• ‘Donations’ and ‘others’ as accounting entries

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    EMETERIO SD. PEREZ

    BUSINESS owners expand their companies. More often than not, they turn to public investors for money in ex-change for allowing them to trade on their listed stocks.

    What follows after some, if not all, of a company’s outstanding common shares are listed on the Philippine Stock Exchange?

    The question requires an explanation, which only the Securities and Exchange Commission can ably provide the public investors who trade on listed stocks.

    The problem, though, is that SEC officials may be too busy to even initiate an inquiry into why some – or maybe few – listed companies do not list all their outstanding common shares.

    The SEC may not have the answer to the poser and other questions that the public investors are afraid to ask. It is up to the public investors to draw their own conclusions on why they are even being tapped for money by listed companies.

    Buyback
    The SEC and PSE may or may not have noticed the practice by listed companies of buying back their own shares. The question that could be asked of them is why they even allow the reacquisition.

    Do the SEC and PSE even know what follows a share buyback?

    If the shares held by the public investors are bought back, the buying companies should be required to disclose their plans about the treasury shares that end up among the entries under “equity” in financial filings. Haven’t the SEC and PSE observed the eventual sale of these shares back to the public investors?

    It is about time the SEC and PSE reviewed the financial filings of listed companies that have bought back their own shares. How much did they gain after holding on to the treasury shares for a year or two?

    The SEC and PSE should strictly enforce market rules that require the public to own at least 10 percent of the out-standing capital of listed companies. By doing so, they would know which among them comply with the 10-percent minimum public ownership rule and which do not.

    Donations
    Do the SEC examiners and also those of the PSE even read the financial filings of listed companies? I am addressing the question to them who, as regulatory authorities, should require listed companies to explain certain infor-mation in audited financial statements.

    Donation, for one, is an entry in financial statements that is easy to manipulate. If the charitable act of a listed company entails so big an amount, this becomes questionable.

    Not that Due Diligencer is against donation by listed companies. Not at all. Donating to a charitable cause is a lauda-ble act that should not go unnoticed. The question is why allow a listed company to give away money that belongs to the public investors.

    If the majority stockholders want to express their generosity to anyone in need, they should make the donations out of their own pockets. They should not deduct these from revenues by making donation an expense.

    ‘Others’
    “Others” as an entry under expenses also needs elaboration. Sometimes, the amount reported in it is even bigger than the salaries and wages under personnel expenses. To erase any doubt among the public investors regarding its continued use in financial filings, the amounts involved should be as detailed as possible.

    Tolerating the use of “others” is tantamount to allowing cheating in financial filings. There should be a separate rule for listed companies, which the SEC could promulgate and implement.

    The entry “others” may be in accordance with accounting standards followed by external auditors. How about the interest of the public investors, particular those who may be in the market for dividends? Are they not also enti-tled to information on how a listed company arrived at “others”?

    Like donations, “others” under expenses is an accounting entry that could be abused if not regulated. While ac-counting standards may allow external auditors to use it, the SEC and PSE should be responsible in looking more closely into the amounts reported under “others.”

    In the first place, why allow donations and “others” in financial disclosures? Just asking.

    esdperez@gmail.com

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