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The Securities and Exchange Commission (SEC) has approved an industry-specific framework for the preparation of the audited financial statements (AFS) of financial institutions supervised by the Bangko Sentral ng Pilipinas (BSP) to account for the regulatory relief measures extended to them.
On November 17, the Commission issued SEC Memorandum Circular No. 32, series of 2020, allowing the preparation of the audited financial statements of BSP Supervised Financial Institutions (BSFIs) in accordance with the Philippine Financial Reporting Standards (PFRS), as modified by the application of the financial reporting reliefs issued by the Central Bank and approved by the Commission.
“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 B. 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.”
The industry-specific framework takes into account BSP Memorandum No. M-2020- 008 dated 14 March 2020, as amended by M-2020-0032 dated 27 April 2020, and M2020-0022 dated 8 April 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 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.
Under the Revised Securities Regulation Code (SRC) Rule 68, the Commission 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. 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.
Additionally, the external auditor engaged to audit the financial statements prepared using PFRS, as modified by the application of the financial reporting reliefs issued by the BSP and approved by the SEC, 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 Commission, in line with Revised SRC Rule 68.