A CPA’s views on accounting entries


JOE SAMILIN, who also reacted to my previous column on SBS Philippines Corp., identifies himself as a former auditor. To give the public the other views on the subject, which is basically the interpretation of accounting entries, I am yielding this space to him. Coming from a CPA, Mr. Samilin’s thoughts on the subject of retained earnings and other accounting entries would be enlightening to the readers of The Manila Times who also find time to read Due Diligencer.

This piece may be a bit long but readers of Due Diligencer would find it instructive. His comments on financial reports, with some portions deleted to fit this space, follow:
When a report is marked “audited,” the degree of reliance to it and its accuracy is high.

Even without the word audited but duly published, it still is presumed as audited and therefore, the degree of reliance and accuracy is the same as when it is audited. As to the narrative report, in particular the “Management Disclosures,” it is good to qualify it either as audited or unaudited.

The degree of liability and responsibility over a company’s unaudited report is the same as one that has been audited for having been signed by responsible company officers who were deemed expert on the affairs of the business. So, in this case, whether the report is marked or not marked audited is irrelevant.

The first reason I touched these norms and perceptions in the accounting profession is because these are very seldom taught academically, but are usually acquired in practice. Second, the reports on the website include audited and unaudited or are a combination of both.

As far as issues regarding SBS Philippines Corp. are concerned, I have merely reviewed reports and disclosures on the website but I did not audit or re-audit them. But regardless of whether the documents were audited or not, I applied financial interpretation and opinion. The result is that I have cleared partly the negative suppositions and implications in your article as to management error and the company’s capability to pay a huge amount of dividend to its shareholders.

The negative implications lie in the danger of interpreting the intricacies and the technicalities of accounting reports and statements by non-accountants and amateur accountants. In some instances, they result from interpretation of data despite material inadequacy of documents, reports and statements, with these non-CPAs erroneously relying on one’s expertise in the field of what is called constructive accounting calculated out from incomplete records and reports. Though I used this skill in my analysis, I placed the result as not being conclusive and therefore, would need confirmation from responsible officials of SBS Corporation or work it out farther through more supporting documents.

To clear the negative supposition in the article, the payment of dividend of P365.49 million on March 5, 2015 in cash, the company’s liquidity can’t be questioned since its total current assets is almost double its total current liabilities as of 12/31/14. The bulk of cash needed for payments is substantial even without converting liquid assets for cash.

In addition, the proceeds from the three major transactions were more than enough to pay currently maturing obligations that include dividend, accounts payable, loans payable and more. The cash, apparently, were from the new issues of common stocks, the large amount of additional paid-in capital and from the collection of subscription receivables of previously issued common shares of stocks.

As to the sufficiency of retained earnings for dividend declaration by the Board, the cash dividend and payment of P100 million pesos was declared out of the available P117 million retained earnings of 12/31/14. The declaration of P265.49 million dividend was presumed made on calendar year 2013 or in prior year’s transaction, SBS had (no covering statement for 2013 but surely, the transaction was completed since it was shown subsequently as dividend payable on 12/31/14 statement) enough retained earnings.

Some questions that may be raised would be whether such retained earnings would be free in whole, or in part might be part of already restricted and appropriated retained earnings of P275 million shown on 9/30/14 report. If so, the declaration by the Board Directors from appropriated retained earnings is not allowed by law and therefore, violates legal accounting and the generally accepted accounting principles and procedures promulgated by the Philippine Institute of Certified Public Accountants. This allegation would only be valid if said declaration by the Board is in any way inferred as being part of already appropriated retained earnings of P275 million, otherwise said declaration is in order.

For whatever purpose said appropriation or reserve is set aside, this amount can never be legally declared as dividend to stockholders without impairing the stability and efficiency of the company’s operations, for the reason that it has either been legally committed or [has a]properly determined plan for the benefit of the company and investors.



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  1. Carlo Chruz-Rhuiz on

    Dividends force out the truth in finances.

    If you cant trust the management, trust the dividends.

    There is reason why big funds invest mostly on dividend-paying issues.