Difference between Fiscal and Commercial Financial Statements

The last stage of the accounting cycle is communicating financial statements to stakeholders or commonly referred to as stakeholders . Have you ever heard of commercial financial reports and fiscal financial reports? Every entity or company is obliged to pay taxes to the state so that financial statements must be differentiated for tax and commercial purposes. Then what is the difference between the two financial statements?

Commercial financial statements are prepared based on established standards in accordance with accounting principles that are neutral or impartial.

Fiscal financial statements are accounting information that is made for taxation purposes, the presentation is in accordance with the provisions of the applicable tax laws and regulations as well as the implementing rules. Fiscal financial statements are reports made for tax purposes that refer to all tax regulations. Fiscal financial statements include:

  • Fiscal Balance
  • Calculation of profit and loss and changes in retained earnings
  • Explanation of fiscal financial statements
  • Reconciliation of commercial financial statements and fiscal financial statements
  • Summary of tax obligations

If we compare between commercial financial statements and fiscal financial statements, we can know several things related to the differences, namely:

Revenue or Income

The concept of income according to accounting and taxation is different. This is a natural thing, considering the objectives and policy makers in the two financial statements are also different. In accounting or commercial, revenue ( income ) and income (income) are different things, but both are included in the financial statements, while in accounting tax or fiscal income is income.

The definition of income according to IFRS under IAS 18, income or revenue is gross inflows on economic benefits for a certain period arising from ordinary activities of a company or entity in which an inflow resulted in an increase in equity, apart from increasing the associated contribution from the owners capital.

Meanwhile, according to Law No. 36 of 2008 Article 4 Regarding Income Taxes, ” income is any additional economic capability received or obtained by taxpayers, whether originating from Indonesia or outside Indonesia, which can be used for consumption or increasing the taxpayer’s wealth by name and in any form.”

Furthermore tax breaks down income into three categories, namely; income which is an object of tax, income subject to final tax and income that is not subject to income tax. For these differences, then there is a difference in earnings in commercial accounting and fiscal accounting where in fiscal accounting there is income that is not a tax object which means that income does not cause an increase in fiscal profit.

Also read:  Understand the Relationship of Commercial Accounting and Tax Accounting in Complete

Charges or Fees

Just as the concept of income is different between commercial accounting and fiscal accounting, the concept of expense in the two reports is also different. Expenses on commercial accounting are defined as a decrease in economic benefits during an accounting period in the form of outflows or reduced assets or incurred liabilities resulting in a decrease in equity that does not involve distributions to investors (IAI, 2007: 13). The burden on commercial accounting is different from the costs.

The difference lies in the future economic benefits for costs. In tax accounting, expenses are defined as costs for collecting, obtaining, and maintaining income or expenses that are directly related to income generation.

However, not all costs can be recognized as a deduction on the fiscal financial statements, even though these costs are used for company operations. This is because in fiscal accounting costs are grouped into two, namely costs that may be deducted from gross income (deductible expense) and costs that cannot be deducted from gross income (non deductible expense).

The details of the costs included in the deductible and non-deductible groups are governed by regulations made by the government, companies cannot classify themselves. This difference makes profit on fiscal and commercial financial statements different.

Inventory Calculation Method

The method of calculating the inventory according to the Financial Accounting Standards (IFRSs) are three: cost formulas in first-out first ( First In First Out ), the weighted average ( Weigth Average Cost Method ) and the last sign out first ( Last In First Out-LIFO ) (SAK 14, 2017).

However, the Indonesian income tax law, the calculation of the inventory method is only allowed to use two methods, namely the average method or the FIFO method. The LIFO method is not allowed in fiscal accounting because the calculation using the LIFO method makes the amount of tax payable smaller.

Depreciation Method

Accounting determines the age of the asset based on the actual age even though the determination of the age is inseparable from the interpretation of the judgment. Commercial accounting has several methods of depreciation, namely:

  • Straight-line methodor straight line method that produces a constant loading for the useful life of the asset if the residual value is not changed.
  • Decreased balance methodor diminishing balance method which results in a decrease over the useful life of the asset.
  • The Sum of Unit Unit methodresults in a decrease in the useful life of the assets (IAI, 2007).

Whereas in fiscal accounting by referring to the tax provisions only stipulate two methods of depreciation that must be carried out taxpayers based on article Law No. 36 of 2008 article 11 concerning Income Tax, which is based on the straight-line method and the declining balance method, which is carried out consistently, then assets (tangible assets) are grouped by type of assets and useful life. The details are contained in the Minister of Finance Regulation No. 96 / PMK.03 / 2009.

Also read:  Understand Positive and Negative Corrections in Your Fiscal Reconciliation or Financial Statement Corrections!

That is the difference between commercial financial statements and fiscal financial statements. To facilitate you in making financial reports, you can make it with the help of online accounting software . Nowadays a lot of accounting software has sprung up to make it easier for each job to manage your business finances.


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