If you are a business owner in the Philippines and your financial year just ended, you should start preparing for the audit season. With proper planning and preparation, you can lessen the stress that’s associated with this time of the year. Even seasoned auditors and accounting professionals find the audit season a difficult and long process if they don’t stay organized.
As a business owner, you need to be aware of what transpires during the audit season and how to get through it seamlessly. This article breaks it down to make it easier for you to remember what to do. Staying informed will prevent costly mistakes and help you run a more efficient company. Let’s get started.
Why is There a Need for an Audit Season?
The reason why there is a need for auditing businesses is to ensure that the government is overseeing the financial activities of businesses and see whether or not your financial records are compliant with local laws.
The BIR or the Bureau of Internal Revenue and the SEC or the Securities of Exchange requires businesses operating here in the Philippines to submit certain tax-related, bookkeeping, and financial documents.
All tax-related documents and financial information are used for the financial statement. After being finalized, it should provide an accurate picture of the financial position of your business at the end of the previous financial year.
Take note though that before submitting your company’s financial statement to the BIR and the SEC, it must be audited and signed by an independent auditor. After the financial statement is audited, it will be called AFS or Audited Financial Statement.
When Does the Audit Season Start?
The “audit season” starts a few months before the filing deadline of the Audited Financial Statement with the BIR. It is the time when companies start collecting financial information, working with their auditor, and preparing their financial statement.
The AFS is a key document that companies need to prepare for the auditing process. The financial statement is prepared by the business and reviewed by an auditor for the purpose of compliance. The auditor will certify the financial statement if he/she finds the statement accurate and prepared in accordance with the proper standards, practices, and principles.
If your company aligns with the calendar year, you need to file the financial statement with the BIR by April 15. If it’s different from the calendar year, the AFS should be submitted on the 15th day of the fourth month after your company’s year-end date.
Noteworthy, you must remember that the deadline for AFS filing with the SEC or Securities of Exchange and the deadline for BIR are different. If your company’s financial year aligns with the calendar year, the last numerical digit of your company is your registration number. If your company’s financial year does not align with the calendar year, you can file the financial statement with SEC within 120 calendar days from the date your company’s financial year ended.
The Difference Between an Audit Season vs. BIR Audit
Audit season refers to the yearly audit that companies need to perform at the end of each financial year. This is a highly beneficial process that helps businesses track their expenses, income, etc.
Meanwhile, a BIR audit is when a company receives a “love letter” or Letter of Authority. This serves as confirmation that the company has been selected for an audit performed by BIR to ascertain the veracity of submitted documents.
Things to Remember in Preparation for Audit Season
Who will carry out the audit? The auditing cannot be done by the company itself. There are several requirements that businesses need to consider when engaging with an auditor. You should consider the following when engaging with an auditor here in the Philippines:
· The auditor must be competent, licensed, and accredited (accreditation from the Board of Accountancy in the Philippines).
· The auditor should be a certified public accountant
· The auditor should be independent of the company or business to make sure that the external opinion given is unbiased and credible.
What are the necessary documents for the audit season? Take note of the following:
· Previous Year’s Financial Statements
· Current Year’s Audited Financial Statements
· Books of Accounts (Audited)
· Account Balances (Reconciled)
· Statement of Management Responsibility
· Annual Income Tax Return
· Supporting Documents and Information
· Other Required Attachments
For the auditors to do their role well, they will require and request various financial documents that are relevant to the financial activities of the previous financial year. Preparing, organizing, and gathering the necessary documents that auditors will need is the most time-consuming activity.
It is crucial for you to have clear communication with your accountants, employees, representatives, and officers who are directly involved with the finances of the company during the financial year. If you need assistance, give our team of CPAs a call.