The Supreme Court has 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.
The SC dismissed claims that such accreditation curtailed the practice of the accounting profession.
In an 18-page resolution promulgated Jan. 28 and made public April 3, the SC En Banc reversed and set aside its earlier rulings and declared Rule 68, Paragraph 3 of the Implementing Rules and Regulations (IRR) of Republic Act 8799, or the Securities Regulation Code (SRC), and SEC Memorandum Circular 13-2009 (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 SC decision 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, the Commission said in a statement.
In affirming the Commission’s authority to accredit external auditors of covered entities, the SC 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.
“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 SC 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.
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 SC ruled.
It 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. ||
