The reason is very simple. But first I have to give a background to a story made for legislative lobby heaven. On December 16th, 2009, the Governor of Puerto Rico signed what is now known as Law 164. This Law, The General Corporations Act of Puerto Rico, is a full amendment to the previous General Corporations Law of 1995. The purpose of the new law is to make the local law more attractive to the creation of Juridical entities, and make it as easy as it would be in some states of the union. However, there was a specific article that leaves me speechless and defeats all the good faith effort made to protect the business concern of the local entities.
Under the 1995 law, Regular for profit Corporations had to file annually a report, in which they will inform the State Department in a Notarized document, the identity of the Directors and Officers of the Corporation, and will report a Balance Sheet for the year ended on December 31st of the previous year. Only if the business exceeded a business volume of $1 million, a duly licensed Certified Public Accountant had to perform an audit of the Financial Statement, which includes the Balance Sheet.
Under the New Law of 2009, the Puerto Rico Legislature eliminated the requisite of the report being Notarized. But, there is a requirement in Article 15.01(a)1 that any corporation under that article that exceeds business volume of $3 million should be accompanied by an Audited Financial Statement (this amendment is very good, since there are some businesses that do not need this kinds of services from a CPA for only $1 million like in the previous law). But the new law says that for those corporations with business volume under $3 million, a Financial Statement compilation must be made by a duly licensed Certified Public Accountant. That is preposterous.
If the spirit of the law was to increase the business volume required to Audit the Financial Statements, how are they going to require those with less business volume, that didn’t need to retain a CPA for the annual report before, to incur in additional business expenses for a Financial Statement Compilation? Makes absolutely no sense.
The President of the Puerto Rico Society of CPA’s must have lobbied for this wording to be included in the New Law 164. There is a campaign to protect the CPA certification from accountants that do not hold the credentials from the government as a CPA. Right now, a non-CPA accountant may not issue Financial Statement Compilations, or any other attest services regarding Financial information. Up to that point, I agree. I am a CPA, and it is not fair that non-CPA accountants, that didn’t pass the hardship of the CPA Examination or the 120 CPE requirement every 3 years to be able to do the same services that I do. But there should be limits to the absurd, when the law provides an opening for the services to be provided.
In no place in the old law did it mention that the under $1 million in business volume corporation needed to do a “Compilation”. They just had to file a Balance Sheet. The only attestation wording used in that old law was “Audit” for those corporations that exceeded the $1 million. Then what was the difficulty here?
An amendment is in the works. There is the House of Representatives version of the amendment, filed as P.C. 2496, which still is not filed with their committee reports. There is the Senate version of the amendment, filed as P.S. 1442, which although has the committee reports filed since March 23, 2010, hasn’t been placed in the floor calendar for voting.
Any action taken from one of the legislative houses require a same action on the other side. Even if the Senate approves the bill this week, the House of Representatives has to do the same, maybe next week because they are in break this week. But next week is April 15th!!!
So, everybody in Puerto Rico that has to file a Corporation Annual Report, if you want to be sure that you don’t have to incur in the expense of a Financial Statement Compilation that is not necessary, file an Extension until the legislative branch figures how to work their issue with the New General Corporations Law of 2009. Better safe than sorry!!
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Charles
Twitter: @charlesgustave @Business_Legal


