Financial Reporting Regulations in Philippines Get Boost from New Standards
The Philippine Financial Reporting Standards (PFRS) and Philippine Accounting Standards (PAS) have been issued by the Accounting Standards Council (ASC) to promote fairness, transparency, and accuracy in financial reporting. These new standards are modeled after the revised International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) of the International Accounting Standards Board (IASB).
Effective Date and Adoption
Effective January 1, 2005, the Bangko Sentral ng Pilipinas (BSP) has adopted the PFRS/PAS for annual financial statements. In a Memorandum to All Banks and Other BSP Supervised Financial Institutions (BSFIs), dated January 11, 2005, the BSP emphasized that BSFIs shall comply fully with the provisions of PFRS/PAS in preparing both their audited financial statements and financial statements for prudential reporting.
Compliance Requirements
According to Circular No. 494 of September 20, 2005, as a general rule, BSFIs are required to comply with the provisions of PFRS/PAS in all respects when preparing both audited financial statements and financial statements for prudential reporting. However, there are certain deviations between local and international accounting standards that apply only to the preparation of prudential reports to the BSP.
Consolidation Requirements
- Bank/Quasi-bank subsidiaries, regardless of type, must be consolidated on a line-by-line basis in accordance with PAS 27.
- For prudential reporting purposes, financial allied subsidiaries, except insurance companies, are consolidated with the financial statements of the parent bank/QB on a line-by-line basis.
Provisioning Requirements
BSFIs adopt the provisions of PFRS/PAS when booking provisions for credit losses in general purpose financial statements/audited financial statements. However, for prudential reporting purposes, BSFIs must adopt the expected credit loss model in measuring credit impairment in accordance with the provisions of PFRS 9.
General Loan Loss Provision
BSFIs are required to set up a general loan loss provision (GLLP) equivalent to one percent (1%) of all outstanding Stage 1 on-balance sheet loans, except for accounts considered as credit risk-free under existing regulations. BSFIs must recognize allowance for credit losses for Stages 1, 2 and 3 accounts in the profit or loss statement.
Accounting Treatment
The accounting treatment for prudential reporting is designed to ensure that financial statements provide a suitable basis for measuring risks and ratios of BSFIs. The BSP has emphasized that compliance with PFRS/PAS will promote fairness, transparency, and accuracy in financial reporting, ultimately contributing to the stability of the country’s banking system.
By adopting these new standards, the Philippines aims to improve the quality of financial reporting and enhance the credibility of financial institutions, thereby promoting a stable and robust financial system.