SC affirms SEC authority to accredit external auditors

MANILA, Philippines — The Securities and Exchange Commission (SEC) has secured a favorable decision from the Supreme Court (SC) on its authority to accredit external auditors of covered entities, including publicly listed companies and investment firms.

In an 18-page resolution promulgated on Jan. 28, the High Tribunal affirmed SEC’s authority to accredit certified public accountants acting as external auditors of corporations issuing registered securities and owning secondary licenses.

The SC’s resolution in favor of the SEC declared as valid and constitutional Rule 68, Paragraph 3 of the implementing rules and regulations of the Securities Regulation Code as well as the Revised Guidelines on Accreditation of Auditing Firms and External Auditors, reversing earlier findings of invalidity and unconstitutionality of the subject regulations.

The regulations set accreditation guidelines and requirements for external auditors of covered entities, including publicly listed companies, investment firms as well as lending and financing companies, among others.

According to the SEC, the case stemmed from a complaint filed by 1Accountants Party-List Inc., alleging that the commission went beyond its mandate in issuing the regulations as the supervision, control and regulation of the accountancy profession was delegated to the Board of Accountancy (BOA).

1Accountants Party-List argued that the additional accreditation requirement restrained certified public accounts from practicing their profession.

The SC, however, 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.

“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 SC said.

The SC also said that such additional SEC accreditation is not meant to replace the regulatory measures implemented by the BOA, which remains to be the main regulatory agency for 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.

“Hence, 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,” it said.