The Monetary Board approved on 18 November 2005 the amendments to the accounting guidelines on the sale of non-performing assets (NPAs) to Special Purpose Vehicles and to qualified individuals for housing under “The Special Purpose Vehicle (SPV) Act of 2002”, in view of the adoption of the Philippine Financial Reporting Standards (PFRS)/Philippine Accounting Standards (PAS) effective the annual financial reporting period beginning 1 January 2005.
The amended Memorandum allows banks, for prudential reporting purposes to derecognize or remove from its books NPAs sold even if the sale does not qualify for derecognition under the provisions of the new accounting standards, provided that the transaction qualifies as a true sale under the SPV Law and its Implementing Rules and Regulations and the bank appropriately discloses such fact. Further, under the said Memorandum, banks shall continue to enjoy the regulatory incentive of deferred booking of losses.
“However, we wish to emphasize that banks are still required to comply with the provisions of the PFRS/PAS for purposes of preparing the audited financial statements. Availing of the regulatory incentives involves a trade-off in the sense that the audited financial statements may warrant a qualified opinion from external auditors. This is a business decision on the part of banks. Banks with strong balance sheets may very well opt not to defer booking of losses to avoid a qualified auditor’s opinion”, BSP Amando M. Tetangco, Jr. clarified.