CORPORATE GOVERNANCE AND FINANCIAL REPORTING OF PHILIPPINE BANKS: PRIVATE BANKS VS GOVERNMENT BANKS

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CORPORATE GOVERNANCE AND FINANCIAL REPORTING OF
PHILIPPINE BANKSPRIVATE BANKS VS GOVERNMENT
BANKS

• By Arthur S. Cayanan

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Objectives of the Study

• To determine if Philippine listed and government
  banks are subject to the same financial reporting
  standards.
• To determine the degree of compliance of
  Philippine listed and government banks with
  financial reporting standards.

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Objectives of the Study

• To determine the quality of the external audits
  performed for Philippine listed and government
  banks
• To identify areas for improving financial
  reporting standards and practices should some
  weaknesses and financial reporting violations are
  uncovered

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Sample

• 42 annual reports (36 listed and 6 govt)
• 17 of the 18 listed Philippine banks (2002-03
  2005)
• 2 government banks (2002-03 2005)

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Focus of the Review

• Presentation of accounts expected to be received
  or due within a year because banks do not present
  classified balance sheets.
• Reporting of provision for bad debts.
• Presentation of the breakdown of loan portfolio,
  i.e. as to sector and as to whether secured or
  unsecured.

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Focus of the Review

• Disclosure of the value of nonperforming loans.
• Disclosure of contingent liabilities.
• Disclosure of related party transactions, e.g.
  DOSRI accounts.
• Disclosure of segment information

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Findings- Listed Banks

• 7 of the 36 Qualified
• Basis of qualification
• - direct charging of provision for bad debts to
  surplus
• - staggered recognition of bad debts

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Findings Listed Banks

• Questionable accounting policies which led to
  income overstatement
• - reporting of ASS and TAS at cost.
• - long amortization for goodwill (40 years when
  rules allowed only 20 and BSP only 10)
• - direct charging of provision for bad debts to
  surplus
• - staggered recognition of provision for bad
  debts

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Findings- Listed Banks

• Non-presentation of accounts expected to be
  received or due within a year (4).
• Nondisclosure of the non-performing accounts (2)
• Nondisclosure of the amounts of guarantees (8)
• Lack or inadequate disclosures on related party
  transactions (2)

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Findings Listed Banks

• Non-consolidation of subsidiaries due to
  materiality issues (3)
• Lack or inadequate segment information (10)
• Questionable audit opinion (10

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Findings- Listed Banks (Questionable Audit
Opinion)

• Revenue recognition policy on interest income was
  vague. It goes as follows Interest on loans is
  recognized on a basis which essentially complies
  with the criteria of the supervisory authorities
  on the reporting of revenue to be closed to the
  equity balance. Revenue recognition policy on
  other income was based on cash which is non-GAAP.

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Findings- Listed Banks (Questionable Audit
Opinion)

• Accounting policy for trading account securities
  which was based on cost was non-GAAP. Investment
  and trading securities account 32.17 of the
  total assets.
• There was no accounting policy on cash and cash
  equivalents.
• There were no disclosures of amounts expected to
  be received or due within a year and beyond in an
  unclassified balance sheet.

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Findings- Listed Banks (Questionable Audit
Opinion)

• There was no segment information provided.
• There were no disclosures of amounts related to
  contingent liabilities such as guarantees.
• There were no details of EPS computations
  provided.
• There were no disclosures on related party
  transactions especially DOSRI accounts.
• Disclosures on trust assets were inadequate.
  There were no amounts provided.
• There were no disclosures on the financial
  impact of SFAS/IAS 12 and 17.

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Findings- Government Banks

• Missing Statement of Managements Responsibility
  on Financial Statements (2)
• Deferral of the recognition of loss from the sale
  of NPA (1)
• Breakdown of loan portfolio by sector (2)
• Lack of disclosures on segment information (2)

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Findings- Government Banks

• Non-consolidation of subsidiaries (1)
• Nondisclosure of the amounts of guarantees (1)
• Inadequate disclosures on retirement benefits
• Improper accounting for investments in
  associates- accounted for at cost (1)