ACYFAR 1

Standard Setting
➢ Tells companies on what to disclose by telling them the basic information used might need (like brochures)
➢ Enables us to compare one company from another
○ Being able to compare companies helps an investor or creditor on which company to better decide to invest
in or provide loans to
➢ Pag walang guide, hirap mag compare kasi iba iba dinididisclose ng mga companies

Accounting Standard-Setting Bodies and Process

Accounting
➢ A service activity whose function is to provide information, primarily financial in nature, about economic
entities that is intended to be useful in making economic decisions (-AICPA or American Institute of Certified
Public Accountant)
➢ The process of identifying, measuring and communicating economic information to permit informed
judgments and decisions by users of the information (-AAA or American Accounting Association)

How does Accounting communicate financial data to us?

➔ Through financial statements
◆ Statement of Financial Position
◆ Statement of Comprehensive Income
◆ Statement of Changes in Equity
◆ Statement of Cash Flows
◆ Notes to Financial Statements
➔ These statements help us assess the overall financial situation of a company. With these, we have more or
less an idea of the potential of a company
➔ Having data about a company is not enough, we need a single set of standard or rules to follow so that we
have some assurance that the data on hand has the basic information we need

1. Why is There a Need for a Single Standard?

What force compelled the world to have a single standard?
 Data of Accounting Scandals

Accounting Scandal
➔ is a major factor that pushes the need for single set of standard
Three Results in this Study
★ Scandals came first before regulations, which means regulators are more reactive than proactive probably
they are less informed than companies because companies have the first hand experience
★ Regulators are not full effective because there has to be rules first in order to identify corporate scandalous
actions, and because new regulations may have loopholes which is unforeseen by regulators when they
publish
★ How the effectiveness of these regulations vary from country to country, since not all countries have efficient
legal system

Globalization
➔ is also a major factor.
★ Example: You are a company biz in the Philippines and you want to expand abroad. If we had multiple
standards, then iba iba laman ng financial statements mo bawat country although you are a single entity. Iba
iba din ung annual reports na kailangan mong isubmit sa government bawat country.
★ Also pushes for
○ consistency in application and interpretation
○ common disclosures
○ common delivery system
○ Common approach to regulator’s review and enforcement
○ Education and training of marketing participants

2. Standard-Setting Bodies
➢ Professional organizations which produce technical standards for financial reporting
➢ Organizations in charge of promulgating guidelines on financial reporting
 Timeline

❖ International Standard Setting Body

○ IASB
○ IFRS Foundation
○ IFRS Interpretations Committee
○ IFRS Advisory Council
1973
- International Accounting Standards Council (IASC) was established and it was in charge of promulgating the
International Accounting Standards (IAS)
- Standard Interpretations Committee (SIC) was in charge of interpreting the IAS

2001
- IASC was reorganized and renamed into International Accounting Standards Board (IASB)
- IASB was in charge was in charge of promulgating the International Financial Reporting Standards (IFRS)
- International Financial Reporting Interpretations Committee (IFRIC) is in charge of interpreting the IFRS

2003
- Certain IFRS have already superseded the past IAS, but there are still some certain IAS that still remained
enforced of the present

2002
- Norwalk Agreement, which is an agreement between the IASB and the Standard Setting Body of the US,
which is Financial Accounting Standards Board (FASB). In this agreement, the two organization agreed to
try to converge the US GAAP and the International Standards

2020
- 17 IFRS and 28 IAS enforced
 ❖ Philippine Standard Setting Body
○ Financial Reporting Standards Council (FRSC)
○ Philippines Interpretations Committee (PIC)
November 18, 1981
- Accounting Standard Council (ASC) was created by PICPA and was in charge of promulgating the
Statement of Financial Accounting Standards (SFAS)

2004
- Replacement happened through the RA 9298 (Accountancy Law)
- Philippines adapted the IAS and IFRS
- FRSC renamed IAS and IFRS to PAS and PFRS

2006
- PIC is a counterpart of IFRIC

△What happened before 1981, where we don’t have the standards committee yet? What standards
do Philippine companies follow? Do they even have standards they follow?
➔ Before ASC was created and SFAS was published, accounting was freestyle. It depends on the company on
what information they want to disclose

★ International Accounting Standards Board (IASB)

➔ Main international standard-setting organization
➔ As of 2020, the standards promulgated by IASB is being used in over 120 countries
➔ Used on most foreign exchanges transactions
➔ Organizations that play an important role in adoption and enforcement of international standard setting are
IASB and the International Organization of Securities Commissions (IOSCO)
◆ IOSCO is an organization composed of securities commissions or regulators around the world.
Every country has their own representative in IOSCO
IOSCO IASB
● Does not set accounting standards - Setting the accounting standards
● Ensures that global markets can operate in an - Composed of 4 organizations
efficient and effective basis ● IFRS foundation
● Supports the use of IFRS ● IASB
● In charge more on the implementation and the ● IFRS Advisory Council
enforcement of accounting standards. ● IFRS Interpretations Committee
 Structure of IASB

*Key characteristics of a Monitoring Board is independence. Members are different government agencies of
different countries.
*IASC is the predecessor of IASB. SIC is the predecessor of IFRS.

★ Elements of IASB Due Process

Independence
- It must not be dependent on the opinions of an individual country or an individual sector considering that
IASB is an international organization, it must consider opinions from different countries

Thorough
- There is a period for commenting and the standard is not fixed. It is continuously revised to reflect the
current situation. It is systematic because there is a step by step process.

Participation and Collaboration

- of business persons, investors, regulators and professionals across the globe
- Promotes the goal of having a standard that is applicable to all
 ★ Process of Revising or Issuing a Standard

This is done in order to minimize the unintended consequences before it becomes an official standard.
The board asks for comments from business persons, investors, regulators and accounting professionals across
the globe.

★ 3 Types of Pronouncements/Publications
● Conceptual Framework for Financial Reporting
- The one that lays out the general principles or guiding characteristics which the provisions of IFRS try to
capture

● International Financial Reporting Standards (IFRS)

- The one the expounds on the specifics like the items like what items must specifically be in the financial
statements, how these items must be recognized, measured, presented and disclosed

● IFRS Interpretations
- Are explanations of the IFRS

★ Hierarchy of IFRS
- Companies should use standards in this order of priority
1. IFRS
a. International Accounting Standards (IAS) - issued by IASC
b. IFRS Interpretations
c. IAS Interpretations - issued by SIC
*take note some IFRS already supersede some IAS. If IAS is superseded, it means it is already replaced.

2. Conceptual Framework for Financial Reporting

- if there is no IFRS or IAS applicable, should use this as their guide.
*take note this is not the standard. If in conflict with IFRS, IFRS should prevail
3. Pronouncements of Other Standard-Setting Bodies that use a similar conceptual framework
- (ex. US GAAP)
- If #1 and #2 does not apply, then use this

3. Philippine Standard-Setting Bodies

❖ Financial Reporting Standards Council (FRSC)
➔ Main accounting standard-setting body, in charge of promulgating PFRS
➔ Created by the Professional Regulation Commission (PRC) upon recommendation by the Board of
Accountancy (BOA)
➔ Main purpose is to assist the BOA in carrying out its powers and functions provided under R.A. No. 9298
◆ Powers of BOA under the accountancy law is to supervise, control, and regulate the practice of
accountancy in the Philippines
➔ Financially supported primarily by PICPA foundation
➔ Establish and improve accounting standards that will be generally accepted in the Philippines

❖ Composition of FRSC
➔ 15 members (3-year term renewable for another 3-year term), appointed by BOA
➔ Chairman should be a senior accounting practitioner
➔ 14 representatives
◆ 1 BOA
◆ 1 SEC
◆ 1 BSP
◆ 1 BIR
◆ 1 COA
◆ 1 Organization of preparers and users of financial statements
◆ 8 from the accredited professional organizations of CPAs:
● 2 ACPAPP (public practice)
● 2 ACPACI (commerce and industries)
● 2 NACPAE (education)
● 2 GACPA (government)
 ❖ FRSC Due Process

➔ Similar to IASB, FRSC has its own due process. FRSC does not simply adopt a new IFRS standard without
first analyzing its implications.
➔ Exposure Draft, issuing a comment, approved by the majority of FRSC members (8 since 15). Generally, the
draft is open to public for comments for 60 days, but FRSC has the option to shorten this period for 30 days
if the FRSC deems that shorter period would already suffice

❖ Adoption of IFRS and IAS in the Philippines

➔ IFRS 1 = PFRS 1, IAS 1 = PAS 1
➔ Philippines adopted standards as Philippine GAAP for financial reporting periods starting on or after January
1, 2005
➔ Securities and Exchange Commission of the Philippines requires publicly listed companies to Adopt PAS
and PFRS in preparing their financial statements for reporting periods

❖ First Time Adoption of PFRS

 ❖ Philippine Interpretations Committee (PIC)

- In charge of interpreting the adopted standards or the PAS and PFRS, which are still subject for approval of
the FRSC
- May also inform the FRSC of certain issues that are not covered or addressed by the presenting/existing
PAS and PFRS

❖ Philippines Accountancy Related Organizations

Regulatory Bodies
- BIR (national taxes)
- LGU (local taxes)
- SEC (listed securities)
- BSP (monetary policy)
- PICPA (all CPAS in Philippines)

Others
- BOA - the body authorized by RA 9298 to - FRSC
promulgate rules and regulations affecting the - COA
practice of accountancy profession in the - FinEx
Philippines - ACPAE
- ACPAPP - PIMA
- ACPACI - AASC
- GACPA - Etc
- RAMA