The Financial Reporting Standards Council (FRSC) approved on October 29, 2008 the immediate adoption of amendments to IAS 39, Financial Instruments: Recognition and Measurement, and IFRS 7, Financial Instruments: Disclosures: Reclassification of Financial Assets, issued by the International Accounting Standards Board (IASB) as amendments to Philippine Accounting Standard (PAS) 39 and Philippine Financial Reporting Standard (PFRS) 7. Adoption of the amendments enables Philippine entities applying PFRSs to avail of the allowed international accounting treatments.
The IFRS amendments are part of the IASB’s response to the credit crisis and aim to reduce differences between IFRSs and U.S. generally accepted accounting principles (GAAP). The IASB decided to issue the amendments without going through an exposure period in light of current market conditions.
The amendments introduce the possibility of reclassifications for companies applying IFRSs, which were already permitted under U.S. GAAP in rare circumstances. The IASB has indicated in its press releases that the deterioration of the world’s financial markets that has occurred during the third quarter of this year is a possible example of rare circumstances cited in these IFRS amendments.
The amendments to IAS 39 permit an entity to:
- reclassify non-derivative financial assets (other than those designated at fair value through profit or loss by the entity upon initial recognition) out of the fair value through profit or loss category if the financial asset is no longer held for the purpose of selling or repurchasing it in the near term in particular circumstances.
- transfer from the available-for-sale category to the loans and receivables category a financial asset that would have met the definition of loans and receivables (if the financial asset had not been designated as available for sale), if the entity has the intention and ability to hold that financial asset for the foreseeable future.
For Philippine financial reporting purposes, the amendments to PAS 39 are effective from July 1, 2008. Entities are not permitted to reclassify financial assets in accordance with the amendments before July 1, 2008. Any reclassification of a financial asset made in periods beginning on or after November 15, 2008 will take effect only from the date the reclassification is made.
The amendments to PAS 39 differ from the amendments to IAS 39 which uses a November 1, 2008 “cut-off date.” Since the FRSC only adopted the amendments on October 29, 2008, the Council decided to change the “cut-off date” for Philippine financial reporting purposes to November 15, 2008. The November 15, 2008 “cut-off date” approximates the period between October 13, 2008, the date when IASB amendments were issued, and November 1, 2008.
Philippine reporting entities should note that use of the November 15, 2008 “cut-off date” would not be in accordance with IFRSs. Accordingly, a Philippine entity that will present financial statements in accordance with IFRSs (e.g., for IPO purposes) would have to use the November 1, 2008 “cut-off date” in the IAS 39 amendments to be in compliance with IFRSs.