QuestionsQuestions (SEC Notice)
The SEC Notice references the 13 August 2009 SEC En Banc Resolution (the “aSEC Resolutiona”) and provides implementation guidelines for adoption of PFRS for SMEs.
If the entity qualifies as an SME under the PFRS for SMEs definition and the SEC Resolution (e.g., it qualifies under the ceiling/floor rules), it may adopt PFRS for SMEs. If it qualifies, it is treated as a “first-time adopter” and must apply Section 35 (Transition to the PFRS for SMEs).
Because the SEC Notice states that if an entity qualifies as an SME and adopts PFRS for SMEs, it shall be considered a first-time adopter of the PFRS for SMEs, regardless of whether its previous framework was full PFRS or another GAAP.
It limits it to once only: an entity can be a first-time adopter of the IFRS for SMEs only once.
If the NPAE qualifies as an SME under the PFRS for SMEs and the SEC Resolution, it may use PFRS for SMEs and is treated as a first-time adopter, applying paragraphs 35.1 and 35.2 (Section 35 transition rules).
When it does not qualify as an SME under the PFRS for SMEs and SEC Resolution—e.g., when it has crossed the ceiling threshold for total assets of P350 million.
It should use full PFRS. If this is the first time such entity adopts full PFRS, it should apply PFRS 1 (First time Adoption of Philippine Financial Reporting Standards).
Micro-business entities may use any of these bases: (a) full PFRS, (b) PFRS for SMEs, or (c) another acceptable basis of accounting.
Management must assess the acceptability of that basis in light of (1) the entity’s nature and the objective of the financial statements, and (2) the requirements of the law or regulators and standard-setters.
PFRS for SMEs is effective for annual periods beginning on or after January 1, 2010.
Guidance on applying Section 23 (Revenue) for recognizing revenue from agreements for the construction of real estate applies to annual periods beginning on or after January 1, 2012.
The amount of total assets and total liabilities should be based on the entity’s audited financial statements as of December 31, 2009.
Use audited total assets or audited total liabilities as of December 31, 2009.
Use the audited financial statements for the immediately preceding fiscal year (e.g., the fiscal year ending January 31, 2010).
It should transition to the applicable framework (full PFRS if the ceiling is breached, or another acceptable basis if the floor is breached) in the next accounting period (e.g., next calendar year).
It is based on management’s judgment considering relevant qualitative and quantitative factors; as a general rule, 20% or more of total assets or total liabilities would be considered significant.
It must make required disclosures including (1) an explanation of the transition to PFRS for SMEs (under paragraph 35.12) and (2) reconciliations (under paragraphs 35.13 to 35.15) of Section 35.