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Audit approach overview
Our audit approach will allow our client's accounting personnel to make the maximum contribution to the audit effort without compromising their ongoing responsibilities
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Annual and short period audit
At P&A Grant Thornton, we provide annual and short period financial statement audit services that go beyond the normal expectations of our clients. We believe strongly that our best work comes from combining outstanding technical expertise, knowledge and ability with exceptional client-focused service. A team-based approach defined by dedication to partner involvement in all engagements—that’s our service commitment locally and globally. An organization’s financial statements are a reference of choice for a variety of users who are required to make decisions. Whether it is a financial institution, a government agency, creditors, shareholders, or potential buyers, every one of your partners requires financial information that accurately reflects the soundness of your organization.
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Review engagement
A review involves limited investigation with a narrower scope than an audit, and is undertaken for the purpose of providing limited assurance that the management’s representations are in accordance with identified financial reporting standards. Our professionals recognize that in order to conduct a quality financial statement review, it is important to look beyond the accounting entries to the underlying activities and operations that give rise to them.
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Other Related Services
We make it a point to keep our clients abreast of the developments and updates relating to the growing complexities in the accounting world. We offer seminars and trainings on audit- and tax-related matters, such as updates on Accounting Standards, new pronouncements and Bureau of Internal Revenue (BIR) issuances, as well as other developments that affect our clients’ businesses. Participants are entitled to credited units for Continuing Professional Education (CPE), which are required by the Board of Accountancy. CPE is indicative of an individual’s genuine concern for his or her continued growth as a professional. Our team can help in achieving that.
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Tax advisory
Assistance during tax audit/contesting an assessment We assist clients in handling audits by the Bureau of Internal Revenue (BIR), Bureau of Customs (BOC) and local government units (LGUs) in a systematic and efficient manner. We help evaluate the validity of assessments, determine the appropriate documents and analyses to be submitted, prepare protests, and represent clients in meetings and discussions with government agencies. With our knowledge of tax laws and audit procedures, we help safeguard the substantive and procedural rights of taxpayers and prevent unwarranted assessments. Tax opinion and studies We conduct tax studies and provide advice to clients on the tax implications of specific transactions based on relevant laws, regulations, court decisions, rulings, and other relevant issuances. We likewise provide recommendations to address or mitigate tax issues arising from said transactions. Application for tax refund/credit We help clients recover taxes that have been erroneously or excessively paid or withheld through applications for refund or tax credit certificates (TCCs). Applications for refunds or TCCs are recommended for companies that have excess income taxes paid or unutilized creditable withholding taxes as reflected in the final income tax return (ITR), excess unutilized VAT input taxes arising from zero-rated transactions or change in VAT status, unutilized advanced VAT, excise taxes paid on petroleum products sold to tax-exempt entities and international carriers, other national or local taxes erroneously or excessively paid, or penalties imposed without authority.
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Tax compliance
Tax review We evaluate clients’ overall level of compliance with existing laws and regulations; caution them on procedures and practices that expose them to potential tax liabilities; quantify tax exposures, risks and penalties; and advise them on proper course of action and alternative tax-efficient policies and procedures. Tax due diligence review is particularly recommended for companies that are contemplating expansion, mergers and consolidation, acquisitions, change in ownership, or public listing. Expatriate tax services We ensure the proper and efficient compliance of expatriates with their Philippine income tax obligations. Our services include registration and application for Taxpayer Identification Number (TIN), preparation and filing of annual Philippine income tax return, and payment of tax due in the proper venue and within the allowed period. As a value-added service, we respond to Correspondence Audits/Inquiries by the BIR regarding information declared in the tax return. If desired by clients, we also conduct arrival or departure briefings and interviews to apprise the expatriate of his Philippine tax liabilities. Upon a company’s request, we can compute, on an annualized basis, the total withholding tax due from its expatriate during the taxable year and prepare tax equalization and reimbursement calculations in accordance with company policies.
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Corporate services
Assistance for incentives availment We help clients evaluate their qualification for incentives under the Board of Investments, the Philippine Economic Zone Authority, the Subic Bay Metropolitan Authority or other special laws. If clients are qualified, we assist them in applying with the concerned government agency for such incentives. Our assistance covers filing of the application and supporting documents, monitoring the progress of the application, meeting/discussion issues, if any, with regulatory authorities, and securing the approval for such incentives. At the clients’ request, we may also assist in ascertaining their compliance with regulatory requirements (to ensure the continued entitlement to incentives), or in justifying the entitlement to such incentives in the event of a challenge by the BIR or other regulatory agencies. Corporate organization and registration For clients that want to do business in the Philippines, we assist in determining the appropriate and tax-efficient operating business or investment vehicle and structure to address the objectives of the investor, as well as related incorporation issues. We help set up the business and register it with concerned government regulatory agencies, such as the Securities and Exchange Commission, the Bureau of Internal Revenue, the Local Government Unit, the Social Security System and the Bangko Sentral ng Pilipinas. We also assist in notifying and/or securing necessary approvals from government regulatory agencies when there are changes in business activities, business status, or tax-type registration.
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Tax education and advocacy
Tax advocacy We actively participate in consultation and public hearings conducted by the Bureau of Internal Revenue on proposed tax rules and regulations, serving as a bridge between our clients and the BIR. Our advocacy work focuses on clarifying the interpretation of laws and regulations, suggesting measures to increasingly ease tax compliance, and protecting taxpayer’s rights. Tax seminars and training We offer seminars and training on tax-related developments and special issues of interest to taxpayers. Upon request, we provide customized in-house tax training – designed jointly by P&A and the client – that directly addresses the specific issues of the client’s industry and the training needs of its personnel.
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Business risk services
Our business risk services cover a wide range of solutions that assist you in identifying, addressing and monitoring risks in your business. Such solutions include external quality assessments of your Internal Audit activities' conformance with standards as well as evaluating its readiness for such an external assessment. We can also take over your IA function altogether or work alongside you to create more value for your organization. On a higher level, our Enterprise Risk Management methodology can help your organization identify vital strategies and action plans that address key business risks, thereby enabling you to achieve your overall objective of value creation for stakeholders.
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Business consulting services
Our business consulting services are aimed at addressing concerns in your operations, processes and systems. Using our extensive knowledge of various industries, we can take a close look at your business processes as we create solutions that can help you mitigate risks to meet your objectives, promote efficiencies, and beef up controls. This can include analyzing your information technology (IT) applications and infrastructure in order to improve IT governance and strategy, strengthen security, and/or assess business risks and controls related to the use of IT.
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Transaction services
Transaction advisory includes all of our services specifically directed at assisting in investment, mergers and acquisitions, and financing transactions between and among businesses, lenders and governments. Such services include, among others, due diligence reviews, project feasibility studies, financial modelling, model audits and valuation. We are one of the few companies accredited by the Philippine Stock Exchange for the conduct of valuation and issuance of fairness opinions. Our consortium with another Grant Thornton office and a Philippine law office is also one of the fourteen (14) members of the panel of transaction advisers of the Public-Private Partnership Center of the Philippines.
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Forensic advisory
Our forensic advisory services include assessing your vulnerability to fraud and identifying fraud risk factors, and recommending practical solutions to eliminate the gaps. We also provide investigative services to detect and quantify fraud and corruption and to trace assets and data that may have been lost in a fraud event.
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Cyber advisory
Our focus is to help you identify and manage the cyber risks you might be facing within your organization. Our team can provide detailed, actionable insight that incorporates industry best practices and standards to strengthen your cybersecurity position and help you make informed decisions.
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ProActive Hotline
Providing support in preventing and detecting fraud by creating a safe and secure whistleblowing system to promote integrity and honesty in the organisation.
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Accounting services
Accounting services Many multinational companies are setting up their accounting offices in the Philippines. These businesses realize that accounting functions can be standardized across companies around the world and handled by an office halfway across the globe for a fraction of the amount needed to maintain an in-house accounting division. At P&A Grant Thornton, we handle accounting services for several companies from a wide range of industries. Our approach is highly flexible. You may opt to outsource all your accounting functions, or pass on to us choice activities, such as
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Staff augmentation services
Staff Augmentation Services It is a familiar enough scenario: A company suddenly has an urgent need for personnel on a short term, project basis to do accounting or accounting-related work. Considering the short-term nature of the work, it becomes very difficult to find interested candidates. Moreover, companies do not need just anybody, but people with sufficient technical accounting skills. P&A Grant Thornton has a pool of skilled accounting specialists who can fill the gap for companies in such situations. We offer Staff Augmentation services where our staff, under the direction and supervision of the company’s officers, perform accounting and accounting-related work. We have a long list of clients that have benefited from our assistance with the following activities: · Migration from one accounting system to another accounting system · Bank reconciliation for several bank accounts that have not been reconciled for years · Data cleansing, such as reconciliation of balances in subsidiary ledgers of receivables and payables with the general ledger balances · Physical counts of inventories and reconciling the results of the physical count with the accounting records · Count of property and equipment; tagging and reconciliation of the count with the accounting records; and properly setting up the property ledgers · Preparation of schedules and documentary supports and requirements during audits by internal and external parties, including government agencies · Preparation of statements of accounts for certain customers · Acting as accounting personnel while regular accounting staff are on leave This is just a sampling of the services we offer, and we can provide more short-term accounting services on short notice. We can adjust the schedules of our people to fit your work hours and we guarantee high-quality service: Our team is made up of technically competent and properly trained people who are prepared to handle your needs.
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Payroll Processing
More and more companies are beginning to realize the benefits of outsourcing their noncore activities, and the first to be outsourced is usually the payroll function. Payroll is easy to carve out from the rest of the business since it is usually independent of the other activities or functions within the Accounting Department. Payroll processing may look simple, but the process can get complicated, especially as a business expands its manpower. A payroll accountant has to make sure that correct taxes as well as loans of their employees are properly deducted, update the tax status of employees (single, married, no. of dependents, etc.) on a regular basis; monitor work activities during the payroll period (overtimes, sick leaves, vacation leaves, etc.); know which income accounts are taxable or not (de minimis, bonuses within the P82,000 limit, etc.); know the rules and regulations and the latest updates of relevant government agencies (BIR, SSS, Pag-IBIG, PhilHealth, etc.); and ensure that payroll processing and payouts are done on time to avoid employee complaints or dissatisfaction. In addition, the payroll accountant has to ensure that contributions to various government agencies are properly posted to the accounts of the employees. In some companies, payroll processing consumes a significant part of management time: The highest finance or HR officer in the company oftentimes handles management or executive payroll. If payroll is outsourced, the executive officer has better use of his or her time than reviewing or processing the payroll. Moreover, there is the issue of confidentiality – some employees may inadvertently gain access to confidential payroll information when data are lying around during the payroll processing period. Another issue that business owners must watch out for with regard to payroll is fraud. Since the processing of payroll is handled by just one or two trusted persons, oversight may be lax and review may not always be conducted thoroughly, thus fraud happens. P&A Grant Thornton can handle your payroll processing needs so that your management team can focus on your core competencies, enabling you to concentrate on what’s really important to your business . Our team of well-experienced and properly trained professionals can handle your payroll requirements whether you have 10 or 10,000 personnel. In addition to the computation of employees’ pay, P&A Grant Thornton can also provide the following functions under our payroll processing services: Maintain bank accounts exclusively for payroll and payroll-related disbursements Prepare schedules of statutory and internal contributions and obligations File and pay statutory contributions and obligations, manually or electronically Annualize employees’ income tax Provide secure online payslips through our ePayroll facility Handle administration of benefits that needs coordination with government agencies
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By Benjamin R. Punongbayan
(First of two parts)
MY OWN understanding of the basic financial underpinning of Philippine federalism as I hear it from the proponents is quite simple: under the proposed federalism, each state will raise and spend its own money, except for a portion to be allocated by the states for the use of the central (federal) government to perform its assigned functions.
My interpretation of this underlying concept is that the taxing authority now resides in the states; the federal government does not impose its own taxes. I could be wrong, but it is a good place to start from.
I thought of examining this Philippine federalism basic finance concept to see whether it can translate into a workable overall Philippine federalism financial system that will serve to achieve the proponents’ objective of giving the states freedom of action and of moving them away from the domineering authority of Imperial Manila.
My analysis will cover the current national taxes; the existing national debt, its refinancing, and greenfield borrowings; and the transfer of national assets to see how all these fall into place following the stated concept.
INCOME TAX
Income tax can be restructured such that it will be paid direct to the state where a business entity is operating or where a person is working or doing business.
A state may also impose an income tax rate different from other states if it believes that doing so will be beneficial to it.
Note, however, that all Philippine business entities operating nationwide will now file an income tax return in each state on the basis of its income earned in the state.
Under this condition, it becomes very important to establish how a business entity’s revenue is recognized for each state and how the entity’s cost and expenses are allocated among its operations in the various states.
In cases where sales are initiated in one state and concluded when the sold goods are delivered to a user located in another state, there must be a clear rule as to which state the sales should be reported. This situation is particularly true for goods sold directly to users and not through distribution intermediaries located in the buying states.
While the answer to this issue may be deduced from existing accounting standards, the applicable provisions in these standards on this specific matter are not straightforward, because the standards are entity-focused and not geography-focused. Therefore, an applicable tax rule must be established to make the treatment clear.
Note, though, that paying income tax direct to the states will not help the poor states because their tax bases are narrow, but it will make clear how much amount of this tax each state earns.
CUSTOMS DUTIES
Intuitively, under the said basic finance concept, the state where the ports of entry of imported goods are located earn the customs duties that are collected in these ports.
Fair?
The no-point-of-entry states may not agree, because some of those imported goods will be transported to their states for conversion or sale. The resolution of this issue may not satisfy everyone.
However, an influencing factor may be how the existing entry ports are transferred to the states where these are located — will these be valued and paid for or be given for free? But, then again, the final answer will not be easy, especially in cases where the value of the imported materials forms a substantial proportion of the cost of the finished products, like electronics, if the production facility is located in a state different from where the entry port is located. The same is true for imported finished products if much of these are sold in other states.
The obvious solution is for the federal government to continue to impose and collect this tax and allocate it among itself and the states on some fair basis.
VALUE-ADDED TAX
If the VAT system is maintained under federalism and is applied throughout the federal territory, its imposition and collection will be straightforward. The net VAT (output less input) that is paid to the state is the tax on the value added on the goods in that state. However, in cases of products that require the use of high-value imported materials where their port of entry and where VAT is collected is in a state different from where their conversion into finished products is done, the issues discussed under Customs Duties will also apply. And so with imported finished products sold in non-port-of-entry states.
But there is a more fundamental issue.
Note that the non-producing states where the VATable goods are sold earn only a very small amount of VAT — essentially the VAT on the profit margin of the merchant that sells the goods in that state.
Under the VAT system that is imposed in the entire federal country, that is only fair. This system, however, does not help the poor states.
If I am a poor state, I will opt out of VAT and impose a sales tax on the entire selling price of the goods, making me earn more tax. Of course, the additional amount of tax will increase the price of the goods and which then will trigger other unfavorable consequences.
But if I am a poor state, my primary concern is to increase my tax take. Maybe this is the reason why the United States (US) does not have a federal (countrywide) VAT. Instead, each American state imposes a sales tax of varying rates.
The solution could be either of two ways.
One is to replace the VAT system with a sales tax that will be imposed by the state where the goods are sold.
However, this does not deal with the VAT on imported raw materials and finished goods that is collected at the port of entry. This VAT portion may have to be collected by the federal government and allocated among itself and the states. The other alternative is to maintain the VAT system and have the VAT imposed and collected exclusively by the federal government as before, and then allocate the total VAT take among itself and the states, just like the treatment for Customs Duties mentioned earlier.
OTHER EXISTING NATIONAL TAXES
These can be classified into two types: (1) taxes on goods when produced and taken out of the producer’s premises (like excise taxes on alcohol, tobacco, mineral products, and softdrinks and other non-essential goods; and percentage taxes on goods produced that are exempt from VAT); and (2) taxes on receipts for goods sold and services provided (like percentage taxes on carriers, financial institutions, insurance companies, amusement tax, and sale of shares in the stock exchange; excise tax on automobiles; and documentary stamp tax).
In the first case (Type 1), where the taxes are imposed on the produced goods when these goods are taken out of the producer’s premises, the goods are no longer taxed when sold. It may be argued that the states that host the production facilities shall get all the taxes on these goods. But that will not be fair to the non-host states where probably much of these goods are sold and consumed, but do not earn any tax on them at all.
As a solution, either this Type 1 tax be replaced by a sales tax or, again, have it imposed and collected by the federal government and have the total tax allocated among itself and the states.
In the second case (Type 2), where taxes are imposed when the goods are sold or services provided (actually the tax is imposed upon collection), a principle can be established that the tax is earned where the goods are sold or services provided.
But this principle can also be contentious.
Take gross receipts tax on financial institutions.
Because of the wide unevenness of the country’s economic development, bank deposits are funneled into the head office that handles the granting of all significant loans to borrowers in the entire country. Therefore, the gross receipts tax is earned by the state that hosts the head office, which is generally the National Capital Region. To try to get the gross receipts tax paid to the state from where the bank deposits come from or where the loan proceeds are used will be terribly messy. This condition extends to several other national taxes — taxes on insurance companies, tax on shares traded in the tax exchange, carriers’ tax (especially international air), and documentary stamp tax.
For imported goods where Types 1 and 2 apply and are imposed, the taxes are paid at the port of entry. Therefore, the issue on imported goods where customs duties and VAT are collected at the port of entry also apply.
There are two alternative solutions.
On some of the goods where Types 1 and 2 taxes are imposed, the tax may be changed into a sales tax, so that the tax can be directly earned by the state where the goods are sold.
For the rest of the goods, however, the federal government may have to impose and collect the tax and allocate the total among itself and the states.
To avoid this dual treatment, the only solution is for the federal government to continue to impose and collect the taxes on these other goods and allocate the total.
TAX COMPLIANCE
To the extent that much of the former national taxes can be structured such that these taxes are paid directly to the states, tax-paying business entities will now be paying the former national taxes to the various states (say, 12) instead of to one unitary government. This will entail much additional work on their part, including the determination of which state earns the tax.
Clearly, restructuring the national taxes to serve the objective of having the states to impose and collect much, if not all, of these taxes so that they can exercise direct control over the collection is a very complex matter.
Income tax can be restructured without too much trouble, but doing so will leave the poor states with a small income tax take, because of their narrow tax bases.
Benjamin R. Punongbayan is the founder of Punongbayan & Araullo, one of the Philippines’ leading auditing firms.
As published in BusinessWorld, dated 28 May 2018
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