Law Summary
Transition of NPAEs from PAS 101 to PFRS for SMEs
- Non-Publicly Accountable Entities (NPAEs) currently using PAS 101 may qualify as SMEs and thus can adopt PFRS for SMEs.
- These entities are considered first-time adopters and should follow the transition provisions as in Item 1.
Transition of NPAEs from PAS 101 to Full PFRS
- NPAEs that no longer qualify as SMEs, such as those exceeding the total assets ceiling of P350 million, must use full PFRS.
- Entities that are not micro-business entities (assets or liabilities below P3 million) and do not qualify as SMEs must apply full PFRS.
- First-time adopters of full PFRS must apply PFRS 1, the standard for first-time adoption.
Financial Reporting Framework for Entities Outside Full PFRS or PFRS for SMEs
- Micro-business entities have the option to use full PFRS, PFRS for SMEs, or other acceptable bases of accounting.
- Management must assess the acceptability of alternative bases relative to the entity's nature, financial statement objectives, and regulatory/legal requirements.
- Examples include the income tax basis permitted by tax regulations and cash basis allowed by the SEC for micro-business entities.
Effective Date and Application of Size Criteria for Transitions
- PFRS for SMEs effective for annual periods starting on or after January 1, 2010.
- Revenue recognition for real estate construction under Section 23 applies from January 1, 2012.
- Size criteria (total assets/liabilities) are based on audited financial statements as of December 31, 2009, or the immediately preceding fiscal year if the accounting period differs.
- Entities breaching size thresholds with significant and continuing events must transition to the appropriate financial reporting framework in the next period.
- Significance of change generally recognized at 20% or more of total assets or liabilities.
Application of Size Criteria for Early Adoption
- Entities opting for early adoption of PFRS for SMEs must apply size criteria using audited financial statements of the immediately preceding calendar year.
Subsidiaries of a Parent Using Full PFRS
- Subsidiaries qualifying as SMEs can use PFRS for SMEs, even if the parent company uses full PFRS.
- These subsidiaries are not prohibited from using PFRS for SMEs if they lack public accountability.
- Uniform accounting policies must be maintained across the group; differences require adjustments in consolidated financial statements.
Required Disclosures on Transition to PFRS for SMEs
- SMEs using PFRS for SMEs for the first time must disclose the transition, including explanations and reconciliations as per Section 35.
- SMEs not early adopting must disclose anticipated impacts of future adoption.
Early Adoption of PFRS for SMEs
- Early adoption permitted for SMEs capable of efficient transition, despite the PFRS for SMEs not formally providing for it.
- Early adopters are first-time adopters and must comply with transition provisions.
This comprehensive guideline aligns accounting practices with the SEC's framework, ensuring clarity and consistent financial reporting for SMEs and other entities transitioning between frameworks.