April 04,2018

SEC Simplifies Financial Reporting For Small Companies

The Securities and Exchange Commission has issued SEC Memorandum Circular No.
05 (2018) adopting, as part of its financial reporting rules and regulations, the
Philippine Financial Reporting Standards (PFRS) For Small Entities in line with the
corporate regulator’s Ease of Doing Business initiatives.

A small entity shall adopt this PFRS for annual periods beginning on or after January
1, 2019. Earlier adoption is permitted.

Small entities are those that meet all the following criteria: (1) Total Assets of between
PhP 3 million to PhP 100 million or total liabilities of between PhP 3 million to PhP 100
million. If the entity is a parent company, the said amounts shall be based on the
consolidated figures; (2) Are not required to file financial statements under Part II of
SRC Rule 68; (3) Are not in the process of filing their financial statements for the
purpose of issuing any class of instruments in a public market, and; (4) Are not holders
of secondary licenses issued by regulatory agencies.

This PFRS for Small Entities was developed in response to feedback of small entities
that PFRS for Small and Medium-sized Entities (PFRS for SMEs) is too complex to
apply. By reducing choices for accounting treatment, eliminating topics that are not
generally relevant to small entities, simplifying methods for recognition and
measurement, and reducing disclosure requirements, the PFRS for Small Entities
allows small entities to comply with the financial reporting requirements without undue
cost or burden.

Some of the key simplifications introduced by the PFRS for Small Entities are as
follows:
 Inventories are to be subsequently valued at the lower of cost and market
value (i.e., the probable selling price to willing buyers as of reporting date),
 Investment properties can be carried either at cost or at fair value,
depending on the policy choice made by the entity.
 There is no concept of "finance lease". All lease receipts (payments) are
recognized as income (expense) as earned (incurred).
 There is no accounting for onerous contracts.
Office of the Commission Secretary
S-309, 3F PICC Secretariat Building
Philippine International Convention Center (PICC) Complex
Pasay City 888-8141 ; 818-5478
  For equity-settled share-based payment transactions, an entity shall
measure the goods or services received, and the corresponding increase in
equity, with reference to the net asset value of the equity instruments
granted. Net asset value is derived by dividing the total assets of the entity
less any liabilities, by the number of shares outstanding at measurement
date.
 For defined benefit plans, an entity is required to use the accrual approach
in calculating benefit obligations in accordance with Republic Act (RA) 7641,
The Philippine Retirement Pay Law, or company policy (if superior than RA
7641). Accrual approach is applied by calculating the expected liability as of
reporting date using the current salary of the entitled employees and the
employees' years of service, without consideration of future changes in
salary rates and service periods.
 Entities are given a policy choice of not recognizing deferred taxes in the
financial statements.
 Biological assets can be carried either at cost or at current market price,
depending on the policy choice made by the entity.
 Prior period adjustments are just captured in the opening balance of the
current year, but with appropriate disclosures.

The adoption of the PFRS for Small Entitles was recommended by the Association of
Certified Public Accountants in Public Practice (ACPAPP.)

The PFRS for Small Entitles was approved by the Financial Reporting Standards
Council (FRSC) on December 13, 2017, and by the Board of Accountancy (BOA) and
the Professional Regulation Commission (PRC) on February 20, 2018.

A copy of the SEC Memorandum Circular No. 05 (2018) maybe accessed through this
link: http://www.sec.gov.ph/wp-content/uploads/2018/03/2018MCNo5.pdf

END

Office of the Commission Secretary

S-309, 3F PICC Secretariat Building
Philippine International Convention Center (PICC) Complex
Pasay City 888-8141 ; 818-5478