This year’s audit season has finally begun which means that it’s time, yet again, to work on your business's financial reporting obligations. Usually, the deadline for filing audited financial statements in the Philippines is around April of every year. So, unless your business is exempted under Philippine law, you will be required to prepare, audit, and file your annual financial statement with the Bureau of Internal Revenue (BIR) and Securities and Exchange Commission (SEC).
Why Audit is Necessary
Statutory audit is a regulation that is adopted and implemented by governments in many countries all over the world because this allows the government to monitor a business’ financial management during a financial year and to know if a business is in compliance and following the reporting requirements of a particular country or jurisdiction where the company is registered.
Imposing this requirement on businesses ensures tax compliance and helps the government achieve a higher level of corporate governance all throughout the country. In the Philippines, this is overseen by two key agencies for finance and tax compliance – the SEC and the BIR.
Who is Required to Submit Audited Financial Statement?
Financial reporting and audit requirements usually depend on the size of a business, the value of its assets/liabilities, and even the type of corporate entity managing it (e.g., partnerships, representative offices, company branches, foreign corporations, etc.).
Below are some general guidelines regarding which businesses are required to submit an audited financial statement in the Philippines. However, as each case may differ, it is still best to consult with your accountant to be more familiar and understand your business’ obligation when it comes to preparing and filing this type of financial document.
BIR:
Businesses with gross annual sales of more than 3 million pesos (PHP 3,000,000) are required to submit an audited financial statement to BIR every year unless exempted. This document will also be filed as an attachment to the business's annual income tax return (AITR).
SEC:
Stock and non-stock corporations with total assets or total liabilities of 6 hundred thousand pesos (PHP 600,000) or more.
Branch / representative offices of stock and non-stock foreign corporations with total assets of 1 million pesos (PHP 1,000,000) or more.
Regional operating headquarters of foreign corporations with total revenues of 1 million pesos (PHP 1,000,000) or more.
Depending on the circumstances, there may be times that a business may not be required to file an audited financial statement with the BIR (based on their filing threshold) but may still have to submit the document to the agency if they are required to file their audited financial statement to the SEC.
Things to Note When Filing Audited Financial Statements
To be able to get a clear and accurate picture of a business's financials, the BIR and the SEC require that financial statements be reviewed or audited and certified by an independent auditor or audit firm.
The process usually looks like this:
The financial statement will be prepared by the business.
The financial documents will then be submitted to an independent auditor or audit firm to be reviewed, making sure that the business is in compliance with local tax and other requirements.
If the auditor or audit firm is certain that the financial documents of the business are an accurate and true portrayal of its financial standing, then it will be signed off and deemed certified.
Once the financial statement has been certified, it will be referred to as an audited financial statement and can be submitted to various government agencies.
Deadline of Filing
For BIR, the deadline of filing the audited financial statement depends on the business’ registered financial year. In the Philippines, a business is required to file their Annual Income Tax Return (AITR) by the 15th day of the 4th month after a business’ financial year-end date which will also signal the filing of the audited financial statement (AFS).
Usually, in the Philippines, businesses tend to align their financial year with the calendar year. As such, the deadline for filing falls on April 15th every year. If a business does not follow the calendar year as their financial year, naturally, the schedule and deadline of filing is going to be different and will follow the general rule of filing by the 15th day of the 4th month after a business’ financial year-end date.
For SEC, the filing will always come after the BIR. The deadlines are usually based on a business’ SEC registration or license numbers. The SEC can be expected to release a memorandum in December or January confirming the schedule of filing for each category of registration or license number.
