PHILIPPINE FINANCIAL REPORTING FRAMEWORK FOR COOPERATIVES

AND REVISED STANDARD CHART OF ACCOUNT FOR COOPERATIVES

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This Reporting Framework is based largely on the Philippine Financial Reporting

Standards for Small and Medium-Sized Enterprises (PFRS for SMES). Cooperatives cannot
strictly follow the PFRS for the reason that Republic Act No. 9520, otherwise known as the
Philippine Cooperative Code of 2008, specifically provides for treatment of certain accounts
which are unique only to cooperatives and such peculiarities are in accord with universally-
accepted cooperative principles. Modifications were made on several provisions of the standards
taking into considerations cooperative laws, rules, regulations and principles. These
modifications left the cooperatives external auditors with no option but to render, at times,
qualified opinion because the cooperatives could not comply with the PFRS.
The financial statements of the cooperatives are still the same with the financial
statements of a commercial accounting. There is just a little difference in some accounts of the
cooperatives that are not included in the commercial and some account titles has been changed
but still serves the same purpose.
A cooperative is an autonomous and duly registered association of persons, with a
common bond of interest, who have voluntarily joined together to achieve their social, economic
and cultural needs and aspirations by making equitable contributions to the capital required,
patronizing their products and services and accepting a fair share of risks and benefits of the
undertaking in accordance with the universally accepted cooperative principles. In creating a
cooperative, there should be at least 15 members and must have a capital with a minimum of five
thousand pesos. Cooperatives has many benefits and can help people in many ways. They can set
up loans and create other transactions to build up or increase their capital and get profits. The
only con in a cooperative is that only the members of the cooperatives can avail loans and make
transactions but in either way, it is also a pro because the security of the loans is higher and the
risk that they are going to take is lower.
Prior to the issuance of this Reporting Framework, Cooperative Development Authority
prescribed the Standard Chart of Accounts (SCA) for Cooperatives. The basic purpose in
prescribing the SCA is to provide guidelines on the use of account titles for the preparation of
financial statements to be used by all types of cooperatives. Thus, in the absence of more robust
and detailed guidelines, the cooperatives turned to the Philippine Financial Reporting Standards
issued by the Board of Accountancy (BOA) and the Securities and Exchange Commission. This
situation created more confusion and lack of uniformity of financial reporting among
cooperatives, as some follow the Standard Chart of Accounts while others prescribe to the
Philippine or PFRS for SMEs.
 For example, in the Cooperative Development Authority reporting framework, the
interest income for cooperatives with lending operations is only recognized when earned and
received during the period, which is different from the accrual method of PFRS. The reason for
recognizing interest income only when earned and received is for the cooperatives to avoid
declaring dividends (as required by Cooperative Development Authority Law) out of interest that
have not yet been collected. Another difference between the two reporting frameworks is the
recognition of the effects of the prior period adjustments. Prior period adjustments should be
taken up in the current year.
A cooperative whose financial statements comply with the Philippine Financial Reporting
Framework for Cooperatives shall make an explicit and unreserved statement of such compliance
in the notes. Financial statements shall not be described as complying with the Philippine
Financial Reporting Framework for Cooperatives unless they comply with all the requirements
of this framework. They shall present current and non-current assets, and current and non-current
liabilities, as separate classifications in its statement of financial condition, except when a
presentation based on liquidity provides information that is reliable and more relevant. When that
exception applies, all assets and liabilities shall be presented in order of approximate liquidity
(ascending or descending). Thus, this new Reporting Framework is a big step forward for CDA
as it addresses the issue of uniformity of applications of financial reporting standards for the
different types of cooperatives. To facilitate faster and wider adoption and to ensure compliance
with the new Reporting Framework, the CDA has already conducted numerous seminars, mostly
in coordination with the Philippine Institute of Certified Public Accountants. The framework
does not prescribe the sequence or format in which items are to be presented. It simply provides
a list of items that are sufficiently different in nature or function to warrant separate presentation
in the statement of financial condition. In addition, line items are included when the size, nature
or function of an item or aggregation of similar items is such that separate presentation is
relevant to an understanding of the cooperative’s financial condition, and the descriptions used,
and the sequencing of items or aggregation of similar items may be amended according to the
nature of the cooperative and its transactions, to provide information that is relevant to an
understanding of the cooperative’s financial condition. The judgment on whether additional
items are presented separately is based on an assessment of all the following: the amounts, nature
and liquidity of assets, the function of assets within the cooperative, the amounts, nature and
timing of liabilities. The Cooperative Development Authority reporting framework is practical in
the sense that cooperatives may find it difficult to recover dividends that were already paid in
prior years (assuming the prior period errors pertain to additional losses). Also, it is only the
cooperatives that have to present in their financial statements the allocation of statutory reserves
(also referred to as statutory funds) in the distribution of net surplus. Under Cooperative
Development Authority rules, all earnings during the period shall be returned to members as
patronage refund for the loan availed of or allocated to various statutory accounts such as:
Reserved fund; Education and training fund; Community development Fund, and Optional fund.
The primary objective of every cooperative is to help improve the quality of life of its
members. Towards this end, the cooperative shall aim to provide goods and services to its
members to enable them to attain increased income, savings, investments, productivity, and
purchasing power, and promote among themselves equitable distribution of net surplus through
maximum utilization of economies of scale, cost-sharing and risk-sharing; provide optimum
social and economic benefits to its members; teach them efficient ways of doing things in a
cooperative manner; propagate cooperative practices and new ideas in business and
management; allow the lower income and less privileged groups to increase their ownership in
the wealth of the nation; and cooperate with the government, other cooperatives and people-
oriented organizations to further the attainment of any of the foregoing objectives.
Notes to Financial Statements provide narrative descriptions or disaggregation of items
presented in the above statements and information about items that do not qualify for recognition
in those statements. It also describes the accounting policies and the measurement basis/bases
used in the preparation of financial statements.