Computerized accounting system

One needs to undertake 16 steps for more than a month (actually 34 days) to start a business in the Philippines, according to the World Bank’s Doing Business Report 2015. Newly appointed Trade Secretary Adrian Cristobal Jr said that among his first priorities is to reduce the process to three steps in three days.

If Cristobal makes true his word, the business community especially the foreign investors, would be relieved. Many of them had a hard time perceiving why its takes so long to start a business here and how hard to maintain it. The government may be doing its best to make the process easier and on theory it can be easier, but the reality is different.

There are different processes in setting up business in the country but let me focus on the computerized accounting systems (CAS) set up by the Bureau of Internal Revenue in getting approval and permits.

Why would a company need CAS, you would say? India and New Zealand, for example, do not see the importance of the approval of CAS and thus, do not require such systems.

BIR, in essence, said that it needs to ensure that the CAS produce accounting records and documents that reflect the accounting transactions and the correct tax. Further, the BIR even prescribes particular accounts (some BIR examiners consider these as fields or columns) in the accounting reports.

One would think it is the company’s responsibility to ensure that its CAS properly reflect the correct taxes to be reported to BIR. The format or columns should not matter.

BIR, however, can sometimes take it to extreme length.  One story I heard was about a BIR examiner insisting on rearranging some columns (one column goes first before other columns) in an accounting book despite pleas from the company that such change would be costly as they have to get consultants from abroad to fix this unnecessary rearrangement of columnar fields.

Given the rigid approval process, companies are expecting the BIR examination would rely heavily on the output of the its approved CAS in the future when the company is already operating.

However, the BIR examination is still paper-based and rarely does one hear of computerized audit conducted by the BIR.

The CAS can be developed off-the-shelf or in-house. Regardless, the BIR does not differentiate and the CAS application would still be subjected to rigorous review.

While the BIR personnel might not be totally faulted for doing their job, there are better ways and faster processing of CAS applications.

One thing that BIR should consider is to recognize that top-tier Enterprise Resource Planning (ERP) systems like SAP, Oracle and others have already been reviewed, evaluated and used by several large multinational companies.

The efficiency of these ERP systems has been established that is why the management of these companies had relied on the financial reports generated by these ERP systems. These top-tier ERP systems can be counted with your fingers. Considering their wide use and adoption, these prominent accounting systems would have already been subjected to scrutiny and detailed review by the BIR in previous applications of other companies.

Given the familiarity over the said systems, the BIR should concentrate the review on the modifications or customizations and give such applications an easier path to approval.

Thailand and Singapore have been doing this already; are they evaluated and approved the computerized accounting systems so that companies using such approved systems need not get separate approval.

Moreover, BIR should not treat each application as if it was developed in-house requiring it to conduct detailed scrutiny and review all the time.

This scenario was confirmed to us by an outsourcing company which does the registration for its clients using its existing and previously scrutinized and approved top-tier accounting system. The outsourcing company made the same presentation to the same BIR personnel and the approval process still took months.

In one instance, the BIR found additional requirements not previously required in previous applications. Despite showing previous approval, the BIR still did not relent.

I am sure some BIR examiners know the difficulties and may even sympathize with the company-applicants. Given that the regulations were crafted over a decade ago, BIR should again take a serious look at its processes and procedures given the rapid developments in Information Technology.

As it is, instead of relying primarily on the paper output of the CAS, the BIR should consider using computerized audit as well to validate a company’s representation. This method of review and approval, however, necessitates that the skills level of BIR personnel need also to be consistently upgraded.

If the government is really serious in easing up the conduct of business in the country, it should consider scrapping the approval of CAS or consider pre-approval of selected softwares.

At the very least, the BIR should streamline its review processes and procedures and make proper use of IT to validate the company’s representation on the CAS. At the end of the day, the burden of making sure the correct taxes are paid rests with the companies.

If it prescribes to our suggestions, the BIR can free up some of its precious time and resource to do more audits.

Though the last we heard, the BIR, in recent months, centralized the approval process of CAS, taking the job from the regional offices and giving the national office more burdens, resulting to more delays.

The author is the President of P&A Grant Thornton Outsourcing, Inc, P&A Grant Thornton is one of the leading audit, tax, advisory and outsourcing firms in the Philippines, with 20 partners, over 700 staff members, and four offices around the country.

As published in The Manila Times dated 17 February 2016