Module 3: Establishing a New Cooperative

Topic 3: Tools in Measuring the

Performance of Cooperatives

Prepared by: CATHERINE B. BOLINTIAM

INTRODUCTION

Assessing the performance of the cooperatives using a

surrogate measure of data roughness through fractal dimensions.
Fractal dimensions as statistical quantities are robust measures
which are not easily influenced by extreme observations unlike
other variance-based performance measures. Cooperatives need to
measure their performance in order to evaluate and be guided with
the factual details on what is the financial status for economic
resilience and at the same time to prompt members about the
plans to come up to make respective cooperatives to sustain its
business and organization.
OBJECTIVES

At the end of the topic, students are expected to:

• Understand Memorandum Circular 2015-06 as pursuant to

Section 3 of Republic Act No. 6939 and Republic Act No. 9520 and
its Implementing Rules and Regulations (IRR) and the Philippine
Financial Standards for cooperatives to follow;

• Identify the different criteria in the recognition of assets, income

and expenses; and

• Develop an analytical skills about how to measure performances

of cooperatives and the criteria in analyzing it.
Memorandum
Circular 2015-06

Pursuant to Section 3 of Republic Act No. 6939 and Republic Act No.
9520 and its Implementing Rules and Regulations (IRR) , the
Authority hereby adopts and prescribes the use of this Philippine
Financial Reporting Framework for Cooperatives to promote the
principle of transparency and accountability in the financial
reporting of cooperatives to protect the interest and welfare of
their members and other stakeholders.
Phil Financial
Reporting
Standards
Cooperative external auditors are left with no option but to render, at
times, qualified opinion because the cooperatives could not comply
with the PFRS. As a matter of fact, other cooperative external auditors
express varied opinions on the presentation of the audited financial
statements of cooperatives ranging from unmodified, qualified,
adverse and disclaimer of opinion on the items presented in the
financial statements. For so many years, the cooperative external
auditors have long been clamoring for a separate financial reporting
framework that is truly applicable for Philippine cooperatives.The
Financial Reporting Framework for Cooperatives was developed from
the Philippine Financial Reporting Standards (PFRS) for Small and
Medium-Sized Enterprises (SMEs) . Modifications were made on
several provisions of the standards taking into considerations
cooperative laws, rules, regulations and principles.
Financial
Statements of
Cooperatives
The objective of financial statements of a cooperative is to provide
information about the financial condition, performance and cash
flows of the cooperative that is useful for economic decision-
making

Financial statements also show the results of the stewardship and

the accountability of management for the resources entrusted to it.
Qualitative
Characteristics of
Information
Understandability

The information provided in financial statements should be presented in a way

that makes it comprehensible by users who have a reasonable knowledge of
business and economic activities and accounting and a willingness to study the
information with reasonable diligence. However, the need for understandability
does not allow relevant information to be omitted on the grounds that it may be
too difficult for some users to understand.

Relevance

The information provided in financial statements must be relevant to the

decision-making needs of users. Information has the quality of relevance when it
is capable of influencing the economic decisions of users by helping them
evaluate past, present or future events or confirming, or correcting, their past
evaluations.
Materiality

Information is material—and therefore has relevance—if its omission or misstatement

could influence the economic decisions of users made on the basis of the financial
statements. Materiality depends on the size of the item or error judged in the
particular circumstances of its omission or misstatement. However, it is inappropriate
to make, or leave uncorrected, immaterial departures from this framework to achieve a
particular presentation of a cooperative’s financial condition, financial performance or
cash flows.

Reliability

The information provided in financial statements must be reliable. Information is

reliable when it is free from material error and bias and represents faithfully that which
it either purports to represent or could reasonably be expected to represent. Financial
statements are not free from bias if, by the selection or presentation of information,
they are intended to influence the making of a decision or judgment in order to achieve
a predetermined result or outcome.
Substance over form

Transactions and other events and conditions should be accounted for and presented
in accordance with their substance and not merely their legal form. This enhances the
reliability of financial statements.

Prudence

The uncertainties that inevitably surround many events and circumstances are
acknowledged by the disclosure of their nature and extent and by the exercise of
prudence in the preparation of the financial statements. Prudence is the inclusion of a
degree of caution in the exercise of the judgments needed in making the estimates
required under conditions of uncertainty, such that assets or income are not
overstated and liabilities or expenses are not understated. However, the exercise of
prudence does not allow the deliberate understatement of assets or income, or the
deliberate overstatement of liabilities or expenses. In short, prudence does not permit
bias.
Completeness

To be reliable, the information in financial statements must be complete and within

the bounds of materiality and cost. An omission can cause information to be false or
misleading and thus unreliable and deficient in terms of its relevance.

Comparability

Users must be able to compare the financial statements of a cooperative through time
to identify trends in its financial condition and performance. Users must also be able
to compare the financial statements of different cooperatives to evaluate their relative
financial condition, performance and cash flows. Hence, the measurement and display
of the financial effects of like transactions and other events and conditions must be
carried out in a consistent way throughout a Cooperative and over time for that
Cooperative and in a consistent way across cooperative. In addition, users must be
informed of the accounting policies employed in the preparation of the financial
statements, and of any changes in those policies and the effects of such changes.
Timeliness

To be relevant, financial information must be able to influence the economic decisions

of users. Timeliness involves providing the information within the decision time frame.
If there is undue delay in the reporting of information it may lose its relevance.
Management may need to balance the relative merits of timely reporting and the
provision of reliable information. In achieving a balance between relevance and
reliability, the overriding consideration is how best to satisfy the needs of users in
making economic decisions.

Balance between benefit and cost

The benefits derived from information should exceed the cost of providing it. The
evaluation of benefits and costs is substantially a judgmental process. Furthermore,
the costs are not necessarily borne by those users who enjoy the benefits, and often
the benefits of the information are enjoyed by a broad range of external users.
Performance

Performance is the relationship of the income and expenses of a cooperative during a

reporting period. Profits or losses are frequently used as measures of performance or
as the basis for other measures, such as return on investment. Income and expenses
are defined as follows:

(a) Income is increases in economic benefits during the reporting period in the form of
inflows or enhancements of assets or decreases of liabilities that result in increases in
equity, other than those relating to contributions from members and donations.

(b) Expenses are decreases in economic benefits during the reporting period in the
form of outflows or depletions of assets or incurrence of liabilities that result in
decreases in equity, other than those relating to distributions to equity investors.

The recognition of income and expenses results directly from the recognition and
measurement of assets and liabilities.
Income and
Expenses
Income

The definition of income encompasses both revenue and gains.

(a) Revenue is income that arises in the course of the ordinar y activities of a
cooperative and is referred to by a variety of names including sales, service income,
commission, interest, dividends, royalties and rent.

(b) Gains are other items that meet the definition of income but are not revenue.
When gains are recognized in the statement of operation, they are usually displayed
separately because knowledge of them is useful for making performance economic
decisions.
Expenses

The definition of expenses encompasses losses as well as those expenses that arise in
the course of the ordinary activities of the cooperative.

(a) Expenses that arise in the course of the ordinary activities of the cooperative
include, for example, cost of sales, wages and depreciation. They usually take the form
of an outflow or depletion of assets such as cash and cash equivalents, inventory, or
property, plant and equipment.

(b) Losses are other items that meet the definition of expenses and may arise in the
course of the ordinary activities of the cooperative. When losses are recognized in the
statement of operations, they are usually presented separately because knowledge of
them is useful for making economic decisions.
Recognition of assets,
liabilities, income and
expenses

Recognition is the process of incorporating in the financial statements an item that

meets the definition of an asset, liability, income or expense and satisfies the
following criteria:

(a) it is probable that any future economic benefit associated with the item will flow to
or from the cooperative, and

(b) the item has a cost or value that can be measured reliably.

The failure to recognize an item that satisfies those criteria is not rectified by
disclosure of the accounting policies used or by notes or explanatory material.
Criteria in Recognition
of assets, liabilities,
income and expenses

The probability of future economic benefit

The concept of probability is used in the first recognition criterion to

refer to the degree of uncertainty that the future economic benefits
associated with the item will flow to or from the cooperative.
Assessments of the degree of uncertainty attaching to the flow of
future economic benefits are made on the basis of the evidence relating
to conditions at the end of the reporting period available when the
financial statements are prepared. Those assessments are made
individually for individually significant items, and for a group for a large
population of individually insignificant items.
Criteria in Recognition
of assets, liabilities,
income and expenses

Reliability of measurement

The second criterion for the recognition of an item is that it possesses a cost or value
that can be measured with reliability. In many cases, the cost or value of an item is
known. In other cases it must be estimated. The use of reasonable estimates is an
essential part of the preparation of financial statements and does not undermine their
reliability. When a reasonable estimate cannot be made, the item is not recognized in
the financial statements.

An item that fails to meet the recognition criteria may qualify for recognition at a later
date as a result of subsequent circumstances or events.
An item that fails to meet the criteria for recognition may nonetheless warrant
disclosure in the notes or explanatory material or in supplementary schedules. This is
appropriate when knowledge of the item is relevant to the evaluation of the financial
condition, performance and changes in financial condition of a cooperative by the
users of financial statements.
Measurement of assets,
liabilities, income and
expenses

Measurement is the process of determining the monetar y amounts at which a

cooperative measures assets, liabilities, income and expenses in its financial
statements. Measurement involves the selection of a basis of measurement. This
framework specifies which measurement basis a cooperative shall use for many types
of assets, liabilities, income and expenses.

Two common measurement bases are historical cost and fair value:
(a) For assets, historical cost is the amount of cash or cash equivalents paid or the fair
value of the consideration given to acquire the asset at the time of its acquisition. For
liabilities, historical cost is the amount of proceeds of cash or cash equivalents
received or the fair value of non-cash assets received in exchange for the obligation at
the time the obligation is incurred, or in some circumstances the amounts of cash or
cash equivalents expected to be paid to settle the liability in the normal course of
business.
(b) Fair value is the amount for which an asset could be exchanged, or a liability
settled, between knowledgeable and willing parties in a normal transaction.
TOOL
REFERENCES

Bitonio, Jo Balucanag 2020). Revised copy of Cooperative Performance Standard Instrument.

Accessed from https://www.slideshare.net/jobitonio/cooperative-performance-standard-
instrument

Cooperative Development Authority (2020. MC 2015-06 | PHILIPPINE FINANCIAL REPORTING

F R A M E W O R K F O R C O O P E R AT I V E S . A c c e s s e d f r o m h t t p s : / / c d a . g o v. p h / 7 8 -
resources/issuances/memorandum-circulars-mcs/608-mc-2015-06-philippine-financial-
reporting-framework-for-cooperatives

J i m e n e z , S h i e r a d e l ( 2 0 1 6 ) . T h e St a t e of P h i l i p p i n e C o o p e r a t i v e s . A c c e s s e d f r o m
https://www.academia.edu/33725776/The_State_of_Philippine_Cooperatives_by_Shieradel_Jime
nez_full_paper_pdf

Nabua, Wilson C. et al (2021). Organizational and Financial Performance of Cooperatives in

Misamis Occidental. Accessed from https://ejournals.ph/article.php?id=969

Duguid, Fiona M. (2017). Non-Financial Tools and Indicators for Measuring the Impact of
Cooperatives. Accessed from https://www.smu.ca/webfiles/Non-
FinancialToolsandIndicatorsforMeasuringtheImpactofCo-operatives.pdf