Location: The Philippines lies off the southeast coast of the Asian mainland, between Indonesia and China and consists of more than 7,000 islands. Manila, located in Luzon, is the capital city and the major commercial port of the country.

Population: 73.3 million (1996)

Languages: Most Filipinos are bilingual. The Pilipino, as official national dialect, is spoken mainly in the Metro Manila area and used in the mass media. English is spoken in government, schools, business, and everyday communication. In addition, there are about 80 languages and dialects spoken throughout the Philippines.

Currency: Peso

Brief history: The Philippines had international trade in pre-Spanish era with neighboring countries, particularly China. The Chinese influence in business is evidenced today by the presence of many large conglomerates owned by Philippine-Chinese families. Spain ruled the country for over 300 years. The Spanish influence was mainly on religion. The U.S. acquired the Philippines from Spain in 1898 and ruled for 48 years. The U.S. influence was on the major institutions including the educational system and the professions. The country gained its independence from the U.S. in 1946.

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The Philippines was the first country in South East Asia to launch on industrialization. However, it failed to become a well-developed industrialized country and agriculture still plays an important role. The once severe foreign debt burden, together with the economic and political crises in the early 1980s, affected investment and savings and made the Philippines lag drastically behind its dynamic Asian neighbors.

After the introduction of a new constitution in 1987, the Philippines is now able to enjoy political stability. Since 1992, a serious of economic reforms has undergone, including deregulation; privatization; and price, trade, and investment liberalization, and economic growth has accelerated in the past few years mainly by expansion of exports and foreign investment. The trade balance has improved and foreign debt burden has been eased. In 1996, real Gross National Product (GNP) grew by 6.8 percent and unemployment gradually fell to 8.6 percent. The private sector has played an important role in generating this growth.

Comparative economic indicator, 1996

The Philippines is richly endowed with arable lands, minerals, forestry, and fishing grounds.

Food processing, beverage, textiles, chemicals, pharmaceuticals, wood products, electronics assembly, petroleum refining, and fishing.

In 1995, there was 62% of population belonging to the age group of 15-64 years old.

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The accounting profession in the Philippines is well established. It can be traced back to the U.S. influence on the institutional learning of accounting and the founding of the accounting profession during the U.S. colonial period.

The first public accounting firms were formed in the beginning of the twentieth century by British chartered accountants and then followed by American CPAs and some Filipinos who obtained CPA certifications in the United States. In 1923, formal recognition was given to the professions with the enactment of the Accountancy Law. The Board of Accountancy was created to conduct CPA exams and to give the CPA title. The Philippine Institute of Certified Public Accountants (PICPA) was established to regulate members in 1929.

To be a CPA in the Philippines, a person must complete the degree of Bachelor of Science in commerce or business administration (with a major in accounting) and must pass the CPA examinations given by Board of Accountancy. The Professional Regulation Commission, a governmental agency, has the authority to issue licenses.

The Accounting Standards Council (ASC), established in 1981 by the PICPA, is the standard-setting body. The ASC is responsible for establishing and improving generally accepted accounting principles in the Philippines.

The ASC drafted the rules governing financial reporting practices and issued in the form of Exposure Drafts for public comment. The final rules are codified and issued as Statements of Financial Accounting Standards (SFASs). The standards then have to be submitted to the Professional Regulation Commission for their final approval.

Basically, accounting standards in the Philippines are modeled on U.S. standards. Recent development, however, takes into account the guidelines of the International Accounting Standards Committee (IASC).

The Auditing Standards and Practices Council (ASPC) is the organization that sets auditing standards in the Philippines.

The Philippine Institute of Certified Public Accountants (PICPA) is the accredited professional organization. The PICPA performs some regulatory functions while does not have the authority to issue licenses. The PICPA is also an associate member of the IASC.

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The GAAP in the Philippines consists of the following sources:

1. Basic financial statements

The financial statements required by the ASC are the balance sheet, the statements of income and retained earnings, the statement of cash flow, and related notes.

The SEC has issued new regulations regarding to the form and content of the financial statements to be filed by certain corporations: those with 100 or more shareholders, whose shares are listed on an exchange, and with assets of at least P50 million and 200 or more shareholders each holding at least 100 shares. These regulations became effective for financial statements ending December 31, 1996 and thereafter.

2. Business combination

Both the purchase and pooling-of-interests methods are allowed, depending on the combing situations. Goodwill arising under the purchase method is amortized over estimated life, but not exceeding 40 years. Generally, the straight-line method is used for amortization.

3. Consolidation

1. The total liabilities of any one entity in the group exceed P50 million, or the total liabilities of the group are more than P150 million.

or

2. The parent company falls under one of the following categories:

1. Marketable securities

Marketable securities held for working capital purposes should be carried at the lower of the aggregated cost or market value. Long-term marketable securities are valued similarly. Other Long-term investments are accounted for under the equity method or the cost method, depending on the situation.

2. Inventories

Inventories are stated at the lower of cot of market. Cost is determined based on the following cost flow assumptions: average cost, FIFO, LIFO, and the specific identified method. Market is determined by replacement cost, which should not be more than net realized value and not less than net realized value reduced by a normal profit margin.

3. Property, plant and equipment

Property, plant and equipment are normally evaluated at cost, less allowance for depreciation. Revaluation based on appraisal is allowed in periods of inflation, if the requirements prescribed by the ASC are met. The methods accepted for depreciation include straight-line, units of production, sum-of -digits and declining balance method, with straight-line method widely used. The property, plant and equipment are usually depreciated over the life of the asset.

4. Capital

Capital in excess of par is shown separately. Treasury stocks are shown at cost as a deduction from capital.

5. Provisions and reserves

In the Philippines, auditing standards are provided under the Statement of Auditing Standards of the Philippines (SASP) No.2, "General Accepted Auditing Standards", which set by the Auditing Standards and Practices Council (ASPC). The standards are based mainly on the auditing standards used in the United States.

The SEC requires certain corporations to file the report of an independent CPA on the companies' financial statements. Corporations under this requirement are those:

1. with paid-in capital of at least P50,000,
2. with 20 or more shareholders,
3. with publicly traded securities, and
4. branches of foreign corporations.

The BIR requires corporations, partnerships, and person with gross sales or earnings exceed P25,000 in any quarter to file audited financial statements annually together with their final tax return.

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The comparison of financial reporting in the Philippines with that in the United States indicates that:

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