Financial accounting standards board – basis of Financial Reporting Standards Council (FRSC) –

PH accounting standards prior to 2001 2006

Accounting Standards Council – November 18, - RA 9298

1981 - Succeeded the ASC
- Composed of 15 members including the
 Original accounting standard body
chairman
 Created by PICPA
MEMBERS OF FRSC:
Need for global accounting standards:
1. BOA – 1
1. Globalization
2. SEC – 1
2. Comparability of financial information
3. BSP – 1
3. Transparency
4. BIR – 1
4. Portability of knowledge and education
5. COA – 1
5. Consistency
6. Major organizations of preparers and
International Accounting Standards Committee users of financial statements (financial
(IASB) executives of the PH) – 1
7. Public practice – 2
- Created in 1973 8. Commerce and industry – 2
- To develop single set of global 9. Government – 2
accounting standards 10. Academe – 2
Publicly urged adoption of single set of global DUE PROCESS OF FRSC:
accounting standards:
1. Consideration of pronouncement of the
1. World bank IASB
2. International monetary fund 2. Formation of a task force
3. International organization of securities 3. Issuance of exposure draft duly
commission approved by the majority vote of FRSC
4. Organization for economic cooperation members
and development 4. Consideration of comments (comment
PH transition to IAS was made on a STAGGERED period is at least 60 days may be
basis effective 2001 shortened to not less than 30 days)
5. Approval by a MAJORITY of the FRSC
IAS was reconstituted as international members
accounting standards board in 2001 6. Publication in the official gazette
International Financial Reporting Standards PHILIPPINE INTERPRETATIONS COMMITTEE
- Originally developed by IAS board - August 2006
- Includes: interpretations of the - Issue implementation guidance on PFRS
international financial interpretations and PAS
committee, IAS developed by IAS - Deals with issues of reasonably
committee and upheld/revised by IAS widespread importance and NOT issues
board, interpretations of the standing of concern only to a single entity or
interpretations committee (SIC – small set of entities
interpreting body of the IAS committee)
PFRS – currently effective accounting standards CONCEPTUAL FRAMEWORK
in PH, composed of:
- Released by IASB in March 2018
1. PFRS adopted from IFRS promulgated by - Describes the objectives of and the
IASB concepts for general purpose financial
2. Philippine accounting standards (PAS) reporting
adopted from IAS - NOT a PFRS
3. Interpretations by Standing - Nothing in the conceptual framework
Interpretations Committee overrides any standard or any
4. Interpretations by International requirement of a standard
Financial Reporting Interpretations - Provides foundation for standards
Committee - To provide the foundation for standards
5. Implementation guidance of the PH that brings transparency, accountability
interpretations committee and efficiency to financial markets
around the world
PRBOA
PURPOSE OF FRAMEWORK:
- One of the regulatory boards under the
PRC - Assist Board to develop IFRS standards
- Mandated to exercise administrative, based on CONSISTENT concepts
quasi-legislative and quasi-judicial - Assist preparers to develop consistent
power over the accountancy profession. accounting policies when no standard
- Composed of a chairman and 6 applies to a particular transaction or
members other event or when a standard allows a
- Chairman and members shall hold office choice in accounting policy
for a term of 3 yrs. No person who has - Assist all parties to understand and
served 2 successive complete terms interpret the standards
shall be eligible for reappointment until
SCOPE:
lapse of one year. (filing of vacancy is
not considered a complete term) 1. Objective of general-purpose financial
reporting
QUALIFICATIONS TO BE MEMBER OF BOA:
2. Qualitative characteristics of useful
1. Natural born citizen and resident financial information
2. CPA with at least 10 years of experience 3. Financial statements and the reporting
in any scope of practice of accountancy entity
3. Good moral character and MUST NOT 4. Elements of the financial statements
be convicted of crime involving moral 5. Recognition and derecognition
turpitude 6. Measurement
4. Must not be directly or indirectly 7. Presentation and disclosure
connected with any school granting 8. Concepts of capital and capital
degrees for admission to the CPA maintenance
examination or CPA review school nor
LIMITATION IN THE PRESENTATION SFP:
shall have any PECUNIARY interest in
such school, college, university or CPA 1. Many items that are if financial value is
review school. omitted.
 2. Judgements and estimates are used 2. Level of rounding used in presenting the
3. Current fair value is NOT reported financial statements
3. Whether the financial statements cover
LIMITATION IN THE PRESENTATION OF SCI:
the individual entity or group of entities
1. Items that cannot be measured reliably
NONFINANCIAL DISCLOSURES:
are NOT reported
2. Income measurement involves 1. Domicile and legal form of the entity, its
judgment country of incorporation and address of
3. income numbers are affected by the the registered office
accounting methods employed 2. Description of the nature of the entity’s
operations or principal activities
choice between functional and natural
3. Name of the parent and ultimate parent
presentation depends on HISTORICAL AND
of the group
INDUSTRY FACTORS and the NATURE of the
4. Entities financial risk management
entity
objectives and policies
NATURE OF EXPENSE METHOD: 5. Judgements, key sources of estimation
and basis for resolving uncertainty.
 expenses are aggregated according to
their nature and are not reallocated RECORDING PHASE:
among various functions within the
1. Business documents are received and
entity
prepared
FUNCTION OF EXPENSE METHOD: 2. Transactions are journalized
3. Transactions are posted to the ledger
 expenses are classified according to
their function as cost of sales, ADVANTAGE OF DOUBLE ENTRY SYSTEM:
distribution or administrative expense.
1. Complete effect of all transactions is
PRESENTATION OF FINANCIAL STATEMENTS recorded
2. Complete accounting permits fair
1. Statement of compliance with IFRS presentation of financial statements
2. Summary of significant accounting 3. Provides more internal control
policies
3. Supporting computations for items CORRECT WAY OF HANDLING A VOUCHER
presented on the face of the statements SYSTEM:
4. Other disclosures, including contingent
1. Purchases are recorded in the voucher
liabilities, unrecognized contractual
register at gross by debiting purchases
commitments and nonfinancial
and crediting vouchers payable
disclosures.
2. In case there are purchase returns and
REQUIRED DISCLOSURES UNDER IAS 1: allowances, there will be a need to
cancel the original voucher and the
1. Name of the reporting entity and other issuance of a new one for the lower
means of identification and any change amount
in that information from the previous 3. When installments or other payments
year ae made on an invoice, a separate
 voucher is prepared for the amount of - Necessary each time it prepares an
each check issued income statement and a statements of
financial position
Voucher Register – journal where all vouchers
- To account for accruals and deferrals
are recorded in NUMERICAL sequence
A worksheet is NOT part of the basic accounting
GENERAL LEDGERS
records of the entity
- Classifying
SEQUENCE ON PREPARATION OF STATEMENTS:
- Provides a listing of the dates of
transactions affecting each account, 1. SCI
what amount and the ending balance of 2. SCE
each account 3. SFP
4. SCF
SUBSIDIARY LEDGER
POST CLOSING TRIAL BALANCE:
- Listing of the components of account
balances - Listing of general ledger accounts and
their balances after closing entries have
TRIAL BALANCE
been made
- A test of the equality of the debits and - Consists entirely of REAL accounts
credits in the general ledger - Helps to ensure that the closing process
- A list of all open accounts in the ledger has been performed correctly
with their balances as of a given date
ACCRUED EXPENSE
- Provides information that is helpful
when making adjusting entries - An amount NOT PAID and currently
- Unadjusted trial balance order: Asset, matched with earnings
liability, equity, income and expense
INCOME SUMMARY
- The sum of either trial balance column
represents NO MEANINGFUL AMOUNT - A clearing or suspense account that is
often used to hold the balances of
ADJUSTING ENTRIES are necessary because:
income and expense accounts and its
- Transactions take place over more than balance is closed to retained earnings
one accounting period
ADJUSTMENTS ARE OFTEN PREPARED AFTER
- They help properly measure net income
THE SFP DATE BUT DATED AS OF THAT DATE
or net loss
- To bring assets and liabilities to correct Insurance expense = insurance paid + prepaid
balances insurance beg – prepaid insurance end
- Needed whenever transactions affect
the revenue or expenses of more than FINANCIAL INFORMATION is useful when:
one accounting period - Buying, selling or holding equity and
- Affect at least 1 nominal and 1 real debt instruments
account - Providing or settling loans and other
- To ensure that the revenue recognition forms of credit
and expense recognition principles are - Exercising rights to vote on or otherwise
followed influence management’s actions that
 affect the use of the entity’s economic - Gives assurance that it is
resources. reasonably free of error and
bias
Economic resources and claims that directly
help to determine entity’s financial strengths MATERIALITY
and weaknesses:
- An entity-specific aspect of relevance
1. Entity’s need for additional financing based on the nature or magnitude or
2. Entity’s liquidity and solvency both of the item in relation to the
3. How successful an entity likely to obtain entity’s financial report
future financing - A matter of relative size or importance
- An item is material if the misstatements
QUALITATIVE CHARACTERISTICS:
or omission would influence or change
- Are considered either fundamental or the judgment of the primary user
enhancing
COMPLETE DEPICTION:
- Contribute to the decision-usefulness of
financial reporting information - Explanation of significant facts about
- Distinguish better information from the quality and nature of the items
inferior information for decision making - Factors and circumstances that might
purposes affect their quality and nature
- Process used to determine the
FUNDAMENTAL QUALITATIVE:
numerical depiction
1. Relevance
COMPLETENESS
- Affected by its nature and
materiality - Financial reports should include all
- Must be relevant to the information necessary for a user to
decision-making needs of users understand the phenomenon being
- Info about financial position and depicted including all necessary
performance and other matters description and explanations
such as dividend and wage
PRUDENCE
payments and ability of the
entity to meet its financial - Inclusion of a degree of caution in the
commitment as they fall due. exercise of judgment needed in making
- The predictive and confirmatory estimates required under conditions of
roles of information ARE uncertainty such as assets and income
INTERRELATED are not overstated or liabilities and
- Characteristic: predictive value, expenses are not overstated
confirmatory value and
materiality ENHANCING QUALITIES:
- Capable of making a difference - Users need reasonable knowledge of
in a decision business and financial accounting
2. Faithful representation matters to understand the information
- Completeness, freedom from contained in financial statements
error and neutrality - Information must be decision useful to
all potential users of financial reporting
- General purpose financial reporting is makers in time to be capable of
the primary source of information for influencing their decisions
users of financial reporting - Older information is less useful
1. Comparability - Long term trends of information
- Information that measured and can be considered timely
reported in a similar manner
COST-BENEFIT CONSTRAINT
with other entities and about
the same entity from another - The benefits of the information must be
period or another date greater than the costs of providing it
- Users must be able to compare
the financial statements of an REPORTING ENTITY
entity through time in order to - Required or chooses to prepare
identify trends in its financial financial statements
position and performance - A single entity or a portion of an entity
- Users must be able to compare - A composition of more than 1 entity
the financial statements of
different entities in order to CONSTRUCTIVE OBLIGATIONS
evaluate their relative financial - Customary practices, published policies
position, performance and cash or specific statements of the entity
flows
- It is important that financial ALTERNATIVE MEANS TO FULFILL AN
statements show information OBLIGATION:
for the preceding period
- Negotiate a release from the obligation
because users wish to compare
- Transfer the obligation to a third party
financial position, performance
- Replace the obligation with another
and cash flows of an entity over
obligation by entering into a new
time
transaction
2. Understandability
- Classifying, characterizing and RECOGNITION
presenting information clearly
- Process of capturing for inclusion in the
and conc
financial statements an item that meets
3. Verifiability
the definition of one of the elements of
- Demonstrated when a high
the financial statements
degree of consensus can be
secured among independent DERECOGNITION
measurers using the same
- Normally occurs when an item no
measurement method
longer meets the definition of an asset
- Statements prepared using
or a liability
historical costs are more
- Assets are derecognized when an entity
verifiable
loses control of all or part of the
4. Timeliness
recognized asset
- Information is timely if it
- Liabilities are derecognized when an
becomes available to decision-
entity no longer has a present obligation
for all or part of the recognized liability
HISTORICAL COST OF ASSET = consideration - Several assets that are dissimilar in
paid to acquire or create + transaction costs nature are grouped and treated as a
single unit for depreciation purposes
HISTORICAL COST OF AN ASSET changes in
relation to: COMPONENT DEPRECIATION

- Depreciation and amortization - Each part of an item of PPE with a cost

- Accrual of interest to reflect any that is significant in relation to the total
financing component of the asset cost of the item shall be depreciated
- Impairment of asset separately.

Usefulness to users – HIGHEST CONSIDERATION EXPLORATION AND EVALUATION EXPENDITURE

to apply in selecting a measurement base
- are those incurred by an entity in
CURRENT COST is similar to HISTORICAL COST connection with the exploration for and
because they are both entry values evaluation of mineral resources before
technical feasibility and commercial
FINANCIAL CAPITAL MAINTENANCE CONCEPT
viability of extracting are demonstrable.
- Capital is synonymous with the net - Initially recorded at COST
assets or equity of the entity - Subsequently: cost or revaluation
- Net assets at the end EXCEEDS the net - requires an entity to formulate
assets at the beginning accounting policies to determine which
expenditures shall be recognized as
PHYSICAL CAPITAL MAINTENANCE CONCEPT exploration and evaluation assets.
- Capital is regarded as the productive Intangible Assets
capacity of the entity
- Increase in the physical productive - initially measured at COST
capacity over the period AFTER - subsequent at cost less accumulated
excluding the effects of transactions depreciation and any accumulated
with owners impairment loss OR revalued amount
less any subsequent accumulated
PPE amortization or subsequent impairment
- initially recognized AT COST loss
- subsequent: cost or revaluation Intangible Asset through government grant
Borrowing costs not capitalized are treated as - initially measured at nominal amount
finance costs and are taken to profit or loss - subsequent at cost or revalued
during the period in which they are incurred
Statement of Cash Flows
GROUP DEPRECIATION
 interest PAID
- All similar assets are grouped and o General: Operating
treated as a single unit for depreciation
o Alternative: Financing
purposes
 interest RECEIVED
COMPOSITE DEPRECIATION METHODS o General: Operating
o Alternative: Investing
  dividend RECEIVED IFRS FOUNDATION 3 TIER GOVERNANCE
o General: Operating STRUCTURE
o Alternative: Investing
1. Public Accountability – IFRS
 dividend PAID
Foundation Monitoring Board
o General: Financing
2. Governance, Strategy and Oversight
o Alternative: Operating
– IFRS Foundation Trustees
 Taxes on Income
3. Independent standard setting &
o General: Operating
related activity – IASB & ISSB
OPERATING ACTIVITIES DUE PROCESS OVERSIGHT COMMITTEE
- Principal revenue producing activities of - Under IFRS foundation
the entity - Overseeing the due process of IASB and
- Result from transactions and other ISSB
events that enter into the
determination of P/L OBJECTIVE OF IFRS FOUNDATION

DIRECT METHOD 1. To develop, in the public interest, high

quality, understandable, enforceable
- The major classes of gross cash receipts and globally accepted standards for
and gross cash payments are presented general purpose financial reporting
on the face based on clearly articulated principles
NONCASH INVESTING AND FINANCING 2. To promote the use and rigorous
ACTIVITIES, IF MATERIAL, ARE DISCLOSED IN A application of IFRS Standards
NOTE OR SEPARATE SCHEDULE ACCOMPANYING 3. To promote and facilitate the adoption
THE SCF of IFRS standards through the
convergence of national and regional
Cost of goods sold on an accrual basis is LOWER standards and IFRS standards
than on a cash basis
IASB
DECLARATION OF CASH DIVIDEND (UNPAID) HAS
NO EFFECT IN THE CASH FLOWS - Responsible for the development and
publication of IFRS accounting standards
PPE and approving the interpretations of
- Probable that future economic benefits IFRS accounting standards as developed
associated with the asset will flow to by IFRS interpretations committee
the enterprise ISSB
- Cost can be reliably measured
- Responsible for the development and
DECLINING BALANCE publication of IFRS sustainability
- Uniform depreciation rate disclosure standards
MANDATORY PARTS OF IFRS STANDARD GAAP

1. Principles and related application - Principles, standards, conventions and

guidance assumptions used in the preparation
2. Defined terms and presentation of FS
3. Effective date and transition paragraphs - PAS, PFRS, PH Interpretations

IFRS INTERPRETATIONS COMMITTEE PHILIPPINE ACCOUNTANCY ACT OF 2004

- Maintaining and supporting the 1. Standardization and regulation of

consistent application of IFRS accounting education
Accounting Standards ONLY 2. Examination of registration of CPAs
- Interpretations include: requirements 3. Supervision, control ad regulation of the
specifying the accounting for the practice of accountancy in PH
transactions or other events within its
PRBOA
scope, reference to relevant IFRS
standards and parts of the conceptual - Chairman and 6 members appointed by
framework that have been drawn upon I PRESIDENT
the IFRIC interpretations, effective date - Supervise the legislation, licensure and
and transition paragraphs practice of accountancy in PH
- Prescribe and adopt the rules and
FINANCIAL AND SUSTAINABILITY REPORTING
regulations necessary for carrying out
STANDARDS COUNCIL
the provisions of RA9298
- Established by PRC to assist the BOA in - Prescribe and/or adopt the code of
carrying out its power and function to ethics for the practice of accountancy
promulgate accounting standards in the
CASH PAID FOR WAGES
PH
- BOA, SEC, BSP, BIR, IC, COA, FINEX, - Salary expense LESS the INCREASE in
PICPA, CDA wages payable from beginning t
- Formation of task force to study the - o end of the year
issue at hand, exposure of the proposed
accounting standard, vote of approval CASH COLLECTED FROM CUSTOMERS
by majority of FRSC members - Sales Revenue PLUS the DECREASE in
- Financial support received principally accounts receivable from beginning to
from the PICPA foundation end of the year
PHILIPPINE INTERPRETATIONS COMMITTEE STOCK OPTIONS
- Created by FRSC in 2006 - Recognized only if they are DILUTIVE
- Assist in establishing and improving - When exercise price exceeds the
financial reporting standards in PH average price, the computation would
be antidilutive
TREASURY SHARE METHOD - Actions by the government designed to
provide economic benefits specific to a
- For dilutive earning per share
range of entities qualifying under
- Market price used for purchase is the
certain criteria
average market price
- Recognized in profit or loss on a
ACCOUNTING SYSTEM systematic basis over the periods in
which the entity recognizes the related
- Entity records and stores financial and expense
managerial information from
transactions CONSIDERED AS BORROWING COST

ADVANTAGE OF DOUBLE ENTRY BOOKKEEPING - Interest on borrowing

- Amortization of premium or discount
- Complete effect of all transactions is related to borrowings
recorded - Finance charges with respect to a
- Complete accounting permits fair finance lease
presentation of financial statements
- Provides more effective internal control CONDITIONS BEFORE INTEREST
CAPITALIZATION CAN BEGIN
OBJECTIVE OF REPORTING DEPS
- Interest cost is being incurred
- Show the maximum possible dilution of - Expenditures for the assets have been
earnings made
DILUTION - Activities are undertaken to prepare the
asset for its intended use or sale
- Reduction in earnings per share or
increase in loss per share
- Resulting from the assumption that
potential ordinary shares will
materialize (warrants are exercised,
convertibles are converted)

Gain or loss from disposal of an item of PPE

- Net proceeds from disposal and the

carrying amount of the asset

GOVERNMENT GRANTS

- Transfer of resources to an entity in

return for past or future compliance
with certain conditions

GOVERNMENT ASSISTANCE

- Actions by the government designed to

provide economic benefit specific to an
entity