The Securities and Exchange Commission (SEC) on Wednesday said the Supreme Court (SC) has ruled in its favor on whether or not the commission has the authority to accredit certified public accountants (CPAs) acting as external auditors for corporations issuing registered securities and owning secondary licenses.
The SEC in a statement on Wednesday said the ruling dismissed the allegations by 1Accountants Party-List Inc. the commission has no authority to accredit professional accountants.
Malaya Business Insight got in touch with 1Accountants Party-List to get their side on this matter but has received no response as of press time.
The SEC said the High Tribunal ruled on the issue on Jan. 28, 2025 but the resolution has yet to be made public by the SC on its website.
In the 18-page resolution, the Supreme Court En Banc reversed and set aside its earlier rulings and declared Rule 68, Paragraph 3 of the Implementing Rules and Regulations (IRR) of the Securities Regulation Code (SRC or RA8799), and SEC Memorandum Circular No. 13, Series of 2009 (MC 13), as well as the Revised Guidelines on Accreditation of Auditing Firms and External Auditors, issued by the SEC “as valid and constitutional.”
These regulations set the accreditation guidelines and requirements for external auditors of covered entities, including publicly listed companies, investment firms, and lending and financing companies, the SEC said.
The case stemmed from a complaint filed by 1Accountants Party-List, which alleged that the SEC went beyond its mandate by issuing regulations on the supervision, control, and regulation of the accountancy profession since these were already delegated to the Board of Accountancy (BOA).
The additional accreditation requirements restrained CPAs from practicing their profession, 1Accountants argued.
“The Supreme Court’s resolution in favor of the SEC reversed earlier findings of invalidity and unconstitutionality of the subject regulations, as the high court emphasized the far-reaching implications of removing such accreditation,” the SEC said.
“In affirming the Commission’s authority to accredit external auditors of covered entities, the Supreme Court ruled that such power is implied from the express power of the SEC to regulate or supervise the activities of persons which essentially includes juridical and natural persons such as individual auditors of covered entities,” it added.
This means that a separate authorization is no longer needed on the part of the commission as the corporate regulator to accredt CPAs.
“While the Accountancy Act created the BOA … to regulate the practice of accountancy … other government agencies like the SEC are not precluded from implementing the policy of the State for so long as the express or implied powers granted to them by law allows them to do so,” the SEC said citing the SC resolution.
The Supreme Court also said the accreditation requirement under Rule 68 of the SRC IRR, as amended, applies only to CPAs who are independent auditors of the covered corporations, the SEC further said, adding that it is not a blanket regulatory requirement on the accountancy profession as a whole, but on specific activities of independent auditors of covered entities.
“The fact that CPAs may still work for a covered entity without undergoing accreditation as long as they are not engaged to perform an independent audit of its AFS (audited financial statement) shows that it is not the (whole) accountancy profession that is regulated by the SEC but only the activity of statutory audit of financial statements,” the commission said.
Memorandum Circular 13 requires accreditation only for CPAs engaged to perform statutory audit of financial statements of covered entities the SC said.
“As the ones responsible for examining the AFS and expressing their opinion thereon, external auditors are expected to possess a more profound understanding of the intricacies of financial statements than those from whom they originate and thus, must be held to a higher standard,” the Court added.
The Supreme Court also recognized that the Commission is authorized under the Revised Corporation Code to issue rules and regulations consistent with international best practices.
Unlike in non-covered entities, the audit of covered entities requires that the CPA is not only independent but also competent and qualified in accordance with international auditing, ethical and independence standards, the SC said.
“The Supreme Court also ruled that the practice of profession is not a right but a privilege burdened by conditions,” the SEC said.
“There being no right to practice accountancy, there could be no curtailment of such right to speak of. Thus, any additional burden imposed by the accreditation requirement on CPAs who wish to audit the AFS of covered entities is not a curtailment of a right but a condition on a mere privilege,” the commission added.
The SC further said the additional SEC accreditation is not meant to replace the regulatory measures implemented by the BOA, which remains as the main regulatory agency over the practice of accountancy in the Philippines.
“While the BOA … ensures that the minimum standards for the practice of the profession in the Philippines are met … the audit of covered entities certainly requires more than the minimum. The SEC accreditation serves this purpose by complementing rather than replacing the regulatory measures put in place by the BOA,” the SC said.
The SC ruling “is a logical extension of existing regulatory practices aimed at promoting consistency, efficiency, and financial integrity across different sectors,” the commission said.
The SEC said that the SC ruled that the SEC’s accreditation of external auditors “is a logical extension of existing regulatory practices aimed at promoting consistency, efficiency, and financial integrity across different sectors.”
“Centralizing the accreditation process under the auspices of the SEC will enhance regulatory oversight, streamline compliance requirements, and reinforce investor protection within the securities market ecosystem,” the commission added.
