SEC MANUAL - Verjune2012

MANUAL ON THE EVALUATION
OF FINANCIAL STATEMENTS
Manual on the Evaluation of Financial Statement (ver. 2012)
TABLE OF CONTENTS
OBJECTIVES........................................................................................................................................ 4
INSTRUCTIONS ................................................................................................................................... 5
GENERAL REQUIREMENTS
Statement of Management’s Responsibility .................................................................................. 9
Auditor’s Report ........................................................................................................................ 10
Supplemental Written Statement of Auditor .............................................................................. 12
Statement of Financial Position .................................................................................................. 13
Statement of Comprehensive Income ......................................................................................... 14
Statement of Cash Flows ............................................................................................................ 14
Statement of Changes in Equity .................................................................................................. 15
Accounting Policies .................................................................................................................... 15
Notes to Financial Statements .................................................................................................... 16
Retained Earnings ...................................................................................................................... 22
Issuance of Shares of Stock for Non-Cash Consideration .............................................................. 22
Issuance of Shares of Stocks ....................................................................................................... 23
Deposit for Future Stock Subscription ......................................................................................... 23
Capital Deficiency ...................................................................................................................... 24
Amended Audited Financial Statements ..................................................................................... 26
SPECIAL REQUIREMENTS
Listed Companies and Other Issuers of Securities to the Public .................................................... 27
Mutual Fund Companies ............................................................................................................. 33
Broker Dealers of Securities ........................................................................................................ 39
Financing Companies ................................................................................................................... 42
Lending Companies ..................................................................................................................... 46
Investment Houses ...................................................................................................................... 48
Foundations ................................................................................................................................ 51
Non-Stock and Non-Profit Organizations ...................................................................................... 52
FINANCIAL ANALYSIS............................................................................................................................
2|Page
ANNEXES .............................................................................................................................................
Annex A: List of SMEs Exempted from Mandatory Adoption of PFRS for SMEs
Annex B: Statement of Management’s Responsibility (SRC Rule 68, as amended)
Annex C: Sample of Auditor’s Report
Annex D: Supplemental Written Statement of External Auditor
Annex E: Summary of PFRS
Annex F: Disclosure Checklist of PFRS
Annex G: Disclosure Checklist of PFRS for SMEs
Annex H: Statement of Reconciliation of Retained Earnings for Dividend Declaration
Annex I: Sample of Auditor’s Report (for listed and other issuers of securities to the public)
Annex J: Supplementary Schedules under Part II of the SRC Rule 68, as amended
Annex K: Sample Auditor’s Report on Supplemental Documents Required Under SRC Rule 68, as
amended
3|Page
OBJECTIVES OF EVALUATION
1. To check compliance with the prescribed form and contents
of financial statements;
2. To determine any material misstatement that affects the
financial position and results of operation of the company;
3. To verify compliance with statutory requirements under the
Corporation Code;
4. To determine compliance with special or prudential
requirements on the company; and
5. To identify industry and systemic risk.
4|Page
INSTRUCTIONS
This Manual shall be used in the evaluation of financial statements

either for regular monitoring of compliance or for special review. This
shall be updated annually taking into consideration the changes in the
accounting standards and regulatory requirements of the Commission.
The operating departments shall set a timeline for each step to

ensure the timeliness, usefulness and relevance of the findings and the
actions to be taken thereon.
The following procedures shall be undertaken in the evaluation of

financial statements:
 REGULAR MONITORING
a. ENCODE financial data of all regulated entities. This task

should be made at the earliest date possible from the time the
financial statements are submitted to the Commission.
b. SORT the above financial data according to pre-set criteria;
c. SELECT companies to be covered by the review based on the

criteria set above;
d. EVALUATE AFS of selected companies based on the following:
 General Requirements
Since regulated entities are holders of secondary license

from the Commission, they are considered as publicly-
accountable entities and must adopt the full PFRS.
 Special Requirements
 Financial Ratios/Warning Signals
 SPECIAL PURPOSE REVIEW
 SET objective/s of the financial statement evaluation;
 EVALUATE AFS of the subject company based on ANY OR ALL

of the following requirements depending on the objective:
5|Page
 General Requirements
Since the company that maybe subject of a special

review may not be a publicly-accountable entity, the
preliminary evaluation presented in page 7 of this
Manual must be first conducted.
 Special Requirements

 Financial Ratios/Warning Signals
If there are material findings on the evaluated financial statements,

the subject company shall be notified and shall be allowed to explain
within fifteen (15) days from receipt of the notice in case of regular
monitoring, or shorter period of time for special review. A pro-forma
letter shall be used to notify the company with enclosed copy of the
accomplished scorecard that reflects the material findings.
A copy of the Audit Committee or Board Resolution taking the

above findings shall be required from the subject company to accompany
its written explanation.
The explanation of the subject shall be evaluated on the basis of

financial reporting requirements and the guidance under SEC
Memorandum Circular No. 8, Series of 2009.
PRELIMINARY EVALUATION
1. Check whether or not the company is required to submit audited

financial statements1
Corporations that are required under the Corporation Code to submit audited
financial statements:
 Stock corporations with paid-up capital stock of P50,000 or more;

 Non-stock corporation with total assets each of P500,000 or more, or with
gross annual receipts of P100,000 or more;
 Branch offices of stock foreign corporations with assigned capital each of
P50,000 or more;
 Branch offices of non-stock corporations with total assets each of
P1,000,000 or more;
1
A retirement fund company is required to submit a complete set of FS if it is registered with the
Commission.
6|Page
 Representative offices of foreign corporations with total assets each of

P1,000,000 or more.
2. Determine the correct category of the corporation;
3. Use as basis in the review the financial reporting framework

prescribed for corporation according to its category -
1. Full Philippine Financial Reporting Standards (PFRS)
a. Large Corporations
b. Publicly Accountable Entities
 Those with total assets of more than P350 Million or total

liabilities of more than P250 Million; OR
 Required to file financial statements under Part II of the

SRC Rule 68, as amended, as follows:
 Listed companies;
 Issuers of securities to the public; and
 Mutual funds.
 In the process of filing their financial statements for the

purpose of issuing any class of instruments in a public
market; OR
 Holders of secondary licenses issued by regulatory

agencies
General Rule: All companies which qualify as “large

corporations” or “publicly-accountable entities” must adopt
the full PFRS.
Except: Publicly-accountable entities that are given exemptive

relief from the adoption of certain specific PAS/PFRS. A set of
financial reporting framework other than the full PFRS may be
allowed by the Commission for certain sub-class (e.g., banks,
7|Page
insurance companies) of publicly accountable entities upon

consideration of the pronouncements or interpretations of the
Bangko Sentral ng Pilipinas, Insurance Commission, Financial
Reporting Standards Council.
c. Small and Medium-Sized Entities (SMEs) Exempted from

PFRS for SMEs (See Annex “A”).
2. Philippine Financial Reporting Standards for Small and Medium-Sized

Entities (PFRS for SMEs)
Applies to SMEs which meet ALL of the following criteria:
 With total assets of between P3 Million to P350 Million or

total liabilities of between P3 Million to P250 Million. If the
entity is a parent company, the said amount shall be based
on the consolidated figures;
 Are not required to file financial statements under SRC Rule
68.1; and
 Are not holders of secondary licenses issued by regulatory
agencies.
3. Other Acceptable Basis (PFRS; PFRS for SMEs; Cash basis accounting;
or Income tax accounting)
Applies to micro entities which meet ALL of the following criteria:
 Total assets and liabilities are below P3 Million;

 Are not required to file financial statements under Part II of
SRC Rule 68, as amended;
 Are not in the process of filing their financial instruments for
the purpose of issuing any class of instruments in a public
market; and
 Are not holders of secondary licenses issued by regulatory
agencies.
8|Page
SCORECARD
GENERAL REQUIREMENTS
A. STATEMENT OF MANAGEMENT’S RESPONSIBILITY (SRC RULE 68,

AS AMENDED)
COMPLIANT
REMARKS
Yes No
Statement of Managements’
Responsibility2
a.
Prescribed wordings of
the Statement (See
Annex “B”)
b. Signature
of the Chairman of the
Board of
Directors/Trustees
c. Signature
of Chief Executive
Officer/President
d. Signature
of Chief Finance
Officer/Treasurer
2 If provided in the company’s by-laws, the Vice-Chairman may sign on behalf of the Chairman or the Vice-
President for the President. Since the by-laws do not provide for Vice-Treasurer position, the Treasurer
himself/herself should sign the SMR. (SRC Rule 68, as amended)
For branch or representative offices of foreign corporations, it should be signed by the local manager who
is in charge of the operations within the Philippines. Moreover, the third paragraph of the SMR may be deleted
since the Philippine Branch does not have any local Board of Directors or stockholders. (SRC Rule 68, as amended)
The company’s attention should be called, in cases that there are inconsistencies with the stated
signatories in the SMR with that of listed in the company’s General Information Sheet (GIS) taking into
consideration the cut-off date stated in the said GIS.
9|Page
B. AUDITOR’S REPORT (SRC RULE 68, AS AMENDED AND PSA 700)

COMPLIANT
REMARKS
Yes No
Auditor’s Report3
a. Prescribed wordings of
the Auditor’s Report –
Based on Auditing and
Assurance Council
(AASC) Alert No. 001,
Series of 2011 (See
Annex “C”)
Note:
Based on PSA 700, as

redrafted, the
Management’s
Responsibility for the
Financial Statements
paragraph may also read
as follows:
“...in accordance with

Philippine Financial
Reporting Standards; this
includes the design,
implementation and
maintenance of internal
control relevant to the
preparation and fair
presentation of financial
statements...”
b. The Auditor’s Report

should cover two-year
comparative report
c. Addressee and complete

address of the
company
3 The Auditor’s Report of a Government Owned or Controlled Corporation (GOCC) is signed by the
Commission on Audit (COA)’s auditor.
10 | P a g e
d.Consistency of basis of
preparation of financial
i. Full PFRS
ii. PFRS for SMEs
iii. Any acceptable

accounting basis
(PFRS, PFRS for SMEs,
cash basis, income
tax accounting)
e. Applicable modification
paragraph
i. Going Concern Issue
ii. Qualified Opinion
iii. Legal Matter

Paragraph
f. Date of Opinion (must

not be dated prior to
approval date for
issuance by the
Management – See
Notes to FS)
g. Signature of the
partner/external auditor
h. Required information on
the external auditor /
signing partner:
i. Complete address of
the auditing
firm/external auditor
ii. BOA Registration

Number of the firm/
external auditor
Note:
If sole practitioner –
BOA of the external
auditor.
If signing partner – BOA
11 | P a g e
of the auditing firm
iii. PTR Number
iv. PRC License
v. Tax Identification No.
vi. Expiration dates of

the signing external
auditor’s licenses
and accreditation
(i.e., BOA
Accreditation, Issue
date of PTR, and SEC
Accreditation, if
applicable)
C. SUPPLEMENTAL WRITTEN STATEMENT OF AUDITOR

(SRC RULE 68, AS AMENDED)
COMPLIANT
REMARKS
Yes No
Supplemental Written
Statement of External Auditor
(for Stock Corporations)4
a. Prescribed wordings of
the Statement (See
Annex “D”)
b. Signature of external
auditor
c. Registration/licensing
numbers of the external
auditor
i. Board of
Accountancy
(BOA)
4 GOCCs and their subsidiaries are not required to submit a Supplemental Written Statement of Auditor
because their stockholder is the government.
12 | P a g e
Note:
If sole practitioner –
BOA of the external
auditor.
If signing partner –
BOA of the auditing
firm
ii. Privileged Tax

Receipt (PTR)
iii. Professional
Regulation
Commission
(PRC)
iv. Expiration dates

of the signing
external auditor’s
licenses and
accreditation
(i.e., BOA
Accreditation,
Issue date of PTR,
and SEC
Accreditation, if
applicable)
D. STATEMENT OF FINANCIAL POSITION (SRC RULE 68, AS

AMENDED AND PAS 1)
COMPLIANT
REMARKS
Yes No
Statement of Financial Position
a.
Comparative two-year
b. Material
items cross-referred to
notes
c. Minimum
accounts presented
13 | P a g e
E. STATEMENT OF COMPREHENSIVE INCOME (SRC RULE 68, AS

AMENDED AND PAS 1)
COMPLIANT
REMARKS
Yes No
Statement of Comprehensive
Income5
a.
b. Material
notes
c. Minimum
accounts presented
F. STATEMENT OF CASH FLOWS (SRC RULE 68, AS AMENDED, PAS 1

AND PAS 7)
COMPLIANT
REMARKS
Yes No
Statement of Cash Flows6
a.
5 The Statement of Comprehensive Income is NOT required, if there is no operation:

 During the first year of incorporation; or
 For the last two (2) years.
6 The Statement of Cash Flow is NOT required, if there is no operation for the last two years.
14 | P a g e
b. Material
notes
c. Minimum
accounts presented
G. STATEMENT OF CHANGES IN EQUITY (SRC RULE 68, AS AMENDED

AND PAS 1)
COMPLIANT
REMARKS
Yes No
Statement of Changes in
Equity7
a.
b. Material
notes
c. Minimum
accounts presented
H. ACCOUNTING POLICIES (SRC RULE 68, AS AMENDED)

COMPLIANT
REMARKS
Yes No
7 The Statement of Changes in Equity is NOT required, if:

 There is no operation:
o During the first year of incorporation;
o Only for one (1) year, provided that the change in equity is the net income or loss during
the period; or
o For the last two (2) years.
 The company is operational, provided that the change in equity is the net income or loss during
the period.
15 | P a g e
The financial reporting

framework used is correct (see
pages 7 to 9 of this Manual)
 Full PFRS (summary

provided in Annex “E”)
 PFRS for SMEs
 Acceptable Basis (Micro

entities)
Please refer to the complete

set of standards
The accounting policies

adopted are in accordance
with the financial reporting
framework
I. NOTES TO FINANCIAL STATEMENTS (SRC RULE 68, AS AMENDED)

COMPLIANT
REMARKS
Yes No
The disclosures required under

the prescribed financial
reporting framework are
provided.
1. Full Philippine Financial

Reporting Standards (PFRS)
– See Annex “F”
i. Framework for the

Preparation and
Presentation of
Financial
Statements
(Conceptual
Framework)
ii. Presentation of
Financial
Instruments (PAS 1)
iii. Inventories (PAS 2)
iv. Statement of Cash
16 | P a g e
Flows (PAS 7)
v. Accounting
Policies, Changes
in Accounting
Estimates and
Errors (PAS 8)
vi. Events after the

Reporting Period
(PAS 10)
vii. Construction
Contracts (PAS 11)
viii. Income Taxes (PAS

12)
ix. Property, Plant and

Equipment (PAS
16)
x. Leases (PAS 17)
xi. Revenue (PAS 18)
xii. Employee Benefits

(PAS 19)
xiii. Accounting for

Government
Grants and
Disclosure of
Government
Assistance (PAS 20)
xiv. The Effects of

Changes in Foreign
Exchange Rates
(PAS 21)
xv. Borrowing Costs

(PAS 23)
xvi. Related Party

Disclosures (PAS 24)
xvii. Accounting and

Reporting by
Retirement Benefits
Plans (PAS 26)
xviii. Consolidated and

Separate Financial
17 | P a g e
Statements (PAS
27)
xix. Investments in
Associates (PAS 28)
xx. Financial Reporting

in Hyperinflationary
Economies (PAS
29)
xxi. Interest in Joint

Ventures (PAS 31)
xxii. Financial
Instruments:
Presentation
xxiii. Earnings per Share

(PAS 33)
xxiv. Interim Financial

Reporting (PAS 34)
xxv. Impairment of
Assets (PAS 36)
xxvi. Provisions,
Contingent
Liabilities and
Contingent Assets
(PAS 37)
xxvii. Intangible Assets

(PAS 38)
xxviii. Financial
Instruments:
Recognition and
Measurement (PAS
39)
xxix. Investment
Property (PAS 40)
xxx. Agriculture (PAS

41)
xxxi. First-time Adoption

of PFRS (PFRS 1)
xxxii. Share-based
Payment (PFRS 2)
18 | P a g e
xxxiii. Business
Combinations
(PFRS 3)
xxxiv. Insurance
Contracts (PFRS 4)
xxxv. Non-current Assets

Held for Sale and
Discontinued
Operations (PFRS 5)
xxxvi. Exploration for and

Evaluation of
Mineral Resources
(PFRS 6)
xxxvii. Financial
Instruments:
Disclosures (PFRS 7)
xxxviii. Operating
Segments (PFRS 8)
xxxix. Various applicable

interpretations
(IFRIC, SIC, PIC
Q&A)
2. Philippine Financial
Reporting Standards for
Small and Medium-Sized
Entities (PFRS for SMEs) –
See Annex “G”
i. Small and Medium-

Sized Entities
(Section 1)
ii. Concepts and

Pervasive Principles
(Section 2)
iii. Financial
Statement
Presentation
(Section 3)
iv. Statement of
Financial Position
(Section 4)
v. Statement of
19 | P a g e
Comprehensive
Income and
Income Statement
(Section 5)
vi. Statement of
Changes in Equity
and Statement of
Income and
Retained Earnings
(Section 6)
vii. Statement of Cash

Flows (Section 7)
viii. Notes to Financial

Statements
(Section 8)
ix. Consolidated and

Separate Financial
Statements
(Section 9)
x. Accounting
Policies, Estimates
and Errors (Section
10)
xi. Basic Financial

Instruments
(Section 11)
xii. Other Financial

Instruments Issues
(Section12)
xiii. Inventories
(Section 13)
xiv. Investments in
Associates (Section
14)
xv. Investments in Joint

Ventures (Section
15)
xvi. Investment
Property (Section
16)
xvii. Property, Plant and
20 | P a g e
Equipment
(Section 17)
xviii. Intangible Assets

other than
Goodwill (Section
18)
xix. Business
Combinations and
Goodwill (Section
19)
xx. Leases (Section 20)
xxi. Provisions and

Contingencies
(Section 21)
xxii. Liabilities and

Equity (Section 22)
xxiii. Revenue (Section

23)
xxiv. Government
Grants (Section 24)
xxv. Borrowing Costs

(Section 25)
xxvi. Share-Based
Payment (Section
26)
xxvii. Impairment of
Assets (Section 27)
xxviii. Employee Benefits

(Section 28)
xxix. Income Tax

(Section 29)
xxx. Foreign Currency

Translation (Section
30)
xxxi. Hyperinflation
(Section 31)
xxxii. Events After the

End of the
Reporting Period
21 | P a g e
(Section 32)
xxxiii. Related Party

Disclosures (Section
33)
xxxiv. Specialized
Activities (Section
34)
xxxv. Transition to the

PFRS for SMEs
(Section 35)
J. RETAINED EARNINGS (SEC. 43 OF THE CORPORATION CODE, SRC

RULE 68, AS AMENDED)
COMPLIANT
REMARKS
Yes No
The amount of unappropriated

retained earnings is not in
excess of 100% of Paid-In
Capital Stock
There are sufficient disclosures

on the appropriation of
retained earnings, e.g., specific
details and timeline of business
expansion
If Retained Earnings is in excess

of paid-in capital stock of more
than 100%, there is a Statement
of Reconciliation of Retained
Earnings for Dividend
Declaration (See Annex “H”)
K. ISSUANCE OF SHARES OF STOCKS FOR NON-CASH

CONSIDERATIONS (SEC. 62 OF THE CORPORATION CODE)
COMPLIANT
REMARKS
Yes No
22 | P a g e
The valuation of the non-cash

item that is exchanged for shares
of stock of the company shall be
approved by the Securities and
Exchange Commission and a
disclosure is provided in the
financial statements
L. ISSUANCE OF SHARES OF STOCKS (CORPORATION CODE)

COMPLIANT
REMARKS
Yes No
The “Paid-Up Capital” is not

greater than the “Authorized
Capital Stock”
M.DEPOSIT FOR FUTURE STOCKS SUBSCRIPTION (SRC RULE 68, AS

AMENDED, SEC FINANCIAL REPORTING BULLETIN NO. 006 AND
PAS 1)
COMPLIANT
REMARKS
Yes No
The “Deposit for Future Stocks

Subscription” is greater than
the unissued portion of the
“Authorized Capital Stock”.
(If the “Deposit of Future Stock

Subscription” is less than the
unissued portion of the
“Authorized Capital Stock”.
Said “Deposits” should have
directly been issued as shares
of stocks to shareholders. This
can be construed as a
23 | P a g e
misclassification of an equity
account.)
Disclosures Required for

Deposit for Future Stock
Subscription8
 Date of approval of
Board of Directors on
proposed increase in
capitalization
 Date of approval of
Stockholders on
proposed increase in
capitalization
 Status of SEC application

on proposed increase or
intent to file
N. CAPITAL DEFICIENCY(SRC RULE 68, AS AMENDED, SEC FINANCIAL

REPORTING BULLETIN NO. 002, PAS 1, PSA 570)
COMPLIANT
REMARKS
Yes No
Disclosures required for those

corporations with capital
deficiency that are exempted9
8 The company must comply with the three (3) stated requirements to qualify said “deposits” under
Equity. Otherwise, said “deposits” should be treated as a liability and considered as “Advances from
Stockholders”.
9 Paragraph 3. E. (viii) of Part I of the SRC Rule 68, as amended states that the requirements for
corporations with capital deficiency shall not apply to a company due to the following reasons:
a. The entity is at pre-operating stage and has incurred capital deficiency due to higher pre-
operating expenses than its initial capitalization. Projected financial statements indicate that it will
generate net income once it starts commercial operations;
b. Significant losses incurred in prior years but has generated positive results (net income) from
operations over the current period due to developments in the business or regularization of its operation;
c. An entity has incurred capital deficiency during the current period only due to a significant
adjustment arising from the adoption of new financial reporting framework or occurrence of non-
recurring transaction for the period;
24 | P a g e
from the requirements of SRC

Rule 68, as amended
a. A discussion on Note 1
of the AFS of the reason
for the company’s
capital deficiency, its
concrete plan to
address the same, and
its basis for exemption.
Disclosures required for all

other corporations with capital
deficiency that are not
classified as exempted
companies (except Non-Stock
and Non-Profit Organizations)
a. Auditor’s Report10:
Emphasis of a matter
paragraph discussing
going concern issue on
recognized capital
deficiency with a specific
reference to an item in
the Notes to FS discussing
the matter in detail. The
Emphasis of Matter
paragraph may include
the following wordings:
“that the auditor

performed audit
procedures to evaluate
management’s plans for
such future actions as to
likelihood to improve the
situation and as to
feasibility under the
circumstances.”
d. Such other cases which the Commission may consider as valid ground for considering
the company as a going concern
10 In case the company fails to present to the external auditor a concrete plan or sufficient supporting
documents to address the capital deficiency, the auditor shall provide an emphasis paragraph indicating that the
company is no longer a going concern and should use liquidation basis in the preparation of its financial
statements
25 | P a g e
b. Notes to FS: Specific

management plans to
address the recognized
capital deficiency
O. AMENDED AUDITED FINANCIAL STATEMENTS

(SRC RULE 68, AS AMENDED AND PSA 700)
COMPLIANT
REMARKS
Yes No
Requirements on Reissuance of
a. Auditor’s Report:
1. The opinion date

should be dated not
earlier than approval
date for re-issuance
by the
Management; and
2. Must include an
emphasis of a matter
paragraph referring
to a note to FS that
more extensively
discusses the reason
for the revision of the
previously issued
financial statements.
b. Notes to FS: Discussion

of the reason and the
quantitative and
qualitative effect of the
26 | P a g e
reissuance of the AFS.
c. Refilling of the amended

AFS to the Bureau of
Internal Revenue and the
Securities and Exchange
Commission
27 | P a g e
SCORECARD
SPECIAL REQUIREMENTS
A. LISTED COMPANIES AND OTHER ISSUERS OF SECURITIES TO THE

PUBLIC
PART II OF SRC RULE COMPLIANT

REMARKS
68, AS AMENDED Yes No
a.Prescribed wordings of the

Auditor’s Report – Based
on Auditing and
Assurance Council (AASC)
Alert No. 001, Series of
2011 (See Annex “I”)
Note:

redrafted, the
Management’s
as follows:

implementation and
statements...”
b. The Auditor’s Report

should cover three-year
comparative report
28 | P a g e
c. The independent auditor’s

report should cover the
schedules and
supplemental documents
accompanying the
financial statements filed
d. Acceptable Opinion:
Unqualified Opinion
e. The auditing firm and

signing partner have a
valid SEC accreditation
under Group A category
f. If not a consolidated AFS,

inclusion of a legal matter
paragraph
g. The Statement of
Management Responsibility
(SMR)11
i. Signed under oath

by required
signatories (i.e.,
Chairman of the
Board, CEO, and
CFO)
ii. Prescribed
wordings12 of the
Statement (See
Annex “B”)
himself/herself should sign the SMR.
12 The additional components that are submitted with the company’s financial statements, forming part
thereof, should necessarily be covered by the Statement of Management’s Responsibility (SMR). Thus, the first
paragraph of the SMR must partly read “The management of (name of reporting company) is responsible for the
preparation and fair presentation of the financial statements for the year (s) ended (date), including the additional
components attached therein x x x.”
29 | P a g e
h. The Income Statement,

Cash Flow Statement and
Statements of Changes in
Equity should be in a
three-year comparative
format
i. The following accounts

should state separately
any amounts in excess of
five per cent (5%):
i. Other current
assets
ii. Other long-term
iii. investments
iv. Other assets
v. Other current
liabilities
vi. Other long-term

liabilities
j. Expenditure with material

amount or that which
constitutes 10% or more of
the revenue are
separately presented
k. Retained Earnings
i. Statement of
Reconciliation of
Retained Earnings
for Dividend
Declaration (See
Annex “H”)
ii. Notes to FS:

Detailed
description of any
appropriations of
restriction on the
company’s
retained earnings
30 | P a g e
iii. The Reconciliation

Schedule should
be covered by a
legal matter
paragraph in the
Auditor’s Report or
a separate report
of auditor.
l. Submission of the
following schedules: (See
Annex “J”)
i. Marketable
Securities (Current
Marketable Equity
Securities and
Other Short-Term
Cash Investments
ii. Amounts of
Receivable from
Directors, Officers,
Employees,
Related Parties,
and Principal
Stockholders
(Other than
Related parties)
iii. Non-Current
Marketable Equity
Securities, Other
Long-Term
Investments in
Stocks, and Other
Investments
iv. Indebtedness of
Unconsolidated
Subsidiaries and
Related parties
v. Intangible Assets -
Other Assets
vi. Long-Term Debt
vii. Indebtedness to
Related Parties
31 | P a g e
viii. Guarantees of
Securities of Other
Issuers
ix. Capital Stock
m. Additional components
documents required under
SRC Rule 68, as amended:
i. A schedule showing
financial soundness
indicators in two
comparative periods,
as follows: (i)
current/liquidity ratios;
(ii) solvency ratios,
debt-to-equity ratios;
(iii) asset-to-equity
ratios; (iv) interest rate
coverage ratios; (v)
profitability ratios; (vi)
other relevant ratios as
the Commission may
consider necessary;
ii. For listed companies

who belong to a
conglomerate or group
of companies, a map
showing the
relationships between
and among the
company and its
ultimate parent
company, middle
parent, subsidiaries or
co-subsidiaries, and
associates;
32 | P a g e
iii. For companies which

recently offered securities
to the public (either as
initial or additional
offering), a schedule
showing the following
amounts: (1) Gross and
net proceeds as
disclosed in the final
prospectus; (2) Actual
gross and net proceeds;
(3) Each expenditure item
where the proceeds was
used; and (4) Balance of
the proceeds as of end of
reporting period;
iv. A schedule, in table

format, showing in the first
column a list of all the
effective standards and
interpretations under the
PFRS as of year-end, and
an indication opposite
each in the second
column on whether it is
“Adopted”, “Not
adopted” or “Not
applicable”.
(Items ii to iv should be covered

by a legal matter paragraph in
the Auditor’s Report or a separate
report of auditor – See Annex
“K”)
33 | P a g e
B. MUTUAL FUND COMPANIES
INVESTMENT COMPLIANT
COMPANY ACT AND Yes No REMARKS
ICA RULE
a. Minimum subscribed and
paid-in capital of at least P50
Million
b. Investment Limitations /
Prohibitions:
i. Maximum investment in
any single enterprise
shall not exceed an
amount equivalent to
ten percent (10%) of
the investment
company’s net asset
value except
obligations of the
Philippine Government
and its instruments
ii. The total investment of

the fund must not
exceed ten percent
(10%) of the outstanding
securities of any investee
company
iii. Must not sell securities

short or invest in the
following (until the
Commission shall provide
otherwise):
 Margin purchases of
securities
 Commodity futures
contracts
 Precious metals
 Unlimited liability
investments
34 | P a g e
iv. For liquidity purposes,

unless otherwise
prescribed by the
Commission, at least ten
percent (10%) of the
fund shall be invested in
liquid / semi-liquid
assets, such as:
1. Treasury notes or
bills, Certificates of
indebtedness issued
by the BSP which
are short term
2. Philippine
government
securities or bonds,
and the like.
3. Savings or time
deposits with
government owned
banks or
commercial banks
v. Total operating
expenses shall not
exceed ten percent
(10%) of its investment
fund or total net worth
as shown in previous
year’s AFS
vi. Asset coverage of at

least three hundred
percent (300%) for all
borrowings of the
company
vii. Computation of Net

Asset Value (NAV)
35 | P a g e
viii. Prescribed wordings of

the Auditor’s Report –
Based on Auditing and
Assurance Council
(AASC) Alert No. 001,
Series of 2011
Note:

redrafted, the
Management’s Responsibility
for the Financial Statements
paragraph may also read as
follows:

Philippine Financial Reporting
Standards; this includes the
design, implementation and
statements...”
1. If registered as issuers
of securities – See
Annex “I”
 The Auditor’s Report

should cover three-
year comparative
report
 Acceptable
Opinion:
Unqualified Opinion
 The auditing firm

and signing partner
have a valid SEC
accreditation under
Group A category
 Inclusion of a legal
matter paragraph
36 | P a g e
 Submission of the
schedules and
supplemental
documents
required for issuers
of securities
enumerated under
items f to h in
Pages 28 to 29.
2. If registered only as a
investment company
– See Annex “C”
 The auditing firm

and signing
partner have a
valid SEC
accreditation
under Group B
category
ix. The Statement of

Management
Responsibility (SMR)13
1. Signed under oath

by required
signatories (i.e.,
Chairman of the
Board, CEO, and
CFO)
2. Prescribed
wordings of the
Statement14 (See
Annex “B”)
himself/herself should sign the SMR. (SRC Rule 68, as amended)
14 The additional components that are submitted with the company’s financial statements, forming part
thereof, should necessarily be covered by the Statement of Management’s Responsibility (SMR). Thus, the first
paragraph of the SMR must partly read “The management of (name of reporting company) is responsible for the
37 | P a g e
a. Additional
components required
under SRC Rule 68, as
amended:
i. A schedule
showing financial
soundness
indicators in two
comparative
periods, as follows:
(i) current/liquidity
ratios; (ii) solvency
ratios, debt-to-
equity ratios; (iii)
asset-to-equity
ratios; (iv) interest
rate coverage
ratios; (v)
profitability ratios;
(vi) other relevant
ratios as the
Commission may
consider necessary
ii. A schedule, in
table format,
showing in the first
column a list of all
the effective
standards and
interpretations
under the PFRS as
of year-end, and
an indication
opposite each in
the second column
on whether it is
applicable”;
preparation and fair presentation of the financial statements for the year (s) ended (date), including the additional
components attached therein x x x.”
38 | P a g e
iii. A schedule
showing the
following
information in two
comparative
periods: (i)
percentage of
investment in a
single enterprise to
net asset value; (ii)
total investment of
the fund to the
outstanding
securities of an
investee company;
(iii) total
investments in
liquid or semi-liquid
assets to total
assets; (iv) total
operating
expenses to total
net worth; (v) total
asset to total
borrowings.
(Item ii should be covered

by a legal matter
paragraph in the Auditor’s
Report or a separate report
of auditor – See Annex “K”)
C. BROKER-DEALER OF SECURITIES
Implementing Rules and COMPLIANT
REMARKS
Regulation (IRR) of SRC Yes No
39 | P a g e
Auditor’s Report
a. Prescribed
wordings of the Auditor’s
Report – Based on
Auditing and Assurance
Council (AASC) Alert No.
001, Series of 2011 (See
Annex “C”)
Note:

redrafted, the
Management’s
as follows:

implementation and
statements...”
b. The
auditing firm and signing
external auditor have a
valid SEC accreditation
under Group B category
c. Minimum
unimpaired paid up
capital
i. First-time registrants
and those
acquiring the
business of existing
trading
participants – P10 0
Million
ii. All BD not required

to meet the P100
Million paid-up
capital – P30 Million
40 | P a g e
iii. All BDs dealing

purely in
proprietary shares
and not holding
securities –
P2.5Million
d. Appropriati
on of retained earnings
for reserve fund with
unimpaired paid-up
capital :
i. P30 Million – 30% of

profit after tax
ii. P31-50 Million – 20%

of profit after tax
iii. P51 Million and

above – 10% of
profit after tax
Note: Reserve fund

may be reverted back
to Retained Earnings if
there is deficit
e. Submission
of schedules and
compliance with the
requirements of RBCA
f. Maintenance of a
“Special Reserve Bank
Account” for the
exclusive benefit of
customers
g. Additional
components required
under SRC Rule 68, as
amended:
i. A schedule
showing financial
soundness
indicators in two
comparative
periods, as follows:
(i) current/liquidity
ratios; (ii) solvency
41 | P a g e
ratios, debt-to-
equity ratios; (iii)
asset-to-equity
ratios; (iv) interest
rate coverage
ratios; (v)
profitability ratios;
(vi) other relevant
ratios as the
Commission may
consider
necessary;
ii. A schedule, in
table format,
showing in the first
column a list of all
the effective
standards and
interpretations
under the PFRS as
of year-end, and
an indication
opposite each in
the second
column on
whether it is
applicable”.
(Item ii should be covered by

a legal matter paragraph in
the Auditor’s Report or a
separate report of auditor –
See Annex “K”)
42 | P a g e
D. FINANCING COMPANIES
COMPLIANT
Financing Company Act
REMARKS
and IRR Yes No
a. Prescribed wordings of the

Auditor’s Report – Based on
Council (AASC) Alert No.
001, Series of 2011 (See
Annex “C”)
Note:

redrafted, the Management’s
Responsibility for the Financial
Statements paragraph may
also read as follows:

statements...”
i. The auditing firm has

a valid SEC
accreditation under
Group C category
b. Loans and Investment
i. The total investment

of a financing
company in real
estate and in shares
of stock in a real
estate development
corporation and
other real estate
based projects shall
not at any time
exceed twenty-five
(25%) percent of its
networth
43 | P a g e
ii. More than fifty (50%)

percent of the funds
of a financing
company shall be
used or invested in
financing company
activities
iii. The total credit that

a financing
company may
extend to its
directors, officers,
and stockholders
shall not exceed
fifteen (15%) percent
of its networth
iv. The total credit that

a financing
company may
extend to any
person, company,
corporation or firm
shall not exceed
thirty (30%) percent
of its networth
v. A 100% allowance
for probable losses
should be set up for
past due and
impaired loans as
provided in Section 9
of the Financing
Company Act of
1998.
 Accounts
receivable past
due for 361 days or
more
vi. Approval of the

Commission to be
treated as an
exempt transaction
for issuance or total
outstanding balance
exceeding P50
44 | P a g e
Million
c. Com
pany’s Networth
i. Minimum paid-up
capital of:
 P10 Million for

financing
companies
located in Metro
Manila and Other
1st Class Cities
 P5 Million for
financing
companies
located in other
classes of Cities
 P2.5 Million for

financing
companies
located in
Municipalities
ii. Additional Capital

Requirement for
each branch,
agency extension
office or unit as
follows:
 Metro Manila and

Other 1st Class
cities – P1 Million
 Other classes of
cities – P500
Thousand
 Municipalities –
P250 Thousand
45 | P a g e
d. Additional components
required under SRC Rule
68, as amended
i. A schedule showing
financial soundness
indicators in two
comparative periods,
as follows: (i)
current/liquidity ratios;
(ii) solvency ratios,
debt-to-equity ratios;
(iii) asset-to-equity
ratios; (iv) interest rate
coverage ratios; (v)
profitability ratios; (vi)
other relevant ratios as
the Commission may
consider necessary
ii. A schedule showing

the following
information two
comparative periods:
(i) ratio or percentage
of total real estate
investments to total
assets; (ii) total
receivables to total
assets; (iii) total DOSRI
receivables to net
worth; (iv) amount of
receivables from a
single corporation to
total receivables. This
schedule shall be
submitted with the
annual audited
financial statements
46 | P a g e
iii. A schedule, in table

format, showing in the
first column a list of all
the effective standards
and interpretations
under the PFRS as of
year-end, and an
indication opposite
each in the second
applicable”
(Item iii should be covered by

a legal matter paragraph in
the Auditor’s Report or a
See Annex “K”)
E. LENDING COMPANIES
Lending Company Act COMPLIANT

REMARKS
and IRR Yes No
Prescribed wordings of the

Auditor’s Report – Based on
Council (AASC) Alert No. 001,
Series of 2011 (See Annex
“C)
Note:

redrafted, the Management’s

statements...”
47 | P a g e
 The signing external auditor

has a valid SEC accreditation
under Group C category
 Lending Companies shall use

at least 51% of their funds for
direct lending purposes
 The total investment of a

lending company in real
estate and in shares of stock
in a real estate development
corporation and other real
estate based projects shall
not at any time exceed
twenty-five (25%) percent of
its networth
 Minimum paid-up capital of

One Million Pesos
(PhP1,000,000.00), unless the
SEC prescribes a higher
minimum capitalization, if
warranted by the
circumstances
 Additional Capital
Requirement for each
branch, agency extension
office or unit as follows:
i. Metro Manila and

other first class cities –
P300 Thousand
ii. Second class and

other cities – P150
Thousand
iii. Municipalities – P75

Thousand
f. Additional component
required under SRC Rule 68,
as amended:
48 | P a g e
i. A schedule, in table
the effective
standards and
interpretations under
the PFRS as of year-
end, and an
indication opposite
each in the second
column on whether it
is “Adopted”, “Not
applicable”
(The above schedule should

be covered by a legal
matter paragraph in the
Auditor’s Report or a
See Annex “K”)
F. INVESTMENT HOUSES
Investment Houses Law COMPLIANT

REMARKS
and IRR Yes No
a. Minimum
initial paid-in capital
i. Investment Houses
(IH) / Underwriter of
Securities – P300 Million
ii. GSED – P100 Million
iii. Investment Company

Advisers – P10 Million
iv. Mutual Fund Distributor
 If registered as IH –
P300 Million
 If registered as BD –
P30 Million
49 | P a g e
b. Investment
House networth (combined
capital account) is at least
P300 Million
c. Prescribed
wordings of the Auditor’s
Report – Based on Auditing
and Assurance Council
(AASC) Alert No. 001, Series
of 2011 (See Annex “C)
Note:
Based on PSA 700, as redrafted,

the Management’s

maintenance of internal control
relevant to the preparation and
fair presentation of financial
statements...”
d. The
auditing firm and signing
partner have a valid SEC
accreditation under Group B
category
e. Additional
components required under
SRC Rule 68, as amended:
i. Schedules showing the

following information:
Details (per issue) of

underwriting activities for
the year
 Name of the issuer-

client;
 Nature of
commitment;
 Amount of issue;
 Underwriting and
other fees
generated;
 Basis of
50 | P a g e
computation for
each.
Transactions with DOSRI
 Name of related
party;
 Description of
transaction;
 Total volume /
amount of
transaction for the
year;
 Terms and
conditions, such as
maturity date,
security, mode of
payment;
 If secured, carrying
amount of asset
used as collateral
ii. For investment houses

companies who
belong to a
conglomerate or
group of companies, a
map showing the
relationships between
and among the
company and its
ultimate parent
company, middle
parent, subsidiaries or
co-subsidiaries, and
associates
iii. A schedule, in table

the effective standards
and interpretations
under the PFRS as of
year-end, and an
indication opposite
each in the second
applicable”.
(Items ii and iii should be

covered by a legal matter
51 | P a g e
paragraph in the Auditor’s

Report or a separate report of
auditor – See Annex “K”)
G. FOUNDATIONS
SEC Memorandum COMPLIANT
Circular No. 8, Series of Yes No REMARKS
2006
a. Sworn
Statement of the President
and Treasurer on the
following information:
i. Specific source and

amount of funds;
ii. Application of funds

with the following
information on
activities
accomplished, on-
going and planned;
 Complete name,
address and contact
number of project
officer-in-charge;
 Complete address
and contact number
of project office; and
b. Certificatio
n from the Office of the
Mayor, or the Office of the
Barangay Captain, or the
Head of either the
Department of Social Welfare
and Development or
Department of Health, on the
existence of the subject
52 | P a g e
Program/Activity in the
locality on which it exercises
jurisdiction
H. NON-STOCK AND NON-PROFIT ORGANIZATION
SRC RULE 68, AS COMPLIANT

REMARKS
AMENDED Yes No
Additional component required

under SRC Rule 68, as amended:
An audited schedule showing

the nature and amount of
each items comprising the
total receipts and
disbursements according to
sources and activities (e.g.
pursuant to primary purpose
or commercial activity – See
Annex “K”)
53 | P a g e

SEC MANUAL - Verjune2012

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

SEC MANUAL - Verjune2012

Uploaded by

Copyright:

Available Formats

MANUAL ON THE EVALUATION

1. To check compliance with the prescribed form and contents

2. To determine any material misstatement that affects the

financial position and results of operation of the company;

3. To verify compliance with statutory requirements under the

4. To determine compliance with special or prudential

requirements on the company; and

5. To identify industry and systemic risk.

This Manual shall be used in the evaluation of financial statements

The operating departments shall set a timeline for each step to

The following procedures shall be undertaken in the evaluation of

a. ENCODE financial data of all regulated entities. This task

b. SORT the above financial data according to pre-set criteria;

c. SELECT companies to be covered by the review based on the

d. EVALUATE AFS of selected companies based on the following:

Since regulated entities are holders of secondary license

 Financial Ratios/Warning Signals

 SPECIAL PURPOSE REVIEW

 SET objective/s of the financial statement evaluation;

 EVALUATE AFS of the subject company based on ANY OR ALL

Since the company that maybe subject of a special

If there are material findings on the evaluated financial statements,

A copy of the Audit Committee or Board Resolution taking the

The explanation of the subject shall be evaluated on the basis of

1. Check whether or not the company is required to submit audited

 Stock corporations with paid-up capital stock of P50,000 or more;

 Representative offices of foreign corporations with total assets each of

2. Determine the correct category of the corporation;

3. Use as basis in the review the financial reporting framework

1. Full Philippine Financial Reporting Standards (PFRS)

 Those with total assets of more than P350 Million or total

 Required to file financial statements under Part II of the

 In the process of filing their financial statements for the

 Holders of secondary licenses issued by regulatory

General Rule: All companies which qualify as “large

Except: Publicly-accountable entities that are given exemptive

insurance companies) of publicly accountable entities upon

c. Small and Medium-Sized Entities (SMEs) Exempted from

2. Philippine Financial Reporting Standards for Small and Medium-Sized

Applies to SMEs which meet ALL of the following criteria:

 With total assets of between P3 Million to P350 Million or

Applies to micro entities which meet ALL of the following criteria:

 Total assets and liabilities are below P3 Million;

A. STATEMENT OF MANAGEMENT’S RESPONSIBILITY (SRC RULE 68,

B. AUDITOR’S REPORT (SRC RULE 68, AS AMENDED AND PSA 700)

Based on PSA 700, as

“...in accordance with

b. The Auditor’s Report

c. Addressee and complete

ii. PFRS for SMEs

iii. Any acceptable

i. Going Concern Issue

ii. Qualified Opinion

iii. Legal Matter

f. Date of Opinion (must

ii. BOA Registration

If signing partner – BOA

iii. PTR Number

iv. PRC License

v. Tax Identification No.

vi. Expiration dates of

C. SUPPLEMENTAL WRITTEN STATEMENT OF AUDITOR

ii. Privileged Tax