First of a series
The ongoing investigation of the Senate Blue Ribbon Committee on the Commission on Audit (COA) findings on the disposition of Covid-19 response funds brought into the limelight the many roles of the accountant in the various communities of politics, government, and business.
The accountants and auditors of the COA revealed the irregularities committed in awarding the bids for the supply of Covid-related supplies, such as testing kits, face masks and personal protective equipment (PPE). The tax examiners and accountants of the Bureau of Internal Revenue have started their audit of the alleged tax evasion of several corporations and persons in the supply of PPE. The Professional Regulatory Board of Accountancy has also been tasked to look into violations of the Accountancy law and rules of some Certified Public Accountants (CPA) engaged by Pharmally Pharmaceutical Corporation, the supplier that garnered the largest Covid PPE supply contract from the government.
During the hearings of the Blue Ribbon Committee, these CPAs were grilled on their role and responsibilities. It was a learning experience for the senators and those watching the proceedings to know the nuances of the different aspects of financial recording, compilation, reporting, representation and attestation. Each entails different persons executing the varied processes, with specific responsibilities and accountabilities, and for particular purposes and uses. It is easy to co-mingle the separate as well as interdependent relationships of these various functions, but doing so arbitrarily will result in confusion and inaccuracies in the decisions and conclusions that may result.
Take the case of the recording process. This is commonly called bookkeeping and involves the process of recording in the accounting books and records the pertinent financial information of business transactions from appropriate documents and sources. This can be done manually via pen and pencil, writing in the accounting records, or digitally by encoding the data into electronic records. This function can be outsourced to third party bookkeeping service providers or done by bookkeepers employed for this purpose. Whatever option is utilized, the source business documents that are recorded are owned and kept under the custody of the business owners.
The compilation function involves a set of rules and competencies different from the other processes. This consists of compiling the financial and non-financial data from the records of the business enterprise and presenting these into the prescribed financial statements with the appropriate disclosures.
The compilation function involves a set of rules and competencies different from the other processes. This consists of compiling the financial and non-financial data from the records of the business enterprise and presenting these into the prescribed financial statements with the appropriate disclosures. There are restrictions as to who can do this function. Those persons who may have a “self review” risk or conflict of interest are not allowed to do the compilation services. The external auditors and out-sourced bookkeepers of the business entity are not allowed to do this compilation. This function can be done by the internal accounting staff or outsourced to qualified CPA compilers. I recall that when I was the Chairman of the Professional Regulatory Board of Accountancy, I issued in January 2016 Board of Accountancy Resolution No. 03-2016 that prescribed the issuance of Certificate of Compilation Services that is intended to enhance the rendering of this function. Unfortunately, Resolution 36-2019 revoked this issuance in 2019 for dubious reasons.
The reporting aspect involves the accountants and CPAs preparing the appropriate financial statements and reports and government forms to users of the FS. There are varied users of the FS, including the stockholders, banks tapped for loans, potential investors, financial analysts and government agencies, including the Bureau of Internal Revenue and the Securities and Exchange Commission. For these government agencies, there are additional requirements and forms prescribed for the reporting, such as the tax returns, summary lists of transactions (purchases and sales), the general information sheet, and many others. This function can be done by the internal accounting and tax staff or outsourced to qualified CPAs and tax preparers.
To be continued
Joel L. Tan-Torres is the Dean of the University of the Philippines Virata School of Business. Previously, he was the Commissioner of the Bureau of Internal Revenue, the chairman of the Professional Regulatory Board of Accountancy, and partner of Reyes Tacandong & Co. and the SyCip Gorres and Velayo & Co. He is a Certified Public Accountant who garnered No. 1 in the CPA Board Examination of May 1979.
This column accepts articles for publication from the business and academic community. Articles not exceeding 600 words can be e-mailed to jltantorres@up.edu.ph.