Conversion to International Financial Reporting Standards: The Philippine experience
March 20, 2007 | 12:00am
Why IFRS |
Companies, especially those dealing with the investing public, now face greater scrutiny resulting from stricter regulatory and IFRS requirements. IFRS requires a lot more disclosures to be presented in financial reports. The modern CFO has to ensure that adequate technical knowledge resides in his people for the proper implementation of these standards. Going forward, he needs to ensure that such knowledge will be updated as IFRS is dynamic. The Code of Corporate Governance applicable to public companies now requires the CFO and auditors to have a lot more interaction with the audit committee and the Board of Directors as these bodies now assume a greater degree of responsibility over financial reporting. And since the Chairman and CEO are required by the Securities and Exchange Commission (SEC) to issue a statement assuming management responsibility for the financial statements, it is but natural for them to ask more questions before they sign the certification.
PAS 19 prescribes that the rate for discounting pension benefit obligations should be based on current market conditions. The discount rate should reflect the market yields (at the balance sheet date) on bonds with an expected term consistent with the term of the obligations. Given the extent of the fluctuation of the rate of return on the Philippine government issued bonds from year to year, the corresponding fluctuation in the discount rate will likely cause volatility in the related financial statement accounts of the companies. For example, a one percent change in the discount rate could cause a fluctuation in the pension benefit obligations by as much as 20 percent. (To be continued)
(Roberto G. Manabat is the chairman and CEO of Manabat Sanagustin & Co., CPAs, a member firm of KPMG International, a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG international or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. For comments and inquiries, please email [email protected] or [email protected])
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