SEC eases audit burden on micro businesses

The Securities and Exchange Commission (SEC) has raised the financial threshold for corporations required to submit audited financial statements. The reform is designed to ease compliance burdens on micro enterprises while preserving strong investor and regulatory protections.

The Commission’s authority to issue the new rules is grounded on Section 68 of the Securities Regulation Code (SRC), in relation to Section 5 thereof, which empowers the SEC to formulate, amend, or repeal accounting and reporting standards applicable to corporations under its supervision.

This legal mandate allows the SEC to continuously adjust financial reporting rules in response to changing economic conditions and evolving business realities.

For many years, corporations with total assets or liabilities exceeding P600,000 were required to submit audited financial statements under Revised SRC Rule 68. This threshold has long ceased to reflect present-day economic conditions.

Inflation, rising operating costs, and changes in the scale of even the smallest enterprises have rendered the old threshold increasingly unrealistic.

As a result, many very small businesses were forced to bear audit expenses that were out of proportion to their size and revenue.

Under Memorandum Circular 4, the SEC now defines micro entities as corporations with total assets or total liabilities of less than P3 million. These micro corporations are no longer required to submit audited financial statements.

Instead, they may submit certified financial statements, prepared using either the income tax basis or Philippine Financial Reporting Standards for Small Entities (PFRS for SEs).

To ensure that transparency is not compromised, the rules require that these certified financial statements must include, at a minimum, a Statement of Management’s Responsibility signed under oath, a Statement of Financial Position, a Statement of Income, and Notes to Financial Statements, covering two-year comparative periods when applicable.

This means that while micro entities are relieved from the cost of external audits, corporate officers remain legally accountable for the truthfulness and completeness of what they submit to the SEC.

The Department of Finance (DoF), in a letter dated 18 November 2025, formally approved and concurred in the SEC’s proposal.

The DoF agreed that the revised threshold aligned with the government’s efforts to stimulate economic growth and reduce unnecessary regulatory burdens, while underscoring the need for heightened accountability of corporate officers in the absence of audited financial statements.

The timing of the reform is especially significant. MSMEs account for about 99.5 percent of all businesses in the Philippines, and around 90 percent of these are micro enterprises.

These businesses are the backbone of the economy, providing employment, supporting local communities, and serving as the entry point for entrepreneurship. For many of them, compliance costs, particularly audit fees, can be a serious barrier to survival and growth.

As the Philippine economy continues to grow and diversify, the SEC remains committed to implementing forward-looking reforms that keep regulation responsive, fair, and development-oriented.

Measures such as Memorandum Circular 4, Series of 2026, demonstrate that it is possible to reduce unnecessary compliance burdens without weakening transparency or investor protection. The Commission will continue to refine its rules and digital systems to make it easier to do business in the Philippines while ensuring that the corporate sector remains credible, accountable, and worthy of public trust.