Supreme Court affirms SEC authority on external auditors

The Supreme Court (SC) has affirmed with finality the authority of the Securities and Exchange Commission (SEC) to accredit certified public accountants who may serve as external auditors of covered corporations, including companies issuing registered securities and those holding secondary licenses.

In a resolution dated Oct. 14, the SC En Banc denied with finality the motion for reconsideration filed by 1Accountants Party-List Inc., citing its failure to raise substantial arguments that would justify reversing the court’s earlier ruling in favor of the SEC.

The court also ruled that no further pleadings or motions will be entertained and ordered the immediate entry of judgment.

“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,” SEC Chairperson Francis Lim said.

“The external auditors subject to accreditation deal with corporations imbued with public interest,” Lim said.

“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,” he added.

The case stemmed from a petition filed by the 1Accountants Party-List seeking to declare unconstitutional the SEC’s regulations and guidelines on the accreditation of external auditors of covered entities.

These regulations include Rule 68, Paragraph 3, of the Implementing Rules and Regulations of Republic Act No. 8799, or the Securities Regulation Code, and SEC Memorandum Circular No. 13, Series of 2009, also known as the Revised Guidelines on Accreditation of Auditing Firms and External Auditors.

In its petition, 1Accountants Party-List argued that the SEC exceeded its mandate in issuing the regulations, claiming that supervision, control, and regulation of external auditors of corporations fall under the Board of Accountancy.

The group also asserted that the additional accreditation requirements imposed by the SEC unlawfully restrain certified public accountants from practicing their profession.

In its initial decision in 2022 and a subsequent resolution in 2023, the Supreme Court ruled in favor of 1Accountants Party-List and declared the SEC’s accreditation rules for external auditors of covered entities invalid and unconstitutional.

Following the SEC’s appeal, the high court in January 2025 reversed and set aside its earlier rulings, declaring the accreditation guidelines and requirements valid and constitutional.

In upholding the commission’s authority, the Supreme Court said the SEC, as the corporate regulator, is empowered to supervise entities within its jurisdiction, including juridical and natural persons such as external auditors, and to implement accreditation requirements.

The court clarified that Rule 68 of the Securities Regulation Code’s implementing rules requires accreditation only for certified public accountants acting as independent auditors of covered entities.

The high court also emphasized that the Board of Accountancy remains the primary regulatory body for the accountancy profession in the Philippines.

“The SEC remains unwavering in its commitment to uphold transparency, ensure integrity, and promote accountability in the corporate sector, as these are crucial in building public trust and confidence in the capital market and the country’s overall business environment,” Lim said.