The Supreme Court affirmed the authority of the Securities and Exchange Commission (SEC) to accredit certified public accountants (CPAs) acting as external auditors of corporations issuing registered securities and owning secondary licenses, as it dismissed claims that such accreditation curtailed the practice of the accounting profession.
In an 18-page resolution promulgated on January 28, the Supreme Court En Banc reversed and set aside its earlier rulings[1] and declared Rule 68, Paragraph 3 of the Implementing Rules and Regulations (IRR) of Republic Act No. 8799, or the Securities Regulation Code (SRC), and SEC Memorandum Circular No. 13, Series of 2009 (MC 13), or the Revised Guidelines on Accreditation of Auditing Firms and External Auditors, valid and constitutional.
These regulations set accreditation guidelines and requirements for external auditors of covered entities, including publicly listed companies, investment firms, as well as lending and financing companies, among others.
The case stemmed from a complaint filed by 1Accountants Party-List, Inc., alleging that the SEC went beyond its mandate in issuing the regulations as the supervision, control, and regulation of the accountancy profession was delegated to the Board of Accountancy (BOA).
1Accountants Party-List argued that the additional accreditation requirement restrained CPAs from practicing their profession.
The Supreme Court’s resolution in favor of the SEC reversed earlier findings of invalidity and unconstitutionality of the subject regulations, as the high court emphasized the far-reaching implications of removing such accreditation.
Implied powers to regulate activities of persons
In affirming the Commission’s authority to accredit external auditors of covered entities, the Supreme Court ruled that such power is implied from the express power of the SEC to regulate or supervise the activities of persons which essentially includes juridical and natural persons such as individual auditors of covered entities.
Thus, an express grant of authority is not needed to enable the SEC, acting as the corporate regulator, to impose an accreditation requirement.
“While the Accountancy Act created the BOA…to regulate the practice of accountancy…other government agencies like the SEC are not precluded from implementing the policy of the State for so long as the express or implied powers granted to them by law allows them to do so,” the Court held.
The Supreme Court also noted that the accreditation requirement under Rule 68 of the SRC IRR, as amended, applies only to CPAs who are independent auditors of the covered entities, showing that it is not a regulation on the accountancy profession but on the specific activities of independent auditors of covered entities.
“The fact that CPAs may still work for a covered entity without undergoing accreditation as long as they are not engaged to perform an independent audit of its AFS shows that it is not the accountancy profession that is regulated by the SEC but only the activity of statutory audit of financial statements,” it added.
Similarly, MC 13 requires accreditation only for CPAs engaged to perform statutory audit of financial statements of covered entities.
“As the ones responsible for examining the AFS and expressing their opinion thereon, external auditors are expected to possess a more profound understanding of the intricacies of financial statements than those from whom they originate and thus, must be held to a higher standard,” the Court held.
Meanwhile, the Supreme Court recognized that the Commission is authorized under the RCC to issue rules and regulations consistent with international best practices. Unlike in non-covered entities, the audit of covered entities requires that the CPA is not only independent but also competent and qualified in accordance with international auditing, ethical and independence standards.
No curtailment of accountancy practice
The Supreme Court also ruled that the practice of profession is not a right but a privilege burdened by conditions.
“There being no right to practice accountancy, there could be no curtailment of such right to speak of. Thus, any additional burden imposed by the accreditation requirement on CPAs who wish to audit the AFS of covered entities is not a curtailment of a right but a condition on a mere privilege.”
The Supreme Court further explained that such additional SEC accreditation is not meant to replace the regulatory measures implemented by the BOA, which remains to be the main regulatory agency for the practice of accountancy in the Philippines.
“While the BOA…ensures that the minimum standards for the practice of the profession in the Philippines are met…the audit of covered entities certainly requires more than the minimum. The SEC accreditation serves this purpose by complementing rather than replacing the regulatory measures put in place by the BOA,” the SC held.
Authority of financial sector regulators to accredit auditors
The Supreme Court also agreed with the Commission’s observation that other laws manifest the State’s policy of allowing various regulators especially those in the financial sector to accredit external auditors.
The Supreme Court cited the General Banking Law of 2000, which provides that the BSP Monetary Board may require a bank, quasi-bank or trust entity to engage the services of an auditor chosen from a list of CPAs acceptable to the Monetary Board, as well as Presidential Decree No. 12, or the Insurance Code, which requires supervised persons and entities to engage only the services of external auditors accredited by the Insurance Commissioner, among other laws.
Relative thereto, the Supreme Court held that the Memorandum of Agreement executed between the BOA and the financial sector regulators does not constitute as undue delegation of legislative power as the accreditation regulates only the activities of persons and not the profession itself, but crafted to promote the ease of doing business and adherence to internationally recognized standards.
“Hence, the SEC’s accreditation of external auditors…is a logical extension of existing regulatory practices aimed at promoting consistency, efficiency, and financial integrity across different sectors. Centralizing the accreditation process under the auspices of the SEC will enhance regulatory oversight, streamline compliance requirements, and reinforce investor protection within the securities market ecosystem.”
For the full text of the Supreme Court resolution, click this link: https://www.sec.gov.ph/resolution-2025/g-r-no-2460271/#gsc.tab=0
