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REPUBLIC OF THE PHILIPPINES Department of
Trade and Industry SECURITIESAND EXCHANGE
COMMISSION SEC Building, EDSA, Greenhills,
Mandaluyong City
NOTICE
The Commission En Bane, in its meeting on 04 February 2010, resolved to adopt the
following Implementation Guidelines to address certain issues on the adoption of the
Philippine Financial Reporting Standards (PFRS) for Small and Medium Entities
(SM:Es): ;'
1. Transition from full PFRS to PFRS for SMEs
Some entities are currently using full PFRS either because they (a) opted to although
they qualify as Non-Publicly Accountable Entities (NPAE), or (b) are required to use full
PFRS as they do not qual ify as NPAE under PAS 101. These entities may now qualify
as SMEs under the definitions in PFRS for SMEs and the 13 August 2009 SEC En Bane
Resolution (the "SEC Resolution"). 1
If they qualify and adopt the PFRS for SMEs, they shall be considered as 'first-time
adopter' of the PFRS for SMEs and, therefore, should apply Section 3,5(Transition to the
PFRSfor SMEs). Paragraphs 35.1 and 35.2 of said section state that
"35.1 This section applies to a first-lime adopter of the 111RSfor
SMEs, regardless of whether its previous accounting framework was full
IFRS or another set of generally accepted accounting principles (GAAP)
such as its national accounting-standards, or ~nother framework
such as the local income tax basis.
35.2 An entity can be a first-time adopter of the [FRS for SNfEs only
once. x x x"
2. Transition ofNPAEs from PAS 101 to PFRS for SMEs
NPAEs that are currently using PAS 101 may qualify as SMEs under the PFRS for
S"MEsand the SEC Resolution. If they qualify, they may use the PFRS for SMEs and
will be considered as first-time adopter of the PFRS for SMEs and should apply
paragraphs 35.1 and 35.2 thereof (Refer to Item 1 above.)
3. Transition ofNPAEs from PAS 101 to full PFRS
NP AEs that currently use PAS 101 may not qualify as SMEs under the PFRS for SMEs
and the SEC Resolution (for example, entities that crossed the ceiling threshold for total
assets ofP350 million).
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NPAEs that currently use PAS 101 but (a) no longer qualify as SMEs under the PFRS for
SMEs and the SEC Resolution, and (b) are not considered "micro-business entities" (i.e.,
entities whose total assets or total liabilities are below the PJ million floor threshold
for the size criteria - see Item 4 below), should use the full PfRS. If this is the first time
that such entities will adopt full PFRS, they should apply PFRS I, First- time Adoption of
Philippine Financial Reporting Standards.
4. Financial Reporting Framework of Entities not covered by either the foil PFRS or PFRS
for SMEs
Micro-business entities have the option to use any of these bases of accounting in the
preparation of their financial statements: (a) full PFRS, (b) PFRS for SMEs, or (c)
another acceptable basis of accounting.'
If an entity uses a basis of accounting other than full PFRS and the PFRS for SMEs in the
preparation of its financial statements, its management shall assess the acceptability of such
basis of accounting in the light of the nature of the entity and the objective of the
financial statements, or the requirements of the law or regulators and standard- setters.
By way of illustration, tax regulations permit taxpayers to usethe income tax basis of
accounting; on the other hand, the SEC allows the use of the cash basis of accounting by
micro-business entities.
5. Date for applying the size criteria and for transitioning to foIl PFRS or to PFRS for
SMEs
The PFRS for SMEs shall be effective for annual periods beginning on or after January
1, 2010, except for the guidance in applying the requirements of Section 23 (Revenue) in
recognizing revenue from agreements for the construction of real estate which shall apply
to annual periods beginning on or after January 1, 2012. .
As indicated in the Preface to the PFRS for SMEs, the amount of total assets and total
liabilities shall be based on the entity's audited financial statements as Of December 31,
2009. '
Thus, an SME whose accounting period begins on January I, 2010 shill apply the size
criteria based on the entity's audited total assets or audited total -liabilities as of
1 Both the full PFRS and the PFRS for SMEs define what statements/disclosures shall be presented ~
part of a complete set of financial statements. These include a statement of financial position, a
statement of comprehensive income for the period, a statement of changes in equity for the period,
and a statement of cash flows for the period. In the absence of a similar definition of statements to
be presented for another basis of accounting. he provisions of the full PFRS and PFRS for SMEs
may be used as a guide. For example, if the basis of accounting is prescribed or permitted by a
government regulatory agency and is substantially an accrual basis, the financial statements may
include the same financial statements required under the full PFRS and the PFRS for SMEs. On
the other hand, a separate statement of cash flows ordinarily is not needed when financial statements
are prepared on a cash receipts and djsbursements basis or an income tax basis that is essentially a
cash basis. These bases already accommodate the equivalent of a cash flow statement presentation.
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Therefore, such presentations need not conform with the requirements for a statement of cash flows
that would be included in a full PFRS or ·PFRSfor SMEs presentation. .
For stock corporations with paid-up capital stock of more than PSO,OOO.OO, and non-stock
corporations with total assets of more than PSOO,OOO.OO and total contributions of more than P
100,000.00, the relevant requirements of SRC Rule 68 shall be complied with, particularly, the
submission of a complete set of financial statements' (i.e., Balance Sheet, Income Statement, Cash
Flow Statement (if cash basis, not mandatory), Statement of Changes in Equity/Fund Balance, Notes
to Financial Statements), Statement of Management's Responsibility and Auditor's Report.
December 31, 2009. An SME whose accounting period begins on a date other than
January 1,2010 (i.e., it uses a fiscal year, for example, January 31, 2010to January 31,
2011) shall appJy the size criteria using the entity's audited financial statements for the
immediately preceding fiscal year (i.e., for the fiscal year ending JanuaryJ J, 2010).
If an SME that uses the PFRS for SMEs in a current year (for example, calendar year
2010) breaches the floor or ceiling of the size criteria at the end of that current year
(i.e., December 31, 2010), and the event that caused the change is considered
"significant and continuing", the entity should transition to the applicable financial
reporting framework (i.e., full PFRS if the ceiling threshold is breached, or another
acceptable accounting basis if the floor threshold is breached) in the next accounting
period (or calendar year 2011). If the event is not considered "significant and
continuing", the entity can continue to use the same financial reporting framework it
currently uses. .
The determination of what is "significant and continuing" shall be based on
management's judgment taking into consideration relevant qualitative and quantitative
factors. As a general rule, 20% or more of total assets or total liabilities would be
considered significant.
6. Date for applyingtbe size criteria if tbe PFRS for SMEs is adopted early
If an entity opts to apply early the PFRS for SMEs (for example, in calendar year
2009), it shall apply the size criteria using the entity's audited financial statements for
the immediately preceding calendar year (i.e., for the calendar year ended December
31,2008).
7. Subsidiariesof a parent companytbat use full PFR
There are situations where a parent company that uses full PFRS has subsidiaries that
qualify as SMEs under the PFRS for SMEs and the SEC Resolution.
The subsidiaries that qualify as SMEs under the PFRS for SMEs and the SEC
Resolution (such as, they are not listed, have no public accountability; are not holders of
secondary licenses from the SEC, etc.), may use the PFRS for SMEs even if their, parent
company uses full PFRS. Paragraph 1.6 of Section 1 of the PFRS for SMEs provides
that:
"1.6 A subsidiary whose parent uses full IFRS, or that is part of a
consolidated group that uses full IFRS, is not prohibited from using this
IFRS in its own financial statements if that subsidiary by itself does not
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have public accountability. If its financial statements are described as
conforming to the IFRS for SMEs, it must comply with all the provisions of this
IFRS."
One issue to consider, however, with regard to a subsidiary whose financial statements are
consolidated into group financial statements is the requirement under the PFRS for SMEs
and the full PFRS on the use by a group of uniform accounting policies. If a member
of the group uses accounting policies other than those' adopted in the consolidated
financial statements for similar transactions and events under the same II
circumstances, appropriate adjustments should be made in the financial.statements of
that entity in the preparation of the consolidated financial statements.
8. Required disclosures
If an SME's first financial statements use the PFRS for SMEs, it shall
make the required disclosures which include an explanation of the transition
to the PFRS for SMEs (under paragraph 35.12) and reconciliations (under
paragraphs 35.13 to 35.15) of Section 35 ofthe·PFRS for SrvtEs.
If an SrvtE does not opt to make an early application of the PFRS for SMEs,
it shall disclose the impact on its financial statements of the future adoption or
application of the PFRS for SMEs.
9. Early adoptionof PFRS for SMEs
As earlier stated, PFRS for SMEs shall be effective for periods beginning
January 1, 2010. Although the International Financial Reporting Standards
for SMEs and the PFRS for SMEs do not provide for early adoption, the same
may, however, be allowed for SMEs which are capable, in terms of systems and
resources, to efficiently transition to PFRS for SMEs for their financial
statements as of 31 December 2009, provided that such entities discuss in their
fmancial statements the impact of such early adoption.
If an SME is capable and opts to early adopt the PFRS for SME~, it
should be considered as 'first-time adopter' of the PFRS for SMEs and,
therefore, should apply Section 35 (Transition to the PFRSforSMEs).
Issued this 9th day of February,
2010.
For the Commission:
~J..~
I'EB.BARIN
Chairperson
