SEC approves new framework for audited financial statements

MANILA, Philippines — The Securities and Exchange Commission (SEC) has approved an industry-specific framework for the preparation of the audited financial statements of financial institutions supervised by the Bangko Sentral ng Pilipinas (BSP) to account for the regulatory relief measures extended to them.

Under the SEC memorandum circular issued on Tuesday, BSP-supervised financial institutions (BSFIs) have the option to prepare their financial statements using the industry specific framework or the Philippine Financial Reporting Standards (PFRS) in full, for the duration and terms allowed by the BSP.

The SEC said BSFIs, which choose to adopt the industry specific framework, should specify the reliefs availed of and indicate that the availment thereof covers only the current year transactions, under the “Basis of Preparation of the Financial Statements” section of their financial statements.

It said BSFIs should also include qualitative and quantitative disclosures of the impact of the reliefs they have availed of, to ensure transparency in their financial reporting.

BSFIs, which deem the impact of reliefs on their financial statements to be not material, may still represent in the notes that the financial statements are in full compliance with PFRS.

In such instances, the disclosure requirements for reliefs are not mandatory, the SEC said.

“The industry-specific framework recognizes the necessity of the prudential accounting relief measures, as well as the other regulatory reliefs issued by the central bank, in countering or, at least, cushioning the impact of the COVID-19 outbreak on banks and other financial institutions,” SEC chairperson Emilio Aquino said.

“These reliefs were intended to reduce the impact of losses that BSFIs may incur due to exposure to borrowers, industries and sectors severely affected by the COVID-19 pandemic and the mark-to-market losses that may be sustained due to volatilities in the financial markets. Consequently, they aim to strengthen the ability of BSFIs to continue operating and servicing the financing requirements of the general public,” he said.

According to the SEC, the industry-specific framework takes into account BSP Memorandum M-2020-008 dated March 14, 2020, providing all BSFIs  with regulatory relief measures by allowing the staggered booking of allowance for credit losses over a maximum period of five years and the reclassification of debt securities measured at fair value to amortized cost category, among others.

Without the industry-specific financial reporting framework, the SEC said relief measures are considered deviations from the PFRS, which may lead to the issuance of a “qualified opinion” by the external auditor if such reliefs have a material impact on the fair presentation of the audited financial statements of banks and other BSFIs.