The Securities and Exchange Commission (SEC) has approved an industry-specific framework for the preparation of the audited financial statements (AFS) of financial institutions to account for the regulatory relief measures extended to them during the pandemic.

SEC Memorandum Circular No. 32, Series of 2020, allows the preparation of the AFS of BSP Supervised Financial Institutions (BSFIs) in accordance with the Philippine Financial Reporting Standards (PFRS).

sec new logo2 1 - SEC allows modified financial reporting by BSFIs during pandemic

This is modified by the application of the financial reporting reliefs issued by the central bank and approved by the Commission. The AFS preparation will also be supervised by the Bangko Sentral ng Pilipinas (BSP).

“The industry-specific framework recognizes the necessity of the prudential accounting relief measures, as well as the other regulatory reliefs issued by the central bank, in countering or, at least, cushioning the impact of the COVID-19 outbreak on banks and other financial institutions,” SEC Chairperson Emilio B. Aquino said.

He added that, “These reliefs were intended to reduce the impact of losses that BSFIs may incur due to exposure to borrowers, industries and sectors severely affected by the COVID-19 pandemic and the mark-to-market losses that may be sustained due to volatilities in the financial markets.”

“Consequently, they aim to strengthen the ability of BSFIs to continue operating and servicing the financing requirements of the general public,” said Aquino.

The industry-specific framework takes into account a BSP Memorandum providing all BSFIs with regulatory relief measures by allowing the staggered booking of allowance for credit losses over a maximum period of five years and the reclassification of debt securities measured at fair value to amortized cost category, among others.

Without the industry-specific financial reporting framework, the relief measures are considered deviations from the PFRS, which may lead to the issuance of a “qualified opinion” by the external auditor if such reliefs have a material impact on the fair presentation of the audited financial statements of banks and other BSFIs.

Under the newly issued memorandum circular, BSFIs have the option to prepare their financial statements using the industry specific framework or the PFRS, in full, for the duration and terms allowed by the BSP.

BSFIs, which choose to adopt the industry specific framework, should specify the reliefs availed of and indicate that the availment thereof covers only the current year transactions, under the “Basis of Preparation of the Financial Statements” section of their financial statements.They should also include qualitative and quantitative disclosures of the impact of the reliefs they have availed of, to ensure transparency in their financial reporting.

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