Securing Momentum: Sec Updates On Financial Reporting

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SECuring Momentum: SEC

updates on financial reporting
Financial statement presentation
and disclosure and SEC updates
19 March 2015
Agenda
Financial statement presentation key reminders
2
3
SEC updates
Common SEC findings
Financial Statement Presentation and Disclosure

Isla Lipana & Co., PwC member firm
19 March 2015
Slide 2
Financial statement presentation and

disclosure

19 March 2015
Slide 3
Temperature test
True
False
An entity can offset assets and liabilities or income and

expenses.
The notes shall present information about the basis of
preparation of the financial statements and the specific
accounting policies.
Cross referencing of each item in the statement of financial
position, statement of comprehensive income, statement of
changes in equity and statement of cash flows to any
related information in the notes is not mandatory but
highly recommended.
An entity shall disclose the legal form of the entity, its
country of incorporation and the address of its registered
office.
19 March 2015
Slide 4
Temperature test (contd.)
True
False
When an entity changes the presentation or classification

of items in its financial statements, the entity shall
reclassify comparative amounts unless reclassification is
impracticable.
When an entity incurs non-recurring losses, such as loss
from natural disaster, it may present such items as
extraordinary items.
It is acceptable to present analysis of expenses in
statement of income using a mixture of by function and
by nature presentation.

19 March 2015
Slide 5
Temperature test (contd.)
True
False
Deferred income tax assets and liabilities should be

presented in the statement of financial position as current
or non-current based on realizability or recoverability
PAS 1 requires a separate presentation of changes in equity
arising from transactions with owners and non-owners
changes in equity
Fair value changes of available-for-sale financial
instruments may be presented in the profit or loss

19 March 2015
Slide 6
A complete set of financial statements

Statement of financial position as at period end
Statement of profit or loss and other comprehensive income for the
period either (a) single statement or (b) two statements
Statement of changes in equity for the period
Statement of cash flows for the period
Notes, comprising a summary of significant accounting policies and
other explanatory information
All statements of equal prominence

19 March 2015
Slide 7
Outline
General guidelines:
Reconciliation between Company records and financial statements (i.e.,

proper mapping and complete identification of adjustments)
Consistency in classification and presentation
Sufficiency of notes vis--vis completion of disclosure checklist
Statement of
Financial Position
Statement of
Comprehensive
Income
Statement of
Changes in Equity
Notes to Financial
Statements
Third balance
sheet
Other
comprehensive
income
Owner vs.
non-owner
changes in
equity
Key note
disclosures

19 March 2015
Slide 8
Outline
Statement of
Financial Position
Third balance
sheet
Statement of
Comprehensive
Income
Statement of
Changes in Equity
Notes to Financial
Statements
Other
comprehensive
income
Owner vs.
non-owner
changes in
equity
Key note
disclosures

19 March 2015
Slide 9
True or false
?
!

PFRS requires an entity to present three

years in the statement of financial
position only when it restates its prior
period financial statements for correction
of an error.
False.
19 March 2015
Slide 10
Third statement of financial position

When required (statement as at the beginning of the earliest
comparative period):
- retrospective application of an accounting policy
- restatement
- reclassification
How about the notes?

19 March 2015
Slide 11
Outline
Statement of
Financial Position
Third balance
sheet
Statement of
Comprehensive
Income
Statement of
Changes in Equity
Notes to Financial
Statements
Other
comprehensive
income
Owner vs.
non-owner
changes in
equity
Key note
disclosures

19 March 2015
Slide 12
Other comprehensive income

Definition
Other comprehensive income (OCI) comprise items of income and
expense (including reclassification adjustments) that are not recognized
in profit or loss as required or permitted by other PFRS.
Examples
Changes in revaluation surplus
Actuarial gains and losses on defined benefit retirement plan
Gains and losses arising from translating the financial statements of
a foreign operation
Gains and losses on changes in fair value of AFS
Effective portion of gains and losses on hedging instruments in a
cash flow hedge
19 March 2015
Slide 13

Presentation
Group OCI items into those that:
- Will not be reclassified subsequently to profit or loss; and
- Will be reclassified subsequently to profit or loss when specific
conditions are met.

19 March 2015
Slide 14
Outline
Statement of
Financial Position
Third balance
sheet
Statement of
Comprehensive
Income
Statement of
Changes in Equity
Notes to Financial
Statements
Other
comprehensive
income
Owner vs.
non-owner
changes in
equity
Key note
disclosures

19 March 2015
Slide 15
Owner and non-owner changes in equity

Owner changes in equity:
Arise from transactions with owners in their capacity as owners
Examples include issuances or repurchases of equity shares, dividend
distributions, share-based payments
Non-owner changes in equity:
Profit or loss

19 March 2015
Slide 16
Knowledge check
In Other Comprehensive (OCI) or in the Statement of
Changes in Equity (SoCIE)?
OCI
SoCIE
Revaluation of property, plant and equipment

Actuarial gains and losses on a defined
benefit pension
Dividends
Currency translation differences
Effects of transactions with non-controlling
interests
19 March 2015
Slide 17
Knowledge check (contd.)

In Other Comprehensive (OCI) or in the Statement of
Changes in Equity (SoCIE)?
OCI
SoCIE
Effects of retrospective application or

restatement
Remeasurements of available-for-sale
financial assets

19 March 2015
Slide 18
Outline
Statement of
Financial Position
Third balance
sheet
Statement of
Comprehensive
Income
Statement of
Changes in Equity
Notes to Financial
Statements
Other
comprehensive
income
Owner vs.
non-owner
changes in
equity
Key note
disclosures

19 March 2015
Slide 19
Key note disclosures

Summary of significant accounting policies
Critical estimates and judgments
Financial risk management
Common regulatory disclosures and schedules

19 March 2015
Slide 20
Summary of significant accounting policies

Accounting policies
Practical tips and guide:
Ensuring that all FS line items are

the specific principles, bases,
conventions, rules and practices
provided with corresponding
applied by an entity in preparing
policies in the notes.
and presenting financial
In case of unusual/non-recurring
statements
transactions (e.g. business
Minimum requirements
combination), reference can be
made to actual standards for
Classification, if applicable
applicable policies.
Recognition
Providing narrative on
Initial and subsequent
reclassification made, if any,
measurement
including impact to previous
presentation.
Impairment, if applicable
Derecognition
19 March 2015
Slide 21

Critical estimates:
Quantitative projections made by management, based on
experience or information available, about the future, and other major
sources of estimation uncertainty at the end of the reporting period,
that have a significant risk of resulting in a material adjustment to
the carrying amounts of assets and liabilities within the next financial
year.
Critical judgments:
Views taken by management in the process of applying the
accounting policies that have the most significant effect on the
amounts recognized in the financial statements.
19 March 2015
Slide 22
Critical estimates and judgments (contd.)

Disclosure requirements
Nature of assumption or uncertainty Regulators define critical as

those directly impacting
Carrying amount at the end of
significant FS line items (i.e.,
reporting period
5% and 10% threshold).
Others:
Each critical estimate should
- sensitivity of carrying amounts to
have corresponding
the methods, assumptions and
disclosure on sensitivity
estimates including reasons for
quantitative or qualitative.
sensitivity
More common are as follows:
- the expected resolution of an
provisions, allowances,
uncertainty and the range of
functional currency and
reasonably possible outcomes within valuation.
the next financial year
- changes made to past assumptions
19 March 2015
Slide 23
Financial risk disclosures

Areas
Assessing relevance
Practical application/reminders
Foreign
currency
Evaluating level of forex to

reported income/ loss, and
foreign currency monetary
assets and liabilities
Use of reasonable rates that would be relevant

for sensitivity purposes such as forecast
(internal or from financial institutions) and
actual settlement/ collection exchange rate.
Credit
Liquidity
Generally considered
applicable and material to
all entities.
Encompassing all financial assets with key

disclosures on level of credit risk; maximum
exposure; and concentration of risk, if any
Important elements will include maturity
analysis matched against asset realization and
identification of available credit.
Fair
Presumed to be more
Exposure to changes in market rates that will
value and relevant should a Company directly impact the FS through borrowing costs
interest
have non-current/ long(e.g. interest) and valuation (e.g. discounting).
term financial instruments.

19 March 2015
Slide 24
Regulatory disclosures and schedules

BIR RR 15-2010
Schedule of all taxes during the year Confirm reconciliation

between tax filing and
Period covered and amount/s of
disclosures.
deficiency tax assessments, whether
protested or not and open tax years
Tax cases, and amount involved
under preliminary investigation,
litigation and/or prosecution in
courts or bodies outside the BIR
SEC
List of applicable standards
Retained earnings available for
dividend declaration
List of applicable standards

should reconcile with
disclosed accounting
policies.
Strict adherence to template
provided by the SEC on
schedules.
Schedules and disclosures
are covered by separate
audit reports.
19 March 2015
Slide 25
Summary of key learning points

Third statement of financial position
Owner vs. non-owner changes in equity
Key note disclosures
Summary of accounting policies
Regulatory disclosures and schedules

19 March 2015
Slide 26
SEC updates

19 March 2015
Slide 27
SEC Notices
SEC issues a reminder (April 8, 2014)
Submission of General and Special Form for Financial
Statements in Electronic Format (GFFS and SFFS)
in electronic format should be in Compact Disc and
properly labelled with the complete name of the corporation
should be submitted within 30 days from the last day of
submission of the Annual Audited FS
should be submitted with a Certification under oath signed by
the Treasurer, CFO or a person occupying an equivalent rank
Figures should be aligned with annual audited FS

19 March 2015
Slide 28
SEC Notices
SEC issues a reminder (April 14, 2014)
Strict compliance with financial reporting obligations
The FS is the responsibility of the BOD and management
The
tty. Herbosa,
Chairperson
of shall
the Commission:
corporation
neither allow nor require its
independent auditor to prepare its FS and/or supporting
documents.

19 March 2015
Slide 29
SEC Issuances
Memorandum Circular No. 10 Series of 2013
Updated General Information Sheet
The number of copies to be submitted from 5 to 4 copies
Requirement of TIN for foreign nationals who are
directors/trustees, officers, stockholders/members and resident
agents of both domestic and foreign corporations instead of
passport
Inclusions of gender/sex in the page for directors, trustees
and officers
Inclusion of page 1-A pursuant to Anti-Money Laundering Act, as
amended
Shall be used beginning June 3, 2013

19 March 2015
Slide 30
Other SEC developments

Proposed amendments to SRC Rule 68
To provide clarity and easy reference to the basis of testing
materiality of findings on financial statements reviewed by SEC;
1. Disclosure deficiencies and inconsistencies
Listed/Public companies: 5% or more
Non-listed/Non-public companies: 10% or more
2. Misstatement/errors
Listed/Public companies: 2% or more
Non-listed/Non-public companies: 5% or more
Update from August 2014 meeting:
Materiality in review of financial statements for Public/listed entities
3% of revenue or net income for P&L
5% for balance sheet items
19 March 2015
Slide 31
Common SEC findings

19 March 2015
Slide 32
Common SEC findings

AFS components Findings
Statement of
The SMR is not signed by the prescribed
Managements
signatories under SRC Rule 68.
Responsibility (SMR)
The signatories of the SMR are not consistent
with the officers indicated in the General
Information Sheet filed with the SEC.
The SMR is not in accordance with the
prescribed wordings under SRC Rule 68.
The SMR failed to cover the comparative
financial statements.
Auditors report

No Emphasis of Matter paragraph discussing

concrete plan to address capital deficiency.
19 March 2015
Slide 33
Statement of Managements Responsibility,

revisited
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), in accordance with the prescribed financial
reporting framework indicated, including the additional components
attached therein. This responsibility includes designing and
implementing internal controls relevant to the preparation and fair
presentation of financial statements that are free from material
misstatement, whether due to fraud or error, selecting and applying
appropriate accounting policies, and making accounting estimates that
are reasonable in the circumstances.
The Board of Directors or Trustees reviews and approves the financial
statements and submit the same to the stockholders or members.
19 March 2015
Slide 34
Statement of Managements Responsibility,

revisited
(Name of auditing firm), the independent auditors, appointed by the stockholders has
examined the financial statements of the company in accordance with Philippine
Standards on Auditing, and in its report to the stockholders or members, has expressed its
opinion on the fairness of presentation upon completion of such examination.
Signature______________________
Printed Name of the Chairman of the Board ___________________
Signature ______________________
Printed Name of Chief Executive Officer ______________________
Signature ______________________
Printed Name of Chief Financial Officer ______________________
Signed this ____ day of _________ (Same date as the approval and
authorization for issue of the financial statements)
19 March 2015
Slide 35
Common SEC findings (contd.)

Notes to FS
Findings
Basis of Preparation
The financial reporting framework indicated

as the basis of preparation is incorrect
taking into consideration the
asset/liabilities size of the Company (i.e.,
full PFRS vs. PFRS for SMEs).

19 March 2015
Slide 36
Financial reporting framework of entities

Large / publicly
accountable
entities
SMEs
P350M
Micro entities
P3M
Total assets
P250M
P3M
Total liabilities
19 March 2015
Slide 37
Financial reporting framework of entities

Large / publicly
accountable
entities
SMEs
Micro entities
Full PFRS
PFRS for SMEs
Other acceptable
basis of
accounting

19 March 2015
Slide 38

Notes to FS
Findings
Inventories
The amount of any reversal of any write-down

that is recognized as a reduction in the amount of
inventories recognized as expenses.
The carrying amount of inventories pledged as
security for liabilities.
Fixed assets
The existence and amounts of restriction on title

and property, plant and equipment pledged as
securities for liabilities.
The carrying amount of temporarily idle assets.
Employee benefits
The required disclosures on retirement benefits are

not provided.
Liabilities
Incomplete disclosures on Loans Payable, i.e.,

interest rate applied, maturity, assets used as
collateral and carrying amount, guarantees, and
details of any breach or default.

19 March 2015
Slide 39

Notes to FS
Findings
Related party
transactions
There are no or incomplete disclosures on key

management compensation:
1. short-term employee benefits
2. post-employment benefits
3. other long-term benefits
4. termination benefits
5. Advances and loans, if any
. Insufficient disclosures on certain provisions
(e.g. volume of transactions, mode of settlement,
assets used as collateral and carrying amount).
Retained earnings
Disclosure on how to address reported excess

retained earnings (e.g. management plans, etc.).

19 March 2015
Slide 40
Thank you.
This publication has been prepared for general guidance on matters of interest only, and does
not constitute professional advice. You should not act upon the information contained in this
publication without obtaining specific professional advice. No representation or warranty
(express or implied) is given as to the accuracy or completeness of the information contained
in this publication, and, to the extent permitted by law, Isla Lipana & Co., its members,
employees and agents do not accept or assume any liability, responsibility or duty of care for
any consequences of you or anyone else acting, or refraining to act, in reliance on the
information contained in this publication or for any decision based on it.
2015 Isla Lipana & Co. All rights reserved. Isla Lipana & Co. is the Philippine member firm
of the PwC (PricewaterhouseCoopers) global network. In this document, PwC refers to Isla
Lipana & Co., which is a member firm of PricewaterhouseCoopers International Limited, each
member firm of which is a separate legal entity.

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www.pwc.

SECuring Momentum: SEC

Financial statement presentation key reminders

Common SEC findings

Financial Statement Presentation and Disclosure

Financial statement presentation and

Financial Statement Presentation and Disclosure

An entity can offset assets and liabilities or income and

Temperature test (contd.)

When an entity changes the presentation or classification

Financial Statement Presentation and Disclosure

Temperature test (contd.)

Deferred income tax assets and liabilities should be

Financial Statement Presentation and Disclosure

A complete set of financial statements

Financial Statement Presentation and Disclosure

Reconciliation between Company records and financial statements (i.e.,

Financial Statement Presentation and Disclosure

Financial Statement Presentation and Disclosure

Financial Statement Presentation and Disclosure

PFRS requires an entity to present three

Third statement of financial position

How about the notes?

Financial Statement Presentation and Disclosure

Other comprehensive income

Other comprehensive income

Financial Statement Presentation and Disclosure

Financial Statement Presentation and Disclosure

Owner and non-owner changes in equity

Financial Statement Presentation and Disclosure

Revaluation of property, plant and equipment

Knowledge check (contd.)

Effects of retrospective application or

Financial Statement Presentation and Disclosure

Financial Statement Presentation and Disclosure

Key note disclosures

Financial Statement Presentation and Disclosure

Summary of significant accounting policies

Practical tips and guide:

Ensuring that all FS line items are

Critical estimates and judgments

Critical estimates and judgments (contd.)

Practical tips and guide:

Nature of assumption or uncertainty Regulators define critical as

Financial risk disclosures

Evaluating level of forex to

Use of reasonable rates that would be relevant

Encompassing all financial assets with key

Financial Statement Presentation and Disclosure

Regulatory disclosures and schedules

Practical tips and guide:

Schedule of all taxes during the year Confirm reconciliation

List of applicable standards

Summary of key learning points

Financial Statement Presentation and Disclosure

Financial Statement Presentation and Disclosure

Financial Statement Presentation and Disclosure

Financial Statement Presentation and Disclosure

Financial Statement Presentation and Disclosure

Other SEC developments

Common SEC findings

Financial Statement Presentation and Disclosure

Common SEC findings