PFRS for Small Entities: A Simplified Framework for Philippines’ Micro and Small Businesses

By: Ivan Marx Olarte, CPA
The Philippine economy is composed of more than 90% of micro and small enterprises. Like the bigger businesses, these smaller entities are mandatory as well to submit financial reports to the tax authorities and other applicable government agencies like the Securities and Exchange Commission (SEC). However, the struggle of complying with the required financial reporting standard has been there for quiet long, causing these smaller businesses to just ignore the requirements rather than comply due the complex nature of the available financial reporting frameworks.
To recognize the significant contributions of these business players, the standard setting bodies in the Philippines developed a more simplified and more tailored standards to meet the financial reporting needs of small entities, these standards promote easier application of accounting concepts to specific business transactions.
Through the joint efforts of the Financial Reporting Standards Council (FRSC), the Board of Accountancy (BOA), Technical Working Group and Securities and Exchange Commission (SEC) the simplified reporting framework for small entities was successfully crafted in 2017 giving birth to Philippine Financial Reporting Standards (PFRS) for Small Entities.
 
Facts about PFRS for Small Entities
When is a business considered a small entity?
Based on SEC Memorandum Circular 5-2018, an entity is considered a small entity if, and only if, it satisfies ALL of the following criteria:
  • It has total assets or total liabilities between Php3,000,000 to Php100,000,000. If the entity is a parent company, the said figures shall be based on the consolidated amount; and,
  • It does not have public accountability.
Not having public accountability simply means that the shares of the business is not traded in any stock exchange, and it is not in the process of offering its shares to the public through an initial public offering. It must also not have any secondary licenses from SEC.
Given the following criteria, it would apply mostly on closely held family corporations, partnerships and sole proprietor businesses provided they are within the range of the total assets or liabilities as provided above.
 
Who are exempted from using the PFRS for Small Entities?
All entities meeting the abovementioned criteria SHALL use the PFRS for Small Entities in preparing their financial statements. However, any of the conditions listed below will exempt an entity from using the PFRS for Small Entities:
  • A small entity has a different functional currency (i.e., it operates in the Philippines, but prepares its financial statements in a different currency, say, US dollar); or,
  • A small entity is either:
                    o   a part of a group reporting under a different reporting standard (i.e., PFRS for SMEs or full PFRS);
                    o   a branch of a foreign company reporting under a different reporting standard;
                    o   expected to breach the threshold significantly for the following reporting periods; or
                    o   a liquidating concern which has prepared its financial statements using a different reporting standard.
Please note that all entities availing of the exemption mentioned above shall disclose in the notes to financial statements its adoption of a different reporting standard. In addition, entities mandated to use PFRS for Small Entities but opted to use a different accounting standard must explain in its notes the reason for departure from the standard.
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum and participate therein.
Updates

REPUBLIC ACT NO. 12066 – CREATE MORE ACT

Revenue Memorandum Circular No. 115-2024

Revenue Memorandum Circular No. 113-2024

8 Features of Republic Act No. 12023 – VAT on Digital Services Law Philippines

Republic Act No. 12023 – VAT on Digital Services Philippines

7 Features of Staff Leasing in the Philippines

Revenue Memorandum Circular No. 109-2024
Seminar Schedules
Oct 09 - Oct 10, 2024

Live Weninar: How to analyze Financial Statements Accounting for Correct Business Decision Making?
Oct 11, 2024

Onsite Training: Basic Bookkeeping for Non-Accountants
Oct 15, 2024

Live Webinar: SEC Dividend Declarations
Oct 16, 2024

Live Webinar: Returns and Reports Preparation under eBIR Forms and Online Submissions
Oct 29 - Oct 30, 2024

Live Webinar: Value Added Tax: In and Out
Nov 12, 2024

Onsite Seminar: BIR Examination: Their Procedures and Our Defenses
Nov 13, 2024

Live Webinar: Ease of Paying Taxes Highlights with CPD Credits
Nov 14, 2024

Live Webinar: Input VAT Refund
Nov 20 - Nov 21, 2024

Live Webinar on Ph Payroll Computations and Taxation
Nov 26, 2024

Live Webinar: Understanding Invoices and Invoicing under EOPT with CPD Credits
Contact Us
Please enable JavaScript in your browser to complete this form.
Contact Our Consultants
Check our Youtube Channel

Search our website:

Contact Us

Tax and Accounting Center,. Inc.
U1509 Cityland Hererra Tower I, 98 V. A. Rufino St. cor. Ayala Avenue, Brgy. BelAir, 1227 Makati City, Metro Manila

Phone :
(02) 5310-2239

Mobile :
Smart: 0939-916-2952
Globe: 0967-497-4989

Email : info(@)taxacctgcenter.ph

Government Links

Affiliate

G. Pagaspas Partners & Co. CPAs

Newsletter Sign Up

Get the latest updates and news direct to your mailbox!

© Tax and Accounting Center 2024. All Rights Reserved

error: Content is protected !!