QuestionsQuestions (SEC MEMORANDUM CIRCULAR NO. 13, S. 2003)
To strengthen the SEC’s enforcement capacity and increase reliance on external auditors’ opinions by maintaining high qualification standards and strict reporting obligations for external auditors of public companies and secondary licensees.
It is enforceable upon all public companies and secondary licensees of the SEC, and their external auditors, including auditing firms where the auditors are co-owners/partners; unless specifically exempted, all requirements apply to them.
Only an external auditor—and if applicable, his auditing firm—that is accredited by the SEC may be engaged for statutory audits.
No. Section 4.2 provides that the firm’s accreditation does not cover its signing partners and auditors under its employment; the responsible auditor/signing partner must be separately accredited.
Management and the reporting company remain primarily responsible for the fairness of the representations in the financial statements. The auditor’s responsibility is confined to expressing an opinion (or lack of thereof) on the financial statements he examined.
Fraud is an intentional act resulting in a misrepresentation of financial statements that reduces consolidated total assets by 5%. Error is an unintentional mistake that reduces consolidated total assets by 5%.
It means wanton or reckless disregard of the duty of due care in complying with generally accepted auditing standards.
Public companies are those with total assets of at least P50,000,000 (or other amount prescribed by the SEC) and having 200 or more holders each holding at least 100 shares of a class of equity securities.
He must be in good standing as a CPA professional registered with PRC/BOA and entitled to practice; must possess independence per the CPA Code of Professional Ethics; must adhere to professional integrity and objectivity; must have at least five years of external audit experience, with at least two years auditing the type of entity for which accreditation is applied (CPE can be considered in exceptional cases for the 2-year requirement); and must show specified audit-client experience by asset base depending on accreditation type.
An auditor who meets all qualification requirements for public companies/issuers of securities to the public and certifies fundamental knowledge of regulatory requirements for other secondary licensees is granted GENERAL ACCREDITATION, qualifying him to audit all companies covered by the Circular.
The auditing firm must be in good standing and entitled to conduct auditing services under applicable laws, and it must have at least one signing practitioner or partner who is already accredited or who is already qualified and applying for accreditation by the SEC.
A duly accomplished and notarized application (SEC Form ExA-001), and: a copy of the Statement of Representation required under SRC Rule 68 (submitted only once); updated PRC/BOA license and Certificate of Registration; notarized certification of compliance with qualification requirements and no conviction for moral turpitude/fraud or liability for Corporation Code/SRC violations; and for general accreditation, a notarized certification of fundamental knowledge of regulatory requirements on other secondary licensees.
They must provide written proof that they attended or participated in relevant accounting and auditing training for at least 12 hours yearly beginning January 01, 2003, with topics such as international accounting standards, international standards of auditing, corporate governance, taxation, and other relevant subjects, conducted by recognized/relevant organizations or BOA/PRC through a CPE Council.
The accredited auditor/firm may not engage in enumerated non-audit services for statutory audit clients unless safeguards under the CPA Code of Ethics are undertaken to reduce threats to independence. The listed services include bookkeeping/accounting records services, certain valuation/fairness opinions, actuarial services, internal audit outsourcing, management/human resources functions, investment banking/broker-dealer/investment adviser services, and legal services/expert services unrelated to the audit, among others.
Within five days from receipt of the auditors’ findings for the recently completed fiscal year, the company must disclose to the SEC on SEC Form 17-C (for public companies or issuers to the public) or via a disclosure letter for all other market participants the matters specified under Section 9.3 discovered during the audit.
Fraud/error involving material findings as defined (Sections 3.2 and 3.3) must be disclosed; losses or potential losses with an aggregate amount at least 10% of consolidated total assets must be disclosed; and findings that consolidated assets on a going concern basis no longer cover total claims of creditors must also be disclosed.
Grounds include failure to submit required reports in case of non-disclosure by the client, continuous audit despite loss of independence, willful misrepresentation in accreditation documents/reports/certifications, acts discreditable per the CPA Code (via BOA findings), conviction or declaration of liability for relevant violations, refusal to submit documents upon SEC order, and gross negligence. Timely reporting is critical because failure to submit the report required under Section 9.2 in certain situations is itself a listed ground for suspension/delisting.