Big gov’t contractors face tighter audits

Major government contractors will face tighter financial reporting requirements as the Securities and Exchange Commission (SEC) expands its audit accreditation regime to companies handling large public contracts.

Under SEC Memorandum Circular No. 26, Series of 2026, corporate contractors meeting certain contract thresholds will be required to engage SEC-accredited independent auditors and disclose the cost and status of their government projects.

“High-quality audits serve as a foundation of transparency in capital markets, fostering public trust in the financial system,” SEC Chairperson Francis Lim said on Monday.

“By tightening our accreditation standards and extending oversight to auditors of major government contractors, we are reinforcing accountability, ensuring that public funds and investors’ hard-earned money are protected by rigorous and independent financial reporting,” he added.

The new rules cover contractors involved in the procurement of goods and consulting services and infrastructure projects of the national government and its instrumentalities, including government-owned or -controlled corporations, state universities and colleges, and local government units.

Corporate general contractors with a single government contract exceeding P750 million or cumulative government contracts of more than P1 billion will be required to engage Group A independent auditors.

Those with a single government contract worth P400 million to P750 million, or cumulative contracts worth P500 million to P1 billion, must engage Group B independent auditors.

The accredited external auditor must remain engaged until the covered projects are fully completed or delivered.

Covered contractors will also be required to submit a notarized schedule disclosing project descriptions, costs, and status, accompanied by an auditor’s report.

The SEC is also raising qualification standards for auditors eligible to handle these companies and other regulated entities.

Group A applicants must have at least five corporate clients with total assets of at least P100 million each, up from P50 million previously.

For Group B, auditors must have at least five corporate clients with assets of at least P50 million each, compared with the previous requirement of three clients with assets of at least P20 million.

Group C applicants must have at least five corporate clients with assets of at least P5 million each, up from three clients previously.

The SEC also expanded the grounds for outright denial of accreditation, including misrepresentation or concealment of information during evaluation, material audit deficiencies, and failure to maintain independence.

For Group A or B applicants, five-year accreditation will be granted only if the evaluation of each client's audited financial statements shows no material findings.

The new requirements covering annual or interim financial statement audits will apply to fiscal years or periods ending on or after 30 June 2027. Other provisions will take effect after the circular is published.