P&A Accounting Alert: SEC Issued Memorandum Circular No. 3

SEC Issued Memorandum Circular No. 3: Revised Guidelines on the Implementation of PFRS 9

This Accounting Alert aims to provide the latest issuance of the Securities and Exchange Commission (SEC or the Commission) covering the revised guidelines on the implementation of the first phase of PFRS 9 in the Philippines.
 
Overview
In November 2009 and October 2010, the International Accounting Standards Board (IASB) published IFRS 9 (2009) and IFRS 9 (2010), respectively.  IFRS 9 (2009) and IFRS (2010) are collectively referred to as IFRS 9.  These issuances are the first phase of IASB's project addressing the classification and measurement of financial instruments.  IFRS 9 was originally issued with mandatory effective date on January 1, 2013.   On December 16, 2011, the IASB issued an amendment to IFRS 9 changing its mandatory effective date for annual periods beginning on or after January 1, 2015.  These amendments were adopted by the Commission as part of Philippine Financial Reporting Standards (PFRS) on May 24, 2012. 

To provide guidance in the implementaton of PFRS 9 in the Philippines, the SEC issued Memorandum Circular (MC) No. 3 (Series of 2011), Guidelines on Implementation of PFRS 9 - Financial Instruments: Recognition and Measurement, last May 16, 2011 effective for interim financial statements starting June 30, 2011 and annual financial statements for the year ended December 31, 2011 and onwards .  In view of the changes in the mandatory effective date of PFRS 9, the Commission revised the said guidelines through issuance of MC No. 3 (Series of 2012). 

The foregoing guidelines were issued to require covered companies an assessment and disclosure of the possible financial impact of an early adoption of the standard and to address concerns on the need for transparency and availability of sufficient information for economic decision-making of the users of financial statements.  For purposes of the applicability of these guidelines, "the covered companies" include
(a) large corporations with total assets of more than P350 million and total liabilities of P250 million, and publicly-accountable entities that are mandated to adopt PFRS and (b) small and medium-sized entities that are exempted from PFRS for SMEs and have adopted PFRS.

Content
The relevant provisions of MC No. 3 require the following:

Covered companies shall conduct a study every second quarter of the fiscal year up to 2014 on the impact of an early adoption of PFRS 9 on their financial statements (FS).  The assessment shall use as basis the company's audited financial information as of the most recently-completed fiscal year.

Covered companies that are required to submit interim financial statements to the Commission, they shall comply with the following requirements:

(a) Interim financial statements starting with the period ending June 30, 2012 up to June 30, 2014 shall contain a disclosure on whether or not the company conducted an evaluation on the possible financial impact of the adoption of PFRS 9. The reason for not conducting an impact study shall be indicated in the interim FS.

(b) If the company conducted an impact evaluation, the interim FS shall contain a disclosure on whether or not it will early adopt PFRS 9 in its annual financial reporting for the current year. 

(i) In case the decision is to early adopt PFRS 9, the interim FS shall include a discussion on the qualitative and quantitative results of the company's impact evaluation.

(ii) An entity that will not early adopt PFRS 9 in the current year shall comply with the requirements under items 1 and 2a above in the succeeding interim periods up to June 30, 2014.

This MC supersedes the guidlelines issued by the Commission on May 16, 2011 to the extent of the interim financial reporting starting with June 30, 2012.  Thus, all of the requirements of the May 1 6 , 2011 Guidelines pertaining to the 2011 interim financial reporting shall remain enforceable.