REVENUE REGULATIONS NO. 7-2007 issued on August 1, 2007 amends certain
provisions of Revenue Regulations (RR) No. 21-2002, implementing Section 6(H) of the Tax
Code of 1997, as amended, authorizing the Commissioner of Internal Revenue (CIR) to
prescribe additional procedural and/or documentary requirements in connection with the
preparation and submission of financial statements accompanying the tax returns.
The said provisions are amended to read as follows:
SECTION 1. CONTENTS AND FORMAT OF FINANCIAL STATEMENTS TO BE
ATTACHED TO THE ANNUAL INCOME TAX RETURN OR INFORMATION
RETURN. – The Financial Statements with accompanying Auditor’s Certificate attached to
the Annual Income Tax Return (ITR), or Annual Information Return for tax exempt persons,
as the case may be, to be filed with the Bureau of Internal Revenue, thru its collection agents
including Accredited Agent Banks, shall present/state the accounts therein in a very
descriptive fashion such that the nature of the specific transactions entered in the accounts are
known to the reader. The account titles to be used must be specific and not control accounts
which must be completely enumerated in the financial statements and these accounts must
conform to the basic framework of the financial reporting standards promulgated by the
Financial Reporting Standards Council (FRSC) of the Philippines which are the Generally
Accepted Accounting Principles in the Philippines which include Philippine Accounting
Standards (PAS) and Philippine Financial Reporting Standards (PFRS) and the refinements
introduced thereon in respect to certain types of industries as well as to the rules and
requirements of regulatory agencies that have supervision over them such as the Securities
and Exchange Commission (SEC), Bangko Sentral ng Pilipinas (BSP), Insurance
Commission (IC), etc.
The accounts prescribed in the reports required by the SEC, BSP, IC and other
regulatory bodies shall likewise be the accounts to be used by individual taxpayers who are
engaged in business or in the exercise of profession, except for accounts that are peculiar to
corporations and other judicial persons.
The Profit and Loss Statement/Income Statement shall show separately by segment
(there should be proper labeling), with breakdown of the specific accounts, the following:
I. Sales/Revenues;
II. Cost of goods sold (for seller of goods)/Cost of services (for seller of services);
III. Selling and A dministrative Expenses;
IV. Financial Expenses, if any;
V. Other Income; and
VI. Other Expenses
(Note: Items I, IV, V and VI should be fully explained in the Notes to the Financial
Statements; Items II and III should be supported by Schedules.)
SECTION 2. COVERAGE – The Financial Statements shall be composed of the
following:
a. Balance sheet;
b. Income Statement/Profit and Loss Statement;
c. Statement of Changes in Equity, showing either:
· All changes in equity
· Changes in equity , other than those arising from transactions with equity
holders acting in their capacity as equity holders;
d. Statement of Cash Flow;
e. Notes, comprising a summary of significant accounting policies and other
explanatory notes; and
f. Schedules attached to the afore-cited statements.
The submission of the abovementioned statements is mandatory even if there is no
income, retained earnings, etc.
2
All the financial statements filed with accompanying auditor’s certificate shall show
the comparative figures of the current year and the previous year. Thus, Financial Statements
with no required Auditors Certificate as enunciated in Section 232 of the Tax Code, as
amended, need not be pr esented in comparative format.
Moreover, it is the responsibility of the taxpayer to reflect in its books of accounts (i.e.
general, subsidiary ledgers and journals) the adopted/accepted year-end adjusting entries
made corollary to the preparation and filing of its audited financial statements and annual
Income Tax Return. Correspondingly, all the necessary working papers prepared by the
taxpayer pertinent to the year-end adjustments shall, nevertheless, be made available to the
investigating officers of the Bureau upon audit and/or verification.
SECTION 3. RESPONSIBILITY OF EXTERNAL AUDITORS. – Unless a longer
period of retention is required under the Tax Code or other relevant laws (e.g. the Philippine
Accountancy Act of 2004, etc.), the independent CPA who audited the records and certified
the financial statements of the taxpayer, equally as the taxpayer, has the responsibility to
maintain and preserve copies of the audited and certified financial statements for a period of
three (3) years from the due date of filing the annual Income Tax Return or the actual date of
filing, whichever comes later. This is in addition to all other responsibilities of the
independent CPA under other pertinent provisions of the Tax Code, as amended, and
implementing regulations, including generally accepted auditing standards and applicable
jurisprudence.
SECTION 4. PENAL PROVISIONS – Any independent Certified Public Accountant
who, in his capacity as external auditor, willfully falsifies any report or statement bearing on
any examination or audit, or renders a report, including exhibits, statements, schedules or
other forms of accountancy work which has not been verified by him personally or under his
supervision or by a member of his firm or by a member of his staff in accordance with sound
auditing practices, or certifies financial statements of a business enterprise containing a
material misstatement of facts or material omission in respect of the transactions, taxable
income, deduction and/or exemption of his client, shall be dealt with in accordance with
Section 257 of the Tax Code, as amended, and shall be subject to the applicable penalty
provisions of RR No. 11 -2006.
These Regulations shall apply to all Income Tax and Information Returns to be filed
hereafter.