Accounting Alerts

Amendments to the Guidelines on Reclassification of Debt Securities Measured at Fair Value to the Amortized Cost Category

This accounting alert is issued to circulate the amendments to the guidelines governing the reclassification of debt securities that are measured at fair value to the amortized cost category as part of the relief measures extended by the Bangko Sentral ng Pilipinas (BSP) in managing the financial impact of the corona virus disease 2019 (COVID-19) pandemic in accordance with BSP Memorandum No. M-2021-011 dated February 2, 2021.

Background

On April 7, 2020, the Monetary Board of the BSP approved the guidelines governing reclassification of debt securities as part of the relief measures extended by the BSP to BSP-supervised financial institutions (BSFIs).  Pursuant to this, the BSP, in its Memorandum No. M-2020-022, allowed BSFIs, for prudential reporting purposes, to reclassify its investments in debt securities that are booked under a fair value category to the amortized cost category, except for debt securities that are part of assets under management of a trust entity. Memorandum No. M-2020-022 provides for the guidelines on how the reclassification of debt securities shall be implemented. 

Amendments to BSP Memorandum No. M-2020-022

The Monetary Board, in its Resolution No. 118 dated January 28, 2021, approved the amendments to the guidelines under Memorandum No. M-2020-022, as follows:

a. Removed item (8) which previously allows BSFI which availed of the look-back provision not to submit re-stated prudential reports covering the affected reporting periods.

b. Added additional guidance which states that a BSFI which avails of the alternative accounting treatment under Memorandum No. M-2020-022 and intends to revert to Philippine Financial Reporting Standards (PFRS) 9 shall classify its outstanding debt securities as of the start of the financial reporting period when such a decision will be made, i.e., January 1, in the case of a BSFI that adopts a calendar year-end reporting period, or as of the first day of its fiscal year, in the case of a BSFI that adopts a fiscal year-end reporting period, as if the classification requirements of PFRS 9 had always been applied to the outstanding debt securities. The cumulative effect of such a reclassification shall be reflected as an adjustment to each affected component of the BSFI’s equity at the start of the relevant financial reporting period in its prudential reports.

A BSFI may adopt the alternative accounting treatment under Memorandum No. M-2021-011 in its audited financial statements provided that it is made in accordance with the provisions of Securities and Exchange Commission Memorandum Circular No. 32 dated November 17, 2020.



 See attached BSP Memorandum No. M-2020-022 and M-2021-011 for complete details of this publication.