Learn How Davao Auditing Services Can Help you Understand PFRS for SMEs as Mandated by the SEC in your Completion of a Fair and Correct Annual Financial Statement
Have you seen a detailed report prepared by an auditor even once in your life? If you’re a small business owner, you should have!
The Securities and Exchange Commission (SEC) – tasked to look after every private entity in the Philippines – has mandated that every covered small and medium sized entity must submit a detailed report on an annual basis. They call it the Philippine Financial Reporting Standard (PFRS) for SMEs which took effect since January of 2010. (Take note that this is an attempt by SEC to align business financial reporting according to international standards, see more here and here.
As for regular entities and big corporations, there’s always the original PFRS for them. The transition may have not been smooth even if it was already 3 years ago since it was officially implemented. The problem of acquiring new terminologies and valuation issues are just some of the challenges they were faced with. Also, it is only last year that most SMEs have complied, that’s how long it took them to comply.
The good thing is there are trusted accounting partners in Region 11 that offer excellent auditing services focused on financial statements in Davao City, in case you’re wondering whether it is only in Manila that you can find certified help.
But before anything else, you must have a better understanding of the phrase “auditing financial statements” first. And that’s what’s in store for you next.
What is Financial Auditing and Other Issues?
The main purpose of financial auditing is to give private business owners an assurance that mistakes on the company’s financial reports will be lessened. Audit is applicable for companies that either earn multimillion pesos in operations and profit or those that hold these assets in a fiduciary manner most commonly called “trust.”
In other words, if companies earn enough and if they have stock or shareholders they qualify for audit. (Notice that the law for SMEs required to file PFRS by the SEC defines the term SME as an entity earning in the range of 3 to 350 million pesos and is not a public utility.)
Processes involved: risk assessment, internal controls testing, substantive procedures, and finalization.
To help you in breaking down what to expect in that document that any auditor must carefully prepare, the list has been conveniently made for you below.
Parts of the PFRS
As normal audits go, there should be pages that pertain to:
- Statements explaining the connection between PFRS for SMEs according to how it was implemented internationally through the International Accounting Standards Board (IASB). Terms and scope of the mandate.
- Introductory part
- Table of Contents for easier referencing
- Financial statements (including assets, liabilities, equities, cash flow, income and subsidiaries if applicable among many others)
- Detailed footnotes
- Supplemental written statements of the independency of the auditing firm from the audited company
- Appendices
IASB standard conceptual framework scope includes:
- Objective of financial reporting
- Qualitative characteristics of useful financial information
- Reporting entity
- Definition, recognition and measurement of the elements from which financial statements are constructed
- Concepts of capital and capital maintenance
(This is lifted from: http://www.iasplus.com/en/standards/framework)
So what entities are really affected by these auditing services for financial statements offered in the Davao region? Find out some details on the continuing paragraph.
Sample Private Enterprises (SME and beyond)
In the agricultural setting – it will mostly include biological assets with values that are pre-determined without undue cost or effort. Items may vary from feeds to fish.
IT industry – regular auditing schedules must be put in place for this volatile industry. Incidents and problems are just two of the most common issues and managing both requires different sets of processes. Internal audit is key to bridging both. (http://www.theiia.org/intAuditor/itaudit/2012-articles/auditing-the-incident-and-problem-management-process/)
For businesses engaged in extractive activities – extractive means taking something out of a wide area full of substantial minerals; most common of them all is mining. So items include medium to heavy machineries and the inventory of whatever extracted material was gathered (e.g. charcoal or gold).
For a food chain – large ones usually have subsidiaries or those that the parent company has eaten to save from further losing profit. Inventory involves checking up on these agreements, preparing documents for the SEC to approve and the taxes that are applicable among many others.
Service Concession Arrangements – Concessions are an agreement between two separate entities (provider and operator) to provide basic services such as utility and transportation. In the Philippines this usually happens to Electric Corporations and Water Service Providers.
But do not think of it as already done when implemented. Remember that it took many SME’s at least two years to at least comply in this mandate. Here are some problems that they meet head on.
Problems Met Along the Way
Doing the job of an auditor is never an easy task. It has its own woes and dilemmas to struggle with.
You see, if doctors eradicate illnesses and lawyers plead non-guilty for their clients; auditors must observe circumstances that are already happening and provide questions that will lead to a web of answers.
Top problems that auditors directly experience:
- No enough evidence to support key valuation assumptions
- No support from the audited management
- Late publication of reports
- Non-disclosure for related parties
These problems are as varied as the industries that most auditors serve but they continue dedicating hard work to these sectors despite all the rough roads. If you think your local auditing experts deserve a call, do so. Their financial statement auditing services in Davao City may be the key to helping you have a smooth transition from previous regulations to present ones regarding financial reporting for businesses.