Use of the Computerized Accounting System

January 28, 1988 BIR RULING NO. 011-88 272 000-00 011-88 S i r : This refers to your letters dated May 18, June 29, July 21, and November 11, 1987 on behalf of your client, Interface Computer Services Corporation, requesting a ruling on the following: 1. Whether the use of books of accounts could be eliminated with the use of the computerized accounting system. 2. Whether computer printouts, diskettes and tapes used in a computerized accounting system are required to be submitted to and/or examined by this Bureau. 3. Whether there are prescribed conditions for the use of the computer accounting system. 4. Whether prior permit by this Office is required for its adoption. It is represented that the computer accounting system is capable of performing basic accounting functions such as recording, classifying and summarizing accounting data; that books of accounts could be kept in magnetic disks from where the desired information could be extracted through the use of computer. It is also represented that your client is capable of developing computer programs appropriate to the needs of its customers; and that the user of the system will continue to maintain source documents such as official receipts, sales invoices, check vouchers, and other primary records . In reply please be informed as follows: 1. "All corporations, companies, partnerships, or persons, required by law to pay internal revenue taxes shall keep a journal and a ledger, or their equivalents . . . ." (Sec. 272, Tax Code, Emphasis ours) There is no distinction between the audit concepts applicable to the computer-based accounting system or the electronic data processing systems (EDPS) and those applicable to manual systems which involves the use of the traditional books, such as the journal and the ledger. "When computers are introduced, generally accepted auditing standards and their interpretations; legal liability and the basic concepts of gathering evidence remain unchanged." (Par. 1, Revenue Memorandum Circular No. 38-86). Such being the case, the traditional books of accounts could be eliminated provided a readable printout of the information/accounting data are available or verifiable. 2. Where the use of computer-based accounting system is authorized, diskettes containing records, classification and summary of transactions shall be subject to examinations and inspections of internal revenue officers as if they are the traditional books of accounts, in accordance with Section 275 of the Tax Code. 3. The records used in a computer-based accounting system should be preserved for a 3-year period from the last entry in each record, pursuant to Section 275, in relation to Section 268, both of the Tax Code. 4. A permit shall be secured from this Office before adopting the computer-based accounting system. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner