IMPLEMENTING THE PROVISIONS OF SECTION 6(H) OF THE TAX CODE OF 1997, AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE ADDITIONAL PROCEDURAL AND/OR DOCUMENTARY REQUI…

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, or Annual Information Return for the 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
completely be enumerated in the financial statements and these accounts
must conform 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 juridical 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.        Cost of Goods Sold (for seller of goods)/Cost of Services (for seller of services);

II.       Selling and Administrative Expenses;

III.      Financial Expenses, if any;

IV.     Special Deductions (e.g., Net Operating Loss Carry-Over (NOLCO)), if any;

V.      Deductions under Special Laws, if any.

(Note: Deductions III, IV and V should be fully explained in the Notes to the Financial Statements)

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 Retained Earnings;

d)      Statement of Changes in Financial Position; and

e)      Schedules attached to the afore-cited statements.

The submission of the above statements is mandatory even if there is no income, retained earnings, etc.

All the financial statements filed
with accompanying auditor’s certificate as cited above shall show the
comparative figures of the current year and the previous year.  Thus,
Financial Statements with no required Auditors Certificate as
enunciated in Sec. 232 of the Tax Code of 1997 need not be presented in
comparative format.

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 Accountancy Law, 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 thereof,
whichever comes later.  This is in addition to all
other responsibilities of the independent CPA under other pertinent
provisions of the Tax Code 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 an essential misstatement of facts or 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.

SECTION 5.       Applicability of these Regulations. — These Regulations shall apply to all Income Tax and Information Returns to be filed hereafter.

SECTION 6.       Repealing Clause.
— All existing rules, regulations and other issuances or portions
thereof inconsistent with the provisions of these Regulations are hereby
modified, repealed or revoked accordingly.

SECTION 7.       Effectivity Clause.
— These Regulations shall take effect after fifteen (15) days following
complete publication in a newspaper of general circulation in the Philippines.

Adopted: 18 Sept. 2002

(SGD.) JOSE ISIDRO N. CAMACHO
Secretary of Finance

Recommending Approval:

(SGD.) GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue