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Conceptual Framework and Accounting Standards What Are Financial Markets?

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CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS

INTRODUCTION

What Are Financial Markets?


Financial markets refer broadly to any marketplace where the trading of securities occurs,
including the stock market (equity/ investors), bond market (debt/ lenders), forex market (changes
in foreign currencies), and derivatives market (secondary securities whose value is solely based
(derived) on the value of the primary security that they are linked to), among others. Financial
markets are vital to the smooth operation of capitalist economies.

What is Financial Reporting?


Is the provision of financial information about an entity to external users that is useful to
them in making economic decisions and for assessing the effectiveness of the entity’s
management.

Means of Financial Reporting:

I. Financial Information

1. Principal – Annual Financial Statements


2. Other means:
a. Financial highlights
b. Summary of important financial figures
c. Analysis of financial statements and significant ratios

II. Nonfinancial information


1. Description of major products
2. Listing of corporate officers and directors

International Financial Reporting Standards

The IFRS Foundation is a not-for-profit, public interest organization with the following objective:
1. To develop a single set of high-quality, understandable, enforceable and globally accepted
accounting standards—IFRS Standards—and
2. To promote and facilitate adoption of the standards.

MISSION:
1. Bring Transparency
2. Strengthen Accountability
3. Contribute to economic Efficiency

International Accounting Standards Committee (IASC)


Is an independent private sector body formed in 1973, headquartered in London,
United Kingdom, with the objective of achieving uniformity in the accounting principles
which are used by business and other organizations for financial reporting around the
world. This committee published the International Accounting Standards or IAS.
Objectives:
1. To formulate and publish in the public interest accounting standards to be
observed in the presentation of financial statements and to promote their
worldwide acceptance and observance
2. To work generally for the improvement and harmonization of regulations,
accounting standards and procedures relating to the presentation of financial
statements

International Accounting Standards Board (IASB)


Replaces the IASC which publishes the International Financial Reporting
Standards (IFRS). The Board is an independent group of experts with an appropriate mix
of recent practical experience in setting accounting standards, in preparing, auditing, or
using financial reports, and in accounting education. Broad geographical diversity is also
required

Steps in the standard-setting process:

1. Agenda consultation
Every five years, the Board conducts a comprehensive review and consultation to define
international standard-setting priorities and develop its project work plan.

The Board can also add topics to its work plan if necessary between agenda consultations.
This can include topics following Post-implementation Reviews of Standards; the IFRS
Interpretations Committee may also request the Board review an issue.

2. Research programme
We begin most projects with research—explore the issues, identify possible solutions and
decide whether standard-setting is required. Often, we set out our ideas in a discussion
paper and seek public comment.

If we find sufficient evidence that an accounting problem exists, the problem is


sufficiently important to warrant changing a Standard or issuing a new one and a practical
solution can be found, we begin standard-setting.

3. Standard-setting programme
If the Board decides to amend a Standard or issue a new one, we generally review the
research, including comments on the discussion paper, and propose amendments or
Standards to resolve issues identified through research and consultation.

Proposals for a new Standard or an amendment to a Standard are published in an


exposure draft for public consultation. To gather additional evidence, members of the
Board and IFRS Foundation technical staff consult with a range of stakeholders from all
over the world.

The Board analyses feedback and refines proposals before the new Standard, or an
amendment to a Standard, is issued.

4. Maintenance programme
Our work doesn’t stop once a Standard is issued. We also support implementation of the
Standards and we make sure we maintain them.

This process includes consulting on the implementation of a new or amended Standard to


identify any implementation problems that may need to be addressed. If issues arise, the
IFRS Interpretations Committee may decide to create an IFRIC Interpretation of the
Standard or recommend a narrow-scope amendment. Such amendments follow the
Board's normal due process.

5. Post-implementation Reviews

After a new Standard has been in use for a few years, the Board carries out research
through a Post-implementation Review to assess whether the Standard is achieving its
objective and, if not, whether any amendments should be considered. As a result of the
Post-implementation Review, the Board may start a new research project. Find out more
about PIRs here.

IFRS Interpretations Committee


The IFRS Interpretations Committee (Interpretations Committee), formerly IFRIC,
is the interpretative body of the International Accounting Standards Board (Board). The
Interpretations Committee works with the Board in supporting the application of IFRS
Standards.

The Interpretations Committee responds to questions about the application of the


Standards and does other work at the request of the Board.

Financial Reporting Standards Council (FRSC):


The accounting standard setting body created by the Professional Regulation
Commission (PRC) upon recommendation of the Board of Accountancy (BOA) to assist
BOA in carrying out its powers and functions provided in RA 9298. This replaced the initial
standards council in the Philippines, which is the Accounting Standards Council (ASC)

Its main function is to establish and improve accounting standards that will be
generally accepted in the Philippines.

*Philippine Accounting Standards (PAS) and Philippine Financial Reporting Standards (PFRS)
are approved statements of the FRSC

FRSC members:
Chairman 1
Board of Accountancy (BOA) 1
Bangko Sentral ng Pilipinas (BSP) 1
Bureau of Internal Revenue (BIR) 1
Commission on Audit (COA) 1
Financial Executives Institute of the Philippines (FINEX) 1
Securities and Exchange Commission (SEC) 1
Accredited national professional organization of CPAs:
Pubic practice 2
Commerce and Industry 2
Academe or Education 2
Government 2
15

Philippine Interpretations Committee (PIC)


Formed by the FRSC in 2006 and replaced Interpretations Committee (IC) formed
by the ASC. Its role is to interpret Philippine Financial Reporting Standards (PFRS) for
approval by the FRSC and to provide timely guidance on financial reporting issues not
specifically addressed in the current PFRS.

How is the profession of Certified Public Accountants (CPAs) regulated?


Republic Act 9298 aka Philippine Accountancy Act of 2004 stipulates that the BOA,
which the body authorized to promulgate rules and regulations affecting the practice of
the accountancy profession and operates under the supervision of the PRC.

Scope of practice of CPAs


1. Public Practice 3. Government Accounting
2. Commerce and Industry (Private 4. Academe/ Education
Accounting)

Board of Accountancy (BOA)


Is responsible for preparing and grading the Philippine CPA examination and
conducted twice a year every May and October.

Who are qualified to practice the profession (public accountancy)?


1. Candidates must pass the licensure exam
Requirements:
a. Filipino citizen
b. Of good moral character
c. Holder of Bachelor of Science in Accountancy conferred by a school,
college, academy or institute duly recognized and/ or accredited by the
Commission on Higher Education (CHED).
d. Not been convicted of any criminal offense

2. Must be a member of the Philippine Institute of Certified Public Accountants


(PICPA), the accredited national organization of CPAs in the Philippines.

3. Candidates must complete 3 years meaningful experience to receive the BOA


Certificate of Registration.

4. Registration with the BOA and receive a Certificate of Registration therefrom. BOA
and PRC shall then issue a professional identification card.
5. CPAs in Public Practice (External Auditors) must renew their Certificate of
Accreditation and professional identification card every 3 years with the BOA and
PRC and comply with continuing professional development (CPD) requirements
(at 120 CPD Units)**

*CPA of at least 65 years of age is exempt from CPD requirements insofar as renewing the CPA
licence
**No corporation is allowed by the SEC to practice public accountancy

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)


Represents accounting rules, procedures, practices and standards followed in the
preparation and presentation of financial statements, These are similar to laws that must be
followed in financial reporting.

PURPOSE OF ACCOUNTING STANDARDS


1. Overall purpose is to identify proper accounting practices for the preparation and
presentation of financial statements
2. Create a common understanding between preparers and users of financial
statements
3. A set of high quality standards is a necessity to ensure comparability and uniformity
in financial statements based on the same financial information.

Why the Philippines adopted the IFRS?


In the past years, most of the Philippines standards issued are based on the American
accounting standards however, the adopting IFRS is essential to achieve the goal of one uniform
and globally accepted financial reporting standards. The Philippines is fully compliant with
IFRS effective January 2005.

Factors considered in deciding to move totally to IFRS


1. Support of international accounting standards by Philippine organizations, such as the
SEC, BOA and PICPA
2. Increasing internalization of business which has heightened interest in a common
language for financial reporting
3. Improvement of international accounting standards or removal of free choices of
accounting treatments
4. Increasing recognition of international accounting standards by the World Bank, Asian
Development Bank and World Trade Organization

Philippine Financial Reporting Standards (PFRS) includes all of the following:


1. PFRS which correspond to IFRS
2. Philippine Accounting Standards (PAS) correspond to International Accounting Standards
(IAS)
3. Philippine Interpretations which correspond to Interpretations of the IFRIC and the
Standing Interpretations Committee, and Interpretations developed by the Philippine
Interpretations Committee
References:
Securities and Exchange Commission, SRC Rule 68_12/2019
International Financial Reporting Standards (IFRS)
International Federation of Accountants (IFAC)
Journal of accountancy
Inc Business Magazine

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