This week is significant for accountants like me as we celebrate this year’s Accountancy Week. As an external auditor, I attended the Tuesday celebration, a day dedicated for public practitioners, and largely organized by the Association of CPAs in Public Practice (ACPAPP). The forum was oversubscribed, and the 300 or so attendees who were lucky enough to book seats were scrambling to hear and learn about the developments in the profession. Allow me then to share some of the interesting new lessons and insights one could learn from the forum.
The last of the speakers, Ms. Lois Abad, talked about the proposed “third accounting framework,” which is a project of the ACPAPP. The proposed framework is being recommended to cover entities/companies that have P100 million and below in assets or liabilities – companies that are not otherwise falling within the definition of Small and Medium Enterprises (SME) under the Philippine Financial Reporting Standards. The proposed framework is now in what I personally call the “committee stage” draft. It will probably undergo further review within ACPAPP leadership, then tabled with the Financial Reporting Standards Council and the Securities and Exchange Commission (SEC) before being exposed to the public for comments, toward eventual approval for implementation.
In summary, such framework rekindles the baby boomers and generation X’s love for their well-known accounting standards of olden times – the Statements of Financial Accounting Standards (SFAS). The third framework is a mix of SFAS and simpler standards within the Philippine Financial Reporting Standards (or PFRS, the current general framework). Some of the proposed framework’s welcome features:
(1) Leases would all be classified as operating lease and straight lining will not be required, given contract-based recognition of expenses.
(2) Corrections of error will be reckoned with as an adjustment to beginning retained earnings of the current year as opposed to restating prior year financial statements.
(3) Net realizable value in valuing inventories will be eliminated and in its stead, the concept of lower of cost or market has been reintroduced.
(4) It simplifies tax accounting by removing deferred taxation – what you compute as current tax, you pay and that’s it.
(5) Mind-boggling accounting for financial instruments will not be applicable.
This list is not all-inclusive as there are a lot more, but let me put some element of surprise and allow the proponents to reveal the rest.
While the presentation was going on, my aging mind was somewhere else, entertaining the thought of how in the world would I be tasked to again maximize my brain’s functions, and bear to mind and heart another framework to add to the already complex full PFRS currently in place and the scaled-down PFRS for SMEs? Would this framework create more room for accountants and auditors to make mistakes, given the confusion not on which framework to use but what standards are applicable to each framework? At the very least, a seasoned auditor would have to have full knowledge of the differences (and similarities) among full PFRS, PFRS for SMEs, and this third accounting framework when finally put to effect. In addition, transitioning from full or SME PFRS would have associated efforts and costs to both the auditors and would-be users of the framework. I wonder: do millennial CPAs – be they in commerce and industry, government, education, or public practice – think the same way I do?
For all its worth, the third accounting framework was the most applauded by the audience of mostly external auditors in the forum. Clearly, there is much merit to having it approved because it would mean a simpler way of accounting for smaller companies and easier audits for public practitioners having would-be adopters as clients.
However, there is something else that can pass as possible solution for efficiency – and that is for the SEC (and probably other regulators) to relax its regulatory requirements on submission of independently audited financial statements for smaller entities. It will probably diminish the revenues of public practitioners, but the overall impact on the economy may deliver more value due to improved business environment that encourages entrepreneurship and investments.
I am a public practitioner but I am also a citizen of the Philippines. The Philippines’ gain is my gain, too, and obviously, I will root for more inclusive growth.
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.