Audited Financial Statements (Philippines)

An Audited Financial Statements in the Philippines documents the agreed terms between the parties and creates a written record that can be relied on if a dispute arises.

All SEC-registered corporations and partnerships with total assets exceeding PHP 600,000 or total liabilities exceeding PHP 180,000 must file AFS prepared in accordance with Philippine Financial Reporting Standards (PFRS), which are Philippine adaptations of the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and adopted by the Financial Reporting Standards Council (FRSC) under RA 9298. Small and Medium-sized Entities (SMEs) may use PFRS for SMEs as allowed under SEC Memorandum Circular No. 5, Series of 2019.

The Bureau of Internal Revenue (BIR) independently requires AFS as an attachment to the Annual Income Tax Return (BIR Form 1702) for corporations under the National Internal Revenue Code (NIRC, RA 8424, as amended by the TRAIN Law RA 10963 and CREATE Act RA 11534). The BIR's eAFS system at eafs.bir.gov.ph allows electronic submission of scanned AFS. AFS certified by an external auditor are distinguished from internally prepared financial statements — Philippine courts and the SEC treat unaudited statements as less reliable, and banks supervised by the Bangko Sentral ng Pilipinas (BSP) under BSP Circular No. 1048 (2019) require audited statements for credit applications above certain thresholds.

The external auditor signing the AFS must hold a valid CPA license from the PRC and must be registered with the SEC's accreditation list under SEC Memorandum Circular No. 21, Series of 2010 for auditors of SEC-registered corporations with securities registered under the Securities Regulation Code (SRC, RA 8799).

The legal framework governing the Audited Financial Statements (Philippines) in Philippines draws on several key statutes and regulatory bodies. Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Parties executing a Audited Financial Statements (Philippines) in Philippines should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Revised Corporation Code (RA 11232, 2019) sets the foundational requirements.

Audited Financial Statements are required in the Philippines in several mandatory and practical circumstances under applicable laws and regulations.

AFS must be filed annually with the SEC within 120 calendar days from the end of the corporation's fiscal year under SEC Memorandum Circular No. 2, Series of 2020. For corporations with fiscal years ending December 31, the deadline falls on April 30 of the following year. Late filing triggers SEC administrative penalties of PHP 10,000 per month of delay.

AFS must be attached to the Annual Income Tax Return (BIR Form 1702-RT, 1702-EX, or 1702-MX) filed with the Bureau of Internal Revenue (BIR) on or before April 15 (calendar year filers) under Section 77 of the National Internal Revenue Code. The BIR's Revenue Regulations No. 15-2010 require AFS with independent auditor's report for corporations with gross annual sales exceeding PHP 3 million.

AFS are required when a corporation applies for a bank loan. Banks regulated by the Bangko Sentral ng Pilipinas (BSP) under Manual of Regulations for Banks (MORB) require at least two to three years of audited statements for credit evaluation. The BSP's Credit Risk Management standards under BSP Circular No. 855 (2014) mandate financial statement review for commercial loan underwriting.

AFS are needed for government procurement bidding under the Government Procurement Reform Act (RA 9184). PhilGEPS registration and bid submission require the latest AFS to demonstrate the bidder's financial capacity and net worth relative to the Approved Budget for the Contract (ABC).

AFS are required when a corporation applies for an increase in authorized capital stock with the SEC. Under SEC Memorandum Circular No. 6, Series of 2014, the application must include the latest AFS to show the current financial position and justify the capital increase.

Complete Philippine Audited Financial Statements must contain the following components as prescribed by PFRS and SEC Memorandum Circular No. 2, Series of 2020.

Independent Auditor's Report: The auditor's opinion — unqualified (clean), qualified, adverse, or disclaimer — prepared under Philippine Standards on Auditing (PSA) issued by the Auditing and Assurance Standards Council (AASC). The report must state the scope of the audit, management's responsibility, the auditor's responsibility, and the basis for opinion.

Statement of Financial Position (Balance Sheet): Assets, liabilities, and equity as of the fiscal year end date. Current and non-current classifications required under PFRS. Total assets and total liabilities figures are critical for SEC classification purposes and for determining whether PFRS full set or PFRS for SMEs applies.

Statement of Thorough Income (Income Statement): Revenue, cost of goods sold or cost of services, gross profit, operating expenses, other income and expenses, income before tax, income tax expense (under PFRS — deferred tax computation required), and net income or net loss for the year. The CREATE Act (RA 11534) reduced the corporate income tax rate from 30% to 25% (20% for domestic corporations with net taxable income not exceeding PHP 5 million and total assets not exceeding PHP 100 million).

Statement of Changes in Equity: Beginning balances, net income or loss, dividends declared, other thorough income items, and ending balances for each equity component. Retained earnings and additional paid-in capital are particularly scrutinized by the SEC for compliance with Section 42 of RA 11232 on the limitation of retained earnings.

Statement of Cash Flows: Operating, investing, and financing activities under either the direct or indirect method permitted by PAS 7. The BIR cross-checks cash flow statements against tax returns to detect undeclared income.

Notes to Financial Statements: Disclosure of accounting policies, breakdown of material line items, related party transactions, contingent liabilities, and subsequent events. Related party transaction disclosures are mandatory under PFRS and SEC Memorandum Circular No. 10, Series of 2019 on Related Party Transactions.

Additional compliance elements for a Audited Financial Statements (Philippines) used in Philippines include: Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Forms-legal.com provides this template as a starting point for Philippines-compliant documentation.