With the filing of 2018 tax returns and financial reports, the issue of how to store additional documents for the year 2019 is quite a concern not only for CPA practitioners like me who also has to keep the working papers for clients, but also for all businesses in general. Why do you think storage rentals businesses are thriving and growing in the States and now slowly growing in the Philippines? But is such a waste of money and time when you have to pay spaces just to store your files.
This age of digital transformation can perhaps alleviate the problem of storage or keeping the hard copies of documents. Keeping an organized file in the office is much more difficult in business than in the homes. Lately, I had been applying the Marie Kondo of organizing stuff at home. I began with my clothes and it is very effective for me (I still have to organize other areas in my home). Aside from getting rid of the clutter, it saves me a lot of time in looking for my stuff.
I was wondering the other day, while I was thinking of shredding several documents in our office after the tax season, to include in the continuation of our strategic planning in May 2019, on how we can efficiently file records through digitalization, scanning and filing of hard copies where needed. I was also wondering if I can apply the KonMari Method (this is the name of Marie Kondo method popularly known in tidying up home stuff) in the office because I have proven it effective at home. However, there could be one main difference—while the basis of getting rid of stuff at home (KonMari Method) is whether it still sparks joy in you, in the office in most cases this could not be applicable. It calls for a more defined policy and business system. For instance, audit files should be kept for 10 years because of the BIR Revenue Memorandum Circular 29-2019 that mandated that books should be preserved for a period of 10 years and within the first five years the taxpayer shall retain hardcopies of the books of accounts, including subsidiary books and other accounting records with the choice of having it retained in electronic format for the last five years.
How can the problem of keeping the records be resolved or managed with the Bureau of Internal Revenue requirement of keeping the records for 10 years? In this age of digitalization and digitization, the era of being drowned by so much records is nearing its end. There is a difference though between digitization and digitalization. Digitization is the process of converting information into a digital format (while digitalization is the use of digital technology to provide new and value-producing opportunities). But when the issue is record keeping, digitization is the word. A record which is scanned and converted into an image remains just an image, and if saved is just saved in an electronic format. However, if your system maintains an optical character recognition (OCR) program it analyzes a text image to identify each alphabetic letter or numeric digit, and converts each character into a code based on whatever conversion program the company is using, which will allow an operating system to change a file from one code to another.
So you can send invoices in scanned format to another computer in any parts of the world, and with the OCR it can read the invoice and pick the data needed to prepare an entry in the books. No hard copies of paper are needed.
In one digital transformation seminar we organized last year, the Resource Speaker mentioned about the three ways in which you can store your files: through the cloud, the computer and manually filing the hard copy. And if you digitize your source documents and you apply for a loose leaf registration or a computerized system of maintaining your books, instead of a manual book of registration with the BIR, you will avoid recording your transactions by literally handwriting—which is what the BIR requires. With digitization and files maintained in the cloud or in their computers, one can save a lot of space compared to maintaining all your files in hard copies. Your files need not be stored manually in physical spaces but stored in computers and in the cloud.
I am looking forward to that time in the future when you do not have to worry about where to keep your numerous files because by then everything will be stored electronically. Hopefully, by that time the government policy on record keeping will be geared to keep them in electronic format rather than in hard copies which could really prove burdensome to businesses.
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Wilma Miranda is the managing partner of Inventor, Miranda & Associates, and CPAs, Board of Director Member of KPS Outsourcing Inc. and treasurer of Negros Outsourcing Service Inc. The views expressed herein do not necessarily reflect the opinion of these institutions.