Financial reporting has experienced numerous changes over the past several years driven by the adoption of the international standards as well as the new and revised financial reporting rules and regulations issued by the Securities and Exchange Commission (SEC). And even the Bureau of Internal Revenue has had its recent share in revising the financial reporting requirements with their Revenue Regulations No. 15-2010 and 19-2011. These changes require companies and auditors to be updated with the latest financial rules and regulations to ensure that financial statements are prepared in compliance with both the accounting standards and regulatory reporting requirements.
Consequently, various professional organizations like PICPA, ACPAPP and FINEX, among others, recognizing these changes in the financial reporting environment, hold relevant seminars and membership meetings with the end in view of heightening awareness and providing guidance to preparers of financial statements, management, investors and auditors, as well, on these new financial reporting rules.
Considered as “Top of Mind†issues faced by companies and auditors today are the so called Financial Reporting Bulletins (FRBs) issued by the SEC. As a background, these FRBs are issued by the Office of the General Accountant of the SEC to assist corporations in complying with their financial reporting obligations and to ensure consistency of implementation. Though this may be a bit technical for some, it pays to know each of these latest FRBs. Here is the rundown of the FRBs recently issued by the SEC and related highlights:
FRB No. 6 (as revised) [the original FRB No. 6 was dated Feb. 16, 2012]
Deposits for Future Subscriptions
A corporation can only treat a Deposit for Stock Subscription as “equity†if all of the following elements are present as of end of the reporting period:
• insufficient unissued authorized capital stock to cover the amount of shares indicated in the contract;
• board of directors’ approval on the proposed increase in authorized capital stock (for which a deposit was received by the corporation);
• stockholders’ approval of said proposed increase; and
• application for the approval of the proposed increase has been filed with the SEC.
FRB No. 13
Presentation of Related Party Disclosures
Related party disclosures are required by the accounting standards. The more challenging provision is for corporations to present them in a columnar format.
FRB No. 14
Presentation of Reconciliation of Retained Earnings
The SEC clarifies that a corporation’s amount of retained earnings should be based on its separate (“stand aloneâ€) financial statements and not on its consolidated financial statements if it is a parent company. The reconciliation of retained earnings of the parent company shall however, be submitted with the consolidated financial statements pursuant to Securities Regulation Code (src) Rule 68, as amended. To avoid inconsistencies in the balances, the reconciliation should be presented in a manner as provided in FRB No. 14.
FRB No. 15
Appropriation of Retained Earnings for Business Expansion
The relevant provisions of Section 43 of the Corporation Code indicate that the retention of surplus profits in excess of 100 percent of the paid-in capital stock for expansion projects must be definite and approved by the Board of Directors. Therefore, to provide an understanding of the impact of the retention of earnings on the financial statements, the following additional disclosures have to be provided:
• details of the expansion (e.g., description of the project, timeline) to render the project definite;
• date of the approval by the Board of Directors of the project.
FRB No. 16
List of Effective Standards and Interpretations (as of Dec. 31, 2012)
Under the SEC Securities and Regulation Code Rule 68, as amended, large and/or publicly accountable entities are required to submit with their audited financial statements a schedule, in table format, showing in the first column a list of all the effective standards and interpretations under the Philippine Financial Reporting Standards (PFRS) as of year-end, and an indication opposite each in the second column on whether it is “Adoptedâ€, “Not adopted†or “Not applicableâ€. In order for corporations to easily comply with the said requirement, the SEC has provided in this FRB a tabular List of the PFRS including Philippine Interpretations effective as of Dec. 31, 2012, that must be accomplished by said large and/or publicly-accountable entities, audited by the company’s external auditors and submitted with the annual financial statements.
So to avoid receiving letters from the SEC for any comments or findings they may have regarding noncompliance with the above regulatory requirements, here are some simple/basic tips:
Get an update
Visit (regularly) the SEC website for the latest rules. Know how the rules may impact your own financial statements-it’s always a good idea to be aware of what is out there and how it may affect you and your companies. Your external auditors can probably fill you in on the details and provide some advice or guidance on any steps you should take.
Set your records straight
It’s always important to approach your preparation of the financial statements including the additional components or schedules to be attached, with complete and clear information. Completion of the audited financial statements will be facilitated if all relevant information is given to your external auditors.
Consult
If you have any concern with any of the above rules, you may consult the Office of the General Accountant – I’m sure they would be more than willing to be of service to you! For any other issue that may affect your financial statements, remember that your external auditors can help. Turn to them with your FRB questions.
Enrico E. Baluyut is an Audit partner of Manabat Sanagustin & Co., the Philippine member firm of KPMG International. He has over 10 years in the audit profession.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email manila@kpmg.com or rgmanabat@kpmg.com.