Under the Tax Code, all persons, natural or juridical, who are subject to internal revenue taxes must keep proper records of all business transactions and keep books of their accounts.

Companies must have their accounts audited if their annual gross revenue exceeds PHP 3 million ($53,790). Companies can submit their tax returns with unaudited financial accounts if their yearly sales are less than PHP 3 million (US$53,790).

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There are several government regulatory bodies that have the power to establish additional reporting requirements. These regulatory bodies are:

• Securities and Exchange Commission (SEC);
• Insurance Commission (IC);
• The Bangko Sentral ng Pilipinas (BSP);
• Professional Regulation Commission (PRC); and
• Professional Regulatory Board of Accountancy (PRBOA).

In addition to filing with the SEC, regulated entities like public utilities, insurance firms, banks, and corporations are required to submit their audited financial statements to the relevant regulatory agency. 

Further, the Securities Regulation Code (SRC) Rule 68 provides the reporting requirements for the following types of entities:

• Regional operating headquarters of foreign companies that have a total revenue of more than PHP 1 million (US$17,900);
• Stock corporations with paid-up capital of more than PHP50,000 (US$896);
• Branch offices of foreign corporations with capital of more than PHP 1 million (US$17,900); and
• Non-stock corporations with assets of more than PHP500,000 (US$8,900) and gross annual revenue of PHP 100,000 (US$1,700).

Appointing auditors

All businesses are required to present their financial statements along with an independent certified public accountant’s (CPA) audit report. The PRBOA monitors the license examination and ensures that CPAs meet the guidelines established by the Philippine Accountancy Law of 2004. The PRC is the government agency in charge of overseeing the accounting profession in the nation.

The Securities and Exchange Commission (SEC) mandates that external auditors rotate every five years, and the auditor is chosen by the corporation’s board of directors.

Fiscal periods

The Philippines uses a self-assessment tax system, and the accounting period consists of 12 months, normally ending on December 31. Tax returns must be filed on the 15th day of the fourth month following the closing of the taxable year. A company can change its accounting period with prior approval from the Bureau of Internal Revenue (CIR).

Accounting standards

The Philippine Financial Standards (PFRS) are the most authoritative accounting standards in the country. This applies to all entities with public accountability.

SRC Rule 68 sets out the applicable framework for the following type of entities:

• For large and publicly accountable entities – The PFRS;
• For SMEs – PFRS for SMEs; and
• Micro-enterprises – PFRS for SMEs or other accounting standards issued after 2004.

Large companies are classified by any of the following criteria:

• Companies with total assets of more than PHP350 million (US$6.2 million) or have total liabilities of more than PHP250 million (US$4.4 million);
• Companies in the process of filing financial statements in order to issue class instruments;
• Companies that are required to file financial statements; or
• Holders of secondary licenses from a regulatory agency.

A company is classified as an SME if it meets all of the following criteria:

• Have total assets of between PHP3 million (US$53,790) and PHP350 million (US$6.2 million) or total liabilities of between PHP3 million (US$53,790) and PHP 250 million (US$4.4 million);
• Are not in the process of filing financial statements in order to issue class instruments; and
• Do not hold secondary licenses from regulatory agencies.

SMEs are obligated to follow the PFRS for SMEs unless they fall under one of the below categories:

• A subsidiary of a parent company that is reporting under the full PFRS;
• Is part of a group that is reporting under full PFRS;
• It is a branch office or regional operating headquarters of a foreign company, also reporting under full PFRS; or
• The company is a subsidiary of a foreign parent company that is planning to implement the IFRS system.

Annual reports

All businesses, regardless of size, must prepare their paperwork in Tagalog in addition to Spanish and English.

A journal and a ledger (or their equivalents), which make up a company’s books of account, must be kept up-to-date. The Philippine Stock Exchange requires that dealers in securities keep their records for six years, however certain local governments may only require documents to be preserved for three years.

Accounting records must be kept in Philippine Pesos or in a “functional currency” that is accepted by the SEC and the BIR and is used in operations.

Companies must maintain a stock and transfers book that must be registered with the SEC; as well as a book of accounts that must be registered with the BIR before use, which consists of the following:

• General ledger;

• General journal;

• Purchase journal;

• Sales journal; and

• Cash receipts/disbursements journal.

The BIR has the power to examine a company’s financial records for up to three years from the date of filing.

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Penalties for non-compliance

If an organization fails to timely file any return, there is a 25 percent surcharge of the amount of tax owed in addition to a 12 percent interest rate every year. Businesses who purposely fail to file their returns or intentionally file returns that are fraudulent are subject to a 50 percent surcharge on the basic tax payable.