The Securities and Exchange Commission (SEC) is allowing financial institutions to report on a staggered basis credit loss allowances as a result of the coronavirus disease 2019 (COVID-19) pandemic.
“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,” said Emilio Aquino, SEC chairman.
Aquino said these reliefs were intended to reduce the impact of losses that Bangko Sentral ng Pilipinas (BSP) Supervised Financial Institutions (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 added.
Released through SEC Memorandum Circular No. 32, Series of 2020, the staggered booking will run over a maximum of five-year period. The SEC memo also allowed the reclassification of debt securities measured at fair value to amortized cost category.
“Without the industry-specific financial reporting framework, the relief measures are considered deviations from the PFRS (Philippine Financial Reporting Standards), 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,” the SEC said.
The SEC also said under the Revised Securities Regulation Code (SRC) Rule 68, it may allow a financial reporting framework, other than the PFRS, that complies with the regulatory reportorial requirements of the concerned regulatory agency.
Under the newly issued memorandum circular, BSFIs have the option to prepare their financial statements using the industry specific framework or the PFRS, in full, for the duration and terms allowed by the BSP.
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.
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, the SEC said.
“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,” it added.
The SEC however said the external auditor of the financial institution “must reflect in the opinion paragraph that the financial statements were prepared in compliance with such framework and include an ‘Emphasis of Matter’ paragraph in compliance with the requirement of the Philippine Auditing Standard.”
The industry-specific framework will be part of the applicable financial reporting framework for the purpose of preparing and filing general-purpose financial statements with the SEC, in line with Revised SRC Rule 68.