Module 1

 Overview of Accounting

AEFAR 2
Conceptual Framework
and Accounting
Standards

to your 1st Module

Modulmodule!

This module is a
combination of
synchronous &
asynchronous
learning
and will last for 1
week
Pretest will be given
via
Google Form in
asynchronous test
Overview

Deborah C. Vasquez
Deborah.vasquez179@gmail.com
Course Coach

No part of this module may be reproduced

in any form without prior permission in
writing from the Instructor.

August 26, 2021

Date Initiated
September 3, 2021
Date of Completion
 Overview of Accounting
MODULE 1 OUTLINE

MODULE DURATION 

I. August 26 to September 3, 2021 Synchronous Meeting and Asynchronous Learning For asynchronous learning
inquiries, you may reach me through the messenger group or may send an email to deborah.vasquez179@gmail.com
every Monday and Wednesday for BSA IIA and IIC class, and every Tuesday and Thursday for BSA IIB class
II. For asynchronous learning inquiries, you may reach me through email (deborah.vasquez179@gmail.com) every
Monday and Wednesday for BSA IIA and IIC class, and every Tuesday and Thursday for BSA IIB class

LEARNING OBJECTIVES
After completing this module, you are expected to:
1. Define accounting and state its basic purpose.
2. Explain the basic concepts applied in accounting
3. State the branches of accounting and the sectors in the practice of accountancy.
4. Explain the importance of a uniform set of financial reporting standards

INPUT INFORMATION 
 

Module 1     
  

LEARNING ACTIVITIES

1. Group discussion during a synchronous meeting

2. Asynchronous Learning

Individual activity:

Collaborative activity:

OL & NOL Students: 

ASSESSMENT/EVALUATION
I. Synchronous Test with a time limit.

II. Asynchronous Learning

Deadline: 

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College of Business and Accountancy Prepared by Yves A. Mortillero

ASSIGNMENT

    Using the google classroom, please answer the assignment.

Progressive Requirement:

Deadline :

LEARNING RESOURCES

Conceptual Framework and Accounting Standards, 2019 Edition by: Zeus Vernon B. Millan

Disclaimer. DISCLOSURE STATEMENT

The contents of this module was taken from the book, Conceptual Framework and Accounting Standards, 2019
Edition by: Zeus Vernon B. Millan with an intention of putting more emphasis, guidance to accounting students. It is
not the intention of the coach to take credit to any of his/her wonderful and informative writings

Online resources:

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College of Business and Accountancy Prepared by Yves A. Mortillero

Disclaimer. DISCLOSURE STATEMENT

The contents of this module were taken from the book, Conceptual Framework and Accounting Standards, 2019 Edition by: Zeus
Vernon B. Millan with an intention of putting more emphasis, guidance to accounting students. It is not the intention of the coach to
take credit to any of his/her wonderful and informative writings
Definition of Accounting

Accounting is "the process of identifying, measuring, and communicating economic information to permit informed
judgments and decisions by users of the information." - (American Association of Accountants)

Three important activities included in the definition of accounting

1. Identifying
2. Measuring
3. Communicating

Identifying
Identifying is the process of analyzing events and transactions to determine whether or not they will be recognized.

 Recognition refers to the process of including the effects of an accountable event in the statement of financial position or
the statement of comprehensive income through a journal entry.

Only accountable events are recognized (i.e., journalized). An accountable event is one that affects the assets, liabilities, equity,
income or expenses of an entity. It is also known as economic activity, which is the subject matter of accounting, Only economic
activities are emphasized and recognized in accounting. Sociological and psychological matters are not recognized,

Non-accountable events are not recognized but disclosed only in the notes, if they have accounting relevance. Disclosure, only in
the notes is not an application of the recognition process, non-accountable event that has an accounting relevance may recorded
through a memorandum entry.

Types of events or transactions

1. External events — are events that involve an entity and another external party.

Types of External events

1. Exchange (reciprocal transfer) — an event wherein there is a reciprocal giving and receiving of economic resources or
discharging of economic obligations between an entity and an external party.
Examples: sale, purchase, payment of liabilities, receipt of notes receivable in exchange for accounts receivable, and the
like.

2. Non-reciprocal transfer — is a "one way" transaction in that the party giving something does not receive anything in return
while the party receiving does not give anything in exchange.

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 Examples: donations, gifts or charitable contributions, payment of taxes, imposition of fines, theft, provision of capital by
owners, distributions to owners and the like.

3. External event other than transfer an event that involves changes in the economic resources or obligations of entity
caused by an external party or external source does not involve transfers of resources or obligations,
Examples: changes in fair values and price levels, technological changes, vandalism, and the like.

2. Internal Events --- are events that do not involve an external party.

Types of Internal events

1. Production -the process by which resources are transformed into finished goods. Examples: conversion of raw materials
into finished products, production of farm products, and the like.

2. Casualty --- an unanticipated loss from disasters or other similar events, Examples: loss from fire, flood, and other
catastrophes.

Measuring

Measuring involves assigning numbers, normally in monetary terms, to the economic transactions and events.

Several measurement bases are used in accounting which include, but not limited. to, historical cost/ fair value, present value,
realizable value, current cost and sometimes inflation-adjusted costs: The most commonly used is historical cost, This is usually
combined with the other measurement bases. Accordingly, financial statements are said to be prepared using a mixture of costs
and values. Costs include historical cost and current cost while values include the other measurement bases.

Valuation by fact or opinion

The use of estimates is essential in providing relevant information. Thus, financial statements are said to be a mixture of fact and
opinion.

When measurement is affected by estimates, the items measured are said to be valued by opinion. Examples:
a. Estimates of uncollectible amounts of receivables,
b. Depreciation and amortization expenses, which are affected of useful life and residual value.
c. Estimated liabilities, such as provisions.
d. Retained which is affected by various estimates of income and expenses

When measurement is unaffected by estimates, the items measured are said to be valued by fact. Examples:

a. Ordinary share capital valued at par value

b. Land stated at acquisition cost
c. Cash measured at face amount

Communicating

Communicating is the process of transforming economic data into useful accounting information, such as financial statements and
other accounting reports, for dissemination to users. It also involves interpreting the significance of the processed information.

The communicating process of accounting involves three aspects:

1. Recording — refers to the process of systematically committing into writing the identified and measured accountable
events in the journal through journal entries.

2. Classifying involves the grouping of similar and interrelated items into their respective classes through postings in the
ledger•

3. Summarizing putting together or expressing in condensed form the recorded and classified transactions and events. This
includes the preparation of financial statements and other accounting reports,

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Interpreting the processed information involves the computation of financial statement ratios. Some regulatory bodies' such as the
Bangko Sentral ng Pilipinas (BSP), require certain financial ratios to be disclosed in the notes to financial statements.

Basic purpose of accounting

The basic purpose of accounting is to provide information that is useful in making economic decisions.

Various sources of information are used when making economic decisions and the financial statements are only one of those
sources. Other sources may include current events, industry publications, internet ' resources, professional advices, expert
systems, etc.

Economic entities use accounting to record economic activities, process data, and disseminate information intended to be useful in
making economic decisions.

An economic entity is a separately identifiable combination of persons and property that uses or controls economic resources to
achieve certain goals or objectives. An economic entity may either be a:

a. Not-for-profit entity — one that carries out some socially desirable needs of the community or its members and whose activities
are not directed towards making profit; or
b. Business entity — one that operates primarily for profit.

Economic activities are activities that affect the economic resources (assets) and obligations (liabilities), and consequently, the
equity of an economic entity. Economic activities include:

1. Production the process of converting economic resources into Lo outputs of goods and services that are intended to have
greater utility than the required inputs.
2. Exchange - the process of trading resources or obligations for other resources or obligations.
3. Consumption - the process of using the final output of the production process.
4. Income distribution - the process of allocating rights to the use of output among individuals and groups in society.
5. Savings the process of setting aside rights to present consumption in exchange for rights to future consumption.
6. Investment the process of using current inputs to increase the stock of resources available for output as opposed to
immediately consumable output.

Types of information provided by accounting

1. Quantitative information -- information expressed in numbers quantities, or units.

2. Qualitative information — information expressed in words or descriptive form. Qualitative information is found in the notes
to financial statements as well as on the face of the other financial statements.
3. Financial information — information expressed in money. Financial information is also quantitative information because
monetary amounts are normally expressed in numbers.

Types of accounting information classified as to users' needs

1. General purpose accounting information - designed to meet the common needs of most statement users. This information
is provided under financial accounting. General purpose information is governed by generally accepted accounting
principles (GAAP) represented by the Philippine Financial Reporting Standards (PFRSs).

2. Special purpose accounting information - designed to meet the specific needs of particular statement users. This
information is provided by other types of accounting other than financial accounting, e.g., managerial accounting, tax
basis accounting,

Sources of information in financial statements

Information in the financial statements is not obtained exclusively from the entity's accounting records. Some are obtained from
external sources. For example, fair value measurements' resolutions of uncertainties, future lease payments, and contractual
commitments are only a few of the informati011 presented in the financial statements that are derived from external sources.

Accounting as science and art

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1. As a social science, accounting is a body of knowledge which has been systematically gathered, classified and organized.
2. As a practical art, accounting requires the use of creative skills and judgement

Accounting as an information system

Accounting identifies and measures economic activities, processes information into financial reports, and communicates these
reports to decision makers.

Accounting as a language of business

Accounting is often referred to as a "language of business" because it is fundamental to the communication of financial
information.

Creative and Critical thinking in accounting

The practice of accountancy requires the exercise of creative and critical thinking.

a. Creative thinking involves the use of imagination and insight to solve problems by finding new relationships (ideas) among
items of information. It is most important in identifying alternative solutions.

b. Critical thinking involves the logical analysis of issues, using inductive or deductive reasoning to test new relationships to
determine their effectiveness. It is most important in evaluating alternative solutions.

Creative skills and judgment are exercised in problem solving. The following are the steps in problem solving:

1. Recognizing a problem
2. Identifying alternative solutions
3. Evaluating the alternatives
4. Selecting a solution from among the alternatives
5. Implementing the solution

Accounting Concepts
Accounting concepts refer to the principles upon which the process of accounting is based. The term "accounting concepts" is
used interchangeably with the following terms:

Accounting Assumptions (Accounting postulates) are the fundamental concepts or principles and basic notions th provide the
foundation of the accounting process.

Accounting theory - is logical reasoning in the form of a set of broad principles that
I. provide a general frame of reference by which accounting practice can be evaluated and
II. guide the development of new practices and procedures.

It is the organized set of concepts and related principles that explain and guide the accountant's action in identifying,
measuring, communicating accounting information. Accounting theory comprises the Conceptual Framework and the
Philippine Financial Reporting Standards (PFRSs).

Most accounting concepts are derived from the Conceptual Framework and the Philippine Financial Reporting Standards (PFRSs).
However, some accounting concepts are implicit, meaning they are not expressly stated in the Framework or PFRSs but are
generally accepted because of their •long-time use in the profession.

Examples of accounting concepts:

1. Double-entry system — each accountable event is recorded in two parts -- debit and credit.
2. Going concern assumption - the entity is assumed to carry on its operations for an indefinite period of time. Meaning, the
entity does not expect to end its operations in the foreseeable future.

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 The measurement basis involving mixture of cost and value is appropriate only when the entity is a going concern If the
entity is a liquidating concern, the appropriate measurement basis is realizable value, i.e., estimated selling price less estimated
costs to sell for assets and expected settlement amount for liabilities.

3. Separate Entity (Accounting entity/Business entity concept/ Entity concept) - the entity is viewed separately from its
owners. Accordingly, the personal transactions of the owners among themselves or with other entities are not recorded in
the entity s accounting records. This concept defines the area of interest of the accountant.

4. Stable monetary unit (Monetary unit assumption)

a. Assets, liabilities, equity, income and expenses are stated in terms of a common unit* of measure, which is the peso in
the Philippines; and

b. The purchasing power of the peso is regarded as stable or constant and that its instability is insignificant and therefore
ignored.

*To be useful, accounting information should be stated in a common denominator. For example, amounts in foreign currencies
should be translated into pesos.

5. Time Period (Periodicity/ Accounting period) - the life of the entity is divided into series of reporting periods. An accounting
period is usually 12 months and may either be a calendar year or a fiscal year period. A calendar year period starts on
January 1 and ends on December 31 of that same year. A fiscal year period also covers 12 months but starts on a date
other than January 1.'

6. Materiality concept information is material if its omission or misstatement could influence economic decisions. Materiality
is a matter of professional judgment and is based on the size and nature of the item being judged,

7. Cost-benefit (Cost constraint/ Reasonable assurance) the cost of processing and communicating information should not
exceed the benefits to be derived from it,

8. Accrual Basis of accounting the effects of transactions other events are recognized when they occur (and not as cash is
received or paid) and they are recorded in the accounting records and reported in the financial statements of the period;
to which they relate.

Under accrual basis, income is recognized when rather than when cash is collected and expenses are recognized when
incurred rather than when cash is paid,

9. Historical cost concept (Cost principle) -- the value of an asset is determined on the basis of acquisition cost.
This concept is not always maintained. Some PFRS’s require the departure from this concept, such as when inventories
are measured at net realizable value (NRV) rather than at cost when applying the "lower of cost and NRV" measurement.

10. Concept of Articulation all of the components of a complete set of financial statements are interrelated. The preparation of
a worksheet (and the eventual completion of the financial statements) recognizes that the financial statements are
fundamentally interrelated and interact with each other. Accordingly, when users use the financial statements in making
decisions, they need to use each financial statement in conjunction with the other financial statements.

For example, when evaluating an entity's ability to generate future cash flows, all the financial statements should be used
and not only the statement of cash flows. and payables in the statement of financial position provide information on
expected cash receipts cash disbursements in future periods.

Income and expenses in the statement of profit or loss other comprehensive income provide information on the entity's
ability to generate cash flows from its

Information on issued and unissued shares in the statement of changes in equity provides information on the availability of
equity financing.

Information on historical changes in cash and cash equivalents in the statement of cash flows helps users assess future
sources and uses of funds.

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 The notes to financial statements provide information on the quality of earnings, e.g., whether income or expenses are
realized or unrealized or whether they are recurring or non-recurring.

11. Full disclosure principle — this principle recognizes that the nature and amount of information included in the financial
statements reflect a series of judgmental trade-offs. The trade-offs strive for:

a. sufficient detail to disclose matters that make a difference to users, yet

b. sufficient condensation to make the information understandable, keeping in mind the costs of preparing and
using it.

12. Consistency concept -- the financial statements are prepared on the basis of accounting principles that are applied
consistently from one period to the next. Changes in accounting policies are made only when required or permitted by the
PFRSs or when the change results to more relevant and reliable information. Changes in accounting policies are
disclosed in the notes.

13. Matching (Association of cause and effect) costs are recognized as expenses when the related revenue is recognized.

14. Entity theory the accounting objective is geared towards proper income determination, Proper matching of costs against
revenues is the ultimate end. This emphasizes the income statement and is exemplified by the equation “Assets =
Liabilities + Capital.“

15. Proprietary theory - the accounting objective is geared towards the proper valuation of assets. This theory emphasizes
the importance of the balance sheet and is exemplified by equation "Assets -- Liabilities = Capital.

16. Residual equity theory this theory is applicable when are two classes of shares issued, i.e., ordinary and preferred. The
equation is "Assets -- Liabilities — Preferred Shareholders Equity = Ordinary Shareholders' Equity. " This theory is
applied in the computation of book value per share and return on equity.

17. Fund theory — the accounting objective is neither proper income determination nor proper valuation of assets but the
custody and administration of funds. The objective is directed towards cash flows, exemplified by the formula "cash
inflows minus cash outflows equals fund." This concept is used in government accounting and fiduciary accounting.

18. Realization — the process of converting non-cash assets into cash or claims for cash. It is also the concept that deals
with revenue recognition.
For example, realization occurs when goods are sold for cash or in exchange for accounts receivable or notes receivable.
The goods are non-cash assets and they are converted into cash or, in the case of the receivables, claims for

19. Prudence (Conservatism) estimates under conditions is of the uncertainty, use of caution such when that assets making
estimates under the condition of uncertainty, such that assets or income are not overstated and liabilities or expenses are
not understated, In other words, when exercising prudence, the one which has the least effect on equity is chosen.

However, the exercise of prudence does 'tot allow the deliberate understatement of assets or overstatement of liabilities in order to
create hidden reserves because the financial statements would not be faithfully represented.

An example of a hidden reserve is the "cookie jar reserve." It is a form of fraudulent reporting wherein during periods of high
profits, liabilities are overstated through excessive provisions of expenses or non-recognition of income, In subsequent periods,
when the entity's financial performance is poor, the "cookie jar reserve" is reversed to income in order to report high profits.
Management engages in such fraud because of various reasons, which may include smoothing earnings in order to secure
bonuses over time, defer profits to the periods when they are evaluated for promotion or for election as members of the board of
directors, or to show profits when other entities belonging to the same industry show declining financial performance.

Expense recognition principles

20. Matching concept (Direct association of costs and revenues) — costs that are directly related to the earning of revenue
are recognized as expenses in the same period the related revenue is recognized.

For example, the cost of inventory is initially recognized as asset and recognized as expense (i.e., cost of sales) when the
inventory is sold. Other examples include freight-out and sales commissions; these are expensed in the period the related
sales are recognized.

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 21. Systematic and rational allocation -- costs that are not directly related to the earning of revenue are initially recognized as
assets and recognized as expenses over the periods their economic benefits are consumed, using some method of
allocation.

For example, the cost of equipment is initially recognized as asset and subsequently recognized as depreciation expense
over the periods the equipment is used. Other examples include amortization, expensing of prepayments and effective
interest method of allocation.

22. Immediate recognition – costs that do not meet the definition of an asset, or ceases to meet the definition of an asset, are
expensed immediately. Examples include casualty losses and impairment losses.

Common branches of accounting.

1. Financial accounting – is the branch of accounting that focuses on general purpose financial statements.

 General purpose financial statements are those statement that cater to the common needs of external users, primarily the
potential and existing investors, and lenders and other creditors. External users are those who are not involved in
managing the entity.
 Financial accounting is governed by the Philippine Financial Reporting Standards (PFRSs).

Financial accounting vs. Financial reporting

The term "financial accounting" is often used interchangeably with the term "financial reporting." Although, both financial
accounting and financial reporting focus on general purpose financial statements, the latter endeavors to promote principle that are
also useful in "other financial reporting.

"Other financial reporting" comprises information provided outside the financial statements that assists in interpretation of a
complete set of financial statements improves users' ability to make efficient economic decisions'

Financial statements vs. Financial report

 Financial statements are the structured representation entity's financial position and results of its operations. They are the
end product of the accounting process the means by which information gathered and proc* are periodically communicated
to users.

 A financial report includes the financial statements plus other information provided outside the financial statements that
assists in the interpretation of a complete set of financial statements or improves users' ability to make efficient economic
decisions.
Financial statements Financial report

Statement of financial position Statement of financial position

Statement of profit or loss and other comprehensive income Statement of profit or loss and other comprehensive and other
comprehensive income
Statement of changes in equity Statement of changes in equity
Statement of cash flows Statement of cash flows
Notes Notes
Additional statement of financial position Additional statement of financial position
Other information

Financial reporting is the provision of financial information about an entity that is useful to external users, primarily the investors,
lenders, and other creditors, in making investment and credit decisions.

Primary objective of financial reporting

To provide information about an entity's economic resources, claims to those resources, and changes in those resources.

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Secondary objective of financial reporting
To provide information useful in assessing the entity's management stewardship (i.e., how efficiently and effectively the entity's
management has discharged its responsibilities to use the entity's economic resources).

2. Management accounting refers 'to the accumulation and communication of information for use by internal users or
management. An offshoot of management accounting is management advisory services which includes services to clients
on matters of accounting, finance, business policies, organization procedures, product costs, distribution, and many other
phases of business conduct and operations.

3. Cost accounting — is the systematic recording and analysis of the costs of materials, labor, and overhead incident to
production.

4. Auditing is the process of evaluating the correspondence of certain assertions with established criteria and expressing an
opinion thereon.

5. Tax accounting — the preparation of tax returns and rendering of tax advice, such as the determination of the tax
consequences of certain proposed business endeavors.

6. Government accounting refers to the accounting for the government and its instrumentalities, placing emphasis on the
custody of public funds, the purposes for which those funds are committed, and the responsibility and accountability of the
individuals entrusted with those funds.

7. Fiduciary accounting refers to the handling of accounts managed by a person entrusted with the custody and
management of property for the benefit of another.

8. Estate accounting refers to the handling of accounts for fiduciaries who wind up the affairs of a deceased person.

9. Social accounting (social and environmental accounting or social responsibility reporting) the process of communicating
the social and environmental effects of an entity's economic actions to the society,

10. Institutional accounting the accounting for non-profit entities other than the government.

11. Accounting systems -- the installation of accounting procedures for the accumulation of financial data and designing of
accounting forms to be used in data gathering.

12. Accounting research — pertains to the careful analysis of economic events and other variables to understand their impact
on decisions. Accounting research includes a broad range of topics, which may be related to one or more of the other
branches of accounting, the economy as a whole, or the market environment.

Bookkeeping and Accounting

Bookkeeping refers to the process of recording the accounts or transactions of an entity. Bookkeeping normally ends with the
preparation of the trial balance. Unlike accounting, bookkeeping does not require the interpretation of the significance of the
processed information.
Accountancy
Accountancy refers to the profession or practice of accounting. The practice of accounting can be broadly classified into two — (1)
Public practice and (2) Private practice. Public practice does not involve ah employer-employee relationship while private practice
involves an employer-employee relationship, meaning the accountant is an employee,
Four sectors in the practice of accountancy
Under IR-A. 9298 also known as the "Philippine Accountancy Act of 2004," the practice of accounting is sub-classified into the
following:
1. Practice of Public Accountancy involves the rendering of audit or accounting related services to more than one client on a
fee basis.

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2. Practice in Commerce and Industry — refers to employment in the private sector which involves decision making
requiring professional knowledge in the such position requires that the holder a certified public accountant.

3. Practice in Education/Academe - employment in which involves teaching of accounting, auditing, management advisory
services, finance, business law, taxation. And other technically related subjects.

4. Practice in the Government - employment or appointment to a position in an accounting professional group in the
government or in a government-owned and/or controlled corporation, including those performing proprietary functions,
where decision making requires professional knowledge in the science of accounting, or where civil service eligibility as
certified accountant is prerequisite.
Accountants practicing under numbers 2 to 4 above are considered in private practice.

Accounting standards

The Philippine Financial Reporting Standards (PFRSs) represents generally accepted accounting principles (GAAP) in
the Philippines.

The PFRSs are Standards and Interpretations adopted by Financial Reporting Standards Council (FRSC). They comprise

a. Philippine Financial Reporting Standards (PFRSs);

b. Philippine Accounting Standards (PASs); and
c. Interpretations

PFRSs are accompanied by guidance to assist entities in applying their requirements. A guidance states whether it is an
integral part of the PFRSs. A guidance that is an integral part of the PFRSs is mandatory.

The need for reporting standards

For financial statements to be useful, they should be prepared using reporting standards that are generally acceptable.
Otherwise, each entity would have to develop its own standards. If that is the case, every entity may just present any
asset or income it wants and omit any liability or expense it does not want. Financial statements would not be
comparable, the risk of fraudulent reporting is heightened, and economic decisions based on these financial statements
would be grossly incorrect. For this reason, entities should follow a uniform set of reporting standards when preparing and
presenting financial statements.

The term "generally acceptable" means that either:

1. the standard has been established by an authoritative accounting rule-making body, e.g., the PFRSs adopted by
the FRSC; or

2. the principle has gained general acceptance due to practice over time and has been proven to be most useful,
e.g., double entry recording and other implicit concepts.

The process of establishing financial accounting standards is a democratic process in that a majority of practicing
accountants must agree with a standard before it becomes implemented.

Hierarchy of Reporting Standards

When selecting its accounting policies, an entity considers the following in descending order:
1, Philippine Financial Reporting Standards (PFRSs)
2. In the absence of a PFRS that specifically applies to a transaction or event, management shall use its judgement in
developing and applying an accounting policy that results in information that is relevant and reliable,

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 In making the judgment,

1. management shall refer to, and consider the applicability of, the following sources ill descending order:

a. The requirements in PFRSs dealing with similar and related issues;

b. b, The Conceptual Framework.
2. management may also consider the following:
a. Pronouncements of other standard-setting bodies
b. Accounting literature and accepted industry practices

(PAS 8.7 .12) the term "shall" as used in the PFRSs means 'must' or it is required, while the term "may" means it is
optional or 'may or may not'.

Although the selection of appropriate accounting policies is the responsibility of the entity's management, the proper
application of accounting principles is most dependent upon the professional judgment of the accountant.

Accounting standard setting bodies and other relevant organizations

1. Financial Reporting Standards Council (FRSC) — is the official accounting standard setting body in the Philippines
created under the Philippine Accountancy Act of 2004 (R.A. No. 9298),

The FRSC is composed of fifteen (15) individuals -a chairperson who had been or presently a senior accounting
practitioner in any of the scope of accounting practice and fourteen (14) representative members:

Chairperson 1
Fourteen representative members from:
Board of Accountancy (BIR) 1
Commission on Audit (COA) 1
Securities and Exchange Commission (SEC) 1
Bangko Sentral ng Pilipinas (BSP) 1
Bureau of Internal Revenue (BIR) 1
A major organization composed of preparers
and users of financial statements 1
Accredited National Professional Organization of CPAs (i.e., I'ICPA):
Public Practice 2
Commerce and Industry 2
Academe/Education 2
Government 2
Total 15
(Rules and Regulations Implementing R.A. 9298, Sec. 9(A))

2. Philippine Interpretations Committee (PIC) is a committee formed by the Accounting Standards Council (ASC), the
predecessor of FRSC, with the role of reviewing the interpretations of the International Financial Reporting Interpretations
Committee (IFRIC) for approval and adoption by the FRSC.

3. Board of Accountancy (BOA) — is the professional regulatory board created under R.A. No. 9298 to supervise the
registration, licensure and practice of accountancy in the Philippines. The BOA consists of a chairperson and six (6)
members appointed by the President of the Philippines. The Board shall elect a vice-chairperson from among its
members for a term of one (1) year.

4. Securities and Exchange Commission (SEC) is the government agency tasked in regulating corporations and
partnerships, capital and investment markets, and the investing public. Some SEC rulings affect the accounting
requirements of entities and the adoption and application of accounting policies,

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 5. Bureau of Internal Revenue (BIR) — administers the provisions of the National Internal Revenue Code. These provisions
do not always reflect the goals of financial reporting. However, they do at times influence the choice of accounting
methods

6. Bangko Sentral ng Pilipinas - influences the selection and application of accounting policies by banks and other, entities
performing, banking functions.

7. Cooperative Development Authority (CIDA) influences selection and application of accounting policies cooperatives.

Accounting policies prescribed by a regulatory body (e BSP, CDA) are sometimes referred to as regulatory principles.

International Accounting Standards

The International Accounting Standards Board (IASB) is standard-setting body of the IFRS Foundation with the main
objectives of developing and promoting global accounting standards.

The IASB was established in April 1, 2001 as part of International Accounting Standards Committee (IAS Foundation. The
IASC Foundation is a non-profit organization based in Delaware, USA and is the parent of the IASB, which; based in
London. On July 1, 2010, the IASC Foundation renamed to International Financial Reporting Standards Foundation or
IFRS Foundation.

The standards issued by the IASB are the International Financial Reporting Standards (IFRSs), composed of following:
 International Financial Reporting Standards (IFRSs)
 International Accounting Standards (IASs)
 Interpretations

The JFRSs are standards issued by the IASB after h replaced its predecessor, the International Accounting Standards
Committee (IASC), in April 1, 2001. The IASs are standards by the IASC which were adopted by the IASB. The PASS are
based on these standards.

The IASC was founded in June 1973, It was established as a result of an agreement by accountancy bodies in ten national
jurisdictions which constituted the original board, namely, Australia, Canada, France, Germany, Japan, Mexico, the Netherlands,
the UK, Ireland and the US.

Due process
The IFRSs are developed through an international due process that involves accountants and other various interested individuals
and organizations from around the world. Due process normally involves the following steps:
1. The staff identifies and reviews issues associated with a topic and considers the application of the Conceptual Framework
to the issues;
2. Study of national accounting requirements and practice, including consultation with national standard-setters;
3. Consulting the Trustees and the Advisory Council about the advisability of adding the topic to the IASB's agenda;
4. Formation of an advisory group to give advice to the IASB on the project;
5. Publishing a discussion document for public comment;
6. Publishing an exposure draft (a) for public comment;
7. Publishing with an exposure draft a basis for conclusions and the alternative views of any IASB member who opposes
publication;
8. Consideration of all comments received;
9. Holding a public hearing and conducting field tests, if necessary; and

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 10. Publishing a standard (a) including (i) a basis for conclusions, explaining, among other things, the steps in the IASB's due
process and how the IASB dealt with public comments on the exposure draft, and (ii) the dissenting opinion of any IASB
member,
(Preface to JFRS,17)
(a) Approved by at least 8 votes of the IAS13 if there are fewer than 14 members, or by 9 if there are 14 members,

Other relevant international organizations

1. International Financial Reporting Interpretations Committee (IFRIC) is a committee that prepares interpretations of how specific
issues should be accounted for under the application of IFRS where:
a. The standards do not include specific authoritative guidance; and
b. There is a risk of divergent and unacceptable accounting practices.

The IFRIC is composed mostly of technical partners in audit firms but also includes preparers and users. In 2002, IFRIC replaced
the former Standing Interpretations Committee (SIC) which had been created by the IASC. All of the SIC Interpretations have been
adopted by the IASB.
2: IFRS Advisory Council (previously known as the Standards Advisory Council 'SAC') is a group of organizations and individuals
with an interest in international financial reporting. The Advisory Council's role includes advising on priorities within the IASB's work
program. The IASB is required to consult with the Advisory Council in advance of any board decisions on major projects that it
wishes to add to its agenda.
Members of the Advisory Council are appointed by the IFRS Foundation which also appoints members to the JASB. These
members are drawn from different geographic locations and have a wide variety of backgrounds, including users, preparers,
academics, auditors, analysts, regulators and professional accounting bodies.
3. International Federation of Accountants (IFAC) --- is a nonprofit, non-governmental, non-political organization of accountancy
bodies that represents the worldwide accountancy profession. Its mission is to develop and enhance the profession to provide
services of consistently high quality in the public interest. Membership to the IFAC is open to all accountancy bodies recognized by
law or consensus within their countries.
4. International Organization of Securities Commissions (IOSCO) — is an international body of security commissions. The
Philippine SEC is a member of IOSCO.
Move to IFRSs
Prior to the full adoption of the IFRSs in 2005, the accounting standards used in the Philippines were previously based on US
GAAP, i.e., the Statements of Financial Accounting Standards issued by the Federal Accounting Standards Board (FASB), the US
national standard setting body.
The move to IFRSs was primarily brought about by the increasing acceptance of IFRSs world-wide and increasing
internationalization of businesses thereby increasing the need for a common financial reporting standard that minimize, if not
eliminate, inconsistencies of financial reporting among nations.
"A good example of inconsistent national financial reporting is that of German car manufacturer Daimler-Benz AG (prior to its
merger with Chrysler). Daimler-Benz obtained a listing of its shares in the US in 1993, and in so doing needed to report under both
U.S. GAAP and German GAAP. While one might expect that the profit reported would be similar (as it was exactly the same set of
economic transactions being presented), this was not the case, The company reported a huge loss of $1 billion under US GAAP,
while at the same time reporting a profit of $370 million under its own domestic German GAAP. This difference was simply the
result of different accounting practices being used by different countries. Such significant differences undermine the usefulness of
financial statements." (source: Institute of Chartered Accountants in England and Wales, 'International Financial Reporting Standards - Certificate learning
materials,')

The future of IFRSs

A significant milestone towards achieving the goal of having set of global standards was reached in October 2002 when FASB and
the IASB entered into a memorandum of understanding called the "Norwalk Agreement."

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In this Agreement, the FASB and the IASB formalized their commitment to the convergence of U.S. GAAP and IFRSs by agreeing
to use their best efforts to:

 make their existing financial reporting standards fully compatible as soon as practicable, i.e., minimize differences, and
 coordinate their future work programs to ensure that once achieved, compatibility is maintained.
Since the publication of the Norwalk Agreement, the IASB and FASB have been working together with the common goal of
producing a single set of global accounting standards. "In a public statement issued in January 2017, the outgoing (US) SEC Chair
expressed support for the development of high-quality, globally accepted accounting standards, and suggested that the (US) SEC
support further efforts by the FASB and IASB to converge their accounting standards to enhance the quality and comparability Of
financial reporting." (source: https://www.pwc.corn/us/en/cfodirect/issues/ifrs-adoption-convergence.html)

Changes in reporting standards

Once established, financial reporting standards are continually reviewed, revised or superseded. Changes to reporting standards
are primarily made in response to users' needs. Users' needs for financial information change, and so must financial reporting
standards in order to continually provide useful information. Legal, political, business and social environments also influence
changes in reporting standards, Regulatory bodies, lobbyists, and regulations, and changes in economic environments affect
choice of accounting treatment provided under the reporting standards.

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