SEC authority over auditors affirmed

THE Supreme Court rejected 1Accountants Party-List, Inc.’s motion for reconsideration, affirming the Securities and Exchange Commission’s (SEC) power to accredit certified public accountants (CPAs) as external auditors for companies issuing registered securities or holding secondary licenses.

In an en banc resolution dated Oct. 14, the court said it found no substantial grounds to overturn its prior decision supporting the SEC. It also barred further pleadings and ordered an immediate entry of judgment.

“The external auditors subject to accreditation deal with corporations imbued with public interest. Accordingly, as the Supreme Court has noted, requiring their accreditation could help the commission enhance its regulatory oversight, reinforce investor protection in the securities market, and promote the integrity of the financial sector,” SEC Chairperson Francisco Ed. Lim said in a statement on Tuesday.

The legal dispute originated from 1Accountants Party-List’s petition challenging SEC Rule 68, Paragraph 3 of the Securities Regulation Code’s Implementing Rules and Regulations (SRC IRR) (Republic Act No. 8799), along with SEC Memorandum Circular No. 13 (2009), which cover accreditation for auditing firms and external auditors of covered entities.

The group said the commission overstepped its role since the Board of Accountancy (BoA) runs the accounting field, and the extra rules “limited CPAs’ practice.”

In 2022 and 2023, the Supreme Court sided with 1Accountants Party-List, saying that SEC’s auditor accreditation rules is “invalid and unconstitutional.”

The commission appealed, and in January this year the court reversed its prior ruling, saying the accreditation rules are valid and constitutional. 

“Rule 68 of the SRC IRR requires accreditation only to CPAs who are independent auditors of the covered entities. The high court added that the BoA remains as the main regulatory agency for accountancy profession in the country,” the SEC said.

The court said SEC, as a corporate watchdog, can oversee its regulated companies and their auditors, both firms and individuals, and enforce accreditation.

“We welcome the decision of the Supreme Court, which we believe further strengthens our thrust toward promoting transparency, accountability and good governance, in general, both in the private and public sectors,” Mr. Lim said. — Alexandria Grace C. Magno