Philippine Accounting Standards

THERE are three standards-setting and interpretation organizations in the Philippines that recommend the standards, rules and interpretative pronouncements on accountancy and auditing. These three organizations are: a) the Financial Reporting Standards Council; b) the Auditing and Assurance Standards Council; and c) the Philippine Interpretations Committee. These three are mandated under the Accountancy Law and the implementing rules to recommend to the Board of Accountancy the standards and interpretations, for BOA approval. As of 2018, the Chairmen of the councils are Roberto G. Manabat for the AASC, David L. Balangue for the FRSC and Wilson P. Tan for the PIC.

Accounting standards in the Philippines are adopted from the International Financial Reporting Standards issued by the International Accounting Standards Board (IASB). The IFRS is a set of accounting standards that are recognized by at least 120 countries (including the Philippines) and provides a guide on how particular types of transactions and other events should be reported in financial statements. The rationale for using the IFRS/Philippine Financial Reporting Standards (PFRS) is to ensure consistency in recording, recognizing and measuring financial transactions, which, if followed properly, will ensure stability and transparency throughout the financial reporting process of the company. These standards are not enforceable as compliance is voluntary.

The PFRS, our version of the IFRS with some minor modifications, and the Philippine Accounting Standards are issued by the PFRS Council (formerly the Accounting Standards Council [ASC]), under the oversight of the BOA. Hence, the PFRS and the PAS are our current set of Generally Accepted Accounting Principles. GAAPs vary “from country to country due to differences in the legal system, levels of inflations, culture, degrees of sophistication and use of capital markets, and political and economic ties with other countries.” Entities registered with the Securities and Exchange Commission (SEC) are required to apply PFRS as their financial reporting framework.

The PAS corresponds to the adopted International Accounting Standards (IAS), while the PFRS corresponds to the adopted IFRS. Previously, standards issued by the ASC were designated as Statement of Financial Accounting Standards.

The PFRSC is a standard-setting body created by the Professional Regulation Commission upon the recommendation of the BOA under the implementing rules of Republic Act 9298 “Philippine Accountancy Act of 2004”. It has a chairman, and representatives from the BOA, the SEC, the Bangko Sentral ng Pilipinas, the Bureau of Internal Revenue, the Commission on Audit, a major organization composed of preparers and users of financial statements (currently Finex), and two representatives each from an accredited national professional organization of certified public accountants in public practice, commerce and industry, academe, and the government. The chairman and members shall have a term of three years and is renewable for another term.

The FRSC formed the Philippine Interpretations Committee  in August 2006 to assist the FRSC in establishing and improving financial reporting standards in the Philippines. It is a mere committee of the FRSC. The role of the PIC is principally to issue implementation guidance on PFRS. The PIC members are appointed by the FRSC and include accountants in public practice, academe and regulatory bodies, and users of financial statements. The PIC replaced the Interpretations Committee created by the ASC in 2000.

Development of the Philippine standards

The first formal recognition of the accounting profession was through the enactment of the Accountancy Law of 1923. Soon, in 1929, the Philippine Institute of Accountants was formed. The initial Philippine standards was patterned after the US GAAP. Our standards were essentially patterned after the standards of the United States Financial Accounting Standards Board. By 1997, there was a move to transition from the US GAAP to international accounting standards. This sentiment was brought about by the SEC’s membership in the International Organization of Securities Commissions, which resolved to adopt international accounting standards.

In November 2004, the Philippines’s Accounting Standards Council resolved to adopt the PAS, which was basically the revised version of the IAS, and the PFRS, which was basically the revised version of the IFRS. It was implemented effective January 2005. By 2006, the ASC became the FRSC, which was created under the implementing rules of the Philippine Accountancy Act of 2004. Today, the FRSC monitors the technical activities of the IASB and issues invitations to comment on exposure drafts of proposed
IFRSs issued by the IASB. If adopted, they are issued as PFRSs. Similarly, the issuances of the International Financial Reporting Interpretations Committee, if adopted, are issued as Philippine Interpretations.

Dennis B. Funa is the current insurance commissioner. Funa was appointed by President Duterte as the new insurance commissioner in December 2016. E-mail: dennisfuna@yahoo.com.