In the SEC Commission En Banc meeting dated December 3, 2009, it decided to adopt the Philippine Financial Reporting Standards for Small and Medium-sized Entities (PFRS for SMEs). The PFRS for SMEs were adopted by the Philippine Financial Reporting Standards Council (FRSC) from the IFRS for SMEs issued by International Accounting Standards Board (IASB). See Example of Financial Statements Prepared Under PFRS for SMEs and Disclosure Checklist.
Copies of the PFRS for SMEs standards and Basis for Conclusion can be downloaded below:
- Philippine Financial Reporting Standards for Small and Medium-sized Entities (PFRS for SMEs)
- IFRS for SMEs Basis for Conclusions
Who are qualified to apply PFRS for SMEs?
In the Philippines, the PFRS for SMEs shall be used by entities that meet the definition of an SME as set forth in the SEC En Banc Resolution dated 13 August 2009. The SEC defines an SME for financial reporting purposes as an entity:
- With total assets of between P3 million and P350 million or total liabilities of between P3 million and P250 million;
- That is not required to file financial statements under SRC Rule 68.1;
- That is not in the process of filing its financial statements for the purpose of issuing any class of instruments in a public market;
- That is not a holder of a secondary license issued by a regulatory agency, such as a bank (all types of banks), an investment house, a finance company, an insurance company, a securities broker/dealer, a mutual fund and a pre-need company; and
- That is not a public utility.
The amount of total assets and total liabilities in (a) above shall be based on the audited financial statements as of December 31, 2009.
When is the effectivity date?
The PFRS for SMEs is effective for annual periods beginning on or after January 1, 2010. However, theguidance for applying the requirements of Section 23, Revenue, in recognizing revenue from agreements for the construction of real estate set forth in paragraphs 23A.14 and 23A.15 shall apply for annual periods beginning on or after January 1, 2012. The standard does not include a provision for early adoption.
What are the transition requirements?
The transition provisions in Section 35 of the PFRS for SMEs applies to a first time adopter of the PFRS for SMEs. A first-time adopter of the PFRS for SMEs is an entity that presents its first annual financial statements that conform to the PFRS for SMEs. Financial statements prepared in accordance with the PFRS for SMEs are an entity’s first such financial statements if, for example, the entity presented its most recent previous financial statements under national requirements that are not consistent with this PFRS in all respects (e.g., accounting standards listed in PAS 101) or presented its most recent previous financial statements in conformity with full PFRSs.
Is PAS 101 withdrawn?
The PFRS for SMEs states that PAS 101 is withdrawn. We understand that this would be upon the effective date of the PFRS for SMEs.
Are there any transition disclosures required?
Entities that will qualify as an SME and are currently using PAS 101 or another basis of financial reporting shall disclose the future effect of the new standard.
Are there exemptions to PFRS for SMEs?
The SEC has approved the exemption from the mandatory adoption of the Philippine Financial Reporting Standard for Small and Medium-sized Entities (PFRS for SMEs) SMEs that meet any of the following criteria:
- It is a subsidiary of a parent company reporting under the full PFRS;
- It is a subsidiary of a foreign parent company that will be moving towards IFRS pursuant to the foreign country’s published convergence plan;
- It is a subsidiary of a foreign parent company that has been applying the standards for a non-publicly accountable entity for local reporting purposes, and is considering moving to full PFRS instead of the PFRS for SMEs to align its policies with the expected move to full IFRS by its foreign parent company pursuant to its country’s published convergence plan;
- It has short-term projections that show that it will breach the quantitative thresholds set in the criteria for an SME, and the breach is expected to be significant and continuing due to its long-term effect on the company’s asset or liability size;
- It is part of a group, either as a significant joint venture or an associate, that is reporting under the full PFRS;
- It is a branch office of a foreign company reporting under the full IFRS;
- It has concrete plans to conduct an initial public offering within the next two years;
- It has a subsidiary that is mandated to report under the full PFRS;
- It has been preparing financial statements using full PFRS and has decided to liquidated its assets
An SME that avails of the exemption must disclose in the notes to its financial statements the facts that support its adoption of full PFRS instead of the PFRS for SMEs.