MC No. 8 s.2005 - RE : Adoption of Philippine Accounting Standards (PAS)

Accounting Standards Council Philippine Accounting Standard 101 Financial Reporting Standards for Non-Publicly Accountable Entities

Philippine Accounting Standard 101 Contents Paragraphs Philippine Accounting Standard (PAS) 101 Financial Reporting Standards for Non-publicly Accountable Entities Introduction 1�5 Objective 6 Qualifying Entities Option Available to Qualifying Entities 7 � 10 Financial Reporting Standards Applicable to Qualifying Entities 11 � 13 Disclosure Effective Date 14 15 16 Appendix Financial Reporting Standards Effective as of December 2004 Applicable to Qualifying Entities Approval of PAS 101 by the ASC 1

Philippine Accounting Standard 101 Financial Reporting Standards for Non-publicly Accountable Entities Introduction 1. The Accounting Standards Council (ASC), in line with the accounting profession's objective to converge Philippine accounting standards with international accounting standards, issued a number of new accounting standards, referred to as Philippine Financial Reporting Standards (PFRSs) that became effective in 2005. The adoption of the new accounting standards was approved by the Securities and Exchange Commission (SEC), the Board of Accountancy (BOA) and Professional Regulation Commission (PRC); and the Bangko Sentral ng Pilipinas (BSP). The PFRSs were intended at that time to be applicable to all reporting entities that prepared financial statements in conformity with generally accepted accounting principles in the Philippines. 2. Considering the significant number of small and medium-sized entities (SMEs) in the Philippines, the ASC has considered providing temporary relief to SMEs in the application of the new standards. 3. The ASC plan was given impetus by the decision of the International Accounting Standards Board (IASB) in 2005 to undertake a project to develop accounting standards suitable for entities that (1) do not have public accountability and (2) publish general purpose financial statements for external users (e.g., owners who are not involved in managing the business, existing and potential creditors, and credit rating agencies). The IASB refers to this group of entities as Non-Publicly Accountable Entities, or NPAEs. The IASB has decided to use the term "non-publicly accountable entities", rather than "small and medium-sized entities" because the latter term has different meanings around the world. 4. Under the IASB project, an entity has public accountability if: � it has filed, or it is in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market; � it holds assets in a fiduciary capacity for a broad group of outsiders, such as a bank, insurance company, securities broker/dealer, pension fund, mutual fund or investment banking entity; � it is a public utility or similar entity that provides an essential public service; or 2

� it is economically significant in its home country on the basis of criteria such as total assets, total income, number of employees, degree of market dominance, and nature and extent of external borrowings. 5. The IASB expects to issue an exposure draft on accounting by NPAEs in March 2006 and the final standard in 2007. Objective 6. The objective of this Standard is to provide temporary relief in the application of the new PFRSs that became effective in 2005 to entities that are covered by this Standard. The Standard identifies which entities are covered, provides an option to these entities in the application of the new PFRSs, and specifies the financial reporting standards applicable to these entities . Qualifying Entities 7. This Standard shall be applied in the general purpose financial statements prepared and presented by an entity with no public accountability. An entity has public accountability: a. if it is required to file financial statements under SEC Rule 68.1, Special Rule on Financial Statements of Reporting Companies under Section 17.2 of the Securities Regulation Code. Under the SEC rules, these would include: (1) an issuer which has sold a class of their securities pursuant to a registration under Section 12 of the Code; (2) an issuer with a class of securities listed for trading on an Exchange; and (3) an issuer with assets of at least P50 million and having 200 or more holders each holding at least 100 shares of a class of its equity securities as of the first day of the issuer's fiscal year; b. if it is in the process of filing its financial statements for the purpose of issuing any class of instruments in a public market; c. if it holds assets in a fiduciary capacity for a broad group of outsiders, 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; d. if it is a public utility or similar entity that provides an essential public service; or e. if it is economically significant, as described in paragraph 8; or 3

f. if it is considered by its primary regulator to have public accountability. 8. For purposes of paragraph 7(e), an entity is considered economically significant if it exceeds either of the following: total assets of P250 million or total liabilities of P150 million. The total assets and total liabilities are based on the entity's annual financial statements and on consolidated totals, if the entity presents consolidated financial statements. 9. The criteria of r an economically significant entity are arbitrary and will be reviewed when the IASB has issued its final standard on NPAEs or earlier if necessary. 10. For purposes of this Standard, an entity that is a subsidiary of a parent that is considered to have public accountability under paragraph 7 is similarly considered to have public accountability. Option Available to Qualifying Entities 11. A qualifying entity under this Standard is allowed not to apply in its general purpose financial statements the new PFRSs that became effective in 2005. 12. A qualifying entity, however, may still choose to apply any or all of the new PFRSs. 13. An entity that has public accountability, as provided in paragraphs 7 and 10, is required to apply the new PFRSs in its financial statements for 2005, unless its primary regulator issues a pronouncement exempting the entity from applying a new standard or certain provisions of a new standard. Financial Reporting Standards Applicable to Qualifying Entities 14. A qualifying entity under this Standard that chooses to avail of the option not to apply the new PFRSs shall apply the applicable financial reporting standards effective as of December 2004 in preparing its general purpose financial statements. The Appendix lists these standards. Disclosure 15. A qualifying entity shall disclose the basis of preparation of its financial statements and the specific accounting policies used. Effective Date 16. A qualifying entity shall apply this Standard for annual periods beginning on or after January 1, 2005. The Standard shall be effective for 2005 to 2007, unless revoked earlier. 4

Appendix Financial Reporting Standards Effective as of December 2004 Applicable to Qualifying Entities under PAS 101 SFAS 1 (rev) Framework for the Preparation and Presentation of Financial SFAS 4 (rev) Statements SFAS 8 Presentation of Financial Statements Inventories SFAS 8A Accounting for the Effects of Changes in Foreign Exchange Rates SFAS 10 Deferral of Foreign Exchange Differences (an amendment of SFAS 8) SFAS 13 (rev) Summary of Generally Accepted Accounting Principles on Investments SFAS 18 Net Profit or Loss for the Period, Fundamental Errors and SFAS 22 (rev) Changes in Accounting Policies SFAS 24 Summary of Generally Accepted Accounting Principles on SFAS 25 Stockholders' Equity SFAS 26 Cash Flow Statements SFAS 28 Retirement Benefit Costs Borrowing Costs Construction Contracts Revenue SFAS 10/IAS 10 Events After the Balance Sheet Date SFAS 12/IAS 12 Income Taxes SFAS 16/IAS 16 Property, Plant and Equipment SFAS 17/IAS 17 Leases Accounting for Government Grants and Disclosure of SFAS 20/IAS 20 Government Assistance Business Combinations SFAS 22/IAS 22 Related Party Disclosures SFAS 24/IAS 24 Accounting and Reporting by Retirement Benefit Plans SFAS 26/IAS 26 Consolidated Financial Statements and Accounting for Investments in Subsidiaries SFAS 27/IAS 27 Accounting for Investments in Associates Financial Reporting of Interests In Joint Ventures SFAS 28/IAS 28 Discontinuing Operations SFAS 31/IAS 31 Impairment of Assets SFAS 35/IAS 35 Provisions, Contingent Liabilities and Contingent Assets SFAS 36/IAS 36 Intangible Assets SFAS 37/IAS 37 SFAS 38/IAS 38 5

Note: The following standards, which were effective as of December 31, 2004, were excluded from the above list since these apply to entities with public accountability, such as listed entities, banks or insurance companies. SFAS 19 Summary of Generally Accepted Accounting Principles for the Banking Industry SFAS 27 Accounting and Reporting for the Nonlife Insurance Industry SFAS 29 Earnings Per Share SFAS 30 Interim Financial Reporting SFAS 31 Segment Reporting 6

Approval of PAS 101 by the ASC The Accounting Standards Council (ASC) has approved in October 2005 the issuance of Philippine Accounting Standard (PAS) 101, Financial Reporting Standards for Non-publicly Accountable Entities. ASC Members Carlos R. Alindada, Chairman Romeo C. Alba Roberto G. Manabat Eugene T. Mateo Alfredo B. Parungao Nestor A. Espenilla, Jr./Ma. Dolores B. Yuvienco Maximo C. Roque, Jr. Violeta V. Vicente 7