Corporations are supervised by the Securities and Exchange Commission (SEC), whose mandate is to protect the investing public by
promulgating rules to ensure transparency and fair reporting. To that end, all corporations are required to submit audited financial
statements annually. Moreover, the SEC prescribes the form and content of these financial statements to ensure adequate disclosure
among these corporations.

What is a Financial Reporting Framework?

SRC (Securities Regulations Code) Rule 68 defines Financial Reporting Framework as a set of accounting principles, standards, interpretations, and pronouncements that must be adopted in the preparation and submission of the annual financial statements. There are three types of frameworks that are prescribed by SRC Rule 68, and these are:

1. Philippine Financial Reporting Standards (or “PFRS”, also equivalent to “IFRS”);
2. Philippine Financial Reporting Standards for Small and Medium Sized Entities (or “PFRS for SMEs”, also equivalent to “IFRS
   for SMEs), and
3. Philippine Financial Reporting Standard for Small Entities (or “PFRS for SEs”, with no international equivalent).

While all these frameworks have similar accounting policies, there are key differences among these three frameworks that must not be missed or overlooked by the preparer of the financial statements. Careful study of these differences must be made to ensure that the financial statements are compliant with the applicable financial reporting framework.

How to determine which framework must be adopted by a corporation?

SRC Rule 68 prescribes the size criteria for corporations to be classified into large, medium, small and micro. Corporations must assess their size to determine the applicable framework to be used in preparing their financial statements:

As a general rule, a corporation must adopt the applicable financial reporting framework according to its size. A large corporation cannot simply choose to adopt PFRS for SME nor PFRS for SE. Likewise, a medium sized entity or a small entity cannot voluntarily adopt PFRS without justifiable exemptions. What is an example of a such an exemption? When a medium sized entity or a small entity is a subsidiary of a parent company that adopts PFRS, then the subsidiary may be exempted from the prescribed framework and instead apply PFRS.

There is also a special type of corporation, called a public interest entity (PIE), which SRC Rule 68 requires to adopt PFRS as its financial reporting framework, regardless of size. A PIE may refer to any the following regulated corporations:

1. Holders of secondary licenses,
2. Those covered under Part II of the SRC Rule 68 such as:
   1. Filers of registration statements (under Section 12 of the SRC),
   2. Issuers of registered securities (under Section 12 of the SRC),
   3. Issuers of publicly listed securities, and
   4. Issuers with assets of at least ₱50 million and has 200 or more shareholders holding at least 100 shares of a class as of its first day of the issuer’s fiscal year (also called Public Companies)
3. Entities in the process of filing their financial statements for the purpose of issuing any class of instruments in a public
   market; and
4. Such other corporations that are imbued with public interest regardless of having required to obtain a secondary license:
   1. Grantees of legislative franchises,
   2. Those engaged in nationalised and partly nationalised activities,
   3. Grantees or recipients of public funds, and
   4. Those regulated by other government entities other than the Bangko Sentral ng Pilipinas or the Insurance Commission.

As to the fourth item, the SEC has yet to issue specific guidelines to identify which corporations are considered as imbued with public
interest.

Feel free to contact us so we can assist you in determining the applicable financial reporting framework for your entity.