High Court backs SEC auditor oversight

The Supreme Court has affirmed the Securities and Exchange Commission’s (SEC) authority to accredit certified public accountants (CPAs) who serve as external auditors for corporations that issue registered securities or hold secondary licenses.

Citing a Resolution dated 14 October, the SEC said Tuesday that the Court En Banc denied the motion for reconsideration filed by 1Accountants Party-List, Inc., noting it failed to present substantial arguments to overturn the earlier ruling favoring the SEC. 

The Court also ordered immediate entry of judgment, saying no further pleadings or motions will be entertained.

“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. 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.”

The case stemmed from a petition by 1Accountants Party-List, which sought to declare SEC regulations and guidelines on auditor accreditation unconstitutional. These include Rule 68, Paragraph 3 of the Implementing Rules and Regulations of the Securities Regulation Code and SEC Memorandum Circular No. 13, Series of 2009.

The party-list argued that the SEC exceeded its mandate, claiming that the Board of Accountancy (BOA) has sole supervision over external auditors, and that additional accreditation requirements restrict CPAs from practicing.

The Supreme Court initially sided with 1Accountants Party-List in 2022 and again in 2023.

However, following the SEC’s appeal, the high court reversed these rulings in January, declaring the accreditation rules valid and constitutional.

The Court noted that the SEC, as corporate regulator, is authorized to supervise activities of entities under its jurisdiction—including external auditors—and implement accreditation requirements. 

Rule 68 applies only to CPAs serving as independent auditors of covered entities, while the BOA remains the main regulatory body for the accountancy profession.