BY JENNEE GRACE U. RUBRICO, Senior Reporter
Keeping Philippines, Inc. in investors’ sights
In a bid to keep the Philippines on the global investment radar, the government and local companies have started applying new globally recognized accounting standards that were adopted from Europe.
The new rules, which have been applied to companies’ 2005 annual report, form part of the international accounting standards (IASs) and the international financial reporting standards (IFRSs) which the Philippines has been adopting in phases since 1996.
Before that year, the local standards were based mostly on the Generally Accepted Accounting Principles of the United States.
In fact, multinational companies and accounting firms with global presence had to contend with varying accounting rules in different parts of the world.
IASs were developed by the Board of the International Accounting Standards Committee (IASC) from 1973 to 2000.
The International Accounting Standards Board (IASB), which replaced IASC in 2001, adopted some IAS and amended others. The new body also replaced some IAS with IFRS, and issued new IFRS on
issues that had no IAS application. Hence, the 34 IAS that were not replaced by IFRS remain in force. (See table)
In 1996, those IAS that were adopted were named Statement of Financial Accounting Standards (SFAS)/IAS to
provide reference to specific IAS that served as bases for Philippine standards.
Last year, SFAS/IAS were renamed Philippine Accounting Standards (PAS), while IFRS that were adopted were renamed Philippine Financial Reporting Standards (PFRS).
The standards, the implementation of which is being monitored by the Bangko Sentral ng Pilipinas for financial institutions and the Securities and Exchange Commission (SEC) for listed companies and firms imbued with public interest, are seen to align local financial reporting — which were not always consistent with international practices — with that of the European Union and other developed markets.
MORE RELIABLE INFORMATION
This, in turn, is expected to make it easier for foreign investors to analyze the financial reports of companies and gauge their financial standing.
The new rules are also expected to make companies’ financial reporting more credible and reliable.
Roberto G. Manabat, former general accountant of the SEC, where he is now a consultant, said the bid to have a uniform set of accounting standards gained steam in the wake of the 1997 Asian financial crisis.
“Because of the Asian crisis, multilaterals found out that there was a lot of inaccurate information out there. When
you have the wrong financial information and you make your business decisions based on this, there will be an adverse effect. So, they began pushing for the IAS,” he said.
Mr. Manabat said that among the standards that many companies had to apply to their 2005 annual reports are:
• IAS 19, which tackles employee benefits;
• IAS 21, which covers the treatment of foreign exchange in financial statements;
• IAS 32, which requires firms to make full disclosures on various entries in financial statements;
• IAS 39, which governs the treatment of financial instruments; and
• IAS 41, which governs the treatment of properties that are acquired for investment purposes.
IAS 32 will especially make financial statements more voluminous, because it requires firms to beef up the notes to their financial statements.
SOME MORE THAN OTHERS
And there are rules that are expected to affect certain industries more than others, experts said.
For instance, IAS 40, which governs investment property — or property purchased for investment purposes — would
require property owners to either value their property at cost, or according to its historical value.
IAS 16, which prescribes the accounting treatment for property, plant and equipment, may affect infrastructure-heavy
sectors like telecommunications which have property and equipment as their biggest items in the balance sheet.
IAS 41, meanwhile, also poses a problem for the agriculture sector, as it puts in place guidelines for the treatment,
valuation and disclosure of “biological assets” or “agriculture produce.“
International Financial Reporting Standards 4, for its part, requires several disclosures from insurance firms, including information:
• that helps users understand the amounts in the insurer’s financial statements that arise from insurance contracts;
• that helps users understand the amount, timing and uncertainty of future cash flows from insurance contracts;
• on insurance risk.
The impact of the new accounting rules on companies will be disclosed in the notes portion of their financial statements, Mr. Manabat said.
NO TURNING BACK
The Philippine Accounting Standards Council (PASC), the private sector-government board formed by Philippine Institute of Certified Public Accountants (PICPA) to formalize accounting standard setting, had required the application of the new rules on the 2005 annual reports.
This means that the companies have to not only incorporate the new standards in their 2005 financial reports, but also have to redo their 2004 reports to align them with the new accounting rules.
“To be comparative, the 2004 figures have to be restated also to conform with the IAS,” Mr. Manabat explained.
In order to give companies time to make adjustments on their 2005 report due to the new rules, SEC had extended
the deadline to May 2 from April 17 for listed firms to submit those reports.
Nonlisted firms were also required to do so by May 2. PICPA had earlier asked SEC to extend the deadline to June.
Justina F. Callangan, SEC corporation finance department director, said on April 20 that the SEC could not say how many companies had filed their reports by then, since “companies are all getting ready to submit their financial statements on the deadline.”
She said the commission had not received any report on problems that might prevent certain companies from submitting their reports on time.
Ms. Callangan said it would take at least three months after the May 2 deadline for the commission to determine if
there would be companies who would have failed to comply with the new rules.
But Mr. Manabat said since companies were able to submit their tax filings with the Bureau of Internal Revenue last
April 17, they should have come up with at least a “tentative” version of their financial reports for the SEC.
“Since accountants have to come up with the tax liabilities of companies ahead of their filing with the SEC, they would have at least a tentative financial statement ready by now on which they based the taxes that they paid with the
BIR,” he said.
He said while some companies had filed their financial statements ahead of the last day for doing so, most were
expected to have complied with the May 2 deadline as many were expected to have used the extension to fine-tune their financial reports.
And since the SEC had dealt with the problematic issues facing companies like mining and pre-need firms, Mr. Manabat said compliance of all companies with the IAS rules was “highly likely.”
“It would be too late now to ask for extensions or any relief since we are already at the homestretch. Since the commission has not received any petitions recently, we are confident that all companies have already resolved their
problems in complying with the IAS,” he said.
REPRIEVE
While regulators acknowledged that the shift in accounting rules may be difficult for big companies, they also realized
it would be even more difficult for small and medium-scale enterprises and other non-publicly accountable entities
(NPAEs) to comply especially since some standards may not even be applicable to their operations.
Hence, PASC came up with PAS 101 that provides “temporary relief” until next year for NPAEs from applying the new standards.
They are, however, required to observe the old rules that govern their current accounting practices.
PAS 101 states that IASB is currently drafting new rules specifically for NPAEs, to be made final by next year.
Mr. Manabat said that while adopting the new rules will give the Philippines a better chance of cornering some investment flows worldwide, the new system itself is not fool-proof.
“While the IAS raises the quality of financial reporting, and the chance of fraudulent reporting will decrease, it will
in the end depend on the players. If they really have intentions [of committing fraud], it will be difficult to catch them,”
he said.
“All the rules can do is to make it more difficult for decision makers to commit fraud.”— with Jeffrey O. Valisno
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