includes the preparation of financial
statements and other accounting reports.
Interpreting the processed information involves the
computation of financial statement ratios. Some regulatory
bodies, such as the Bangko Sentral ng Pilipinas (BSP),
require certain financial ratios to be disclosed in the notes
to the financial statements.
LESSON 2: Basic Purpose of Accounting
The basic purpose of accounting is to provide information
that is useful in making economic decisions. The financial
statements are one of the sources of information used
when making economic decisions. Other sources may
include current events, industry publications, internet
resources, professional advices, expert systems, etc.
Economic entities use accounting to record economic
activities, process data, and disseminate information
intended to be useful in making economic decisions.
An economic entity is separately identifiable combination
of persons and property that uses or controls economic
resources to achieve certain goals or objectives. An
economic entity may either be:
a. Not-for-profit entity- one that carries out some
socially desirable needs of the community or its
members and whose activities are not directed
towards making profit; or
b. Business entity- one that operates primarily for
profit.
Economic activities are activities that affect the economic
resources (assets) and obligations (liabilities), and
consequently, the equity of an economic entity.
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Economic activities include:
1. Production- process of converting economic resources
into outputs of goods and services that are intended to
have greater utility than the required inputs.
2. Exchange- the process of trading resources or
obligations for other resources or obligations.
3. Consumption- the process of using the final output of
the production process.
4. Income distribution- the process of allocating rights to
the use of output among individuals and groups in society.
5. Savings- the process of setting aside rights to present
consumption in exchange for rights to future consumption.
6. Investment- the process of using current inputs to
increase the stock of resources available for output as
opposed to immediately consumable output.
Types of information provided by accounting
1. Quantitative information- information expressed in
numbers, quantity, or units.
2. Qualitative information- information expressed in
words or descriptive form. Qualitative information is found
in the notes to financial statements as well as on the face
of the other financial statements.
3. Financial information- information expressed in
money. Financial information is also quantitative
information because monetary amounts are normally
expressed in numbers.
Types of accounting information classified as to users’
needs
1. General purpose accounting information- designed
to meet the common needs of most statement users. This
information is provided under financial accounting.
General purpose information is governed by generally
accepted accounting principles (GAAP) represented by
the Philippine Financial Reporting Standards (PFRSs).
2. Special purpose accounting information- designed
to meet the specific needs of particular statement users.
This information is provided by other types of accounting
other than financial accounting, e.g., managerial
accounting, tax basis accounting.
Sources of information in financial statements
Information in the financial statements is not obtained
exclusively from the entity’s accounting records. Some are
obtained from external sources.
For example, fair value measurements, resolutions of
uncertainties, future lease payments, and contractual
commitments are only a few of the information presented
in the financial statements that are derived from external
sources.

Accounting as science and art
1. As a social science, accounting is a body of knowledge
which has been systematically gathered, classified and
organized.
2. As a practical art, accounting requires the use of
creative skills and judgment.
Accounting as an information system
Accounting identifies and measures economic activities,
processes information into financial reports, and
communicates these reports to decision makers.
Accounting as a language of business
Accounting is often referred to as a “language of
business” because it is fundamental to the communication
of financial information.
Creative and critical thinking in accounting
The practice of accountancy requires the exercise of
creative and critical thinking.
a. Creative thinking- involves the use of imagination and
insight to solve problems by finding new relationships
(ideas) among items of information. It is most important in
identifying alternative solutions.
b. Critical thinking- involves the logical analysis of
issues, using inductive or deductive reasoning to test new
relationships to determine their effectiveness. It is most
important in evaluating alternative solutions.
Creative skills and judgment are exercised in problem
solving. The following are the steps in problem solving:
1. Recognizing the problem
2. Identifying alternative solutions
3. Evaluating the alternatives
4. Selecting a solution from among the alternatives
5. Implementing the solution
LESSON 3: Accounting Concepts
Accounting concepts refer to the principles upon which the
process of accounting is based. The term “accounting concepts”
is used interchangeably with the following terms:
 Accounting assumptions (Accounting postulates)- are
the fundamental concepts or principles and basic
notions that provide the foundation of the accounting
process.
 Accounting theory- is logical reasoning in the form of
a set of broad principles that
1). Provide a general frame of reference by which
accounting practice can be evaluated and
2). Guide the development of new practices and
procedures.
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It is the organized set of concepts and related principles
that explain and guide the accountant’s action in
identifying, measuring, communicating accounting
information. Accounting theory comprises the Conceptual
Framework and the Philippine Financial Reporting
Standards (PFRSs).
Most accounting concepts are derived from the
Conceptual Framework and the Philippine Financial
Reporting Standards (PFRSs). However, some
accounting concepts are implicit, meaning they are not
expressly stated in the framework or PFRSs but are
generally accepted because of their long-time use in the
profession.
Examples of accounting concepts
1. Double-entry system- each accountable event is
recorded in two parts debit and credit.
2. Going concern assumption- the entity is assumed to
carry on the operations for an indefinite period of time.
Meaning, the entity does not expect to end its operations
in the foreseeable future. The measurement basis
involving mixture of costs and values is appropriate only
when the entity is a going concern. If the entity is a
liquidating concern, the appropriate measurement basis is
realizable value, i.e., estimated selling price less
estimated costs to sell for assets and expected settlement
amount for liabilities.
3. Separate entity (Accounting entity/Business entity
concept/Entity concept - the entity is viewed separately
from its owners. Accordingly, the personal transactions of
the owners among themselves or with other entities are
not recorded in the entity’s accounting records. This
concept defines the area
of interest of the accountant.
4. Stable monetary unit (Monetary with assumption)
a. Assets, liabilities, equity, income and expenses
are stated in terms of a common unit of measure,
which is the peso in the Philippines. Accounting
information should be stated in a common
denominator. Amounts in foreign currency shall
be translated into peso.
b. The purchasing power of the peso is regarded
as stable or constant and that its instability is
insignificant and therefore ignored.
5. Time period (Periodicity/Accounting period)- the life
of the entity is divided into series of reporting periods. An
accounting period is usually 12 months and may either be
a calendar year or a fiscal year period. A calendar year
period starts on January 1 and ends on December 31 of
that same year. A fiscal year period also covers 12
months but starts on a date other than January 1.
6. Materiality concept- information is material if its
omission or misstatement could influence economic
decisions. Materiality is a matter of professional judgment
and is based on the size and nature of an item being
considered.
7. Cost-benefit (Cost constraint/Reasonable
assurance)- the cost of processing and communicating
information should not exceed the benefits to be derived
from it.
8. Accrual basis of accounting- the effects of
transactions and other events are recognized when they
occur (and not as cash is received or paid) and they are
recorded in the accounting records and reported in the
financial statements of the periods to which they relate.
Under accrual basis, income is recognized when earned
rather than when cash is collected and expenses are
recognized when incurred rather than when cash is paid.
9. Historical cost concept (Cost principle)- the value of
an asset is determined on the basis of acquisition cost.
This concept is not always maintained. Some PFRSs
require the departure from this concept, such as when
inventories are measured at net realizable value (NRV)
rather than at cost when applying the “lower of cost and
NRV” measurement.
10. Concept of articulation- all of the components of a
complete set of financial statements are interrelated. The
preparation of a worksheet (and the eventual completion
of the financial statements) recognizes that the financial
statements are fundamentally interrelated and interact
with each other. Accordingly, when users use the financial
statements in making decisions, they need to use each
financial statement in conjunction with the other financial
statements. For example, when evaluating an entity’s
ability to generate future cash flows, all financial
statements should be used and not only the statement of
cash flows.
- Receivables and payables in the statement of
financial position provide information on expected cash
receipts and cash disbursements in future periods.
- Information on income and expenses in the statement
of profit or loss and other comprehensive income
provides information on the entity’s ability to generate
cash flows from its operations.
- Information on issued and unissued shares in the
statement of changes in equity provides information on
the availability of equity financing.
5
- Information on historical changes in cash and cash
equivalents in the statement of cash flows helps users
assess future resources and uses of funds.
- The notes to financial statements provides information
on the quality of earnings, e.g. whether
income or expenses are realized or unrealized or
whether they are recurring or non-recurring.
11. Full disclosure principle- this principle recognizes
that the nature and amount of information included in the
financial statements reflect a series of judgmental trade-
offs. The trade-offs strive for:
a. Sufficient detail to disclose matters that make a
difference to users, yet
b. Sufficient condensation to make the information
understandable keeping in mind the costs of preparing
and using it.
12. Consistency concept- the financial statements are
prepared on the basis of accounting principles that are
applied consistently from one period to the next. Changes
in accounting policies are made only when required or
permitted by the PFRSs or when the change results to
more relevant and reliable information. Changes in
accounting policies are disclosed in the notes.
13. Matching (Association of cause and effect)- costs
are recognized as expenses when the related revenue is
recognized.
14. Entity theory- the accounting objective is geared
towards proper income determination. Proper matching of
costs against revenues is the ultimate end. This theory
emphasizes the income statement and is exemplified by
the equation: “Assets = Liabilities + Capital”
15. Proprietary theory- the accounting objective is
geared towards the proper valuation of assets. This theory
emphasizes the importance of the balance sheet and is
exemplified by the equation:
“Assets – Liabilities = Capital”
16. Residual equity theory- this theory is applicable
when there are two classes of shares issued, i.e., ordinary
and preferred. This equation is:
“Assets – Liabilities – Preferred Shareholders’ Equity = Ordinary
Shareholders’ Equity”.
This theory is applied in the computation of book value
per share and return on equity.
17. Fund theory- the accounting objective is neither
proper income determination nor proper valuation of
assets but the custody and administration of funds. The
objective is directed towards cash flows,
exemplified by the formula “cash inflows minus cash
outflows equals fund”.
This concept is used in government accounting and
fiduciary accounting.
18. Realization- the process of converting non-cash
assets into cash or claims for cash. It is also the concept
that deals with revenue recognition.
For example, realization occurs when goods are sold for
cash or in exchange for accounts receivable or notes
receivable. The goods are non-cash assets and they are
converted into cash or, in the case of receivables, claims
for cash.
19. Prudence (Conservatism)- is the use of caution
when making estimates under conditions of uncertainty,
such that assets or income are not overstated and
liabilities or expenses are not understated. In other words
when exercising prudence, the one which has the least
effect on equity is chosen.
LESSON 4: Common Branches of
Accounting
1. Financial Accounting- is the branch of accounting that
focuses on general purpose financial statements.
 General purpose financial statements are those statements
that cater to the common needs of a wide range of external
users.
 External users are those who do not have the authority to
demand financial reports tailored to their specific needs.
Financial accounting is governed by the Philippine
Financial Reporting Standards. (PFRSs)
Financial accounting vs Financial reporting
The term “financial accounting” is often used
interchangeably with the term “financial reporting”.
Although, both financial accounting and financial reporting
focus on general purpose financial statements, the latter
endeavors to promote principles that are also useful in
“other financial reporting”.
Other financial reporting comprises information provided
outside the financial statements that assists in
interpretation of a complete set of financial statements or
improves users’ ability to make efficient economic
decisions.
Financial statements vs Financial report
Financial statements are the structured presentation of an
entity’s financial position and results of its operations.
They are the end product of the accounting process and
the means by which information gathered and processed
are periodically communicated to users.
A complete set of financial statements consists of the
following:
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1. Statement of financial position
2. Statement of profit or loss and other comprehensive
income
3. Statement of changes in equity
4. Statement of cash flows
5. Notes
6. Additional statement of financial position (required
only when certain instances occur).
A financial report includes the financial statements plus
other information provided outside the financial
statements.
Financial reporting involves the provision of financial
information about an entity that is useful in making
economic decisions by external users and assessing
management’s stewardship.
Primary objectives of financial reporting:
a. To provide information about economic resources,
claims to those resources, and changes in those
resources.
b. To provide information that is useful in making
investment and credit decisions.
c. To provide information that is useful in assessing the
amounts and timing of future cash flows.
Secondary objectives of financial reporting:
d. To provide information useful in assessing
management’s stewardship or the effectiveness of the
entity’s management.
2. Management accounting- refers to the accumulation
and communication of information for use by internal
users or management. An offshoot of management
accounting is management advisory services which
includes services to clients on matters of accounting,
finance, business policies, organization procedures,
product costs, distribution, and many other phases of
business conduct and operations.
3. Cost accounting- is the systematic recording and
analysis of the costs of materials, labor, and overhead
incident to production.
4. Auditing- is the process of evaluating the
correspondence of certain assertions with established
criteria and expressing an opinion thereon.
5. Tax accounting- the preparation of tax returns and
rendering of tax advice, such as the determination of the
tax consequences of certain proposed business
endeavors.
6. Government accounting- refers to the accounting for
the government and its instrumentalities, placing
emphasis on the custody of public funds, the purposes for
which those funds are committed, and the responsibility
and accountability of the individuals entrusted with those
funds.
7. Fiduciary accounting- refers to the handling of
accounts managed by a person entrusted with the
custody and management of property for the benefit of
another.
8. Estate accounting- refers to the handling of accounts
for fiduciaries who wind up the affairs of a deceased
person.
9. Social accounting (social and environmental
accounting or social responsibility reporting)- the
process of communicating the social and environmental
effects of an entity’s economic actions to the society.
10. Institutional accounting- the accounting for non-
profit entities other than the government.
11. Accounting systems- the installation of accounting
procedures for the accumulation of financial data and
designating of accounting forms to be used in data
gathering.
12. Accounting research- pertains to the careful analysis
of economic events and other variables to understand
their impact on decisions. Accounting research includes a
broad range of topics, which may be related to one or
more of the other branches of accounting, the economy
as a whole, or the market environment.
Bookkeeping and Accounting
Bookkeeping refers to the process of recording the
accounts or transactions of an entity.
Bookkeeping normally ends with the preparation of the
trial balance.
Unlike accounting, bookkeeping does not require the
interpretation of the significance of the processed
information.
Accountancy
Accountancy refers to the profession or practice of
accounting. The practice of accounting can be broadly
classified into two:
1. Public practice- public practice does not involve
an employer-employee relationship.
2. Private practice- involves an employer-
employee relationship, meaning the account is an
employee.
Lesson 5. Four sectors in the practice of
accountancy
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Under RA 9298 also known as “Philippine Accountancy
Act of 2004”, the practice of accounting is sub-classified
into the following:
1. Practice of Public Accountancy- involves the
rendering of audit or accounting related services to
more than one client on a fee basis.
2. Practice in Commerce and Industry- refers to the
employment in the private sector in a position which
involves decision making requiring professional
knowledge in the science of accounting and such
position requires that the holder thereof must be a
certified public accountant.
3. Practice in Education/Academe- employment in an
educational institution which involves teaching of
accounting, auditing, management advisory services,
finance, business law, taxation, and other technically
related subjects.
4. Practice in the Government- employment or
appointment in a position in an accounting professional
group in the government or in a government-owned
and/ controlled corporation, including those performing
proprietary functions where decision making requires
professional knowledge in the science of accounting, or
where civil service eligibility as certified public
accountant is a prerequisite.
Accountants practicing under numbers 2 to 4 are
considered in private practice.
Lesson 6: Accounting Standards
The Philippine Financial Reporting Standards (PFRSs)
represent the generally accepted accounting principles
(GAAP) in the Philippines.
The PFRSs are Standards and Interpretations adopted by
the Financial Reporting Standards Council (FRSC). They
comprise:
a. The Philippine Financial Reporting Standards
(PFRSs)
b. Philippine Accounting Standards (PASs)
c. Interpretations
PFRSs are accompanied by guidance to assist entities in
applying their requirements. A guidance states whether it
is an integral part of the PFRSs. A guidance that is an
integral part of the PFRSs is mandatory.
The need for reporting standards
For financial statements to be useful, they should be
prepared using reporting standards that are generally
acceptable. If each entity will develop its own standards,
the financial statements would not be comparable, the risk
of fraudulent reporting will be heightened, and economic
decisions based on these financial statements would be
grossly incorrect. For this reason, entities should follow a
uniform set of reporting standards when preparing and
presenting financial statements.
The term “generally acceptable” means that either:
1. The standard has been established by an authoritative
accounting rule making body, e.g., the PFRSs adopted by
the FRSC, or
2. The principle has gained general acceptance due to
practice over time and has been proven to be most useful,
e. g., double-entry recording and other implicit concepts.
The process of establishing financial accounting
standards is a democratic process in that a majority of
practicing accountants must agree with a standard before
it becomes implemented.
Hierarchy of Reporting Standards
When selecting the accounting policies, an entity
considers the following in descending order:
1. Philippine Financial Reporting Standards
(PFRSs)
2. In the absence of a PFRSs that specifically
applies to a transaction or event, management
shall use its judgment in developing and applying
an accounting policy that results in information
that is relevant and reliable.
In making the judgment:
1. Management shall refer to, and consider the
applicability of, the following sources in
descending order:
a. The requirements in PFRSs dealing with
similar and related issues.
b. The Conceptual Framework.
2. Management may also consider the following:
a. Pronouncements of other standard-
setting bodies.
b. Accounting literature and accepted
industry practices.
Although the selection of appropriate accounting policies
is the responsibility of the entity’s management, the
proper application of accounting principles is most
dependent upon the professional judgment of the
accountant.
Accounting standard setting bodies and other
relevant organizations
1. Financial Reporting Standards Council (FRSC)- is
the official accounting standard setting body in the
8
Philippines created under the Philippine Accountancy Act
2004 (R.A. No. 9298)
The FRSC us composed of fifteen (15) individuals- a
chairperson who had been or presently a senior
accounting practitioner in any of the scope of accounting
practice and fourteen (14) representative members
Financial Reporting Standards Council (FRSC)
Chairperson 1
Fourteen representative members from:
Board of Accountancy (BOA) 1
Commission on Audit (COA) 1
Securities and Exchange Commission (SEC) 1
Bangko Sentral ng Pilipinas (BSP) 1
Bureau of Internal Revenue (BIR) 1
A major organization composed of preparers and
users of financial statements 1
Accredited National Professional Organization Of CPAs (i.e.
PICPA)
Public Practice 2
Commerce and Industry 2
Academic/Education 2
Government 2
Total 15
2. Philippine Interpretations Committee (PIC)- is a
committee formed by the Accounting Standards Council
(ASC), the predecessor of FRSC, with the role of
reviewing the interpretations of the International Financial
Reporting Interpretations Committee (IFRIC) for approval
and adoption by FRSC.
3. Board of Accountancy (BOA)- is the professional
regulatory board created under R.A. No. 9298 to
supervise the registration, licensure and practice of
accountancy in the Philippines. The BOA consists of a
chairperson and six(6) members appointed by the
President of the Philippines. The Board shall elect a vice
chairperson from among its members for a term of one (1)
year.
4. Securities and Exchange Commission (SEC)- is the
government agency tasked in regulating corporations and
partnerships, capital and investing markets, and the
investing public. Some SEC rulings affect the accounting
requirements of entities and the adoption and application
of accounting policies.
5. Bureau of Internal Revenue (BIR)- administers the
provisions of the National Internal Revenue Code. These
provisions do not always reflect the goals of financial
reporting. However, they do at times influence the choice
of accounting methods and procedures.
6. Bangko Sentral ng Pilipinas (BSP)- influences the
selection and application of accounting policies by banks
and other entities performing banking functions.
7. Cooperative Development Authority (CDA)-
influences the selection and application of accounting
policies by cooperatives. Accounting policies prescribed
by a regulatory body (e.g. BSP, CDA) are sometimes
referred to as regulatory accounting principles.
International Accounting Standards
The International Accounting Standards Board (IASB) is
the standard-setting body of the IFRS Foundation with the
main objectives of developing and promoting global
accounting standards.
The IASB was established in April 1, 2001 as part of the
International Accounting Standards Committee (IASC)
Foundation. The IASC Foundation is a nonprofit
organization based in Delaware, USA and is the parent of
the IASC Foundation was renamed to International
Financial Reporting Standards Foundation or IFRS
Foundation.
The standards issued by the IASB are the International
Financial Reporting Standards (IFRSs), composed of the
following:
1. International Financial Reporting Standards (IFRSs)
2. International Accounting Standards (IASs)
3. Interpretations
The IFRSs are standards issued by the IASB after it
replaced its predecessor, the International Accounting
Standards Committee (IASC) in April 1, 2001. The IASs
are standards issued by the IASC, which were adopted by
the IASB. The PFRSs and PASs are based on these
standards.
The IASC was founded in June 1973. It was established
as a result of an agreement by accountancy bodies in ten
national jurisdictions which constituted the original board,
namely Australia, Canada, France, Germany, Japan,
Mexico, the Netherlands, the UK, Ireland and the US.
Due process
The IFRSs are developed through an international due
process that involves accountants and other various
9
interested individuals and organizations from around the
world. Due process normally involves the following steps:
1. The staff identifies, and reviews issues
associated with a topic and considers the
application of the Conceptual Framework in the
issues.
2. Study of national accounting requirements and
practice, including consultation with national
standard-setters.
3. Consulting the Trustees and the Advisory
Council about the advisability of adding the topic
to the IASB’s agenda.
4. Formation of an advisory group to give advice
to the IASB on the project.
5. Publishing a discussion document for public
comment.
6. Publishing an exposure draft for public
comment.
7. Publishing with an exposure draft a basis for
conclusions and the alternative views of any IASB
member who opposes publication.
8. Consideration of all comments received.
9. Holding a public hearing and conducting field
tests, if necessary, and
10. Publishing standard, including (a) a basis for
conclusions, explaining among other things, the
steps in the IASBs due process and how the IASB
dealt with public comments on the exposure draft,
and (b) the dissenting opinion of any IASB
member.
Other relevant international organizations:
1. International Financial Reporting Interpretations
Committee (IFRIC)- is a committee that prepares
interpretations of how specific issues should be accounted
for under the application of IFRS where:
a. The standards do not include specific authoritative
guidance, and
b. There is a risk of divergent and unacceptable
accounting practices.
The IFRIC is composed mostly of technical partners in
audit firms but also includes preparers and users. In 2002,
IFRIC replaced the former Standing Interpretations
Committee (SIC) which had been created by the IASC. All
of the SIC Interpretations have been adopted by the IASB.
2. IFRS Advisory Council (previously known as the
Standards Advisory Council ‘SAC’)- is a group of
organizations and individuals with an interest in
international financial reporting. The Advisory Council’s
role includes advising on priorities within the IASB’s work to reporting standards are primarily made in response to
program. The IASB is required to consult with the users’ needs.

Advisory Council in advance of any board decisions on Users’ needs for financial information change and so a
major projects that it wishes to add to the agenda. must in financial reporting standards in order to
continually provide useful information. Legal, political,
Members of the Advisory Council are appointed by the business and social environments also influence changes
IFRS Foundation which also appoints members to the in reporting standards. Regulatory bodies, lobbyists, laws
IASB. These members are drawn from different and regulations, and changes in economic environments
affect the choice of accounting treatment provided under
geographic locations and have a wide variety of the reporting standards.
backgrounds, including users, preparers, academicians,
auditors, analysts, regulators and professional accounting
bodies.
3. International Federation of Accountants (IFAC)- is a
non-profit, non-governmental, non-political organization of
accountancy bodies that represents the worldwide
accountancy profession. Its mission is to develop and
enhance the profession to provide services of consistently
high quality in the public interest. Membership to the IFAC
is open to all accountancy bodies recognized by law or
consensus within their countries.
4. International Organization of Securities
Commissions (IOSCO)- is an international body of
security commissions. The Philippines SEC is a member
of IOSCO.

Move to IFRSs
Prior to the full adoption of the IFRSs in 2005, the
accounting standards used in the Philippines were
previously based on US GAAP, i.e., the Statements of
Financial Accounting Standards issued by the Federal
Accounting Standards Board (FASB), the US national
standard setting body.

The move to IFRSs was primarily brought about by the

increasing acceptance of IFRSs worldwide and increasing
globalization of businesses thereby increasing the need
for a common financial reporting standards that minimize,
if now eliminate, inconsistencies of financial reporting
among nations.

The future of IFRSs

A significant milestone towards achieving the goal of
having one set of global standards was reached in
October 2002 when the FASB and the IASB entered into
a memorandum of understanding called the “Norwalk
Agreement”.

In this Agreement, the FASB and the IASB formalized

their commitment to the convergence of US GAAP and
IFRSs by agreeing to use their best efforts to:
a. Make their existing financial reporting standards fully
compatible as soon as practicable, i.e., minimize
differences, and
b. Coordinate their future work programs to ensure that
once achieved, compatibility is maintained.

Changes in reporting standards

Once established, financial reporting standards are
continuously reviewed, revised or superseded. Changes

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