Disclosing tax information in your financial statements
Disclosing tax information in your financial statements by: Lina P. Figueroa
Apologies for disturbing your peace and
interrupting your vacation mode. But today, another important Bureau of
Internal Revenue (BIR) issuance that is likely to affect your company will
start to take effect - Revenue Regulations No. 15-2010, requiring additional
tax disclosures on the notes to the financial Statements (FS).
Published in the newspapers last Dec. 13,
the new rule takes effect 15 days later,
which is today.
In the regulations, the BIR requires that the notes to the FS accompanying the
tax returns should further contain detailed information on taxes, duties, and
licenses paid or accrued by the taxpayer during the year, including pending BIR
assessments and tax cases in court. These detailed disclosures take the place
of the schedule of taxes and licenses that was previously submitted as an
attachment to the income tax return (ITR).
Most informed taxpayers and external auditors are hoping that a Revenue
Memorandum Circular could be issued before the effectivity date because there
are a number of concerns that may need to be clarified. I've checked and none
has been posted in the BIR Website as of yesterday.
The most immediate concern is probably which FS will be covered - FS that will
be issued on or after December 28, 2010 or FS covering fiscal year ending after
If the intention is to cover the former,
it will hit the FS of taxpayers whose fiscal year ended on September 30 and
whose annual income tax return is due on Jan. 15, 2011. Of course, it will
cover those of prior fiscal periods that have not yet been finalized or
The regulations specifically enumerated the following
1. the amount of VAT output tax declared during the year and the account title
and amounts upon which these were based. If there are zero- rated or exempt
sales, a statement to that effect and the legal basis therefor;
2. the amount of VAT input taxes claimed broken down into:
a. beginning of the year
b. current year's domestic purchases such as: goods for resale, manufacture or
further processing; goods other than for resale or manufacture; capital goods subject to amortization; services lodged under cost of goods sold; and
services lodged under other accounts;
c. claims for tax credit/refund and other adjustments; and
d balance at the end of the year.
3. the landed cost of imports and the amounts of customs duties and tariff paid
or accrued thereon;
4. the amount of excise taxes classified per major product category;
5. documentary stamp tax (DST) on loan instruments, shares of stock and other
transactions subject to DST;
6. all other taxes, local and national, including real estate taxes, licenses and
permit fees lodged under the taxes and licenses account both under the Cost of
Sales and Operating Expense accounts;
7. the amounts of withholding taxes categorized into compensation, creditable
8. periods covered and amounts of deficiency
tax assessments, whether protested or not; and
9. tax cases in court or other bodies outside of BIR, at whatever stage, and
We can only guess what the BIR intends to do with these additional disclosures.
You will probably note that most of these information are already declared by
the taxpayer in other returns that it has filed with the bureau. As to the
pending assessments and tax cases, the BIR has already in place a computerized
system to monitor assessment notices issued and their status. Would the BIR
just want all these information summarized and available in one document for
easy reference? Then, why would it have to
be part of the FS?
the preparation of the FS is primarily a management responsibility, the auditor
certifies that the FS fairly presents, in all material respects, the financial
position of the company, it's financial performance and it's cash flows is
accordance with Philippine Financial Reporting Standards.
audit is conducted to obtain reasonable assurance that the FS is free from
material misstatement pursuant to Philippine Standards on Auditing. By
making the disclosures part of the FS, it is evident that the BIR wants these
tax disclosures certified too by the auditor.
that is the case, the external auditor is expected to audit all these
disclosures and vouch for their correctness and completeness. This would
definitely require an extended audit procedure and additional time. If we are
to follow the tax rules, a tax audit cannot be made on presumptions and
estimates because these would translate to liabilities that have to be paid by
the taxpayer and for which there are heavy interests and penalties involved.
These should be based on facts and to attest to the completeness and
correctness of the declarations, a hundred percent audit may have to be done by
the auditor. The auditor isn't even required to do a hundred percent vouching
under the auditing standards. This is a lot of work which companies have to
how would BIR later on deal with a situation where BIR examinations yield
different figures from those disclosed in the FS?
who has handled BIR examinations would agree that an external auditor's tax
audit will not necessarily yield similar results with an audit conducted by the
BIR. In fact, even two revenue officers conducting audit on the same taxpayer
cannot guarantee to yield the same results for various reasons. One reason is
the presence of gray areas in tax regulations that result to differing
interpretations on the requirements for compliance. In some cases, the tax
rules simply require "adequate" support and confirmation of the
adequacy may differ depending on the nature of the transaction and the
appreciation of the examiner in the absence of very specific guidelines.
therefore expect that, more often than not, the examiners who will do the audit
will report that there are inaccurate declarations and underpayments and that
the disclosures in the FS, as certified by the auditor, will be deemed
this make the auditor a party to the tax case if one will prosper? Will
this affect the auditor 's accreditation as a tax agent?
than 10 years ago, there is a BIR rule that exempts from tax examination
taxpayers who had passed a tax review and certification by an independent
accountant or auditor. What will be the reward to the taxpayers for having subjected
themselves to tax review?
pretty sure your auditors will be discussing this requirement with you and the
additional work that this will entail as well as additional information that
you have to provide. It is just hoped that the clarifications will soon be
issued so that the taxpayers and the auditors can determine the procedures that
have to be followed for these additional requirements.