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Scope of the PFRSs period (not less than 30 days) is considered
PFRSs are designed to apply to the general appropriate by the FRSC;
purpose financial statements and other financial (d) consideration of all comments received within
reporting of all profit-oriented entities. Profit- the comment period and, when appropriate,
oriented entities include those engaged in preparing a comment letter to the IASB; and
commercial, industrial, financial and similar (e) approval of a standard or an interpretation by a
activities, whether organized in corporate or in majority of the FRSC members.
other forms. They include organizations such as
mutual insurance companies and other mutual
cooperative entities that provide dividends or other Timing of Application of PFRS
economic benefits directly and proportionately to PFRSs apply from a date specified in the
their owners, members or participants. Although document. New or revised PFRSs set out
PFRSs are not designed to apply to not-for-profit transitional provisions to be applied on their initial
activities in the private sector, public sector or application.
government, entities with such activities may find
them appropriate. The FRSC has no general policy of exempting
transactions occurring before a specific date from
PFRSs apply to all general purpose financial the requirements of new PFRSs. When financial
statements. Such financial statements are directed statements are used to monitor compliance with
towards the common information needs of a wide contracts and agreements, a new PFRSs may
range of users, for example, shareholders, have consequences that were not foreseen when
creditors, employees and the public, at large. The the contract or agreement was finalized. For
objective of financial statements is to provide example, covenants contained in banking and
information about the financial position, loan agreements may impose limits on measures
performance and cash flows of an entity that is shown in a borrower's financial statements. The
useful to those users in making economic FRSC believes the fact that financial reporting
decisions. 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
Accounting alternatives the parties to determine whether the agreement
In some cases, PFRSs permit different treatments should be insulated from the effects of a future
for given transactions and events. PFRS, or, if not, the manner in which it might be
Usually, one treatment is identified as the renegotiated to reflect changes in reporting rather
'benchmark treatment' and the other as the than changes in the underlying financial condition.
'allowed alternative treatment.
The financial statements of an entity may Exposure drafts are issued for comment and the
appropriately be described as being prepared in proposals are subject to revision. Until the
accordance with PFRSs whether they use the effective date of a PFRS, the requirements of any
benchmark treatment or the allowed alternative PFRS that would be affected by proposals in an
treatment. exposure draft remain in force.
The FRSC has reconsidered and will continue to
reconsider, those transactions and events for - done -
which PFRSs permit a choice of accounting
treatment with the objective of reducing the
number of those choices.
REVIEW QUESTIONS
Structure of the PFRSs
Standards approved by the FRSC include 1. Which statement is correct regarding the
paragraphs in bold type and plain type, which Financial Reporting Standards Council (FRSC)
have equal authority. a. Established by PICPA in 2006 under the
Paragraphs in bold type indicate the main Implementing Rules and Regulations of the
principles. Philippine Accountancy of Act of 2004.
An individual standard should be read in the b. The main function is to establish generally
context of the objective stated in that standard and accepted auditing standards in the
the Preface to PFRS. Philippines.
Any limitation of the scope of a PFRSs is made c. The Chairman and members of the FRSC
are appointed by the president of the
dear in the standard.
Philippines upon the recommendation of the
PRC in coordination with the APO.
d. The FRSC is the successor of the
Due Process
Accounting Standards Council (ASC) which
PFRSs are developed through a due process that
was created in November 1981 by the
involves members of PICPA, financial executives,
Philippine Institute of Certified Public
regulatory authorities, academics and other
Accountants (PICPA).
interested individuals and organizations. Due process
for projects normally, but not necessarily involve the
2. Which of the following is a characteristic of the
following steps:
Financial Reporting Standards Council (FRSC)?
(a) consideration of pronouncements of the IASB;
a. Any member of the ASC shall be disqualified
(b) formation of a task force, when deemed
from being appointed to the FRSC
necessary, to give advice to the FRSC;
b. FRSC members are required to render
(c) issuing for comment an exposure draft approved
service to the Council on a full-time basis.
by a majority of the FRSC members; comment
c. FRSC members serve without compensation
period will be at least 60 days, unless a shorter
for a term of three years, which can be
renewed for another three-year periods.
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d. FRSC members should be CPAs. c. PFRSs are designed to apply to not-for-profit
activities in the private sector.
3. Financial Reporting Standards Council (FRSC) d. All of the above
has
a. 14 members with a Chairman 12. Standards approved by the FRSC include
b. 15 members with a Chairman paragraphs in bold type and plain type, which
c. 16 members with a Chairman have equal authority. Paragraphs in bold type
d. 8 members with a Chairman indicate the main principles.
4. The chairman of the FRSC should have been or Any limitation of the scope of a PFRS is made
presently a senior practitioner in clear in the standard.
a. Public accountancy
b. Commerce and industry a. True, True c.
c. Academe False, False
d. Any scope of accounting practice b. False, True d. True,
False
5. Which of the following government agency is not
represented in FRSC? 13. The FRSC employs a "due process" system
a. Bangko Sentral ng Pilipinas which
b. Securities and Exchange Commission a. Is an efficient system for collecting dues from
c. Bureau of Internal Revenue members.
d. Commission on Higher Education b. Enables interested parties to express their
views on issues under consideration.
6. Which of the following is represented in FRSC? c. Identifies the accounting issues that are the
a. FINEX most important.
b. Bureau of Fisheries d. Requires that all accountants must receive a
c. Insurance Commission copy of financial standards.
d. Commission on Higher Education
14. Arrange in proper order the due process for
7. Which of the following bodies is responsible for projects of FRSC:
reviewing accounting issues that are likely to I. Issuing for comment an exposure draft
receive divergent or unacceptable treatment in approved by a majority of the FRSC
the absence of authoritative guidance, with a members; comment period will be at least 60
view to reaching consensus as to appropriate days, unless a shorter period (not less than
accounting treatment? 30 days) is considered appropriate by the
a. Auditing and Assurance Standards Council FRSC
(AASC) II. Consideration of pronouncements of the
b. Financial Reporting Standards Council IASB
(FRSC) III. Formation of a task force, when deemed
c. Philippine Interpretations Committee (PIC) necessary, to give advice to the FRSC
d. PICPA IV. Approval of a standard or an interpretation
by a majority of the FRSC members
8. The PIC members were appointed by the ____ V. Consideration of all comments received
and include accountants in public practice, the within the comment period and, when
academe and regulatory bodies and users of appropriate, preparing a comment letter to
financial statements the IASB
a. SEC c. BOA
b. PRC d. FRSC 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
9. The pronouncements of FRSC provide the
highest authoritative pronouncements on 15. Which is not part of the accounting standard-
accounting principles. The authority of these setting process in the Philippines?
pronouncements rests upon a. Preparation of a draft of proposed Philippine
a. The rules and regulations of the SEC Financial Reporting Standards (PFRS) by a
b. Its management and their internal Task Force organized by the Chairman.
accounting staff b. Exposure of the proposed draft for
c. Their general acceptability comments and suggestion to PICPA
d. The integrity of the Council members, FINEX members and other
interested parties.
10. The FRSC issues its Standards in a series of c. Approval of the final PFRS by the Profession
pronouncements called PFRSs. These consist of Regulation Commission.
a. PFRSs c. Philippine d. Publication in the Official Gazette or in
Interpretations newspaper of general circulation of the
b. PASs d. All of these proposed draft.
11. Which statement is incorrect regarding Philippine 16. Which statement is true about the IASB’s
Financial Reporting Standards (PFRSs)? development of IFRSs?
a. PFRSs set out recognition, measurement, a. The IASB gives precedence to the balance
presentation and disclosure requirements sheet over Profit or Loss.
dealing with transactions and events that are b. The IASB gives precedence to fair value
important in general purpose financial accounting over amortized cost.
statements. c. Both a and b.
b. PFRSs are designed to apply to the general d. Neither a nor b.
purpose financial statements and other
financial reporting of all profit-oriented
entities.
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17. Which of the following statements describes the d. False, True
effects of adopting high-quality accounting
standards? 5. What are the accounting principles commonly
a. Elimination of earnings management. known as?
b. Higher abnormal returns. a. Standards
c. Less volatility of accounting numbers. b. Methods
d. The adoption of high-quality accounting c. Rules
standards by countries with weak regulatory d. Regulations
environments will enable them to strengthen
their capital markets. 6. Which statement is(are) correct regarding
Philippine Financial Reporting Standards
18. Which of the following statements reflects one of (PFRSs)?
the benefits of adoption of International Financial a. PFRSs set out recognition, measurement,
Reporting Standards (IFRS) by different presentation and disclosure requirements
countries? dealing with transactions and events that are
a. Earnings management is eliminated. important in general purpose financial
b. Cost of capital is lower for firms. statements.
c. There are no economic consequences when b. PFRSs are designed to apply to the special
firms switch to IFRS from existing GAAP. purpose financial statements and other
d. Volatility of earnings calculated using IFRS is financial reporting of all profit-oriented
zero. entities.
c. PFRSs are designed to apply to not-for-profit
activities in the private sector.
- now do the DIY drill – d. All of the above
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groups as well as professional research and
logic.
- end of ToA.1801 -
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