What is an Audited Financial Statement in the Philippines

November 4, 2024

An Audited Financial Statement (AFS) is a comprehensive report detailing a company’s financial health, prepared by independent auditors to ensure financial records’ accuracy, completeness, and compliance. It contains key financial information, including the balance sheet, income statement, cash flow statement, and other relevant disclosures that reflect a company’s financial standing and business operations over a specific period, usually a fiscal year. The purpose of an AFS is to provide a credible overview of the company’s financial condition, which is essential for various stakeholders, including investors, lenders, regulators, and management. An audit assures these parties that the financial statements are prepared according to the relevant accounting standards and are free from material misstatements, whether due to error or fraud.

Audited financial statements (AFS) were introduced to enhance transparency and trust in corporate reporting, particularly after financial scandals highlighted the need for more stringent financial disclosure and accountability standards. Over time, regulations requiring AFS have been implemented globally, including in the Philippines, where the Bureau of Internal Revenue (BIR) and the Securities and Exchange Commission (SEC) mandate the submission of AFS for specific types of companies. These requirements are designed to maintain confidence in the Philippine financial markets and promote sound financial practices among businesses.

Which Companies Are Required to Submit an Audited Financial Statement?

In the Philippines, not all companies are required to submit an AFS. However, the BIR and SEC have outlined specific qualifications for companies that must comply with this requirement. Generally, the requirement to submit an AFS depends on a company’s revenue, assets, and legal structure. The following are some of the primary qualifications:

Corporations and Partnerships: Companies registered as corporations or partnerships with the SEC must file an AFS regardless of size.
Branch Offices of Foreign Corporations: Philippine branches of foreign companies are required to submit an AFS.
Entities Exceeding Revenue or Asset Thresholds: Companies with gross annual sales, earnings, or receipts exceeding PHP 3 million are mandated to submit an AFS to the BIR. Similarly, the SEC requires submission if total assets exceed PHP 600,000 or gross revenues exceed PHP 1 million.
Other Entities as Required by Law: Certain entities, such as non-stock non-profit organizations, may be required to submit AFS based on the organization’s nature and scope.

These thresholds ensure that larger entities impact the economic landscape more significantly and are subject to rigorous financial reporting standards. Small businesses are generally exempt from this requirement unless they exceed the stipulated limits.

Differences in AFS Submission Requirements between the BIR and SEC

While both the BIR and SEC require the submission of an AFS, there are some distinctions in their requirements:

Filing Deadlines: The BIR and SEC have separate deadlines for submitting the AFS, which companies must carefully monitor to avoid penalties.
Format and Attachments: The BIR and SEC may require different formats or supporting documents attached to the AFS. For example, the BIR requires that the AFS submitted is stamped “received” by the SEC for corporations. At the same time, the SEC has additional requirements, such as the general form and certification from an independent auditor.
Additional Filing Requirements: The SEC requires the submission of additional financial disclosures, such as a Statement of Management’s Responsibility and specific documentation related to equity and retained earnings, which may not be mandatory in the BIR submission.

These differences reflect the unique objectives of each agency, with the BIR focusing primarily on taxation compliance and the SEC ensuring corporate governance and public transparency.

How to File the Audited Financial Statement (AFS)

The following is a detailed procedure for filing an AFS with the relevant government entities:

Prepare the AFS: The first step is to have an accredited Certified Public Accountant (CPA) prepare the AFS according to the Philippine Financial Reporting Standards (PFRS).
Secure Necessary Certifications: Obtain a Statement of Management’s Responsibility signed by authorized officers and ensure the independent auditor issues a duly signed audit report.
File with the BIR:
- Submit the AFS and the company’s Annual Income Tax Return (ITR) to the BIR.
- Submit an AFS already stamped “received” by the SEC for corporations.
- If applicable, ensure compliance with BIR’s format, especially for electronic submissions.
File with the SEC:
- Submit the AFS to the SEC following the format and accompanying document guidelines.
- Corporations must include a stamped Statement of Management’s Responsibility and attach an independent auditor’s report.
- The SEC accepts submissions via electronic filing and submission tool (eFAST) or manual filing at designated SEC branches.
Receive Acknowledgment: Upon submission, obtain a confirmation or acknowledgment receipt from the BIR and SEC as proof of compliance.

Filing Deadlines for Audited Financial Statements

Companies need to be aware of the specific filing deadlines for AFS to avoid incurring penalties:

BIR Filing Deadline: The AFS must be filed on or before the 15th day of the fourth month following the end of the company’s fiscal year (usually April 15 for companies with a calendar fiscal year).
SEC Filing Deadlines:
- SEC deadlines are staggered based on the last digit of the corporation’s SEC registration number.
- Generally, SEC deadlines fall within the last two weeks of April, with specific dates varying for each registration number category.

Companies are advised to check for updated deadlines, as the SEC and BIR may issue specific memoranda adjusting due dates, particularly in circumstances of public holidays or natural disasters.

Penalties for Late or Non-Submission of AFS

Failure to file an AFS on time or not filing at all can result in significant fines and penalties. These penalties include:

BIR Penalties:
- A penalty of PHP 1,000 per month for late submission, up to a maximum of PHP 25,000.
- An additional surcharge of 25% on the basic tax due.
SEC Penalties:
- Late filers are subject to fines based on a tiered system depending on the company’s asset size, ranging from PHP 500 to PHP 10,000 or more.
- For non-filing, SEC penalties can escalate further, potentially leading to the suspension or revoking of the company’s SEC registration.

Failure to file an AFS may lead to further investigations and the potential for more severe administrative and legal consequences.

Is Assistance Available?

Navigating the requirements for creating and filing an Audited Financial Statement in the Philippines can take time and effort. Triple i Consulting offers expert assistance in preparing and submitting your company’s AFS in full compliance with BIR and SEC requirements. Our seasoned Accounting experts are available to guide you through the process, ensuring accurate and timely submissions. Contact one of our specialists today for personalized support to schedule an initial consultation and simplify your compliance needs through any of the following methods: