Title
Amendments to SRC Rule 68 on Ficial Reporting
Law
Sec
Decision Date
Feb 20, 2003
The Securities and Exchange Commission approved amendments to SRC Rule 68, enhancing the clarity and requirements for financial statement preparation and reporting by corporations, including stricter penalties for misleading disclosures and the incorporation of updated accounting standards.
amendments
financial statements
src rule

Policy and Objectives of Amendments

  • The amendments clarify the applicability of the requirements on the form and content of financial statements filed with the Commission.
  • The amendments incorporate changes arising from Statement of Financial Accounting Standards (SFASs) and International Accounting Standards (IASs) effective beginning January 1, 2002.
  • The amendments simplify financial statement preparation provisions by incorporating by reference specified SFASs/IASs adopted by the Commission and the Accounting Standards Council (ASC).
  • The amendments strengthen disclosures for December 2002 Financial Statements.
  • The amendments add additional requirements for the Statement of Management’s Responsibility for companies covered by the rule.
  • The amendments impose sanctions for untrue/misleading disclosures and specified fraud-related interference with external auditors.

Coverage and Applicability Rules

  • SRC Rule 68 applies to corporations that file with the Commission audited financial statements prepared and presented in conformity with generally accepted accounting principles in the Philippines.
  • SRC Rule 68 applies except corporations whose paid-up capital is less than P50,000.00.
  • Financial statements of branch offices of foreign corporations licensed to operate in the Philippines by the Commission must also comply with the requirements of the rule.
  • The amended structure distinguishes periodic presentation requirements for specific filings, including Registration Statements, Annual Report (SEC Form 17-A), and Information or Proxy Statements (SEC Form 17-IS/20).

Defined Concepts for Consolidation

  • For purposes of preparation of consolidated financial statements, Control is defined as the power to govern an enterprise’s financial and operating policies to obtain benefits from its activities.
  • Control is presumed when the parent owns, directly or indirectly through subsidiaries, more than one half of the voting power of an enterprise unless exceptional circumstances clearly demonstrate otherwise.
  • Control also exists even if the parent owns one half or less of the voting power when any of these are present:
    • (A) power over more than one half of voting rights by agreement with other investors;
    • (B) power to govern financial and operating policies under a statute or agreement;
    • (C) power to appoint or remove the majority of board members or equivalent governing body; or
    • (D) power to cast the majority of votes at meetings of the board or equivalent governing body.
  • Parent is defined as an enterprise that has one or more subsidiaries.
  • Related parties exist when one party can control the other or exercise significant influence over the other in making financial and operating decisions.
  • Significant influence is participation in financial and operating policy decisions, without control, and may be exercised through:
    • (A) representation on the board or equivalent governing body;
    • (B) participation in policy-making processes;
    • (C) material intercompany transactions;
    • (D) interchange of managerial personnel; or
    • (E) dependence on technical information.
  • Significant influence may be gained through share ownership, statute, or agreement.
  • Subsidiary is an enterprise that is controlled by another enterprise (the parent).

Financial Statement Preparation by Reference

  • Financial statements filed with the Commission must be in accordance with SFAS/IAS and related Interpretations adopted by the Commission and the ASC, in addition to requirements under the rule and subsequent official pronouncements, interpretations, and rulings issued by the Commission.
  • The incorporated standards and related Interpretations include the Effective 2002 set for financial statement preparation:
    • Framework for the Preparation and Presentation of Financial Statements
    • SFAS 1 / IAS 01 (Presentation of Financial Statements (revised 2000))
    • SFAS 4 / 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 Generally Accepted Accounting Principles on Intangible Assets)
    • SFAS 10 / IAS 01 (Net Income or Loss for the Period, Fundamental Errors and Changes in Accounting Policies)
    • SFAS 18 (Stockholders’ Equity—general accounting principles summary)
    • SFAS 19 and SFAS 19A (Banking industry; and amendment on investments in debt and marketable securities of banks)
    • SFAS 20 (Business Combinations)
    • SFAS 22 / IAS 07 (Cash Flow Statements (revised 2000))
    • SFAS 23 (Accounting for Income Taxes)
    • SFAS 24 / IAS 24 (Retirement Benefit Costs; and related party disclosures)
    • SFAS 25 / IAS 23 (Borrowing Costs)
    • SFAS 26 / IAS 11 (Construction Contracts)
    • SFAS 27 (Nonlife Insurance Industry reporting)
    • 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)
    • SFAS 16 / IAS 16 (Property, Plant and Equipment)
    • SFAS 24 / IAS 24 (Related Party Disclosures)
    • SFAS 27 / IAS 27 (Consolidated Financial Statements and Accounting for Investments in Subsidiaries)
    • SFAS 28 / IAS 28 (Accounting for Investments in Associates)
    • SFAS 31 / IAS 31 (Financial Reporting of Interests in Joint ventures)
    • SFAS 35 / IAS 35 (Discounting Operations)
    • SFAS 36 / IAS 36 (Impairment of Assets)
  • SFAS Nos. 16, 24, 27, 28, 31, 35 and 36 are effective for the period beginning January 1, 2002.
  • SFAS Nos. 29 (Earnings per Share), 30 (Interim Financial Reporting), and 31 (Segment Reporting) apply only to companies covered by SRC Rule 68.1.
  • SFAS Nos. 8A, 10, 20, 22, 37, and 38 and their referenced IAS are effective beginning January 1, 2003, and the Commission encourages earlier application:
    • 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 22 / IAS 22 (Business Combinations)
    • SFAS 37 / IAS 37 (Provisions, Contingent Liabilities and Contingent Assets)
    • SFAS 38 / IAS 38 (Intangible Assets)
  • Annexes and schedules previously used are deleted, including:
    • 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)
    • The section on Consolidated Financial Statements included in SFAS 27 and the determination on Current Assets and Current Liabilities included in SFAS 1.

December 2002 Required Disclosures

  • December 2002 financial statements must disclose the following:
    • (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 as a result of applying SFAS/IAS 38.

Statement of Management’s Responsibility

  • Companies covered by Rule 68.1 must submit a Statement of Management’s Responsibility containing specific representations.
  • The Statement must state that management of the reporting company is responsible for all information and representations in the financial statements for specified year(s) ended on the stated date.
  • The Statement must state that the financial statements are prepared in conformity with generally accepted accounting principles in the Philippines and reflect amounts based on management’s best estimates and informed judgment with appropriate consideration to materiality.
  • The Statement must state that management maintains a system of accounting and reporting providing internal controls to ensure transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition, and liabilities are recognized.
  • The Statement must require disclosure to the company’s audit committee and to its external auditor of:
    • (i) all significant deficiencies in the design or operation of internal controls that could adversely affect the ability to record, process, and report financial data;
    • (ii) material weaknesses in internal controls; and
    • (iii) any fraud that involves management or other employees who exercise significant roles in internal controls.
  • The Statement must state that the board of directors reviews the financial statements before approval and submission to stockholders.
  • The Statement must state that the independent auditors appointed by stockholders examined the financial statements in accordance with generally accepted auditing standards in the Philippines and expressed an opinion on fairness of presentation in their report to the board and stockholders.
  • The Statement must be signed under oath by the Chairman of the Board, Chief Executive Officer, and Chief Financial Officer.
  • For branch offices of foreign corporations covered by Rule 68.1, the Statement must be signed by the local manager in charge of operations within the Philippines.

Auditor Opinion Rule and Effects

  • The Commission discourages submission of audited financial statements for companies covered by the rule accompanied by an auditor’s opinion that is other than unqualified.
  • The Commission retains the right to obtain clarification about the reasons for an auditor’s non-unqualified opinion.
  • Audited financial statements for periods beginning January 1, 2003 and thereafter, for companies covered by the rule, with an auditor’s opinion other than unqualified due to departures from generally accepted accounting principles in the Philippines are deemed NOT FILED.
  • Appropriate sanctions are imposed for such deemed-not-filed audited financial statements.

Periodic Reporting Presentation Requirements

  • SRC Rule 68.1’s periodic presentation requirements are amended to reflect separate requirements for filings including:
    • Registration Statements,
    • Annual Report (SEC Form 17-A), and
    • Information or Proxy Statements (SEC Form 17-IS/20).
  • The amendments become effective for audited financial statements covering periods beginning January 1, 2002 and for interim financial statements starting the first quarter of 2003.
  • Prior period financial data/information must be presented or restated to conform with the amended Rule and the new accounting standards for comparability.

Enforcement and Sanctions for Misleading Reports

  • Any officer or director of a company covered by SRC Rule 68.1 who causes the disclosure of untrue or misleading information in the financial statements or the submission of a materially incomplete financial report is subject, after due notice and hearing, to:
    • a basic penalty of One Hundred Thousand Pesos (P100,000.00) plus
    • a daily fine of Five Hundred Pesos (P500.00) until the information is corrected or completed.
  • The imposition of the penalty is without prejudice to the filing of appropriate criminal charges against the person.
  • The same penalty is imposed on any officer or director of a company covered by SRC Rule 68.1 or any person acting under the direction of said officer or director, or acting on his own, who fraudulently influences, coerces, manipulates, or misleads the external auditor or other persons whom the auditor relies for the purpose of rendering the financial statement materially misleading.

Adoption, Availability, and Effectivity

  • The Commission adopts the amendments on February 20, 2003, through Chairperson LILIA R. BAUTISTA.
  • The complete copy of SRC Rule 68, as amended, is available at the Commission’s official website: sec.gov.ph.

Analyze Cases Smarter, Faster
Jur helps you analyze cases smarter to comprehend faster, building context before diving into full texts. AI-powered analysis, always verify critical details.

About Privacy Terms