QuestionsQuestions (SEC Notice)
It aims to clarify the applicability of the Rule, incorporate changes brought by SFAS/IAS effective beginning January 1, 2002, simplify provisions by incorporating SFAS/IAS by reference, impose additional disclosure requirements for December 2002 financial statements, strengthen the Statement of Management’s Responsibility, add sanctions for misleading or materially incomplete reports, and clarify auditors’ opinion requirements and periodic reporting distinctions.
All corporations that file with the SEC audited financial statements prepared and presented in conformity with Philippine generally accepted accounting principles, except those whose paid-up capital is less than ₱50,000.00.
It states that the financial statements of branch offices of foreign corporations licensed to operate in the Philippines by the SEC shall comply with the requirements of SRC Rule 68.
Control is the power to govern the financial and operating policies of an enterprise to obtain benefits. It is presumed when the parent owns, directly or indirectly through subsidiaries, more than one half of the voting power unless exceptional circumstances clearly demonstrate no control. Control also exists even when the parent owns half or less if it has power over more than one half of voting rights (e.g., agreement), power under statute/agreement to govern policies, power to appoint or remove the majority of board members, or power to cast the majority of votes at board meetings.
Parent: an enterprise with one or more subsidiaries. Subsidiary: an enterprise controlled by another enterprise (the parent). Related parties: when one party can control the other or exercise significant influence over the other in making financial/operating decisions. Significant influence: participation in policy decisions but not control; examples include board representation, participation in policy making, material intercompany transactions, interchange of managerial personnel, and dependence on technical information.
The notice lists: Framework for the Preparation and Presentation of Financial Statements; SFAS 1 and IAS 01 (Presentation of Financial Statements revised 2000); SFAS 4 and IAS 02 (Inventories revised 2000); SFAS 7 (Contingencies and Subsequent Events); SFAS 8 (Accounting for Effects of Changes in Foreign Exchange Rates); SFAS 9 (Summary of GAAP on Intangible Assets); SFAS 10 (Summary of GAAP on Investment); SFAS 13 / IAS 08 (Net Income or Loss for the Period, Fundamental Errors and Changes in Accounting Policies); SFAS 18 (Summary of GAAP on Stockholders’ Equity); SFAS 19 (Summary of GAAP on Banking Industry); SFAS 19A (Accounting for Investments in Debt and Marketable Securities of Banks); SFAS 20 (Accounting for Business Combinations); SFAS 22 / IAS 07 (Cash Flow Statements revised 2000); SFAS 23 (Accounting for Income Taxes); SFAS 24 (Retirement Benefit Costs); SFAS 25 / IAS 23 (Borrowing Costs); SFAS 26 / IAS 11 (Construction Contracts); SFAS 27 (Nonlife Insurance Industry); SFAS 28 / IAS 18 (Revenue); SFAS 29 / IAS 33 (Earnings Per Share); SFAS 30 / IAS 34 (Interim Financial Reporting); SFAS 31 / IAS 14 (Segment Reporting).
They shall only be applicable to companies covered by SRC Rule 68.1.
SFAS 8A (Deferral of Foreign Exchange Differences); SFAS 10 / IAS 10 (Events after the Balance Sheet Date); SFAS 20 / IAS 20 (Accounting for Government Grants and Disclosures for Government Assistance); SFAS 37 / IAS 37 (Provisions, Contingent Liabilities and Contingent Assets); SFAS 38 / IAS 38 (Intangible Assets).
The notice states deletion of: Annex 68-J (General Notes to Financial Statements); Annex 68-K (Balance Sheet); Annex 68-L (Income Statement); Annex 68-M (Cash Flow Statement); Annex 68.1-JJ (General Notes to Financial Statements); Annex 68.1-MM (Cash Flow Statement); Schedule E (Property, Plant and Equipment); Schedule F (Accumulated Depreciation); and the Section on Consolidated Financial Statement and the Determination on Current Assets and Current Liabilities (as these are included in SFAS 27 and SFAS 1 respectively).
They include: (a) the nature and remaining undepreciated balance as of December 31, 2002 of foreign exchange losses capitalized as part of property, plant and equipment; (b) the unamortized balance as of December 31, 2002 of deferred losses arising from long-term foreign exchange liabilities; and (c) the nature and amount of intangible assets (e.g., pre-operating expenses) as of December 31, 2002 expected to be written off due to applying SFAS/IAS 38.
It must state that management is responsible for all information/representations in the financial statements and that the statements were prepared in accordance with Philippine GAAP reflecting amounts based on best estimates and informed judgment with appropriate materiality consideration. It must further describe that management maintains a system of accounting/reporting with internal controls for authorization/recording of transactions, safeguarding assets, and proper recognition of liabilities. It must also require disclosure of significant deficiencies/material weaknesses and fraud involving management or key internal control personnel to the audit committee and external auditor, and confirm board review. It also includes the external auditor’s examination/opinion statement, and is signed under oath by the Chairman, CEO, and CFO.
The local manager in charge of operations within the Philippines signs the Statement.
After due notice and hearing, the officer/director is subject to a basic penalty of ₱100,000 plus a daily fine of ₱500 until the information is corrected or completed. This is without prejudice to filing appropriate criminal charges.
The penalty applies not only to officers/directors but also to persons acting under their direction or acting on their own who fraudulently influence, coerce, manipulate, or mislead the external auditor or other persons the auditor relies upon, for the purpose of rendering the financial statements materially misleading.
The SEC discourages submission of audited financial statements with an auditor’s opinion other than unqualified and retains the right to obtain clarification. For periods beginning January 1, 2003 and thereafter, audited financial statements covered by Rule 68.1 with auditor’s opinions other than unqualified due to departures from Philippine GAAP are deemed NOT FILED, and appropriate sanctions shall be imposed.
It amends Section 3 of SRC Rule 68.1 to indicate separate requirements for periodic presentation of financial statements submitted with: (1) Registration Statements; (2) Annual Report (SEC Form 17-A); and (3) Information or Proxy Statements (SEC Forms 17-IS/20).
Effective for audited financial statements covering periods beginning January 1, 2002, and for interim financial statements starting the first quarter of 2003.
All prior period financial data/information must be presented or restated to conform with the amended Rule and the new accounting standards for comparability.