SEC urges greater transparency in financial statements of listed firms

The Securities and Exchange Commission has urged listed corporations to highlight in their financial statements any ongoing concern which could affect their financial viability to apprise the public of their real financial health.

SEC general accountant Roberto Manabat said any ongoing concern pertaining to the financial problems of listed corporations should be emphasized to ensure a fair and transparent market. "Any material information should be highlighted in the financial statements. Do not bury it. There are some companies which put the net loss in the last page of their financial reports and take note that not all investors bother to read all the notes in the FS," Manabat said.

Manabat said companies that have ongoing concerns are those undergoing rehabilitation and under debt restructuring.

Based on the 2001 financial statements filed with the SEC, the corporations with ongoing concerns include MRC Allied Industries Inc., Universal Rightfield Properties Inc., C&P Homes Inc., Itogon Suyoc Mines Inc., Victorias Milling Co. Inc., Zeus Holdings Inc., Music Semiconductors Inc., RFM Foods Inc., Philippine Telephone & Telegraph Inc., and DMCI Holdings Inc.

Audited financial statements contain the basic information about a company’s financial position and performance.

With the SEC bent on adopting international accounting standards (IAS), more companies with large foreign exchange borrowings are expected to be in the red or incur even higher losses beginning this year.

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.

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 possibly end up with 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 is intended to align the financial reporting system of Philippine corporations with global accounting standards. The IAS is used by most developed countries worldwide.

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.

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 adult environment.

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 it more teeth in overseeing the operations of auditing firms.

While the SEC 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.

The Board of Accountancy is currently responsible for establishing and improving accounting standards, and licensing and regulating the accounting profession while delegating some of its duties to the Philippine Institute of Certified Public Accountants.