Accreditation of External Auditors of Public Firms

Applies to all public companies and secondary licensees of the Commission and their external auditors.
Includes auditing firms with co-owner/partner auditors.
Exemptions must be specifically stated to avoid applicability.

External Auditor: Single practitioner or signing partner in an auditing firm.
Fraud: Intentional act causing misrepresentation reducing consolidated total assets by at least 5%.
Error: Unintentional mistake causing a similar asset reduction.
Gross Negligence: Reckless disregard of due care in auditing.
Material Information: Information influencing economic decisions.
Public Companies: Companies with at least P50 million assets and 200 or more shareholders.
Secondary Licensees: Entities including issuers of registered securities, pre-need companies, financing companies, brokers, dealers, investment companies, universal banks, and stock exchanges.

Only accredited external auditors and their firms may conduct statutory audits.
Auditor signing the report must have separate accreditation.
Accreditation does not relieve management of financial statement responsibility.
Commission not liable for choice of auditor.
Accreditation valid for three years unless renewed.

Individual External Auditors:
- Must be registered with the PRC and Board of Accountancy.
- Must demonstrate independence and high professional conduct.
- At least five years external audit experience, two years in related entity type.
- Experience with client companies meeting asset thresholds (P50m for general, P30m for pre-need, P20m for others).
- General accreditation granted for knowledge across secondary licensees.
Auditing Firms:
- Must be in good legal standing and have at least one accredited or qualifying signing partner.

Individual Auditor:
- Submit notarized application, including SEC Form ExA-001, up-to-date PRC license, certifications of compliance and moral integrity, and knowledge declaration for general accreditation.
- Renewal requires continuing professional education (12 hours annually).
- Application fee: P2,000.
Auditing Firm:
- Submit SEC Form AuF-002, certificates, Pro-Forma contracts, quality assurance descriptions, and audited financial statements.
- Renewal requires current documentation and certifications.
- Application fee: P5,000.

Prohibited non-audit services unless appropriate safeguards are in place.
Compliance with engagement terms, generally accepted auditing standards, ethics codes, and Commission rules mandatory.
Quality assurance procedures must be maintained and changes reported.
Commission may conduct inspections (visitorial power).

Companies must disclose auditor findings within five days after receipt.
Findings include material fraud/errors, significant losses (≥10% of assets), or insufficient assets to cover creditors.
Auditor must report to clients and submit reports to the Commission if client fails to disclose.
Contracts must protect auditor from liability for disclosures made to the Commission.

Grounds include failure to report, loss of independence, false statements, conviction for crimes involving moral turpitude or fraud, refusal to provide documents, gross negligence, unauthorized non-audit services.
Auditing firms may be delisted for misrepresentations, dissolution, significant auditor suspensions, involvement in scandals, or refusal to cooperate.
Suspended auditors must notify the Commission before future engagements.

Fines imposed on auditing firms and auditors escalate from P50,000 to P400,000 based on offenses.
Sanctions are in addition to other administrative or criminal penalties.
Penalties may be reduced for mitigating circumstances.
Unauthorized engagement of non-accredited auditors by companies carries a P100,000 fine.

Circular supersedes inconsistent prior circulars.
Previously accredited auditors/firms need not reapply but must comply with new provisions.
Renewal requires proof of relevant continuing education.

Circular effective October 1, 2003, covering financial statements starting January 1, 2004.
Early adoption of requirements is encouraged.