Re : Material Facts on Financial Statements

March 22, 2004 SEC OPINION NO. 18-04 Re : Material Facts on Financial Statements Ms. Maria Laila C. Calayag KPMG Laya Mananghaya & Co. 2nd floor Philamlife Tower 8767 Paseo De Roxas Makati City M a d a m : This refers to your request for clarification whether corporations are required to disclose on the face and notes of their Financial Statements its corporate name within the three (3)-year period after the change of name was approved by the Commission. The Corporation Code of the Philippines does not require a corporation to disclose its former corporate name in the Financial Statements within the three (3)-year period after the SEC's approval of its Amended Articles of Incorporation changing its corporate name. However, Item no. 29 to 32 of the Statement of Financial Accounting Standards (SFAS 1) provides: "29. Each material item should be presented separately in the financial statements. . . . 30. Financial statements result from processing large quantities of transactions which are structured by being aggregated into groups according to their nature or function. The final stage in the process of aggregation and classification is the presentation of condensed and classified data which form line items either on the face of the financial statements or in the notes . . . An item that is not sufficiently material to warrant separate presentation on the face of the financial statements may nevertheless be sufficiently material that it should be presented separately in the notes . 31. In this context, information is material if its non-disclosure could influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size and nature of the item judged in the particular circumstances of its omission. In deciding whether an item or an aggregate of items is material, the nature and size of the item are evaluated together. Depending on the circumstances, either the nature or the size of the item could be the determining factor. For example, individual assets with the same nature and function are aggregated even if the individual amounts are large. However, large item which differ in nature or function are presented separately. 32. Materiality provides that the specific disclosure requirements of Statements of Financial Accounting Standards need not be met if the resulting information is not material." In addition, SEC Circular No. 2, Series of 1973, 1 particularly Rule 2-7 and 2-15 (o) no 2 provides: "Rule 2-7. Additional Information . The information required by this regulation with respect to financial statements shall be furnished as a minimum requirement to which shall be added such further material information as is necessary to make the required statements, in the light of the circumstances under which they are made, not misleading. xxx xxx xxx Rule 2-15 (o) Subsequent events . Indicate any significant events or transactions having a material effect on financial statements which occur after balance- sheet date but before the date of the auditors report, as follows: xxx xxx xxx 2. Another type of subsequent event is that which provides evidence with respect to conditions that did not exist at the date of the balance sheet being reported on but arose subsequent to that date. This type of event should not result in adjustment of the financial statements; however, some of these events may be of such nature that disclosure of them is necessary so as not to make the financial statements misleading.". . . Hence, as a sound practice and in order not to mislead or create doubt in the mind of the public as to the identity of the corporation, you are hereby advised to disclose on the face and notes of a corporation's Financial Statements its former corporate name within the three (3)-year period after the Commission's approval of the change of corporate name. EcAISC Very truly yours, (SGD.) VERNETTE UMALI-PACO General Counsel Footnotes 1. Referring to the Covering Form and Content of Financial Statements Required to be filed by Corporations whose Shares of Stock are sold or Offered for Sale to the Public.