IFRS vs PFRS
A Research on Similarities and Differences of Philippine Financial reporting Standard (PFRS) and International Financial Reporting Standards (IFRS)
In partial fulfillment of the requirements for:
Accounting Synthesis
Submitted to:Mr. Ferdinand C. Importado, CPA,MBA
College of AccountancyDr. Yanga’s Colleges, Inc.
Submitted by:
Dalmacio, ArianneAndres, Rachelle
Dela Cruz, DenisseMorris, Ma. Rodessa
1
IFRS vs PFRS
Abstract
Financial Reporting Standards, with adoption of international standards, sets a globally
acceptable standards just like what happened when Philippine Financial Reporting Standards
(PFRS) adopted International Financial reporting Standards. In the process of adoption or
transition, some standards from IFRS are retained while others are amended to suite the local
scene. Both IFRS and PFRS are statements issued by newly created board/council, which is the
International Accounting Standards Board (IASB), formerly International Accounting Standards
Council (IASC) and Financial reporting Standards Council (FRSC), formerly Accounting
Standard Council (ASC). Generally, almost all standards or rules from the IFRS are adopted by
the local standards, but some areas included in the so called Transition relief contains the
amendments applied and approved to be practiced here in the Philippines.
2
IFRS vs PFRS
Introduction
Standard is something considered by an authority or by general consent as a basis of
comparison. It is use to make life safer, healthier and easier for people, organization and
enterprises. It reduces time, effort and money and provides best practice guidance to assess
processes to increase proficiency. It is a reliable benchmark wherein performance can be judge.
Financial reporting standards, based on the definition of standards, are use as a model or
benchmark in rendering a formal account or statement describing in detail an event or financial
transactions. There are different International Standards emerged and still developing to fill the
diverse needs of the public. These international standards are use either by direct application or
through modifications to suit the local condition, which overcome technical barriers in
international commerce.
Philippines own Financial Reporting standards is governed by Philippine financial
reporting standard (PFRS) which is one of the statements issued by the Accounting Standards
Council(ASC) ,now known as the Financial Reporting Standards Council (FRSC). This reporting
standard is base on its international counterpart, the Internatinal Financial Reporting Standard
(IFRS). It was establishes by International Accounting Stndards Board (IASB). It is also the
basis of almost all financial reporting standards all over the world, which is in line of its goal of
achieving one uniform and globally accepted financial reporting standards.
The purpose of this study is to provide data regarding the similarities and differences in
the application and components of IFRS and PFRS.
3
IFRS vs PFRS
IFRS vs PFRS
History and Background
International Financial Reporting Standards (IFRS)
International Financial Reporting Standards (IFRS) are principles-based Standards,
Interpretations and the Framework (1989), adopted by the International Accounting Standards
Board (IASB).
Many of the standards forming part of IFRS are known by the older name of International
Accounting Standards (IAS). The Board of the International (IASC) issued IAS guidelines
between 1973 and 2001. On 1 April 2001, the new IASB took over from the IASC the
responsibility for setting International Accounting Standards. During its first meeting, the new
Board adopted existing IAS. The IASB has continued to develop standards calling the new
standards IFRS.
The Framework for the Preparation and Presentation of Financial Statements states basic
principles for IFRS. The IASB and FASB Frameworks are in the process of being update and
converged. The Joint Conceptual Framework project aims to update and refine the existing
concepts to reflect the changes in markets, business practices and the economic environment that
have occurred in the two or more decades since the concepts were first developed. Its overall
objective is to create a sound foundation for future accounting standards that are principles-
based, internally consistent and internationally converged. Therefore, the IASB and the US
FASB (the boards) are undertaking the project jointly.
4
IFRS vs PFRS
Philippine Financial reporting Standard (PFRS)
In the Philippines, the development of generally accepted accounting principles is
formalized initially through the creation of the Accounting Standards Council (ASC). The
accounting standards promulgated by the Accounting Standards Council constitute the generally
accepted accounting principles in the Philippines.
The approved statements of the ASC are called previously as Statement of Financial
Accounting Standards (SFAS). These ASC Statements of Financial Accounting Standards are
now known as Philippine Accounting Standards (PAS) and Philippine Financial Reporting
Standards (PFRS).
The overall purpose of accounting standards is to identify proper accouting practices for
the preparation and presentation of financial statements.
Financial reporting Standards Council (FRSC) is the accounting standard setting body created by
the Professional Regulation Commission upon recommendation of the Board of ACcountancy
(BOA) to assist the BOA in carrying out its powers and functions provided under R.A Act No.
9298.
Statements issued by the ASC, now known as FRSC, creates a common understanding
between preparers and users of financial statements particularly on how items, for example the
valuation of assets, are treated.
The following are the list of standards for both IFRS and PFRS
5
IFRS vs PFRS
IFRS 1 First time Adoption of
International Financial Reporting
Standards
PFRS 1 First-time Adoption of Philippine
Financial Reporting Standards
IFRS 2 Share-based Payment PFRS 2 Share Based Payment
IFRS 3 Business Combinations PFRS 3 Business Combinations
IFRS 4 Insurance Contracts PFRS 4 Insurance Contracts
IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations
PFRS 5 Non-current Assets Held for Sale
and Discontinued Operations
IFRS 6 Exploration for and Evaluation of
Mineral Resources
PFRS 6 Exploration for and Evaluation of
Mineral Resources
IFRS 7 Financial Instruments: Disclosures PFRS 7 Financial Instruments: Disclosures
IFRS 8 Operating Segments PFRS 8 Operating Segments
IFRS 9 Financial Instruments PFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements PFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements PFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other
Entities
PFRS 12 Disclosure of Interests in Other
Entities
IFRS 13 Fair Value Measurement PFRS 13 Fair Value Measurement
The Philippines Financial Reporting Standards Council (PFRSC) has adopted most IFRSs, in
some cases with modifications, and in some cases the most recent amendments to IFRSs have
not been adopted. These standards are known as Philippine Financial Reporting Standards
6
IFRS vs PFRS
(PFRSs) and Philippine Accounting Standards (PASs). Philippine standards apply to all entities
with public accountability. That includes:
entities whose securities are listed in a public market or are in process of listing;
all financial institutions including banks, insurance companies, security brokers, pension
funds, mutual funds, and investment banking entities;
public utilities; and
other economically significant entities, defined as total assets in 2004 of at least 250
million pesos (US$5 million) or liabilities of at least 150 million (US$3 million).
The modifications, which have been described as 'transition relief' (use to reduce the effect of
passing from one form to another), include some in the following areas:
Reduced segment reporting disclosures
Exemption from applying tainting rule for a specific set of financial instruments
Commodity derivative contracts of mining companies as of 1 January 2005
'grandfathered'
Insurance companies allowed to use another comprehensive set of accounting principles
(also described as Philippine Financial Reporting Standards)
For banks, losses from sale of non-performing assets allowed to be amortized over a
period of time
Some additional changes to IASB's pension, foreign exchange, and leases Standards
The auditor's report refers to "conformity with Philippine Financial Reporting Standards".
7
IFRS vs PFRS
The following are the major difference/exemptions between locally adopted IFRS (or PFRS)
and IFRS, some are based on the areas mentioned in the transition relief:
On initial adoption of PFRS, an entity can opt to defer the recognition of the transitional
liability under PAS 19 for a period of up to five years.
Transition relief was given to all reporting entities with respect to the presentation of
comparative information for the new risk disclosures about the nature and extent of risks
arising from financial instruments required under PFRS 7, upon initial adoption in
January 1, 2007, unless the disclosure was previously required under PAS/IAS 30 or
PAS/IAS 32.
For pre-need companies, the accounting standards for pre-need plans and pre-need
uniform chart of accounts as approved by the SEC are considered as the financial
reporting framework. The Philippine Securities and Exchange Commission in its meeting
on March 1, 2007 issued a notice that resolved that pending finalisation of the revised
Pre-Need Uniform Chart of Accounts (PNUCA) and the acceptable accounting standards
for the pre-need companies
For insurance companies, the deferral of application of PAS 32 and 39 and PFRS 4 was
allowed until January 1, 2006.
For Philippine financial reporting purposes, IFRIC 15 is only effective for annual periods
beginning on or after January 1, 2012. The FRSC decided to require mandatory
application of the Interpretation in 2012 to allow entities, engaged in real estate business,
time to prepare for the implementation of the Interpretation. Entities are allowed to apply
8
IFRS vs PFRS
the percentage of completion method from the sales of property under pre-completion
contracts in accordance with Philippine Interpretation Committee (PIC) Q&A No. 2006-
01 until the effectiveness of IFRIC 15.
For trust fund assets, the valuation provisions of PAS 39 and PAS 40 effective as of
January 1, 2005 shall be used beginning with the December 31, 2005 annual financial
statements. Reports prepared for interim periods during the initial year of adoption are
exempt from the application of the valuation provisions of PAS 39 and PAS 40.
Under Philippine Accounting Standards (PAS) 27, other financial reporting standards that
are converged or virtually converged with IFRS are deemed acceptable in applying the
provisions of PAS 27.10d on the exemption from the preparation of consolidated
financial statements (PIC Q&A 2006-02). The Philippine Interpretations Committee
(PIC) has approved Questions and Answers (Q&As) on revenue recognition for sales of
property units under pre-completion contracts and clarification of the criteria for
exemption from presenting consolidated financial statements. The Q&As have been
approved for issuance by the Philippine Financial Reporting Standards Council (FRSC).
Q&A No. 2006-01: PAS 18, Appendix, paragraph 9 – Revenue recognition for sales of
property units under pre-completion contracts This Q&A allows the use of the percentage
of completion (POC) method in accounting for revenues related to pre-completion
contracts on the basis of the transfer of equitable interest to the buyer as provided in the
appendix to PAS 18 Revenue. The Q&A also lists conditions that must be met for the use
of the POC method. Q&A No. 2006-02: PAS 27.10(d) – Clarification of criteria for
exemption from presenting consolidated financial statements PAS 27 Consolidated and
Separate Financial Statements specifies the criteria to be met in order that a parent
9
IFRS vs PFRS
company need not present consolidated financial statements. This Q&A clarifies the
following criteria for purposes of that exemption: (a) when consolidated financial
statements are considered 'available for public use' (for example, when these are posted in
websites) (b) financial reporting framework of other countries considered acceptable for
purposes of the exemption (e.g., those that are converged or virtually converged with
IFRS or are conceptually similar to IFRS).
Exemption from the tainting provision under PAS 39 for certain transactions such as the
exchange of Benchmark Bonds and investment in foreign currency denominated National
Government/Bangko Sentral ng Pilipinas bonds/debt securities.
For mining companies, transitional relief from the application of PAS 39 on hedging
contracts entered into and effective prior to January 1, 2005 but outstanding as of January
1, 2006 was granted. Under the approved transitional relief, certain commodity derivative
contracts of mining companies shall be 'grandfathered' and exempted from the fair value
requirements of PAS 39. The said approval shall be subject to the following conditions:
1. Derivative contracts of mining companies shall qualify for exemption from PAS 39 if
all the following requirements are met:
a. Commodity derivative contracts entered into and effective prior to 1 January 2005;
b. Commodity derivative contracts with original maturity of more than 1 year; and
c. Commodity derivative contracts that would have qualified under PAS 39 hedge
accounting rules had these been applied at inception of such contracts.
10
IFRS vs PFRS
2. Mining companies availing of the transitional relief from PAS 39 shall apply the same
to all such contracts outstanding as of 1 January 2006 on a retrospectively basis.
Applying such exemption only to selected transactions shall not be permitted. The
companies will have to decide either to apply such exemption to all or none of its
qualified contracts.
3. Mining companies shall make an irrevocable choice to avail of the exemption by a
written notice to the Philippine SEC on or before 29 December 2006. A mining company
availing of the exemption shall nonetheless indicate in the notes to financial statements
the following:
a. the fact that it availed of such exemption;
b. the applicable disclosures required by PAS 32 (Financial Instruments: Disclosure and
Presentation) and its forthcoming amendments embodied in Philippine Financial
Reporting Standard (PFRS) 7 Financial Instruments: Disclosures, which is effective for
annual reporting periods beginning on or after 1 January 2007; and
c. a presentation of the quantitative impact on retained earnings and net income for the
reporting periods covered, had the subject derivatives not been exempted from PAS 39
and accounted for under non-hedge treatment.
For listed companies, relief was granted in the preparation of interim financial statements
in 2005 as the more complex PFRS will be applied for the first time. After this first time
application, the rules on interim financial reporting shall take effect on January 1, 2006.
11
IFRS vs PFRS
The amendments to PAS 39 differ from the amendments to IAS 39 which uses a
November 1, 2008 "cut-off date". Since the FRSC only adopted the amendments on
October 29, 2008, the Council decided to change the "cut-off date" for Philippine
financial reporting purposes to November 15, 2008. The November 15, 2008 "cut-off
date" approximates the period between October 13, 2008, the date when IASB
amendments were issued, and November 1, 2008.
For Philippine financial reporting purposes, IFRIC 15 is only effective for annual periods
beginning on or after January 1, 2012. The FRSC decided to require mandatory
application of the Interpretation in 2012 to allow entities, engaged in real estate business,
time to prepare for the implementation of the Interpretation. Entities are allowed to apply
the percentage of completion method from the sales of property under pre-completion
contracts in accordance with Philippine Interpretation Committee (PIC) Q&A No. 2006-
01 until the effectiveness of IFRIC 15.
PAS 20 is consistent with IAS 20 in all material respect, except for the accounting for
government loans with low interest rates. PIC Q&A 2007-02 issued three alternative
accounting methods.
For qualified Non-Publicly Accountable Entities (NPAEs) in which conversion to full
PFRS is optional under Philippine Accounting Standard No. 101 (PAS 101), Financial
Reporting Standards for Non-publicly Accountable Entities, until such standard is
superseded, provided they will apply all PAS/IAS which are effective in the Philippines
as of January 1, 2004. However, this was revoked upon the adoption of PFRS for Small
and Medium Entities (SMEs).The FRSC has also approved an amendment to PAS 101,
Financial Reporting Standards for Non-Publicly Accountable Entities - Change in
12
IFRS vs PFRS
Effective Date. The effective date of the standard for 2005 to 2007 has been deleted.
When PAS 101 was approved in October 2005, it was expected that the IASB, based on
its project timetable at that time, would issue an exposure draft on accounting by NPAEs
in March 2006 and the final standard in 2007. Accordingly, PAS 101 was made effective
for 2005 to 2007, unless revoked earlier. A draft standard for NPAEs, now referred to as
small and medium-sized entities (SMEs), was recently issued by the IASB, with a final
standard in mid-2008.
For qualified Non-Publicly Accountable Entities (NPAEs), conversion to full PFRS is
optional under Philippine Accounting Standard No. 101 provided they will apply all
PAS/IAS which are effective in the Philippines as of January 1, 2004. However, this was
revoked upon the adoption of PFRS for Small and Medium Entities effective January 1,
2010 (see related discussions below).
The Philippine SEC has adopted PFRS for SMEs, which is based on the IFRS for SMEs
issued by the IASB. PFRS for SMEs is effective for certain companies qualified as SMEs
for annual periods beginning on or after January 1, 2010, except for the guidance in
applying the requirement of Section 23 (Revenue) in recognizing revenue from
agreement for construction of real estate which shall take effect for periods beginning on
or after January 1, 2012. Early adoption for financial statements as of December 31, 2009
is permitted.
Small and Medium-sized Entities
The IFRS for SMEs was adopted in the Philippines effective 1 January 2010. It is known as
the Philippine Financial Reporting Standard for SMEs (PFRS for SMEs). The Philippine
13
IFRS vs PFRS
Securities and Exchange Commission, in its En Banc Resolution dated August 13, 2009, adopted
a definition of 'small and medium-sized entities' that includes a size criterion. An entity is an
SME if:
1. The entity has total assets of between P3 million and P350 million or total liabilities of
between P3 million and P250 million;
2. It is not required to file financial statements under SRC Rule 68.1;
3. It is not in the process of filing its financial statements for the purpose of issuing any
class of instruments in a public market;
4. It is not a holder of a secondary license issued by a regulatory agency, such as a bank (all
types of banks), an investment house, a finance company, an insurance company, a
securities broker/dealer, a mutual fund and a pre-need company; and
5. It is not a public utility.
Entities below those thresholds (so-called 'micro entities') may use the PFRS for SMEs or
'another acceptable basis of accounting'.
For qualified SMEs, full conversion to PFRS for SMEs is mandatory for all financial statements
for annual periods beginning on or after January 1, 2010 except when the entity meets any of
the following criteria:
a. It is a subsidiary of a parent company reporting under the full PFRS;
b. It is a subsidiary of a foreign parent company that will be moving towards IFRS pursuant
to the foreign country’s published convergence plan;
c. It is a subsidiary of a foreign parent company that has been applying the standards for a
nonpublicly accountable entity for local reporting purposes, and is considering moving to
14
IFRS vs PFRS
full PFRS instead of the PFRS for SMEs in order to align its policies with the expected
move to full IFRS by its foreign parent company pursuant to its country’s published
convergence plan;
d. It has short-term projections that show that it will breach the quantitative thresholds set in
the criteria for an SME, and the breach is expected to be significant and continuing due to
its long-term effect on the company’s asset or liability size;
e. It is part of a group, either as a significant joint venture or an associate, that is reporting
under the full PFRS;
f. It is a branch office of a foreign company reporting under the full IFRS;
g. It has concrete plans to conduct an initial public offering within the next two (2) years;
h. It has a subsidiary that is mandated to report under the full PFRS; and
i. It has been preparing financial statements using full PFRS and has decided to liquidate its
assets.
15
IFRS vs PFRS
Conclusion
IFRS, as the basis of almost all the reporting standards in the world, is also adopted by the
Philippines in the name and form of PFRS. PFRS adopted mostly the standards of IFRS with
some modifications and amendments. With each standard titles, it is noticeable that the
Philippines adopted the titles as is. Almost all standards by IFRS and PFRS are the same except
from those called as transition reliefs, which are the modifications, made from the adoption of
IFRS locally. It can be concluded therefore, that some amendments recently declared by the
IFRS is possibly not adopted by PFRS, and just based on the standards practicable from the date
of the adoption and its effectivity.
16
IFRS vs PFRS
References
www.wikipedia.com
www.iasplus.com
17