Certification of Financial Statements

March 14, 1960 BIR RULING NO. 130-60 2nd Indorsement Respectfully returned to the Honorable, the Secretary of Finance, Manila, the request dated February 9, 1960 of Mr. Felipe B. Ollada, relative to the certification of financial statements attached to income tax returns. We are quoting hereunder section 2 of Revenue Regulations No. V-1, otherwise known as the Bookkeeping Regulations, as amended by Revenue Regulations No. V-20, implementing Republic Act No. 658: "An independent certified public accountant is one who is in fact independent. In other words, an accountant will not be considered independent with respect to any person in whose business the accountant has any financial interest, direct or indirect, or in which he is, or was during the period of report, connected as a promoter, underwriter, voting trustee, director, officer, or employee. A certified public accountant whose work is subject to the supervision and control of the taxpayer, or to supervise the keeping of the said accounts, cannot audit the latter's books of accounts, cannot therefore, then be employed exclusively to audit the books of accounts of the taxpayer and not for any other purpose, nor bear to him any business or professional relationship which may in any way affect the independence of his professional actuations . A firm of certified public accountants, one of the members of which is actually keeping or supervising the keeping of the books of accounts of a certain taxpayer, cannot audit or examine the said books of accounts of the latter." (Emphasis supplied). Tested by the foregoing, it is quite clear that a certified public accountant cannot be deemed independent. 1. When a member of his family is a substantial stockholder of the company being audited by him; 2. When he audits and certifies the financial statements of a company controlled and/or owned by his family; 3. When immediate members of his family (is) are either President, Manager, or Director of the company being audited; 4. When (a CPA) he keeps the books of accounts and examines same as an independent Certified Public Accountant and then certifies the financial statements drawn from the same books kept by him; 5. When (a CPA) he is retained as an external auditor and at the same time the "Stock and Transfer Agent' of the same Company." For the cases mentioned in Nos. 1, 2 and 3 above, the accountant an indirect financial interest in the business of the respective companies, while, in the last two cases, he is employed by the taxpayer not for the exclusive purpose of auditing their books of accounts. cdi MELECIO R. DOMINGO Commissioner of Internal Revenue