G.R. No. 246027 , January 28, 2025
SECURITIES AND EXCHANGE COMMISSION, PETITIONER, VS. 1ACCOUNTANTS PARTY-LIST, INC., REPRESENTED BY ITS PRESIDENT, CHRISTIAN JAY D. LIM, CHRISTIAN JAY D. LIM IN HIS PERSONAL CAPACITY AS CPA, FROILAN G. AMPIL, ALLAN M. BASARTE, VIRGILIO F. AGUNOD, AND JONAS P. MASCARIÑAS, RESPONDENTS.

FACTS

The Securities and Exchange Commission (SEC) filed a Petition for Review on Certiorari assailing the Regional Trial Court (RTC) Decision which declared null and void Rule 68, paragraph 3 of the Implementing Rules and Regulations (IRR) of the Securities Regulation Code (SRC) and SEC Memorandum Circular No. 13, Series of 2009 (collectively, “the assailed regulations”). The assailed regulations required the accreditation of certified public accountants (CPAs) acting as external auditors of corporations issuing registered securities and possessing secondary licenses (“covered entities”). The RTC found the regulations contrary to the Philippine Accountancy Act of 2004 (Accountancy Act), unconstitutional, and ultra vires. The Supreme Court initially denied the SEC’s petition and subsequent first motion for reconsideration. The SEC was granted leave to file a second motion for reconsideration.
The SEC argued that the accreditation of external auditors is essential to carry out the State’s policy of promoting capital market development, protecting investors, ensuring full disclosure, and minimizing fraudulent practices under the SRC. It contended that accreditation is optional for CPAs and assures stakeholders of competent professionals, generating trust. The SEC cited laws showing the State’s policy allowing financial sector regulators to accredit external auditors and referenced a Memorandum of Agreement among financial sector regulators and the Professional Regulatory Board of Accountancy (BOA) for a centralized accreditation system. It argued accreditation is complementary to the BOA’s licensure, focusing on continuous improvement and adherence to international standards, and is necessary to hold unscrupulous individuals accountable, citing past scams. The SEC also noted that the regulations apply to less than 3% of registered corporations.
Respondents (1Accountants Party-List, et al.) countered that the Accountancy Act delegates the regulation of the accountancy profession solely to the BOA, and the SEC acted as a co-regulator beyond its mandate. They argued that neither the SRC nor the Corporation Code authorizes the SEC to impose an additional licensing requirement like mandatory accreditation on individual CPAs, and that the SEC’s powers under the SRC flow from its jurisdiction over corporations, not individuals. They also posited that since management is responsible for financial statements, accreditation should be imposed on preparers, not external auditors.

ISSUE

Whether the Securities and Exchange Commission (SEC) is authorized to require the accreditation of certified public accountants (CPAs) acting as external auditors for covered entities under the assailed regulations (Rule 68, paragraph 3 of the SRC IRR and SEC MC No. 13, Series of 2009).

RULING

Yes. The Supreme Court, in its Resolution, reversed its previous finding and held that the SEC is authorized to require the accreditation of external auditors of covered entities.
The Court ruled that while the Accountancy Act created the BOA to regulate the practice of accountancy, it does not limit the establishment of regulatory measures solely to the BOA or the Professional Regulation Commission (PRC). Other government agencies like the SEC are not precluded from implementing State policy as long as their express or implied powers granted by law allow it.
The SEC’s powers under Sections 5 and 72 of the SRC include the authority to “regulate, investigate or supervise the activities of persons to ensure compliance” and to exercise powers necessary or incidental to carrying out its express powers to achieve the law’s objectives. The accreditation of external auditors is an implied power necessary for the SEC to effectively perform its mandate as the primary regulator of corporations and the securities market. This power is complementary to, and does not supplant, the BOA’s licensure function. Accreditation focuses on continuous improvement and adherence to optimal quality standards specific to the regulated financial sector, whereas licensure sets minimum competency standards.
The Court found that the accreditation requirement is a valid exercise of police power to protect the investing public and ensure the integrity of financial reports. It is a reasonable regulation that does not unlawfully restrain the practice of the accountancy profession, as it applies only to a small fraction of corporations and CPAs remain free to practice for the vast majority of entities. The State’s right to regulate professions for public welfare takes precedence over the privilege to practice.