1.1 Standard-Setting Bodies and Regulation of the Accountancy Profession
Key Takeaways
The Financial Reporting Standards Council, renamed the Financial and Sustainability Reporting Standards Council by BOA Resolution No. 44 (s. 2022), develops PFRS and PAS for approval by the BOA and the PRC.
Under the RA 9298 IRR, the accounting standards council has 15 members: a chairman plus representatives of the BOA, SEC, BSP, BIR, COA, a preparers-and-users organization, and eight from the accredited professional organization.
PAS 8 requires a specific PFRS first; absent one, management looks to PFRSs on similar issues, then the Conceptual Framework, then non-conflicting pronouncements of other standard setters.
RA 9298 recognizes four sectors of practice (public practice, commerce and industry, education, and government) and integrates all CPAs in one accredited organization, PICPA.
Accreditation for public practice requires at least three years of meaningful experience, is renewed every three years, and cannot be held by a corporation.
Standard-Setting Bodies and Regulation of the Accountancy Profession
Financial reporting in the Philippines rests on two foundations tested in the first FAR topic: the bodies that develop and approve accounting standards, and the laws that regulate the accountants who apply them. This section traces the move from US-based standards to Philippine Financial Reporting Standards (PFRS), explains how standards are approved, sets out the PAS 8 hierarchy for choosing accounting policies, and summarizes how RA 9298 organizes the profession.
1. Development of Financial Reporting Standards in the Philippines
Historical Transition to International Standards
Philippine accounting historically drew directly from United States Generally Accepted Accounting Principles (US GAAP), as codified by the Accounting Standards Council (ASC) beginning in 1981. However, recognizing the globalization of capital markets, the Philippine accounting profession initiated a formal transition toward international standards in 1996. By 2005, the Philippines completed its full transition to international accounting standards, moving from US GAAP-based SFASs to standards fully aligned with International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) issued by the International Accounting Standards Board (IASB).
Republic Act No. 9298 (The Philippine Accountancy Act of 2004)
Republic Act No. 9298 serves as the regulatory cornerstone of the accountancy profession in the Philippines. It established the institutional structure governing professional certification, standard-setting, and practice oversight under the executive authority of the Professional Regulation Commission (PRC) and the Professional Regulatory Board of Accountancy (BOA).
The Financial Reporting Standards Council (FRSC), now the FSRSC
The Implementing Rules and Regulations of RA 9298 (Section 9(A)) directed the PRC, on the Board's recommendation, to create the Financial Reporting Standards Council (FRSC) to replace the former Accounting Standards Council. In September 2022, BOA Resolution No. 44 (s. 2022) renamed it the Financial and Sustainability Reporting Standards Council (FSRSC) and widened its mandate to sustainability reporting standards (IFRS S1 and S2). The Resolution No. 30 syllabus still uses the older name. The council is the official accounting standard-setting body in the Philippines, responsible for establishing, reviewing, and promulgating Philippine Financial Reporting Standards (PFRS) and Philippine Accounting Standards (PAS).
The council comprises 15 members representing diverse sectors of the accounting ecosystem:
- A Chairman, who had been or is a senior accounting practitioner in any scope of accounting practice.
- One representative from the Professional Regulatory Board of Accountancy (BOA).
- One representative from the Securities and Exchange Commission (SEC).
- One representative from the Bangko Sentral ng Pilipinas (BSP).
- One representative from the Bureau of Internal Revenue (BIR).
- One representative from the Commission on Audit (COA).
- One representative from a major organization composed of preparers and users of financial statements (in practice, the Financial Executives Institute of the Philippines or FINEX).
- Eight representatives from the Philippine Institute of Certified Public Accountants (PICPA), distributed equally with two representatives from each of the four accredited accounting practice sectors:
- Public Practice (2 representatives)
- Commerce and Industry (2 representatives)
- Education / Academe (2 representatives)
- Government (2 representatives)
Under the IRR, the Chairman and members are appointed by the PRC upon the Board's recommendation in coordination with the APO, and serve a term of three years renewable for another term.
The Philippine Interpretations Committee (PIC)
In August 2006, the FRSC formed the Philippine Interpretations Committee (PIC) to replace the previous Interpretations Committee. The role of the PIC is to assist the FRSC in establishing and improving financial reporting standards by:
- Evaluating newly issued interpretations from the IFRS Interpretations Committee (formerly IFRIC) and the Standing Interpretations Committee (SIC).
- Providing timely guidance on financial reporting issues not specifically addressed in current PFRS.
- Addressing contentious or divergent accounting practices arising from local statutory or economic conditions.
PIC interpretations are submitted to the FRSC for formal approval before being endorsed to the BOA and PRC for legal promulgation.
The PFRS Architecture
Under the Philippine financial reporting framework, PFRS encompasses three distinct components:
- Philippine Financial Reporting Standards (PFRS): Standards corresponding to International Financial Reporting Standards (IFRS).
- Philippine Accounting Standards (PAS): Standards corresponding to International Accounting Standards (IAS).
- Philippine Interpretations: Interpretations developed by the PIC and approved by the FRSC, alongside adopted IFRIC and SIC interpretations.
2. Hierarchy of Financial Reporting Standards (PAS 8 Hierarchy)
When an entity prepares financial statements in conformity with PFRS, management must navigate a mandatory hierarchy codified in PAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors). The hierarchy dictates how accounting policies must be selected:
| Level | Authority Level | Mandatory Source | Application Rules |
|---|---|---|---|
| Level 1 | Absolute Primary Authority | Specific PFRS or PAS | When a PFRS specifically applies to a transaction, other event, or condition, the accounting policy applied must be determined by applying that standard. |
| Level 2 | Analogy to Existing Standards | Similar PFRS Guidance | In the absence of a specific PFRS, management refers to requirements in PFRSs dealing with similar and related issues. |
| Level 3 | Foundational Concepts | Conceptual Framework | Management considers the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Conceptual Framework. |
| Level 4 | Non-Conflicting Authoritative Literature | Other Standard-Setting Bodies | Management may consider the most recent pronouncements of other standard-setting bodies (e.g., US FASB), other accounting literature, and accepted industry practices, to the extent that these do not conflict with Level 1, 2, or 3. |
Management must not bypass higher-level guidance to apply lower-level literature. Level 4 guidance is non-mandatory and permissive only when higher tiers provide no direct answer.
3. Regulation and Environment of the Accountancy Profession
The FAR syllabus (topic 1.2) also asks candidates to explain how the profession itself is regulated.
| Institution or Rule | Source | What the Candidate Should Know |
|---|---|---|
| Professional Regulatory Board of Accountancy (BOA) | RA 9298, Sections 5-9 | Chairman and six members under the PRC's supervision; adopts accounting and auditing standards, prescribes the Code of Ethics, prepares the CPALE syllabi and questions, and investigates violations. |
| Accredited Professional Organization (APO) | RA 9298, Section 30 | All registered CPAs are integrated in one accredited national organization, the Philippine Institute of Certified Public Accountants (PICPA). |
| Four sectors of practice | RA 9298, Section 4 | Public practice, commerce and industry, education/academe, and government. |
| Accreditation for public practice | RA 9298, Sections 28 and 31 | Single practitioners and partnerships must be CPAs; a certificate of accreditation requires at least three years of meaningful experience; registration of practitioners and firms is renewed every three years; the SEC may not register a corporation organized for public accountancy. |
| Continuing education | RA 9298, Section 32; RA 10912 | CPAs must meet the continuing professional development requirements issued by the Board and the PRC. |
| Standard-setting councils | IRR Section 9(A) | The FSRSC (financial and sustainability reporting) and the Auditing and Assurance Standards Council (AASC) assist the Board; their standards take effect upon approval by the BOA and the PRC. |
Tip
Board questions often mix these bodies up: the FSRSC sets accounting standards, the AASC sets auditing and assurance standards, the BOA adopts and enforces them, and PICPA is the professional organization, not a regulator.
Which body promulgates Philippine Financial Reporting Standards (PFRS) and Philippine Accounting Standards (PAS), subject to approval by the Board of Accountancy and the PRC?
Financial and Sustainability Reporting Standards Council (FSRSC, formerly the FRSC)
Professional Regulatory Board of Accountancy (BOA) acting alone
Philippine Institute of Certified Public Accountants (PICPA)
Auditing and Assurance Standards Council (AASC)
Which statement about the regulation of public accountancy under RA 9298 is correct?
A CPA may practice public accountancy through a stock corporation registered with the SEC.
Accreditation for public practice, once granted, never needs renewal.
PICPA, as the accredited professional organization, issues and revokes certificates of registration.
A certificate of accreditation for public practice requires at least three years of meaningful experience, and the SEC may not register a corporation organized for public accountancy.
A transaction is not covered by any specific PFRS. Under the PAS 8 hierarchy, what should management consider first in developing an accounting policy?
The most recent pronouncements of other standard-setting bodies such as the US FASB
Accepted industry practice, provided it produces the highest reported profit
The requirements in PFRSs dealing with similar and related issues
The tax treatment prescribed by the National Internal Revenue Code
Sections you finish are checked off in the contents.