IFRS vs PFRS A Research on Similarities and Differences of Philippine Financial reporting Standard (PFRS) and International Financial Reporting

Standards (IFRS)

In partial fulfillment of the requirements for:

Accounting Synthesis

Submitted to: Mr. Ferdinand C. Importado, CPA,MBA College of Accountancy Dr. Yangas Colleges, Inc.

Submitted by:

Dalmacio, Arianne Andres, Rachelle Dela Cruz, Denisse Morris, Ma. Rodessa

IFRS vs PFRS

Abstract Financial Reporting Standards, with adoption of international standards, sets a globally acceptable standards just like what happened when Philippine Financial Reporting Standards (PFRS) adopted International Financial reporting Standards. In the process of adoption or transition, some standards from IFRS are retained while others are amended to suite the local scene. Both IFRS and PFRS are statements issued by newly created board/council, which is the International Accounting Standards Board (IASB), formerly International Accounting Standards Council (IASC) and Financial reporting Standards Council (FRSC), formerly Accounting Standard Council (ASC). Generally, almost all standards or rules from the IFRS are adopted by the local standards, but some areas included in the so called Transition relief contains the amendments applied and approved to be practiced here in the Philippines.

IFRS vs PFRS Introduction

Standard is something considered by an authority or by general consent as a basis of comparison. It is use to make life safer, healthier and easier for people, organization and enterprises. It reduces time, effort and money and provides best practice guidance to assess processes to increase proficiency. It is a reliable benchmark wherein performance can be judge. Financial reporting standards, based on the definition of standards, are use as a model or benchmark in rendering a formal account or statement describing in detail an event or financial transactions. There are different International Standards emerged and still developing to fill the diverse needs of the public. These international standards are use either by direct application or through modifications to suit the local condition, which overcome technical barriers in international commerce. Philippines own Financial Reporting standards is governed by Philippine financial reporting standard (PFRS) which is one of the statements issued by the Accounting Standards Council(ASC) ,now known as the Financial Reporting Standards Council (FRSC). This reporting standard is base on its international counterpart, the Internatinal Financial Reporting Standard (IFRS). It was establishes by International Accounting Stndards Board (IASB). It is also the basis of almost all financial reporting standards all over the world, which is in line of its goal of achieving one uniform and globally accepted financial reporting standards. The purpose of this study is to provide data regarding the similarities and differences in the application and components of IFRS and PFRS.

IFRS vs PFRS IFRS vs PFRS

History and Background International Financial Reporting Standards (IFRS) International Financial Reporting Standards (IFRS) are principles-based Standards, Interpretations and the Framework (1989), adopted by the International Accounting Standards Board (IASB). Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). The Board of the International (IASC) issued IAS guidelines between 1973 and 2001. On 1 April 2001, the new IASB took over from the IASC the responsibility for setting International Accounting Standards. During its first meeting, the new Board adopted existing IAS. The IASB has continued to develop standards calling the new standards IFRS. The Framework for the Preparation and Presentation of Financial Statements states basic principles for IFRS. The IASB and FASB Frameworks are in the process of being update and converged. The Joint Conceptual Framework project aims to update and refine the existing concepts to reflect the changes in markets, business practices and the economic environment that have occurred in the two or more decades since the concepts were first developed. Its overall objective is to create a sound foundation for future accounting standards that are principlesbased, internally consistent and internationally converged. Therefore, the IASB and the US FASB (the boards) are undertaking the project jointly.

IFRS vs PFRS Philippine Financial reporting Standard (PFRS) In the Philippines, the development of generally accepted accounting principles is formalized initially through the creation of the Accounting Standards Council (ASC). The

accounting standards promulgated by the Accounting Standards Council constitute the generally accepted accounting principles in the Philippines. The approved statements of the ASC are called previously as Statement of Financial Accounting Standards (SFAS). These ASC Statements of Financial Accounting Standards are now known as Philippine Accounting Standards (PAS) and Philippine Financial Reporting Standards (PFRS). The overall purpose of accounting standards is to identify proper accouting practices for the preparation and presentation of financial statements. Financial reporting Standards Council (FRSC) is the accounting standard setting body created by the Professional Regulation Commission upon recommendation of the Board of ACcountancy (BOA) to assist the BOA in carrying out its powers and functions provided under R.A Act No. 9298. Statements issued by the ASC, now known as FRSC, creates a common understanding between preparers and users of financial statements particularly on how items, for example the valuation of assets, are treated. The following are the list of standards for both IFRS and PFRS IFRS 1 First time Adoption of International Financial Reporting Standards PFRS 1 First-time Adoption of Philippine Financial Reporting Standards

IFRS vs PFRS IFRS 2 IFRS 3 IFRS 4 IFRS 5 IFRS 6 IFRS 7 IFRS 8 IFRS 9 IFRS 10 IFRS 11 IFRS 12 IFRS 13 Share-based Payment Business Combinations Insurance Contracts Non-current Assets Held for Sale and Discontinued Operations Exploration for and Evaluation of Mineral Resources Financial Instruments: Disclosures Operating Segments Financial Instruments Consolidated Financial Statements Joint Arrangements Disclosure of Interests in Other Entities Fair Value Measurement PFRS 2 PFRS 3 PFRS 4 PFRS 5 PFRS 6 PFRS 7 PFRS 8 PFRS 9 PFRS 10 PFRS 11 PFRS 12 PFRS 13

6 Share Based Payment Business Combinations Insurance Contracts Non-current Assets Held for Sale and Discontinued Operations Exploration for and Evaluation of Mineral Resources Financial Instruments: Disclosures Operating Segments Financial Instruments Consolidated Financial Statements Joint Arrangements Disclosure of Interests in Other Entities Fair Value Measurement

The Philippines Financial Reporting Standards Council (PFRSC) has adopted most IFRSs, in some cases with modifications, and in some cases the most recent amendments to IFRSs have not been adopted. These standards are known as Philippine Financial Reporting Standards (PFRSs) and Philippine Accounting Standards (PASs). Philippine standards apply to all entities with public accountability. That includes:

entities whose securities are listed in a public market or are in process of listing; all financial institutions including banks, insurance companies, security brokers, pension

funds, mutual funds, and investment banking entities;

public utilities; and other economically significant entities, defined as total assets in 2004 of at least 250

million pesos (US$5 million) or liabilities of at least 150 million (US$3 million).

IFRS vs PFRS The modifications, which have been described as 'transition relief' (use to reduce the effect of passing from one form to another), include some in the following areas:

Reduced segment reporting disclosures Exemption from applying tainting rule for a specific set of financial instruments Commodity derivative contracts of mining companies as of 1 January 2005

'grandfathered'

Insurance companies allowed to use another comprehensive set of accounting principles

(also described as Philippine Financial Reporting Standards)

For banks, losses from sale of non-performing assets allowed to be amortized over a

period of time

Some additional changes to IASB's pension, foreign exchange, and leases Standards

The auditor's report refers to "conformity with Philippine Financial Reporting Standards".

The following are the major difference/exemptions between locally adopted IFRS (or PFRS) and IFRS, some are based on the areas mentioned in the transition relief:

On initial adoption of PFRS, an entity can opt to defer the recognition of the transitional liability under PAS 19 for a period of up to five years.

Transition relief was given to all reporting entities with respect to the presentation of comparative information for the new risk disclosures about the nature and extent of risks arising from financial instruments required under PFRS 7, upon initial adoption in

IFRS vs PFRS January 1, 2007, unless the disclosure was previously required under PAS/IAS 30 or PAS/IAS 32.

For pre-need companies, the accounting standards for pre-need plans and pre-

need uniform chart of accounts as approved by the SEC are considered as the financial reporting framework. The Philippine Securities and Exchange Commission in its meeting on March 1, 2007 issued a notice that resolved that pending finalisation of the revised Pre-Need Uniform Chart of Accounts (PNUCA) and the acceptable accounting standards for the pre-need companies For insurance companies, the deferral of application of PAS 32 and 39 and PFRS 4 was allowed until January 1, 2006. For Philippine financial reporting purposes, IFRIC 15 is only effective for annual periods beginning on or after January 1, 2012. The FRSC decided to require mandatory application of the Interpretation in 2012 to allow entities, engaged in real estate business, time to prepare for the implementation of the Interpretation. Entities are allowed to apply the percentage of completion method from the sales of property under pre-completion contracts in accordance with Philippine Interpretation Committee (PIC) Q&A No. 200601 until the effectiveness of IFRIC 15. For trust fund assets, the valuation provisions of PAS 39 and PAS 40 effective as of January 1, 2005 shall be used beginning with the December 31, 2005 annual financial statements. Reports prepared for interim periods during the initial year of adoption are exempt from the application of the valuation provisions of PAS 39 and PAS 40. Under Philippine Accounting Standards (PAS) 27, other financial reporting standards that are converged or virtually converged with IFRS are deemed acceptable in applying the

IFRS vs PFRS provisions of PAS 27.10d on the exemption from the preparation of consolidated financial statements (PIC Q&A 2006-02). The Philippine Interpretations Committee (PIC) has approved Questions and Answers (Q&As) on revenue recognition for sales of property units under pre-completion contracts and clarification of the criteria for exemption from presenting consolidated financial statements. The Q&As have been approved for issuance by the Philippine Financial Reporting Standards Council (FRSC). Q&A No. 2006-01: PAS 18, Appendix, paragraph 9 Revenue recognition for sales of

property units under pre-completion contracts This Q&A allows the use of the percentage of completion (POC) method in accounting for revenues related to pre-completion contracts on the basis of the transfer of equitable interest to the buyer as provided in the appendix to PAS 18 Revenue. The Q&A also lists conditions that must be met for the use of the POC method. Q&A No. 2006-02: PAS 27.10(d) Clarification of criteria for exemption from presenting consolidated financial statements PAS 27 Consolidated and Separate Financial Statements specifies the criteria to be met in order that a parent company need not present consolidated financial statements. This Q&A clarifies the following criteria for purposes of that exemption: (a) when consolidated financial statements are considered 'available for public use' (for example, when these are posted in websites) (b) financial reporting framework of other countries considered acceptable for purposes of the exemption (e.g., those that are converged or virtually converged with IFRS or are conceptually similar to IFRS). Exemption from the tainting provision under PAS 39 for certain transactions such as the exchange of Benchmark Bonds and investment in foreign currency denominated National Government/Bangko Sentral ng Pilipinas bonds/debt securities.

IFRS vs PFRS For mining companies, transitional relief from the application of PAS 39 on hedging

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contracts entered into and effective prior to January 1, 2005 but outstanding as of January 1, 2006 was granted. Under the approved transitional relief, certain commodity derivative contracts of mining companies shall be 'grandfathered' and exempted from the fair value requirements of PAS 39. The said approval shall be subject to the following conditions: 1. Derivative contracts of mining companies shall qualify for exemption from PAS 39 if all the following requirements are met: a. Commodity derivative contracts entered into and effective prior to 1 January 2005; b. Commodity derivative contracts with original maturity of more than 1 year; and c. Commodity derivative contracts that would have qualified under PAS 39 hedge accounting rules had these been applied at inception of such contracts. 2. Mining companies availing of the transitional relief from PAS 39 shall apply the same to all such contracts outstanding as of 1 January 2006 on a retrospectively basis. Applying such exemption only to selected transactions shall not be permitted. The companies will have to decide either to apply such exemption to all or none of its qualified contracts. 3. Mining companies shall make an irrevocable choice to avail of the exemption by a written notice to the Philippine SEC on or before 29 December 2006. A mining company availing of the exemption shall nonetheless indicate in the notes to financial statements the following:

IFRS vs PFRS a. the fact that it availed of such exemption;

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b. the applicable disclosures required by PAS 32 (Financial Instruments: Disclosure and Presentation) and its forthcoming amendments embodied in Philippine Financial Reporting Standard (PFRS) 7 Financial Instruments: Disclosures, which is effective for annual reporting periods beginning on or after 1 January 2007; and c. a presentation of the quantitative impact on retained earnings and net income for the reporting periods covered, had the subject derivatives not been exempted from PAS 39 and accounted for under non-hedge treatment. For listed companies, relief was granted in the preparation of interim financial statements in 2005 as the more complex PFRS will be applied for the first time. After this first time application, the rules on interim financial reporting shall take effect on January 1, 2006. The amendments to PAS 39 differ from the amendments to IAS 39 which uses a November 1, 2008 "cut-off date". Since the FRSC only adopted the amendments on October 29, 2008, the Council decided to change the "cut-off date" for Philippine financial reporting purposes to November 15, 2008. The November 15, 2008 "cut-off date" approximates the period between October 13, 2008, the date when IASB amendments were issued, and November 1, 2008. For Philippine financial reporting purposes, IFRIC 15 is only effective for annual periods beginning on or after January 1, 2012. The FRSC decided to require mandatory application of the Interpretation in 2012 to allow entities, engaged in real estate business, time to prepare for the implementation of the Interpretation. Entities are allowed to apply

IFRS vs PFRS the percentage of completion method from the sales of property under pre-completion

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contracts in accordance with Philippine Interpretation Committee (PIC) Q&A No. 200601 until the effectiveness of IFRIC 15. PAS 20 is consistent with IAS 20 in all material respect, except for the accounting for government loans with low interest rates. PIC Q&A 2007-02 issued three alternative accounting methods. For qualified Non-Publicly Accountable Entities (NPAEs) in which conversion to full PFRS is optional under Philippine Accounting Standard No. 101 (PAS 101), Financial Reporting Standards for Non-publicly Accountable Entities, until such standard is superseded, provided they will apply all PAS/IAS which are effective in the Philippines as of January 1, 2004. However, this was revoked upon the adoption of PFRS for Small and Medium Entities (SMEs).The FRSC has also approved an amendment to PAS 101, Financial Reporting Standards for Non-Publicly Accountable Entities - Change in Effective Date. The effective date of the standard for 2005 to 2007 has been deleted. When PAS 101 was approved in October 2005, it was expected that the IASB, based on its project timetable at that time, would issue an exposure draft on accounting by NPAEs in March 2006 and the final standard in 2007. Accordingly, PAS 101 was made effective for 2005 to 2007, unless revoked earlier. A draft standard for NPAEs, now referred to as small and medium-sized entities (SMEs), was recently issued by the IASB, with a final standard in mid-2008. For qualified Non-Publicly Accountable Entities (NPAEs), conversion to full PFRS is optional under Philippine Accounting Standard No. 101 provided they will apply all

IFRS vs PFRS

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PAS/IAS which are effective in the Philippines as of January 1, 2004. However, this was revoked upon the adoption of PFRS for Small and Medium Entities effective January 1, 2010 (see related discussions below). The Philippine SEC has adopted PFRS for SMEs, which is based on the IFRS for SMEs issued by the IASB. PFRS for SMEs is effective for certain companies qualified as SMEs for annual periods beginning on or after January 1, 2010, except for the guidance in applying the requirement of Section 23 (Revenue) in recognizing revenue from agreement for construction of real estate which shall take effect for periods beginning on or after January 1, 2012. Early adoption for financial statements as of December 31, 2009 is permitted. Small and Medium-sized Entities The IFRS for SMEs was adopted in the Philippines effective 1 January 2010. It is known as the Philippine Financial Reporting Standard for SMEs (PFRS for SMEs). The Philippine Securities and Exchange Commission, in its En Banc Resolution dated August 13, 2009, adopted a definition of 'small and medium-sized entities' that includes a size criterion. An entity is an SME if: 1. The entity has total assets of between P3 million and P350 million or total liabilities of between P3 million and P250 million; 2. It is not required to file financial statements under SRC Rule 68.1; 3. It is not in the process of filing its financial statements for the purpose of issuing any class of instruments in a public market;

IFRS vs PFRS

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4. It is not a holder of a secondary license issued by a regulatory agency, such as a bank (all types of banks), an investment house, a finance company, an insurance company, a securities broker/dealer, a mutual fund and a pre-need company; and 5. It is not a public utility. Entities below those thresholds (so-called 'micro entities') may use the PFRS for SMEs or 'another acceptable basis of accounting'. For qualified SMEs, full conversion to PFRS for SMEs is mandatory for all financial statements for annual periods beginning on or after January 1, 2010 except when the entity meets any of the following criteria: a. It is a subsidiary of a parent company reporting under the full PFRS; b. It is a subsidiary of a foreign parent company that will be moving towards IFRS pursuant to the foreign countrys published convergence plan; c. It is a subsidiary of a foreign parent company that has been applying the standards for a nonpublicly accountable entity for local reporting purposes, and is considering moving to full PFRS instead of the PFRS for SMEs in order to align its policies with the expected move to full IFRS by its foreign parent company pursuant to its countrys published convergence plan; d. It has short-term projections that show that it will breach the quantitative thresholds set in the criteria for an SME, and the breach is expected to be significant and continuing due to its long-term effect on the companys asset or liability size; e. It is part of a group, either as a significant joint venture or an associate, that is reporting under the full PFRS;

IFRS vs PFRS f. It is a branch office of a foreign company reporting under the full IFRS; g. It has concrete plans to conduct an initial public offering within the next two (2) years; h. It has a subsidiary that is mandated to report under the full PFRS; and

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i. It has been preparing financial statements using full PFRS and has decided to liquidate its assets.

Conclusion

IFRS, as the basis of almost all the reporting standards in the world, is also adopted by the Philippines in the name and form of PFRS. PFRS adopted mostly the standards of IFRS with some modifications and amendments. With each standard titles, it is noticeable that the Philippines adopted the titles as is. Almost all standards by IFRS and PFRS are the same except from those called as transition reliefs, which are the modifications, made from the adoption of

IFRS vs PFRS IFRS locally. It can be concluded therefore, that some amendments recently declared by the

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IFRS is possibly not adopted by PFRS, and just based on the standards practicable from the date of the adoption and its effectivity.

References www.wikipedia.com www.iasplus.com