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

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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.

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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.

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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.

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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

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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

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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".

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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

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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

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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.

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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. 

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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

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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

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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

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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.

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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.

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IFRS vs PFRS

References

www.wikipedia.com

www.iasplus.com

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