EVEN WITH the latest technology at our fingertips, many businesses, particularly small- and medium-sized enterprises (SMEs), may still maintain manual books of account.
It must be noted that in practice, actual manual recording in the books is no longer done since accounting records are usually maintained and generated in some sort of electronic format, like Excel. Printouts of the accounting records are simply pasted onto the registered manual books of account and are then used to prepare the company’s financial statements. These same books are also presented to external auditors which the latter use for their audit.
The issue is that it remains unclear whether this practice is considered substantially in compliance with the bookkeeping requirements of the Bureau of Internal Revenue (BIR) under Revenue Regulations (RR) V-I or RR V-1.
As one of the oldest known revenue regulations still generally applicable today, the “Bookkeeping Regulations” embodied in RR V-1 were issued in 1947 when the Philippines was still recovering from the devastation of World War II. They govern the keeping of books of account, records, registers, as well as, issuance of invoices, receipts, tickets and other supporting papers and documents by persons subject to internal revenue taxes.
Understandably, at that time, manual books of account were the only means available to taxpayers for recording business transactions.
To keep up with the changing times, various regulations and directives amending RR V-1 were subsequently issued, although for several decades, manual recording of entries remained an acceptable mode of maintaining accounting records.
In 1982, in response to the clamor of multinational companies doing business in the Philippines to allow them to adopt the global accounting system of their foreign parent companies, the BIR issued Revenue Memorandum Circular (RMC) No. 13-82 which authorized the use of loose leaf books of accounts, records, invoices and receipts for recording business transactions.
Soon after though, accountants and computer programmers recognized a downside to storing data: around 2000, when “millennium bug” concerns were at their peak, the need for tedious reconciliation put businesses to the test. Perhaps the challenge posed by the electronic storage of data left taxpayers thinking that manual recording remained a viable and safe option for keeping accounting records, though they kept looking for a more efficient way to do it.
Whatever the doubts, the adoption of information and communications technology (ICT) forges ahead. To promote the universal use of electronic transactions in the public sector, Republic Act (RA) 8792, otherwise known as the Electronic Commerce Act of 2000, was passed, mandating that all government offices, including the BIR, perform government functions by electronic means.
In August 2006, the Department of Finance (DoF) issued Revenue Regulations (RR) No. 16-2006, which laid down guidelines for the submission of books of account and other records in electronic format, specifying among others:
• the manner and format in which such computerized accounting books/records shall be created, retained, filed and issued;
• when and how such computerized accounting books/records have to be signed or authenticated;
• the appropriate control processes and procedures to ensure integrity, security and confidentiality of computerized accounting books/records;
• other attributes required of computerized accounting books/records; and
• the full or limited use of the documents and papers for compliance with the requirements of the BIR.
It’s worth noting that in the regular audit of taxpayers’ books, Revenue District Offices (RDOs) refuse to accept accounting records where printouts of electronically processed entries are pasted on the manual books of accounts, and still demand the presentation of accomplished manual books of account with manually written accounting entries. At times, taxpayers would prefer to pay the penalty instead of engaging a bookkeeper to update the manual books of account since this may take time and may cost them more.
SMEs keeping manual books of account may not be able to afford pricey software systems that handle accounting functions. In order to keep up with the changing times and maintain efficiency, they often use simple computer programs such as Excel spreadsheets to record and store their transactions. In managing sizable chunks of data, manual jotting down of entries no longer proves to be a practical and effective mode of bookkeeping.
Recently, the BIR ordered the mandatory implementation of the Electronic BIR Forms or eBIRForms by issuing RR No. 6-2014. The eBIRForms system was developed to provide taxpayers, particularly the Non-Electronic Filing and Payment System (Non-eFPS) filers, with accessible and convenient service through easy preparation and filing of tax returns. The use of eBIRForms improves the BIR’s tax return data capture and storage, thereby enhancing efficiency and accuracy in the filing of tax returns. The efforts of the BIR to embrace technology and continuously look into efficient measures for easy preparation and filing of tax returns have been commendable. Will freeing taxpayers from having to keep manual books of account follow?
Given the constant influx of technology in business, the BIR should be flexible and consider computer-generated spreadsheets as compliant with RMC 13-82. In essence, computer-generated printouts function in the same manner as manual or registered loose leaf records, thus conforming to the BIR’s objectives of efficiency and accuracy.
It would be timely for the BIR to issue a clarificatory circular allowing taxpayers to use computer-generated printouts as an acceptable method of recording entries in the manual books of account. Such a circular could also apply retroactively to cover Excel-formatted accounting records submitted to the BIR during tax audits of the past taxable years.
The BIR could consider imposing a one-time penalty for those years that books were not manually filled but fully supported by electronic spreadsheet printouts -- a compromise that would be less onerous for SMEs.
Revelino R. Rabaja is a senior manager at the tax services department of Isla Lipana & Co., the Philippine member firm of PricewaterhouseCoopers global network.
revelino.r.rabaja@ph.pwc.com.
source: Businessworld
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