Dear All,
On March 26, 2018, the Securities and Exchange Commission (SEC) issued memorandum circular (MC) No. 5 pertaining to the Adoption of Philippine Financial Reporting Standards (PFRS) for Small Entities as part of SEC’s rules and regulations on financial reporting.
The SEC revised the Part I, Section 2 of Securities Regulation Code (SRC) Rule 68, as amended. The revisions are as follow:
SMALL ENTITIES
- The I-ACGR shall cover all relevant information from January to December of the given year.
- Small entities are those that meet all of the following criteria:
- Total assets of between P3 Million to P100 Million or total liabilities of between P3 Million to P100 Million. If the entity is a parent company, the said amounts shall be based on the consolidated figures;
- Are not required to file financial statements under Part II of SRC Rule 68;
- Are not in the process of filing their financial instruments for the purpose of issuing any class of instruments in public market; and
- Are not holders of secondary licenses issued by regulatory agencies.
- Small entities shall use as their financial reporting framework the PFRS for Small Entities as adopted by the
Commission. However, entities who have operations or investments that are based or conducted in a different country with different functional currency shall not apply this Framework and should instead apply the full PFRS or PFRS for SMEs. The following small entities shall also be exempt from the mandatory adoption of the PFRS for Small Entities and may instead apply, as appropriate, the full PFRS or PFRS for SMEs:- A small entity which is a subsidiary of a parent company reporting under the full PFRS or PFRS for SMEs.
- A small entity which is a subsidiary of a parent company which will be moving towards IFRS or IFRS for Small and Medium Entities (IFRS for SMEs) pursuant to the foreign country’s published convergence plan;
- A small entity, either as a significant joint venture or associate, is part of a group that is reporting under the full PFRS or IFRS for SMEs;
- A small entity which is a branch office or regional operating headquarter of a foreign company reporting under the full IFRS or IFRS for SMEs;
- A small entity which has been preparing financial statements using full PFRS or PFRS for SMEs and has decided to liquidate;
- A small entity which has been preparing financial statements using full PFRS or PFRS for SMEs and has decided to liquidate;
- Such other cases that the Commission may consider as valid exceptions from the mandatory adoption of PFRS for Small Entities.
- A small entity availing of any of the above-mentioned grounds for exemption shall provide a discussion in its Notes to Financial Statements of the facts supporting its adoption of the full PFRS or PFRS for SMEs instead of the PFRS for Small Entities.
- If a small entity that uses the PFRS for Small Entities in a current year breaches the floor or ceiling of the size
criteria at the end of that current year and the event that caused the change is considered “significant and
continuing” the entity shall transition to the applicable financial reporting framework in the next accounting period. If the event is not considered “significant and continuing”, the entity can continue to use the same financial reporting framework it currently uses. - The determination of what is “significant and continuing” shall be based on management’s judgment taking into consideration relevant qualitative and quantitative factors. As a general rule, 20% or more of the consolidated total assets would be considered significant.
Please see attached SEC MC No. 5 and the full text of PFRS for Small Entities for your further reading.