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24
May

BIR Audited Financial Statements, when mandatory?

By this post, let us answer the question of SMEs on whether or not financial statements are mandated to be audited by an independent Certified Public Accountant.

Section 232 of the Tax Code, as amended provides, and hereunder quoted:

Section 232. Keeping of Books of Accounts. – (A) Corporations, Companies, Partnerships or Persons Required to Keep Books of Accounts. – All Corporations, Companies, Partnerships or persons required by law to pay internal revenue taxes shall keep a journal and a ledger or their equivalents: Provided, however, That those whose quarterly sales, earnings, receipts, or output do not exceed Fifty thousand pesos (P50,000) shall keep and use simplified set of bookkeeping records duly authorized by the Secretary of Finance where in all transactions and results of operations are shown and from which all taxes due the Government may readily and accurately be ascertained and determined any time of the years: Provided, further, That corporations, companies, partnerships or persons whose gross quarterly sales, earnings, receipts or output exceed One Hundred Fifty Thousand Pesos (P150,000) shall have their books of accounts audited and examined yearly by an independent Certified Public Accountants x x x.”(Emphasis supplied)

From the above, individual and corporate taxpayers with gross quarterly sales, earnings, receipts or output exceeding P150,000.00 are mandated to file a FINANCIAL STATEMENTS audited by an INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT (CPA). It does not however require each of all the four (4) quarters in a year to reach more than the P150,000 for mandatory audit to apply. For as long as one quarter exceeded the P150,000, then, it becomes mandatory. Bureau of Internal Revenue (BIR) may refuse filing unaudited financial statements as an attachment to the income tax return (ITR) if it would not comply, and may impose penalties upon failure to file or late filing, or worst, if a taxpayer will fraudulently fail to file, BIR may assess based on presumptive fraud within the period of ten (10) years from discovery.

However, under the regulations implementing Optional Standard Deduction (OSD), Revenue Regulations No. 16-2008 & 16-2010, individuals who avail of the OSD are no longer required to file audited financial statements. Thus, it becomes optional for sole proprietorships to undergo the audit and if we are to be asked, we would humbly recommend audit for the benefits that it normally brings such as the following:

a. It serves as check and balance over the work of the bookkeeper, in-house or retainer-paid;

b.Proper valuation of the accounts – assets, liabilities, and equity; and,

c. Audited financial statements becomes readily available in case of need (say, securing a loan from banks, presentation to potential clients, and more)

For corporate taxpayers, they are required by the SEC to file audited financial statements regardless of the above rule. This is a mandatory reportorial requirement every year, and SEC will not accept filing unless the same is stamped filed by the BIR. For individuals however, it is only with the BIR that the financial statements are to be prepared and not required to be filed with the SEC so the P150,000 rule applies.

Notably, not all CPA’s can do the audit and sign on the financial statements. In general, a CPA must be duly accredited by the Board of Accountancy-Philippine Regulation Commission (BOA) and by the BIR as tax agent. In some industries like banks and financial institutions, accreditation of the Securities and Exchange Commission (SEC), or cooperatives, accreditation by the Cooperative Development Authority (CDA), or insurance and related companies, accreditation by the Insurance Commission.

If the audited financial statements would be signed by a non-accredited CPA, the taxpayer will be penalized and the CPA may be reprimanded, or worst, license could be revoked. The taxpayer could not rely heavily on the misrepresentation of the CPA, if any that it is duly accredited, so it has to exert effort to assure that the CPA is indeed, duly accredited.(Post viewed 15584 times)

Comments

  1. Celi says:

    you have done a marvelous job by providing this post. it will help a lot the people who are searching for information. thanks for sharing.

  2. Adele says:

    how exciting! i have really enjoyed reading this post. you guys have built a great community!

  3. Nel says:

    Can a CPA who is BOA accredited only signed the financial statements? Or does the CPA also have to be BIR accredited? Thanks!

  4. TaxAcctgCenter says:

    Nel, for BIR purposs, it has to be a BIR Tax Agent. Thanks.

  5. Gregor Timothy Marcaida says:

    What is the basis of BIR of requiring Financial Statements of Companies/ Individuals to be audited by CPAs accredited by the BIR as Tax Agent? The RR on the implementation sounds vague

  6. Gregor Timothy Marcaida says:

    the RR only mentioned that Companies/ Individuals to deal with BIR Accredited individuals for transactions, it doesn’t particularly mention that issuers of Audited Financial statements be accredited with BIR

  7. TaxAcctgCenter says:

    Hi Gregor. It is part of BIR’s function to administer and implement the Tax Code. It has issued quite a number of RRs on Tax Agents to implement its power register and accredit tax agents.

  8. jas says:

    So, instead of filing an AFS, what must I file?

  9. nette says:

    I passed the CPA board in 1982 and i worked with a bank for almost 6 years and with a private company for 1 year. Thereafter, i runned my own business. I want to go on private practice now. What must i accomplish or do? I have not attended any seminar for the past 20 years. can i still have a BOA and BIR accreditation?

  10. TaxAcctgCenter says:

    @ Nette. I suggest you visit PICPA or BOA for the accreditation as CPA practitioner for the public practice. BIR accreditation is also required and other accreditation on specific areas like CDA, BSP, SEC, etc. The most basic and very least is BOA and BIR. Don’t you worry its not yet too late and you can still secure accreditation with various agencies.

  11. jehm says:

    As a newly passed CPA, what services can i do for public pactice as an individual cpa?

    1. TaxAcctgCenter says:

      @Jehm. You can do professional consultancy but could not yet sign on the audited financial statements until you secure your accreditation from BOA, BIR, etc. Thanks.

  12. RAI says:

    question.. for a small business -Sole proprietorship.
    what financial statement should be prepared?
    can it only be statement of financial postion and and income statement?
    or do I still have to prepare changes in equity and statement of cashflows thanks.
    thanks in advance

    1. TaxAcctgCenter says:

      @RAI. All of them applies to sole prop financial statements once required. Thanks.

  13. RAI says:

    thank you very much..

  14. RPB says:

    Are your seminars with CPE units.

    1. TaxAcctgCenter says:

      @RPB.None at the moment as we are still working on it. Thanks.

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