Financial Crime World

Philippine Banks Must Comply with New Financial Reporting Standards by 2005

The Bangko Sentral ng Pilipinas (BSP) has adopted the Philippine Financial Reporting Standards (PFRS)/Philippine Accounting Standards (PAS), effective January 1, 2005. This move aims to promote fairness, transparency, and accuracy in financial reporting.

New Standards Patterned after IFRS and IAS

The new standards are patterned after the revised International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) issued by the International Accounting Standards Board (IASB).

Compliance Requirements for Banks and Supervised Financial Institutions

Under Circular No. 494 dated September 20, 2005, banks and other supervised financial institutions (BSFIs) must comply with the provisions of PFRS/PAS in preparing both their audited financial statements and prudential reports to the BSP.

Deviation from Local and International Accounting Standards

However, deviations between local and international accounting standards are allowed for prudential reporting purposes. For instance:

  • Consolidated financial statements are prepared on a line-by-line basis for bank/quasi-bank subsidiaries.
  • Financial allied subsidiaries except insurance companies are consolidated with the parent bank/QB’s financial statements.

Expected Credit Loss Model and General Loan Loss Provision

BSFIs must also adopt the expected credit loss model in measuring credit impairment for prudential reporting purposes. Additionally, a general loan loss provision (GLLP) equivalent to 1 percent of all outstanding Stage 1 on-balance sheet loans is required.

Accounting Treatment for Prudential Reporting

The accounting treatment for prudential reporting also requires that:

  • Allowance for credit losses be recognized in the profit or loss statement.
  • Deemed cost of real and other properties acquired in settlement of loans be valued at initial recognition based on the carrying amount of the asset given up.
  • Interest income on non-performing exposures is not allowed to be recognized for prudential reporting purposes, except when payment is received.

Aims and Benefits of PFRS/PAS Adoption

The adoption of PFRS/PAS aims to ensure that financial statements provide a suitable basis for measuring risks and ratios of BSFIs, promoting a more stable and efficient financial system in the Philippines.