Ever wondered what happens when businesses in the Philippines fail to follow tax laws or financial regulations? From hefty fines to possible business closure, the consequences are serious. That’s why accountants and lawyers work hand in hand—to make sure companies follow the rules, avoid legal troubles, and stay financially healthy. But what exactly is the connection between law and accounting, and why does it matter to businesses?
This article explains how legal and accounting professionals assist businesses in the Philippines in maintaining compliance, transparency, and financial stability.
Financial Reporting: More Than Just Numbers
In business, numbers don’t just tell a story—they can also make or break a company. That’s why financial statements must be accurate, transparent, and legally compliant.
Under the Philippine Financial Reporting Standards (PFRS) and Republic Act No. 11232 (Revised Corporation Code), businesses must submit truthful financial reports. However, not all companies follow the rules, and when they don’t, things can go downhill quickly.
Case Example: The Rural Bank of Caba, La Union was shut down by the Bangko Sentral ng Pilipinas (BSP) for falsifying its financial reports, leaving depositors in huge financial trouble. (BSP Circular No. 1002, 2018)
Taxes: Why Staying on the BIR’s Good Side Matters
Let’s be real—no business wants problems with the Bureau of Internal Revenue (BIR). Filing taxes correctly is a legal requirement, and if businesses try to cheat the system, the penalties can be massive.
Common tax violations in the Philippines:
One of TRAIN’s most popular provisions was the reduction in personal income tax for the majority of workers:
- Under-reporting income to pay less tax
- Incorrect VAT computation (which can lead to fines)
- Failure to remit withholding taxes on employee salaries
Case Example: Mighty Corporation, a well-known cigarette company, was caught using fake tax stamps to avoid paying proper taxes. The result? A ₱30 billion fine from the BIR—the biggest tax settlement in Philippine history! (DOF Report, 2017).
Corporate Governance: Why Business Ethics Matter
Did you know that businesses in the Philippines must follow the SEC’s Corporate Governance Code to ensure ethical and legal business practices? When companies fail to do so, they risk:
- Losing investors’ trust
- Getting fined or shut down by the Securities and Exchange Commission (SEC)
- Facing legal battles due to fraud or mismanagement
Case Example: The collapse of the College Assurance Plan (CAP) and the Legacy Group left thousands of Filipino investors and retirees without their hard-earned savings because of financial mismanagement. (SEC Advisory, 2009)
Corporate Governance: Why Business Ethics Matter
Ignoring financial and legal requirements is a big mistake that can lead to serious consequences:
- Heavy fines from the BIR for tax violations
- SEC investigations that could lead to business shutdowns
- Legal actions against company executives involved in fraud
Case Example: The Philippine Stock Exchange (PSE) trading scandal uncovered illegal stock price manipulation, leading to suspensions and strict reforms. (SEC Press Release, 2012)
How Businesses Can Stay Compliant
Want to avoid legal and financial troubles? Here’s what businesses should do:
- Conduct regular audits to catch problems early
- Train finance teams on tax and corporate laws
- Stay updated on accounting standards and business regulations
- Practice transparency in financial reporting and business decisions
In the Philippines, accounting and law go hand in hand to keep businesses running legally and financially stable. Companies that follow financial and tax laws don’t just avoid penalties—they also build trust, credibility, and long-term success.
When accountants and lawyers work together, businesses can avoid legal trouble, stay compliant, and grow stronger in the Philippine economy.
Disclaimer: The content of this blog is for informational and educational purposes only and should not be considered as legal advice. While we strive to provide accurate and up-to-date information, the blog does not create an attorney-client relationship. For legal concerns or specific legal guidance, please consult a qualified lawyer.
To read more STLAF legal tidbits, visit www.sadsadtamesislaw.com/bits-of-law.
For comments, suggestions, and inquiries, email legal@sadsadtamesislaw.com.
Author/s: Nikki Imbang | Accounting Department