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Saturday, April 20, 2024

SC nullifies SEC memo on CPAs, external audits

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The Supreme Court has nullified for being unconstitutional the memorandum circulars issued by the Securities and Exchange Commission that required the accreditation of certified public accountants (CPAs) acting as external auditors of corporations issuing registered securities and possessing secondary licenses.

In a 15-page en banc decision, the SC, through Associate Justice Ricardo Rosario, unanimously denied the petition filed by the SEC seeking the reversal of the March 20, 2018 decision of the Regional Trial Court of Davao City.

The RTC declared Paragraph 3, Rule 68 of the Implementing Rules and Regulations of the Securities Regulation Code (SRC) and SEC Memorandum Circular No. 13-2009 as illegal.

The regional court nullified the provisions for being contrary to Republic Act 9298, or the Philippine Accountancy Act, and issued “ultra vires” or beyond SEC’s legal authority.

The provisions mandate that only an external auditor and his auditing firm that is accredited by the SEC “shall be engaged by corporations covered by this Circular for the statutory audit of their financial statements.”

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A fine ranging from P100,000 to P400,00 is also imposed by the SEC against auditing firms or responsible external auditors who will be found violating the accreditation requirement.

The SC noted that the assailed regulations were issued based on several provisions of the SRC and the Corporation Code, which covers corporations.

The high court said the provisions do not provide that such should extend to individual CPAs.

“Thus, all other powers granted by the SRC provisions relied upon by petitioner flow from the SEC’s jurisdiction over corporations, and cannot be made to apply to individual CPAs,” the SC stressed.

“While petitioner may regulate corporations as well as the securities market, such regulation does not extend to an authority to restrict, even in the slightest degree, the practice of accountancy,” the high court said.

The tribunal added that the requirement being imposed by the SEC is an additional burden for the CPAs considering they still need to secure a license to be able to practice accountancy.

“Thus, the CPAs are left with no choice but to go through the accreditation process should they wish to conduct a statutory audit of corporate financial statements, when in fact, such is part of the practice of accountancy for which their CPA license already suffices,” the SC noted.

Besides, the court said the power to supervise the accounting profession and impose regulations on CPAs is exclusively delegated to the Professional Regulatory Board of Accountancy.

The SC did not give weight to SEC’s argument that it executed a memorandum of agreement with the board which allows for the accreditation with the commission.

“Moreover, a private agreement such as the MOA cannot operate to validate a transgression of a provision of law. Thus, the MOA is void and cannot serve as authorization for the petitioner to make the assailed issuances,” the SC said.

The case stemmed from a petition for declaratory relief with prayer for preliminary injunction and temporary restraining order filed by 1Accountants Party List, Inc. represented by its president Christian Jay Lim, who is also a certified CPA, as well as several other CPAs before the RTC.

The petitioners argued that the regulations were issued without authority by the SEC, violates RA 9298, and restrict the right of CPAs to practice accountancy.

They further argued that MC No. 13-009 violates their right to due process as well as their right to equal protection of the law.

The trial court ruled in favor of the petitioners, prompting the SEC to elevate the issue before the SC.

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