On April 1, the SEC issued for public comment a draft memorandum circular proposing amendments to its accreditation guidelines for auditing firms and external auditors.
The proposed changes aim to revise provisions under Revised Rule 68 of Republic Act No. 8799, or the Securities Regulation Code, which governs the accreditation of independent auditors of SEC-regulated entities.
Wider scope
The SEC said the updated guidelines seek to strengthen the accreditation framework by expanding oversight, particularly to government contractors, while also raising qualification standards and introducing a more rigorous evaluation process.
Auditing firms and independent auditors accredited by the SEC undergo quality assurance review and are classified into three categories.
Group A covers issuers of registered securities, listed and public companies, clearing agencies, stock exchanges, and other self-regulatory organizations. Group B includes investment houses, brokers, dealers, and certain banks, while Group C covers financing and lending companies, as well as transfer agents.
Government contracts
Under the proposal, corporations awarded a single government contract worth at least P100 million, or multiple contracts totaling at least P150 million within a reporting year, will be required to engage a Group A SEC-accredited external auditor.
These auditors must remain engaged until the projects are fully completed or delivered.
To strengthen monitoring, covered corporations will also be required to submit a notarized schedule detailing project descriptions, costs, and status, which must be verified through an auditor’s report.
Higher standards
The SEC is also proposing higher track record requirements to ensure only experienced auditors handle regulated entities.
For Group A, applicants must have at least five corporate clients with assets of at least P100 million each, doubling the current threshold of P50 million.
For Group B, the requirement will increase to five corporate clients with assets of at least P50 million each, from three clients with P20 million.
Meanwhile, Group C applicants must have at least five corporate clients with assets of at least P5 million each, up from the current requirement of three.
Stricter review
The draft amendments also introduce additional grounds for the outright denial of accreditation applications.
Existing grounds include gross negligence, lack of independence, and failure to apply safeguards when providing non-audit services.
The SEC now proposes to expand these to include misrepresentation or concealment of information, issuing unqualified opinions despite material misstatements, the presence of multiple material findings in financial statements, and failure to maintain independence, such as when auditors prepare the financial statements they audit.
Investor protection
The proposed rules reflect the SEC’s push to enhance transparency and accountability in financial reporting, particularly in sectors involving significant public funds.
By tightening accreditation standards and expanding oversight to government contractors, the Commission aims to reinforce trust in financial disclosures and safeguard the investing public.—Ed: Corrie S. Narisma
