SEC allows staggered booking of credit losses

THE Securities and Exchange Commission (SEC) has allowed the staggered booking of credit losses to help licensed financing companies, lending companies, and accredited microfinance non-government organizations (NGO) during the pandemic.

In a memorandum circular issued on Dec. 28, SEC Chairperson Emilio B. Aquino said the commission is allowing the staggered booking of credit losses on or after Dec. 31, for a maximum of five years using the straight-line amortization method as seen in the profit or loss statement.

Mr. Aquino said the accounting relief is a deviation from the requirements of the Philippine Financial Reporting Standards (PFRS) for small and medium-sized entities, and PFRS for small entities.

“Financing companies (FC), lending companies (LC) and microfinance-NGOs shall continue to report actual past due and nonperforming loans and provision for credit losses in their reports submitted to the Corporate Governance and Finance Department to facilitate the generation of industry statistics and provide the commission with information on the true health of these institutions,” Mr. Aquino said.

According to the SEC, the said institutions that choose to avail of the relief should prepare their audited financial statements that follow the industry-specific framework as modified by the application of the financial reporting reliefs approved by the commission.

It added that those who will adopt the framework should specify in their financial statements the relief they availed and indicate that it covers only current year transactions.

“To ensure transparency in financial reporting, a qualitative disclosure of the impact of the relief availed of should be disclosed,” the SEC said.

SEC said that some of the information that must also be provided in the company’s financial statement include the amount of allowance recognized and amortized for the period, and balance of unrecognized allowance, among others.

“Entities must comply with the requirements of the financial reporting standards in doing the above adjustments when it reverts to full PFRSs, PFRS for SMEs, or PFRS for SEs, as applicable, after the period of relief,” the SEC said.

“FCs, LCs and MF-NGOs, which may avail of the relief but the impact on the financial statements is deemed not material, may still represent in the notes that the financial statements are presented in full compliance with their applicable financial reporting framework. Under such circumstances, the disclosure requirements for such relief are not mandatory,” it added.

Meanwhile, the SEC extended the deadline for compliance to its previous memorandum circular that required corporations, associations, partnerships, and individuals to create and designate an official e-mail account address and cellphone number for future transactions with the commission.

In a separate notice in its website dated Dec. 28, the SEC said the deadline is moved to Feb. 22, 2021, and that it will not impose a penalty for those who will avail of the extension.

“However, corporations, associations, and partnerships with certificates of registration issued after January 23, 2021 are given a period of thirty days from the issuance of the certificate of registration to comply with the said memorandum circular, without penalty,” the SEC said. — Revin Mikhael D. Ochave

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