SRC RULE NO.

68 Under SRC Rule 68, the following are the

classifications of the reporting entities:
a) large and/or publicly accountable entities
Securities and Exchange Commission b) medium-sized entities
The Philippine Securities and Exchange c) small entities
Commission (SEC) is the regulatory agency d) micro entities
charged with the supervision of the corporate
sector. Its function expands to the following: Large and/or publicly accountable entities are
• Regulation and registration of securities those that meet any of the following criteria:
• Development and regulation of the a) total assets of more than P350 million or
corporate and capital market toward good total liabilities of more than P250 million
corporate governance, protection of (Large Entities)
investors, widest participation of ownership b) are required to file financial statements
and decentralization of wealth. under Part II of SRC Rule 68
c) are in the process of filing their financial
Securities Regulation Code (SRC) Rule 68, statements for the purpose of issuing any
together with other official pronouncements, class of instruments in public market
interpretations and rulings on accounting and d) are holders of secondary licenses issued by
reporting matters, which may be issued by the regulatory agencies
SEC details the requirements applicable to the
form and content of financial statements
required to be filed with the SEC. Medium-sized entities are those that meet all
the following criteria:
a) total assets of more than P100 million to
The Reporting Entities under SRC Rule 68 P350 million or
Further, the same rule differentiates entities or b) liabilities of more than P100 million to P250
corporations depending on a quantitative million (for a parent reporting entity, the
threshold: amounts are consolidated figures)
c) are not required to file financial statements
1. Stock corporations with total assets or total under Part II of Rule 68
liabilities of P600,000 or more as prescribed d) are not in the process of filing their financial
by the Revised Corporation Code of the statement for the purpose of issuing any
Philippines. class of instrument in the public market
2. Non-stock corporation with total assets e) are not holders of secondary licenses issued
total assets or liabilities of P600,000 or by regulatory agencies
more as prescribed by the Revised
Corporation Code of the Philippines.
3. Branch offices/representative offices of Small entities are those that meet all the
stock foreign corporations with assigned following criteria:
capital of P1,000,000 or more.
4. Regional operating headquarters of foreign a) total assets of between P3 million and P100
corporations with total revenues of million or liabilities of between P3 million
P1,000,000 or more. and P100 million (for a parent reporting
entity, the amounts are based on
consolidated figures)
b) are not required to file financial statements c. a significant joint venture or associate that
under Part Il of Rule 68 is part of a group that is reporting under Full
c) are not in the process of filing their financial PFRS/IFRS
statements for the purpose of issuing any d. branch office or regional operating
class of instruments in the public market headquarter of a foreign company reporting
d) are not holders of secondary licenses issued under Full PFRS/IFRS
by regulatory agencies e. a subsidiary that is mandated to report
under Full PFRS/IFRS
f. an entity that has a short-term projection
Micro entities are those that meet all the that it will breach the quantitative threshold
following criteria: set in the criteria for a medium-sized entity,
a) total assets and total liabilities of less than provided that the event that caused the
P3 million change in classification is considered
b) are not required to file financial statements "significant and continuing"
under Part II of Rule 68 g. an entity that has a concrete plan to
c) are not in the process of filing their financial conduct an initial public offering within the
statements for the purpose of issuing any next two years
class of instruments in a public market h. an entity that has been preparing financial
d) are not holders of secondary licenses issued statement under Full PFRS/IFRS and decided
by regulatory agencies to liquidate
i. and other entities that the SEC may consider
Applicability of Philippine Financial Reporting as valid exceptions from mandatory
Frameworks adoption of PFRS for SMEs.

There are 4 financial reporting frameworks

widely used in practice. The use of these Reporting entities classified as small entities
frameworks will vary depending on the that meet criteria shall use the PFRS for Small
classification of the reporting entity. Entities as adopted by the Securities and
Exchange Commission.
a. Large and or publicly accountable entities
shall prepare their financial statements
using the full PRFS/IFRS.
Small entities that have operations or
b. Medium-sized entities shall use the
investments in another country with a different
PFRS/IFRS for SMEs as their framework.
functional currency shall apply instead the
PFRS/IFRS for SMEs or the Full IFRS/PFRS.
The following medium-sized entities may
choose to prepare their financial statements
However, small entities falling under any of the
using either the full PFRS/IFRS or PRFS/IFRS for
following, may at their option apply the
SMEs (Sec Memorandum Circular No. 5, s.
PPRS/IFRS for SMEs or Full PFRS/IFRS, instead
2018):
of PFRS for Small Entities (SEC Memorandum
a. a subsidiary of a parent reporting under the Circular No. 5, s. 2018):
full PFRS/IFRS
a. a subsidiary of a parent reporting under Full
b. a subsidiary of a foreign parent that will
PFRS/IFRS or PFRS/IFRS for SMEs
move towards the full PFRS/IFRS
b. a subsidiary of a foreign parent that will
move towards Full IFRS or IFRS for SMEs
c. a significant joint venture or associate that
is part of a group that is reporting under full
PFRS/IFRS or PFRS/IFRS for SMEs
d. a branch office or regional operating
headquarter of a foreign company reporting
under Full PFRS/IFRS PFRS/IFRS for SMEs
e. an entity that has a short-term projection
that it will breach the quantitative threshold
set in the criteria for a small entity, provided
that the event that caused the change in
classification is considered significant and
“continuing”
f. an entity that has a concrete plan to
conduct an initial public offering within the
next two years
g. an entity that has been preparing financial STATEMENT OF COMPREHENSIVE INCOME
statement under Full PFRS or PFRS for SMEs
Statement of Comprehensive Income
and has decided to liquidate
• Formerly known as Income Statement –
h. and other entities that the SEC may consider
showing the financial performance or the
as valid exceptions from mandatory
results of the operations for a period of
adoption of PFRS for Small Entities
time.
• Measures the profitability of the entity.
• Most useful to primary users.
Micro entities have the option of adopting
• Can also be used as a performance gauge of
either the PFRS for Small Entities or the income
management.
tax basis. The following, at a minimum, shall
compose the micro entities' financial
statements:
Approaches to Measurement of Profit:
a. Statement of Management's Responsibility Financial vs. Physical
b. Auditor's Report • Financial Capital Concept: measure profit as
the difference between the ending and
c. Statement of Financial Position
beginning capital, excluding transactions
d. Statement of Income with owners.

e. Notes to Financial Statements • Physical Capital Concept: measure profit as

the difference between the ending and
All these components must cover two-year beginning physical productive capacity of
comparative periods. the entity, excluding the effects of owner
transactions.
 The Transaction Approach 2. Gain or loss from translating FS of
foreign operations.
• Simply stated, Profit = Income less 3. Revaluation surplus changes during the
Expenses. year.
• Conventional, in conformity with IFRS. 4. UGL from derivative contracts
• Accrual basis of accounting. designated as CASH FLOW HEDGE.
• Provides classification of profit into 5. Actuarial gains/losses (remeasurement)
revenues and gains; classification of of DBP.
expenses into expenses and losses. 6. Change in FV attributable to credit risk
of a financial liability designated at FV
through profit or loss.
Elements of Financial Performance

• INCOME which encompasses REVENUES

Presentation of Other Comprehensive Income
and GAINS.
• EXPENSES which encompass EXPENSES and • Provided for by IAS 1, par. 82A –
LOSSES. presentation of line items for amounts of
- Associating Cause & Effect OCI in the period.
- Systematic and Rational Allocation • Line items for OCI grouped as:
Immediate Recognition o Reclassified subsequently to profit or
• Subject to applicable recognition loss.
principles/criteria set by accounting o Reclassified subsequently to retained
standards (e.g. IFRS 15). earnings.

Comprehensive Income • Reclassified subsequently to profit or loss:

1. Gain or loss from translating FS of a
• Change in equity during a period resulting
foreign operations.
from transactions and other events,
2. UGL on derivative contracts designated
excluding owner transactions.
as a cash flow hedge.
• TOTAL COMPREHENSIVE INCOME = Profit or
3. UGL on debt investments at FV through
loss and Other Comprehensive Income
OCI.
• Reclassified subsequently to retained
earnings:
Comprehensive Income: Other Comprehensive 1. UGL on equity investment at FV through
Income OCI.
• OCI comprises items of income and 2. Change in revaluation surplus.
expenses including reclassification 3. Remeasurements of defined benefit
adjustments that are not recognized in plan.
profit or loss. 4. Gain/Loss attributable to credit risk of a
• They meet the definition of income and financial liability designated at FV
expenses but not reported in profit or loss through profit or loss.
section.
• Components:
1. UGL during the period from investments • Two-statement approach:
in equity securities at FV through OCI or o Income statement showing the
debt securities at FV through OCI. components of profit or loss.
 o A statement of comprehensive income • IAS 1 also provides for circumstances that
beginning with profit or loss as shown in will lead to separate disclosures.
the income statement plus or minus the
components of other comprehensive
income. Items of Income and Expense Requiring
• Single-statement approach: Disclosures
o This is the combined statement showing
the components of profit or loss and • Write-down of inventory to NRV and
components of other comprehensive reversal of any write-down.
income in a single statement of • Write-down of PPE to recoverable amount
comprehensive income. and any reversal of write-down.
• Restructuring of the activities of an entity
and reversal of any provision for the cost of
Sources of Income restructuring.
• Disposal of an item of PPE.
• Sales of merchandise to customers. • Disposal of an investment.
• Rendering of services. • Discontinued operations.
• Use of entity resources. • Litigation settlement.
• Disposal of resources other than products. • Other reversal of provision

Components of expense Line items in the SCI

• Cost of goods sold. • Revenue
• Selling costs or Distribution costs. • Gain/Loss from derecognition of FA
• Administrative expenses. measured at amortized cost as required by
• Other expenses. IFRS 9
• Income tax expenses. • Finance cost
• Share of income/loss of associate and joint
venture accounted for under the equity
Prohibition of Extraordinary Items method
• Income tax expense
• IAS 1 prohibits the presentation of any item • Gain/Loss on reclassification of a FA from
of income or expense as extraordinary amortized cost to FV through P/L.
items, in the SCI, or in the notes.
• Gain or loss from reclassification of FA from
• Unusual or infrequent income and expense FV through OCI to FV through P/L
items – components of income from (cumulative amount in OCI is reclassified to
continuing operations. P/L)
• Single amount comprising discontinued
operations
• Profit or loss for the period
Separate Disclosure: Income and Expense • Other comprehensive income
• Comprehensive income for the period
• IAS 1 provides for items of income and
expense that are material, their nature and
amount should be disclosed separately. These items are required to be disclosed on the
face of the income statement and statement of
comprehensive income:
• Profit or loss attributable to non-controlling c. Is a subsidiary acquired exclusively with a
interest and owners of the parent. view to resale.
• Total comprehensive income attributable to
non-controlling interest and owners of the
parent. Component classified as held for sale
An entity shall present additional line items, • The discontinued operations is accounted
headings and subtotals when relevant. for as a disposal group classified as held for
sale.
• A disposal group is classified as held for sale
Presentation of Expenses if:
a. Must be available for immediate sale in
• Function of expense method its present condition and the sale is
- Cost of goods sold method. highly probable; and
- Presented according to their function b. Its carrying amount will be recovered
(i.e. selling/admin/others). principally through a sale rather than
- Can be arbitrary and excessive use of through continuing use.
judgment.
- Disclosure is necessary regarding nature
of expense.
Timing of Reporting
• Nature of expense method
- According to their nature (i.e. salaries, • A component of an entity classified as
depreciation, etc.) discontinued operation at the date:
- Grouped together and presented as a a. When the entity has actually disposed
single item. of the operation.
• Finance Cost b. When the operation meets the criteria
- Presented as a separate line item in to be classified as held for sale.
profit or loss. • Retroactive classification is prohibited
- From borrowings such as interest (should in case the criteria was met after
expense, discounts lost on mdse. reporting period).
Purchase, amortization of discounts,
and other ancillary costs to borrowings.
- Component of an Entity
DISCONTINUED OPERATIONS • “May be a subsidiary, a major line of
business, or geographical segment whose
operations and cash flows can be clearly
Discontinued Operations distinguished, operationally and for financial
reporting purposes, from the rest of the
According to IFRS 5, a discontinued operation is
entity.”
defined as a component of an entity that either
• Distinguished operationally = Directly
has been disposed or classified as held for sale
attributable to the component.
and:
• Assets, Liabilities, Income and Expenses are
a. Represents a separate major line of directly attributable if they would be
business or geographical area of operations. eliminated when the component is
b. Is part of a single coordinated plan to disposed.
dispose of a separate major line of business • A discontinued operations occur when the
or geographical area of operations. operations and cash flows of that
 component have been or will be eliminated STATEMENT OF CHANGES IN OWNER’S EQUITY
from the ongoing operations of the entity
and the entity will have no significant
involvement in the component after Equity
disposal.
• The residual interest in the asses of an
entity after deducting all liabilities.
• “Net assets”
Presentation in the Statement of
• Terms: Owner’s Equity; Partner’s Capital;
Comprehensive Income
Shareholder’s Equity.
• An entity will disclose a SINGLE AMOUNT • Corporation: Share capital; Share premium;
comprising of Retained earnings
1. Post-tax profit or loss of the
discontinued operation; and
2. Post-tax gain or loss recognized on the Statement of Changes in Equity
measurement to FV less CTS or on the
disposal of the assets or disposal group • A formal statement showing the
constituting the discontinued movements in the elements or components
operations. of the SHE.
• In short, the profit or loss from discontinued • Shall present the following:
operations will be presented as a single 1. Comprehensive income for the period
amount below the profit from continuing (P/L + OCI)
operations. 2. For each component of equity, the
effect of changes in ACCOUNTING
POLICIES and CORRECTION OF ERRORS.
Included are the following: 3. For each component of equity, a
reconciliation of beginning and ending
• The amount of revenue, expenses and balances for the period, disclosing
income or loss attributable to the DO during changes from:
the current period and the related income a. Profit or loss
tax. b. Each item of other comprehensive
• Impairment loss is recognized when the FV income
less CTS of the DO is lower than the carrying c. Transactions with owners in their
amount of the net assets. If FV less CTS is capacity as owners, showing
higher, the expected gain is not recognized. contributions by and distributions
• Any gain or loss from the actual disposal of to owners.
the assets and settlement of the liabilities of
a DO is recognized on the date of sale or
date of settlement. Statement of Retained Earnings
• The termination cost of employees and
other costs which are directly incurred as a • Shows the changes affecting directly the
result of the DO. retained earnings of the entity.
• Disclosed are the following:
1. Net income or loss for the period.
2. Prior period errors.
3. Dividends declared and paid to
shareholders.
4. Effect of change in accounting policy.
 5. Appropriation of retained earnings. • Examples:
1. Accounting for uncollectible accounts.
2. Inventory obsolescence
Items affecting Retained Earnings 3. Depreciation methods, RV, UL.
4. Warranty Cost
• Net income or loss for the period 5. FV of FA and FL.
• Prior period errors
• Dividends to shareholders
• Effect of change in accounting policy
How to account for changes in accounting
• Retirement of treasury shares
estimates?
• Conversion of preference shares into
ordinary shares • Currently and prospectively, including it in
the income/loss of:
1. The period of change (if it affects the
Retained earnings appropriated current period only).
2. The period of change and future periods
Appropriation is deducted from the (if it affects both).
unappropriated retained earnings because: • Adjustment to the carrying amount of
1. Legal requirements related asset, liability or equity in the period
2. Contractual requirements of change to the extent that a change gives
3. Board discretion rise to changes in assets/liab/equity.
• No restatement.
• Prospective application – application from
the date of change in estimate.

CHANGES IN ACCOUNTING POLICIES,

ESTIMATES, AND CORRECTION OF ERRORS Change in Accounting Policy

• ”Specific principles, bases, conventions,

Change in Accounting Estimate rules, and practices applied by an entity in
preparing and presenting financial
• IAS 8, par. 5 – “An adjustment to the statements.”
carrying amount of an asset or a liability, or • Essential – for proper understanding of info
the amount of the periodic consumption of in the FS.
an asset that results from the assessment of • IAS 1 requires entities to summarize
the present status and expected future significant accounting policies in the notes.
benefit and obligation associated with the • Consistent application of the accounting
asset or liability. policy for comparability, identification of
• Normally recurring adjustments when we trends in the position, performance, and
use reasonable estimates. cash flows.
• They occur when there are new information • Change in accounting policy is made only
or subsequent development of reportable when:
circumstances. 1. Required by accounting standards
• Difficulty is determining whether change in (involuntary).
estimate or change in accounting policy? 2. The change will result in a more
• TREAT AS IF CHANGE IN ACCOUNTING relevant and faithfully represented
ESTIMATES WITH APPROPRIATE information about the performance,
DISCLOSURE. position and cash flows (voluntary).
• Examples: 4. Comparative information is presented – the
1. Inventory cost flow assumption (FIFO, FS of the prior period presented shall be
W. Ave., M. Ave.). restated.
2. From cost model to FV model for PPE,
Investment Property, Intangibles.
• Not considered change in accounting policy: • Limitations on retrospective applications:
1. An application of accounting policy for 1. The effects of retrospective application are
events or transactions that differ in not determinable.
substance from previously occurring 2. The retrospective application require
events or transactions. assumptions about what management’s
2. Application of a new accounting policy intention would have been at that time.
for events or transactions which did not 3. The retrospective application requires
occur previously or that were significant estimate, and it is impossible to
immaterial. distinguish objectively information about
the estimate that:
a. Provides evidence of circumstances that
How to account for change in accounting existed at that time; and
policy? b. Would have been available at that time

1. According to transitional provisions if

required by accounting standards (if any).
2. If voluntarily, or there are no transitional • Prospective application? When?
provisions, applied RETROSPECTIVELY and 1. “The new accounting policy is applied to
events and transactions occurring after
RETROACTIVELY.
the date at which the policy is changed.”
2. If retrospective application is
IMPRACTICABLE (because they can’t
• Retrospective Application – applying the determine the cumulative effect of the
policy as if it had always been applied from change of accounting policy in prior
the start. periods).
• IAS 8, par. 22 – “An entity shall adjust the 3. If this is the case, no adjustments
opening balance of each affected relating to prior periods are made to the
component of equity for the earlier prior opening balance of RE or other equity
period presented and the comparative components.
amounts disclosed for each prior period
presented as if the policy had always been
applied.”

Prior Period Errors

1. Any resulting adjustment is an adjustment
• Misstatements, omissions in the FS for one
to the opening balance of RE.
or more prior periods arising from failure to
2. Amount of adjustment is based on the
use or misuse of reliable information that:
beginning of the year of change.
a. Was available when FS for those periods
3. An adjustment may be made to other
were authorized for issue.
components of equity other than RE in
b. Could reasonably expected to have
order to comply with an accounting
been obtained and taken into account in
standard.
the preparation and presentation of
financial statements.
• May be from mathematical mistakes, from
wrong application of accounting policies,
misinterpretation of facts, fraud or
oversight.

How to account for prior period errors?

1. Corrected retrospectively – adjusting the
opening balances of RE and affected assets
and liabilities.
2. If comparative FS are presented – FS of prior
period is restated to reflect retroactive
application of the prior period error as a
retrospective restatement.
3. If the error occurred before the earliest
prior period presented, the opening
balances of A, L, and E for the earliest prior
period is restated.
4. If impracticable to determine the
cumulative effect at the beginning of the
current period of an error on all prior
periods, must restate the comparative
information to correct the error
prospectively from the earliest date
practicable.