LECTURE NOTES

Financial Reporting Standards Council (FRSC) (b) Philippine Accounting Standards (PASs) [these
correspond to International Accounting Standards
Creation and Function (lASs)]; and
• Established by the Board of Accountancy (BOA) in 2006 (c) Philippine Interpretations [these correspond to
under the Implementing Rules and Regulations of the Interpretations of the International Financial Reporting
Philippine Accountancy of Act of 2004 to assist the Interpretations Committee (IFRIC) of the IASB and
Board in carrying out its power and function to the Standing Interpretations Committee (SIC) of the
promulgate accounting standards in the Philippines. IASC; these also include Interpretations developed by
the PIC.
• The FRSC's main function is to establish generally
accepted accounting principles in the Philippines. In Interpretations of PFRSs are intended to give authoritative
achieving this objective, the FRSC considers Standards guidance on issues that are likely to receive divergent or
issued by the IASB. unacceptable treatment, in the absence of such guidance.
• The FRSC is the successor of the Accounting Standards
Council (ASC), which was created in November 1981 by
the Philippine Institute of Certified Public Accountants Philippine Interpretations Committee
(PICPA) to establish generally accepted accounting
principles in the Philippines. The FRSC formed the Philippine Interpretations Committee
(PIC) in August 2006 to assist the FRSC in establishing and
The FRSC Composition improving financial reporting standards in the Philippines.
The role of the PIC is principally to issue implementation
The FRSC is composed of a chairman, who had been or guidance on PFRSs. The PIC members were appointed by
presently a senior accounting practitioner in any scope of the FRSC and include accountants in public practice, the
accounting practice, and 14 representatives from: academe and regulatory bodies and users of financial
• Board of Accountancy - 1 statements. The PIC replaced the Interpretations
• Securities and Exchange Commission - 1 Committee created by the ASC in 2000.
• Bangko Sentral ng Pilipinas - 1
• Bureau of Internal revenue - 1
• Commission on Audit - 1 Preface to Philippine Financial Reporting Standards
• A major organization of preparers and users of financial
statements (currently, FINEX) The Preface to Philippine Financial Reporting Standards
• Accredited national professional organization (APO) of sets out the objectives and due process of the FRSC and
CPAS (currently, PICPA): explains the scope, authority and timing of application of
Public Practice - 2 PFRSs.
Commerce and Industry - 2
Academe or Education - 2 The PFRSs
Government - 2
• PFRSs set out recognition, measurement, presentation
Appointment and Term of office and disclosure requirements dealing with transactions
and events that are important in general purpose
The Chairman and members of the FRSC are appointed by financial statements.
the PRC upon the recommendation of the BOA in • They may also set out such requirements for
coordination with the APO. transactions and events that arise mainly in specific
industries.
All members of the Financial Reporting Standards Council • PFRSs are based on the Framework, which addresses
(FRSC) including the chairman shall have a term of 3 years the concepts underlying the information presented in
and is renewable for another term. general purpose financial statements.
• The objective of the Framework is to facilitate the
Consideration of IFRSs issued by IASB consistent and logical formulation of PFRSs and it
provides a basis for the use of judgment in resolving
The FRSC monitors the technical activities of the IASB and accounting issues.
issues Invitations to Comment on exposure drafts of
proposed IFRSs as these are issued by the IASB. When
finalized, these are issued as Philippine Financial Reporting
Standards (PFRSs). The FRSC similarly monitors issuances
of the international Financial Reporting Interpretations
Committee (IFRIC) of the IASB, which it adopts as
Philippine Interpretations.

The FRSC issues news releases to announce the issuance

The FRSC issues its Standards in a series of

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Scope of the PFRSs Due Process

• PFRSs are designed to apply to the general purpose PFRSs are developed through a due process that involves
financial statements and other financial reporting of all members of PICPA, financial executives, regulatory
profit-oriented entities. Profit-oriented entities include authorities, academics and other interested individuals
those engaged in commercial, industrial, financial and and organizations. Due process for projects normally, but
similar activities, whether organized in corporate or in not necessarily involve the following steps:
other forms. They include organizations such as mutual (a) consideration of pronouncements of the IASB;
insurance companies and other mutual cooperative (b) formation of a task force, when deemed necessary, to
entities that provide dividends or other economic give advice to the FRSC;
benefits directly and proportionately to their owners, (c) issuing for comment an exposure draft approved by a
members or participants. Although PFRSs are not majority of the FRSC members; comment period will
designed to apply to not-for-profit activities in the be at least 60 days, unless a shorter period (not less
private sector, public sector or government, entities than 30 days) is considered appropriate by the FRSC;
with such activities may find them appropriate. (d) consideration of all comments received within the
comment period and, when appropriate, preparing a
• PFRSs apply to all general purpose financial statements. comment letter to the IASB; and
Such financial statements are directed towards the (e) approval of a standard or an interpretation by a
common information needs of a wide range of users, for majority of the FRSC members.
example, shareholders, creditors, employees and the
public, at large. The objective of financial statements is Timing of Application of PFRS
to provide information about the financial position,
performance and cash flows of an entity that is useful • PFRSs apply from a date specified in the document.
to those users in making economic decisions. New or revised PFRSs set out transitional provisions to
be applied on their initial application.
Accounting alternatives
• The FRSC has no general policy of exempting
• In some cases, PFRSs permit different treatments for transactions occurring before a specific date from the
given transactions and events. requirements of new PFRSs. When financial statements
• Usually, one treatment is identified as the 'benchmark are used to monitor compliance with contracts and
treatment' and the other as the 'allowed alternative agreements, a new PFRSs may have consequences that
treatment. were not foreseen when the contract or agreement was
• The financial statements of an entity may appropriately finalized. For example, covenants contained in banking
be described as being prepared in accordance with and loan agreements may impose limits on measures
PFRSs whether they use the benchmark treatment or shown in a borrower's financial statements. The FRSC
the allowed alternative treatment. believes the fact that financial reporting requirements
• The FRSC has reconsidered and will continue to evolve and change over time is well understood and
reconsider, those transactions and events for which would be known to the parties when they entered into
PFRSs permit a choice of accounting treatment with the the agreement. It is up to the parties to determine
objective of reducing the number of those choices. whether the agreement should be insulated from the
effects of a future PFRS, or, if not, the manner in which
Structure of the PFRSs it might be renegotiated to reflect changes in reporting
rather than changes in the underlying financial
• Standards approved by the FRSC include paragraphs in condition.
bold type and plain type, which have equal authority.
• Paragraphs in bold type indicate the main principles. • Exposure drafts are issued for comment and the
• An individual standard should be read in the context of proposals are subject to revision. Until the effective
the objective stated in that standard and the Preface to date of a PFRS, the requirements of any PFRS that
PFRS. would be affected by proposals in an exposure draft
• Any limitation of the scope of a PFRSs is made dear in remain in force.
the standard.
- done -

REVIEW QUESTIONS

1. Which statement is correct regarding the Financial 2. Which of the following is a characteristic of the
Reporting Standards Council (FRSC) Financial Reporting Standards Council (FRSC)?
a. Established by PICPA in 2006 under the a. Any member of the ASC shall be disqualified from
Implementing Rules and Regulations of the being appointed to the FRSC
Philippine Accountancy of Act of 2004. b. FRSC members are required to render service to
b. The main function is to establish generally the Council on a full-time basis.
accepted auditing standards in the Philippines. c. FRSC members serve without compensation for a
c. The Chairman and members of the FRSC are term of three years, which can be renewed for
appointed by the president of the Philippines upon another three-year periods.
the recommendation of the PRC in coordination d. FRSC members should be CPAs.
with the APO.
d. The FRSC is the successor of the Accounting 3. Financial Reporting Standards Council (FRSC) has
Standards Council (ASC) which was created in a. 14 members with a Chairman
November 1981 by the Philippine Institute of b. 15 members with a Chairman
Certified Public Accountants (PICPA). c. 16 members with a Chairman
d. 8 members with a Chairman

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4. The chairman of the FRSC should have been or 13. The FRSC employs a "due process" system which
presently a senior practitioner in a. Is an efficient system for collecting dues from
a. Public accountancy members.
b. Commerce and industry b. Enables interested parties to express their views
c. Academe on issues under consideration.
d. Any scope of accounting practice c. Identifies the accounting issues that are the most
important.
5. Which of the following government agency is not d. Requires that all accountants must receive a copy
represented in FRSC? of financial standards.
a. Bangko Sentral ng Pilipinas
b. Securities and Exchange Commission 14. Arrange in proper order the due process for projects of
c. Bureau of Internal Revenue FRSC:
d. Commission on Higher Education I. Issuing for comment an exposure draft approved
by a majority of the FRSC members; comment
6. Which of the following is represented in FRSC? period will be at least 60 days, unless a shorter
a. FINEX period (not less than 30 days) is considered
b. Bureau of Fisheries appropriate by the FRSC
c. Insurance Commission II. Consideration of pronouncements of the IASB
d. Commission on Higher Education III. Formation of a task force, when deemed
necessary, to give advice to the FRSC
7. Which of the following bodies is responsible for IV. Approval of a standard or an interpretation by a
reviewing accounting issues that are likely to receive majority of the FRSC members
divergent or unacceptable treatment in the absence of V. Consideration of all comments received within the
authoritative guidance, with a view to reaching comment period and, when appropriate, preparing
consensus as to appropriate accounting treatment? a comment letter to the IASB
a. Auditing and Assurance Standards Council (AASC) a. I, II, III, IV and V c. II, III, I, V and IV
b. Financial Reporting Standards Council (FRSC) b. III, II, I, V and IV d. II, III, V, I and IV
c. Philippine Interpretations Committee (PIC)
d. PICPA 15. Which is not part of the accounting standard-setting
process in the Philippines?
8. The PIC members were appointed by the ____ and a. Preparation of a draft of proposed Philippine
include accountants in public practice, the academe Financial Reporting Standards (PFRS) by a Task
and regulatory bodies and users of financial Force organized by the Chairman.
statements b. Exposure of the proposed draft for comments and
a. SEC c. BOA suggestion to PICPA members, FINEX members
b. PRC d. FRSC and other interested parties.
c. Approval of the final PFRS by the Profession
9. The pronouncements of FRSC provide the highest Regulation Commission.
authoritative pronouncements on accounting d. Publication in the Official Gazette or in newspaper
principles. The authority of these pronouncements of general circulation of the proposed draft.
rests upon
a. The rules and regulations of the SEC 16. Which statement is true about the IASB’s development
b. Its management and their internal accounting staff of IFRSs?
c. Their general acceptability a. The IASB gives precedence to the balance sheet
d. The integrity of the Council over Profit or Loss.
b. The IASB gives precedence to fair value accounting
10. The FRSC issues its Standards in a series of over amortized cost.
pronouncements called PFRSs. These consist of c. Both a and b.
a. PFRSs c. Philippine Interpretations d. Neither a nor b.
b. PASs d. All of these
17. Which of the following statements describes the effects
11. Which statement is incorrect regarding Philippine of adopting high-quality accounting standards?
Financial Reporting Standards (PFRSs)? a. Elimination of earnings management.
a. PFRSs set out recognition, measurement, b. Higher abnormal returns.
presentation and disclosure requirements dealing c. Less volatility of accounting numbers.
with transactions and events that are important in d. The adoption of high-quality accounting standards
general purpose financial statements. by countries with weak regulatory environments
b. PFRSs are designed to apply to the general will enable them to strengthen their capital
purpose financial statements and other financial markets.
reporting of all profit-oriented entities.
c. PFRSs are designed to apply to not-for-profit 18. Which of the following statements reflects one of the
activities in the private sector. benefits of adoption of International Financial
d. All of the above Reporting Standards (IFRS) by different countries?
a. Earnings management is eliminated.
12. Standards approved by the FRSC include paragraphs in b. Cost of capital is lower for firms.
bold type and plain type, which have equal authority. c. There are no economic consequences when firms
Paragraphs in bold type indicate the main principles. switch to IFRS from existing GAAP.
d. Volatility of earnings calculated using IFRS is zero.
Any limitation of the scope of a PFRS is made clear in
the standard.
a. True, True c. False, False
b. False, True d. True, False

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 19. Which is incorrect concerning the FRSC? 25. PFRSs approved by the FRSC include paragraphs in
a. The FRSC replaced the ASC as the standard setting bold type and plain text. In relation to the PFRS
body in the Philippines paragraphs in bold type, are the following
b. The FRSC is composed of 15 members with a statements true or false?
Chairman and 14 representatives from various (1) Bold-type paragraphs should be given greater
sectors authority than the paragraphs in plain text.
c. The Chairman and members of the FRSC shall (2) Bold-type paragraphs indicate the main principles
have a term of 3 years renewable for another term of the standard.
d. Any member of the ASC shall be disqualified from
Statement 1 Statement 2
being appointed to the FRSC
a. False True
b. True True
20. Which of the following is a characteristic of the
c. False False
FRSC?
d. True False
a. Majority of the FRSC members should come from
CPA firms
26. The period of exposing the draft of a proposed
b. All FRSC members must be CPAs
PFRS will be at least sixty (60) days, unless a
c. FRSC members are required to render service to
shorter period is considered appropriate by the
the Council on full-time basis
FRSC. The shorter period should be
d. All four sectors of the accountancy profession are
a. Not less than 30 days
represented in the FRSC
b. 30 days no more less
c. Less than 30 days
21. Which is correct concerning the FRSC?
d. More than 30 days but not exceed 59 days
a. The FRSC replaced the ASPC as the standard
setting body in the Philippines
27. Due process for projects of FRSC normally includes
b. The FRSC is composed of 15 members with a
the following, except
Chairman including 10 representatives from PICPA.
a. Consideration of pronouncement of the IASB.
c. The Chairman and members of the FRSC shall
b. Formation of a task force, when deemed
have a term of 3 years renewable for another
necessary, to give advice to the FRSC.
term.
c. Issuing for comment an exposure draft approved
d. Any member of the ASC shall be disqualified from
by at least eight members of the Council;
being appointed to the FRSC
comment period will be at least sixty days.
d. Approval of a standard or an interpretation by all
22. The role of the Philippine Interpretations
of the Council members.
Committee (PIC) is principally to issue
implementation guidance on PFRSs.
28. The process of establishing financial accounting
Interpretations of PFRSs are intended to give standards
authoritative guidance on issues that are likely to a. Is a democratic process in that a majority of
receive divergent or unacceptable treatment, in the practicing accountants must agree with a standard
absence of such guidance. before it becomes implemented.
a. True, True b. Is a legislative process based on rules promulgated
b. True, False by government agencies.
c. False, False c. Is based solely on economic analysis of the effects
d. False, True each standard will have if it is implemented.
d. Is a social process which incorporates political
23. What are the accounting principles commonly actions of various interested user groups as well as
known as? professional research and logic.
a. Standards
b. Methods 29. International Financial Reporting Standards
c. Rules (IFRSs) include:
d. Regulations a. Standards and Interpretations approved by the
IASB
24. Which statement is(are) correct regarding b. International Accounting Standards (IASs)
Philippine Financial Reporting Standards (PFRSs)? c. SIC Interpretations
a. PFRSs set out recognition, measurement, d. All of the above
presentation and disclosure requirements dealing
with transactions and events that are important in 30. The role of International Financial Reporting
general purpose financial statements. Standards (IFRS) and International Accounting
b. PFRSs are designed to apply to the special purpose Standards (IAS) is
financial statements and other financial reporting a. To reduce possible number of accounting
of all profit-oriented entities. differences
c. PFRSs are designed to apply to not-for-profit b. To produce globally recognized standards
activities in the private sector. c. Both of the above
d. All of the above d. Neither of the above

☺ - end of CFAS.101- ☺

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