Philippines Philippines is included in the IFAD GAAP Convergence Studies National Professional Organisation Website: Philippine Institute of Certified Public Accountants Response to IFAC Member Body Survey on Standard Setting and Regulation World Bank ROSC Accounting and Auditing Report Update for April 2007 Update for February 2007 Update for July 2006 Update for April 2006 Update for January 2006 Update for November 2005 Update for January 2005 Update for July 2004 Update for April 2004 Update for January 2004 Update for October 2003 Update for October 2002 Update for July 2002 Update for January 2002 Update for October 2001 Update for January 2001 Update for October 2000 Manila: Financial Reporting Framework in the Philippines (Updated October 2007) Accounting standards in the Philippines are approved by the Securities and Exchange Commission (SEC). The Philippines has adopted all IFRSs for 2005 with some modifications. These Philippine equivalents to IFRSs 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$3 million). The modifications, which have been described as 'transition relief', are in the following areas: Reduced segment reporting disclosures Exemption from applying tainting rule for a specific set of financial instruments Commodity derivative contracts of mining companies as of 1 January 2005 'grandfathered' Insurance companies allowed to use another comprehensive set of accounting principles (also described as Philippine Financial Reporting Standards) For banks, losses from sale of non-performing assets allowed to be amortised over a period of time Some additional changes to IASB's pension, foreign exchange, and leases Standards The auditor's report refers to "conformity with Philippine Financial Reporting Standards". Non-Publicly Accountable Entities (SMEs) Non publicly accountable entities (NPAEs, sometimes called SMEs) have been given a two-year deferral (2005 to 2007) from the transition to IFRS equivalents. Instead, they are permitted to use Philippines accounting standards that were in effect in 2004. The Philippines uses the IASB's draft criteria for distinguishing publicly accountable entities from non-publicly accountable – publicly accountable if: (a) publicly listed, (b) holds assets in a fiduciary capacity, (c) public utility, or (d) economically significant. For Philippines purposes, economic significance means total assets over Php 250 million (approximately US$ 5 million) or total liabilities over Php 150 million in 2004. Click for SEC Announcement (PDF 151k). April 2007 Update Philippine Financial Reporting Standards Council (FRSC) The Philippine Financial Reporting Standards Council (FRSC) issued the following IASB documents for comment: Exposure Draft of Proposed Amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards-Cost of an Investment in a Subsidiary Exposure Draft of Proposed Amendments to IAS 24, Related Party Disclosures - State-controlled Entities and the Definition of a Related Party Exposure Draft of International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) The FRSC also approved the issuance of the following interpretations and new accounting standard: Philippine Interpretation IFRIC-11, Group and Treasury Share Transactions Philippine Interpretation IFRIC-12, Service Concession Arrangements Philippine Financial Reporting Standard 8, Operating Segments. The FRSC has also approved an amendment to PAS 101, Financial Reporting Standards for Non-Publicly Accountable Entities - Change in 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. With this development, PAS 101 will continue in effect until it is withdrawn by the FRSC. Philippine Securities and Exchange Commission Notice 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, the following shall be complied with by the said entities: Submit on or before due date their 2006 audited financial statements on the basis of the applicable accounts in the existing PNUCA and the effective Philippine Accounting Standards (PAS)/Philippine Financial Reporting Standards (PFRS) except for the accounting treatment on revenues and financial liabilities which shall be recognized and measured in accordance with the existing acceptable practices of the industry; Pre-need companies that have issued life plans must adopt and implement in their 2006 audited financial statements the requirements of (a) PFRS 4 (Insurance Contracts) to account for the said life plan product; and (b) the appropriate standard for such other plans they may have. The above pronouncement forms part of the generally accepted accounting principles in the Philippines. February 2007 Update Securities and Exchange Commission Notice The Philippine Securities and Exchange Commission in its Resolution No. 493 dated November 16, 2006 issued a notice which approved the transitional relief from PAS 39 Financial Instruments: Recognition and Measurement, covering the hedging contracts of mining companies that were entered into and effective prior to 1 January 2005. 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. 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. Questions and Answers issued by the Philippine Interpretations Committee 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 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). July 2006 Update Securities and Exchange Commission Memorandum Circulars Newly Adopted Accounting Standards The Philippine Securities and Exchange Commission (SEC) in its Memorandum Circular No. 4 Series of 2006 approved the adoption in its rules and regulations the following accounting standards as approved by the Accounting Standards Council: Title Effective Date PFRS 6: Exploration for and Evaluation of Mineral Resources 1/1/06 PFRS 7: Financial Instruments: Disclosures 1/1/07 Amendments to PAS 39: Cash Flow Hedge Accounting Forecast Intra-group Transactions 1/1/06 Amendments to PAS 39: The Fair Value Option 1/1/06 Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts 1/1/06 Amendments to PAS 1: Capital Disclosures 1/1/07 The Philippine SEC issued Memorandum Circular No. 1 Series of 2006 Guidelines on the Filing of Functional Currency Financial Statements. This circular guides companies whose functional currency (currency of the primary economic environment in which the company operates) is other than the Philippine peso and whose financial statements are expressed in that functional currency. The company's determination of its functional currency must be made in accordance with PAS 21 The Effects of Changes in Foreign Exchange Rates. SRC Rules 68 and 68.1 The SEC has amended SRC Rules 68 and 68, which govern the required form and content of financial statements. The Rules now require that all financial statements filed with the Commission be in accordance with Philippine Financial Reporting Standards (PFRSs) and related interpretations adopted by the Commission and the Financial Reporting Standards Council (FRSC). SEC Notice to Pre-need Companies The SEC has notified pre-need (that is, insurance) companies to submit on or before 15 April 2006 their audited financial statements based on the existing Pre-need Uniform Chart of Accounts (PNUCA) but using all effective Philippine Accounting Standards (PASs)/Philippine Financial Reporting Standards (PFRSs) except for the accounting treatment of revenues and financial liabilities under PAS 39 [equivalent to IAS 39] and PFRS 4 [equivalent to IFRS 4]. For revenues and financial liabilities, the pre-need companies will still follow traditional insurance accounting). Trust fund assets however, must be accounted for under the valuation provisions of PAS 39 and 40. However, on or before 31 August 2006, the pre-need companies must submit pro-forma financial statements using all effective PAS/PFRS. These statements must be certified correct by the president and chief finance officer of each company, and supported by a supplemental report from its external auditor indicating that the accounting recognition and measurement of revenues and financial liabilities under PAS 39 and insurance contracts under PFRS 4 were complied with. Pre-need companies that are capable of simultaneously preparing the two sets of financial statements (traditional insurance accounting and PAS 39/IFRS 4) are encouraged to submit them on or before 15 April 2006. April 2006 Update Two Deferrals from IFRS Equivalents As reported in January 2006, Philippines has adopted all IASs and IFRSs in full as Philippines GAAP. Two transition deferrals have now been adopted: Pre-need insurance companies, which otherwise would have been required to use the Philippines IFRS equivalents in full in 2005, have been exempted by the Securities and Exchange Commission (which is the regulatory body for insurance entities) from applying the Philippines equivalents of IAS 32, IAS 39, and IFRS 4 for 2005. They are however, required to submit financial statements fully adopting all the standards by August 31, 2006. Click for SEC Announcement (PDF 23k). As reported in January 2006, non publicly accountable entities (NPAEs, sometimes called SMEs) have been given a two-year deferral (2005 to 2007) from the transition to IFRS equivalents. Instead, they are permitted to use Philippines accounting standards that were in effect in 2004. Click for SEC Announcement (PDF 151k). New and Revised Philippines Financial Reporting Standards In Philippines, the SEC must approval all financial reporting standards. During the first quarter of 2006, the SEC issued a circular approving the adoption of IFRS 6 and IFRS 7 and the IASB's amendments to 39 and IAS 1. Click for SEC Announcement (PDF 35k). January 2006 Update Temporary SME standards in Philippines The Philippines has adopted IFRSs in full as its national standards starting in 2005. However, on 22 December 2005, the Philippines Securities and Exchange Commission issued PAS 101 entitled Financial Reporting Standards For Non-Publicly Accountable Entities (NPAEs), as approved by the Accounting Standards Council, to provide temporary relief to qualified small and medium-sized entities from applying the new accounting standards. Qualifying entities may choose instead to use the former Philippines Accounting Standards that were in effect in December 2004. That option will be available for 2005 through 2007 unless revoked earlier. The SEC indicated that it is taking this action in recognition of the IASB's SME Project. The SEC adopted the IASB's draft criteria for distinguishing publicly accountable entities from non-publicly accountable – publicly accountable if (a) publicly listed, (b) holds assets in a fiduciary capacity, (c) public utility, or (d) economically significant. For Philippines purposes, economic significance means total assets over Php 250 million (approximately US$ 5 million) or total liabilities over Php 150 million in 2004. Click for Philippines SEC Memorandum (PDF 151k). November 2005 Update Update on IFRSs in the Philippines The Philippines has adopted all IFRSs for 2005 without modification. These Philippine equivalents to IFRSs apply to all entities with public accountability. That includes those 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 auditor's report will refer to "conformity with Philippine Financial Reporting Standards". January 2005 Update The following standards have been approved and are effective for annual periods beginning on or after 1 January 2005 and for quarterly and half-yearly reports beginning 1 January 2006. Those IASs that had not previously been adopted in Philippines, namely IASs 19, 29, 30, and 41. Revised IASs that were adopted by the IASB in 2003 as part of the Improvements Project and in 2004 as a result of Phase I of the Business Combinations project, namely IASs 1, 2, 8, 10, 16, 17, 21, 24, 27, 28, 31, 32, 33, 36, 38, 39, and IAS 40. The adoption of IFRSs 1, 2, 3, 4, and 5. For purposes of IAS 39, comparative information for prior years is optional and the status of conversion plan by the covered companies concerned must be discussed in their 2005 quarterly and half-yearly reports. Finally, the Philippines Accounting Standards Council has changed the name of its old standards from Statements of Financial Accounting Standards (SFAS) to Philippine Accounting Standards (PASs) to better correspond to the IASs. Philippine versions of IFRSs will be referred to as Philippine Financial Reporting Standards (PFRSs). July 2004 Update The Accounting Standards Council of the Philippines issued invitations to comment on three IASB exposure drafts: IAS 19 Revisions IAS 39 - Fair Value Option IFRS 3 - Scope April 2004 Update The Accounting Standards Council of the Philippines approved the following effective for financial statements beginning January 1, 2004: SFAS 12/IAS 12 Income Taxes (Exposure Draft 52) SFAS 26/IAS 26 Accounting and Reporting by Retirement Benefit Plans (Exposure Draft 53) SFAS 21/IAS 21 has also been approved but effective for statements beginning January 1, 2005. The following Philippines exposure drafts are awaiting approval as final standards: ED 54 - equivalent to IAS 32 ED 55 - equivalent to IAS 39 ED 56 - equivalent to IAS 40 ED 57 - equivalent to IAS 19 ED 58 - equivalent to IAS 29 ED 59 - equivalent to IAS 30 ED 60 - equivalent to IAS 41 January 2004 Update The Accounting Standards Council issued two exposure drafts in the last quarter of 2003: Exposure Draft No. 59 Disclosures in the Financial Statements of Banks and Similar Financial Institutions (equivalent of IAS 30). Projected effectivity 2005. Exposure Draft No. 60 Agriculture (equivalent of IAS 41). Projected effectivity 2005. Equivalents of all other existing IASs (prior to the recent improvements) have previously been adopted as Philippine Statements of Financial Accounting Standards. October 2003 Update The table below shows the status of adoption of IFRS in the Philippines as of 1 October 2003:   IAS No. Philippines SFAS No. Effective prior to 2001: Construction Contracts 11 26 Revenues 18 18 Borrowing Costs 23 25 Earnings Per Share 33 29 Effective 2001: Framework Presentation of Financial Statements 1 1 Inventories 2 4 Cash Flow Statements 7 22 Net Profit, Fundamental Errors and Accounting Changes 8 13 Segment Reporting 14 31 Interim Financial Statements 34 30 Effective 2002: Property, Plant and Equipment 16 16 Related Party Disclosure 24 24 Consolidated Financial Statements 27 27 Investments in Associates 28 28 Financial Interests in Joint Ventures 31 31 Discontinuing Operations 35 35 Impairment of Assets 36 36 Effective 2003: Events After Balance Sheet 10 10 Business Combinations 22 22 Provisions, Contingent Liabilities and Contingent Assets 37 37 Intangible Assets 38 38 Accounting for Government Grants and Disclosure of Government Assistance 20 20 Effective 2004: Leases 17 17 Effective 2005: Effects of Changes in Foreign Exchange Rates 21 21 Outstanding exposure drafts in Philippines as of 1 October 2003:   IAS No. Philippines SFAS No. Possible Effectivity Income Taxes 12 52 2004 Accounting and Reporting by Retirement Benefit Plans 26 53 2004 Financial Instruments: Disclosure and Presentation 32 54 2005 Financial Instruments: Recognition and Measurement 39 55 2005 Investment Property 40 56 2005 Employee Benefits 19 57 2005 Financial Reporting in Hyperinflationary Economies 29 58 2005 IAS for which Philippines exposure drafts have not yet been issued:   IAS No. Information Reflecting on Effects of Changing Prices 15 Disclosures in the Financial Statements of Banks and Similar Financial Institutions 30 Agriculture 41 Currently, there are two Philippines accounting standards that are not based on IAS: No. 8A, Deferred Foreign Exchange Differences: Will be superseded by IAS 21 once in effect in 2005. 19A, Accounting for Investment in Debt and Marketable Securities of Banks. Will be superseded by IAS 39, most likely in 2005. October 2002 Update The following standards have been recently approved by the Board of Accountancy and became final Statements in the Philippines:   Title Related IAS Effective Date ED 44 Impairment of Assets IAS 36 January 1, 2002 ED 45 Provisions, Contingent Liabilities and Contingent Assets IAS 37 July 1, 2002 ED 46 Events After the Balance Sheet Date (revised) IAS 10 July 1, 2002 The Accounting Standards Council has recently approved the distribution for comment of the following proposed accounting standards:   Title Related IAS Proposed Effective Date ED 52 Income Taxes IAS 12 January 1, 2004 ED 53 Accounting and Reporting by Retirement Benefit Plans IAS 26 January 1, 2004 The following exposure drafts remain outstanding: ED 37 (revised) The Effects of Changes in Foreign Exchange Rates ED 47 Business Combinations (revised) ED 48 Intangible Assets (revised) ED 49 Leases ED 50 Accounting for Government Grants and Disclosure of Government Assistance ED 51 Deferred Foreign Exchange Differences July 2002 Update The following standards have been approved by the Board of Accountancy and became final Statements in the Philippines effective for accounting periods beginning on or after January 1, 2002. They are identical to their related IAS other than for the effective date: Title Related IAS Property, Plant and Equipment IAS 16 Consolidated Financial Statements and Accounting for Investments in Subsidiaries IAS 27 Accounting for Investments in Associates IAS 28 Related Party Disclosures IAS 24 Financial Reporting of Interests in Joint Ventures IAS 31 Discontinuing Operations IAS 35 The following exposure drafts remain outstanding. These are identical to their related IAS except for effective date and transition: ED 37 (revised) The Effects of Changes in Foreign Exchange Rates. ED 44 Impairment of Assets. ED 45 Provisions, Contingent Liabilities and Contingent Assets. ED 46 Events After the Balance Sheet Date (revised). ED 47 Business Combinations (revised). ED 48 Intangible Assets (revised). ED 49 Leases. ED 50 Accounting for Government Grants and Disclosure of Government Assistance. ED 51 Deferred Foreign Exchange Differences. After considering comments to ED 37, which was issued in March 2000, the Accounting Standards Committee decided on a two-step transition approach to address the forthcoming change in accounting for the effects of changes in foreign exchange rates. ED 51 will amend ASC SFAS 8 by requiring the elimination of the deferral of foreign exchange differences effective for financial statements beginning on or after January 1, 2003, with earlier application encouraged. An enterprise should account for the effect of the change on a retroactive basis or, alternatively, it may amortise any remaining deferred foreign exchange differences over a two-year period. As of December 31, 2004, all deferred foreign exchange differences should have been amortised. January 2002 Update The following exposure drafts have been approved by the Accounting Standards Council and were submitted to the Board of Accountancy (BOA) for final approval. When approved by the BOA, the exposure drafts become final Statements: ED 38 Property, Plant and Equipment (PPE) (revised) ED 39 Consolidated Financial Statements and Accounting for Investments in Subsidiaries ED 40 Accounting for Investments in Associates ED 41 Related Party Disclosures (revised) ED 42 Financial Reporting of Interests in Joint Ventures ED 43 Discontinuing Operations The following exposure drafts remain outstanding: ED 44 Impairment of Assets ED 45 Provisions, Contingent Liabilities and Contingent Assets ED 46 Events After the Balance Sheet Date (revised) ED 47 Business Combinations (revised) ED 48 Intangible Assets (revised) The following ASC Interpretations were approved by the Interpretations Committee of the Philippine Accounting Standards Council as of October 2001: IC-1 Foreign Exchange - Change from Deferral Method IC-2 Consistency - Different Cost Formulas for Inventories IC-3 Consistency - Capitalization of Borrowing Costs IC-4 Costs of Modifying Existing Software IC-5 Property, Plant and Equipment - Major Inspection or Overhaul Costs IC-6 Consolidation - Special Purpose Entities IC-7 Elimination of Unrealized Profits and Losses on Transactions with Associates IC-8 Equity Accounting Method - Recognition of Losses IC-9 Jointly Controlled Entities - Non-Monetary Contributions by Venturers IC-10 Business Combinations - Classification Either as Acquisitions or Uniting of Interests IC-11 Business Combinations - Subsequent Adjustments of Fair Values of Goodwill Initially Reported IC-12 Property, Plant and Equipment - Compensation for the Impairment or Loss Items IC-13 Share Capital - Reacquired Own Equity Instruments (Treasury Shares) IC-14 Equity - Costs of an Equity Transaction The Auditing Standards and Practices Council (ASPC) of the PICPA has embarked on a project to adopt International Standards on Auditing as Philippine standards. Following is a status report on the project:The following are pending approval by the Board of Accountancy: Preface to Philippine Standards on Auditing and Related Services Glossary of Terms The following Philippines Standards on Auditing (PSAs) have been approved by ASPC for submission to BOA: PSA 120 Framework of Philippine Standards on Auditing PSA 210 Terms of Engagement The following are outstanding exposure drafts of PSAs: PSA 200 Objective and General Principles Governing an Audit of Financial Statements PSA 220 Quality Control for Audit Work PSA 230 Documentation PSA 240 Fraud and Error PSA 300 Planning PSA 310 Knowledge of the Business PSA 250 Consideration of Laws and Regulations in an Audit of Financial Statements PSA 560 Subsequent Events October 2001 Update Philippine Accounting Standards Council Outstanding Exposure Drafts ED No. Title Related IAS Proposed Effective Date (periods beginning) 43 Discontinuing Operations IAS 35, Discontinuing Operations 1 January 2002 44 Impairment of Assets IAS 36, Impairment of Assets 1 January 2002 45 Provisions, Contingent Liabilities and Contingent Assets IAS 37, Provisions, Contingent Liabilities and Contingent Assets 1 July 2002 46 Events After the Balance Sheet Date (revised) IAS 10, Events After the balance Sheet Date (revised 1999) 1 July 2002 47 Business Combinations (revised) IAS 22, Business Combinations (revised 1998) 1 January 2003 48 Intangible Assets (revised) IAS 38, Intangible Assets 1 January 2003 Auditing Standards and Practices Council (ASPC) In an effort to establish and improve generally accepted auditing standards (GAAS) in the Philippines, the ASPC, the body authorized to establish and promulgate GAAS, is undertaking a major project to adopt International Standards on Auditing (ISAs) issued by the International Auditing Practices Committee (IAPC) of the International Federation of Accountants. ASPC's objective is to attain uniformity of the local GAAS with ISAs. This harmonization is expected to enhance the reliability and acceptability of audited financial statements of Philippine companies. The adopted standards, which will be called Philippine Standards on Auditing (PSAs), will supersede the counterpart local Statements of Auditing Standards of Philippines (SASPs) previously issued by the ASPC. The PSAs issued by the ASPC shall apply whenever an independent examination of financial statements of any entity, whether profit oriented or not, irrespective of size or legal form, when such examination is conducted for the purpose of expressing an opinion thereon. The PSAs may also have application, as appropriate, to other related activities of auditors. Following are the first two PSA exposure drafts: Exposure Draft No. 1: Framework of Philippine Standards on Auditing. ED 1 contains the framework of the basic principles and essential procedures that provide guidance for their application in the audit of the financial statements, financial reporting, levels of assurance, other information and related services. Exposure Draft No. 2: Terms of Audit Engagements. ED 2 addresses the terms of audit engagements. It is intended to assist the auditor in preparing engagement letters for audits and related services, principles and procedures applicable to recurring audits, and acceptance of a change in engagement. The above draft PSAs differ from ISA 210 with respect to the deletion of the section on Public Sector Perspective included in ISA 210. January 2001 Update The Accounting Standards Council (ASC) approved the following Statements of Financial Accounting Standards (SFAS), both effective 1 January 2001: SFAS No. 31, Segment Reporting (based on IAS 14). SFAS 31 applies to enterprises whose equity or debt securities are publicly traded, including enterprises in the process of issuing equity or debt securities in a public securities market. SFAS No. 31 establishes principles for reporting financial information about the different types of products and services an enterprise produces and the different geographical areas in which it operates, to help users of financial statements better understand the enterprise's past performance; better assess the enterprise's risks and returns; and make more informed judgments about the enterprise as a whole. SFAS No. 30, Interim Financial Reporting (based on IAS 34). SFAS 30 is effective for financial statements covering periods beginning on or after January 1, 2001. It supersedes PICPA Accounting Principles Bulletin No. 21, Interim Financial Reporting, issued in March 1981. SFAS No. 30 does not mandate which enterprises should publish interim financial reports, how frequently, or how soon after the end of an interim period. The Securities and Exchange Commission (SEC), however, requires companies with listed securities to file interim financial statements. SFAS 30 applies if a company is required or elects to publish an interim financial report in accordance with generally accepted accounting principles. The minimum content of an interim financial report is a condensed balance sheet, condensed income statement, condensed cash flow statement, condensed statement of changes in equity, and selected explanatory notes. Interim notes include primarily disclosures of significant events and changes in financial position and performance of the enterprise since the last annual reporting date. Also, ASC approved a Framework and four revised SFAS based on IAS (revised standards all effective for financial statements covering periods beginning on or after January 1, 2001, with earlier application encouraged): Framework for the Preparation and Presentation of Financial Statements. The Framework, which is based on the IASC Framework, sets out the basic concepts and definitions that underlie SFAS. It will replace SFAS No. 1, Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises. SFAS No. 1 (revised 2000), Presentation of Financial Statements. Revised SFAS No. 1 provides guidance on the structure of financial statements including minimum requirements for each primary statement, accounting policies and notes, and an illustrative appendix. It will supersede the following ASC statements: SFAS No. 1, Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises; SFAS No. 2, Summary of GAAP on Cash; SFAS No. 3, Summary of GAAP on Receivables; SFAS No. 5, Summary of GAAP on Liabilities; and SFAS No. 15, Disclosure of Accounting Policies. The revised statement is based on IAS 1 (revised 1997), Presentation of Financial Statements. SFAS No.4 (revised 2000), Inventories. Revised SFAS No. 4 prescribes the accounting treatment for inventories. It will supersede SFAS No. 4, Summary of Generally Accepted Accounting Principles on Inventories. The revised statement is based on IAS 2 (revised 1992), Inventories. SFAS No. 13 (revised 2000), Net Income or Loss for the Period, Fundamental Errors and Changes in Accounting Policies. Based on IAS 8. Revised SFAS No. 13 covers accounting for extraordinary items, fundamental errors (previously referred to as prior period adjustments) and changes in accounting principles. It will supersede SFAS No. 13, Reporting the Effects of a Disposal of a Segment of a Business and of Extraordinary Items and Prior Period Adjustments on the Results of Operations of an Enterprise, and SFAS No. 17, Accounting Changes. The revised statement is based on IAS 8 (revised 1993), Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies. SFAS No. 22 (revised 2000), Statement of Cash Flows. Based on IAS 7. Revised SFAS No. 22 provides guidance on the preparation of a cash flow statement. It will supersede ASC SFAS No. 22, Statement of Cash Flows. The revised statement is based on IAS 7 (revised 1992), Cash Flow Statements. In addition, ASC has approved two new exposure drafts, both proposed to be effective 1 January 2002: Exposure Draft 43 Discontinuing Operations. Exposure Draft 44 Impairment of Assets. October 2000 Update All public companies and all companies with more than 20 shareholders must follow rules of the Philippine Securities and Exchange Commission (SEC). The Accounting Standards Council (ASC) of the Philippines Institute of Certified Public Accountants (PICPA) issues accounting standards. ASC standards are recognised by the SEC and Central Bank of Philippines. After approval by the Board of Accountancy and the Professional Regulation Commission (government bodies), ASC standards become mandatory. ASC's policy is to review and adopt both existing and new IASC Standards as Philippine standards such that "compliance with Philippine GAAP would mean automatic compliance with IASC standards". In pursuit of its principal objective, which is to establish generally accepted accounting principles in the Philippines, the Accounting Standards Council (ASC) has an on-going project to replace existing Statement of Financial Accounting Standards (SFAS) with their counterpart International Accounting Standards (IAS) issued by the International Accounting Standards Committee (IASC). For 1999 and 2000, the following exposure draft were issued for comments by the Accounting Standards Council: Proposals that would be effective for periods beginning on or after 1 January 2001: ED 32 Inventories (revised) ED 33 Net Income or Loss for the Period, Fundamental Errors and Changes in Accounting Policies ED 34 Cash Flow Statements (revised) ED 35 Interim Financial Reporting ED 36 Segment Reporting Proposals that would be effective for periods beginning on or after 1 January 2002: ED 37 The Effects of Changes in Foreign Exchange Rates (revised) with the following Draft Interpretation ED D1-1 Foreign Exchange - Capitalization of Losses Resulting from Severe Currency Devaluations ED 38 Property, Plant and Equipment (PPE) (revised) ED 39 Consolidated Financial Statements and Accounting for Investments in Subsidiaries ED 40 Accounting for Investments in Associates ED 41 Related Party Disclosures (revised) ED 42 Financial reporting of Interests in joint Ventures