Law Summary
Scope and Application
- SFAS 17/IAS 17 applies to all entities in the Philippines preparing financial statements in accordance with Philippine GAAP.
- It governs the accounting treatment for leases, ensuring proper classification and recognition of lease contracts in financial statements.
Key Definitions
- Lease: An agreement whereby the lessor conveys the right to use an asset for an agreed period in exchange for payment.
- Finance Lease: A lease that transfers substantially all the risks and rewards incidental to ownership of the asset to the lessee.
- Operating Lease: A lease other than a finance lease, typically shorter term with less transfer of risks and rewards.
Accounting Treatment and Recognition
- Finance leases require the lessee to recognize the leased asset as property, plant, and equipment, and a corresponding liability for lease payments.
- Operating leases require the lessee to recognize lease payments as an expense over the lease term.
- Lessors in finance leases recognize a receivable while those in operating leases continue to recognize the leased asset and income over the lease term.
Disclosure Requirements
- Entities must disclose information about their leasing arrangements in financial statements, including lease terms, contingent rents, renewal options, and residual values.
- Significant judgments made in classifying leases must be disclosed to provide users with relevant information for decision-making.
Effective Date and Enforcement
- The resolution was adopted on October 28, 2002, by the PRC Board of Accountancy and became effective upon approval.
- Accountants and entities preparing financial statements are required to comply with SFAS 17/IAS 17 as part of Philippine GAAP.
Legal Authority and Signatories
- Signed and attested by key members of the Professional Regulatory Board of Accountancy.
- Approved by the Chairperson and Commissioners of the Professional Regulation Commission, ensuring enforceability and official recognition in the regulatory framework.