Audited Financial Statements are formal records of a company's financial activities that have been independently verified and certified by a licensed Certified Public Accountant (CPA). In the Philippines, corporations, partnerships, and individuals with gross annual sales or receipts of PHP 3 million or more must submit these documents annually to the Bureau of Internal Revenue (BIR) and the Securities and Exchange Commission (SEC).

Key Components

An Audited Financial Statement typically includes:

Balance Sheet — A snapshot of a company's assets, liabilities, and shareholders' equity at a specific point in time
Income Statement — Shows revenues, expenses, and profits over a specific period
Cash Flow Statement — Tracks cash inflows and outflows, useful for monitoring liquidity
Statement of Shareholders' Equity — Outlines changes in the equity portion of the balance sheet
Notes to Financial Statements — Supplementary details explaining accounting policies and assumptions

How it Works

You can prepare your Audited Financial Statements by following this process:

Compile financial data — Gather your income statements, balance sheets, and cash flow statements throughout the fiscal year
Engage an independent auditor — Hire a CPA or audit firm accredited by the Board of Accountancy and the BIR
Undergo audit procedures — The auditor reviews your records using Philippine Standards on Auditing (PSAs), including analytical reviews, third-party confirmations, and sample testing
Receive audit adjustments — If the auditor finds errors or misstatements, they propose corrections for management approval
Obtain certification — Once verified, the auditor signs off on the financial statements, deeming them certified
File with regulatory agencies — Submit the AFS to the BIR (as an attachment to your Annual Income Tax Return) and to the SEC via the Electronic Filing and Submission Tool (eFAST)

Pros & Cons

Advantages:

Establishes credibility with banks, investors, and government agencies
Ensures compliance with Philippine tax and corporate laws
Identifies errors or inefficiencies in financial management
Required for loan applications and business transactions

Disadvantages:

Audit fees can be costly, especially for smaller businesses
The process is time-consuming and requires significant documentation
Late or non-submission results in substantial penalties

Who is Required to Submit?

BIR Requirements

Under the TRAIN Law, businesses with gross annual sales, earnings, or receipts of PHP 3,000,000 or more must submit Audited Financial Statements. This applies to:

Corporations
Partnerships
Sole proprietorships
Self-employed individuals

SEC Requirements

Under Revised SRC Rule 68, the following must submit AFS to the SEC:

Stock corporations with total assets or liabilities of PHP 600,000 or more
Non-stock corporations with total assets or liabilities of PHP 600,000 or more
Branch offices of foreign corporations with total assets of PHP 1,000,000 or more
Regional operating headquarters (ROHQs) with total revenues of PHP 1,000,000 or more

Filing Deadlines

The deadline depends on your company's fiscal year:

BIR: Submit within 120 calendar days from fiscal year-end, along with the Annual Income Tax Return
SEC: File after BIR submission, based on deadlines determined by your SEC registration number

For companies following the calendar year (January–December), the typical deadline is April 15 for the Annual Income Tax Return and April 30 for the AFS.

Penalties for Non-Compliance

Failure to submit Audited Financial Statements results in penalties from both agencies:

BIR Penalties

25% surcharge on tax due for late filing
12% interest per annum on unpaid amounts
Fines ranging from PHP 10,000 to PHP 50,000 for non-submission
Potential imprisonment for willful neglect or fraud

SEC Penalties

Late filing fines range from PHP 5,000 to PHP 45,000 for domestic corporations (depending on retained earnings and number of offenses)
An additional PHP 1,000 per month of delay
Repeated non-compliance (three times within five years) may result in delinquent status
A sixth offense can lead to revocation of the Certificate of Registration

Real-World Application

For Philippine real estate brokerages, Audited Financial Statements are critical compliance documents. If your brokerage handles property sales generating over PHP 3 million annually, you must prepare and submit AFS to both the BIR and SEC. Non-compliance penalties can reach PHP 25,000 or more per violation, plus monthly surcharges.

Using accounting software with built-in double-entry bookkeeping helps maintain accurate records throughout the year. This simplifies the audit process and ensures your financial statements are ready for certification. Integrated BIR tax reports can further streamline your regulatory filings.

Audited Financial Statements