Preservation of Accounting Books and Records – Compliance for Companies in the Philippines

A company’s book of accounts is an organized record of all its business activities and financial transactions. The Bureau of Internal Revenue (BIR) has established a set of rules and guidelines about the retention period of documents in the Philippines – and all business entities in the Philippines must be aware of them.

In this article, we explain the key pieces of legislation relating to the storage of books of accounts in the Philippines and records. We also outline the relevant penalties that a company might incur for non-compliance.

Book of accounts regulations as per BIR Philippines

The two key regulations from BIR regarding the maintaining of books of accounts in the Philippines are:

• Revenue Regulations No. 17-2013 – Preservation of Books of Accounts and Other Accounting Records

This Regulation sets out the primary guidelines for the retention of accounting books and records in the Philippines. It was issued in order to align with various sections of the National Internal Revenue Code of 1997. It was later amended in 2014.

• Revenue Regulations No. 5 – 2014 – Amending Revenue Regulations No.17-2013 dealing with the “Preservation of Books of Accounts and Other Accounting Records”.

These Regulations were introduced primarily to facilitate the modern approach taken by companies to process their accounting and finance services and store their accounting records electronically via online accounting solutions (e.g. Xero, Quickbooks Online) and cloud technology.

What type of accounting records needs to be preserved?

As a basic rule, all accounting-related records relevant to each transaction performed by Filipino businesses must be preserved. BIR requires that the book of accounts and all necessary records must be maintained “intact, unaltered and unmutilated.”

Revenue Regulation 17-2013 specifically provides that the following documents must be retained by businesses:

• A. Books of Accounts – These are the books where business transactions are recorded and maintained. General ledgers and general journals are primary records within the books of accounts.
• B. Subsidiary books – These are books of accounts where similar transactions are recorded in chronological order. Examples of these are cash receipts journal, cash disbursement journal, sales journal and purchases journal
• C. Other accounting records – “Other accounting records” include invoices, receipts, vouchers, returns and other source documents that support entries into the books of accounts
• D. Registers – These are accounting records that illustrate the transactions for each account together with the running balance
• E. Vouchers – This is an accounting document used to prepare payments to creditors

How long does a company have to store its accounting books and records?

Under RR 17-2013 and RR 05-2014, all books, registers, records, vouchers and other supporting papers and documents prescribed by the BIR must be kept by a business for a period of 10 years. This is because:

1. Under Section 203 of the National Internal Revenue Code, the government can examine the records of a taxpayer for 3 years after the tax return (or a subsequent amended tax return) has been filed. The 3-year period can be extended in certain circumstances.
2. However, for cases of false or fraudulent returns with an intent to evade tax or for failures to file a return, the BIR has the power to assess tax documents for a period of 10 years after the discovery of the falsity, fraud or omission.

What about companies that do their accounting and bookkeeping through online cloud accounting solutions?

Companies that use cloud accounting solutions or computerized accounting platforms can store their records electronically. However, there are certain rules they must follow.

Importantly, for the first 5 years, companies must also preserve hard copies. This is based on the amendment to RR 17-2013 made by Revenue Regulation 5-2014 which provides the following:

• For the first 5 years, the preservation of accounting records must be in hard copy. While holding electronic copies also is not prohibited, there must be corresponding hard copies during this period.
• For the 6th to 10th year, accounting records may be preserved in electronic form only. Hard copies are no longer required.

RR 05-2014 outlines additional requirements about the format in which electronic records must be stored. For electronically stored records, the following must be observed by companies:

• Any electronic images of hard copy accounting records must be clear, accurate and complete
• The electronic storage system must be able to index, store, preserve, retrieve and reproduce the electronic records.

RR 5-2014 also provides requirements around the safeguarding and maintenance of electronic records. The electronic storage system must:

• A. Have effective and efficient controls to maintain integrity, accuracy and reliability
• B. Prevent unauthorized access, alteration, deletion or deterioration of electronically stored data
• C. Have personnel who will regularly inspect and monitor the storage system
• D. Have a retrieval system that includes an indexing system
• E. Have the ability to reproduce legible and readable hardcopies of the electronically stored documents

If your electronic storage does not adhere to these requirements, the company must keep hard copies for the whole 10-year retention period or implement a more advanced storage system.

Where must accounting records be stored?

All necessary accounting documents and records must be always kept in the place of business of the taxpayer during the retention period.

Examination and Inspection

Companies should be aware that a taxpayer must deliver books and records for examination or inspection upon the demand of any BIR officer.

The BIR requires this so they can inspect records in order to check compliance with tax legislation, tax exemptions and examine potential tax liabilities. BIR can also request any accounting records during regular audits, extraordinary audits, by the power of BIR Commissioner under the NIRC.

When BIR requests for a company’s records, they can take the documents away from company premises and conduct their inspection at their office.

Penalties for Violations

Here are some potential penalties that can arise if a company fails to follow the BIR rules relating to the retention of accounting records:

• Section 266 of NIRC – for failure to reproduce records required by the BIR, a penalty of not less than P5,000 but not more than P10,000, and possible imprisonment of not less than 1 year but not more than 2 years.
• Section 275 of the NIRC – for a violation of any provision of the NIRC, a fine of not more than P1,000 or imprisonment of not more than 6 months, or both.
• Republic Act No. 10021 (Exchange of Information on Tax Matters Act of 2009) – willful refusal to supply required documents shall be punished by a fine of not less than P50,000 but not more than P100,000, or imprisonment of not less than 2 years but not more than 5 years, or both.

Let CloudCFO Help You Maintain and Preserve Your Books

While the preservation of accounting records is just one element, it is an important part of tax compliance. Without records, it can be difficult for a company to demonstrate compliance and adherence to tax regulations.

If you need help maintaining your records and book of accounts as per BIR’s regulations, you can rely on CloudCFO’s cloud accounting services. We provide our clients with worry-free accounting services by staying updated with the latest updates and issuances from the BIR, SEC, and other government bodies.

Reach out to us today to streamline your accounting processes.