PHILIPPINE INTERPRETATIONS COMMITTEE (PIC) QUESTIONS … · PHILIPPINE INTERPRETATIONS COMMITTEE...

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PHILIPPINE INTERPRETATIONS COMMITTEE (PIC) QUESTIONS AND ANSWERS (Q&As)

Q&A No. 2013-02 Conforming Changes to PIC Q&As – Cycle 2013 Introduction This Q&A No. 2013-02 sets out the changes (i.e., amendments or withdrawal) to certain PIC Q&As. These changes are made as a consequence of the issuance of new Philippine Financial Reporting Standards (PFRS) and amendments to certain existing PFRS that are effective as of August 31, 2013. The consequential amendments are set out in the same section as the amended PIC Q&As attached to this Q&A No. 2013-02. In addition, a marked-up copy of the amended PIC Q&A showing the changes made (i.e., new text is underlined and deleted text is struck through) is attached as an appendix to the amended PIC Q&A. The effective date of the amendments is included in the Q&As affected. PIC Q&As Amended The following table summarizes the changes made to the amended PIC Q&As:

PIC Q&As Amended Amendments

PIC Q&A No. 2006-02: PAS 27.10(d) – Clarification of criteria for exemption from presenting consolidated financial statements

Change in the reference to the PFRS upon which PIC Q&A No. 2006-02 was based as a result of the issuance of the amended PAS 27, Separate Financial Statements, and the new PFRS 10, Consolidated Financial Statements

PIC Q&A No. 2009-01: Framework.23 and PAS 1.23 – Financial statements prepared on a basis other than going concern

1. Change in the reference to PFRS upon

which PIC Q&A No. 2009-01 was based as

a result of the issuance of The Conceptual

Framework on Financial Reporting and the

amendments to PAS 1, Presentation of

Financial Statements

2. Clarification on the composition of a

complete set of financial statements of an entity prepared on a basis other than going concern

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PIC Q&As Withdrawn The following table summarizes the basis and effective date of withdrawal of the Q&As withdrawn:

PIC Q&As Withdrawn Basis for Withdrawal

PIC Q&A No. 2007-04: PAS 101.7 – Application of criteria for a qualifying NPAE

PIC Q&A No. 2007-04 contained the consensus on certain issues relating to paragraph 7 of Philippine Accounting Standard (PAS) 101, Financial Reporting Standards for Non-publicly Accountable Entities (NPAEs). PAS 101 was withdrawn in October 2009 upon the adoption by the Philippine Financial Reporting Standards Council (FRSC) of the PFRS for Small and Medium-sized Entities (PFRS for SMEs), which became effective for annual periods beginning on or after January 1, 2010. Consequently, PIC Q&A No. 2007-04 is considered withdrawn effective as of January 1, 2010, the effective date of PFRS for SMEs.

PIC Q&A No. 2010-01: PAS 39.AG71-72 – Rate used in determining the fair value of government securities in the Philippines

PIC Q&A No. 2010-01 contained the consensus on certain issues relating to paragraph AG 71-72 of PAS 39, Financial Instruments: Recognition and Measurement. The said issues have been addressed in PFRS 13, Fair Value Measurement, which became effective for annual periods beginning on or after January 1, 2013. Consequently, PIC Q&A No. 2010-01 is withdrawn and should no longer be applied for annual periods beginning on or after January 1, 2013, the effective date of PFRS 13.

PIC Q&A No. 2011-01: PAS 1.10(f) Requirements for a third statement of financial position

PIC Q&A No. 2011-01 contained the consensus on certain issues relating to paragraph 10 (f) of PAS 1, Presentation of Financial Statements. The said issues have been clarified upon the issuance of the Annual Improvements to PFRS 2009-2011 Cycle, which became effective for annual periods beginning on or after January 1, 2013.

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Consequently, PIC Q&A No. 2011-01 is withdrawn and should no longer be applied for annual periods beginning on or after January 1, 2013, the effective date of the Annual Improvements to PFRS 2009-2011 Cycle.

Date approved by PIC: September 25, 2013 (Original signed)

PIC Members

Dalisay B. Duque, Chairman

Wilfredo A. Baltazar Edmund A. Go

Rosario S. Bernaldo Lyn I. Javier

Sharon S. Dayoan Ma. Concepcion Y. Lupisan

Gina S. Detera Wilson P. Tan

Ma. Gracia F. Casals-Diaz Normita L. Villaruz

Date approved by FRSC: October 8, 2014

PHILIPPINE INTERPRETATIONS COMMITTEE (PIC) QUESTIONS AND ANSWERS (Q&As)

Q&A No. 2006-02 (amended August 2013) (See Appendix for copy showing amendments)

PFRS 10.4(a) - Clarification of criteria for exemption from presenting consolidated financial statements

Background Paragraph 4 of PFRS 10, Consolidated Financial Statements, which is effective for annual periods beginning on or after January 1, 2013, provides four conditions when a parent need not present consolidated financial statements. PFRS 10.4(a)(iv) states:

"its ultimate or any intermediate parent of the parent produces consolidated financial statements available for public use that comply with International Financial Reporting Standards (IFRS) or Philippine Financial Reporting Standards (PFRS)." (emphasis added)

Issue 1

When are consolidated financial statements considered “available for public use"?

Consensus

The term “consolidated financial statements available for public use” refers to general purpose financial statements1 which the public may avail of. This includes consolidated financial statements of the ultimate or immediate parent that are: • posted in the website of the parent company or of its ultimate or any intermediate

parent, or • filed with the Philippine SEC (which become available to the public once filed) or

other bodies that make filed financial statements available to the public (e.g., the Philippine Stock Exchange makes available financial statements of brokers and dealers in securities).

Issue 2 Are consolidated financial statements of the ultimate or any intermediate parent prepared in conformity with a financial reporting framework, other than IFRS or PFRS acceptable for purposes of the exemption from the preparation of consolidated financial statements?

Consensus

For Philippine financial reporting purposes, other financial reporting standards that are converged or virtually converged with IFRS such as those of Australia, Singapore, Hong Kong, or countries in the European Union2, or are conceptually similar to IFRS, such as those of the United States, United Kingdom, or Canada, are deemed acceptable in applying the provisions of PFRS 10.4(a) on the exemption from the preparation of consolidated financial statements.

_________________________________

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PAS 1, Presentation of Financial Statements, paragraph 3 defines general purpose financial statements as those intended to meet the needs of users who are not in a position to demand reports tailored to meet their particular needs. They include those that are presented separately or within another public document such as an annual report or a prospectus.

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Other countries’ financial reporting standards may become acceptable for purposes of the exemption from consolidation as these other countries converge with IFRS.

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Effective Date The consensus in this Q&A is effective from December 18, 2006, the original date of approval by the FRSC. The amendments to this Q&A are effective for annual periods beginning on or after January 1, 2013, the effective date of PFRS 10, Consolidated Financial Statements. Earlier application is permitted. Date originally approved by PIC: November 7, 2006 (Original signed) Date amendments approved by PIC: September 25, 2013 (Original signed)

PIC Members




Sharon G. Dayoan Ma. Concepcion Y. Lupisan



Date originally approved by FRSC: December 18, 2006 Date amendments approved by FRSC: October 8, 2014

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Appendix

(Copy showing amendments)

Q&A No. 2006-02 (amended August 2013)

PAS 27.10(d) PFRS 10.4(a) - Clarification of criteria for exemption from presenting consolidated financial statements

Background Paragraph 10 of PAS 27, Consolidated and Separate Financial Statements, 4 of PFRS 10, Consolidated Financial Statements, which is effective for annual periods beginning on or after January 1, 2013, provides four conditions when a parent need not present consolidated financial statements. Paragraph 10(d) of the Standard PFRS 10.4(a)(iv) states:

"the its ultimate or any intermediate parent of the parent produces consolidated financial statements available for public use that comply with International Financial Reporting Standards (IFRS) or Philippine Financial Reporting Standards (PFRS)." (emphasis added)

Issue 1

When are consolidated financial statements considered “available for public use"?

Consensus

The term “consolidated financial statements available for public use” refers to general purpose financial statements1 which the public may avail of. This includes consolidated financial statements of the ultimate or immediate parent that are: • posted in the website of the parent company or of its ultimate or any intermediate

parent, or • filed with the Philippine SEC (which become available to the public once filed) or other

bodies that make filed financial statements available to the public (e.g., the Philippine Stock Exchange makes available financial statements of brokers and dealers in securities).

Issue 2 Are consolidated financial statements of the ultimate or any intermediate parent prepared in conformity with a financial reporting framework, other than IFRS or PFRS acceptable for purposes of the exemption from the preparation of consolidated financial statements?

Consensus

For Philippine financial reporting purposes, other financial reporting standards that are converged or virtually converged with IFRS such as those of Australia, Singapore, Hong Kong, or countries in the European Union2, or are conceptually similar to IFRS, such as those of the United States, United Kingdom, or Canada, are deemed acceptable in applying the provisions of PAS 27.10d PFRS 10.4(a) on the exemption from the preparation of consolidated financial statements.

________________________ 1

PAS 1, Presentation of Financial Statements, paragraph 3 defines general purpose financial statements as those intended to meet the needs of users who are not in a position to demand reports tailored to meet their particular needs. They include those that are presented separately or within another public document such as an annual report or a prospectus.

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Other countries’ financial reporting standards may become acceptable for purposes of the exemption from consolidation as these other countries converge with IFRS.

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Appendix (Copy showing amendments)

Effective Date The consensus in this Q&A is effective from December 18, 2006, the original date of approval by the FRSC. The amendments to this Q&A are effective for annual periods beginning on or after January 1, 2013, the effective date of PFRS 10, Consolidated Financial Statements. Earlier application is permitted. Date originally approved by PIC: November 7, 2006 Date amendments approved by PIC: September 25, 2013

PIC Members







Date originally approved by FRSC: December 18, 2006 Date amendments approved by FRSC: October 8, 2014

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PHILIPPINE INTERPRETATIONS COMMITTEE (PIC)

QUESTIONS AND ANSWERS (Q&As) Q&A No. 2009-01 (amended August 2013) (See Appendix for copy showing amendments)

Framework 4.1 and PAS 1.25 - Financial statements prepared on a basis other than

going concern

Issue 1

Are financial statements that are prepared on a basis of accounting other than a going concern basis, which may sometimes be referred to as a liquidation basis, in compliance with Philippine Financial Reporting Standards (PFRS)?

Background Paragraph 4.1 of The Conceptual Framework for Financial Reporting states that financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future. Paragraph 25 of PAS 1, Presentation of Financial Statements, states that financial statements shall be prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. Hence, it is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations. If such an intention or need exists, the financial statements may have to be prepared on a different basis and, if so, the basis used is disclosed.

Paragraphs 14 to 15 of PAS 10 (revised 2010), Events after the Reporting Period, provides that if the going concern assumption is no longer appropriate, the effect is so pervasive that the Standard requires a fundamental change in the basis of accounting, rather than an adjustment to the amounts recognized within the original basis of accounting.

If management of an entity has the intention, needs to liquidate or curtails materially the scale of its operations, then the financial statements will have to be prepared on a basis which is other than a going concern basis, sometimes referred to as a liquidation basis.

Given appropriate disclosure as to the basis of accounting in a set of financial statements prepared on a basis other than going concern, is it appropriate for management to make an explicit and unreserved statement of compliance with PFRS in the notes to financial statements?

Consensus Yes, financial statements prepared on a basis other than going concern can be in compliance with PFRS if the financial statements comply with all the requirements of PFRS, including the relevant PFRS guidance for the measurement of assets, liabilities and equity and recognition of income, expenses, gains and losses. For example: Non-current assets that are not carried at fair value and are intended for sale should

be measured using the principles in PFRS 5, Non-current Assets Held for Sale and Discontinued Operations.

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Assets that are carried at fair value should be accounted for under the relevant PFRS;

for example, PAS 39, Financial Instruments: Recognition and Measurement1, for financial assets and financial liabilities; PAS 40, Investment Property, for investment properties.

Provisions for liabilities should be recognized and measured in accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets, (i.e., only when there is a present obligation).

In addition, a complete set of financial statements as required under PAS 1.10 should be presented and the minimum line items required to be included in each of the financial statements, if applicable to the entity, should also be considered. An entity need not present a statement of comprehensive income (or a statement of income and a statement of total comprehensive income) if it does not have any operations (both within and outside the normal course of business) during the period covered by the financial statements prepared on the basis other than going concern. The non-presentation of such statement (assuming that other income items, if any, are not material), is consistent with the provision of paragraph 31 PAS 1 which allows that disclosures need not be provided if the information is not material. A disclosure, however, should be made in the notes to financial statements to clearly indicate the omission of said statement as this information is useful for regulatory purposes (for instance, the SEC allows an entity that has no operations for the last two years not to present an income statement as part of its financial statements).

Appropriate disclosures in accordance with paragraph 25 of PAS 1 should also be made to describe the basis of accounting used in the preparation of the financial statements and its impact on the accounting policies selected. PAS 1 requires the following disclosures:

The fact that the financial statements are not prepared on a going concern basis,

The basis on which the financial statements are prepared, and

The reason why the entity is not regarded as a going concern.

The financial statements would state that the financial statements are in compliance with PFRS. The change in the underlying basis to reflect that the entity is no longer a going concern would be disclosed in the financial statements together with the impact on management’s selection of accounting policies. This selection of accounting policies would depend on how management expects to recover the assets of the entity and settle its liabilities. These accounting policy changes would need to be permitted by and be in compliance with the relevant PFRS. Illustrative Disclosure (assuming that the entity will be liquidated)

Basis of preparation of financial statements

The stockholders of XYZ Company approved a plan of liquidation on (date) . Accordingly, the Company has changed its basis of accounting for periods subsequent to (date) , from the going-concern basis to the liquidation basis, whereby assets as of (reporting date) are presented at estimated realizable values and liabilities, at estimated settlement amounts. Statement of compliance with Philippine Financial Reporting Standards The financial statements of X Company have been prepared in accordance with Philippine Financial Reporting Standards, on the basis described above.

____________________

1 PFRS 9 is the new standard that will replace PAS 39, Financial Instruments: Recognition and Measurement, effective for annual periods beginning on or after January 1, 2015.

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If the entity qualifies as a small or medium-sized entity (or SME), the financial statements prepared on a basis other than going concern can be in compliance with PFRS for Small and Medium-sized Entities (PFRS for SMEs) provided that this standard is applied in the measurement of the assets, liabilities and equity and in the recognition of income, expenses, gains and losses of the SME. Appropriate disclosures in accordance with PFRS for SMEs should be made to describe the basis of accounting and its impact on the accounting policies selected.

Effective Date

The consensus in this Q&A is effective from March 16, 2009, the original date of approval by the FRSC. The amendments to this Q&A are effective from October 8, 2014, the date these amendments were approved by the FRSC. Earlier application is permitted.

* * Date originally approved by PIC: February 18, 2009 (Original signed) Date amendments approved by PIC: September 25, 2013 (Original signed)

PIC Members






Ma. Gracia Casals-Diaz Normita L. Villaruz

Date originally approved by FRSC: March 16, 2009 Date amendments approved by FRSC: October 8, 2014

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Q&A No. 2009-01 (amended August 2013)

Framework.23 4.1 and PAS 1.23 25 - Financial statements prepared on a basis other

than going concern

Issue 1

Are financial statements that are prepared on a basis of accounting other than a going concern basis, which may sometimes be referred to as a liquidation basis, in compliance with Philippine Financial Reporting Standards (PFRS)?

Background Paragraph 23 4.1 of the Framework for the Preparation and Presentation of Financial Statements The Conceptual Framework for Financial Reporting states that financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future. Paragraph 23 25 of PAS 1, Presentation of Financial Statements, states that financial statements shall be prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. Hence, it is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations. If such an intention or need exists, the financial statements may have to be prepared on a different basis and, if so, the basis used is disclosed.

Paragraphs 10 14 to 15 of PAS 10 (revised 2010), Events after Balance Sheet Date the Reporting Period, which became effective for annual periods beginning on or after January 1, 2005 provides that if the going concern assumption is no longer appropriate, the effect is so pervasive that the Standard requires a fundamental change in the basis of accounting, rather than an adjustment to the amounts recognized within the original basis of accounting.

If management of an entity has the intention, needs to liquidate or curtails materially the scale of its operations, then the financial statements will have to be prepared on a basis which is other than a going concern basis, sometimes referred to as a liquidation basis.

Given appropriate disclosure as to the basis of accounting in a set of financial statements prepared on a basis other than going concern, is it appropriate for management to make an explicit and unreserved statement of compliance with PFRS in the notes to financial statements?

Consensus Yes, financial statements prepared on a basis other than going concern can be in compliance with PFRS if the financial statements comply with all the requirements of PFRS, including the relevant PFRS guidance for the measurement of assets, liabilities and equity and recognition of income, expenses, gains and losses. For example: Non-current assets that are not carried at fair value and are intended for sale should

be measured using the principles in PFRS 5, Non-current Assets Held for Sale and Discontinued Operations.

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Assets that are carried at fair value should be accounted for under the relevant PFRS;

for example, PAS 39, Financial Instruments: Recognition and Measurement1, for financial assets and financial liabilities; PAS 40, Investment Property, for investment properties.

Provisions for liabilities should be recognized and measured in accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets, (i.e., only when there is a present obligation).

In addition, a complete set of financial statements as required under PAS 1.10 should be presented and the minimum line items required to be included in each of the financial statements, if applicable to the entity, should also be considered. An entity, need not present a statement of comprehensive income (or a statement of income and a statement of total comprehensive income) if it does not have any operations (both within and outside the normal course of business) during the period covered by the financial statements prepared on the basis other than going concern. The non-presentation of such statement (assuming that other income items, if any, are not material), is consistent with the provision of paragraph 31 PAS 1 which allows that disclosures need not be provided if the information is not material. A disclosure, however, should be made in the notes to financial statements to clearly indicate the omission of said statement as this information is useful for regulatory purposes (for instance, the SEC allows an entity that has no operations for the last two years not to present an income statement as part of its financial statements).

Appropriate disclosures in accordance with paragraph 23 25 of PAS 1 should also be made to describe the basis of accounting used in the preparation of the financial statements and its impact on the accounting policies selected. PAS 1 requires the following disclosures:

The fact that the financial statements are not prepared on a going concern basis,

The basis on which the financial statements are prepared, and

The reason why the entity is not regarded as a going concern.

The financial statements would state that the financial statements are in compliance with PFRS. The change in the underlying basis to reflect that the entity is no longer a going concern would be disclosed in the financial statements together with the impact on management’s selection of accounting policies. This selection of accounting policies would depend on how management expects to recover the assets of the entity and settle its liabilities. These accounting policyies changes would need to be permitted by and be in compliance with the relevant PFRS standards. Illustrative Disclosure (assuming that the entity will be liquidated)

Basis of preparation of financial statements The stockholders of XYZ Company approved a plan of liquidation on (date) . Accordingly, the Company has changed its basis of accounting for periods subsequent to (date) , from the going-concern basis to the liquidation basis, whereby assets as of (reporting date) are presented at estimated realizable values and liabilities, at estimated settlement amounts. Statement of compliance with Philippine Financial Reporting Standards The financial statements of X Company have been prepared in accordance with Philippine Financial Reporting Standards, on the basis described above.

____________________

1 PFRS 9 is the new standard that will replace PAS 39, Financial Instruments: Recognition and Measurement, effective for annual periods beginning on or after January 1, 2015.

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If the entity is a non-publicly accountable entity (NPAE) qualifies as a small or medium-sized entity (or SME), the financial statements prepared on a basis other than going concern can be in compliance with accounting principles generally accepted in the Philippines applicable to NPAEs PFRS for Small and Medium-sized Entities (PFRS for SMEs) provided relevant SFAS that this standard is applied in the measurement of the assets, liabilities and equity and in the recognition of income, expenses, gains and losses of the SME. Appropriate disclosures in accordance with paragraph 23 of SFAS 1 (revised 2000), Presentation of Financial Statements, PFRS for SMEs should be made to describe the basis of accounting and its impact on the accounting policies selected.

Effective Date

The consensus in this Q&A is effective from March 16, 2009, the original date of approval by the FRSC. The amendments to this Q&A are effective from October 8, 2014, the date these amendments were approved by the FRSC. Earlier application is permitted.

* * Date originally approved by PIC: February 18, 2009 Date amendments approved by PIC: September 25, 2013

PIC Members






Ma. Gracia Casals-Diaz Normita L. Villaruz

Date originally approved by FRSC: March 16, 2009 Date amendments approved by FRSC: October 8, 2014

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