Question & AnswerQ&A (SEC MEMORANDUM CIRCULAR NO. 13, S. 2003)
The policy aims to strengthen the enforcement capacity of the Commission on external auditors of public companies and secondary licensees by maintaining high qualification standards and strict reporting requirements to encourage quality control and a disciplined financial environment.
This Circular applies to all public companies, secondary licensees of the Commission, and their external auditors including auditing firms where such auditors are co-owners or partners.
An external auditor is defined as a single practitioner or a signing partner in an auditing firm engaged in statutory audits for companies covered by the Circular.
Fraud is an intentional act by management, employees, or third parties causing misrepresentation of financial statements that reduce consolidated total assets by at least five percent, including manipulation, falsification, misappropriation, omission, or intentional misapplication of accounting policies.
An individual external auditor must be a registered CPA in good standing with at least five years experience in external audits, adherence to professional ethics including independence, and must meet asset-size audit experience requirements based on the category of clients they wish to audit.
An accreditation is valid for three years from the date of approval and must be renewed before expiry to remain effective.
External auditors must disclose to the Commission within five days any material findings involving fraud or error, losses amounting to at least 10% of the total assets, or if the company’s assets are inadequate to cover creditors’ claims, based on their recent fiscal audit.
Penalties include monetary fines that escalate with repeat offenses (up to Php 400,000 for firms and Php 200,000 for auditors), suspension or delisting of accreditation, and possible other administrative or criminal sanctions by the Commission.
Grounds include failure to submit required reports, loss of independence, willful misrepresentation, conviction for crimes involving moral turpitude or fraud, gross negligence, refusal to comply with lawful orders, or engagement in prohibited non-audit services without safeguards.
No, except if the auditing firm or auditor undertakes safeguards under the Code of Ethics to reduce threats to independence. Prohibited non-audit services include bookkeeping, financial system design, appraisal, actuarial, legal services, among others.