With the busy tax season, a controversial issue that seems of interest to everyone in the accounting profession is the requirement by the Board of Accountancy (BOA), under BOA Resolution 3-2016, for the issuance of a certified public accountant (CPA) report on the compilation service that the CPA provides the client. This is a hot issue, since two government agencies, namely, the Securities and Exchange Commission and the Bureau of Internal Revenue, issued statements that they are not requiring these compilation reports by a CPA when the 2016 income-tax returns and financial statements are filed on or before the deadline of April 17.
With these, certain taxpayers and even CPAs felt that the compilation report is no longer necessary. Fifty-two petitioners filed writs of preliminary prohibitory injunction on the implementation in November 2016 and on February 13, 2017, that were received by the BOA on March 17, 2017. The Regional Trial Court in Manila (Branch 27) denied the petitions, and affirmed the compilation resolution.
But why did the BOA saw the need to require compilation reports for taxpayers with P10 million and above gross revenue? In a paper prepared by the Auditing Standards and Practices Council on Philippine Standards on Related Services 4410 “Engagements to Compile Financial Information”, stated that the main objective of a compilation “is for the accountant to use his accounting expertise, as opposed to auditing expertise, to collect, classify and summarize financial information”. This means the CPA should be able to assist the taxpayer in preparing financial reports that can be readily understood or comprehend and prepared in accordance with the Philippine Financial Reporting Standards. In other words, the ultimate objective is to improve the quality of financial reports.
Since this is based on International Standard on Auditing 930 and adopted in the Philippines as Philippine Standards on Auditing 930, compilation requirements are also required in other countries that adopted the International Financial Reporting Standards. Thus, it is not only in the Philippines where compilation reports are required.
The compilation report may be issued either by a CPA under the employ of the taxpayer or by an independent CPA. The format and the content of the report issued by the CPA under the employ of the taxpayer differ from that issued by an independent CPA, although independence is not a requirement for a compilation engagement.
The past few years, the BOA had been busy disseminating information on the new requirements that include this compilation report. In fact, many seminars were held for the members of the accountancy profession in order for them to be accredited as issuers of the compiler’s report.
On one hand, certain sectors considered this an added cost to their business, since they will have to pay a separate fee for the compiler, aside from the fee for external auditors—that is, if they hire a CPA who is not employed as an accountant in their business. On the other, some taxpayers requested for more time, because to them this was quite abrupt, allowing them little time for preparation.
Whether this requirement is a boost to better-quality reports and benefit many remains to be seen. Meanwhile, as members of the accountancy profession, compliance is the name of the game.
The decision of the RTC will certainly affect the decisions of those involved and affected by the resolution.
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Wilma Miranda is the chairman of the Media Affairs Committee of Finex, treasurer of KPS Outsourcing Inc. and a managing partner of Inventor, Miranda & Associates, CPAs. The views expressed herein do not necessarily reflect the opinion of these institutions.