SEC orders listed firms to change external auditors by end of 2003

The Securities and Exchange Commission has directed all listed corporations and firms with secondary license from the SEC to change their external auditors by the end of December this year.

The move is pursuant to a resolution issued by the SEC last year, giving corporations covered under the Code of Corporate Governance until Dec. 31, 2003 to hire a new auditor or rotate engagement partners. This is in line with the SEC’s efforts to ensure greater accountability in the accounting profession and to improve the quality of independent audit.

SEC Chairman Lilia R. Bautista said this aplies only to companies which have engaged their external auditors for five consecutive years.

Covered by the new SEC requirement are pre-need firms, financing companies, investment houses, mutual fund firms, and public companies with at least 200 stockholders or P50 million net capital.

Bautista said the transition period is to ensure the orderly transfer of the account to the new external auditor or engagement partners.

The SEC chief said while financial statements are primarily the responsibility of the management of the reporting corporation, the fairness and accuracy of the representations made therein are part of the independent certified public accountants’ responsibilities.

To strengthen its regulatory powers over auditing firms, the SEC has issued a circular governing the accreditation and the reporting requirements of external auditors.

To get accredited, a certified public accountant must have at least five years track record in conducting external audits and have a minimum of 10 existing corporate clients with assets of at least P50 million each.

The auditor must also have at least one existing client publicly-held company in the regular audit.

The need to come up with a list of accredited auditing firms was due to the perceived close relationships of independent accounting firms with their clients. Most listed companies have been associated with their present auditor for over 10 years.

To support the agency’s move to improve the accounting profession, the SEC has given the board of directors of a corporation more responsibilities to ensure that financial statements are prepared in accordance with international accounting standards.

The SEC will hold the board, particularly its chairman, responsible in ensuring that the financial statements reflect the true financial health of a corporation.

Under Rule 68 of the Securities Regulation Code, all corporations will be required to submit a statement of management’s responsibility that the "board of direcors reviews the financial statements before such are approved and submitted to the stockholders of the company."