Audit Requirement for Lending Company Financial Statements Philippines

Audit Requirement for Lending Company Financial Statements (Philippines)

This practical legal guide explains who must be audited, what must be audited, who may audit you, how and when to file, what must be in the financials, and the typical compliance pitfalls for lending companies regulated under the Lending Company Regulation Act of 2007 (R.A. 9474) and the Revised Corporation Code—as commonly applied in practice. Where exact peso thresholds or filing calendars depend on current SEC/BIR circulars, I note them as variable.


1) Are lending companies required to submit audited financial statements?

Yes—expect an annual statutory audit. Lending companies are SEC-registered corporations with a secondary license (Certificate of Authority) to engage in lending. As supervised entities, they are generally required to prepare annual financial statements (FS) in accordance with PFRS and to have them audited by an independent Certified Public Accountant (CPA) who meets accreditation rules (see §3). The audited FS (AFS) are filed with the SEC and also support BIR annual income tax returns.

Typical package annually:

  • Audited Financial Statements (complete set; see §4)
  • Auditor’s Report signed by an appropriately accredited CPA/firm
  • Supplementary schedules required by SEC (e.g., breakdowns of receivables, related parties)
  • General Information Sheet (GIS) filed separately (corporate disclosures)
  • Any regulatory attachments required of lending/financing companies (e.g., forms on loan portfolio quality if prescribed)

Even if a small entity, a lending company usually cannot rely on “small entity” exemptions that non-regulated SMEs sometimes enjoy. The business is public-facing and license-based, so the SEC expects audited numbers.


2) What financial reporting framework applies?

  • PFRS / PFRS for SMEs: Use Philippine Financial Reporting Standards. Many lending companies qualify to use PFRS for SMEs, unless size, public interest features, or specific SEC instructions require full PFRS.
  • Functional/presentation currency: Usually PHP (unless properly justified).
  • Fair presentation & going concern: Management must assess going concern (liquidity, regulatory capital, funding lines).
  • Comparatives: Present comparative information (usually prior year).

3) Who can audit a lending company?

Your auditor must be:

  1. A Philippine CPA in good standing (valid PRC/BOA license), and
  2. Accredited with the Board of Accountancy and SEC (and, when applicable, other regulators).
  3. Independent under the Philippine Code of Ethics for Professional Accountants (IESBA-aligned): no prohibited financial interests, management participation, or close business relationships with the client.
  4. Quality-controlled under the applicable ISQM 1/2 requirements (firm-level quality management), with engagement performance under the Philippine Standards on Auditing (PSA).

Rotation / PIE status. If your lending company is treated as a Public Interest Entity (PIE) (e.g., due to listing or other criteria), partner rotation, additional reporting (e.g., key audit matters), and tighter independence rules may apply. Many private lending companies are not PIEs, but size and public-interest indicators can trigger PIE-like obligations. Confirm classification with your auditor.


4) What must be included in the audited financial statements?

A complete set of FS typically includes:

  • Statement of Financial Position (balance sheet)
  • Statement of Profit or Loss and Other Comprehensive Income
  • Statement of Changes in Equity
  • Statement of Cash Flows
  • Notes to the FS (significant accounting policies and detailed disclosures)
  • Auditor’s Report (opinion + basis; responsibilities; independence)
  • Required SEC supplementary schedules (e.g., aging of loans receivable; breakdowns of investments; reconciling schedules)

Lending-specific disclosures to expect:

  • Credit risk and concentration (by product, geography, borrower class)
  • Loan loss provisions / Expected Credit Loss (ECL) under PFRS 9 (policies, staging, assumptions, overlays)
  • Interest income recognition (effective interest method; non-accrual policies)
  • Related-party loans/guarantees (board approvals, pricing, terms)
  • Regulatory capital or prudential metrics if required by the SEC for the sector
  • Maturity analysis (liquidity risk) and collateral policies
  • Impairment of repossessed assets, if any
  • Revenue recognition for fees/charges and treatment of penalties

5) Filing and timing overview

Annual cycle (high level):

  1. Year-end close (calendar or fiscal year, as registered).
  2. Audit fieldwork and issuance of the auditor’s report.
  3. File AFS with the SEC following the SEC’s filing calendar/coding (which can vary year-to-year).
  4. File with the BIR: The AFS supports the Annual Income Tax Return (ITR). (BIR requires audited FS above certain thresholds; lending companies ordinarily exceed them and are license-regulated, so an audit is expected regardless.)
  5. Quarterly/periodic reports: If the SEC prescribes quarterly unaudited FS or sector returns for lending/financing companies, file those on the regulator’s timetable.

Exact deadlines, accepted submission channels (e.g., eFAST/eSPARC or in-person), stamping conventions (e.g., proof of BIR filing), and appointment scheduling rules are set by current SEC/BIR circulars and may change. Treat them as variable and check the latest instructions when you plan your filing calendar.


6) Governance and internal control expectations

  • Board responsibility: The Board of Directors approves the FS and ensures tone-at-the-top for compliance.
  • Audit Committee (strongly recommended; may be required for larger/PIE entities): oversees financial reporting, external audit, and whistleblowing.
  • Management representations: Auditors will require a Management Representation Letter; misstatements or omissions expose officers to liability.
  • Internal audit / compliance: For entities with scale, a separate internal audit function and compliance officer are expected.
  • Recordkeeping: Robust loan origination, cash handling, collections, and expect credit loss documentation are essential to support the audit.

7) Special accounting/audit focus areas for lending companies

  1. PFRS 9 – Financial Instruments

    • Classification & measurement of loans and investments (business model/SPPI).
    • ECL modeling (12-month vs lifetime, staging criteria, overlays, forward-looking info).
    • Write-offs and recoveries accounting.
  2. Revenue recognition

    • Interest using EIR, fee income (front-end charges), late payment penalties, and non-accrual policies when loans are past due.
  3. Provisioning & impairment evidence

    • Aging of receivables, PD/LGD/EAD assumptions, macro overlays, collateral valuations; board approval of models/overrides.
  4. Related parties

    • Loans to directors, officers, and affiliates (DOEA/ROPA-type exposures); arm’s-length terms; disclosure & approvals.
  5. Regulatory compliance linkages

    • Anti-Money Laundering (customer due diligence, EDD, CTR/STR processes) can impact audit findings (e.g., control deficiencies).
    • Consumer protection (interest/fee disclosures; unfair collection practices) may lead to provisions or contingent liabilities.
  6. Going concern & funding

    • Reliance on a few funders, securitizations, or heavy rollover short-term borrowings triggers going-concern evaluations.

8) Accreditation and documentation you should prepare for the audit

  • Board resolution appointing the external auditor and authorizing signatories.
  • Loan trial balance with aging and ECL workings (by portfolio/segment).
  • Collections & write-offs policy; non-accrual rules; restructured loans inventory.
  • Borrowings: loan agreements, covenants compliance, waivers.
  • Related-party register and board approvals.
  • Fixed assets and IT systems access logs (for data integrity).
  • Tax filings (BIR returns, proof of remittances).
  • Regulatory: current Certificate of Authority, prior SEC comment letters and responses, and any AMLC registration/communications (as applicable).

9) BIR interaction (tax-side) vs SEC (corporate-side)

  • BIR: The Annual ITR requires audited FS once you exceed the audit threshold (in practice, lending companies usually do) and books of accounts kept as prescribed. The BIR focuses on taxable income, documentary stamp taxes (on certain loan documents), withholding taxes on interest/fees, VAT or percentage tax (depending on status), and fringe benefits.
  • SEC: Concerned with fair presentation, investor/creditor protection, regulatory disclosures, and oversight of your secondary license.

Keep two calendars (tax and corporate) synchronized so the AFS you file are consistent across regulators.


10) Consequences of non-compliance

  • Monetary penalties per day of delay or per missing schedule.
  • Return without action (RWA) or non-acceptance of filings that don’t follow format (e.g., unsigned auditor’s report, missing schedules, outdated accreditation).
  • Findings that can escalate to show-cause orders, suspension/revocation of the Certificate of Authority, or director/officer liability for false certifications.
  • Tax audit exposure if BIR-filed AFS and SEC-filed AFS don’t match.

11) Practical compliance timeline (works for most year-ends)

  1. Month 1–2 after YE: Close books; finalize ECL and impairment analyses; prepare draft FS and notes.

  2. Month 2–3: External audit fieldwork; address issues (going concern, related parties, cut-offs).

  3. Prior to SEC/BIR deadlines:

    • Obtain Board approval of the AFS.
    • Secure auditor’s signed report with current accreditations indicated.
    • Prepare SEC supplementary schedules and digital submissions as required.
  4. File with SEC under the current filing window/coding and BIR with the ITR.

  5. Quarterlies (if required): file unaudited interim FS/sectoral reports by the prescribed day-count after quarter end.


12) Content and formatting tips (to avoid RWAs)

  • Use the current SEC Rule on the Form and Content of AFS (format, sequencing, and exact captions).
  • Present the Aging of Loans Receivable and ECL movement clearly.
  • Ensure consistency between the auditor’s opinion wording and FS titles (PFRS vs PFRS for SMEs).
  • Show the auditor’s accreditation numbers and validity dates where required.
  • Include comparatives and ensure rounding ties to notes and schedules.
  • If you changed accounting policies (e.g., ECL model enhancements), disclose nature, rationale, and effects.

13) Frequently asked questions

Q1: We’re very small. Can we skip an audit this year? A: Not if you are operating as an SEC-licensed lending company. The sector is ordinarily expected to submit audited financials annually.

Q2: Can our in-house accountant sign the audit report? A: No. The auditor must be independent and externally engaged with proper PRC/BOA/SEC accreditations.

Q3: We use PFRS for SMEs—do we still need ECL? A: Yes. PFRS for SMEs also requires impairment of financial assets; while simplified vs full PFRS 9, you must still recognize expected losses with supportable assumptions.

Q4: Are quarterly FS audited? A: Typically no—they’re unaudited, but must be fairly presented and consistent with annual policies. Follow any SEC-prescribed templates for the sector.

Q5: Our fiscal year isn’t calendar-year. Any issue? A: That’s allowed if registered; your SEC/BIR filing deadlines will key off your fiscal year-end. Align both regulators’ requirements.


14) Compliance checklist (one-page)

  • Board-approved accounting policies (PFRS/PFRS for SMEs)
  • Independent, accredited auditor appointed by Board/Audit Committee
  • Closing/ECL memos and supporting data packs ready
  • Complete FS set + notes; supplementary schedules prepared
  • Auditor’s Report (current standards, correct entity name & year-end)
  • Consistent submissions to SEC and BIR
  • Quarterly reports (if required) filed on time
  • AML/consumer-protection control issues addressed (if any)
  • GIS filed and officers’ details up to date
  • Archive: keep signed AFS, working papers correspondences, board minutes

Final note

Specific deadlines, peso thresholds, and forms/schedules for lending and financing companies are set by current SEC/BIR circulars and may change. The framework above captures what doesn’t change—that lending companies are expected to produce audited, PFRS-compliant financial statements signed by a properly accredited, independent auditor, and to file them timely with the SEC (and use them for BIR filings).

If you want, tell me your year-end, auditor status, and filing mode (e.g., e-filing). I can generate a custom, dated filing calendar and a document pack checklist tailored to your lending company.

Disclaimer: This content is not legal advice and may involve AI assistance. Information may be inaccurate.