SEC defers new reporting rules for real estate firms to next year

By Denise A. Valdez
Reporter

THE Securities and Exchange Commission (SEC) is allowing real estate companies to defer the implementation of reporting guidelines on over time transfer of constructed goods.

Memorandum Circular No. 4, which the SEC issued on Feb. 21, provided relief for real estate firms until the end of the year in following the agenda decision of the International Financial Reporting Standards (IFRS) Interpretations Committee (IFRIC).

But starting Jan. 1, 2021, real estate firms will be required to adopt the IFRIC interpretations of the guidelines and any amendments retrospectively, or as the SEC will later prescribe.

“The above relief shall form part of PFRS (Philippine Financial Reporting Standards) for the purpose of preparing and filing general-purpose financial statements with the commission,” the circular said.

To recall, the IFRIC issued an agenda decision in March 2019 agreeing with the requirements in Philippine Accounting Standards (PAS) 23 on borrowing costs. PAS 23 says borrowing costs directly attributable to the acquisition, construction or production of an asset is considered part of its cost, not expense, as a qualifying asset must take a substantial period of time to get ready for use or sale.

“[PAS 23] does not require the capitalization of borrowing costs relating to assets measured at fair value, and inventories that are manufactured or produced in large quantities on a repetitive basis, even if they take a substantial period of time to get ready for use or sale,” it said.

However, the SEC said there were issues raised by the real estate industry about following the IFRIC interpretations. It requested to defer the implementation “to thoroughly study the possible impact to the operation and financial reporting of real estate companies.”

Even as the SEC granted this request until Dec. 31, it said other real estate companies may already start full compliance with the requirements of the IFRIC interpretations.

Those that are delaying it to next year will be asked to provide in its “Notes to the Financial Statements” the accounting policies it applied, a discussion of the decision to defer implementation of the IFRIC interpretations, and a qualitative discussion on the changes in the financial statements should it have applied the IFRIC interpretations.

If deferring the implementation results in an accounting policy change, the circular said this would have to be accounted for as well and provided with the corresponding required quantitative disclosures.

Sought to comment on the circular, Philstocks Financial, Inc. Research Associate Piper Chaucer E. Tan said the guidelines may help real estate firms post a higher bottomline.

“It’s positive for real estate companies since recognizing fewer cost means the net income will be overstated,” he said in a text message.