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2010 Manabat Sanagustin & Co.

, CPAs, a Philippines partnership and a member firm of the KPMG network of


independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All
rights reserved.
Philippines
Accounting

FUNDS AND FUND MANAGEMENT 2010
1.1 Requirement to produce financial statements
Requirement to maintain the books and records in the local
jurisdiction
The Securities and Exchange Commission (SEC) and the Bureau of Internal
Revenue (BIR) require entities that manage investment funds to maintain
accounting books and records. Any entity engaged in banking or quasi-banking
functions that manages a fund is also under the supervisory authority of the
Bangko Sentral ng Pilipinas (BSP). The supervisory powers of the BSP are
primarily focused on the fact that an entity is engaged in banking and/or quasi-
banking functions and not on the fund managed itself (Section 4 of the General
Banking Law of 2000, Republic Act No. 8791).
1.2. Production of financial statements by collective
investment funds
Collective investment funds are required to produce financial statements as
part of the annual financial statutory reporting to the SEC and the BIR. (It is
assumed that the term collective investment funds is interchangeable with
investment funds or funds.) If the entity managing the fund is a bank or a quasi-
bank, it is under the supervision of the BSP and will have to comply with any
other BSP supervisory requirements aside from the documents required by the
SEC and the BIR. In addition, companies that are listed in the stock exchange,
among others, are further required to submit unaudited interim financial
statements every quarter to the same authorities.
Every corporation, domestic or foreign, shall submit to the SEC an annual report
of its operations, together with a financial statement of its assets and liabilities
as required under the Corporation Code, the Securities Regulations Code (SRC)
and the special rules on financial reporting. In particular, for issuers of securities
listed for trading in the Philippine Stock Exchange (PSE), an audited annual
report and three quarterly reports for the first three quarters, which need not be
audited, must be submitted based on the form which the SEC prescribes.
Based on SRC Rule 68 As Amended, the following are the required basic
financial statements:
2 Philippines Accounting
2010 Manabat Sanagustin & Co., CPAs, a Philippines partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All
rights reserved.
Balance sheet,
Income statement,
Statement of changes in equity,
Cash flow statement,
Notes to financial statements (accounting policies and explanatory notes).
The management of the reporting company is responsible for the preparation of
financial statements. The Board of Directors, in discharging its responsibilities,
reviews and approves the financial statements before these are submitted to
the stockholders.
A Statement of Managements Responsibility for Financial Statements must
accompany the financial statements. It basically states that management
accepts the responsibility for the statements and that the financial statements
have been prepared in conformity with generally accepted accounting principles
in the Philippines and reflect amounts that are based on the best estimates and
informed judgment of management with appropriate consideration to
materiality.
The Statement of Managements Responsibility for Financial Statements is
required to be signed by the following:
Chairman of the Board
Chief Executive Officer
Chief Financial Officer (assuming the CFO is also a director)
In the case of public companies or the following companies covered by SRC
Rule 68.1, the foregoing must sign the statements under oath:
issuer which has sold a class of their securities pursuant to a registration
under Section 12 of the SRC;
issuer with a class of securities listed for trading on an exchange; and
issuer with assets of at least PHP 50 million or such other amount as the
Philippine SEC shall prescribe and having 200 or more holders each holding
at least 100 shares of a class of its equity securities as of the first day of
the issuers fiscal year.
3 Philippines Accounting
2010 Manabat Sanagustin & Co., CPAs, a Philippines partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All
rights reserved.
Choice of period/year-end for collective investment funds
Collective investment funds are allowed to choose their year end. However,
once a choice is made, it cannot be changed without prior approval of a
majority of its shareholders.
Requirement for comparatives
Presentation of financial statements in comparative format is required. The
comparative period requirements per type of financial statements are provided
in Implementing Rule 68 of the Securities Regulation Code.
Annual reports should include consolidated balance sheets in comparative
format, as of the end of each of the two most recent completed fiscal years.
The income statement, cash flow statement and statement of changes in
equity should be in comparative format for the three most recent completed
fiscal years or such shorter period as the company (including predecessors) has
been in existence.
Restrictions on the currency under which financial statements must be
prepared
Philippine generally accepted accounting principles (GAAP) require that a single
reporting currency be incorporated in the financial statements. For Philippine
entities, the standard reporting currency is the Philippine Peso (PHP). If foreign
transactions are involved, then the applicable exchange rate existing at the time
of the transaction must be applied.
On 11 December 2003, the Philippine SEC issued Memorandum Circular No.
14, which effectively allowed the use of functional currency regulatory
reporting by Philippine-registered companies. The functional currency is
generally defined as the currency of the primary economic environment in
which an entity operates. It may, therefore, be a currency other than the PHP.
Adoption of functional currency regulatory reporting is not automatic. Any
entity that intends to adopt functional currency reporting must first obtain the
prior approval of the Philippine SEC.
The Philippine Bureau of Internal Revenue (BIR), through its rulings, has so far
only allowed the use of functional currency financial statements in U.S. Dollars
and in Japanese Yen for income tax reporting purposes. Tax returns and tax
payments are; however, still required by the Philippine BIR to be completed
and paid in PHP.
Accounting publications specific to the funds industry (as issued by
accounting bodies or the regulators)
Presently, the accounting bodies and regulators have no accounting
publications specific to the funds industry.
4 Philippines Accounting
2010 Manabat Sanagustin & Co., CPAs, a Philippines partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All
rights reserved.
1.3. Use of short-form accounts
There is no legislation on short-form accounts.
1.4. Umbrella schemes
For corporate entities, financial statements must be prepared for the company
as a whole. The details of each sub-fund must be integrated within the financial
statements. There is no specific or express requirement that financial
information be provided for each sub fund.
There is also no specific requirement to produce separate financial statements
for each sub-fund However; separate financial statements may be produced for
each sub-fund voluntarily.
Classes of shares
Financial statements are required to present all classes of shares.
There is no requirement to produce financial statements for each class of
share.
1.2 Requirement to audit financial statements
Sec.141 of the Corporation Code of the Philippines and Sec.7 of the Securities
Regulation Code require annual financial statements to be audited by
independent certified public accountants.
There is no requirement that interim financial statements must be audited.
The audit of annual financial statements must be conducted by an independent
certified public accountant who must be a Filipino citizen. The auditors report
shall state whether the examination was made in accordance with generally
accepted auditing standards (GAAS) [such as Philippine Standards on Auditing
issued by the Philippine Auditing Standards and Practices Council (ASPC)].
External auditors of public companies or companies covered by the above-
mentioned SRC Rule 68.1 must be accredited by the SEC (effective for audited
financial statements for the year ending 30 June 2003 and thereafter).
However, pursuant to SEC Memorandum Circular No. 13, Series of 2003, the
accreditation requirement for external auditors has been expanded to include
secondary licensees of the SEC.
5 Philippines Accounting
2010 Manabat Sanagustin & Co., CPAs, a Philippines partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All
rights reserved.
1.3 Publication of financial statements
Financial statements must be filed with the SEC, which is the government
entity having the jurisdiction and power of supervision over investment fund
entities.
There is no requirement for the publication of the financial statements of
collective investment funds. However, as the audited annual financial
statements are filed before the SEC, they are considered public record that
may be accessed upon formal request during regular business hours.
The annual audited financial statements must be filed before the SEC within
105 days from the end of the fiscal year as specified in the by-laws. These
statements must first have been filed and acknowledged by the Philippine
Bureau of Internal Revenue prior to filing with the SEC. The same period (that
is, 105 days) is also required for the filing of annual audited financial statements
before the PSE for publicly listed companies. Listed collective investment funds
must also file quarterly financial statements with the PSE within 45 days of the
end of each quarter.
1.4 Accounting standards
Financial statements filed with the Philippine SEC shall be in accordance with
Philippine Financial Reporting Standards (PFRS) which are are essentially the
same as the International Financial Reporting Standards (IFRS) and related
interpretations issued by the Philippine Accounting Standards Council (ASC)
and which are adopted by the SEC as part of its rules and regulations.
IFRS has been adopted for implementation by the Philippine Accounting
Standards Council.
It should also be noted that, prior to the adoption of IFRS by the Philippine ASC,
GAAP applied in the Philippines was substantially based on U.S. GAAP.
Based on SRC Rule 68, the following is the hierarchy of Philippine GAAP:
Pronouncements issued by the Philippine SEC.
Pronouncements issued by the Philippine ASC.
Standards issued by the International Accounting Standards Board (IASB).
Accounting principles and practices for which there is a long history of
acceptance and usage.
1.5 Contents of financial statements
Requirement for inclusion in annual financial statements:
6 Philippines Accounting
2010 Manabat Sanagustin & Co., CPAs, a Philippines partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All
rights reserved.

Required by
law
Required by
GAAP
(Philippines)
Complied
with for Best
Practice
A statement which
includes all income
less expenses plus
realised and
unrealised gains
and losses
Yes Yes Yes
A statement which
only includes
income less
expenses
No No No
A statement which
only includes
income less
expenses plus
realised gains and
losses
No No No
Statements of net
assets and
Liabilities
Yes Yes Yes

Statement of
changes in net
assets
Yes
(statement of
changes in
equity)
Yes
(statement of
changes in equity)
Yes
(statement of
changes in
equity)
Cash flow
statement
Yes Yes Yes
Statement of
accounting policies
Yes Yes Yes
3 year net asset
value table
No No Yes
5 year net asset
value table
No No No
1.6 Accounting treatments and disclosures
The following items must be included in the annual financial statements:

Required by
law
Required by
GAAP
(Philippines)
Complied
with for Best
Practice
Futures are shown
on balance sheet
using the grossed
up notional amount
No No No
Futures are shown
on the balance
sheet based on the
margin outstanding
No No No
7 Philippines Accounting
2010 Manabat Sanagustin & Co., CPAs, a Philippines partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All
rights reserved.

Required by
law
Required by
GAAP
(Philippines)
Complied
with for Best
Practice
Futures are shown
on the balance
sheet based on the
margin outstanding
and the margin paid
to date
No No No
Organisation costs
are written off
immediately
SEC Yes
BIR No
Yes Yes
Organisation costs
are amortised over
one year
No No No
Organisation costs
are amortised over
more than one year
BIR Yes
SEC No
No No
Issue costs are
charged to the
statement of
operations
No Yes Yes
Issue costs are
netted off against
creation proceeds
No No No
Contingent
deferred sales
charges are
recorded as income
No No No
Contingent
deferred sales
charges are netted
off against
redemption
proceeds
No No No
Appendix
Reference material
The following details the relevant laws and regulations for collective investment
funds and fund management companies and provides Web addresses (in
certain instances) for where this material can be located:
Corporation Code of the Philippines (Batas Pambansa Blg. 68)
Securities and Regulation Code (Republic Act No.8799)
8 Philippines Accounting
2010 Manabat Sanagustin & Co., CPAs, a Philippines partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All
rights reserved.
Investment Company Act, as amended (Republic Act No. 2629)
Implementing Rules of the Securities Regulation Code
Accredited Professional Organization for Filipino Accountants
Philippine Institute of Certified Public Accountants (PICPA): www.picpa.com.ph
Accounting/auditing pronouncements
The Philippine Accounting Standards Council (ASC)
Philippine Auditing Standards and Practices Council (ASPC)
Regulators
Securities and Exchange Commission: www.sec.gov.ph
Banko Sentral ng Pilipinas: www.bsp.gov.ph
Stock exchange
Philippine Stock Exchange: www.pse.com.ph
Taxation authority
Philippine Bureau of Internal Revenue: www.bir.gov.ph
KPMG in the Philippines
Ernesto Diaz
KPMG Manabat Sanagustin & Co.
The KPMG Center , 9 / F 6787 Ayala Avenue
Manila
1226
Philippines

Tel. +63 (2) 885 7000
Fax +63 (2) 816 6595
e-Mail: etdiaz@kpmg.com

The information contained herein is of a general nature and is not intended to
address the circumstances of any particular individual or entity. Although we
endeavor to provide accurate and timely information, there can be no guarantee
that such information is accurate as of the date it is received or that it will
continue to be accurate in the future. No one should act upon such information
without appropriate professional advice after a thorough examination of the
particular situation.