THE EVOLUTION OF FINANCIAL ACCOUNTING STANDARDS IN THE

PHILIPPINES

Note: The contents of this handout ay more on dates, evolution ng accounting

standards and transitions sa pagpapalit nung mga standards plus yung mga council
and standard bodies mismo. Subukan ko i-highlight lang yung mahalaga pero much
better kung balikan niyo kahit saglit yung buong lecture at baka may ma-miss ako.
Thanks!

INTRODUCTION

Accounting Law of 1923 November 18, 1981

-establishment of BOA -creation of Accounting Standards
-certificate distribution to CPA Passers Council
-formal recognition to accounting
profession 1997
-shift from US GAAP to IAS and IFRS
1929
-establishment of the Philippine November 2004 and January 2005
Institute of Accountants -revision and shift from IAS to PAS and
IFRS to PFRS facilitated by ASC

THEORETICAL CONSTRUCT

Generally Accepted Accounting Principles (GAAP)

- principles that have substantial authoritative support
- vary from country to country due to differences and this can cause problems in
multinational companies

International Accounting Standards Committee (IASC)

- established in 1973 to develop international accounting standards
- objectives:
1. develop a single set of high quality, understandable global accounting standards
2. promote the use of these standards
3. bring about convergence of national and international accounting standards
- issued 41 accounting standards
- also issued 8 accounting standards of its own called International Financial
Reporting Standards (compliance is voluntary)

ACCOUNTING STANDARDS SETTLER IN THE PHILIPPINES

Accounting Standards Council (ASC)

- created in November 18, 1981 to establish and improve GAAP in the Philippines
- funded by the Philippine Institute of Certified Public Accountant (PICPA)
- annual subsidy: 50,000 pesos
- composed of the ff:

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 Philippine Interpretations Committee
- formed by ASC
- purpose: identify, discuss, and resolve on a timely basis emerging issues affecting
financial reporting
- members: representatives from auditing firms, the SEC, and the Board of
Accountancy

Rationales for adopting International Accounting Standards

 Accounting standards in the Philippines were mostly based on US-based
Financial Accounting Standards Board (FASB)
 November 2004 - ASC approved the issuance of the new and revised
Philippine Accounting Standards (PAS) and new Philippine Financial Reporting
Standards (PFRS)
 Philippines Securities and Exchange Commission (SEC) agreed to adopt the
international accounting standards to uphold high quality, promote credibility
and competence
 Philippine Board of Accountancy under the supervision of PRC supports the
adoption of the international accounting standards
 PICPA, as a member, World Bank and Asian Development Bank also supports
the work if the IASC.

Process in the adoption of International Accounting Standards

 ASC started the adoption as early as 1996
 ASC adopted the standards with no local equivalent and updated previously
issued IAS-based standards
 2005 – ASC completed the adoption of the IFRs and the revised versions of
previously adopted IASs
 Small and medium enterprises were given some relief by ASC from new
financial reporting standards, these were intended to be applicable to all
reporting entities in accordance with Philippine GAAP
 2005 – IASB developed accounting standards suitable for entities that don’t
have public accountability named as Non-publicly Accountable Entities
(NPAEs)
 NPAEs were given option not to apply the new IAS that became effective in
2005, but to apply IAS that were effective in 2004

Philippine Financial Reporting Standards – new sets of GAAP issued by the ASC to
govern the preparation of financial statements

KEY PLAYERS IN THE DEVELOPMENT OF GAAP

Accounting Standards Council

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 - created in November 18, 1981 to establish and improve GAAP in the Philippines
- funded by the Philippine Institute of Certified Public Accountant (PICPA)
- annual subsidy: 50,000 pesos
- composed of the ff:

Financial Reporting Standards Council (FRSC)

- established by the BOA in 2006
- main function: establish GAAP in the Philippines
- successor of ASC; carries on the decision made by ASC to converge Philippine
Accounting Standards with International Accounting Standards issued by IASB
- members: Chairman and members appointed by BOA, representatives from BOA,
SEC, Bangko Sentral ng Pilipinas, Financial Executives Institute of the Philippines
(FINEX), and PICPA
- financially supported by PICPA
(see more details about FRSC on the pdf file)

Board of Accountancy (BOA)

- one of the Professional Regulatory Boards that exercise administrative, quasi-
legislative, and quasi-judicial powers over accounting profession in the Philippines
- responsible for implementing general agreement in trade services and supports
adoption of IAS

Philippine Institute of Certified Public Accountants (PICPA)

- accredited by PRC as bona fide professional organization of CPAs
- integrating all CPAs in the Philippines
- active participant in the world’s major accounting bodies
- committed to support IASC and promote compliance of IAS

Securities and Exchange Commission (SEC)

- aims to strengthen the corporate and capital market infrastructure of the
Philippines and maintain regulatory system

Public Utilities
- other economically significant entities (assets of at least 250 million pesos or
liabilities of at least 150 million)

Bangko Sentral ng Pilipinas (BSP)

- central bank of the Philippines
- provides policy directions in the areas of money, banking and credit.
- supervises operations of banks and exercises regulatory powers over non-bank
financial institutions with quasi-banking functions

Insurance Commission

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 - supervises and regulates the operations of life and non-life companies

Bureau of Internal Revenue

- responsible for assessment and collection of all national internal revenue taxes,
fees, and charges
- indirectly influences the accounting policies of entities through the issuance of
revenue regulations

International Accounting Standards – objective: sto create comparable, reliable, and

transparent financial statements that will facilitate greater cross-border capital
raising and trade

Benefits of Convergence (the need for consistent worldwide reporting

standards becomes more apparent)
 Companies – reduced costs, ease of using one consistent reporting
standards
 Investors – better information for decision making, broader investment
opportunities
 National Regulatory Bodies – better information for market participants
in disclosure based-system
 Better comparability of financial information; more informed decision-
making
 Regulators – confusion will be reduced
 Auditors – standardized training and better assurance of quality work

IFRS TRANSITION CHALLENGES – ASIA-PACIFIC REGION

Issues encountered by entities complying with IFRS are the following:

PFRS IMPLEMTATION PROBLEMS IN THE PHILPPINES (see the pdf file for a more
detailed explanation)
1. Difficulty in applying some standards
- Property, plant and equipment
- Employee benefits (significant change on the amounts of retirement obligation
recognized)
- Effects of change in foreign exchange rates (difficulty in translating functional
currency financial statements to presentation currency other than Philippine Peso)
- Consolidated and separate financial statements
- Financial instruments, disclosure and presentation, recognition and measurements
(Some violations found by SEC: Lack of disclosure of significant accounting policies,

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 related party transactions, and related to trade and other payables and accruals, No
provision for retirement benefits/inadequate disclosure on retirement benefits,
No/incomplete disclosure required by new standards, Failure to present comparative
statement and to submit consolidated financial statements)

2. Late of issuance of guidance from regulatory bodies

3. Cost of Compliance

3. Lack of Training and Education

POSITIVE IMPACT OF THE MOVE TO PFRSS

- move to IAS received positive expectations from the Philippine accounting
profession as early as 2003
- seminars and trainings were conducted to educate professional education and
training
- several changes were made in the academic and professional education

CONCLUSION
- Philippine transition to international accounting standards has been challenging
- The adoption of the new Philippine GAAP focused on ‘when’ the implementation
will take place and not with ‘how’ it will be carried out
- Philippines decided to implement new GAAP in 2005 only because of the notion of
‘not being left behind’
- main goal: to achieve comparability and transparency of financial
reports that will assist in rendering informed economic decisions in the
global financial environment.

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