Request for Comments on the Exposure Draft of the MNRC Memorandum Circular on the Standard Chart of Accounts for Microfinance NGOs

July 18, 2019 MICROFINANCE NGO REGULATORY COUNCIL TO : Microfinance NGOs, Microfinance NGO Clients, Microfinance Industry Stakeholders and All Interested Parties SUBJECT : Request for Comments on the Exposure Draft of the MNRC Memorandum Circular on the Standard Chart of Accounts for Microfinance NGOs NOTICE During its 27th Meeting held on 17 July 2019, the Microfinance NGO Regulatory Council ("MNRC" or the "Council") approved for public exposure the Draft MNRC Memorandum Circular on the Standard Chart of Accounts for Microfinance NGOs. The Council is inviting microfinance NGOs, their clients, industry stakeholders and all interested parties to submit their written comments on the attached draft circular (with annex) to the MNRC Secretariat through any of the following modes no later than 09 August 2019 : Letter MNRC Secretariat SEC Corporate Governance and Finance Department Ground Floor, North Wing Hall, Secretariat Bldg. PICC Complex, Vicente Sotto St. 1307 Pasay City Email [emailprotected] Fax No. (02) 818-5990 Please use the attached Comments Table in submitting comments and proposed revisions. ATTACHMENTS Memorandum Circular No. __ Series of 2019 STANDARD CHART OF ACCOUNTS FOR MICROFINANCE NGOS Whereas , under Section 11 of Republic Act ("RA") No. 10693, otherwise known as the " Microfinance NGOs Act ," the Microfinance NGO Regulatory Council ("MNRC") is an accrediting entity empowered to require the regular submission of reports by Microfinance NGOs ("MF-NGOs") as it may deem appropriate; Whereas , MNRC Memorandum Circular Nos. 1, 2 and 4, series of 2018 require MF-NGOs to submit a Certification from the Chairperson of the Board of Trustees, President and Chief Financial Officer or his/her equivalent, indicating the adoption of the Standard Chart of Accounts, in the submission of the 2018 Audited Financial Statements and every year thereafter; Whereas , Rule 7, Section 1 of the Implementing Rules and Regulations of R.A. No. 10693 requires MF-NGOs to continue to adopt the standard chart of accounts widely used by MF-NGOs until a new standard chart of accounts shall have been prescribed by the Council; Whereas , Certificates of Accreditation effective for three (3) years have already been issued and are still being issued by the MNRC for the year 2019 and every year thereafter; Whereas , Rule 68, as amended, of R.A. No. 8799, otherwise known as the " Securities Regulation Code ," states that the financial statements prepared and filed by entities covered by the Rule shall be in accordance with the following financial reporting framework, and based on the criteria provided hereunder: (1) Philippine Financial Reporting Standards ("PFRS") for Large and/or Publicly-accountable Entities; (2) PFRS for Small and Medium-sized Entities ("SMEs") for SMEs; and (3) Income tax basis, accounting standards in effect as of 31 December 2004 or PFRS for SMEs for Micro Entities. Now Therefore , the following are hereby promulgated: 1. The MNRC adopts the financial reporting framework provided for by Part I, Section 2 (A), Rule 68, as amended, of R.A. No. 8799 in the case of MF-NGOs; and 2. The Standard Chart of Accounts (attached hereto as Annex 1 and made an integral part of this Memorandum Circular) shall be used by the MF-NGOs beginning taxable year 2020. This Circular shall take effect fifteen (15) days after its publication in two (2) newspapers of general circulation in the Philippines. Issued this ____________, _____________. EMILIO B. AQUINO Chairperson ANNEX 1 Standard Chart of Accounts for Microfinance NGOs A. STATEMENT OF FINANCIAL POSITION CODE NB ACCOUNT TITLE ACCOUNT DESCRIPTION ASSETS An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. The future economic benefit embodied in an asset is the potential to contribute directly and indirectly, to the flow of cash and cash equivalents to the entity. Those cash flows may come from using the asset or from disposing of it. CURRENT ASSETS An entity shall classify an asset as current when: a) it expects to realize the asset, or intends to sell or consume it, in the entity's normal operating cycle; b) it holds the asset primarily for the purpose of trading; c) it expects to realize the asset within twelve months after the reporting date; or d) the asset is cash or a cash equivalent, unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date. Current assets that are sold, consumed or realized as part of the normal operating cycle even when they are not expected to be realized within 12 months after the reporting period. The operating cycle of an entity is the time between the acquisition of assets for processing and their realization in the form of cash or cash equivalents. When the entity's normal operating cycle is not clearly identifiable, its duration is assumed to be 12 months. 1-01-00-00-00 DR CASH AND CASH EQUIVALENTS Cash is cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. Investments normally only qualify as cash equivalent if they have a short maturity of three months or less from the date of acquisition. Financial instruments can only be included if they are in substance cash equivalents, e.g. , debt investments with fixed redemption dates acquired within a short period of their maturity. 1-01-01-00-00 DR Cash on Hand This represents the total amount of undeposited collections in the custody of the cashier. This includes undeposited cash collections or cash items awaiting deposit such as client's check, cashier's or manager's checks, traveler's checks, bank drafts and money orders. 1-01-02-00-00 DR Petty Cash Fund This account represents fund set aside for small expenditures such as supplies and fares. It is maintained under an Imprest System and should be replenished when the fund is near depletion or reaches a certain minimum balance. 1-01-03-00-00 DR Cash in Bank Cash held in a bank account that handles the bank transactions of an MF-NGOs. This account refers to money deposited in the bank under the name of the MF-NGOs, i.e. , savings and current, which may be restricted or unrestricted and available for use in the operations. 1-01-04-00-00 DR Cash Equivalents This account refers to short-term, highly liquid investments that are readily convertible into known amount of cash and which are subject to an insignificant risk of changes in value. An investment normally qualifies as a cash equivalent only when it has a short maturity of three (3) months or less from the date of placement. 1-02-00-00-00 DR SHORT TERM INVESTMENTS Any financial debt instrument where return to the MF-NGOs is a fixed/variable amount or a fixed/variable rate of return over the life of the instrument. These include time deposit with maturities more than 3 months but less than 12 months. 1-02-01-00-00 DR Investment in Shares These are investment in non-convertible preference shares and non-puttable ordinary shares or preference shares. 1-02-02-00-00 DR Investment in Bonds These Investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which the MF-NGOs management has the positive intention and ability to hold to maturity. These Investments are maturing for the following 12 months after the date of Statement of Financial Position. 1-03-00-00-00 DR FINANCIAL ASSET AT FAIR VALUE THROUGH PROFIT OR LOSS (FVPL) This is the classification of financial instruments that are held for trading or for which the entity's business model is to manage the financial asset on a fair value basis, i.e. , to realize the asset through sales as opposed to holding the asset to collect contractual cash flows. This category represents the "default" or "residual" category if the requirements to be classified as amortized cost or Fair Value through Other Comprehensive Income (FVOCI) are not met. All derivatives would be classified as at Fair Value through Profit or Loss. 1-03-01-00-00 CR Allowance for Impairment Losses An impairment loss occurs when the carrying amount of an asset exceeds its recoverable amount. 1-04-00-00-00 DR FINANCIAL ASSET AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME This is the classification for financial instruments for which an entity has a dual business model, i.e. , the business model is achieved by both holding the financial asset to collect the contractual cash flows and through the sale of the financial assets. The characteristics of the contractual cash flows of instruments in this category, must still be solely payments of principal and interest. The changes in fair value of Fair Value through Other Comprehensive Income (FVOCI) debt instruments are recognized in other comprehensive income (OCI). Any interest income, foreign exchange gains/losses and impairments are recognized immediately in profit or loss. Fair value changes that have been recognized in OCI are recycled to profit or loss upon disposal of the debt instrument. 1-05-00-00-00 DR LOANS RECEIVABLES This refers to the outstanding balance of loans granted to clients. These refer to financial assets with fixed or determinable payments that are not quoted in an active market. These are maturing for the following 12 months after the date of Statement of Financial Position. 1-05-01-00-00 DR Loans Receivable-Current This account refers to the outstanding balance of loans granted to the clients which are not yet due. 1-05-02-00-00 DR Loans Receivable-Past Due This account refers to outstanding balance of loans to clients not paid on installment due dates using the portfolio at Risk (PAR). 1-05-03-00-00 DR Loans Receivable-Restructured This account refers to receivables from the clients whose loan accounts were restructured based on the loan restructuring policy of the MF-NGOs. 1-05-04-00-00 DR Loans Receivable-Loans under Litigation This account refers to receivables from clients under legal action. The loan shall remain in this account during the pendency of the legal proceedings and until fully paid/restructured/foreclosed and undergone proceedings. 1-05-04-01-00 CR Unearned Service Charge This account refers to the portion of the Service Charge not yet earned. 1-05-04-02-00 CR Allowance for Probable Losses This account refers to the cumulative amount of probable or impairment losses arising from non-collection of Loans using the required provisions in the MNRC regulations and in conformity with PFRS. 1-05-04-03-00 DR Accrued Interest Receivable This account refers to interest earned but not yet received. 1-05-04-04-00 DR Advances to Officers and Employees This account refers to advances for official business subject to liquidation in accordance with the policy of the MF-NGOs. 1-05-04-05-00 DR Employee Loans This includes loans to officers and employees subject to payment in accordance with the policy of the MF-NGOs and other government regulations. 1-05-04-06-00 CR Allowance for Probable Losses-Employee Loans This account refers to the cumulative amount of probable or impairment losses arising from non-collection of Employee Loans using the required provisions in the MNRC regulations and in conformity with PFRS. 1-05-04-07-00 DR Due from Related Parties Receivables to be collected from related parties. A related party is a person or entity that is related to the entity that is preparing its financial statements (the reporting entity): (a) a person or a close member of that person's family is related to a reporting entity if that person: (i) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity; (ii) has control or joint control over the reporting entity; or (iii) has significant influence over the reporting entity. (b) an entity is related to a reporting entity if any of the following conditions applies: (i) the entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). (ii) one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). (iii) both entities are joint ventures of the same third entity. (iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v) the entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity. (vi) the entity is controlled or jointly controlled by a person identified in (a). (vii) the entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity. (viii) a person identified in (a) (ii) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). 1-05-04-08-00 DR Due from Branch/Head Office This refers to an asset account in the general ledger currently held at MF-NGOs Branch/Head Office. 1-06-00-00-00 DR Loan Receivables-Others This account refers to any other loans receivables not classified above which are expected to be realized, consumed or used within the year. 1-07-00-00-00 DR OTHER RECEIVABLES This account refers to any other receivables that cannot be classified above which are expected to be collected within the year. Includes due from Member' Benefit Association. 1-07-01-00-00 CR Allowance for Probable Losses-Other Receivables This account refers to the cumulative amount of probable or impairment losses that may arise from non-collection or non-payment on Other Receivables. 1-08-00-00-00 DR SUPPLIES ON HAND This refers to materials or supplies to be consumed in the process of rendering services. 1-09-00-00-00 DR PREPAYMENTS Prepayments represents not yet incurred but already pain in cash. This refers to all pre-payments made by the MF-NGOs ( e.g. , prepaid expenses, prepaid interests, deposits to suppliers). 1-10-00-00-00 CR CURRENT TAX ASSETS Current tax for the current and prior periods is as an asset to the extent that the amounts already paid exceed the amount due. The benefit of a tax loss which can be carried back to recover current tax of a prior period is recognized as an asset. 1-11-00-00-00 DR OTHER CURRENT ASSETS This account refers to any other current assets not classified above which are expected to be realized, consumed or used within the year. DR NON CURRENT ASSETS Property, plant and equipment, Investment Properties, Intangible Assets, Deferred Tax Assets, Investment Accounted for using the Equity Method, Financial Assets at Fair Value through other Comprehensive Income, Financial Asset at Fair Value through Profit or Loss, Financial Assets at Amortized Cost, Derivative Financial Instruments, Held-to-Maturity Investments, Available-for-Sale Financial Assets, Other Loans and Receivables. 1-13-00-00-00 LOANS RECEIVABLE-NONCURRENT These refer to financial assets with fixed or determinable payments that are not quoted in an active market. These are maturing more than 12 months after the date of Statement of Financial Position. 1-14-00-00-00 DR PROPERTY AND EQUIPMENT This section applies to accounting for property, plant and equipment and accounting for investment property whose fair value cannot be measured reliably without undue cost or effort on an ongoing basis. Property, plant and equipment are tangible assets that: (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than one period. Property, plant and equipment does not include: (a) biological assets related to agricultural activity (Specialized Activities); or (b) mineral rights and mineral reserves, such as oil, natural gas and similar non-regenerative resources. 1-14-01-00-00 DR Land This account refers to the acquisition cost of the land used for the MF-NGO's main operations plus incidental costs. At the end of the accounting reporting period, fair value of the property must be disclosed. 1-14-02-00-00 DR Land Improvement This account refers to the cost of the land enhancement used for the MF-NGO's land more usable. 1-14-03-00-00 DR Buildings This account refers to the acquisition cost of the building and its improvements used for the MF-NGO's main operations plus incidental costs. Major repairs or improvements that will prolong the life of the property are considered capitalizable cost. At the end of the accounting reporting period, fair value of the property must be disclosed. 1-14-04-00-00 DR Leasehold Improvement This account refers to the cost of improvements on premises under operating lease including cost of rights and concession rights which are subject to amortization over the useful life of the property or the term of the lease, whichever is shorter. 1-14-05-00-00 DR Furniture and Fixtures This account refers to the cost of movable (furniture) and immovable (fixtures) and office equipment used in the ordinary course of business such as but not limited to desks, chairs, cabinets, computers, vaults including incidental expenses incurred in acquiring them. 1-14-05-00-00 DR Office Equipment This account refers to the cost of office equipment used in the main operations of the MF-NGOs. 1-14-06-00-00 DR Transportation Equipment This account refers to the cost of equipment used in transporting goods, services and personnel such as motorcycles, van, car, and other types of vehicles. 1-14-07-00-00 DR Other Equipment This account refers to Property and Equipment not falling in any of the above categories. 1-14-08-00-00 DR Construction-in-Progress This account refers to the cost of materials, labor and other construction-related costs incurred on unfinished construction project, prior to occupancy or actual use. 1-14-08-01-00 CR Accum. Dpr.-Property, Plant and Equipment The sum of all depreciation expenses for fixed assets and amortization of other tangible assets that have not yet been retired and removed from the Statement of Financial Position. This is a contra asset account. 1-14-08-02-00 CR Accum. Dpr.-Land Improvements This account refers to total depreciation on Land Improvements that are set up periodically and are charged against current operations. 1-14-08-03-00 CR Accum. Dpr.-Buildings This account refers to total depreciation on building that is set up periodically and is charged against current operations. 1-14-08-04-00 CR Accum. Dpr.-Leasehold Improvements This account refers to total depreciation on Leasehold Improvements that are set up periodically and are charged against current operations. 1-14-08-05-00 CR Accum. Dpr.-Furniture & Fixtures This account refers to total depreciation on furniture, fixtures and equipment that are set up periodically and are charged against current operations. 1-14-08-06-00 CR Accum. Dpr.-Office Equipment This account refers to total depreciation on office equipment that are set up periodically and are charged against current operations. 1-14-08-07-00 CR Accum. Dpr.-Transport & Equipment This account refers to total depreciation on Transport Equipment that is set up periodically and is charged against current operations. 1-14-08-08-00 CR Accum. Dpr.-Other Equipment This account refers to total depreciation on other Equipment that is set up periodically and is charged against current operations. 1-15-00-00-00 DR INVESTMENTS Include investments that have a fixed maturity or payments that the MF-NGOs intends to hold to maturity. This may include bonds that the MF-NGOs plans to hold for more than 12 months or other financial assets available for sale but not considered loans, receivables. These includes Available-for-Sale equity investments (for Strategic holding or those with ownership of less than 20% without significant influence). 1-15-01-00-00 DR Investment in Subsidiaries Subsidiary is an entity where MF-NGOs has the power to control and decide on the financial and operating policies of the entity. 1-15-02-00-00 DR Investment in Associates An associate is an entity, including an unincorporated entity such as a partnership, over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the associate but is not control or joint control over those policies: (a) if an investor holds, directly or indirectly (for example, through subsidiaries), 20 per cent or more of the voting power of the associate, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case; (b) conversely, if the investor holds, directly or indirectly (for example, through subsidiaries), less than 20 per cent of the voting power of the associate, it is presumed that the investor does not have significant influence, unless such influence can be clearly demonstrated; and c) a substantial or majority ownership by another investor does not preclude an investor from having significant influence. 1-15-03-00-00 DR Investment in Joint Ventures Joint control is the contractually agreed sharing of control over an economic activity and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers). A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint ventures can take the form of jointly controlled operations, jointly controlled assets or jointly controlled entities. 1-16-00-00-00 DR INVESTMENT PROPERTY Investment property is property (land or a building, or part of a building, or both) held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or both, instead of for: (a) use in the production or supply of goods or services or for administrative purposes; or (b) sale in the ordinary course of business. A property interest that is held by a lessee under an operating lease may be classified and accounted for as investment property using this section if, and only if, the property would otherwise meet the definition of an investment property and the lessee can measure the fair value of the property interest without undue cost or effort on an ongoing basis. This classification alternative is available on a property-by-property basis. Mixed use property shall be separated between investment property and property, plant and equipment. 1-16-01-00-00 CR Accum. Dpr.-Investment Property This account refers to total depreciation on the investment property that is set up periodically and is charged against current operations. 1-17-00-00-00 DR AVAILABLE-FOR-SALE FINANCIAL ASSETS Are any non-derivative financial assets designated on initial recognition as available for sale or any other instruments that are not classified as: (a) loans and receivables; (b) held-to-maturity investments; or (c) financial assets at fair value through profit or loss. 1-18-00-00-00 DR HELD-TO-MATURITY INVESTMENT Held-to-Maturity Investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which the MF-NGO's management has the positive intention and ability to hold to maturity. These HTM Investments are maturing more than 12 months after the date of Statement of Financial Position. e.g. , Agrarian Reform Bonds, Micro, Small and Medium Enterprises (MSMEs) and Investment in Retail Treasury Bonds (per ARDCI) and High Yield Time Deposit. 1-19-00-00-00 DR RETIREMENT BENEFIT ASSET If the MF-NGO'S present value of the defined benefit obligation at the reporting date is less than the fair value of plan assets at the date, the plan has a surplus. MF-NGOs shall recognize a plan surplus as a defined benefit plan asset only to the extent that it is able to recover the surplus either through reduced contributions in the future or through refunds from the plan. 1-20-00-00-00 DR INTANGIBLE ASSETS An Intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when: (a) it is separable, i.e. , capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, asset or liability, or (b) It arises from the contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations. This section does not apply to the following: (a) financial assets; or (b) mineral rights and mineral reserves, such as oil, natural gas and similar non-regenerative resources. 1-20-01-00-00 DR Computer Software This account refers to the computer software used by the MF-NGOs in its information system ( e.g. , loan tracking system, payroll, accounting, etc). This includes costs of acquisition, development and installation excluding upgrading. 1-20-02-00-00 DR Trademarks, Copyright, Trade dress, Newspaper Mastheads, Internet domains, licensing, royalty and standstill agreements This account refers to the right for the exclusive use and distribution of products or services acquired from an author or artists. 1-20-03-00-00 CR Accumulated amortization MF-NGOs shall allocate the depreciable amount of an intangible asset on a systemic basis over its useful life. 1-21-00-00-00 DR BUSINESS COMBINATION A business combination is the bringing together of separate entities or businesses into one reporting entity. The result of nearly all business combinations is that one entity, the acquirer, obtains control of one or more other businesses, the acquiree. The acquisition date is the date on which the acquirer obtains control of the acquiree. A business combination may be structured in a variety of ways for legal, taxation or other reasons. It may involve the purchase by an entity of the equity of another entity, the purchase of all the net assets of another entity, the assumption of the liabilities of another entity, or the purchase of some of the net assets of another entity that together form one or more businesses. A business combination may be effected by the issue of equity instruments, the transfer of cash, cash equivalents or other assets, or a mixture of these. The transaction may be between the shareholders of the combining entities or between one entity and the shareholders of another entity. It may involve the establishment of a new entity to control the combining entities or net assets transferred, or the restructuring of one or more of the combining entities. 1-21-00-00-00 DR DEFFERED TAX ASSET The amounts of income taxes recoverable in future periods in respect of: a) deductible temporary differences; b) the carryforward of unused tax losses, and c) the carryforward of unused tax credits. 1-22-00-00-00 DR BIOLOGICAL ASSETS A living animal or plant. 1-23-00-00-00 DR OTHER NON CURRENT ASSETS Assets which do not fit into any of the preceding classifications. LIABILITIES A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of the resources embodying economic benefits. 2-00-00-00-00 CR CURRENT LIABILITIES Obligations reasonably expected to be settled within the normal operating cycle that is due within 12 months. An MF-NGOs shall classify a liability as current when: (a) it expects to settle the liability in its normal operating cycle; (b) it holds the liability primarily for the purpose of trading; (c) the liability is due to be settled within twelve months after the reporting period; or (d) it does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. 2-01-00-00-00 CR MICROSAVINGS The total amount of capital build up and voluntary savings collected from clients. This amount should not exceed the total amount of microfinance loans receivable. 2-01-01-00-00 CR Capital Build Up The total amount of savings collected from clients used as capital build up. Mandatory savings account of members/borrowers which serves as collateral to their loan. Can be withdrawn but an amount equivalent to a fixed percentage of the members' loan should be retained at all times. Earns interest and should be carried at amortized cost. 2-01-02-00-00 CR Voluntary savings Additional savings collected from clients on top of the CBU. Normally withdrawable at any time and earns interest. Should be carried at amortized cost. 2-02-00-00-00 CR LOANS PAYABLE-CURRENT The principal balance due within one year from the statement date for all funds received (includes loans, lines of credit and overdraft facilities with outstanding balances). 2-03-00-00-00 CR ACCRUED EXPENSES This refers to all expenses incurred but not yet paid. 2-03-01-00-00 CR Accrued Interest-micro savings Interest incurred on microsavings but not yet paid. 2-03-02-00-00 CR Accrued Interest-Loans Payable Interest incurred on loans but not yet paid. 2-03-03-00-00 CR Accrued Employee Salary & Benefits These refers to expenses incurred for employee salary and benefits but not yet paid. 2-03-04-00-00 CR Other Accrued Expenses This refers to all accrued expenses incurred which do not fit into any of the preceding classifications 2-04-00-00-00 CR ACCOUNTS PAYABLE Short-term liabilities due within 12 months, including tax and salary liabilities, payroll, withholdings, insurance premium collections. 2-05-00-00-00 CR DEFERRED GRANTS This account refers to donations or grant given to the MF-NGOs that have not been used for its intended purpose. 2-06-00-00-00 CR FUNDS HELD IN TRUST This account refers to funds provided by donors in which the MF-NGOs is only the custodian of the fund and has no control over its use. However, if the funds were given for socio economic projects of the MF-NGOs, it can be presented in the Statement of Financial Position. 2-07-00-00-00 CR DUE TO RELATED PARTIES The amount payable to related parties. 2-07-01-00-00 CR DUE TO HEAD OFFICE/BRANCHES Inter-office transactions. 2-08-00-00-00 CR SHORT-TERM EMPLOYEE BENEFITS Short-term employee benefits are those expected to be settled wholly before twelve months after the end of the annual reporting period during which employee services are rendered, but do not include termination benefits. 2-09-00-00-00 CR CURRENT TAX LIABILITIES Current tax for the current and prior periods is recognized as a liability to the extent that it has not yet been settled, and as an asset to the extent that the amounts already paid exceed the amount due. The benefit of a tax loss which can be carried back to recover current tax of a prior period is recognized as an asset. 2-10-00-00-00 CR OTHER CURRENT LIABILITIES This account includes statutory liabilities and other liabilities that cannot be classified under other specific current liability accounts. CR NON-CURRENT LIABILITIES Obligations expected to be settled beyond 12 months. 2-11-00-00-00 CR LOANS PAYABLE-NON-CURRENT The principal balance due in more than 12 months for all funds received through contractual debt agreements. 2-12-00-00-00 CR POST-EMPLOYMENT BENEFIT PAYABLE This account refers to the accumulated post-employment benefit costs charged against the income of the MF-NGOs for the qualified employees. 2-13-00-00-00 CR LITIGATION PAYABLE This pertains to probable obligations that can be reasonably estimated arising from lawsuits, assessments, etc. 2-14-00-00-00 DR DEFFERED TAX ASSET The amounts of income taxes payable in future periods in respect of taxable temporary differences. 2-15-00-00-00 CR RETIREMENT BENEFITS Requiring an entity to recognize a liability where an employee has provided service and an expense when the entity consumes the economic benefits of employee service. 2-16-00-00-00 CR OTHER NON-CURRENT LIABILITIES Other long-term liabilities due in more than 12 months such as but not limited to mortgages on real estate and other loans for fixed asset purchases. 3-00-00-00-00 CR FUND BALANCE This refers to the cumulative balance of periodic results of operations and grants and donations received. 3-01-00-00-00 CR CAPITAL CONTRIBUTION Capital contribution is a contribution of capital, in the form of money, property, to a business by an owner, partner, or member. 3-02-00-00-00 CR GENERAL FUND This account refers to funds, surplus accumulated over the years in which the MF-NGOs has discretionary control. 3-02-01-00-00 CR Prior Year Earnings Net earnings of previous year. 3-02-02-00-00 CR Current Year Earnings Net earnings current year. 3-02-03-00-00 CR Net Unrealized (Gain/Losses) on AFS Investment Comment: This is an Other Comprehensive Account which can be transferred to the Other Fund Balance Account. 3-02-04-00-00 CR Cumulative Translation Adjustment on Retirement Comment: This is an Other Comprehensive Account which can be transferred to the Other Fund Balance Account. 3-03-00-00-00 CR RESTRICTED FUND This account refers to funds appropriated from the earnings of the MF-NGOs for specific purposes. 3-04-00-00-00 CR OTHER FUND BALANCE ACCOUNTS Other Fund Balance Accounts, including all revaluations and adjustments and other Comprehensive Income accounts. B. STATEMENT OF COMPREHENSIVE INCOME CODE NB ACCOUNT TITLE ACCOUNT DESCRIPTION 4-00-00-00-00 CR REVENUE Increases in economic benefits during the accounting period of the MF-NGOs. These are in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in the fund balance. Revenue may come from the following transactions and events: (a) The sale of goods (whether produced by the entity for the purpose of sale or purchased for resale). (b) Rendering of services. (c) Construction contracts in which the entity is the contractor. (d) The use by others of entity assets yielding interest, royalties or dividends. 4-01-00-00-00 CR REVENUE FROM MICROFINANCE ACTIVITIES (instead of LOANS) Income from interest on loans, fees, commissions, and other charges earned on the microfinance activities and services such as loans (including but not limited to Agricultural microfinance, Housing microfinance, etc.); Microinsurance, in partnership with authorized microinsurance companies, agents and/or entities; money transfer and other related remittance services, in partnership with authorized agents and/or entities; and other relevant and/or innovative programs, products and services that address social welfare purposes and which are not contrary to existing laws and regulations. 4-01-01-00-00 CR Interest on Loans This account refers to interest earned on microfinance loans net of tax, rebates, microsavings and discount. 4-01-02-00-00 CR Service Fees-Loans This account refers to the fees collected by the MF-NGOs for loan processing/servicing/collecting. Note: Revenue is deferred and recognized over the term of the loan based on effective interest if pertaining to loan origination fees. 4-01-03-00-00 CR Fines, Penalties & Surcharges This account refers to the fees imposed and collected by the MF-NGOs on the delayed amortization payments of the member-borrower. 4-01-04-00-00 CR Commission on Insurance & Other Services This refers to commissions received from insurance and other goods and services provided by the MF-NGOs to microfinance clients. 4-01-05-00-00 CR Miscellaneous Charges These refer to charges imposed by MF-NGOs for any MF-NGOs-related services. 4-02-00-00-00 CR INTEREST FROM DEPOSITS Interest income earned on deposits in banks. 4-03-00-00-00 CR EARNINGS FROM INVESTMENTS Income from interest, dividends and other payments generated from non-speculative investments other than the microfinance loan portfolio such as government securities and other listed debt instruments. 4-04-00-00-00 CR DONATIONS This represents donations received by the MF-NGOs from local donors ( i.e. , individuals, entities and/or government). 4-05-00-00-00 CR GRANTS This represents donations received by the MF-NGOs from foreign donors ( i.e. , individuals, entities and/or government). 4-06-00-00-00 CR CONTRIBUTIONS This represents contributions (including but not limited to membership fees) received by the MF-NGOs. 4-07-00-00-00 CR RENT INCOME Income earned from Rent/Lease of properties owned by the MF-NGOs. 4-08-00-00-00 CR GAIN (LOSSES) ON FOREIGN EXCHANGE This account refers to gains (losses) from foreign exchange transactions arising from receipt of donations, grants and borrowings of the MF-NGOs. 4-09-00-00-00 CR RECOVERY OF WRITTEN OFF ACCOUNTS Total amount of principal recovered on all loans written-off. This includes principal on loans that are partially recovered and those that are recovered in full. 4-08-00-00-00 CR MISCELLANEOUS INCOME This refers to all other revenues received. 5-00-00-00-00 DR COSTS/EXPENSES 5-01-00-00-00 DR FINANCE COSTS Expenses related to borrowing of funds used for operations. 5-01-01-00-00 DR Interest Expense on microsavings Interest expense on microsavings of clients. 5-01-02-00-00 DR Interest and Fee Expense on Borrowing All interests and fees incurred on all borrowings that is used to fund the microfinance loan portfolio. 5-01-03-00-00 DR Other Finance Cost Other financial costs related to financial services such as interest on non-funding liabilities, interest on mortgages and other loans linked to fixed assets used for operations, ( e.g. , vehicle loans). 5-02-00-00-00 DR PROVISION FOR LOAN LOSSES Loan loss provision is an expense set aside as an allowance for uncollectible loans and loan payments. This provision is used to cover a number of factors associated terms of a loan that incur lower than previously estimated payments. 6-00-00-00-00 DR OPERATING COSTS Total amount of expenses incurred in activities directly related to the microfinance operations of the MF-NGOs. 6-01-00-00-00 DR PERSONNEL RELATED COSTS Expenses incurred for the personnel of the MF-NGOs. 6-01-01-00-00 DR Salaries and Wages Expenses incurred for services rendered by employees directly engaged in MF-NGOs operations including overtime pay. 6-01-02-00-00 DR Employee Benefits Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees, including directors and management. This section applies to all employee benefits, except for share-based payment transactions. Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees including directors and management. This refers to benefits given to employees other than salaries and wages. This includes 13th month pay, performance incentive, bonuses and de minimis benefits. 6-01-03-00-00 DR SSS, PAG-IBIG, PHILHEALTH PREMIUM CONTRIBUTION Expenses incurred for the payment of legislated benefits such as, SSS, Pag-IBIG, PhilHealth, etc. 6-01-04-00-00 DR Post-employment benefit expense MF-NGOs shall recognize the net change in its defined benefit liability during the period, other than a change attributable to benefits paid to employees during the period or to contributions from the employer, as the cost of its defined benefit plans during the period. 7-00-00-00-00 DR OTHER OPERATIONS-RELATED EXPENSES 7-01-00-00-00 DR TRANSPORTATION AND OTHER TRAVEL EXPENSE Expenses incurred by management and staff for transportation while on official travel. 7-02-00-00-00 DR Stationaries and Office Supplies Expenses incurred for office supplies used in the conduct of business operations. 7-03-00-00-00 DR Rent Expenses incurred for the building/office space or facilities leased by the MF-NGOs for its operations. 7-04-00-00-00 DR Utilities (Power, Light and Water) Expenses incurred for the use of utilities ( e.g. , electricity, water) in the conduct of operations. 7-05-00-00-00 DR Communication and Postage Expenses incurred by officers, management and staff for telephone, cellphones, internet, and other communication related items. 7-06-00-00-00 DR Meetings Expenses incurred for the conduct of internal meetings. 7-07-00-00-00 DR Licenses Expenses includes all domestic and foreign taxes that are based on taxable profit. Income tax also includes taxes, such as withholding taxes, that are payable by a subsidiary, associate or joint venture on distributions to the reporting entity. Expenses incurred for payment of taxes, business permits, licenses, etc. 7-08-00-00-00 DR Repairs and Maintenance Expenses incurred for repairs and maintenance of equipment and facilities except those that prolong the life of the asset. 7-09-00-00-00 DR Insurance Expense Expenses incurred for paying the premium for insuring the assets of the MF-NGOs and the payment of insurance for the bonds of Accountable officers. 7-10-00-00-00 DR Information Technology Expense Expenses incurred for the maintenance of information systems. These include payment of subscription dues for use of IT system. 7-11-00-00-00 DR Depreciation and Amortization Non-cash expense that allocates purchase cost of an MF-NGO's fixed assets over their useful life. Amortization is used for other tangible assets such as software. If amortization is significant, it should be disclosed and two sub-accounts should be created, i.e. , one for depreciation and another for amortization. 7-12-00-00-00 DR General Support Services Expenses incurred for janitorial, messengerial and other support services. 7-13-00-00-00 DR Client Community Services This refers to expenses incurred by the MF-NGOs in providing social and development related services to the community, the clients and their families ( e.g. , scholarship, relief activities, medical missions, transformation, and environmental activities). 7-14-00-00-00 DR Representation Expense These expenses are charges incurred in representing the MF-NGOs before clients. It is referred to as public relations, generally performed by employees, administrators, directors and other executives of the company, with the purpose of receiving future benefit. 7-15-00-00-00 DR Miscellaneous Expenses incurred that are not classified in any of the specified expense account. 8-00-00-00-00 DR ADMINISTRATIVE COST/EXPENSES Costs incurred in activities that indirectly contribute to the generation of revenues of the MF-NGOs. These include costs such as: oversight, management, general record keeping, general maintenance and similar expenses. In case of joint cost incurred for shared services, 70% shall form part of the operating expenses. 8-01-00-00-00 DR PERSONNEL-RELATED COST Expenses incurred for the personnel of the MF-NGOs. 8-01-01-00-00 DR Salaries and Wages Expenses incurred for services rendered by employees directly engaged in MF-NGOs operations including overtime pay. 8-01-02-00-00 DR Employee Benefits This refers to benefits given to employees other than salaries and wages. This includes 13th month pay, performance incentive, bonuses and de minimis benefits. 8-01-03-00-00 DR SSS, PAG-IBIG, PHILHEALTH PREMIUM CONTRIBUTION Expenses incurred for the payment of legislated benefits such as, SSS, Pag-IBIG, PhilHealth, etc. 8-01-04-00-00 DR Post-employment MF-NGOs shall recognize the net change in its defined benefit liability during the period, other than a change attributable to benefits paid to employees during the period or to contributions from the employer, as the cost of its defined benefit plans during the period. 8-01-05-00-00 DR Trainings, Seminars and Conference Expenses incurred by the members of the Board, Committee members, Officers and Staff of the MF-NGOs in attending trainings and seminars including in-house trainings. 8-01-06-00-00 DR OTHER ADMINISTRATIVE EXPENSES Other expenses incurred by MF-NGOs other than expenses enumerated above. 8-01-07-00-00 DR Transportation and other travel expense Expenses incurred by management and staff for transportation while on official travel. 8-01-08-00-00 DR Stationaries and Office Supplies Expenses incurred for office supplies used in the conduct of business operations. 8-01-09-00-00 DR Rent Expenses incurred for the building/office space or facilities leased by the MF-NGOs for its operations. 8-01-10-00-00 DR Utilities (Power, Light, Water) Expenses incurred for the use of utilities ( e.g. , electricity, water) in the conduct of operations. 8-01-11-00-00 DR Communication and Postage and phone bill Expenses incurred by officers, management and staff for telephone, cellphones, internet, and others communication related items. 8-01-12-00-00 DR Meetings This account refers to expenses incurred during management meetings and board meetings. 8-01-13-00-00 DR Publication, Printing, Subscription and Membership Dues Refers to the regular payments, fees, dues and subscription paid to relevant organizations/associations of which MF-NGOs is a member. 8-01-14-00-00 DR Research and Development Expenses related to conduct of research related to the improvement of existing products and development of new products. 8-01-15-00-00 DR Consultancy and Professional Fees Professional Fees paid to consultants, external auditors and lawyers. 8-01-16-00-00 DR Repairs and Maintenance Expenses incurred for repairs and maintenance of equipment and facilities except those that prolong the life of the asset. 8-01-17-00-00 DR Insurance Expense Expenses incurred for paying the premium for insuring the assets of the MF-NGOs and the payment of insurance for the bonds of Accountable officers. 8-01-18-00-00 DR Information Technology Expenses Expenses incurred for the maintenance of information systems. These include payment of subscription dues for use of IT system. 8-01-19-00-00 DR Depreciation and Amortization Non-cash expense that allocates purchase cost of an MF-NGO's fixed assets over their useful life. Amortization is used for other tangible assets such as software. If amortization is significant, it should be disclosed and two sub-accounts should be created, i.e. , one for depreciation and another for amortization. 8-01-20-00-00 DR General Support Services Expenses incurred for janitorial, messengerial and other support services. 8-01-21-00-00 DR Representation Expense These expenses are charges incurred in representing the MF-NGOs before clients. It is referred to as public relations, generally performed by employees, administrators, directors and other executives of the company, with the purpose of receiving future benefit. 8-01-22-00-00 DR Charitable Contribution Expenses incurred in providing donations, contributions to third parties. 8-01-23-00-00 DR Litigation Expense Expense incurred in pending litigation cases. 8-01-24-00-00 DR Miscellaneous Expenses incurred that are not classified in any of the specified expense account. 8-01-25-00-00 DR Provision for Income Taxes Taxes paid for income received other than income from Microfinance operations. The Current Income Tax Expense is based on RA No. 10693 otherwise Known as "Microfinance NGOS Act" which subjects the MF-NGO to a 2% tax based on its gross receipts from microfinance operations in lieu of all national taxes. Based on RA No. 10693, the MF-NGO elected to recognize the 2% tax on gross receipts as a regular income tax. Gross receipts from microfinance operations shall refer to the gross interest income, penalties, surcharges, commissions and discounts, service and general fees, and other charges related to microfinance operations actually or constructively received without any deduction of any kind or nature. 8-01-26-00-00 DR Provision for Corporate Taxes For other income received by the MF-NGO subject to Corporate Income Taxes. 8-01-27-00-00 DR Provision for Special Tax Rate For other income received by the MF-NGO subject to other Special Tax Rate. Comments on the Proposed MNRC Memorandum Circular on the Standard Chart of Accounts for Microfinance NGOs NAME: ________________________ COMPANY: ____________________ MEMORANDUM CIRCULAR/STANDARD CHART OF ACCOUNTS COMMENTS PROPOSED REVISIONS 1. The MNRC adopts the financial reporting framework provided for by Part I, Section 2 (A), Rule 68, as amended, of R.A. No. 8799 in the case of MF-NGOs; and 2. The Standard Chart of Accounts (attached hereto as Annex 1 and made an integral part of this Memorandum Circular) shall be used by the MF-NGOs beginning taxable year 2020. Note: For comments on Annex 1, please specify the Code, NB and Account Title in this column.