Financial Reporting Standards Council (FRSC)

Creation and Function

Established by the Board of Accountancy (BOA) in

2006 under the Implementing Rules and
Regulations of the Philippine Accountancy of 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.
In achieving this objective, the FRSC considers
Standards issued by the IASB.

The FRSC is the successor of the Accounting

Standards Council (ASC), which 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 Composition

The FRSC is composed of a chairman, who had been
or presently a senior accounting practitioner in any
scope of accounting practice, and 14 representatives
from:

Board of Accountancy - 1

Securities and Exchange Commission - 1

Bangko Sentral ng Pilipinas - 1

Bureau of Internal revenue - 1

Commission on Audit - 1

A major organization of preparers and users of

financial statements (currently, FINEX)

Accredited national professional organization

(APO) of CPAS (currently, PICPA):
Public Practice - 2
Commerce and Industry - 2
Academe or Education - 2
Government - 2

Appointment and Term of office

The Chairman and members of the FRSC are
appointed by the PRC upon the recommendation of
the BOA in coordination with the APO.
All members of the Financial Reporting Standards
Council (FRSC) including the chairman shall have a
term of 3 years and is renewable for another term.

Consideration of IFRSs issued by IASB

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.

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The FRSC issues news releases to announce the

issuance of final Standards and Interpretations,
exposure drafts and other matters which are posted in
the Philippine Accounting Standards section of the
PICPA website (www.picpa.com.ph).
FRSC pronouncements
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 (PASs) [these
correspond
to
International
Accounting
Standards (lASs)]; 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.
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.

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
Standards

Philippine

Financial

Reporting

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 PFRSs.
The PFRSs

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 and it
provides a basis for the use of judgment in
resolving accounting issues.

Fi n a n c i a l Re p o r t i n g S t a n d a rd s

Scope of the PFRSs

PFRSs are designed to apply to the general

purpose financial statements and other financial
reporting of all profit-oriented entities. Profitoriented 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.

(d)
(e)

Timing of Application of PFRS

PFRSs apply from a date specified in the

document. New or revised PFRSs set out
transitional provisions to be applied on their initial
application.

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

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.

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.

Accounting alternatives

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.

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.
Structure of the PFRSs

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
the Preface to PFRS.

Any limitation of the scope of a PFRSs is made

dear in the standard.
Due Process
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 involve the
following steps:
(a) consideration of pronouncements of the IASB;
(b) formation of a task force, when deemed
necessary, to give advice to the FRSC;
(c) issuing for comment an exposure draft approved
by a majority of the FRSC members; comment
period will be at least 60 days, unless a shorter

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period (not less than 30 days) is considered

appropriate by the FRSC;
consideration of all comments received within
the comment period and, when appropriate,
preparing a comment letter to the IASB; and
approval of a standard or an interpretation by a
majority of the FRSC members.

- done -

REVIEW QUESTIONS
1.

Which statement is correct regarding the

Financial Reporting Standards Council (FRSC)
a. Established by PICPA in 2006 under the
Implementing Rules and Regulations of the
Philippine Accountancy of Act of 2004.
b. The main function is to establish generally
accepted auditing standards in the
Philippines.
c. The Chairman and members of the FRSC
are appointed by the president of the
Philippines upon the recommendation of the
PRC in coordination with the APO.
d. The FRSC is the successor of the
Accounting Standards Council (ASC) which
was created in November 1981 by the
Philippine Institute of Certified Public
Accountants (PICPA).

2.

Which of the following is a characteristic of the

Financial Reporting Standards Council (FRSC)?
a. Any member of the ASC shall be disqualified
from being appointed to the FRSC
b. FRSC members are required to render
service to the Council on a full-time basis.
c. FRSC members serve without compensation
for a term of three years, which can be
renewed for another three-year periods.

Fi n a n c i a l Re p o r t i n g S t a n d a rd s

d.
3.

4.

5.

FRSC members should be CPAs.

c.

Financial Reporting Standards Council (FRSC)

has
a. 14 members with a Chairman
b. 15 members with a Chairman
c. 16 members with a Chairman
d.
8 members with a Chairman
The chairman of the FRSC should have been or
presently a senior practitioner in
a. Public accountancy
b. Commerce and industry
c. Academe
d. Any scope of accounting practice
Which of the following government agency is not
represented in FRSC?
a. Bangko Sentral ng Pilipinas
b. Securities and Exchange Commission
c. Bureau of Internal Revenue
d. Commission on Higher Education

6.

Which of the following is represented in FRSC?

a. FINEX
b. Bureau of Fisheries
c. Insurance Commission
d. Commission on Higher Education

7.

Which of the following bodies is responsible for

reviewing accounting issues that are likely to
receive divergent or unacceptable treatment in
the absence of authoritative guidance, with a
view to reaching consensus as to appropriate
accounting treatment?
a. Auditing and Assurance Standards Council
(AASC)
b. Financial Reporting Standards Council
(FRSC)
c. Philippine Interpretations Committee (PIC)
d. PICPA

8.

The PIC members were appointed by the ____

and include accountants in public practice, the
academe and regulatory bodies and users of
financial statements
a. SEC
c. BOA
b. PRC
d. FRSC

9.

The pronouncements of FRSC provide the

highest
authoritative
pronouncements
on
accounting principles. The authority of these
pronouncements rests upon
a. The rules and regulations of the SEC
b. Its
management
and
their
internal
accounting staff
c. Their general acceptability
d. The integrity of the Council

10. The FRSC issues its Standards in a series of

pronouncements called PFRSs. These consist of
a. PFRSs
c. Philippine
Interpretations
b. PASs
d. All of these
11. Which statement is incorrect regarding Philippine
Financial Reporting Standards (PFRSs)?
a. PFRSs set out recognition, measurement,
presentation and disclosure requirements
dealing with transactions and events that are
important in general purpose financial
statements.
b. PFRSs are designed to apply to the general
purpose financial statements and other
financial reporting of all profit-oriented
entities.

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d.

PFRSs are designed to apply to not-for-profit

activities in the private sector.
All of the above

12. 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.
Any limitation of the scope of a PFRS is made
clear in the standard.
a.
b.

True, True
False, False
False, True
False

c.
d. True,

13. The FRSC employs a "due process" system

which
a. Is an efficient system for collecting dues from
members.
b. Enables interested parties to express their
views on issues under consideration.
c. Identifies the accounting issues that are the
most important.
d. Requires that all accountants must receive a
copy of financial standards.
14. Arrange in proper order the due process for
projects of FRSC:
I. Issuing for comment an 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
II. Consideration of pronouncements of the
IASB
III. Formation of a task force, when deemed
necessary, to give advice to the FRSC
IV. Approval of a standard or an interpretation
by a majority of the FRSC members
V. Consideration of all comments received
within the comment period and, when
appropriate, preparing a comment letter to
the IASB
a.
b.

I, II, III, IV and V c. II, III, I, V and IV

III, II, I, V and IV d. II, III, V, I and IV

15. Which is not part of the accounting standardsetting process in the Philippines?
a. Preparation of a draft of proposed Philippine
Financial Reporting Standards (PFRS) by a
Task Force organized by the Chairman.
b. Exposure of the proposed draft for
comments and suggestion to PICPA
members, FINEX members and other
interested parties.
c. Approval of the final PFRS by the Profession
Regulation Commission.
d. Publication in the Official Gazette or in
newspaper of general circulation of the
proposed draft.
16. Which statement is true about the IASBs
development of IFRSs?
a. The IASB gives precedence to the balance
sheet over Profit or Loss.
b. The IASB gives precedence to fair value
accounting over amortized cost.
c. Both a and b.
d. Neither a nor b.

Fi n a n c i a l Re p o r t i n g S t a n d a rd s

17. Which of the following statements describes the

effects of adopting high-quality accounting
standards?
a. Elimination of earnings management.
b. Higher abnormal returns.
c. Less volatility of accounting numbers.
d. The adoption of high-quality accounting
standards by countries with weak regulatory
environments will enable them to strengthen
their capital markets.

d.
5.

What are the accounting principles commonly

known as?
a. Standards
b. Methods
c. Rules
d. Regulations

6.

Which statement is(are) correct regarding

Philippine
Financial
Reporting
Standards
(PFRSs)?
a. PFRSs set out recognition, measurement,
presentation and disclosure requirements
dealing with transactions and events that are
important in general purpose financial
statements.
b. PFRSs are designed to apply to the special
purpose financial statements and other
financial reporting of all profit-oriented
entities.
c. PFRSs are designed to apply to not-for-profit
activities in the private sector.
d. All of the above

7.

PFRSs approved by the FRSC include

paragraphs in bold type and plain text. In relation
to the PFRS paragraphs in bold type, are the
following statements true or false?
(1) Bold-type paragraphs should be given
greater authority than the paragraphs in plain
text.
(2) Bold-type paragraphs indicate the main
principles of the standard.

18. Which of the following statements reflects one of

the benefits of adoption of International Financial
Reporting Standards (IFRS) by different
countries?
a. Earnings management is eliminated.
b. Cost of capital is lower for firms.
c. There are no economic consequences when
firms switch to IFRS from existing GAAP.
d. Volatility of earnings calculated using IFRS is
zero.
- now do the DIY drill

DO-IT-YOURSELF (DIY) DRILL

1.

2.

Which is incorrect concerning the FRSC?

a. The FRSC replaced the ASC as the standard
setting body in the Philippines
b. The FRSC is composed of 15 members with
a Chairman and 14 representatives from
various sectors
c. The Chairman and members of the FRSC
shall have a term of 3 years renewable for
another term
d. Any member of the ASC shall be disqualified
from being appointed to the FRSC
Which of the following is a characteristic of the
FRSC?
a. Majority of the FRSC members should come
from CPA firms
b. All FRSC members must be CPAs
c. FRSC members are required to render
service to the Council on full-time basis
d. All four sectors of the accountancy
profession are represented in the FRSC

3.

Which is correct concerning the FRSC?

a. The FRSC replaced the ASPC as the
standard setting body in the Philippines
b. The FRSC is composed of 15 members with
a Chairman including 10 representatives
from PICPA.
c. The Chairman and members of the FRSC
shall have a term of 3 years renewable for
another term.
d. Any member of the ASC shall be disqualified
from being appointed to the FRSC

4.

The role of the Philippine Interpretations

Committee (PIC) is principally to issue
implementation guidance on PFRSs.
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.
a.
b.
c.

True, True
True, False
False, False

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False, True

Statement 1
a. False
b. True
c. False
d. True

Statement 2
True
True
False
False

8.

The period of exposing the draft of a proposed

PFRS will be at least sixty (60) days, unless a
shorter period is considered appropriate by the
FRSC. The shorter period should be
a. Not less than 30 days
b. 30 days no more less
c. Less than 30 days
d. More than 30 days but not exceed 59 days

9.

Due process for projects of FRSC normally

includes the following, except
a. Consideration of pronouncement of the
IASB.
b. Formation of a task force, when deemed
necessary, to give advice to the FRSC.
c. Issuing for comment an exposure draft
approved by at least eight members of the
Council; comment period will be at least sixty
days.
d. Approval of a standard or an interpretation
by all of the Council members.

10. The process of establishing financial accounting

standards
a Is a democratic process in that a majority of
practicing accountants must agree with a
standard before it becomes implemented.
b Is a legislative process based on rules
promulgated by government agencies.
c
Is based solely on economic analysis of the
effects each standard will have if it is
implemented.
d Is a social process which incorporates
political actions of various interested user

Fi n a n c i a l Re p o r t i n g S t a n d a rd s

groups as well as professional research and

logic.
11. International Financial Reporting Standards
(IFRSs) include:
a. Standards and Interpretations approved by
the IASB
b. International Accounting Standards (IASs)
c. SIC Interpretations
d. All of the above
12. The role of International Financial Reporting
Standards (IFRS) and International Accounting
Standards (IAS) is
a. To reduce possible number of accounting
differences
b. To produce globally recognized standards
c. Both of the above
d. Neither of the above
- end of ToA.1801 -

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