EVOLUTION, IMPLEMENTATION AND EFFECTS OF INTERNATIONAL ACCOUNTING STANDARDS IN THE PHILIPPINES

This paper discussed the Evolution, Implementation and Effects of International Accounting Standards in the Philippines. Rules and standards governing the accountancy profession in the Philippines is under R.A 9298. Philippines Accounting Standards and Practices were based on the established Generally Accepted Accounting Practices initiated by the United States. In 2005, country decided to shift to European accounting standards better known as International Financial Reporting Standards. The main reason in shifting to the European accounting standards was the inaccurate financial information associated in the Asian crisis, adversely affected entities’ business decisions. Implementation of the new accounting standards emphasizes accuracy, transparency in financial reporting. This paper will be useful to underdeveloped and developing countries that are challenged to adapt financial accounting standards, therefore assisting them in analyzing financial statements for better business decisions. Complex market and financial environment can be easier and transparent. Cost effective financial statements will help the m to more accurate comprehensive decisions affecting the countries developing economic growth.


INTRODUCTION
Accounting is a system that measures business activities, processes information into reports and communicates the results to decision makers. Without accounting, businesses could not function optimally; they would not know where they stand financially, whether they are making a profit or not, and they would not even know their financial situation. The evolution of accounting happened in ancient time, dated 8,500 B.C., Mesopotamia now called Iraq, China, Babylonia, Greece and Egypt. They have their own ways of recording wages and taxes that is one of the vital components of our modern accounting. Luca Pacioli, a Franciscan friar and the father of modern accounting, plays a significant role in the development of accounting, He introduced the idea of double entry bookkeeping that is still presently used in modern accounting [1].
Accounting evolves through time and becomes a significant instrument in business world, but like any other professions, accounting profession is governed by its own Implementing Rules and Regulations (IRR). The rule and standards governing the accountancy profession in the Philippines is under Republic Act 9298, or the Accountancy Act of 2004. Historically, Philippine Accounting Standards, rules and practices were based on the established Generally Accepted Accounting Practices (GAAP) initiated by the United States, but in year 2005, the country decided to shift to European accounting standards. In the Philippines, implementation of these standards is under the Philippine Financial Reporting Standards (PFRS) which is the local version of International Financial Reporting Standards (IFRS). Financial crisis in year 1997, which adversely affected entities' decision making is the main reason for shifting to a new standard. Implementation of the new accounting standards emphasizes accuracy, transparency, and error free financial reporting. It will also be easier for foreign investors to analyze the financial reports of companies and gauge their financial standing.
The aims of this paper are the following: to show the world of how the Philippines adopted the accounting system from basically U.S. GAAP to the current international accounting progress and development of SEC Roadmap, to help other countries that are challenged in adopting and executing the accounting practices so they can make their own work plan of accounting standards that will assist them in making comparisons of financial reporting easier, cost effective and efficient, thereby resulting to a well informed and rational business decisions worldwide.

THEORETICAL CONCEPT
In the Philippines, adoption of accounting is based on Philippine Financial Reporting Standard (PFRS) which is the local version of International Financial Reporting Standards (IFRS). Philippine accounting principles also adhere with the U.S. Generally Accepted Accounting Principles (GAAP). The practice of accountancy profession in the country is being promulgated and monitored by PRC-BOA or Board of Accountancy. The rules and standards governing the accountancy profession in the Philippines is under Republic Act 9298, or the Accountancy Act of 2004. The IFRS in early 2013 established the Accounting Standards Advisory Forum (ASAF) to improve cooperation among worldwide standard setters and advise the International Accounting Standards Board (IASB) as it develops IFRS. The Financial Accounting Standards Board (FASB) was selected as one of the ASAF's twelve members. The FASB's membership on the ASAF is an opportunity to represent U.S. interests in the IASB's standard-setting process and to continue the process of improving and converging U.S. GAAP and IFRS. The FASB was nominated for membership on the ASAF by the Financial Accounting Foundation (FAF) Board of Trustees, which oversees both the FASB and its sister standard-setting board, the Governmental Accounting Standards Board (GASB).

STATEMENT OF THE PROBLEM
The main problem is that different countries use different national accounting practices, policies and standards, which make it hard and high priced to compare financial statements for investment decision-making and other economic activities for the development of countries. Due to globalization that cannot be avoided and grows rapidly, there is growth in interdependence among international businesses and financial market. Movement of capital has increased the pressure and demand for the convergence and harmonization of reporting frameworks and standards. There is a need to have a set of financial accounting standards and improve accounting practices that will allow for greater improvement of transparency, effectiveness and efficiency in financial reporting not just locally but worldwide.

METHODOLOGY
This paper is a qualitative data that draws from secondary data to describe the evolution, implementation and effects of the international accounting standards in the Philippines. It determined the rationales for the entity to make more conducive accounting practices than other developing countries or move away from U.S. based accounting standards and to continue the implementation of the international accounting standards that begun in 2005. Government agencies that are responsible for establishing accounting standards and improving the practices in the Philippines will discussed. The benefits, developments and associated challenges with transitions were also addressed.

RATIONALES, PROCESSES AND EVOLUTION OF INTERNATIONAL ACCOUNTING STANDARDS IN THE PHILIPPINES
1700s -when Philippine public accounting practices was originated.
1762 to 1763 -The Philippine accounting profession has a long and proud history whose origins can be traced back to pre-Spanish times because of trade with neighboring countries where crude accounting records were needed. Public accountancy practice started after the 1762 to 1763 British occupation of Manila after overseas accountants contracted by the British stayed on to service foreign firms in Manila.
1923 -The profession was formally recognized during the American colonial period with the passing of an all-Filipino legislature of an accountancy law which established the Certified Public Accountant (CPA) title for those who passed a written licensure examination and the creation of the Board of Accountancy (BOA) to regulate the profession. The enactment of the Accountancy Law 1923 gave formal recognition to the accounting profession. This law granted CPA certificates to those who successfully passed the CPA examination and established the Board of Accountancy (BOA) to regulate the profession.
1929 -CPA professionals organized in the Philippine Institute of Certified Public Accountants (PICPA), a private non-stock corporation, which contributed immensely to the development of the profession and by 1973 became the accredited national professional organization.
1967 -The law was revised adding provisions governing the standardization of accounting education and the requirements for the CPA examination and regulating the practice of the profession including limiting local practice to Filipino citizens and to nationals of countries that extended the same privilege to Filipino citizens.
1973 -Professional Regulation Commission (PRC) was created to supervise and regulate professions.
1975 -During martial law, a presidential decree (No. 692) revised the law retaining many of the provisions but placed the Board of Accountancy under the Professional Regulation Commission (PRC). This is also the year when Accountancy Laws provided the legislative and institutional framework for the accountancy profession.
1980 -Corporation Law 1996 -In response to increasing trade with European countries, Philippine accounting standards started to shift gradually from the Generally Accepted Accounting Principles (GAAP) of the United States to International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) adopted from Europe. 1997 to 1998 -Shortly after the East Asian crisis, structural reforms addressing globalization and corporate governance particularly on financial disclosure were introduced. The regulatory powers of the Securities and Exchange Commission (SEC) had been strengthened with the Securities Regulation Code, which became effective in 2000.

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The accounting standard setting body in the Philippines decided to start a program to move fully to International Accounting Standards issued by the International Standards Committee (IASC) and since then has continued its adoption of international accounting standards.

NEW ACCOUNTING STANDARDS: 2005
Accounting Standards Council (ASC) started to move towards the adoption of international accounting standards as early as 1996. Prior to this, Philippine Generally Accepted Accounting Principles (GAAP) were based mainly on US-based accounting standards [2,3]. Under its IAS project, the ASC replaced US-based standards and adopted IAS with no local equivalent and updated previously issued IAS-based standards. The adoption of IAS followed the exposure process for accounting standards issued by the ASC. Since the Philippine GAAP was written in English, there were no translation problems as were encountered by other countries. In 2005, ASC completed the adoption of the IFRSs issued by the International Accounting Standards Board (IASB) and the revised versions of previously adopted IASs. It renamed the designation of accounting standards it issues to Philippine Accounting Standard (PAS) and Philippine Financial Reporting Standard (PFRS) to correspond to the adopted IASs and IFRSs, respectively. IAS and IFRS were adopted with very minor modification, such as effective dates.
There are significant numbers of small and medium entities in the Philippines and they were given some relief by ASC from new financial reporting standards. It was in the year 2005 when the new International Accounting Standards became effective, intended to be applicable to all reporting entities and required to file financial statements in accordance to Philippine GAAP. On the same year, the IASB undertook a project to develop accounting standards suitable for entities that do not have public accountability, referred to as non-publicly accountable entities (NPAEs) [4][5][6][7]. When preparing their 2005 financial statements, NPAEs are given the option not to apply the new international accounting standards that became effective in 2005 but to apply instead the accounting standards that were effective in 2004.

Benefits of the New Accounting Standards
Summarized benefits associated with convergence to the international accounting standards perceived are the following [2]:

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For companies: reduced costs of capital and the ease of using a consistent reporting standard from subsidiaries in many different countries, • For investors: better information for decision-making, leading to broader investment opportunities, • For national regulatory bodies: better information for market participants in disclosure based-system.
Consistent application of accounting standards that are the same for companies around the world would result to better comparability of financial information and they can have more informed decision-making. For regulators, the confusion associated with the need to understand various accounting standards would be reduced and vagueness will be less. For auditors, a single set of accounting standards would enable international auditing firms to standardize training and better assurance of the quality of their work on a global basis. With these we can clearly identify the weaknesses and strengths of the accounting standards. Continuation of evolving and improving the accounting standards will have a unified aim for more quality financial reports.

PFRS implementation problems in the Philippines
Challenges and problems in any adoption of standards will not be excluded. The implementing bodies in the Philippines encountered several challenges and problems such as: (1) difficulty in applying some standards, (2) late issuance of guidance from regulatory bodies, and (3) cost of compliance, and (4) lack of training and education, [8]. The International Accounting Standards Board (IASB) intends to come up with a "stable platform" of IFRS for 2005 and is expected to continue issuing new IFRS or amendments thereto. Given this moving target, preparation for full IFRS conversion in 2005 has become even more complex and challenging.

CONCLUSION
The decision of the Philippines to move from U.S. GAAP into new accounting standards was a remarkable move to promote credibility and transparency in the country's businesses' financial reporting practices. New accounting standards promote harmonize reporting practices that is being recognized in a global market also promote the elimination of fraudulent acts in financial reporting. Some of old accounting rules and standards were being replaced, revised, or abolished. It is an abrupt transition with the intention of enhancing financial reporting that is accurate, efficient and effective, free from fraudulent acts and is being recognized globally. Although, Philippines also confronted by its own decision in implementing new accounting standards-imposed problems at every level of society, the government agencies like Securities and Exchange Commission (SEC), able to bounced back to the problems that start with the implementations. Because of the sudden change in standards, SEC and other government agencies failed to issue guidelines right away about the new standards that resulted to other problems faced by businesses and other reporting entities. But through their hard work and determination agencies incorporated for these changes were able to work thing out for the businesses and other reporting entities. Compliance with the new standards became carefully understood and the debate of the new standard that it is costly to revise the old financial reports presented in old accounting standards, ended. Government agencies able to provide trainings and education of the new standards to the personnel of business entities, government agencies and educators. The new accounting standards made it easier for foreign investors to analyze the financial reports of companies and gauge their financial standing.  GAAP is exclusively used within the United States and has a different set of rules for accounting than most of the world. This can make it more complicated when doing business internationally.

APPENDICES
Rules and Principles IFRS looks at the overall patterns and is based on principle. With a principle-based accounting method, such as the IFRS, there's potential for different interpretations of the same tax-related situations.
GAAP focuses on research and is rule-based. With GAAP accounting, there's little room for exceptions or interpretation, as all transactions must abide by a specific set of rules.

Inventory Methods
The LIFO method for inventory is not allowed. The Last In, First Out valuation for inventory does not reflect an accurate flow of inventory in most cases, and thus results in reports of unusually low-income levels.
Under GAAP, a company is allowed to use the Last In, First Out (LIFO) method for inventory estimates.
Inventory Reversal IFRS specifies that if the market value of the asset increases, the amount of the write-down can be reversed.
GAAP specifies that if the market value of the asset increases, the amount of the write-down cannot be reversed. GAAP is overly cautious of inventory reversal and does not reflect any positive changes in the marketplace.

Development Costs
A company's development costs can be capitalized as long as certain criteria are met. This allows a business to leverage depreciation on fixed assets. Development costs must be expensed the year they occur and are not allowed to be capitalized.

Intangible Assets
When it comes to intangible assets, such as research and development or advertising costs, IFRS accounting really shines as a principle-based method. It takes into account whether an asset will have a future economic benefit as a way of assessing the value.
Intangible assets measured under GAAP are recognized at the fair market value and nothing more.
Income Statements Under IFRS, extraordinary or unusual items are included in the income statement and not segregated.
Under GAAP, they are separated and shown below the net income portion of the income statement.

Classification of Liabilities
With IFRS, there is no differentiation made between the classification of liabilities, as all debts are considered noncurrent on the balance sheet.
The classification of debts under GAAP is split between current liabilities, where a company expects to settle a debt within 12 months, and noncurrent liabilities, which are debts that will not be repaid within 12 months. Fixed Assets IFRS allows a different model for fixed assets called the revaluation model, which is based on the fair value at the current date minus any accumulated depreciation and impairment losses.
When it comes to fixed assets, such as property, furniture and equipment, companies using GAAP accounting must value these assets using the cost model. The cost model takes into account the historical value of an asset minus any accumulated depreciation. Quality Characteristics IFRS also works with the same characteristics used in U.S. GAAP, with the exception that decisions cannot be made on the specific circumstances of an individual.
GAAP works within a hierarchy of characteristics, such as relevance, reliability, comparability and understandability, to make informed decisions based on user-specific circumstances.