Only SEC-accredited CPAs can perform external audits for companies issuing registered securities

The Supreme Court recently declared that only certified public accountants (CPAs) recognized by the Securities and Exchange Commission (SEC) are permitted to conduct external audits of companies issuing registered securities. This decision was made in response to a full court resolution authored by Associate Justice Ricardo R. Rosario, citing the Philippine Accountancy Act which does not limit the oversight of accountancy practice solely to the Professional Regulatory Board of Accountancy (BOA).

In upholding the constitutionality of Rule 68, paragraph 3 of the 2009 SEC Memorandum Circular No. 13, the court emphasized the importance of quality control in auditing activities for corporations issuing registered securities. Registered securities include various financial instruments like bonds, shares, and investment contracts, necessitating a thorough auditing process conducted by accredited CPAs.

The Securities Regulation Code (RA 8799) grants the SEC the authority to regulate and supervise activities related to securities trading, including the auditing of corporations’ financial statements. The court highlighted that the accreditation requirement imposed by the SEC serves as a quality assurance measure, ensuring that external auditors meet stringent standards in their auditing practices.

While the accreditation requirement is specific to auditing activities and does not replace the regulatory authority of the Board of Accountancy, it adds an additional layer of supervision to maintain high standards in financial reporting. External auditors play a crucial role as financial gatekeepers and must possess a comprehensive understanding of financial statements to uphold the integrity of the market.

The court noted that Rule 68 aligns with international auditing standards, promoting consistency and efficiency in financial reporting across different sectors. By centralizing the accreditation process under the SEC, regulatory oversight is enhanced, compliance requirements are streamlined, and investor protection is reinforced within the securities market ecosystem.

The recent decision by the Supreme Court overturns a prior ruling that limited the SEC’s authority to regulate only corporations, clarifying that the SEC has the legal mandate to enforce accreditation requirements under the Securities Regulation Code and the Revised Corporation Code. The resolution affirms the validity of Rule 68 and SEC Memorandum Circular No. 13, emphasizing the importance of maintaining standards in auditing practices for companies issuing registered securities.

In conclusion, the Supreme Court’s decision underscores the significance of regulatory oversight in auditing activities to safeguard market integrity and investor protection. By requiring accredited CPAs to conduct external audits of corporations issuing registered securities, the court aims to uphold transparency, accountability, and ethical standards in financial reporting practices.