SEC finalizes rules on forex denominated financial reports

The Securities and Exchange Commission (SEC) has finalized its rules on the submission of foreign currency denominated financial reports.

The rules allow corporations with 70 percent of their revenues, cost and expenses paid in a currency other than the peso, to file financial reports in dollars or other foreign currencies starting Jan. 1, 2004.

The issuance of the rules is in light of the ruling issued by the Bureau of Internal Revenue (BIR) allowing companies to use dollars and Japanese yen in presenting their financial statements.

In addition, the Philippines is moving towards the adoption of International Financial Reporting Standards in accordance with the globalization of financial reporting structures. IFRS recognizes the concept of functional currency which may be different from the currency of the country in which the company is domiciled.

The rules are also intended to "more clearly reflect income considering that the use of Philippine pesos results in foreign exchange gains or losses which may distort the real financial condition of companies whose transactions are denominated and settled in foreign currency," the SEC said.

Under the guidelines, any qualified entity presenting functional currency (other than the Philippine peso) financial statements is required to restate its prior year financial statements as if the company had been booking its transactions in prior years using such currency.

Companies may opt to maintain multi-currency books of accounts to keep track of both the functional currency transactions and Philippine peso transactions in order to facilitate reporting requirements for other regulatory bodies.

Non-monetary items that are measured at fair value in a foreign currency shall be translated using the exchange rates at the date such fair value was determined.

Qualified entities are also required to disclose in their financial statements the amount of exchange differences included in net profit or loss for the period. They must also disclose net exchange differences charged or credited to retained earnings or otherwise classified as equity as a separate component of equity and a reconciliation of the amount of such exchange differences at the beginning and end of the period.

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 starting next year.

All companies filing financial statements with the SEC are required to immediately book their foreign exchange losses to show their true financial status.

Under the IAS, corporations are obliged to write off their foreign exchange losses immediately.

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.

It 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.– Zinnia dela Peña