Financial Reporting Standards Council Appointment and Term of office

(FRSC) The Chairman and members of the

FRSC are appointed by the PRC upon
Creation and Function the recommendation of the BOA in
 Established by the Board of coordination with the APO.
Accountancy (BOA) in 2006 under
the Implementing Rules and
All members of the Financial Reporting
Regulations of the Philippine
Accountancy of Act of 2004 to assist Standards Council (FRSC) including the
the Board in carrying out its power chairman shall have a term of 3 years
and function to promulgate and is renewable for another term.
accounting standards in the
Philippines.

 The FRSC's main function is to Consideration of IFRSs issued by IASB

establish generally accepted
The FRSC monitors the technical
accounting principles in the
Philippines. In achieving this activities of the IASB and issues
objective, the FRSC considers Invitations to Comment on exposure
Standards issued by the IASB. drafts of proposed IFRSs as these are
issued by the IASB. When finalized, these
 The FRSC is the successor of the are issued as Philippine Financial
Accounting Standards Council (ASC), Reporting Standards (PFRSs). The FRSC
which was created in November 1981 similarly monitors issuances of the
by the Philippine Institute of Certified
international Financial Reporting
Public Accountants (PICPA) to
establish generally accepted Interpretations Committee (IFRIC) of the
accounting principles in the IASB, which it adopts as Philippine
Philippines. Interpretations.

The FRSC Composition The FRSC issues news releases to

The FRSC is composed of a chairman, announce the issuance of final
who had been or presently a senior Standards and Interpretations, exposure
accounting practitioner in any scope of drafts and other matters which are
accounting practice, and 14 posted in the Philippine Accounting
representatives from: Standards section of the PICPA website
 Board of Accountancy - 1 (www.picpa.com.ph).
 Securities and Exchange Commission FRSC pronouncements
-1
 Bangko Sentral ng Pilipinas - 1
 Bureau of Internal revenue - 1 The FRSC issues its Standards in a series
 Commission on Audit - 1 of pronouncements called Philippine
 A major organization of preparers Financial Reporting Standards (PFRSs).
and users of financial statements These consist of
(currently, FINEX) (a) Philippine Financial Reporting
 Accredited national professional Standards (PFRSs) [these correspond
organization (APO) of CPAS
to International Financial Reporting
(currently, PICPA):
Public Practice - 2 Standards (IFRSs)];
Commerce and Industry - 2 (b) Philippine Accounting Standards
Academe or Education - 2 (PASs) [these correspond to
Government - 2 International Accounting Standards
(lASs)]; and

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(c) Philippine Interpretations [these
correspond to Interpretations of the
International Financial Reporting
Interpretations Committee (IFRIC) of
the IASB and the Standing
Interpretations Committee (SIC) of
the IASC; these also include
Interpretations developed by the
PIC.
Interpretations of PFRSs are intended to
give authoritative guidance on issues
that are likely to receive divergent or
unacceptable treatment, in the
absence of such guidance.
Philippine Interpretations Committee
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 were appointed by the
FRSC and include accountants in public
practice, the academe and regulatory
bodies and users of financial
statements. The PIC replaced the
Interpretations Committee created by
the ASC in 2000.
Preface to Philippine Financial Reporting
Standards
The Preface to Philippine Financial
Reporting Standards sets out the
objectives and due process of the FRSC
and explains the scope, authority and
timing of application of PFRSs.
The PFRSs
 PFRSs set out recognition,
measurement, presentation and
disclosure requirements dealing with
transactions and events that are
important in general purpose
financial statements.
 They may also set out such
requirements for transactions and
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events that arise mainly in specific
industries.
 PFRSs are based on the Framework,
which addresses the concepts
underlying the information presented
in general purpose financial
statements.
 The objective of the Framework is to
facilitate the consistent and logical
formulation of PFRSs and it provides a
basis for the use of judgment in
resolving accounting issues.
Scope of the PFRSs
 PFRSs are designed to apply to the
general purpose financial statements
and other financial reporting of all
profit-oriented entities. Profit-oriented
entities include those engaged in
commercial, industrial, financial and
similar activities, whether organized in
corporate or in other forms. They
include organizations such as mutual
insurance companies and other
mutual cooperative entities that
provide dividends or other economic
benefits directly and proportionately
to their owners, members or
participants. Although PFRSs are not
designed to apply to not-for-profit
activities in the private sector, public
sector or government, entities with
such activities may find them
appropriate.
 PFRSs apply to all general purpose
financial statements. Such financial
statements are directed towards the
common information needs of a wide
range of users, for example,
shareholders, creditors, employees
and the public, at large. The
objective of financial statements is to
provide information about the
financial position, performance and
cash flows of an entity that is useful to
those users in making economic
decisions.
Accounting alternatives
 In some cases, PFRSs permit different
treatments for given transactions and
events.
 Usually, one treatment is identified as
the 'benchmark treatment' and the
 other as the 'allowed alternative
treatment.
 The financial statements of an entity
may appropriately be described as
being prepared in accordance with
PFRSs whether they use the
benchmark treatment or the allowed
alternative treatment.
 The FRSC has reconsidered and will
continue to reconsider, those
transactions and events for which
PFRSs permit a choice of accounting
treatment with the objective of
reducing the number of those
choices.
Structure of the PFRSs
 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.
 An individual standard should be
read in the context of the objective
stated in that standard and the
Preface to PFRS.
 Any limitation of the scope of a PFRSs
is made dear in the standard.
Due Process
PFRSs are developed through a due
process that involves members of PICPA,
financial executives, regulatory
authorities, academics and other
interested individuals and organizations.
Due process for projects normally, but
not necessarily involve the following
steps:
(a) consideration of pronouncements
of the IASB;
(b) formation of a task force, when
deemed necessary, to give advice
to the FRSC;
(c) 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;
(d) consideration of all comments
received within the comment
period and, when appropriate,
preparing a comment letter to the
IASB; and
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(e) approval of a standard or an
interpretation by a majority of the
FRSC members.
Timing of Application of PFRS
 PFRSs apply from a date specified in
the document. New or revised PFRSs
set out transitional provisions to be
applied on their initial application.
 The FRSC has no general policy of
exempting transactions occurring
before a specific date from the
requirements of new PFRSs. When
financial statements are used to
monitor compliance with contracts
and agreements, a new PFRSs may
have consequences that were not
foreseen when the contract or
agreement was finalized. For
example, covenants contained in
banking and loan agreements may
impose limits on measures shown in a
borrower's financial statements. The
FRSC believes the fact that financial
reporting requirements evolve and
change over time is well understood
and would be known to the parties
when they entered into the
agreement. It is up to the parties to
determine whether the agreement
should be insulated from the effects
of a future PFRS, or, if not, the manner
in which it might be renegotiated to
reflect changes in reporting rather
than changes in the underlying
financial condition.
 Exposure drafts are issued for
comment and the proposals are
subject to revision. Until the effective
date of a PFRS, the requirements of
any PFRS that would be affected by
proposals in an exposure draft remain
in force.
- done -
REVIEW QUESTIONS
1. Which statement is correct regarding
the Financial Reporting Standards
Council (FRSC)
 a. Established by PICPA in 2006 6. Which of the following is represented
under the Implementing Rules in FRSC?
and Regulations of the Philippine a. FINEX
Accountancy of Act of 2004. b. Bureau of Fisheries
b. The main function is to establish c. Insurance Commission
generally accepted auditing d. Commission on Higher Education
standards in the Philippines.
c. The Chairman and members of 7. Which of the following bodies is
the FRSC are appointed by the responsible for reviewing accounting
president of the Philippines upon issues that are likely to receive
the recommendation of the PRC divergent or unacceptable
in coordination with the APO. treatment in the absence of
d. The FRSC is the successor of the authoritative guidance, with a view
Accounting Standards Council to reaching consensus as to
(ASC) which was created in appropriate accounting treatment?
November 1981 by the Philippine a. Auditing and Assurance
Institute of Certified Public Standards Council (AASC)
Accountants (PICPA). b. Financial Reporting Standards
Council (FRSC)
2. Which of the following is a c. Philippine Interpretations
characteristic of the Financial Committee (PIC)
Reporting Standards Council (FRSC)? d. PICPA
a. Any member of the ASC shall be
disqualified from being 8. The PIC members were appointed
appointed to the FRSC by the ____ and include accountants
b. FRSC members are required to in public practice, the academe
render service to the Council on and regulatory bodies and users of
a full-time basis. financial statements
c. FRSC members serve without a. SEC c. BOA
compensation for a term of three b. PRC d. FRSC
years, which can be renewed for
another three-year periods. 9. The pronouncements of FRSC
d. FRSC members should be CPAs. provide the highest authoritative
pronouncements on accounting
3. Financial Reporting Standards principles. The authority of these
Council (FRSC) has pronouncements rests upon
a. 14 members with a Chairman a. The rules and regulations of the
b. 15 members with a Chairman SEC
c. 16 members with a Chairman b. Its management and their
d. 8 members with a Chairman internal accounting staff
c. Their general acceptability
4. The chairman of the FRSC should d. The integrity of the Council
have been or presently a senior
practitioner in 10. The FRSC issues its Standards in a
a. Public accountancy series of pronouncements called
b. Commerce and industry PFRSs. These consist of
c. Academe a. PFRSs c. Philippine
d. Any scope of accounting Interpretations
practice b. PASs d. All of these

5. Which of the following government 11. Which statement is incorrect

agency is not represented in FRSC?
a. Bangko Sentral ng Pilipinas
b. Securities and Exchange
Commission
c. Bureau of Internal Revenue
d. Commission on Higher Education
regarding Philippine Financial
Reporting Standards (PFRSs)?
a. PFRSs set out recognition,
measurement, presentation and
disclosure requirements dealing
with transactions and events that

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 are important in general purpose
financial statements.
b. PFRSs are designed to apply to
the general purpose financial
statements and other financial
reporting of all profit-oriented
entities.
c. PFRSs are designed to apply to
not-for-profit activities in the
private sector.
d. All of the above
12. 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.
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
13. The FRSC employs a "due process"
system which
a. Is an efficient system for
collecting dues from members.
b. Enables interested parties to
express their views on issues
under consideration.
c. Identifies the accounting issues
that are the most important.
d. Requires that all accountants
must receive a copy of financial
standards.
14. Arrange in proper order the due
process for projects of FRSC:
I. 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
II. Consideration of
pronouncements of the IASB
III. Formation of a task force, when
deemed necessary, to give
advice to the FRSC
IV. Approval of a standard or an
interpretation by a majority of the
FRSC members
V. Consideration of all comments
received within the comment
period and, when appropriate,
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preparing a comment letter to
the IASB
a. I, II, III, IV and V c. II, III, I, V
and IV
b. III, II, I, V and IV d. II, III, V, I
and IV
15. Which is not part of the accounting
standard-setting process in the
Philippines?
a. Preparation of a draft of
proposed Philippine Financial
Reporting Standards (PFRS) by a
Task Force organized by the
Chairman.
b. Exposure of the proposed draft
for comments and suggestion to
PICPA members, FINEX members
and other interested parties.
c. Approval of the final PFRS by the
Profession Regulation
Commission.
d. Publication in the Official Gazette
or in newspaper of general
circulation of the proposed draft.
16. Which statement is true about the
IASB’s development of IFRSs?
a. The IASB gives precedence to the
balance sheet over Profit or Loss.
b. The IASB gives precedence to fair
value accounting over amortized
cost.
c. Both a and b.
d. Neither a nor b.
17. Which of the following statements
describes the effects of adopting
high-quality accounting standards?
a. Elimination of earnings
management.
b. Higher abnormal returns.
c. Less volatility of accounting
numbers.
d. The adoption of high-quality
accounting standards by
countries with weak regulatory
environments will enable them to
strengthen their capital markets.
18. Which of the following statements
reflects one of the benefits of
adoption of International Financial
Reporting Standards (IFRS) by
different countries?
a. Earnings management is
eliminated.
 b. Cost of capital is lower for firms.
c. There are no economic 4. The role of the Philippine
consequences when firms switch Interpretations Committee (PIC) is
to IFRS from existing GAAP. principally to issue implementation
d. Volatility of earnings calculated guidance on PFRSs.
using IFRS is zero.
Interpretations of PFRSs are intended
to give authoritative guidance on
- now do the DIY drill – issues that are likely to receive
divergent or unacceptable
treatment, in the absence of such
guidance.
DO-IT-YOURSELF (DIY) DRILL
a. True, True
1. Which is incorrect concerning the b. True, False
FRSC? c. False, False
a. The FRSC replaced the ASC as d. False, True
the standard setting body in the
Philippines 5. What are the accounting principles
b. The FRSC is composed of 15 commonly known as?
members with a Chairman and a. Standards
14 representatives from various b. Methods
sectors c. Rules
c. The Chairman and members of d. Regulations
the FRSC shall have a term of 3
years renewable for another term 6. Which statement is(are) correct
d. Any member of the ASC shall be regarding Philippine Financial
disqualified from being Reporting Standards (PFRSs)?
appointed to the FRSC a. PFRSs set out recognition,
measurement, presentation and
2. Which of the following is a disclosure requirements dealing
characteristic of the FRSC? with transactions and events that
a. Majority of the FRSC members are important in general purpose
should come from CPA firms financial statements.
b. All FRSC members must be CPAs b. PFRSs are designed to apply to
c. FRSC members are required to the special purpose financial
render service to the Council on statements and other financial
full-time basis reporting of all profit-oriented
d. All four sectors of the entities.
accountancy profession are c. PFRSs are designed to apply to
represented in the FRSC not-for-profit activities in the
private sector.
3. Which is correct concerning the d. All of the above
FRSC?
a. The FRSC replaced the ASPC as 7. PFRSs approved by the FRSC include
the standard setting body in the paragraphs in bold type and plain
Philippines text. In relation to the PFRS
b. The FRSC is composed of 15 paragraphs in bold type, are the
members with a Chairman following statements true or false?
including 10 representatives from (1) Bold-type paragraphs should be
PICPA. given greater authority than the
c. The Chairman and members of paragraphs in plain text.
the FRSC shall have a term of 3 (2) Bold-type paragraphs indicate
years renewable for another the main principles of the
term. standard.
d. Any member of the ASC shall be
disqualified from being Statement 1 Statement 2
appointed to the FRSC

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 a. False True b. International Accounting
b. True True Standards (IASs)
c. False False c. SIC Interpretations
d. True False d. All of the above

8. The period of exposing the draft of a 12. The role of International Financial
proposed PFRS will be at least sixty Reporting Standards (IFRS) and
(60) days, unless a shorter period is International Accounting Standards
considered appropriate by the FRSC. (IAS) is
The shorter period should be a. To reduce possible number of
a. Not less than 30 days accounting differences
b. 30 days no more less b. To produce globally
c. Less than 30 days recognized standards
d. More than 30 days but not c. Both of the above
exceed 59 days d. Neither of the above

9. Due process for projects of FRSC  - end of ToA.1801 - 

normally includes the following,
except
a. Consideration of pronouncement
of the IASB.
b. Formation of a task force, when
deemed necessary, to give
advice to the FRSC.
c. Issuing for comment an exposure
draft approved by at least eight
members of the Council;
comment period will be at least
sixty days.
d. Approval of a standard or an
interpretation by all of the
Council members.

10. The process of establishing financial

accounting standards
a. Is a democratic process in that a
majority of practicing
accountants must agree with a
standard before it becomes
implemented.
b. Is a legislative process based on
rules promulgated by
government agencies.
c. Is based solely on economic
analysis of the effects each
standard will have if it is
implemented.
d. Is a social process which
incorporates political actions of
various interested user groups as
well as professional research and
logic.

11. International Financial Reporting

Standards (IFRSs) include:
a. Standards and Interpretations
approved by the IASB

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