What Is an External Audit?
An external audit is a yearly review of your financial statements by an independent CPA.
The goal is to check whether your books are accurate, complete, and fairly presented.
Banks, investors, regulators, and even suppliers rely on audited FS to understand how healthy and trustworthy a business is.
Who Needs an Audit? Let’s Make It Simple.
Your audit requirement depends on what type of business you have and how much you earn or own.
There are two regulators that matter:
- BIR (income and sales-based requirement)
- SEC (asset or liability-based requirement)
Here is the simplest way to remember the rules:
1. BIR Rule: “Did you earn more than ₱3M?”
If your business earns more than ₱3,000,000 in gross sales/receipts in a year, the BIR requires you to submit Audited Financial Statements.
This applies to:
- Corporations
- Partnerships
- Sole proprietors
- Professionals (doctors, lawyers, consultants)
- Freelancers and online sellers
Once you cross ₱3M, you must:
- Register as VAT, and
- Submit audited FS with your Annual Income Tax Return.
If you earn ₱3M or below:
You still need financial statements and books of accounts, but these do not need to be audited.
2. SEC Rule: “Are you a corporation? Check your assets.”
For corporations, the SEC uses a different measurement not income, but total assets or liabilities.
If your corporation has ₱600,000 or more in total assets or total liabilities, you must file CPA-audited financial statements.
This applies to:
- Stock corporations
- Non-stock corporations
- One Person Corporations (OPC)
- Foreign corporations with branches or representative offices
If your corporation is below ₱600,000:
You still need to submit FS to the SEC,
but these can be certified by your treasurer/CFO instead of audited by a CPA.
Important note
The SEC has proposed increasing the threshold to ₱3M, but as of 2025, the ₱600K rule is still the one in effect.
3. Special Cases (Coops, NGOs, Partnerships)
Cooperatives
Follow CDA rules most require audited FS, depending on size and classification.
NGOs and Foundations
If registered with the SEC, they follow the same ₱600K assets/liabilities rule.
Partnerships
They do not file AFS with the SEC, but must follow the BIR ₱3M rule.
People Also Ask
Do small businesses need an external audit?
Yes if:
– Your income is more than ₱3M (BIR), or
– You are a corporation with assets/liabilities of at least ₱600K (SEC)
Does an OPC need audited FS?
Yes, once assets or liabilities reach ₱600K.
Are VAT-registered taxpayers required to file audited FS?
Usually yes — because VAT registration requires crossing the ₱3M sales threshold.
Do inactive corporations need audited FS?
Yes. They must file a “no operation” audited FS unless legally dissolved.
Summary: Who Needs an External Audit?
Here’s a simple table you can refer to:
| Business Type | Need Audited FS? | Why |
| Corporation (Stock/Non-stock/OPC) | Yes, if assets or liabilities ≥ ₱600K | SEC rule |
| Corporation (< ₱600K) | FS required, but audit not required | SEC rule |
| Partnership | Yes if sales > ₱3M | BIR rule |
| Sole Proprietor (≥ ₱3M) | Yes | BIR rule |
| Sole Proprietor (< ₱3M) | No audit required | BIR rule |
| Professional (≥ ₱3M) | Yes | BIR rule |
| Professional (< ₱3M) | No audit required | BIR rule |
| Cooperative | Usually yes | CDA rule |
| NGO/Foundation | Yes if assets/liabilities ≥ ₱600K | SEC rule |
| Foreign Corporation Branch | Yes | SEC + BIR rule |
How to Know If YOU Need an Audit (4 Easy Checks)
- Did your business earn more than ₱3M this year?
→ Yes = BIR requires audited FS.
- Is your business a corporation?
→ Yes = Check your assets/liabilities.
- Do your assets or liabilities reach ₱600K?
→ Yes = SEC requires audited FS.
- Do banks, investors, grants, or tenders require audited FS?
→ Many stakeholders require audited FS even if regulators don’t.
Why Audits Are Important, Beyond Compliance
Even if you’re not required, having audited FS helps you:
- Strengthen credibility with banks and suppliers
- Improve financial accuracy
- Detect errors or fraud early
- Support loan applications
- Reduce BIR audit risks
- Build trust with investors and partners
Audits protect your business as it grows.
How UNA Helps SMEs Stay Compliant (and Stress-Free)
UNA Tax & Accounting Services helps SMEs across the Philippines:
- Check if your business legally needs an audited FS
- Prepare year-end FS (PFRS / PFRS for SMEs compliant)
- Clean up books and reconcile accounts
- Prepare audit-ready schedules
- Coordinate directly with your external auditor
- Assist with BIR filing and SEC eFAST submission
We make the audit process smooth, accurate, and on time.
Need Help? Not Sure If You’re Required to File Audited FS?
Let’s save you from penalties, confusion, or last-minute rush.
Book your FREE Audit Consultation with UNA today.
We’ll check your sales, assets, and regulatory requirements then tell you exactly what you need to file.
Email us at: sales@una-acctg.com
Stay compliant. Stay audit-ready. Grow with confidence.
