A RESOLUTION AFFECTING ACCOUNTANCY PROFESSION AND BUSINESSES IN THE PHILIPPINES
On January 19, 2016, the Board of Accountancy (BOA), a government body which regulates accountancy profession in the Philippines, issued BOA Resolution 3-2016, as amended by BOA Resolution 68-2016 and 115-2016.
The rules provide, among others, the following:
- Requirement of the attachment to the annual Financial Statements (FS) of a Certificate on the compilation services rendered in the preparation of Financial Statements and notes to the Financial Statements
- The Certificate shall be prepared only for issuers (companies) which/who have gross sales or revenues exceeding ten million pesos (P10,000,000) for a particular accounting year
- The preparation of the Financial Statements and disclosure notes is a practice of accountancy in commerce and industry and shall be done only by Certified Public Accountants (“CPAs”)
- The reiteration of the rule that CPAs in public practice are prohibited from preparing or assisting in the preparation of Financial Statements and disclosure note of their clients which engaged them to render attest (audit) services for the same documents
- The CPAs in public practice who violate this prohibition rule shall be subject to stern sanctions by the Board of Accountancy
- The CPAs rendering the compilation services for the preparation of the FS and signing the Certificate shall first be accredited with the Professional Regulation Commission Board of Accountancy after submitting the necessary application and complying with the Continuing Professional Development (CPD) requirements.
- That the covered period of the FS subject to the Certification on the Compilation Services requirement shall be extended to December 31, 2016.
The BOA requirement is not new in the accountancy profession. The Accountancy Law, International Financial Reporting Standards, and Auditing Standards differentiate the roles of accountants and auditors. Large Companies have separate auditors and accountants doing different roles in the company. However, it has been a practice for the small and medium enterprises (SMEs) to have only bookkeepers or non-CPA accountants and their CPA external auditors.
Accountants and company owners place so much reliance on external auditors. This should not be the case because auditors evaluate financial reports based on materially and select samples only, not 100% examination. Some items may not be included in the samples and some immaterial accounts may not be audited. Materiality is subjective, not objective. What may be material to some auditors may be immaterial to some. Material items are also tested through sampling. Some material items may not be included in their samples.
To resolve this, the Board of Accountancy took a stand and issued BOA Resolution 3-2016.
If the company can afford a full-time CPA, with accreditation to prepare the FS, then there is no problem. The new resolution is a dilemma to those who do not have BOA-Accredited accountants. To resolve this, BOA prepared a solution and issued Questions and Answers to address certain issues on the new BOA requirement.
QUESTIONS AND ANSWERS ON BOARD OF ACCOUNTANCY RESOLUTION 3-2016
To address issues and questions of CPAs and business owners on the new BOA Resolution, BOA issued the following Questions and Answers:
What is the rationale for the issuance of BOA Resolution 3-2016?
As discussed in the Resolution, the requirements prescribed are intended to address the need to have professional competence in the preparation of the FS, to address the self-review threats or risks in external audit of FS, to pinpoint responsibility in the compilation services in the preparation of the FS as allowed and required under the Accountancy Law and the Code of Ethics of the CPAs. Furthermore, this new rule will help in the further enhancement of the reliability of the annual statutory FS being submitted to the SEC and the BIR. With the signing of this Certificate by the CPA who is responsible for the preparation of the FS, accountability on the part of the CPA will be pinpointed and his/her obligation to do diligent work will further be reinforced.
Do these new rules apply to the other special regulatory reports that are submitted to the other regulators, like the Bangko Sentral ng Pilipinas, Cooperative Development Authority, Energy Regulatory Commission, Insurance Commission, Philippine Contractors Accreditation Board and any other government offices?
For these special regulatory reports to be submitted to these government agencies, other than those submitted to the BIR and SEC, these rules do not apply.
Who are covered by this requirement of submission of the Certificate for compilations services for the preparation of their FS?
Organizations (including stock, for profit, non-stock and/or non-profit organizations) and persons which/who:
(1) are required to submit annual statutory FS to the BIR and/or SEC, and
(2) have annual gross sales/receipts/revenues of P10 Million and over, must have their FS prepared by a CPA who will have to submit the Certificate as to this fact.
Would the employee CPA of a covered organization/person be required to be accredited with the BOA?
Yes the employee CPA who be signing the Certificate must be accredited as a CPA in Commerce and Industry. This CPA employee is the employee designated by the management of the Company to be the person principally responsible for the compilation services for the preparation of the FS.
The names of all the covered organization(s)/person(s) should be indicated in the application form by the CPA applying for accreditation as a CPA in Commerce and Industry.
Who should be accredited and allowed to sign the Certificates for the CPAs in public practice (as a sole practitioner, firm or partnership).
All those signing the Certificates should be accredited as a CPA in public practice. These include the sole practitioners, every partner of a partnership who will be signing the Certificates and all other officers or staff in a partnership or firm who will be signing the Certificates.
This requirement is consistent with BOA Resolution No.295-2015 that requires all partners and CPA professional staff of accounting firms and partnerships to be accredited with the BOA.
I am a CPA employee of a covered organization/person with the responsibility of preparing the FS for my company. At the same time, I have a small CPA public practice for which I do various auditing and accountancy services, including compilation services for clients that exclude my employer organization. I have already an accreditation as a CPA in public practice. Am I allowed to continue to prepare the FS of my company and at to issue and sign the Certificate? For this, do I need to be accredited with the PRC/BOA?
Yes, you can prepare the FS and sign the Certificate for your company.
My company is covered by this Resolution. I am outsourcing the preparation of my FS to a Business Process Outsourcing (BPO) company or to any other company service provider? What should I do to comply with the requirement of the submission of the Certificate?
You should ask your BPO or any other service provider to have its duly accredited CPA, who is principally responsible for the compilation service in the preparation of your FS to, sign the Certificate.
If the one doing the accounting or compilation function of a covered organization or company is outsourced to a service provider outside the Philippines (for example, the Head Office , parent foreign company, a regional office, shared service provider, etc. located abroad), can the foreign service provider and/or its CPA be accredited and sign the Certificate?
Yes, the foreign based service provider can provide the compilation services.
However , it should do this through its Filipino CPA who will have be accredited as a CPA in (sole) public practice and who will sign the Certificate in that capacity.
Alternatively, the foreign service provider can apply for a Special Temporary Permit (STP) for its foreign CPA or equivalent to render the compilation services and to sign the Certificate. The procedures for applying for the STP are prescribed in PRC Resolution 2012- 668.
What is the difference between the Certificate and the Statement of Management Responsibility (SMR) required by the SEC?
The Certificate is different from the SMR. First, the Certificate is prescribed by the BOA, while the SMR prescribed by the SEC.
Second, the objective of the submission of the Certificate is those indicated in A1 above, while the SMR has its own objectives.
The one signing the Certificate need not be the one signing the SMR. In fact, ordinarily it would be different individuals who would separately sign the Certificate and SMR. However, if any of the signatory in the Certificate and SMR is the same, said signatory to the Certificate should be a CPA and should be accredited with the BOA for this purpose.
How will the BOA monitor the compliance of the submission or attachment of the Certificate in the annual statutory FS submitted to the BIR and SEC?
The BOA has requested the BIR and SEC to assist in monitoring the compliance of those submitting the annual statutory FS.
Furthermore, the BOA will soon prescribe a resolution that all external auditors should monitor the compliance of their audit clients who/which are covered by this resolution. In the monitoring, the external auditors should bring to the attention of the management of their audit clients any instance(s) of omissions or non-compliance with the provisions of the resolution.
What is the main feature of this Resolution?
The main feature is the requirement that the responsible Certified Public Accountant (CPA) should accomplish and submit a prescribed Certificate for Compilation Services for the preparation of Financial Statements (FS) and notes thereto (“ the Certificate”) of covered organizations and persons. This Certificate states the specific task and responsibility that the CPA must faithfully comply with in when preparing the FS. The CPA is required to commit to the obligations indicated in and to sign this accordingly. The Certificate should then be attached to the annual statutory reports or FS to be submitted to the BIR and SEC.
Who should sign the Certificate?
The CPA who has the principal responsibility to do the compilation services for the preparation of the FS of the covered organizations or persons (see Q6) should sign the Certificate. The CPA can be the BOA accredited CPA employee of the covered organization/person or a qualified BOA accredited external CPA hired for the compilation services.
What is included in the determination of the P10 Million or over threshold of gross sales/receipts/revenues reported in the FS that will subject said FS to these rules?
These include all receipts or revenues/sales from all sources reported in the FS, including, but not limited to, gross receipts or revenues/sales from operations, non-recurring activities, passive income and others.
Would external CPAs or auditors providing these compilation services and signing the Certificates for covered organizations/person who hired them be required to be accredited with the BOA for this purpose?
Yes, the external CPA or auditor should be accredited as a CPA in public practice. If the CPA or auditor has a current and valid accreditation as a CPA in public practice, said accreditation is sufficient to render these compilation services and sign the Certificate. These services should only be rendered to the NON AUDIT clients of the CPA or auditor.
Can the external auditor of the covered organization/person sign the Certificate for his/her client?
The external auditor is not allowed to sign the Certificates of their audit clients.
Also, In the case of CPA partnerships or firms, all partners and/or CPA staff are not allowed to sign the Certificates of the partnership’s/firm’s covered audit clients, even if they are not involved in the audit of these clients.
My company is covered by this Resolution. My accountant, who is not a CPA, is the one preparing my FS? What should I do to comply with the requirement of the submission of the Certificate?
You must engage an external accredited CPA or an authorized entity which can render the compilation service and sign the Certificate.
Alternatively, you can hire an accredited CPA to do the compilation service and sign the Certificate.
For the BPO or other service providers which renders compilation services for the preparation of FS to its client, what should it do to be accredited?
It should have its CPA who would be doing the compilation services and signing the Certificates be accredited as a sole CPA practitioner in Public Practice.
Has BOA coordinated with SEC and BIR regarding this BOA requirement of attachment of the Certificate in the annual statutory FS filed with the SEC and BIR?
The BOA has advised the Department of Finance, Bureau of Internal Revenue and the Securities Exchange Commission on this new Resolution and requested the SEC and BIR to monitor the compliance of submission of the Certificate in the filing of the annual statutory FS in the BIR and SEC.
What are the sanctions that may be imposed for violations or non-compliance with the provisions of the Resolution? Who/which will be penalized, the CPA issuing the Certificate or the covered organization/person?
Violations or non-compliance such as (1) a covered company filing its FS with the SEC and BIR without attaching the Certificate, (2) the application for accreditation of the CPA not being approved/denied because of oversight/negligence/failure to comply with the accreditation requirement after the FS has been issued; the auditor of an organization is the one doing the compilation services for the preparation of the FS and notes of his/her audit client; (4) and other cases, will result in sanctions that will be imposed on either the CPA, the covered organization/person, or both.
The sanctions that may be imposed by PRC/BOA can be:
- reprimand of the CPA and/or covered organization/person
- suspension of license of the CPA
- imposition of fines and penalties on the CPA and/or covered organization/person,
- Revocation of the license of the CPA, and/or,
- Re-submission of a corrected or valid Certificate to replace the defective Certificate previously issued