This was the assessment of Purita Fajilan, SEC consultant on accounting and auditing matters, once companies started writing off their foreign exchange losses in 2003 as required under the corporate watchdog agency’s new rules on financial reporting patterned after the IAS set by the London-based International Accounting Standards Council.
"Beginning next year, corporations will have to report the gains or losses arising from the restatement of foreign currency denominated loans to the current exchange rate. If the Philippine peso will not behave or will depreciate further, more companies will be incurring losses next year. The losses could even be bigger," Fajilan said.
Fajilan said effective January 2003, all companies filing financial statements with the SEC are required to immediately book their foreign exchange losses to show their true financial status.
At present, companies are able to capitalize their foreign exchange losses because they don’t have to write them off in the year which the loss was incurred. They can write off their losses in the succeeding years.
Under the IAS, corporations are obliged to write off their foreign exchange losses immediately.
Fajilan said companies like Manila Electric Co. and Philippine Long Distance Telephone Co. could end up a net loss in 2003 since both firms have relatively huge foreign exchange borrowings.
According to Fajilan, quite a number of corporations including PLDT had already begun to indicate in their financial statements the effects or the impact of their foreign currency-denominated liabilities to the current exchange rate.
The adoption of the IAS, used by most developed countries worldwide, is intended to align the financial reporting system of Philippine corporations with global accounting standards.
The move is also in line with efforts to ensure accurate, timely and quality information regarding a company’s financial status and performance is provided to the public.
Fajilan said the SEC is working with the Bangko Sentral ng Pilipinas, Bureau of Internal Revenue, Board of Accountancy, and the Professional Regulation Commission as well as other regulatory agencies and professional associations in attaining a high quality and independent audit environment.
For its part, the SEC will be coming out with a list of accredited external auditors which will be required to immediately report any fraud spotted in the course of audit.
The need to come up with a list of accredited auditing firms was due to the perceived close relationships of independent accounting firms with their clients. Most listed companies have been associated with their present auditor for over 10 years. Nevertheless, there were problems in the past among established companies about the quality of independent audit.
Audited financial statements contain the basic information about a company’s financial position and performance.
The SEC said while financial statements are primarily the responsibility of the management of the reporting corporation, the fairness and accuracy of the representations made therein are part of the independent certified public accountant’s responsibilities.
The commission will hold boards of corporations responsible for ensuring that the financial statements reflect the true financial health of a corporation.
Under its new rules, all corporations are required to submit a statement of management’s responsibility, signed by the chairman, that the board of directors performed its responsibility to pass upon or review the financial statements before the same were disseminated to the company’s stockholders.
The Enron case has highlighted the need to toughen up the country’s accounting rules. It has brought to light that corporate reports and corporate accounts can be meaningless unless accurate information are disclosed, and that companies can bloat their financial performance or conceal their activities in special arrangements and partnerships with their long-time external auditors.
As it moves to upgrade the country’s accounting standards, the SEC is seeking changes to the 1975 Revised Accountancy Law and the Professional Regulation Commission Act of 2000 to give more teeth in overseeing the operations of auditing firms.
SEC Chairperson Lilia R. Bautista said while the commission can set accounting rules and prescribe what information should be disclosed in the balance sheet and income statement of a corporation, the law is not clear on which regulatory agency should have jurisdiction over auditing firms.
Bautista noted that the Board of Accountancy is currently responsible for establishing accounting standards, and licensing and regulating the accounting profession while delegating some of its duties to the Philippine Institute of Certified Public Accountants.