TAX NOTES

SEC adopts new and revised accounting standards

THE Securities and Exchange Commission (SEC) approved the adoption of the following pronouncements as part of its rules and regulations on financial reporting:

1. The amendments of Philippine Financial Reporting Standards (PFRS) 4, “Applying PFRS 9, Financial Instruments with PFRS 4, Insurance Contracts”. It provides two options for the entities that issue insurance contracts:

a. Overlay approach is an option that permits entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets; and

b. Deferral approach is an optional temporary exemption from applying PFRS 9 for entities whose predominant activity is issuing contracts within the scope of PFRS 4.

The amendments will become effective for annual periods beginning on or after January 1, 2018. Early adoption of the amendment is permitted if an entity adopts PFRS 9 early. The approaches will only be available to an entity if it has not previously applied PFRS 9.

2. PFRS 15 “Revenue from Contracts with Customers” and clarifications to PFRS 15 provides single, principles based five-step model to be applied to all contracts with customers.

Application of the standard is mandatory for annual reporting periods beginning on or after January 1, 2018. Earlier application is permitted.

3. PIC Q&A No. 2016-01: Conforming changes to PIC Q& As-Cycle 2016. This Q&A sets out the changes (i.e., amendments or withdrawal) to certain PIC Q&As. These changes are made as a consequence of the issuance of new PFRS and amendments to certain existing PFRS that are effective as of Dec. 31, 2015.

4. PIC Q&A No. 2016-4: Application of PFRS 15 “Revenue from Contracts with Customers” on sale of residential properties under pre-completion contracts. This guidance should be read in conjunction with the respective applicable accounting standards specifically, PFRS 15.

This Q&A applies to the accounting for revenues from the sale of a residential property unit under pre-completion stage (i.e., construction is on-going or has not yet commenced) by a real estate developer that enters into a contract to sell with a buyer, and the developer has determined that the contract is within the scope of PFRS 15.

The consensus in this Q&A takes effect on Jan. 1, 2018.

All of thesepronouncements have been adopted by the Philippine Financial Reporting Standards Council and Philippine Interpretations Committee, and approved by the Board of Accountancy and Professional Regulation Commission and published in the Official Gazette. Please be guided accordingly.

Source: P&A Grant Thornton

 

As published in Sunstar Cebu dated 12 September 2017.