1ST IAAP IFRS SSS

Four sectors in the practice of accountancy

Under R.A. 9298 also known as the "Philippine Accountancy Act of 2004," the practice of accounting is sub-classified into the following:

1. Practice of Public Accountancy - involves the rendering of audit or accounting related services to more than one client on a fee basis.

a position which involves decision making requiring professional knowledge in the science of accounting and such position requires that the holder thereof must be a certified public accountant.

Practice in Education/Academe - employment in an educational institution which involves teaching of accounting auditing, management advisory services, finance, business law, taxation, and other technically related subjects.

Practice in the Government - employment or appointment to a position in an accounting professional group in the government or in a government-owned and/or controlled corporation, including those performing proprietary functions, where decision making requires professional knowledge in the science of accounting, or where civil service eligibility as a certified public accountant is a prerequisite.

Accountants practicing under numbers 2 to 4 above are

considered in private practice.

Philippine Financial Reporting Standards (PFRSs)

The Philippine Financial Reporting Standards (PFRSs) are Standards adopted by the Financial and Sustainability Reporting Standards Council (FSRSC), the official accounting standard-setting body in the Philippines, from the International Financial Reporting Standards (IFRSs). The IFSs consist of the following:

a. IFRS Accounting Standards;

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International Financial Reporting Standards (IFRSs);

International Accounting Standards (IASs); and Interpretations

b. IERS for SMEs Accounting Standard; and

c. IFRS Sustainability Disclosure Standards Accounting

The IFRS Accounting Standards and the IRS for SMEs are issued by the International Accounting Standards Board (IASB), while the IFRS Sustainability Disclosure Standards are issued by the International Sustainability Standards Board (ISSB).

The PFRSs are patterned from the IRSs. Each International standard has a Philippine counterpart. This means that the standards used here in the Philippines are similar to those used in other countries worldwide.

Most of the discussions in this book are based on the PFRS

Accounting Standards.

The last chapter discusses the PFRS

Sustainability Disclosure Standards. The PFRS for SMEs Accounting Standard is discussed in other books (i.e., Intermediate and Advanced Accounting books).

In our discussions, we will be using the terms "PFRSs" and "Standards" to refer to the PFRS Accounting Standards, which represent the generally accepted accounting principles (GAAP) in the Philippines. We will be using the complete description of PFRS Sustainability Disclosure Standards to refer to the sustainability disclosure standards.

The PERS Accounting Standards consist of the following:

a. Philippine Financial Reporting Standards (PFRSs);

b. Philippine Accounting Standards (PASs); and

c. Interpretations

The PFRSs are accompanied by guidance to assist entities in applying their requirements. A guidance states whether it is an integral part of the PFRSs. A guidance that is an integral part of the PFRSs is mandatory.

The need for reporting standards

For financial statements to be useful, they should be prepared. using reporting standards that are generally acceptablea.

Otherwise, each entity would have to develop its own standards.

If that is the case, every entity may just present any asset or income it wants and omit any liability or expense it does not want.

Financial statements would not be comparable, the risk of 20

fraudulent reporting is heightened, and economic decisions based on these financial statements would be grossly incorrect. For this reason, entities should follow a uniform set of reporting standards when preparing and presenting financial statements.

(a) The term "generally acceptable" means that either:

1. the standard has been established by an authoritative accounting rule-making body, e.g., the PFRSs adopted by the FSRSC; or

the principle has gained general acceptance due to practice over time and has been proven to be most useful, eg., double. entry recording and other implicit concepts.

The process of establishing financial accounting standards is a democratic process in that a majority of practicing accountants must agree with a standard before it becomes implemented.

Hierarch of Reporting Standards

When selecting its accounting policies, an entity considers the following in descending order:

1. PFRS Accounting Standards

In the absence of a PFRS that specifically applies to a transaction or event, management shall use its judgment in developing and applying an accounting policy that results in information that is relevant and reliable.

In making the judgment,

1. management shall refer to, and consider the applicability of, the following sources in descending order: a.

related issues;

The requirements in PFRSs dealing with similar and

b. The Conceptual Framework.

2. management may also consider the following:

a. Pronouncements of other standard-setting bodies

(PAS 8.7 - 12)

b. Accounting literature and accepted industry practices

"may" means it is optional or 'may or may not'.

I The tem "shall as used in the PFRSs means' must or it is required, while the term. Although the selection of appropriate accounting policies is the responsibility of the entity's management, the proper application of accounting principles is most dependent upon the professional judgment of the accountant.

Accounting

standard setting bodies and other relevant

organizations

Financial and Sustainability Reporting Standards Council

(FSRSC) - is the official accounting standard setting body in the Philippines created under the Philippine Accountancy Act of 2004 (R.A. No. 9298). The FSRSC consists of a chairman and members who are appointed by the BOA and include representatives from the BOA, SEC, BSP, BIR, Insurance Commission (IC), Commission on Audit (COA), Financial Executives Institute of the Philippines (FINEX), and Philippine Institute of Certified Public Accountants (PICPA).

Philippine Interpretations Committee (PIC) - is a committee formed by the Accounting Standards Council (ASC), the predecessor. of FSRSC, with the role of reviewing the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) for approval and adoption by the FSRSC.

Board of Accountancy (BOA) - is the professional regulatory board created under R.A. No. 9298 to supervise the registration, licensure and practice of accountancy in the Philippines. The BOA consists of a chairperson and six (6) members appointed by the President of the Philippines. The Board shall elect a vice-chairperson from among its members for a term of one (1) year.

4. Securities and Exchange Commission (SEC) - is the goverment agency tasked in regulating corporations and partnerships,

capital and investment markets, and the

investing public. Some SEC rulings affect the accounting requirements of entities and the adoption and application of accounting policies. 5. Bureau of Internal Revenue (BIR) - administers the provisions of the National Internal Revenue Code. These provisions do not always reflect the goals of financial reporting. However, they do at times influence the choice of accounting methods and procedures.

Bangko Sentral ng Pilipinas (BSP) - influences the selection and application of accounting policies by banks and other entities performing banking functions.

7. Cooperative Development Authority (CDA) - influences the selection and application of accounting policies by cooperatives.

Accounting policies prescribed by a regulatory body (eg, BSP, CDA) are sometimes referred to as regulatory accounting

principles.

International Accounting Standards

The International Accounting Standards Board (IASB) is the accounting standard-setting body of the IRS Foundation with the main objectives of developing and promoting global accounting standards.

The IASB was established in April 1, 2001 as part of the

International

Accounting

Standards Committee (LASC

Foundation. The IASC Foundation is a non-profit organization based in Delaware, USA and is the parent of the IASB, which is based in London. On July 1, 2010, the IASC Foundation was renamed to International Financial Reporting Standards Foundation or IFRS Foundation.

The IRS Accounting Standards issued by the IASB are composed of the (1) International Financial Reporting Standards

(IFRS); (2) International Accounting Standards (IASs) and Interpretations. The IRSs are the standards issued by thể IASB after it replaced its predecessor, the International Accounting Standards Committee (IASC), in April 1, 2001., The IASs were originally issued by the IASC but adopted by the IASB. The PFRS The future of IFRSs

A significant milestone towards achieving the goal of having one set of global standards was reached in October 2002 when the

FASB and the LASB entered into a memorandum of understanding called the "Norwalk Agreement."

In this Agreement, the FASB and the IASB formalized their commitment to the convergence of U.S. GAAP and IFSs by agreeing to use their best efforts to:

a make their existing financial reporting standards fully compatible as soon as practicable, i.e., minimize differences, and

b. coordinate their future work programs to ensure that once achieved, compatibility is maintained.

Since the publication of the Norwalk Agreement, the IASB and FASB have been working together with the common goal of producing a single set of global accounting standards. "In a public statement issued in January 2017, the outgoing (US) SEC Chair