Suits the C-Suite

10 June 2019

Aldwin Aris C. Gregorio

Transforming the HR function through technology

With the fast-paced development of technology, the fourth industrial revolution is reshaping nearly every aspect of business. We often read about how technology and disruption are transforming critical business functions, and one such function that needs to keep up is human resources or HR. More and more, the HR function needs to explore how new solutions, trends and technologies (such as automation) can have a direct impact on productivity. According to proprietary research by CareerBuilder, a global human capital solutions company, HR manager respondents who do not fully automate say that they lose 14 hours a week from manually completing tasks. HR managers are optimistic about the impact of automation and artificial intelligence (AI) on HR strategies. This is also corroborated in a survey by CareerBuilder, where 72% of respondents said that they “expect that some roles within talent acquisition and human capital management will become completely automated in the next 10 years.” HR automation is, indeed, on the rise with the top three automated functions: employee messaging (57%), employee benefits (53%), and payroll (47%). It is only a matter of time before automation drastically impacts on HR operations and becomes a catalyst of employee engagement. USING TECHNOLOGY TO IMPROVE THE PERFORMANCE OF HR FUNCTIONS Let us consider some examples of how aligning with current technological trends can help successfully initiate and implement HR strategies. Take recruitment and talent management for instance. With the increased interest among today’s workforce to shift towards mobile technology and social media, organizations are transitioning from posting on job search websites into social media. Data shows that 79% of job seekers are likely to use job search portals, while talent acquisition leaders also consider online professional networks as an effective branding tool. HR managers are also increasingly aligning with this trend, where 72% of recruiters use LinkedIn to hire employees and 55% of organizations strategically use Facebook and Twitter for various HR purposes. Aside from the impact of social media, organizations are also leveraging data analytics and cloud-based solutions to deliver improved HR services and gain better insights on trends affecting their employees. Small-scale organizations are beginning to adopt cloud technology for certain functions such as talent management, human resource management systems, workforce management, and payroll. Organizations are also investing resources for social media tools and HR technology integration. In fact, two in five organizations say that their HR technology spending is on the rise. However, investment in HR technology is not always top of mind for some business leaders because of their intangible impact on the organization’s bottom line and employee productivity. Despite the digital disruptions transforming business today, many organizations have yet to adopt technologies for their core business or for support functions that include HR. ROBOTICS AND THE FUTURE OF THE WORKFORCE Other technologies expected to have a huge impact on HR are robotics and AI. With the advent of automated solutions that can handle clerical or repetitive work, there is need to plan ahead, look into possible job displacement, and manage employee transitions to new roles. The onset of the machine economy is set to displace parts of the workforce, with two-thirds of all jobs susceptible to being rendered obsolete by automation. This, however, varies depending on the rate of adoption of technology in specific countries. According to research and advisory firm Forrester, automation could lead to a net job loss of 9.8 million or 7% jobs in the US alone by 2027. As a result, a new wave of jobs will develop and require a completely new skillset (e.g., data analyst, information security specialist). Employees consider this to be one of the biggest risks of automation, but are also optimistic about their perceived benefits in their everyday work. In fact, 9 out 10 workers seek to automate mundane tasks at the workplace. Organizations must also be able to strike a balance for complementary working systems between technology and people. The key to achieving this balance is not to displace human workers by utilizing RPA, but to make them more effective in performing more strategic activities. There is also a need to build analytic capabilities into HR that will in turn support talent strategies in boosting organizational performance and productivity. THE GIG ECONOMY AND REMOTE WORKING ARE RESHAPING THE WORKING WORLD As traditional business processes evolve, we are seeing an increase in the freelance or gig economy and remote working, which have become acceptable practices. According to Upwork’s Future Workforce Report, nearly half of respondent companies utilize flexible workers. Surprisingly, 90% of hiring managers say that they are more satisfied with the skills of freelancers than their recent full-time workers. Companies are more likely to hire freelancers based on quality over cost. The US, the Netherlands and the UK lead the pack in embracing the gig economy, as these countries have a high share of self-employed individuals. A favorable policy environment was one factor perceived to have fueled the growth of the gig economy in these countries. Remote work in the Philippines has recently been institutionalized with the passing of the New Telecommuting Act (Republic Act No. 11165) in early 2019. The law recognizes telecommuting, which allows employees to work in alternative locations via enabling technologies (e.g., internet, cellular phone, computer). Many multinational organizations and business process outsourcing companies have long adopted telecommuting due to the need to communicate regularly and deliver work across time zones. Employers and employees both directly benefit from telecommuting arrangements by gaining more flexibility in office space utilization and lessening time and money spent traveling to and from the workplace. As technology advances further, telecommuting could become the new norm. Already, some organizations are shifting corporate spending from office space and utilities to subsidizing connectivity expenses of employees who work offsite. Ultimately, this will necessitate the review and updating of company people polices and local labor laws to make telecommuting more aligned with the future of work. Situations such as road congestion and a shortage of or high costs for work space, and insufficient facilities (e.g. parking) mean that working from home can reduce costs for companies. Focus then can be given to managing employee discipline and maximizing productivity remotely, to ensure quality output that is comparable to the work produced in a traditional workplace. Given the rapid adoption of technology, automation and new workforce behaviors, HR functions are pressed to catch up and leverage these new trends to adequately meet the needs of tomorrow’s global workforce, and to maintain their competitiveness through effective, strategic and technology-enabled HR processes. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Aldwin Aris C. Gregorio is an Associate Principal of SGV & Co.

03 June 2019

Gabriel Eroy

Automatic exchange of information: What’s in it for the Philippines?

In February, President Rodrigo R. Duterte signed into law Republic Act No. 11213, “An Act Enhancing Revenue Administration and Collection by Granting an Amnesty on All Unpaid Internal Revenue Taxes Imposed by the National Government for Taxable Year 2017 and Prior Years with Respect to Estate Tax, Other Internal Revenue Taxes, and Tax on Delinquencies.” However, it was signed with certain line item vetoes including the grant of a general tax amnesty which was vetoed in its entirety. The President indicated that a general tax amnesty, at this point would be overly generous and unregulated. He has requested Congress to pass another general tax amnesty bill that includes the lifting of bank secrecy for fraud cases, the automatic exchange of information (AEOI) and safeguards to ensure truthful declarations. Evident in the President’s message is the intention for the country to participate in an exchange of information regime that has been gaining ground in the international community. AEOI WORLDWIDE AEOI was conceptualized to promote tax transparency and curb tax evasion. As economies worldwide increasingly become interconnected, cross-country investments and financial products are more accessible to anyone, regardless of residence or location. Initiated and developed by the Organisation for Economic Co-operation and Development (OECD) with the G20 countries, the Standard for AEOI represents the international consensus on automatic exchange of financial account information for tax purposes, on a reciprocal basis. It provides for the exchange of financial account information with the tax authorities in the account holders’ country of residence. Participating jurisdictions that implement AEOI send and receive pre-agreed information each year, without having to send a specific request. The most prevalent standards that require exchange of information on an annual and automatic basis, effective as of date, are: (1) United States Foreign Account Tax Compliance Act (US FATCA); and (2) the Common Reporting Standards (CRS). FATCA started the push for greater tax transparency by requiring financial institutions outside of the US to report tax information (i.e., income earned and assets owned) of US citizens and/or residents to the US Internal Revenue Service (IRS). As of date, there one hundred thirteen (113) jurisdictions that have signed an intergovernmental agreement (IGA) with the US government to facilitate FATCA compliance of financial institutions operating in non-US jurisdictions and the annual exchange of information which started in 2015. The Philippines signed its IGA with the US in July 2015 but with no significant progress recently. CRS, on the other hand, involves several participating jurisdictions’ exchanging, on a bilateral or multilateral basis, financial account information submitted by reporting financial institutions. CRS went live in January 2016 and the first CRS exchange transpired in September 2017. According to the latest list dated November 2018, there were 108 participating jurisdictions with definite date of first reporting by 2020. On several occasions in the past, the Philippine government has signified, albeit informally, its intent to participate in the CRS regime. Like FATCA, there is no recent progress and there is no date for the Philippines’ first reporting and exchange. Notwithstanding these delays, the Philippine government is still encouraged to participate and enter into bilateral or multilateral agreements on exchange of information with other jurisdictions. However, concurrence by at least two-thirds of the Members of the Senate is required before a treaty or international agreement is effective, as provided under Article VII Section 21 of the 1987 Philippine Constitution. To bolster its participation, the Philippines may need to amend bank secrecy and data privacy laws to legalize the sharing of information with other jurisdictions. BENEFITS TO THE PHILIPPINES Countries with strict bank secrecy and data privacy laws may be perceived as breeding grounds for tax evaders. On one hand, foreigners may prefer to invest their money in these countries since the government and financial institutions operating therein are generally not required to share information with the tax authorities of the jurisdiction/s where these investors are tax residents. On the other hand, tax residents of countries with such laws, especially high net worth ones, may simply invest their money in countries without personal income tax (tax haven jurisdictions) to maximize income while not paying the related tax along with the minimal risk of detection. In a report from the G20 Argentina: The Buenos Aires Summit held in late 2018, it was noted that prior to the start of the AEOI, countries were able to collect 93 billion euros in additional tax revenue due to voluntary disclosure programs and offshore investigations. It is generally expected that AEOI may yield the same, or even greater results, due to its wider coverage and practical approach. AEOI may help Philippine tax authorities detect non-compliance/non-reporting of income and taxes arising from investments of Philippine tax citizens/residents in participating jurisdictions, especially where tax administrations have had no previous indications of non-compliance due to limited disclosure or intentional non-disclosure. Consequently, AEOI may encourage voluntary compliance by compelling taxpayers to report all relevant information or face sanctions as tax evaders. With the foregoing, AEOI may, to a certain extent, deter future tax evasion through offshore investment schemes and financial accounts. It is hoped that the current Administration’s intention to relax bank secrecy and data privacy laws will further its tax transparency agenda for the Philippines that align with ASEAN and global standards and practice. It is likewise hoped that the Philippines’ participation in the global AEOI regime may aid in the implementation of tax laws more effectively due to expected increase in visibility and wider reach to gather relevant tax information. To some extent, there may be expected additional tax revenues from detecting cases of tax evasion and/or voluntary disclosure/compliance. Additional fiscal revenue will then translate to more funds to support the development plans, ultimately spurring economic growth. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Gabriel Eroy is a Tax Manager from the Financial Services Organization of SGV & Co.

20 May 2019

Carlo Kristle G. Dimarucut

Risk and cybersecurity for critical infrastructure

When we talk about cybersecurity, we usually think of information technology systems that manage and access data. But there’s another side of technology that is often overlooked by enterprise security processes — the industrial control systems that handle physical processes through monitoring or direct control, such as valves, pumps and similar systems that have a physical “switching” function. The reason for this is that most of these systems have traditionally been isolated from corporate information networks, operated separately as they have functions outside of processing data — such as regulating power or water flow for utilities companies, the control network of a train system, or medical scanning equipment in a health care entity. However, as business operations and processes become more complex and data-driven, there has been an increasing need to connect industrial control systems to corporate information networks in order to provide access to vital or relevant information. One example is how power companies are transitioning to digital metering to promote more accurate power quality monitoring and reporting. These systems will need to be connected to the power company’s data systems to link to customer data and information. Because of this growing interdependency between IT systems and industrial control systems, businesses will need to revisit how they understand cybersecurity within these types of operational technologies. The government has recognized this growing problem and in 2017, through a Department of Information and Communications Technology memo, introduced guidance on how to secure “critical infrastructure” i.e. banking and finance, power and utilities, transportation, health care, telecommunications, and similar industries that are vital to public health, safety or well-being. Considering that these systems are linked to real physical systems, organizations will need to find ways to seamlessly integrate these systems while ensuring physical and logical security. INTERCONNECTION CHALLENGES The rapid deployment of digital technologies and web-enabled devices brings many advantages, but also increases cybersecurity risks. Because industrial control systems are increasingly being linked to broader IT systems, cyber attacks have more potential to breach customer and employee privacy and incur regulatory action. This can even disrupt critical infrastructure operations and put lives at risk. Every new device connected is one more device that can be compromised by a potential attacker. In 2017, WannaCry ransomware became a wakeup call when it hit critical infrastructure, impacting over 10,000 organizations in over 150 countries, including those in the health care industry like the UK’s National Health Service. Although there is no evidence that any patients died directly from the attack, thousands of hospital computers were made unavailable, forcing doctors to physically transport lab results by hand and cancel at least 20,000 patient appointments. In the same year, the NotPetya ransomware attack struck at numerous companies including Maersk and Mondelez, which cost them an estimated $300 million and $100 million, respectively. Overall, the attack did an estimated $10 billion in total damage. Attacks can also come from unexpected directions, such as the instance when US retailer chain Target was hacked through its heating, ventilation, and air-conditioning (HVAC) systems. Companies that are interconnecting industrial control systems need to understand and manage these threats as not just a significant risk, but potentially a public safety concern. Industrial control systems will now need to be integrated into overall corporate IT and risk management, instead of being managed in silos. In this broader risk landscape, companies need to consider that: – A successful attack is inevitable — it is just a matter of when and how much. Organizations get lulled into thinking that they can deploy enough solutions or spend enough money to protect themselves. Organizations will have to live with managing the risk, and not trying to fully eliminate it. Knowing how to react and having the resilience to withstand a cyber attack is the best strategy. – Interconnection will happen whether organizations like it or not. Vendors recognize that interconnectivity for industrial systems is a wave they have to ride and features for such are already being embedded in the systems that organizations are purchasing. It must be recognized that these features are present and have to be addressed from a policy level. WHAT ENTERPRISES CAN DO TO HELP PREEMPT CYBER ATTACKS There are some actions that companies can take to help manage their risks in the face of today’s emerging cybersecurity threats. In the short term, companies should ensure that their security monitoring programs cover everything that it needs to cover. Most security monitoring purchases are limited to corporate information systems. Boards should ask their security departments whether their companies’ current attack detection capabilities extend to industrial control systems. Since interconnectivity is inevitable, organizations have to extend cybersecurity practices and adopt them more diligently when it comes to industrial control systems. Such practices include implementing standard security baselines, supported by effective incident response plans. LOOKING AHEAD Enterprises identified as part of the country’s critical infrastructure need to take steps to “future-proof” their business. This includes developing more agile and resilient responses to the disruptions being brought about by technology, evolving regulations and compliance challenges across their industry. Organizations within the scope of critical infrastructure need to accept that regulation over cybersecurity controls and breach reporting will become part of their businesses. Investing in cybersecurity systems needs to be considered as part of the cost of doing business. On the other side of the coin, investment in cybersecurity is an expense that most organizations will not be able to recover directly through traditional return-on-investment models. This is why governments should consider awarding tangible incentives to encourage cybersecurity spending and not just award beyond mere seal of approval from government agencies. However, given the significant risks and threats posed by cyber attacks, can any company actually afford not to invest in cybersecurity? This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of EY or SGV & Co. Carlo Kristle G. Dimarucut is an Advisory Senior Director of SGV & Co.

14 May 2019

Lee Celso R. Vivas

Tomorrow’s tax professionals

The global business environment continues to evolve at a rapid pace, with factors such as globalization and technology disrupting traditional roles, processes and operations. One of these areas is in the tax landscape, where the changes are fundamentally and permanently changing how tax professionals operate. A recent article published in Ernst & Young’s Spotlight on Business magazine, “Three trends shaping taxation for business,” identifies some significant traits that are redefining the tax function, as well as the role of tax practitioners all over the world. These trends include: MORE COMPLEXITY With recent collaboration among global tax administrations, such as with the Base Erosion and Profit Shifting (BEPS) project implemented by the Organization for Economic Co-operation and Development, signatory countries now have minimum standards to adopt in order to review bilateral tax treaties and enable better tax compliance, close taxation gaps and review business structures, supply chains and operations. With increased data submissions (like Country-by-Country Reporting) and automatic exchange of information being adopted by more countries to facilitate tax transparency, companies will need to consider more complex standards in their tax compliance strategies. MORE DIGITAL CHALLENGES Because of the speed at which digitalization is spreading, traditional tax rules are often hard pressed to keep up, creating uncertainty. However, there is still no clear guidance or consensus for tax administrations on how to address the challenges of the digital economy. This lack of clarity means that each country may choose to find its own solution to address the taxation of the digital economy. This may pose more challenges in the future in trying to create a consistent body of digital taxation standards on a global level. MORE POWERFUL TAX ADMINISTRATIONS Digital technology is changing how tax administrations interact with taxpayers and other tax authorities. With direct access to taxpayer data, tax administrations are increasingly relying on data analytics to help them step up tax collection and target tax audits. Some countries are even initiating real-time data collection from taxpayers with machine-based tax assessments and collection. Empowered by digital and technology, tax administrations are expected to have more tools and processes to ensure tax compliance. With these three emerging trends, how can future tax professionals evolve to meet the demands of tomorrow’s tax practice? TECHNOLOGY ENABLEMENT Traditionally, tax professionals and IT consultants are widely different personalities with entirely different skill sets (e.g., the highly specialized tax professional versus the highly specialized technology or IT professional). However, as we move further into the digital age, the gap between the tax professional and the IT professional will continue to narrow. While the tax professional of the future does not necessarily have to also be an IT professional, they will still need to acquire a modicum of technology proficiencies to complement their tax technical skills. At the minimum, the future tax professional must be able to understand and appreciate emerging technologies and how they affect the tax function and the tax environment. COLLABORATION AND MULTI-SKILLED TEAMS Traditionally, the world of tax compliance was a simple relationship between the tax preparer/reviewer, the tax return and the local tax authority. As the tax environment becomes more and more digital, the number of elements involved and the interrelationships among these parties will become increasingly complex — these include (among others) the taxable event/transaction (data source), the accounting/recording process, the accounting system, the tax preparer, the digitally empowered tax administration, and multi-jurisdictional reporting – each with its own tools and technology enablers. Different elements and technologies will require different skill sets to address. Working in such a dynamic tax environment therefore requires a flexible, multi-skilled service team, in some cases even capable of working across multiple tax jurisdictions. And given the pace at which the tax environment is evolving digitally, “mixed teams” of people who are either tax or technology proficient will ultimately evolve into “blended” teams with blended skill sets (e.g., tax people who understand tech, tech people who understand tax). SHIFTING FOCUS TOWARDS ANALYSIS AND SOLUTIONS As digitalization and automation become more and more widespread, the fear of the traditional tax professional is that he may eventually become obsolete. Tax return preparation will eventually become automated, and there are already many tools in the market that can help to sift, process and analyze high volumes of digital tax data (or tax Big Data). Traditional tax compliance skills (i.e., tax return preparation, filing, reconciling books vs. returns, etc.) may soon lose value. Tax professionals, as tax “advisors,” must therefore be able to elevate their roles from “preparers and processors” to “reviewers and analysts.” In recent tax audit case, for example, a BIR examiner had asked the taxpayer to check the completeness of the sales reported in the taxpayer’s VAT returns by reviewing and matching transactional level sales data – data that consisted of hundreds of thousands of transactions, each with dozens of fields of information, resulting in millions of data points that needed to be analyzed. If we were to apply traditional worksheet/spreadsheet skills, it would have taken months to perform such a task — if it was even possible to process the big data through traditional means in the first place. With various big data tools available, reconciliations and exception reporting may soon be “automated,” performed in minutes, and ultimately rendering these traditionally man-hour based tasks obsolete. In order to stay relevant, tax professionals must be able to elevate their roles by understanding the complex tax environments in which they operate and being able to provide answers to questions such as “What went wrong?” “Why did it go wrong?” and “What can we do about it?” Moreover, as submission of tax digital data to tax authorities moves towards real time or near real-time, traditionally sought-after corrective or remedial tax advice might likewise soon become irrelevant. Traditionally, the practice of tax required highly specialized understanding of tax rules and regulations, which may be something that has defined the persona of tax practitioners. However, given the trends shaping taxation in the future, tax professionals may have to learn to be more adaptable and transformative, both personally and professionally, to stay relevant to tomorrow’s tax expectations. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Lee Celso R. Vivas is a Tax Partner of SGV & Co.

07 May 2019

Armando N. Cajayon, Jr.

Banks and fintech: the next step

In recent years, the Philippine banking ecosystem has undergone rapid digital transformation driven by sweeping technological advances. The Philippine Banking Almanac states that the Philippine banking industry started as a government venture to provide deposit services and fund production in the agricultural and commercial industries. That was 160 years ago and since then, the industry has evolved to include various aspects of financing, up to the ubiquitous digital systems that are now used all over the world. This is no surprise since the banking industry has always been characterized by continuous, customer-driven innovation. RISE OF E-BANKING E-banking first revolutionized the Philippine banking industry in the 1980s with the introduction of automated teller machines (ATMs). These machines eliminated several geographic and time constraints as they allowed customers in urban areas to conduct cash withdrawals and deposits on an everyday basis. In 1999, the invention of smartphones, coupled with developments in the telecommunications industry, paved the way for early versions of mobile banking. Customers could now conduct basic banking transactions such as balance inquiry and fund transfers to accounts within the bank using a short messaging service (SMS). This was followed by internet banking in 2000 which allowed customers to accomplish transactions through computers and the Internet. It was at this point that banks started to veer away from their traditional bricks and mortar operations, integrating both online and offline operations into their physical presence. FINTECH SOLUTIONS AND OPPORTUNITIES As technology continued to improve alongside the increase in mobile ownership and Internet subscriptions, the next few years saw a rise in the adoption of financial technologies (FinTech). Financial services became further digitized with the invention of mobile wallets, payment gateways and virtual currencies. These services are now more accessible and convenient than ever as Filipinos can conduct transactions, pay bills, and purchase goods and services using applications on their personal computers or smartphones. However, most of these innovations are not actions of banks but initiatives of FinTech companies that envision providing enhanced financial services at a reduced cost. FinTech solutions present many opportunities for the Philippines that can be summarized in three main points. First, it reduces the country’s dependence on a paper-based payment system. A 2015 case study by the Better Than Cash Alliance (BTCA) titled Leaving money on the table: The corporate and SME experiences of digitizing business payments in the Philippines found that digital payments could save Philippine banks about $1.52 per transaction. Also, a digital payment system reduces the risk of graft and corruption because records are automatically created as money passes between accounts. Second, FinTech can spur greater financial inclusion. The 2017 Global Findex report by the World Bank revealed that majority of Filipinos remain unbanked with only 34.5% of adult Filipinos holding formal financial accounts. Access to financial services remains a challenge because it is difficult for banks to establish physical branches across the more than 7,000 islands that comprise the Philippines. However, FinTech services transcend geographical barriers by granting accessibility through technological platforms. Third, it provides SMEs with alternative financing opportunities. According to a 2019 study by the Milken Institute, FinTech in the Philippines: Assessing the State of Play, SME lending only made up 2.5% of the total lending portfolio of commercial banks. Sources of capital are a pressing issue for small business owners who are unable to fulfill the loan requirements set by banks. FinTech start-ups have developed an alternative credit-scoring system that can assess the repayment capacity of potential borrowers, allowing Filipinos without a formal credit history to apply for loans. COLLABORATION AND INNOVATION Today, FinTech has become a major industry composed of start-ups that are creating solutions for payments, consumer lending, financing for SMEs, remittances, logistics and transportation, and investments. The 2017 EY FinTech Adoption Index emphasized the recent rise in the percentage of digitally active FinTech consumers. The survey conducted across 20 selected markets revealed that 50% of consumers use FinTech money transfer and payment services. Furthermore, 64% of consumers prefer using digital channels to manage several aspects of their lives. The study revealed that global FinTech adoption could increase to an average of 52%. The expansion of the FinTech industry is also due to the efforts of the Bangko Sentral ng Pilipinas (BSP) to continually update and reform much of their regulatory framework in response to the recent financial services trends. As the industry continues to gain momentum, it also gains capital from investors. In fact, over P5 billion was invested in the Philippine FinTech sector in 2018. These companies have been steadily gaining customers, expanding their market share, and competing with the banking industry. However, partnership and collaboration — not competition — between banks and FinTech companies can maximize innovation and unlock the potential of the Philippine banking industry’s digital future. Essentially, banks and FinTech companies share the same goal: to deliver better financial services, improve regulatory compliance and reduce long-term costs. FinTech companies offer a wide range of products such as robotic process automation, data analytics and artificial intelligence that can greatly enhance the business operations of banks. They are also more flexible in integrating and working with cryptocurrencies, rewards and loyalties in the form of tokens, and becoming the cash in and cash out alternatives. In addition, some FinTechs are capable of giving their partners and clients revenue in the form of rebates or commissions through services such as mobile e-loading and financial transactions. Meanwhile, banks are adept at handling the common challenges faced by FinTechs such as the significant costs incurred due to customer acquisition and the barriers encountered in cross-border business. Banks are also experienced in handling costly compliance matters such as Anti-Money Laundering Act (AMLA) and Know-Your-Customer (KYC) regulations. The anonymity that online financial services provide poses risks to AMLA and KYC regulations as cybercriminals and money launderers may see FinTechs as instruments for financial crimes. To better protect financial institutions from money laundering and other financial cybercrimes, BSP issued Circular no. 950 which contains additional requirements for AMLA and KYC compliance. Complying with these regulations is expensive and can greatly impact the finances of FinTech startups, but these costs are bearable for large financial institutions such as banks. Thus, FinTechs can benefit from the banks’ compliance and regulatory competencies, especially if they are already reaching their marketing saturation points. With the relative advantages of each side, it is clear that strong collaboration between banks and FinTech companies have great potential and opportunities that can result in relevant and sustainable solutions for their customers. In order for banks to form successful strategic relationships with FinTechs, they need to clearly define their digital solutions goals. Then, they must work together to design a FinTech framework that best suits their business needs, size, culture and operations as well as their customers’ banking needs and expectations. Banks should also encourage innovation initiatives that promote their long-term growth strategies. FUTURE OF THE FINANCIAL SERVICES INDUSTRY The change-driven history of financial institutions demonstrates that adopting emerging technologies unlocks many opportunities. Today’s digitally competitive business landscape requires leaders of financial institutions to embrace sustainable technological transformation and pioneer innovation. In turn, these efforts will lead to financial services that deliver prime transformational value to Filipinos, ultimately boosting their financial well-being and strengthening the economy. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Armando N. Cajayon, Jr. is a Principal in the Advisory Services of SGV & Co.

29 April 2019

Mae Grace June C. Nillama

The Tax Amnesty Act of 2019: Welcome news for delinquent taxpayers

On Feb. 14, the President signed into law Republic Act No. 11213 or the Tax Amnesty Act of 2019 (RA 11213). The law provides for estate tax amnesty and tax amnesty on delinquencies. In this article, we will zoom in on the tax amnesty on delinquencies. The grant of a tax amnesty on delinquencies (TAD) is a novelty. Under the previous tax amnesty law (RA 9480), tax cases that are the subject of final and executory judgments by the courts were specifically excluded from the coverage. Perhaps aware of the delinquencies pending in the books of the Bureau of Internal Revenue (BIR) and the resources needed to actually collect on these delinquent accounts, the proponents of this law deemed it prudent to grant an amnesty for delinquent taxpayers. This will not only give the taxpayers a chance for a fresh start, but will also help clear the dockets of the BIR so that they can focus their attention on more pressing cases. While the law became effective on March 2, its implementation still required the issuance of the implementing rules and regulations to guide taxpayers and implementing agencies alike. On April 5, Secretary of Finance Carlos G. Dominguez III, upon the recommendation of BIR Commissioner Caesar R. Dulay, issued Revenue Regulations (RR) No. 4-2019 providing the guidelines on the processing of tax amnesty applications on tax delinquencies. The regulations took effect on April 24. The RR provides a huge relief for taxpayers and practitioners as it clarified some of the seemingly ambiguous provisions of the law, primarily the coverage of the TAD. Due to the term used, taxpayers may have gotten the impression that only delinquent accounts (as defined in prior BIR regulations and issuances) are covered by the law. RR No. 4-2019 addresses these issues and clarifies that there are only four instances when the TAD may be availed of: Tax assessments that have become final and executory at the BIR level; Tax assessments that have become final and executory at the judicial level; Pending criminal cases filed with the DoJ/Prosecutor’s Office or the courts for tax evasion and other criminal offenses under Chapter II of Title X and Section 275 of the Tax Code; and Withholding agents who withheld taxes but failed to remit the same to the BIR. Evidently, only the first two instances require a final and executory assessment. Moreover, only those that have become delinquent on or before April 24 may avail of the TAD under these instances. Another cause of uncertainty was the inclusion of the withholding taxes in the TAD. In RA 9480, withholding agents with respect to their withholding tax liabilities were specifically excluded. During the deliberations of the law, several stakeholders proposed the inclusion of withholding tax liabilities since it was seen as a prevalent issue in practice. Non-withholding or non-remittance of the required withholding taxes often occurs due to ignorance or the unsophisticated accounting systems used by taxpayers, but without any real intention to evade payment. It was argued that since the amnesty aims to give taxpayers a fresh start, it would not make sense to exclude withholding taxes in the coverage. A distinction was made between withholding taxes that were not withheld at all and withholding taxes that were withheld but not remitted to the BIR. The former are covered by the General Tax Amnesty and the latter are covered by the TAD and subject to a higher rate of 100% of the basic tax. The understanding then was that the withholding taxes withheld, but not remitted to the BIR, would be covered by the TAD even though the same are not technically and necessarily delinquent yet. This is now reflected in the regulations, which state that a tax amnesty rate of 100% shall apply in all cases of non-remittance of withholding taxes, even if the same shall fall under any of the other instances covered by the TAD. Moreover, the regulations state that for withholding agents who withheld taxes but failed to remit the same to the BIR, delinquent or not, and with or without Final Assessment Notice/Final Decision on Disputed Assessment, the Preliminary Assessment Notice/Notice for Informal Conference (PAN/NIC) or equivalent document will be sufficient. Clearly, this gives closure to the question of whether it is necessary that taxpayers are the subject of a final and executory assessment. Finally, the regulations also provide an expanded definition of the tax base, i.e., the basic tax assessed. The law merely provides that the tax base for all the instances covered by the TAD would be the basic tax assessed. However, due to the different natures of the instances covered by TAD, there arose some confusion as to what constituted the basic tax assessed. This is particularly relevant in cases where the delinquent taxes have been the subject of an application for compromise settlement, which requires the payment of the compromise offer. The regulations clarified that the basic tax assessed would be the tax due on the Assessment Notice, net of any basic taxes paid prior to the effectivity of the regulations. This means that any payments previously made, such as the compromise offer or the partial payments, must be deducted from the tax due in the assessment to get to the amnesty tax base. With the issuance of the regulations, taxpayers can now take advantage of a rare opportunity that could potentially provide substantial savings, not just for interest, penalties and surcharges, but also for basic taxes. All they need to do is follow the steps provided in RR No. 4-2019, and then rest easy knowing that they not only have a fresh start as taxpayers, but that they have also contributed to the country’s long-term growth by properly paying the taxes which are the lifeblood of national development. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co. Mae Grace June C. Nillama is a Tax Director of SGV & Co.

22 April 2019

Shane Dave D. Tanguin

Big data and dark data: Balancing the costs and benefits

Big data is starting to become a cliché among business executives, given that almost everyone is now leveraging big data in decision making. “Big data” was defined in 2012 by Gartner (a global research and advisory firm) as “high-volume, high-velocity and/or high-variety information assets that demand cost-effective, innovative forms of information processing that enable enhanced insight, decision making, and process automation.” The term is often used to refer to predictive analytics or other methods of extracting value from data and information. What is often left out is its twin subset — dark data. Gartner coined the term and defines “dark data” as “the information assets organizations collect, process and store during regular business activities, but generally fail to use for other purposes.” The digital world produces information in unprecedented proportions. Based on a study by Statista in May 2018, about 47 zetta bytes (1 zetta byte is about 1 trillion giga bytes) of data are expected to be generated by 2020. This number grows to 163 zettabytes in 2025 – almost 3.5 times in a span of five years! To put in perspective how exponential the growth of data worldwide is, only 2 zettabytes were generated in 2010. While structured information can be consumed for analysis out of the ocean of big data, portions of unstructured information, the dark data, will remain untapped. The growing breadth of available data and the use of big data in business decisions and applications would mean commensurate growth in the investment needed to make sense out of the ocean of information. Revenue from big data and business analytics worldwide, according to a study conducted by Statista in August 2018, amounted to $149 billion in 2017 and is expected to reach $186 billion in 2019. Revenue from these businesses is expected to grow steadily at 12% year on year to about $260 billion in 2022. Clearly, more and more investment is going to leverage the power of big data and harness the benefits it brings to decision making. Investmenting in the right places also helps in maximizing yields. Let us look into an industry where big data and data analytics have made a massive impact — the restaurant business. Gathering information ranging from customer demographics, behavioral data and shared customer interests, restaurant owners can develop smart and specific marketing activities for targeted customers. Customer profiles and point-of-sale information also help in developing best practices in maintaining on-time delivery, menu enhancement, customer segmentation, streamlining operations and improving customer experience. A lot has been developed in this industry and big data has had a significant influence in effecting these changes. However, where does dark data go? Big data is used in the practical world starting from determining what objective needs to be met — then almost instantaneously, followed by determining the what, why, how, where and when. This is where it gets tricky. One can start defining what they need and then look for it in the big data or start from the big data to see what it offers then see what benefits to explore. In either approach, handling volumes of big data may prove to be costly both on a technological and people resources level leaving no space for investment in harnessing dark data (i.e., emails, printed reports/statistics, hard copy files, CCTV footages among others). Let’s take as an example a small restaurateur who aims to solve the single biggest issue identified by customer survey feedback — long waiting queues before waiters are available to take orders. Structured data were gathered to profile customers from the moment they enter the restaurant until an order is taken — demographics, time of day information, volume of customers, menu listing, number of waiters and ordering time. The restaurateur analyzed all this information and developed a streamlined menu and added waiters on identified shifts where customers are expected to peak. The expectation was to have the ordering time drop significantly and waiters will have a quicker turnaround for taking orders. However, while the changes all made sense, there was no noticeable drop in ordering time. This made the restaurateur go back to the drawing board and prompted a check on how ordering was done in the past. The restaurant’s CCTV footage was reviewed and customer behavior was observed comparing the order-taking sequence in the past and present. The restaurateur noted that in recent footage, an average of three visits were made by waiters before an order was placed — the first was almost immediately after customers were seated, followed by two other visits with longer intervals. In older footage, there were only two visits on an average and with shorter intervals before an order was placed. When the restaurateur investigated the interactions on the first visit and the driver of longer intervals in recent footages, it was found out that the reason had to do with their free WIFI services. Customers would ask for the WIFI passwords in the first visit of the waiter and set their phones up before they turned their attention to the menu and actually started making an order decision. The reason for longer order time had less to do with number of waiters, volume of customers and menu. The restaurateur could have saved time by analyzing the dark data in the form of CCTV footage first rather than going straight to big data that was easily analyzed. The realization of the root causes of the customer behavior made it easier to address the problem. The restaurant now has WIFI password information readily available on all their tables. Investing in big data is an edge and balancing it with investments in converting dark data will make it more effective. Breaking the constraints in analyzing dark data may require more investment but it equally provides the power of the comparative — seeing clearly what was different in the past can make better and more informed decisions. The comfort of having masses of information and the capacity of analyzing it may cause dark data and its potential to be neglected. Swimming into deep open waters just because you can may not be the wisest. But navigating these waters with the knowledge of the past brought by dark data could mean your true edge in the digital world. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co. Shane Dave D. Tanguin is a Partner of SGV & Co.

15 April 2019

Ramon D. Dizon and Smith Lim

Evolving to match future markets

Traditionally, businesses have used the term “markets” to refer to economies. Hence the terms “developed market” or “emerging market” are usually associated with countries at a certain level of development. However, given the changing times and consumer paradigms, businesses may need to shift their focus to smaller “markets.” Cities, for example, are expected to grow further. A United Nations study projects that by 2050, 68% of the world’s populations will live in urban areas, with corresponding effects on infrastructure and the environment, as well as consumption behaviors. Because of new technology and needs, consumers are already changing the way they work, live and play. Smart technology is continually transforming cities and consumers, as discussed in an EY article, “Will the next global market be a country, city or individual?” The article shares some insights from EY ASEAN and Global Emerging Markets Leader for Consumer Products and Retail Chandan Joshi on his predictions for future cities, businesses and consumers. THE CITIES OF THE FUTURE Technology has brought an unprecedented wave of transformation across the world, disrupting almost every aspect of life as we knew it. Even concepts as basic as money and finance, for example, are rapidly evolving with developments such as mobile cash, bitcoin and cryptocurrency, digital banking and online shopping. Tomorrow’s cities may evolve in very different ways, and be markedly different from existing ones. While city planning has always been the purview of the government, we will see increasing public involvement in city development in the future, especially as connectivity and data-sharing increase among consumers, governments, companies and infrastructure providers. Community-based and participatory approaches to designing future cities will become increasingly popular, as ready access to data raises awareness, understanding, and involvement in urban issues among citizens. We are already seeing this with some applications that rely on crowdsourced data such as Waze, which helps manage traffic flow in the city. We are also likely to have more areas shifting from multi-use to every-use. Currently, there are spaces where commercial and residential uses intermingle. It is very likely that future cities will have spaces where the lines will blur between work and leisure, retail and entertainment, personal and communal, which means that real estate providers will have to consider ways to make developments more multifunctional, flexible and modular to meet future needs. The rise of telecommuting and other flexible work arrangements will change the way people work, and the way spaces are utilized. The optimal use of scarce real estate space will become an increasingly important theme in the future. Higher levels of connectivity will also mean more virtual interaction, making it increasingly easier for people to form virtual communities that disregard location. As people come together due to shared values and interests, traditional marketing geo-demographic indicators such as age, gender, location, economic bracket and others will decrease in relative relevance. THE CONSUMERS OF THE FUTURE While physical and virtual boundaries continue to blur, and data and technology become even more integrated into daily living, the focus on individual consumers will likely remain constant. Even if virtual communities become the norm, consumers will still expect to be served as individuals, perhaps to an even more bespoke level. The traditional sources of customer insights that companies currently rely on, such as market surveys and focus groups, may rapidly become obsolete when customers expect customized service based on their meal plans, exercise needs, social activities, medical conditions and other personal data. With the increased use of data infrastructure and analytics, future businesses may be able to identify the precise needs of consumers in real-time. One example of such services was explored in London and Los Angeles, where participants in an EY FutureConsumer.Now program looked into the potential of vitamin-fueled, bespoke energy shots tailored to specific individuals based on their nutritional needs, and manufactured at point of sale using recipes that leverage real-time biometric data. Imagine the possibilities where you can walk into a shoe store and have footwear made-to-order on the spot quickly using 3D printing technology or similar platforms. Additionally, we are already seeing how more and more consumers are transitioning to subscription or shared models, such as with ride-sharing, content-sharing, homesharing and similar platforms, rather than direct ownership. Consider the recent announcement by Google of its Stadia gaming service, which allows consumers to access game libraries online without needing to purchase their own gaming consoles or expensive computer setups. As more people buy into the sharing economy in the future, there may be increasing demand for such services as pay-to-wear apparel lines, pay-to-use sports gear or even furniture. This also poses an increasing challenge for companies to make the consumer experience as convenient and pleasurable as possible. THE BUSINESSES OF THE FUTURE While technology is disrupting all industries and sectors, it is likely that the greatest impact will be on consumer products and retail. Many consumer goods companies today are already proactively adapting to change by further individualizing their products and services to scale. However, many companies also still need to invest in their data infrastructure, analytics capabilities and supply chain flexibility. Supply chains of the future will need to be more agile, not just in terms of managing demand and developing product innovation, but also be able to address the real-time needs of customers, as captured and interpreted by their data analytics capabilities. Some companies may need to restructure and decentralize operations to be more neighborhood-based. While this means serving a smaller number of consumers at a time, it also means increasing customer satisfaction. Shifting from macro to micro markets may also have an impact on resource allocation and sustainability. This highlights the possible need for businesses to develop more resource-sustainable products, while at the same time leveraging sophisticated technologies like blockchain to streamline and better manage operations across their entire network. THE FUTURE IS NOW The greatest change for companies to undergo is not in terms of their operations, but in their mindset and cultures. They need to see the future as bringing yet-unforeseen opportunities, rather than unanticipated threats. They need to see that consumers no longer just buy products, but buy experiences. The key is to BE the change leader, rather than a victim of change. By being at the forefront of innovation, companies can take an active and significant role in shaping the world for future consumers, possibly leveraging on technology to develop new solutions or even uncover new and untapped markets that may not even exist yet. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Ramon D. Dizon is the Transaction Advisory Services (TAS) leader of SGV & Co. Smith Lim is a TAS senior director at SGV & Co.

08 April 2019

Maria L.V. Balmaceda

Entrepreneurs inspire!

Every two years, the Entrepreneur Of The Year (EOY) Philippines program stages a road show to announce the start of the nomination period for entrepreneurship awards. In our recent road shows in Cebu and Davao, the local reporters were curious to know our observations on entrepreneurship in the country since we launched the awards in 2003. This was a good point to reflect on after 16 years of celebrating the best among Filipino entrepreneurs. It would be best to go back to the very start when we introduced the program. The biggest challenge then was to define who or what an entrepreneur is. The prevailing notion at the time was that we were referring to people who run buy-and-sell enterprises or “mom and pop” stores. Of course these are entrepreneurs by all means, but it was a limited view of entrepreneurship. In our view, the entrepreneur has evolved. SO, WHAT IS AN ENTREPRENEUR? Entrepreneurs include both founders of companies and those who organize, manage, and assume the risks of a business or enterprise in the companies’ life or development. They are active in the leadership of the company. This definition applies to a wide range of people. Traditionally, the entrepreneur is the Chief Executive Officer (CEO) and founder of an organization. However, the definition nowadays has been stretched to include CEOs who come on board to join an existing business. In select cases, the CEO/President of a subsidiary of a company may also be considered an entrepreneur. Entrepreneurs can also be multi-generational as with family businesses that are passed from one generation to the next. Whether the entrepreneur goes by the traditional or expanded definition, the key is that he or she finds creative and venturesome ways to acquire capital resources, build their team, and innovate to achieve their goals and to grow their business. For family businesses, the next generation of leaders should exhibit their own form of risk management and make their mark on the business. All in all, entrepreneurs are those who create value for themselves, their employees, their customers and their communities. HOW ABOUT A SOCIAL ENTREPRENEUR? And speaking of communities, we used to get asked a lot about what it means to be a social entrepreneur. Would an entrepreneur who runs a feeding program in his or her community, donates to charities or provides scholarships qualify as a social entrepreneur? In fact, when the program started in 2003, we had an award category called “Socially Responsible Entrepreneur.” The winners were recognized for their strong Corporate Social Responsibility (CSR) programs. However, sometime in 2006, we collaborated with a global social entrepreneurship nonprofit organization that helped us set the qualifications for one to be considered a social entrepreneur. We then included a Social Entrepreneur Award to refer to people who run businesses that are for-profit or non-profit and whose “approach to social and environmental challenges applies innovation, creativity and resourcefulness to create opportunities for social transformation.” These are enterprises that specifically address social issues such as poverty and the environment with sustainable solutions, not simply those with established CSR programs. After a few years, the category ceased to be a stand-alone award because we had seen how many entrepreneurs have embraced social entrepreneurship, embedding it in their organizations. WHAT ELSE? In the past 16 years, we have also seen the increased participation of women entrepreneurs. While we are aware that there are numerous enterprises founded and managed by women, there were times when women entrepreneurs were underrepresented with as few as one qualifying as a finalist. However, there has been a growing network of women entrepreneurs, perhaps spurred on by the more visible advocacy for gender parity. Younger entrepreneurs are also now more participative in the program, which is worth encouraging. With the advent of social media and online businesses, we have seen how many among the younger generation have boldly taken on entrepreneurship as their career. When we launched the Entrepreneur Of The Year Philippines in 2003, very few schools offered programs in entrepreneurship. Today, it has become a popular degree choice among college students. BUT SOME THINGS NEVER CHANGE Entrepreneurs may differ in responsibility, age, approach or gender but we’ve also noticed that there is some consistency in being an entrepreneur. Regardless of the times or circumstances, entrepreneurs remain passionate about their dreams. They are innovators who may have a single idea that can spark a business evolution, create new possibilities or disrupt the status quo. They are inherently visionaries who leverage new ideas to challenge old paradigms and seize opportunities to develop enterprises that have the potential to transform industries and support economic growth. They are dedicated and hardworking. They have stories to tell and these stories inspire others to become like them. Back in 2003, our nominees would submit reams of documents that we needed to hold in balikbayan boxes. But times have changed indeed because we ourselves have gone paperless. Nominations are now in sync with the digital world. By simply visiting https://geoy.ey.com you can help us recognize and celebrate our world-class Filipino entrepreneurs. Entrepreneurs inspire us, and that never changes. *** Nominations to the Entrepreneur Of The Year Philippines 2019 will be accepted until May 31 2019. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co. Maria L.V. Balmaceda is Senior Director of SGV & Co. and Program Manager of the Entrepreneur Of The Year Philippines.

01 April 2019

Anna Maria Rubi B. Diaz

New lease accounting standard: the road to adoption

The new lease standard under Philippine Financial Reporting Standard (PFRS) 16 has been effective for annual periods beginning on or after January 1, 2019. One of the significant changes brought about by PFRS 16 is in lessee accounting, as it requires most leases to be recognized on the lessee’s balance sheet by recording a right-of-use asset and a corresponding lease liability. For many entities, the effects are not limited to the accounting implications but also encompass areas such as lease procurement and negotiation, contract administration, financial statement processes and controls. Entities have embarked on activities to assess the impact of PFRS 16 on their businesses and implement the requisite changes. We share below what many of the financial statement preparers have gone through in their PFRS 16 voyage. ESTABLISHING PROJECT STEERING COMMITTEES AND WORKING GROUPS As part of the governance and implementation processes, entities have established project steering committees and working groups. The steering committee generally provides overall direction and guidance, resolves issues, and monitors the status of the project and approves project deliverables. The working group on the other hand performs overall project management and coordinates with working teams, business units, advisors and other project stakeholders. UNDERSTANDING THE LEASE ACCOUNTING CHANGES AND CURRENT STATE As one of the critical initial steps, entities have acquired an understanding of PFRS 16 either through formal training, discussions with advisors, or knowledge transfer sessions. Aided by this knowledge, entities then conduct current state assessments vis-à-vis the changes brought about by PFRS 16 around identification of leasing activities, distinguishing lease arrangements (including relevant contract terms) and understanding lease administration tasks. The current state assessment allows entities to determine the degree of impact on the areas affected by the lease arrangements. REVIEWING LEASE ARRANGEMENTS The project working groups review the agreements based on the requirements of PFRS 16 and considered any required changes. Many entities have depended on spreadsheets, particularly for the following: Lease arrangement database — Entities develop spreadsheets which document, at a minimum, the counterparty, lease term (considering the impact of lease renewal options and termination clauses where present), lease amount (considering variable lease payments that are in substance fixed where applicable) and other relevant data that were needed for the lease computation. Computation of lease income expense — Entities develop macro enabled spreadsheets to compute for the requirement of the new lease standard especially the impact for lessee accounting. While spreadsheets might be helpful to some, there are also electronic or automated solutions that are more responsive to processing voluminous contracts, such as for those with many leased branches like quick service restaurants, banks and those in retail. As this process is manual in nature, administratively burdensome and prone to errors, it exposes the entities’ operational process and financial reporting risks. To address these, some entities have turned to better solutions using web-based tools, computer programs or artificial intelligence (AI). One example of a tool that uses AI to support entities lease accounting approach is the EY Lease Reviewer. The EY Lease Reviewer uses AI or machine learning, which can help improve the assessment of a large number of lease arrangements. It helps entities to identify and extract relevant contract clauses in adopting PFRS 16 such as the lease amounts, and terms including renewal options and termination options. In finding the right tool in reviewing the contracts, entities check whether the tools supported adequate internal controls and processes applicable to their businesses. IDENTIFYING GAPS AND QUANTIFICATION OF IMPACT Entities identify the gaps between PFRS 16 and PAS 17 which was the legacy standard. They then prepare a gap report that show the results of their implementation. This report summarizes their assessments of the impact and the key items that the entities have to change on their processes and policies. The gap report also serve as the basis of the entities’ results of their quantification. UPDATING PROCESSES AND INTERNAL CONTROLS Some entities took the adoption of PFRS 16 as an opportunity for them to modify their current processes and controls. One example is the centralization of the lease arrangements into one repository. Since most of the lease liabilities under PAS 17 were recognized off books by the lessee and thus, might not be centrally monitored, lease arrangements might often be stored in different locations and handled by different persons or departments. The transition to PFRS 16 is not only beneficial to the accounting and finance functions. Other departments such as procurement, general administration or treasury might also benefit from the centralization — since the critical information would have become readily available (e.g., renewal terms, critical payment dates, etc.). Furthermore, entities would have updated the documentation of the related processes and internal controls that were affected by PFRS 16 to aid in its business as usual. LESSONS LEARNED Success in adopting an accounting change depends on the entity’s state of readiness. Entities must proactively consider their current state, the steps needed for compliance and the processes by which they need to transition to any new accounting standard. This demonstrates the importance of not being resistant to change; but instead, embracing and learning from it. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co. Anna Maria Rubi B. Diaz is a Financial Accounting Advisory Services Senior Director of SGV & Co.