SEC Memorandum Circular No. 32 series of 2020
This Accounting Alert is issued to circulate the new circular by the Securities and Exchange Commission (SEC/Commission) on the basis of preparation of audited financial statements for Bangko Sentral ng Pilipinas (BSP) Supervised Financial Institutions (BSFIs) under SEC Memorandum Circular (MC) No. 32-2020.
The Commission En Banc, in its meeting held on November 17, 2020, in consideration of the government's initiative to provide relief to industries impacted by the COVID-19 pandemic, approved the adoption of an industry-specific framework, to be referred to as the Philippine Financial Reporting Standards (PFRS), as modified by the application of the financial reporting relief issued by the BSP and approved by the SEC. Accordingly, BSFIs have the option to prepare their financial statements using the said industry specific framework or full PFRS for the duration and terms allowed by the BSP.
BSFIs, which opt to adopt the industry-specific framework, should specify in the "Basis of Preparation of the Financial Statements" section of the financial statements the relief availed of and indicate that the availment thereof covers only the current-year transactions. For consistency of presentation, BSFIs should comply with the following prescribed wordings:
"The accompanying financial statements have been prepared in accordance with Philippine Financial Reporting Standards, as modified by the application of the following financial reporting reliefs issued by the Bangko Sentral ng Pilipinas and approved by the Securities and Exchange Commission in response to the COVID-19 pandemic: (enumerate reliefs availed of). The reliefs cover only current-year transactions/events and do not impact the comparative period/s."
Qualitative Disclosure Required
To ensure transparency in financial reporting, a qualitative disclosure of the impact of the reliefs availed of should be disclosed. The following information should likewise be provided in tabular format in the Notes to Financial Statements that contains the "Basis for Preparation of the Financial Statements":
For staggered booking of allowance for credit losses:
- Impact on the affected financial statement line items if the allowance was measured and recorded in accordance with PFRS (loans and receivables, allowance for credit losses, provision for credit losses, retained earnings, deferred tax asset and expense, earnings per share [for listed BSFIs], etc.)
- Amount of allowance recognized/amortized for the period
- Balance of unrecognized (unamortized) allowance
For reclassification of debt securities measured at fair value to amortized cost category, a disclosure of the impact on the affected financial statement line items had the reclassification not been made (financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income, investment securities at amortized cost, other comprehensive income, gain or loss from fair value changes, provision for credit losses, deferred tax asset and expense, earnings per share, etc.).
Effects on the Independent Auditor's Opinion
Where the external auditor has been engaged to perform an audit engagement in accordance with Philippine Standards on Auditing (PSA) on these annual financial statements, which have been prepared using PFRS, as modified by the application of the financial reporting reliefs issued by the BSP and approved by the SEC, the external auditor shall reflect in the opinion paragraph that the financial statements are prepared in accordance with the compliance framework described in the notes to the financial statements. In addition, the external auditor shall include an Emphasis of Matter paragraph in the auditor's report to draw attention to the basis of accounting that has been used in the preparation of the financial statements.
See attached Accounting Alert for further details.