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This follows high-profile audit failures such as MFT Group, where prosecutors said auditors working for Isla Lipana & Co. (PwC Philippines) signed off on financial statements that were allegedly used by the Mica Tan-led firm to mislead investors.
“We are very strict now in the accreditation of these accountants,” SEC commissioner Rogelio Quevedo said in a media briefing on Monday.
“We are also now in the process of issuing new rules on the accreditation of auditors,” he added.
No major deficiencies for top-tier auditors
Under the proposed rules, the SEC will issue Group A accreditation only to auditors where the regulator finds “no material deficiency.”
This classification allows auditors to handle the financial statements of some of the country’s biggest and most publicly significant companies, including publicly listed firms.
“An accreditation by the SEC will serve as the seal of good housekeeping,” he said.
What happened before?
A recent case cited was MFT Group, which allegedly reported hundreds of millions of pesos in dividend income even when subsidiaries declared no dividends or lacked the earnings to support them.
Prosecutors said Isla Lipana auditors failed to verify the figures before signing off on the financial statements.
Isla Lipana and the two auditors earlier denied the allegations.
Auditor to become state witnesses?
Quevedo said the SEC also filed criminal charges against two partners of Isla Lipana & Co.
He also described efforts to turn these partners into state witnesses after they were removed from the firm with forfeiture of retirement benefits.
“We are negotiating with them so that they can become witnesses against the key officers of the MFT Group of companies because I have noted that the CFO was not included among those indicted, and I believe that the CFO should be properly indicted also,” he said.
Meanwhile, Tan remains at large and is the subject of an Interpol red notice issued in May.
When auditors push back
The SEC also recognized auditors that stood their ground when they believed the numbers did not hold up.
Quevedo pointed to Punongbayan & Araullo, which he said refused to sign the Villar Group’s audited financial statements until the company agreed to lower a valuation from P1.8 trillion to P200 billion.
Will the new rules have teeth?
Under existing rules, sanctions do not necessarily mean losing SEC accreditation.
For example, Isla Lipana regained its status after paying a penalty and agreeing to cooperate in the MFT prosecution, the Philippine Star reported last March.
The new standard could close that gap, but its real test will be how strictly the SEC applies it when the next big audit failure hits.
Miguel R. Camus has been a reporter covering various domestic business topics since 2009.
