Introduction and Preface to PFRSs (Summarized Discussion)

The Financial Reporting Standards Council (FRSC) was established by the Board of Accountancy (BOA
or the Board) in 2006 under the Implementing Rules and Regulations of the Philippine Accountancy Act
of 2004 to assist the Board in carrying out its power and function to promulgate accounting standards in
the Philippines. The FRSC's main function is to establish generally accepted accounting principles in the
Philippines.

The FRSC is the successor of the Accounting Standards Council (ASC). The ASC was created
in November 1981 by the Philippine Institute of Certified Public Accountants (PICPA) to establish
generally accepted accounting principles in the Philippines. The FRSC carries on the decision made by
the ASC to converge Philippine accounting standards with the international accounting standards issued
by the International Accounting Standards Board (IASB).

The FRSC

The FRSC consists of a Chairman and members who are appointed by the BOA and include
representatives from the Board of Accountancy (BOA), Securities and Exchange Commission
(SEC), Bangko Sentral ng Pilipinas (BSP), Financial Executives Institute of the Philippines (FINEX),
and Philippine Institute of Certified Public Accountants (PICPA). The FRSC has full discretion in
developing and pursuing the technical agenda for setting accounting standards in the Philippines.
Financial support is received principally from the PICPA Foundation.

The FRSC monitors the technical activities of the IASB and issues Invitations to Comment on exposure
drafts of proposed IFRSs as these are issued by the IASB. When finalized, these are issued as Philippine
Financial Reporting Standards (PFRSs). The FRSC similarly monitors issuances of the International
Financial Reporting Interpretations Committee (IFRIC) of the IASB, which it adopts as Philippine
Interpretations.

The FRSC issues news releases to announce the issuance of final Standards and Interpretations, expsoure
drafts and other matters which are posted in the Philippine Accounting Standards section of the PICPA
website (www.picpa.com.ph).

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 Philippine FRSs.

This preface is issued to set out the objectives and due process of the Financial Reporting Standards
Council and to explain the scope, authority and timing of application of Philippine Financial Reporting
Standards.

1. The Financial Reporting Standards Council (FRSC) was established by the Board of Accountancy
(BOA or the Board) in 2006 under the Implementing Rules and Regulations of the Philippine
Accountancy Act of 2004, to assist the Board in carrying out its power and function to promulgate
accounting standards in the Philippines. BOA appointed Chairman and members of the FRSC which
include representatives from the Securities and Exchange Commission (SEC), the Bangko Sentral ng
Pilipinas (BSP), the Board of Accountancy (BOA), the Financial Executives of the Philippines (FINEX)
and the Philippine Institute of Certified Public Accountants (PICPA). The approval of Philippine
Financial Reporting Standards (PFRSs), Philippine Interpretations, and related documents, such as
the Framework for the Preparation and Presentation of Financial Statements, exposure drafts and other
discussion documents is the responsibility of the FRSC.

2. The FRSC is the successor of the Accounting Standards Council (ASC). The ASC was created in
November 1981 by the Philippine Institute of Certified Public Accountants (PICPA) to establish
generally accepted accounting principles in the Philippines. The creation of the ASC was endorsed by the
SEC, BSP, the Professional Regulation Commission through the Board of Accountancy, and the FINEX.
The ASC made a decision in 1997 to converge Philippine Accounting Standards with International
Accounting Standards issued by the International Accounting Standards Committee (IASC), which was
later succeeded by the International Accounting Standards Board (IASB).

3. Once it was established, the FRSC resolved that all Standards and Interpretations issued by the ASC
continue to be applicable unless and until they are amended or withdrawn by the FRSC.

Objectives of the FRSC

4. The main function of the FRSC is to establish generally accepted accounting principles in the
Philippines. In achieving this objective, the FRSC considers Standards issued by the IASB.

5. The FRSC carries on the decision of the ASC to converge Philippine Accounting Standards with
International Accounting Standards issued by the IASB. The objectives of the FRSC in this respect are:

a) to develop, in the public interest, a single set of high quality, understandable and enforceable
accounting standards that require high quality, transparent and comparable information in financial
statements and other financial reporting to help participants in various capital markets and other users
of the information to make economic decisions;

b) to promote the use and rigorous application of those standards; and

c) to work for the convergence of Philippine Accounting Standards with International Financial
Reporting Standards (IFRSs) issued by the IASB.

Scope and Authority of PFRSs

6. The FRSC issues its Standards in a series of pronouncements called Philippine Financial Reporting
Standards (PFRSs). These consist of

a) Philippine Financial Reporting Standards (PFRSs) - these correspond to International Financial

Reporting Standards (IFRSs);

b) Philippine Accounting Standards (PAS - these corresponds to International Accounting Standards

(IASs); and

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.

7. The FRSC achieves its objectives primarily by developing and issuing Philippine Financial Reporting
Standards (PFRSs) and promoting the use of these standards in general purpose financial statements and
other financial reporting. Other financial reporting comprises information provided outside financial
statements that assists in the interpretation of a complete set of financial statemtns or improves user's
ability to make efficient economic decisions. In developing PFRSs, the FRSC considers its objective of
convergence with IFRSs issued by the IASB.

8. 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 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. The Framework   also provides a basis for the use of judgment in resolving
accounting issues.

9. PFRS 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.

10. 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.

11. A complete set of financial statements includes a balance sheet, an income statement, a statement
showing either all changes in equity or changes in equity other than those arising from capital
transactions with owners and distributions to owners, a cash flow statement, and accounting policies and
explanatory notes. In the interest of timeliness of cost considerations and to avoid repeating information
previously reported, an entity may provide less information in its interim financial statements than in its
annual financial statements. PFRS 34, Interim Financial Reporting, prescribes the minimum content of
complete or condensed financial statements for an interim period. The term financial statements'
includes a complete set of financial statements prepared for an interim or annual period, and condensed
financial statements for an interim period.

12. 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.

13. The FRSC's objective is to require like transactions and events to be accounted for and reported in a
like way and unlike transactions and events to be accounted for and reported differently, both within an
entity over time and among entities. Consequently, the FRSC intends not to permit choices in accounting
treatment. Also, 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.

14. 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 this Preface.

15. 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.

16. PAS 1, Presentation of Financial Statements, includes the following requirement:

"An entity whose financial statements comply with PFRSs shall make an explicit and
unreserved statement of such compliance in the notes. Financial Statements shall not be described as
complying with PFRSs unless they comply with all the requirements of PFRSs."

17. Any limitation of the scope of a PFRSs is made clear in the standard.

Due Process

18. 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 involves the following steps:

(a) consideration of pronouncements of the IASB;

(b) formation of a task force, when deemed necessary, to give advice to FRSC;
(c) issuing for comment and 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
(e) approval of a standard or an interpretation by a majority of the FRSC members.
(f) Each final standard and interpretation shall be submitted to the PRC through BOA for approval,
after which the pronouncements become operative from the effective date stated therein.

Timing of Application of PFRS

19. PFRSs apply from a date specified in the document. New or revised PFRSs set out transitional
provisions to be applied on their initial application.

20. 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 agreement. It is up to the parties to determine whether the agreement
should be insulated from 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.

21. 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.