IFRS & PFRS

Definition, History, Transition

& Standard-Setting
What is the objective (or purpose)
of financial reporting?
 to provide financial information
about the reporting entity that is
useful to users in making
decisions about providing
resources to the entity.
Who are these users?
Users of Financial Statements
External Internal
• Investors • Management
• Creditors
• Employees
• Customer
• Public
• Supplier
• Government
 Internal Users
those who own or manage or
controls the business entity
 Management
Need help in making relevant
economic decisions in achieving
the goal of the entity
 External Users
those who do not own or
manage or control the business
entity
 Investors
• asses the risk of investment;
• whether to buy, hold, or sell;
• to assess the Return On Investment
(ROI)
 Creditors
to determine whether borrowers can
pay their loans and interest attached
to them when due
 Supplier
• continuity of the business;
• whether debts owed to them
will be paid when due
 Customer
• asses the continuity and
• to insure availability of the
supplies to sustain business
operations
 Employees
• determine the stability and profitability;
• capability to provide;
– remuneration,
– retirement benefits and
– employee opportunities
 Public
assist the people by providing
information about the trends and
recent developments
 Government
interested in statistics, income
taxes and other regulatory
agencies
 Describe the growing
importance of global
financial
markets and its relation to
financial reporting.
 The age of free trade and the
interdependence of national economies is
now with us.

Many of the largest companies in the

world often do more of their business in
foreign lands than in their home country
 As this globalization takes place,
companies are recognizing the need to
have one set of financial reporting
standards.
For globalization to be efficient, what
is reported for a transaction in Beijing
should be reported the same way in
Philippines, Paris, New York, or
London.
In the past, many countries used their
own set of standards or followed
standards set by larger countries.
What are the examples of
such countries?
 Examples
• Canada  Accounting Standards Board
• Japan  Accounting Standards Board of Japan
• Germany  German Accounting Standards
Committee
• United States  Financial Accounting Standards Board
The standards issued by these
organizations are sometimes;
• principles-based,
• rules-based,
• tax-oriented, or
• business-based.
 In other words, they
often differ in concept and objective.
 Where is the Main
International Standard-
Setting Organization?
London, United Kingdom
 Who are the two key
organizations in the
development of international
accounting standards? Explain
their role
• IOSCO
(International Organization of Securities Commissions)
• IASB (London)
(International Accounting Standards Board.)
The IOSCO does not set accounting
standards, but ensures that the global
markets can operate in an efficient
and effective manner.
 The IASB develops, in the public
interest, a single set of high-quality,
enforceable, and global international
financial
reporting standards for general-
purpose financial statements.
 What is the benefit of a
single set of high-quality
accounting standards?
 Ensures adequate comparability.

Investors are able to make better

investment decisions if they receive
financial information from a Philippine
company that is comparable to an
international competitor.
 A single set of rules, called
International Financial
Reporting Standards (IFRS), is now
being used by over 120 countries with
90 fully conformed.
 The IASB’s mission is to develop a
single set of high quality, enforceable
and global financial reporting
standards (IFRSs) for general purpose
financial statements.
What is the IFRS?
https://www.youtube.com/watch?v=gcqMq0BEDW0
International standard-setting
structure organizations
 International standard-setting
structure organizations
1.The IFRS Foundation
2.The International Accounting Standards
Board (IASB)
3. The IFRS Advisory Council
4. The IFRS Interpretations Committee
 IFRS Foundation

Provides oversight to the IASB, IFRS

Advisory Council, and IFRS
Interpretations Committee.
 IFRS Foundation

It appoints members, reviews

effectiveness, and helps in the
fundraising efforts for these
organizations.
The IFRS Advisory Council

Provides advice and counsel to

the IASB on major policies and
technical issues.
The IFRS Interpretations Committee
assists the IASB through the
timely identification,
discussion, and resolution of
financial reporting issues within
the framework
of IFRS.
What is the purpose of the
Monitoring Board?
 Monitoring Board
to establish a link between
accounting standard-setters and
those public authorities that
generally oversee them.
 Monitoring Board
The Monitoring Board
also provides political legitimacy
to the overall organization.
 How are IASB preliminary
views and IASB exposure drafts
related to IASB standards?
https://www.youtube.com/watch?v=SmHDoyKfl0M
 Due Process

In establishing financial
accounting standards, the IASB
has a thorough, open, and
transparent due process.
 Due Process
The IASB due process has the following elements:

(1) an independent standard-setting board overseen by a

geographically and professionally diverse body of trustees;

(2) a thorough and systematic process for developing standards;

(3) engagement with investors, regulators, business leaders, and the

global accountancy profession at every stage of the process;

(4) collaborative efforts with the worldwide standard-setting

community.
Due Process
Characteristics of the IASB
 Characteristics of the IASB

• Membership.
• Autonomy.
• Independence.
• Voting
 Membership

The Board consists of 16 members.

Members are well-paid and appointed for
five-year renewable terms.

The 16 members come from different

countries.
 Autonomy

The IASB is not part of any other

professional organization. It is appointed
by and answerable only to the IFRS
Foundation.
 Independence

Full-time IASB members must sever all

ties from their past employer.

The members are selected for their

expertise in standard-setting rather than
to represent a given country.
 Voting

Nine of 16 votes are needed to issue a

new IFRS.
Type of Pronouncements
 Type of Pronouncements
The IASB issues three major types of pronouncements:

1. International Financial Reporting Standards.

2. Conceptual Framework for Financial Reporting.
3. International Financial Reporting Standards
Interpretations.
Hierarchy of IFRS
 Hierarchy of IFRS
1. International Financial Reporting Standards,
International Accounting Standards, and IFRS
interpretations originated by the IFRS Interpretations
Committee
2. The Conceptual Framework for Financial Reporting; and
3. Pronouncements of other standard-setting bodies that
use a similar conceptual framework (e.g., U.S. GAAP).
 What are the sources of
pressure that change and
influence the development of
IFRS?
 Sources of Pressure
• Individual companies,
• Industry associations,
• governmental agencies,
• practicing accountants,
• academicians,
• professional accounting organizations, and
• investing public.
Sources of Pressure
 What are the some major
challenges facing the
accounting profession relate to
the following items:
 Challenges of Accounting Profession

Nonfinancial measurement—how to report significant key

performance measurements such as customer satisfaction
indexes, backlog information and reject rates on goods
purchased.

Forward-looking information—how to report more future

oriented information.
 Challenges of Accounting Profession

Soft assets—how to report on intangible assets,

such as market know-how, market dominance, and
well-trained employees.

Timeliness—how to report more real-time

information.
Philippine Counterparts
 Philippine Counter Part

The Financial Reporting Standards Council (FRSC) was

established by the PRC under the RA 9298 to assist
the BOA in carrying out its power and function to
promulgate accounting standards in the Philippines.

The FRSC’s main function is to establish GAAP in the

Philippines.
 Philippine Counter Part

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 GAAP in the
Philippines.

The FRSC carries on the decision made by the ASC to converge PAS
with IAS issued by the International Accounting Standards Board
(IASB).
 Philippine Counter Part

The FRSC monitors the technical activities of the

IASB and invites comments on exposure drafts of
proposed IFRSs as these are issued by the IASB.

When finalized, these are adopted as Philippine

Financial Reporting Standards (PFRSs).
 Philippine Counter Part

The FRSC similarly monitors issuances of the

International Financial Reporting Interpretations
Committee (IFRIC) of the IASB, which it adopts as
Philippine Interpretations–IFRIC.

PFRSs and Philippine Interpretations–IFRIC approved

for adoption are submitted to the BOA and PRC for
approval.
 Philippine Counter Part

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.
 Philippine Counter Part

The PIC members are 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.