RR No. 7-2007: Amends certain provisions of RR No. 21-2002 prescribing the manner of compliance with any documentary and/or procedural requirements in connection with the preparation and submission of financial statements accompanying the tax returns

Summary

RR No. 7-2007 amends certain provisions of RR No. 21-2002 on the financial statements that accompany tax returns, under Section 6(H) of the Tax Code of 1997, as amended. It sets their content, format, and the duties of external auditors.

Key points

1. Content and format. Financial statements attached to the Annual ITR or Annual Information Return must use specific, descriptive account titles, not control accounts. The accounts must follow the Philippine financial reporting framework and the rules of regulators such as the SEC, BSP and IC. The Income Statement must show sales/revenues, cost of goods sold or cost of services, selling and administrative expenses, financial expenses, other income and other expenses separately.
2. Required statements. The set consists of the balance sheet, income statement, statement of changes in equity, statement of cash flow, notes, and schedules. Submission is mandatory even if there is no income or retained earnings.
3. Comparative figures. Statements filed with an auditor’s certificate must show current and previous year figures. Statements that need no auditor’s certificate under Section 232 of the Tax Code need not be comparative.
4. Taxpayer’s books and working papers. The taxpayer must reflect the year-end adjusting entries in its books of accounts. Working papers on those adjustments must be available to BIR investigating officers upon audit or verification.
5. External auditor duties and penalties. The independent CPA, like the taxpayer, must keep copies of the audited statements for three (3) years from the due date of filing the annual ITR or the actual filing date, whichever is later. A CPA who falsifies reports or certifies statements with a material misstatement or omission is dealt with under Section 257 of the Tax Code and the penalty provisions of RR No. 11-2006.

Who is affected

• Taxpayers filing annual ITR or Annual Information Return with financial statements
• Independent CPAs who audit and certify them

Deadlines and effectivity

• Applies to all Income Tax and Information Returns filed hereafter

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.