GOOD MORNING

CLASS!!!
DEVELOPMENT OF FINANCIAL
REPORTING FRAMEWORK AND
STANDARD SETTING BODY
By: Edelwin Fajutagana
 INTENDED LEARNING OUTCOME:
After reading this modules, you should be able to:
• describe the purpose of accounting and financial reporting;
• identify the need for information of the users of accounting information;
• describe the branches of accounting;
• discuss the development of accounting standards and financial reporting standards;
• identify the organizations involved in the promulgation of the accounting standards;
• describe the due process of developing the international financial reporting
standards; and
• describe the due process of developing and promulgating Philippine Financial
Reporting Standards

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

OBJECTIVE OF FINANCIAL REPORTING :
The objective of general-purpose financial reporting is

“to provide financial information about the reporting entity that

is useful to present and potential equity investors, lenders, and
other creditors in making decisions about providing resources
to the entity”

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

OBJECTIVE OF FINANCIAL REPORTING :
1. General-purpose financial statements provide at the least cost the
most useful information possible to a wide variety of users.
2. Equity investors and creditors are the primary user groups and
have the most critical and immediate needs for information in the
financial statements. Investors and creditors need this information
to assess a company’s ability to generate net cash inflows and to
understand management’s ability to protect and enhance the assets
of a company.

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

OBJECTIVE OF FINANCIAL REPORTING :
3. The entity perspective means that the company is viewed as being separate and
distinct from its investors (both shareholders and creditors). Therefore, the assets of
the company belong to the company, not a specific creditor or shareholder. Financial
reporting focused only on the needs of the shareholder—the proprietary perspective
—is not considered appropriate.
4. Decision-usefulness means that information contained in the financial statements
should help investors assess the amounts, timing, and uncertainty of prospective cash
inflows from dividends or interest, and the proceeds from the sale, redemption, or
maturity of securities or loans. For investors to make these assessments, the financial
statements and related explanations must provide information about the company’s
economic resources, the claims to those resources, and the changes in them.

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

BRANCHES OF ACCOUNTING:
• Financial Accounting is focused on the recording of business
transactions and the periodic preparation of reports on financial
position and results of operations. Financial accountants accord
importance to existing accounting standards.
• Management Accounting, as defined by Institute of Management
Accountants (IMA) is a profession that involves partnering in
management decision making, devising planning and performance
management systems, and providing expertise in financial reporting
and control to assist management in the formulation and
implementation of organization’s strategy.

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

BRANCHES OF ACCOUNTING:
• Cost Accounting deals with the collection, allocation and control
of the cost of producing specific goods and services.
• Auditing is an independent examination that ensures the fairness
and reliability of the reports that management submits to users
outside the business entity.

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

BRANCHES OF ACCOUNTING:
• Government Accounting is concerned with the identification of
the sources and uses of government funds.
• Tax Accounting includes preparation of tax returns and the
consideration of tax consequences of proposed business
transactions.
• Accounting Education employs accountants either as researchers,
professors or reviewers. They guarantee the continued
development of the profession.

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

HISTORY OF CONCEPTUAL FRAMEWORK
1989 The Framework for the Preparation and
Presentation of the Financial Statements

Sept. 2010 The Conceptual Framework for the Financial

Reporting

March 2018Conceptual Framework for the Financial

Reporting

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

STANDARD-SETTING ORGANIZATIONS :

The main international standard setting organization is the

International Accounting Standards Board (IASB), based in
London, United Kingdom. The IASB issues International Financial
Reporting Standards (IFRS) which are used by most foreign
exchanges.

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

 STANDARD-SETTING ORGANIZATIONS :
IFRS FOUNDATION

IFRS FOUNDATION TRUSTEES

IFRS Interpretation
IFRS Advisory Council IASB
Committe

IFRS

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

 STANDARD-SETTING ORGANIZATIONS :
The international standard-setting structure is composed of the following four organizations:
a) The IFRS foundation (22 trustees) provides oversight to the IASB, IFRS Advisory
Council, and IFRS Interpretations Committee. It appoints members, reviews
effectiveness, and helps in fundraising efforts for these organizations.
b) The International Accounting Standards Board (IASB) consisting of 16 members,
develops in the public interest, a single set of high-quality, enforceable, and global
international financial reporting standards for general-purpose financial statements.
c) The IFRS Advisory Council (30 or more members) provides advice and council to the
IASB on major policies and technical issues.
d) The IFRS Interpretations Committee (22 members) assists the IASB through the
timely identification, discussion, and resolution of financial reporting issues within the
framework of IFRS.

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

STANDARD-SETTING ORGANIZATIONS :
The IASB has a thorough, open and transparent due process in
establishing financial accounting standards. It consists of the
following elements:
a) An independent standard-setting board overseen by geographically
and professionally diverse body of trustees.
b) A thorough and systematic process for developing standards.
c) Engagement with investors, regulators, business leaders, and the
global accountancy profession at every stage of the process.
d) Collaborative efforts with the worldwide standard-setting
community.
DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY
STANDARD-SETTING ORGANIZATIONS :
To implement its due process, the IASB follows specific steps to develop a
typical IFRS.
a) Topics are identified and placed on the Board’s agenda.
b) Research and analysis are conducted, and preliminary views of pros and cons are
issued.
c) Public hearings are held on the proposed standard.
d) The Board evaluates research and public responses and issues an exposure draft.
e) The Board evaluates the responses and changes the exposure draft, if necessary.
Then the final standard is issued.

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

STANDARD-SETTING ORGANIZATIONS :
The following characteristics of the IASB are meant to reinforce the importance
of an open, transparent, and independent due process.
1. Membership: The Board consists of 16 well-paid members, from different
countries, serving 5-year renewable terms.
2. Autonomy: The IASB is not part of any professional organization. It is
appointed by and answerable only to the IFRS Foundation.
3. Independence: Full-time IASB members must sever all ties with their former
employer. Members are selected for their expertise in standard-setting rather than
to represent a given country.
4. Voting: Nine of 16 votes are needed to issue a new IFRS.

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

STANDARD-SETTING ORGANIZATIONS :
The IASB issues three major types of pronouncements:
• International Financial Reporting Standards: To date the IASB has issued 13 standards. In
addition, the previous international standard-setting body, the International Accounting
Standards Committee (IASC) issued 41 International Accounting Standards (IAS). Those that
have not been amended or superseded are considered under the umbrella of IFRS.
• Conceptual Framework for Financial Reporting: The IASB issued the Framework for the
Preparation and Presentation of Financial Statements (referred to as the Framework) with the
intent to create a conceptual framework that would serve as a tool for solving existing and
emerging problems in a consistent manner. However, the Framework is not an IFRS and does
not define standards for any measurement or disclosure issue. Nothing in the Framework
overrides any specific IFRS.

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

STANDARD-SETTING ORGANIZATIONS :
The IASB issues three major types of pronouncements:
• International Financial Reporting Interpretations: Interpretations are issued by the IFRS
Interpretations Committee and are considered authoritative and must be followed. Twenty
have been issued to date. These interpretations cover (1) newly identified financial reporting
issues not specifically dealt with in IFRS, and (2) issues where unsatisfactory or conflicting
interpretations have developed, or seem likely to develop, in the absence of authoritative
guidance.

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

STANDARD-SETTING ORGANIZATIONS :
The IASB has no regulatory mandate and no enforcement mechanism. It relies on other
regulators to enforce the use of its standards. For example, the European Union requires publicly
traded member country companies to use IFRS. Any company indicating that it prepares its
financial statements in conformity with IFRS must use all of the standards and interpretations.
The hierarchy of authoritative pronouncements is:
• IFRS
• IAS
• Interpretations issued by either the IFRS Interpretation Committee or its predecessor the IAS
Interpretations Committee
• the Conceptual Framework for Financial Reporting and
• Pronouncements of other standard-setting bodies that use a similar conceptual framework to develop
accounting standards (e.g., U.S. GAAP)

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

 Financial Reporting Challenges :
Why the need for high-quality standards?
1. To facilitate efficient capital allocation
2. In order to ensure adequate comparability across borders, a single, widely accepted set of
high-quality accounting standards is a necessity.
3. Identify the elements involved:
• A single set of high-quality accounting standards established by a single standard-setting body.
• Consistency in application and interpretation.
• Common disclosures.
• Common high-quality auditing standards and practices.
• Common approach to regulatory review and enforcement.
• Education and training of market participants.
• Common delivery systems.
• Common approach to corporate governance and legal frameworks around the world.
DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY
ACCOUNTING STANDARDS IN THE PHILIPPINES:
Prior to 2001, the Philippine accounting standards were based on the accounting
standards promulgated by the Financial Accounting Standards Board (FASB) of the
United States of America.

The original accounting standard setting body in the Philippines was the Accounting
Standards Council (ASC). It was created on November 18, 1981, by the accredited
professional organization of certified public accountants in the Philippines, which is the
Philippine Institute of the Certified Public Accountants (PICPA).

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

ACCOUNTING STANDARDS IN THE PHILIPPINES:
The ASC was composed of 8 members:
• 1 from the Board of Accountancy;
• 1 from the Securities Exchange Commission;
• 1 from the Bangko Sentral ng Pilipinas (BSP);
• 1 from the Financial Executives of the Philippines; and
• 4 from the PICPA, one member should represent each of the four sectors of
accounting practice (public accounting, commerce and industry,
government, and academe)

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

ACCOUNTING STANDARDS IN THE PHILIPPINES:
The standards would generally be based on the following:
• existing practices in the Philippines,
• research or studies by the Council;
• locally or internationally available literature on the topic or subject; and statements,
recommendations,
• studies or standards issued by other standard-setting bodies such as the International
Accounting Standards Board (IASB) and the Financial Accounting Standards Board
(FASB).
The statements and interpretations issued by the Council represented represent
generally accepted accounting principles in the Philippines. Accounting principles
become generally accepted if they have substantial authoritative support from the
relevant parties interested in the financial statements-the preparers and users, auditors
and regulatory agencies.
DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY
Financial Reporting Standards Council:
When created per Section 9(A) of the Rules and Regulations Implementing
Republic Act No. 9298 otherwise known as the Philippine Accountancy Act of
2004, the Financial Reporting Standards Council (FRSC) shall be the new
accounting standard setting body.
The FRSC shall be composed of fifteen (15) members with a Chairman, who had
been or presently a senior accounting practitioner in any of the scope of
accounting practice and fourteen (14) representatives from the following: one
each from the BOA, SEC, BSP, BIR, COA and a major organization composed of
preparers and users of financial statements, and two representatives each from
the accredited national professional organization of CPAs in public practice,
commerce and industry, education/academe and government.

DEVELOPMENT OF FINANCIAL REPORTING FRAMEWORK AND STANDARD SETTING BODY

END
“Be the change that you wish to see in the
world.”― Mahatma Gandhi
Thank you
And
keep safe