Accounting Standards

The Securities and Exchange Commission (SEC) and Bangko Sentral ng Pilipinas (BSP) adopted the International Accounting Standards (IAS) and the International Financial Reporting Standards (IFR), effective annual financial statements as of 1 January 2005. Philippine Accounting Standards via PAS 32 Financial Instruments: Disclosures and Presentation, and PAS 39 Financial Instruments: Recognition and Measurement are based on IAS No. 32 and 39 respectively.

The standards require banks and nonbank financial institutions (NBFIs) to mark-to-market investment portfolios classified under Trading Account Securities and Available-for-Sale Securities. Treatment of gains and losses arising from changes in fair value is different, however. BSP Circular No. 476, linked below, outlines rules and regulations that govern accounting for investments by banks and NBFIs. The SEC guidelines outline coverage of the new accounting standards.

Investment Funds

Trusts that manage Unit Investment Trust Funds (UITFs) are required to compute net asset values per unit (NAVPu) daily. The NAVPu is the sum of the market value of each investment less fees, taxes, and other qualified expenses defined under each UITF trust agreement. Trusts are required daily to reconcile a fund’s resultant mark-to-market value with unrealized gains and losses versus the book value of the fund’s investments in financial instruments. Any discrepancy must be resolved within the day.

Daily market values of investments are based on local government securities fixings. Bloomberg’s MART1 and MRTN1 are used to determine these prices. BSP rules and regulations on UITF mark-to-market valuation is outlined at the link below.
Capital Adequacy Regulations

BSP Circulars No. 280, 360, and 475 specify guidelines for incorporating market risk into the framework for universal and commercial banks. Financial institutions are required to comply with mark-to-market practices to meet risk-based capital requirements set by the BSP.