With presidential elections less
than a year away, the Filipino accounting profession is facing a
busy time as the government steps up efforts to increase tax
collecting and continues with efforts to raise standards of
corporate governance and financial reporting. David Hayes
With national Presidential elections due to be held in May 2010,
the state of the Philippines’ economy, taxation and other related
issues will come under more intense public scrutiny in the coming
Francisco Gonzalez, executive director of the
Philippines Institute of Certified Public Accountants (PICPA),
explains that this is set against a backdrop of difficult economic
“We are suffering economically in the
Philippines, especially companies that are foreign related. People
are feeling the pinch,” he says. “Credit is tightening. Employee
perks are diminished. Things are tightening up everywhere. A lot of
local property companies have seen defaults from overseas
Under pressure to finance greater state
investment, the government is stepping up efforts to increase tax
collecting. The Bureau of Inland Revenue (BIR) has brought in new
regulations to widen the tax collection net, which has resulted in
a rising work load for accounting firms, particularly navigating
between local tax laws and IFRS.
“The changes need accountants. Public auditors
comply with tax accounting rules when they prepare statements. They
require more material to submit to BIR and this requires more work
by office accountants,” Gonzalez explains.
“The government needs more revenue and BIR is
stepping up efforts to collect more taxes. They are tightening the
noose to clamp down on evasion. More and more big companies are
compliant. They comply with IFRS but the BIR tax accounting system
is not updated to those requirements.”
The interpretation of tax code rules when
analysing accounts prepared following IFRS rules is causing
problems. PICPA is working with BIR to try and resolve these. The
valuation of assets is one example.
“We have a deferred tax system so if there is
a realisable loss you can claim, but you cannot claim on tax as
that is not a realisable loss. This means a reconciliation between
the BIR’s tax rules and IFRS will have to be studied and
explained,” Gonzalez explains.
One idea being floated to resolve problems
arising from the gap between BIR’s tax code and IFRS is the use of
a tax compliant financial statement. BIR is holding a series of
seminars on this topic and has asked PICPA to train examiners on
new standards of financial reporting.
“BIR wants to do tax compliant financial
reporting using another revenue form but that deters small
companies who do not want to be tied up with the rules. Once a tax
starts to become a hindrance people start to consider whether to
set up a new business,” Gonzalez warns.
Many other tax changes are coming, which will
increase accounting firms’ work loads. Most changes do not involve
new taxes, rather implementation of previously agreed updates.
“The government, for example, is increasing
the spread of withholding taxes for the top 5,000 companies here.
This is more work for accountants and more compliance work,”
Gonzalez remarks. “We have to do this because the government needs
money. The Philippines moved back down to 30 percent for
withholding taxes on 1 January 2009, from 35 percent before. The
regulation was pre-planned five years ago. It was part of the pay
off when the government increased the rate of VAT from 10 percent
to 12 percent.”
The mismatch between BIR tax regulations and
IFRS reporting standards is one of several issues remaining to be
dealt with following the government’s decision in 2001 for the
Philippines to become one of the first countries in the
Asia-Pacific region to adopt IFRS.
IFRS was adopted with several deviations and
using a staggered approach. In the real estate sector, for example,
IFRIC 15 is scheduled to be effective from 2012. The delay is due
to the impact of the standard on the real estate sector. A reprieve
was also granted to the mining industry.
More than 1,000 companies, including about 300
listed companies on the Philippines Stock Exchange, use IFRS.
Non-public accountable entities with assets below PHP250 million
($5.16 million) and liabilities below PHP150 million are not
required to adopt IFRS – they are permitted to use the Philippines
GAAP that was in general use prior to 2005.
It is also not yet mandatory for state
entities to use IFRS. These entities fall into two classifications
– government enterprises and non-profit government bodies. The
former are due to adopt IFRS while non-profit government
organisations will adopt International Public Sector Accounting
The Philippines Regulations
Commission (PRC) supervises the accounting Filipino profession
through the Board of Accountancy, which operates under the
Department of Labour and Employment.
Gonzalez says the PICPA and the Board of
Accountancy work together to progress the accounting
The board has six members; all are accountants
and serve renewable six year terms. The PICPA submits five
nominations for each seat, from which the PRC shortlists three. The
final selections are made by the President of the Philippines.
The prime purpose of the Board of Accountancy
is to prepare exams for new entrants to the profession. It also
supervises standard setting agencies – the Auditing Assurance
Standards Council and the Financial Reporting Standards Council. In
addition, the board has the power to investigate and punish.
As part of measures to raise the standard of
auditing and other services that accountants provide, the Board of
Accountancy is establishing a quality assurance programme that will
involve an ongoing audit of auditors.
This quality assurance programme is required
by the International Federation of Accountants, and Gonzalez says
the profession is trying to move it ahead.
“The Accountancy Board is trying to put the
programme into law so it can impose penalties, but it takes three
to four years to amend the law,” he explains.
The proposed amendments are currently with
Congress, once they pass that stage they must also pass through the
“The board is trying to introduce other minor
changes at the same time but quality assurance is the main item,”
Gonzalez explains. “The Big Four firms already do quality assurance
but the problem is the sole practitioners. We are trying to modify
Big Four quality assurance programmes for small and medium
practices following IFAC’s recommendation while we wait for the
Accounting Law amendment.”
Quality assurance and good governance are
important issues for PICPA and have been identified as priorities
by the institute’s new president, Antonio Tecson, whose 12 month
term begins on 1 July.
“Governance is a big issue for our institute.
We are moving forward with bankers and other groups,” Gonzalez
remarks. “We have met with bankers who complain that audits and
reports are not up to standard. They want different reports to BIR,
so accounting firms’ clients need two or more reports. We believe
that banks are part of the problem.”
Meanwhile, PICPA is moving ahead with
efforts to streamline the accreditation process facing senior and
partner level accountants due to the various bodies involved in
controlling the financial sector.
For accountants working in audit, passing the
qualifying exams is just the first step. The various commissions
responsible for supervising different areas of the financial sector
also operate their own qualification systems to control the
standard of audit work affecting their sphere of
Most accounting firms try to cover the whole
range of financial statement audits. An accountant first tries for
Board of Accountancy accreditation and then studies the
requirements for each sector, including the Securities Exchange
Commission (SEC) and the Central Bank.
Accounting firms generally are better placed
to provide a wide range of audit services as few sole practitioners
have the time or resources to study for all the qualifications.
“We are trying to unify accreditation. BIR,
SEC, the Central Bank and the Insurance Commission have prepared a
draft agreement for accreditation by the Board of Accountants to
use as a basis and then add on their own individual requirements,”
“This will maintain the existing system of
multiple accreditations but accountants can say they are accredited
and then add on each accreditation as required.”
Outdated ban on foreign
accountants causes concern
Professional services firms and
professional bodies in the Philippines are battling a ban that the
Philippines Constitution places on foreign accountants and lawyers
working in the Philippines.
The ban is seen as outdated by many in these
professions and has implications for the Philippines World Trade
Organization and Association of South East Asian Nations (ASEAN)
treaty obligations. Yet it remains in effect and recently has
caused problems for the country’s largest accounting firm.
In February, SGV, a member of Ernst &
Young (E&Y), was forced to dismiss the practice’s managing
partner, vice-chairman and 13 other partners who opposed the
practice’s terms of involvement with E&Y’s Asian region
practice, saying it could contravene the Philippines
Unable to resolve the issue to their
satisfaction, SGV’s 70 other partners voted to dismiss the group,
having received legal advice that their terms of involvement with
E&Y did not contravene the constitution.
SGV is currently drafting its terms of
involvement with E&Y, having been assured by the Big Four firm
that SGV’s involvement should not contravene Philippines law.
“The government should step in but the issue
is how to interpret the constitution of the Philippines,”
Philippines Institute of Certified Public Accountants executive
director Francisco Gonzalez said.
“It’s the same situation with the legal
profession here and international law firms. The situation is in
limbo right now.”
Other Big Four and mid-tier accounting firms
are thought to be affected by the same issue in their membership of
international accounting organisations.
The issue has also started to emerge in the
establishment of mutual recognition agreements (MRA) between
certain professions among ASEAN member countries. ASEAN’s
secretariat recently launched an MRA initiative that would allow
accountants, doctors and dentists to practice in other ASEAN member
There are concerns that with the 2010
presidential elections soon to enter their run-up phase, the issue
of MRA may not be tackled until the presidential elections are
The Philippines: Profession in brief
Established in 1929, the Philippines Institute of Certified Public
Accountants (PICPA) has been recognised as the accredited
professional organisation for CPAs in the Philippines since