Accountancy'Review'Center'(ARC)'
of'the'Philippines'Inc.'
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One!Dream,!One!Team!
STUDENT'HANDOUTS'
FINANCIAL'ACCOUNTING'AND'REPORTING' '
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FAR.101—THE'ENVIRONMENT'OF'FINANCIAL'ACCOUNTING'
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AND'REPORTING'(FAR)'
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''''''''''''''''''''CABARLES/SAGOT/CAYETANO'
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''''''''''''''MAY'2021'CPALE'REVIEW'
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LEARNING'OBJECTIVES'
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1.
2.
3.
Define!the!nature!of!financial!accounting!and!reporting.!
!
Know!the!applicable!reporting!framework!in!the!
Philippines!(i.e.,!PFRS,!IFRS,!and!US!GAAP).!
Identify!the!various!standard-setting,!regulatory,!and!
accountancy!bodies.!
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REVIEW'NOTES'
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Nature'of'Financial'Accounting!(LO!1)'
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Financial!accounting!is!a!method!of!reporting!the!results!and!
financial!position!of!a!business.!Financial!reporting !is!the!
process!of!classifying,!recording!and!presenting!financial!data!
in!accordance!with!generally!established!concepts!and!
principles.!
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Financial'Reporting'Frameworks'(LO!2)'
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Many!figures!in!financial!statements!are!affected!by!the!chosen!
accounting!assumptions!and!conventions.!This!can!lead!to!
subjectivity.!Accounting!standards!were!developed!to!try!to!
address!this!subjectivity.!
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PFRS!
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The!FRSC!monitors!the!technical!activities!of!the!IASB!and!
invites!comments!on!exposure!drafts!of!proposed!IFRSs!issued!
by!the!IASB.!When!finalized,!these!are!adopted!as!Philippine!
Financial!Reporting!Standards!(PFRSs).!
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IFRS!
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IFRSs!have!helped!to!both!improve!and!harmonize!financial!
reporting!around!the!world.!
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The!IASB!prepares!IFRSs!in!accordance!with!due!process.!The!
procedure!can!be!summarized!as!follows.!
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US!GAAP!
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US!GAAP!is!primarily!developed!and!maintained!by!the!
Financial!Accounting!Standards!Board!(FASB).!
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Unlike!IFRS!Standards,!US!GAAP!is!for!use!both!profit-oriented!
and!not-for-profit!entities.!
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US!GAAP!employs!a!“rules”-based!approach.!In!other!words,!
the!standards!are!usually!explicit!as!to!precise!rules!that!must!
be!followed.!IFRS,!on!the!other!hand,!is!considered!a!
“principles”-based!approach!because!it!attempts!to!set!general!
accounting!principles!and!allows!professional!judgment!in!
applying!these!principles.!
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The!FASB!and!the!IASB!agreed!to!work!toward!convergence!in!
the!accounting!standards.!
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Standard-Setting,'Regulatory'and'Accountancy!Bodies'
(LO3)'
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FRSC!and!PIC!
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The!Financial!Reporting!Standards!Council!(FRSC)!was!
established!by!the!Professional!Regulatory!Commission!under!
the!Implementing!Rules!and!Regulations!of!the!Philippine!
Accountancy!of!Act!of!2004!to!assist!the!Board!of!Accountancy!
in!carrying!out!its!power!and!function!to!promulgate!
accounting!standards!in!the!Philippines.!The!FRSC’s!main!
function!is!to!establish!generally!accepted!accounting!
principles!in!the!Philippines.!
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The!FRSC!is!the!successor!of!the!Accounting!Standards!Council!
(ASC).!The!ASC!was!created!in!November!1981!by!the!
Philippine!Institute!of!Certified!Public!Accountants!(PICPA)!to!
establish!GAAP!in!the!Philippines.!
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The!FRSC!consists!of!who!a!Chairman!and!members!are!
appointed!by!the!BOA!and!include!representatives!from!the!
Board!of!Accountancy!(BOA),!Securities!and!Exchange!
Commission!(SEC),!Bangko!Sentral!ng!Pilipinas!(BSP),!Financial!
Executives!Institute!of!the!Philippines!(FINEX),!Commission!on!
Audit!(COA)!and!Philippine!Institute!of!Certified!Public!
Accountants!(PICPA).!
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Financial!support!is!received!principally!from!the!PICPA!
Foundation.!
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The!FRSC!formed!the!Philippine!Interpretations!Committee!
(PIC)!in!August!2006!to!assist!the!FRSC!in!establishing!and!
improving!financial!reporting!standards!in!the!Philippines.!The!
role!of!the!PIC!is!principally!to!issue!implementation!guidance!
on!PFRSs.!The!PIC!members!are!appointed!by!the!FRSC!and!
include!accountants!in!public!practice,!the!academe!and!
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regulatory!bodies!and!users!of!financial!statements.!The!PIC!
replaced!the!Interpretations!Committee!created!by!the!ASC!in!
2000.!
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PICPA!
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The!Philippine!Institute!of!Certified!Accountants!or!PICPA!is!
the!accredited!professional!organization!(APO)!of!CPAs!by!the!
Professional!Regulation!Commission!(PRC).!
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PICPA!is!a!registered!non-stock!corporation!with!Geographical!
divisions,!regions!and!chapters!all!over!the!country.!
Geographical!Areas,!Regions!and!Chapters!do!not!have!juridical!
personality!separate!and!distinct!from!each!other!or!from!the!
national!office.!The!geographical!areas!of!PICPA!are:!
1. National!Capital!Region!(Metro!Manila)!
2. Luzon!
Council!and!the!IFRS!Interpretations!Committee.!The!Trustees!
are!appointed!from!a!variety!of!geographical!and!functional!
backgrounds.!
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The!structure!of!the!IFRS!Foundation!and!related!bodies!is!
shown!below.!
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3. Visayas!
4. Mindanao!
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IASB!
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The!International!Accounting!Standards!Board!(IASB)!develops!
IFRSs.!!
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'Better!Communication!in!Financial!Reporting'!highlights!the!
importance!and!common!themes!of!a!number!of!the!IASB!
projects.!These!projects!are!designed!to!help!make!financial!
information!more!useful!and!improve!the!way!financial!
information!is!communicated!to!users!of!the!financial!
statements.!
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Approval!by!at!least!eight!members!of!the!IASB!is!required!for!
the!publication!of!an!exposure!draft!and!IFRS!(which!includes!
final!interpretations!of!the!Interpretations!Committee),!if!there!
are!fewer!than!14!members!of!the!IASB.!If!there!are!14!
members,!approval!is!required!by!at!least!nine!members.!Other!
decisions!of!IASB!including!the!publication!of!a!discussion!
paper,!require!a!simple!majority!of!the!members!present!at!the!
meeting!that!is!attended!by!at!least!60%!of!the!members.!
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The!IASB!is!an!independent,!privately!funded!body!that!
develops!and!approves!IFRSs.!
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The!IASB!operates!under!the!oversight!of!the!IFRS!Foundation.!!
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The!IFRS!Foundation!
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The!IFRS!Foundation!(formally!called!the!International!
Accounting!Standards!Committee!Foundation!or!IASCF)!is!a!
not!for!profit,!private!sector!body!that!oversees!the!IASB.!
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The!objectives!of!the!IFRS!Foundation!are!to:!
• Develop!a!single!set!of!high!quality,!understandable,!
enforceable!and!globally!accepted!IFRSs!through!its!
standard-setting!body,!the!IASB!
• Promote!the!use!and!rigorous!application!of!those!
standards!
• Take!account!of!the!financial!reporting!needs!of!emerging!
economies!and!small!and!medium-sized!entities!(SMEs)!
• Bring!about!convergence!of!national!accounting!standards!
and!IFRSs!to!high!quality!solutions!
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The!IFRS!Foundation!is!made!up!of!several!trustees,!who!
essentially!monitor!and!fund!the!IASB,!the!IFRS!Advisory!
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IFRS!Advisory!Council!
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The!IFRS!Advisory!Council!is!essentially!a!forum!used!by!the!
IASB!to!consult!with!the!outside!world.!It!consults!with!
national!standard!setters,!academics,!user!groups!and!a!host!of!
other!interested!parties!to!advise!the!IASB!on!a!range!of!issues,!
from!the!IASB's!work!programme!for!developing!new!IFRSs!to!
giving!practical!advice!on!the!implementation!of!particular!
standards.!
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IFRS!Interpretations!Committee!
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The!IFRS!Interpretations!Committee!provides!guidance!on!
specific!practical!issues!in!the!interpretation!of!IFRSs.!!
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The!IFRS!Interpretations!Committee!has!two!main!
responsibilities.!
• To!review,!on!a!timely!basis,!newly!identified!financial!
reporting!issues!not!specifically!addressed!in!IFRSs!
• To!clarify!issues!where!unsatisfactory!or!conflicting!
interpretations!have!developed,!or!seem!likely!to!develop!
in!the!absence!of!authoritative!guidance,!with!a!view!to!
reaching!a!consensus!on!the!appropriate!treatment!
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Regulatory!Bodies!
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The!regulatory!bodies!that!affect!financial!reporting!in!the!
Philippines!include:!
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1.
Bureau!of!Internal!Revenue!(BIR)!
2.
Securities!and!Exchange!Commission!(SEC)!
3.
Bangko!Sentral!ng!Pilipinas!(BSP)!
4.
Insurance!Commission!(IC)!
5.
Cooperative!Development!Authority!(CDA)!
6.
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National!Electrification!Administration!(NEA)!
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FAR!|!FAR.101—THE!ENVIRONMENT!OF!FAR!
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DISCUSSION'QUESTIONS'
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Nature'of'Financial'Accounting!(LO!1)!
1. The! area! of! accounting! that! is! concerned! with! providing!
information!for!external!users!is!referred!to!as!
a. Financial!accounting!
b. Governmental!accounting!
c. Management!accounting!
d. Not-for-profit!accounting!
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2. Which!of!the!following!is!NOT!a!key!component!of!the!
definition!of!accounting?!
a. Financial!
b. Qualitative!
c. Useful!
d. Decision-oriented!
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Financial'Reporting'Frameworks'(LO!2)!
3. The! FRSC! issues! its! Standards! in! a! series! of!
pronouncements!called!PFRSs.!These!consist!of!
a. Philippine!Financial!Reporting!Standards!(PFRSs)!
b. Philippine!Accounting!Standards!(PASs)!
c. Philippine!Interpretations!
d. All!of!these!
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4. Applicable! financial! reporting! frameworks! in! the!
Philippines!include!
a. Philippine!Financial!Reporting!Standards!(PFRSs)!
b. PFRS!for!Small!and!Medium-sized!Entities!
c. PFRS!for!Small!Entities!
d. All!of!the!above.!
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5. Which!statement!is!incorrect!regarding!PFRSs?!
a. PFRSs!set!out!recognition,!measurement,!presentation!
and!disclosure!requirements!dealing!with!transactions!
and! events! that! are! important! in! general! purpose!
financial!statements.!
b. PFRSs! may! also! set! out! such! requirements! for!
transactions! and! events! that! arise! mainly! in! specific!
industries.!!
c. PFRSs!are!based!on!the!Conceptual!Framework,!which!
addresses! the! concepts! underlying! the! information!
presented!in!general!purpose!financial!statements.!!
d. PFRSs!are!designed!to!apply!to!not-for-profit!activities!
in!the!private!sector.!
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6. Which!of!the!following!is!false?!
a. Standards!approved!by!the!FRSC!include!paragraphs!in!
bold! type!and!plain! type,!which!have!equal!authority.!!
Paragraphs!in!bold!type!indicate!the!main!principles.!
b. Any!limitation!of!the!scope!of!a!PFRS!is!made!clear!in!
the!standard.!
c. New! standards! apply! from! a! date! specified! in! the!
document.!
d. New! standards,!as!set!out! transitional!provisions,!are!
usually!applied!prospectively.!
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7. What!is!the!status!of!IFRS!adoption!in!the!Philippines?!
a. The! FRSC! has! adopted! full! IFRS! Standards! as! PFRS!
without!modifications.!
b. The!FRSC!has!adopted!full!IFRS!Standards!as!PFRS!with!
several!major!modifications.!
c. The!FRSC!has!adopted!full!IFRS!Standards!as!SFAS!with!
several!limited!modifications.!
d. The!FRSC!has!adopted!full!IFRS!Standards!as!PFRS!with!
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several!limited!modifications.!
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8. Which! of! these! statements! regarding! the! IFRS! and! U.S.!
GAAP!is!correct?!
a. U.S.! GAAP! is! considered! to! be! "principles-based"! and!
more!detailed!than!IFRS.!
b. U.S.! GAAP! is! considered! to! be! "rules-based"! and! less!
detailed!than!IFRS.!
c. Both!U.S.!GAAP!and!IFRS!are!considered!to!be!"rulesbased",!but!U.S.!GAAP!tends!to!be!more!complex.!
d. IFRS! is! considered! to! be! "principles-based"! and! less!
detailed!than!U.S.!GAAP!
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9. The!Norwalk!Agreement!
a. Sets!forth!fundamental!objectives!and!concepts!used!in!
developing!future!standards!of!financial!reporting.!
b. Formalized! the! FASB’s! and! IASB’s! commitment! to!
convergence!of!U.S.!GAAP!and!international!standards.!
c. Facilitates! cross-border! cooperation,! reduces! global!
systemic!risk,!protects!investors,!and!ensures!fair!and!
efficient!markets.!
d. All! of! the! choices! are! correct! regarding! the! Norwalk!
Agreement.!
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10. The!perceived!benefits!associated!with!convergence!to!the!
international!accounting!standards!include!
a. For!companies,!reduced!costs!of!capital!and!the!ease!of!
using! one! consistent! reporting! standard! from!
subsidiaries!in!many!different!countries.!
b. For!investors,!better!information!for!decision-making,!
leading!to!broader!investment!opportunities.!
c. For!national!regulatory!bodies,!better!information!for!
market!participants!in!disclosure!based-system.!
d. All!of!the!above.!
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Standard-Setting,'Regulatory'and'Accountancy!Bodies'
(LO3)'
11. Which! is! the! accounting! standard! setting! body! in! the!
Philippines!at!the!present!time?!
a. Accounting!Standard!Council!
b. Auditing!and!Assurance!Standard!Council!
c. Philippine!Accounting!Standards!Board!!
d. Financial!Reporting!Standards!Council!
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12. The!FRSC!employs!a!"due!process"!system!in!issuing!PFRSs!
which!enables!interested!parties!to!express!their!views!on!
issues! under! consideration.! Which! of! the! following! is! the!
proper! order! of! the! due! process! for! the! development! of!
accounting!standards!followed!by!FRSC?!
(1) Consideration!of!pronouncements!of!the!IASB.!
(2) Formation!of!a!task!force,!when!deemed!necessary,!to!
give!advice!to!the!FRSC.!
(3) Issuing!for!comment!an!exposure!draft!approved!by!a!
majority!of!the!FRSC!members;!comment!period!will!be!
at!least!60!days,!unless!a!shorter!period!(not!less!than!
30!days)!is!considered!appropriate!by!the!FRSC.!
(4) Consideration! of! all! comments! received! within! the!
comment! period! and,! when! appropriate,! preparing! a!
comment!letter!to!the!IASB.!
(5) Approval! of! a! standard! or! an! interpretation! by! a!
majority!of!the!FRSC!members.!
(6) Submission!by!the!FRSC!of!the!new/amended!PFRS!to!
the!Professional!Regulation!Commission!(PRC)!through!
the!BOA!for!approval.!
(7) Approval!by!BOA/PRC.!
0(8) Publication! of! the! new! pronouncement! in! the! official!
gazette,!subject!to!availability!of!funds.!!
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