The findings give audit firms a roadmap for addressing recurring deficiencies while signaling to listed companies that regulators expect stronger governance and more reliable financial reporting.
Align with highest global standards and best practices
“For the Philippines to become Southeast Asia’s premier investment destination, our regulatory framework must align with the highest global standards and best practices. That is why audit oversight is critical. Beyond technical review, it is a public duty that protects investors, strengthens market confidence, and reinforces the credibility of our financial system,” SEC chairperson Francis Lim said.
“Financial transparency must be viewed not merely as a compliance requirement, but as a competitive advantage that strengthens market discipline, attracts investment, lowers the cost of capital and builds economic resilience,” he added.
The inspections assessed both firms’ quality management systems and the quality of individual audit engagements.
Deficiencies in various areas
The SEC found more deficiencies in areas such as ethical requirements, monitoring and remediation, information and communication, governance and leadership, and risk assessment as firms transitioned to the Philippine Standard on Quality Management 1.
Even so, the Commission said the results reflected the profession’s commitment to adopting higher standards despite post-pandemic challenges, including remote work, reduced in-person training, heavier workloads and staffing constraints.
The regulator also reported improvements in the quality of individual audit engagements, citing stronger consultation processes, engagement reviews and the assembly of final audit files.
It said accounting estimates, audit sampling, and group audits remain key areas that require further attention.
Strengthen root cause analysis
To reduce recurring deficiencies, the SEC encouraged audit firms to strengthen Root Cause Analysis and expand the use of automated tools and techniques, including artificial intelligence, data analytics, visualization and cloud technology.
The report also highlighted the rollout of mandatory sustainability reporting for certain entities beginning this year, saying companies should treat the requirement as more than a compliance exercise.
“Sustainability reporting enhances stakeholder trust, supports risk management, opens doors to more investments and strengthens a company’s reputation in an increasingly purpose-driven market.”
“Again, it is not just a tool for compliance, but a necessary measure to enhance resilience, innovation and long-term value creation,” the report said.
