After the release of the Securities Regulation Code (SRC) Rule 68, as Amended (2011), the Office of the General Accountant of the SEC issued Financial Reporting Bulletin Nos. 1 to 5 to assist corporations and their accountants/auditors in complying with their financial reporting obligations, and to ensure consistency of implementation. Download SEC Financial Reporting Bulletins 1 to 5 here.
Content of these Financial Reporting Bulletin dated February 16, 2012 are as follows:
- Bulletin 001: Additional components of financial statements
- Bulletin 002: Emphasis of Matter paragraph for companies with capital deficiency – Part I, 3.B(iv)
- Bulletin 003: Disclosures of receivables/payables with related parties eliminated during consolidation (Annex 68-D)
- Bulletin 004: Companies not covered Under SRC Rule 68
- Bulletin 005: Companies with no operation but are covered under SRC Rule 68
Detailed discussions are set forth below:
Bulletin 001: Additional components of financial statements
- 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.”
- The following additional components, if applicable to the company, should be covered by a legal matter paragraph in the Auditor’s Report or a separate report of auditor on each component:
- Schedule of receipts and disbursements of non-stock and non-profit organizations (Part 1, 4A);
- Reconciliation of Retained Earnings Available for Dividend Declaration (Part 1, 4C);
- Tabular schedule of standards and interpretations as of reporting date (for large and/or publicly-accountable entities);
- Supplementary schedules required by Annex 68-E (for issuers of securities to the public);
- A map of the conglomerate or group of companies within which the reporting entity belongs (Part 1, 4H) (for listed companies and investment houses);
Bulletin 002: Emphasis of Matter paragraph for companies with capital deficiency – Part I, 3.B(iv)
Request for Additional Ground for Exemption
- If, other than those specific exemptions provided under subpar. (viii) items (a) to (c) of Part I, par. 3.B(iv), the auditor believes that the audit report on a company with capital deficiency does not warrant an emphasis matter paragraph, a confirmation must be obtained from the Commission through the submission of a position paper.
- A determination will be made by the Commission whether the circumstance/s described in the position paper will qualify under item (d) of the exemption list [i.e., such other cases which the Commission may consider as valid ground for considering the company as a going concern].
- For those availing of the exemption based on items (a) to (c) or pursuant to an additional exemption granted by the Commission, the notes to the financial statements should include a disclosure of the basis for the exemption.
Wordings of the Emphasis of Matter paragraph
The external auditor of a company which has incurred a capital deficiency, shall provide in the audit report an emphasis paragraph indicating the following information:
- The fact that the company has incurred a capital deficiency that raises an issue on its going concern status;
- A brief discussion of a concrete plan of the company to address the capital deficiency and reference to the note to financial statements that provides a complete disclosure of the said plan;
- A statement that the auditor conducted sufficient audit procedures to verify the validity of the aforementioned plan.
Under PSA 570, external auditors are required to perform additional procedures when materiality uncertainty exists as to the ability of the company to continue as a going concern. Thus, in lieu of the statement under item (c) above, the following provisions consistent with PSA 570 provisions, may be indicated: 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.
Bulletin 003: Disclosures of receivables/payables with related parties eliminated during consolidation (Annex 68-D)
Information required under par. (1)(A)(ii) and (1)(F)(ii) on receivables/payables with related parties that are eliminated during consolidation, may be incorporated in the applicable schedules under Annex 68-E of Part II.
The subject information need not be comparative. It shall cover only to those transactions eliminated at the reporting entity’s level.
This disclosure requirement is applicable only to issuers of securities to the public, companies listed in an exchange and public companies as provided under Part II of the Rule.
Bulletin 004: Companies not covered Under SRC Rule 68
The financial statements of companies not covered by SRC Rule 68 should be accompanied by a certification under oath by the company’s Treasurer or Chief Finance Officer. Such FS should have at least a Statement of Financial Position (Balance Sheet) or a Statement of Fund Balance, Income Statement (or a Statement of Receipts and Disbursements) and applicable explanatory notes.
Bulletin 005: Companies with no operation but are covered under SRC Rule 68
- If no operation only for one (1) year: a complete set of audited financial statements must be submitted by the company despite its nonoperation
- If no operation for the last two (2) years: The Income Statement need NOT be included in the audited financial statements
Subsequently, on April 3, 2012, the SEC also issued additional Financial Reporting Bulletins 6 to 12.
Read related articles on SEC Financial Reporting Bulletin 6 to 12 (SRC Rule 68) post.
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