Tax Accounting and Bookkeeping Overview
Making entries in the books of accounts has a two-fold effect, (a) the regularity of recording all the business transactions and (b) the correct and timely application of the laws to the said business transactions. The Tax Code has already provided the rigid and rigorous rules and regulations. It defined the accounting titles to be used by taxpayers and business people, prescribed the purpose of using each accounting title, and specified the timing of using an accounting title.
All taxpayers who are not only preparing their financial statements in conformity with either the Generally Accepted Accounting Principles (GAAP) or Philippine Financial Reporting Standards (PFRS) but also permitting their chosen external auditors to prepare and issue an Auditors’ Report using the Generally Accepted Auditing Standards (GAAS) or Philippine Standards on Auditing (PSA) find themselves in a challenging and stressful tax audit examination.
The reason behind this abnormality can be traced to what the Bureau of Internal Revenue’s (BIR) officials and employees think about the PFRS, GAAP, GAAS and PSA. Most of the revenue officers and employees see and believe that this taxpayers’ popular preference is an advertisement of being IGNORANT OF THE TAX LAW and its rules and regulations.
Although the Philippine Supreme Court and the tax-law-obedient BIR’s officials and employees already voiced out publicly the SUPREMACY OF THE TAX ACCOUNTING RULES OVER AND ABOVE THE FINANCIAL ACCOUNTING STANDARDS AND MANAGERIAL ACCOUNTING POLICY DIRECTIONS, the current Certified Public Accountants (CPA), including their clients and staff, are still knowingly embracing the awful side effects of choosing and using such standards, principles and policy directions. Some of them resulted in a big and unbearable deficiency tax assessment, stressful tax harassment, closure and cessation of business, loss of employment to many employees, etc.
The difference between the Tax Accounting, on one hand and the financial accounting and managerial accounting, on the other hand, dwell solely on the purposes in which each of them pursues.
The financial accounting standards insist in protecting your investors and creditors’ interests. Although, such purpose is so valid and acceptable in certain degree, it cannot be taken for granted the purpose of the tax accounting. Your consistent violation and disregard thereof have a greater impact on your public image and character. Your livelihood and liberty may also be at risk for your failure or refusal to follow it diligently. Finally, your freedom and legal rights will suffer seriously and may be damaged forever.
In fact, if you will be jail-staying for six (6) years because you disobeyed the tax accounting rules, your investors and creditors’ money and interests surely will go to a trash bin.
However, the benefits of using the tax accounting rules in keeping the prescribed documentations, making entries in the books of accounts and preparing the correct returns and reports consistently and consciously are freedom from surcharges, interest and civil liabilities. Moreover, you deprive the BIR to publicly humiliate and brand you and the members of your family as tax evaders, deprive the uniformed policemen to knock on your doors, escort you to the waiting police car and bring you to their police station for questioning, and finally, deprive the Department of Justice’s prosecutors to file a criminal case against you in the Court of Tax Appeals.
By making your returns and reports to be user-friendly to all BIR’s officials and employees, you help the Philippine Government save money. It will definitely know that to examine your books of accounts and other accounting records will not result in a deficiency assessment. Thus, it will become costly on its part to visit you and meddle with your business affairs and operations.
Having extensively said so, the compliance with the tax accounting rules needs your personal engagement and involvement. Clearly, its delegation to an inexperienced bookkeepers, undereducated CPAs and untrained lawyers may not bring favourable results or admissible excuses.
The Philippine Government requires you to extinguish your legal obligations that the tax accounting rules created. Else, it will not entertain a second thought of imposing a severe sanction for your continuous failure and refusal to comply with its rules and regulations. Its penalty may include closure of your business (livelihood), criminal prosecution (liberty) and publication of your name as a tax evader in social media (life). Would you ruin your kids’ name, treasure and livelihood? EmelinoTMaestro (ETM) thinks otherwise.
By the way, the if you, – a taxpayer or business person, want to be independent from inexperienced bookkeepers, undereducated CPAs and untrained lawyers, please study tax accounting bookkeeping.