The Supreme Court has affirmed the Securities and Exchange Commission’s (SEC) authority to accredit external auditors for corporations issuing registered securities, dismissing claims that such accreditation limits the practice of accountancy. In a ruling released on January 28, 2025, the Court reversed its earlier decisions and validated Rule 68, Paragraph 3 of the Implementing Rules and Regulations (IRR) of the Securities Regulation Code (SRC), as well as SEC Memorandum Circular No. 13, Series of 2009 (MC 13), which set out accreditation guidelines for auditing firms and external auditors of covered entities.
The case stemmed from a complaint by 1Accountants Party-List, Inc., which argued that the SEC had overstepped its mandate by issuing accreditation requirements, as the regulation of the accountancy profession falls under the Board of Accountancy (BOA). The group claimed that the accreditation process imposed an unnecessary restriction on Certified Public Accountants (CPAs) wishing to practice their profession.
However, the Court upheld the SEC’s position, emphasizing that the agency’s authority stems from its express power to regulate corporate activities, which implicitly includes overseeing the activities of auditors for entities under its jurisdiction. The Court ruled that while the BOA regulates the broader practice of accountancy, the SEC has the power to impose requirements specifically for CPAs engaged in the audit of financial statements for covered entities.
The Supreme Court clarified that the SEC accreditation requirement is focused on ensuring the competence and independence of auditors performing statutory audits for covered entities, rather than regulating the entire profession of accountancy. CPAs may still work for covered entities without accreditation, provided they are not engaged in independent audits.
The Court also noted that external auditors are held to higher standards due to their role in examining financial statements, which require a profound understanding of financial intricacies. The SEC’s accreditation process ensures that only qualified professionals perform these duties, in line with international auditing standards.
The ruling further acknowledged that accreditation by financial sector regulators, such as the Bangko Sentral ng Pilipinas (BSP) and the Insurance Commission, is common practice and contributes to regulatory consistency across different sectors. The Court affirmed that the SEC’s accreditation powers are aligned with the state’s policy of promoting efficient, transparent financial markets.
In summary, the Supreme Court’s decision reinforces the SEC’s role in accrediting external auditors, complementing the BOA’s regulatory functions and enhancing investor protection through stronger oversight in the securities market.
