The Securities and Exchange Commission postponed for three years the adoption of new accounting standards to provide relief to the real estate industry.
The regulator issued Memorandum Circular No. 14 which deferred the application of the Philippine Interpretation Committee 2018-12 with respect to the accounting for significant financing component, uninstalled materials and exclusion of land in the calculation of percentage of completion, for a period of three years.
It said that during the period of deferral, real estate companies would be allowed to include land in the calculation of percentage of completion only as historical acquisition cost.
It said uninstalled materials would be included in the calculation of percentage of completion wok accomplishment of significant building components procured which are specifically and directly identifiable to the project as long as they are covered by contracts, purchase orders and partially paid for.
These include structural, architectural, mechanical, electrical, plumbing/sanitary and fire protection materials.
The percentage of completion is important to real estate compass as this addresses the timing of revenue recognition for residential projects under pre-completion stage, it said.
The SEC said the impact of the significant financing component in the contract to sell would not be considered during the period of deferral.
Under the PRFS No. 15, real estate developers are required to recognize interest expense on the advance payment of a buyer if the buyer pays ahead of the percentage of completion of the project.
If the percentage of completion of the project is ahead of the buyer’s payment, then real estate companies will be allowed to recognize interest income on the unpaid amount.
The SEC said the company which would opt for the deferral would be required to disclose in the financial reports a discussion on the deferral and discussions on the impact in the financial statements, if the the deferred accounting standard had been adopted.
It said the deferral would only be applicable to real estate transactions. It said that by 2021, the required accounting standards under the PIC 2018-12 would be adopted.
The Financial Reporting Standards Council, the Board of Accountancy and the Professional Regulation Commission early this year approved the PIC 2018-12 which outlines the guidance on some implementation issues affecting the real estate industry brought about by the adoption of the Philippine Financial Reporting Standard No. 15.
Real estate companies, however, raised concerns on over the impact of PFRS No 15 and PIC 2018-12 on their financial reports.