SEC Mandates Disclosure of External Audit Fees

The Securities and Exchange Commission (SEC) now requires publicly listed companies and other entities with public interest to disclose fees paid to external auditors, aiming to enhance transparency and accountability in financial and operational reporting.

On December 26, 2024, the SEC issued Memorandum Circular No. 18, Series of 2024, outlining guidelines for disclosing external auditor fee-related information.

These align with the Code of Ethics for Professional Accountants and apply to annual financial statements (AFS) for periods ending December 31, 2024, and onward.

Covered entities include publicly listed companies, issuers of securities registered under Section 12 of the Securities Regulation Code (Republic Act No. 8799), and firms with assets of at least PHP 50 million and 200 or more shareholders, each holding at least 100 equity shares.

Companies preparing financial statements for public market instruments and holders of secondary licenses issued by the SEC, Bangko Sentral ng Pilipinas, or the Insurance Commission are also subject to the guidelines.

The SEC may designate additional entities as public interest corporations in the future.

The guidelines require companies to present fee-related information in a two-year comparative format as a supplement to their AFS.

These disclosures must detail fees paid or payable to external auditors or their network firms for auditing financial statements where opinions are expressed. This includes fees charged to entities under the control of the covered company and consolidated in financial statements.

Fees paid by related entities controlled by the covered company for services rendered by external auditors or network firms must also be disclosed in a comparative format.

Additionally, if fees from a covered company constitute more than 15% of an external auditor’s total fees over two consecutive years, this dependency and the year it first occurred must be disclosed.

Entities wholly owned, directly or indirectly, by another public interest entity preparing consolidated financial statements with the required disclosures are exempt from compliance.

Failure to comply with these guidelines will result in penalties following notice and hearing, as stipulated in Revised SRC Rule 68 and the SEC’s consolidated scale of fines.