Financial statement fabrication remains widespread among micro, small, and medium enterprises (MSMEs) in the Philippines, as the high cost of doing business continues to strain small-scale entrepreneurs, according to an industry expert.

"When they need a loan, because there are no accountants to help them, they will now fabricate financial statements," OneCFO Founder and Chief Executive Officer (CEO) Jay Olos told BusinessWorld on the sidelines of Echelon Philippines 2026.

"They will just make financial statements, look for accountants who just want to sign – we call them notarial CPAs (Certified Public Accountants)," he added.

Mr. Olos defined "notarial CPAs" as licensed accountants who illegally sign audited financial statements in exchange for lower fees.

"They will pay P5,000 or 20,000, and then that's it. That's what they will submit," he said. "There are also bad actors in our profession, to be honest. So, what I can say is, the regulators… should regulate us CPAs in the practice of our profession."

Beyond fabricated statements, some businesses also resort to keeping "two books," maintaining two different versions of their financial records: an external book containing falsified transactions for submission to the Bureau of Internal Revenue (BIR), and an internal book recording the company's real transactions.

"To minimize what they're paying to BIR, they don't report their transactions properly," Mr. Olos said. "In a way, to be fair to the MSMEs, I think they're doing it because they actually need the money."

The issue sits at the intersection of compliance costs, access to financing, and tax reporting for businesses that often operate with limited administrative support. For lenders, regulators, and accountants, the result is that the reliability of financial statements can vary widely among smaller firms, even as these records are used for loans, audits, and tax filings.

Under the Securities and Exchange Commission's (SEC) Memorandum Circular No. 4, Series of 2026, stock and non-stock corporations with total assets or liabilities of P3 million and below are not required to submit Audited Financial Statements (AFS), expanding the exemption from the previous P600,000 threshold. Covered companies must instead submit certified financial statements accompanied by a Statement of Management's Responsibility (SMR).

Companies whose gross annual sales, earnings, receipts, or output exceed P3 million, however, remain required under Section 232 of the National Internal Revenue Code to have their books of accounts audited and examined annually by an independent CPA.

"The ones that are audited properly here are the big companies because they're filing in the Philippine Stock Exchange, so they really need to be audited," Mr. Olos said. "The small ones, because they're not regulated, are prone to bad CPA actors."

"This really all comes down to one thing—financial literacy for MSMEs," he added.

MSMEs account for the overwhelming majority of the country's businesses. According to 2024 data from the Department of Trade and Industry (DTI), 1,236,908 of the country's 1,241,476 business establishments, or 99.63%, are MSMEs. Micro enterprises make up the largest share at 1,125,476 (90.66%), followed by small enterprises at 106,799 (8.60%) and medium enterprises at 4,633 (0.37%).

— Almira Louise S. Martinez