Calendar Year 2010 Financial Reporting Must Have’s

Happy New Year everyone! This will be my first blog entry for this year of the rabbit. I hope you find this article useful and sensible J

It's a new year which means accountants are now beginning their year-end closing and reporting cycle. Auditors are also busy preparing their year-end audit work. For sure, many multinationals are now busy preparing their reporting packages especially those with tight-deadline such as within this week (I can relate. The sweet life of audit work is still fresh LOL)

For local statutory reporting purposes, April 15 is the tax deadline. The financial statements along with the required reportorial requirements (e.g., Annual Income Tax Return) are to be received by the Bureau of Internal Revenue (BIR). The Philippine Securities and Exchange Commission (SEC) requires companies to submit financial reports 120 calendar days after the end of fiscal year. Be it noted that the SEC will only accept those financial reports duly stamped as "received" by the BIR.

But before that, let’s try to recall the numerous updates that we need to know before preparing our financial reports and submitting it to these government offices.

PFRS for SMEs

The local accounting scene introduced its own version of Standards for Small and Medium Enterprises (SMEs) last 2009. SMEs are those companies with total assets of between P3 million to P350 million or total liabilities ranging from P3 million to P250 million.  The Philippine Financial Reporting Standards (PFRS) for SMEs is made in response to a set of rules applicable to SMEs as the full PFRS applicable to large companies does not fit-in to those SMEs.

The said stand-alone standard for SMEs features changes such as:

·         Investment properties must be measured at fair value and not at cost.

·         Property, plant and equipment must be measured at cost less any accumulated depreciation and accumulated impairment losses. There is no option to revalue the property, plant and equipment assets.

·         Intangible assets must be measured at cost less accumulated amortization and accumulated impairment losses. They cannot be revalued.

·         For employee benefits, actuarial gains and losses must be recognized in full in the income statement.

·         Research and development costs must be expensed as incurred and must have a finite useful life. Otherwise a useful life of 10 years is assumed.

·         Borrowing cost is expensed out.

RR No. 15-2010

The BIR issued last November 17, 2010 RR No. 15-2010 entitled “Amending Certain Provisions of Revenue Regulations No. 21-2002, as Amended, Implementing Section 6 (H) of the Tax Code of 1997, Authorizing the Commissioner of Internal Revenue to Prescribe Additional Procedural and/or Documentary Requirements in Connection with the Preparation and Submission of Financial Statements Accompanying the Returns”.

The Section 2 of RR No. 21-02 has been amended as follows:

1. the amount of Value-Added Tax (VAT) output tax declared during the year, as well as the account title and amounts upon which the same was based. If there are zero-rated and/or exempt sales and receipts, a statement to that effect and the legal basis therefore;

2. the amount of VAT input taxes claimed broken down into:

a. beginning of the year;

b. current year’s domestic purchases and payments for:

i. goods for resale, manufacture or further processing;

ii. goods other than for resale or manufacture;

iii. capital goods subject to amortization;

iv. capital goods not subject to amortization;

v. services lodged under cost of goods sold; and

vi. 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 amount of customs duties and tariff fees paid or accrued thereon;

4. the amount of excise taxes, classified per major product category, paid on locally produced excisable items and imported excisable items;

5. documentary stamp tax on loan instruments, shares of stock and other transactions subject thereto;

6. all other taxes, local and national, including real estate taxes, license and permit fees lodged under the Taxes and Licenses account, both under the Cost of Sales and Operating Expense accounts;

7. the amount of withholding taxes categorized into:

a. tax on compensation and benefits;

b. creditable withholding tax; and

c. final withholding tax.

8. periods covered and the amounts of deficiency tax assessments, whether protested or not; as well as

9. tax cases and the amounts involved that are under preliminary investigation, litigation and/or prosecution in courts or bodies outside the BIR.

Take note that the disclosures required above are in addition to the existing required disclosures under the PFRS.  However, many companies and tax practitioners find the said RR lacking of clear guidance. According to them, there are many gray areas for BIR’s clarification.

So many changes, right? Oh well, good thing I am not an external auditor anymore (what a relief! Haha)

May we all have a prosperous new year!