The Supreme Court (SC) has declared unconstitutional the circulars issued by the Securities and Exchange Commission (SEC) that required the commission’s accreditation of certified public accountants (CPAs) who act as external auditors of corporations issuing registered securities and possessing secondary licenses.

While the SEC may regulate corporations as well as the securities market, “such regulation does not extend to an authority to restrict, even in the slightest degree, the practice of accountancy,” the SC ruled in a unanimous full court decision written by Associate Justice Ricardo R. Rosario.

“Moreover, the accreditation requirement imposed by the assailed issuances amounts to a licensing requirement which curtails the right of CPAs to practice their profession,” the SC also said in a decision made public last Jan. 27.

With the ruling, the SC denied SEC’s petition that challenged the 2018 decision of the Davao City regional trial court (RTC) which declared void Paragraph 3, Rule 68 of the Implementing Rules and Regulations of the Securities Regulation Code (SRC) and SEC Memorandum Circular (SEC MC) No. 13-2009 for being contrary to Republic Act No. 9298, the Philippine Accountancy Act, and, thus, issued beyond legal authority.

Nullified by the RTC were the provisions which mandate that only an external auditor and his auditing firm accredited by the SEC "shall be engaged by corporations covered by this circular for the statutory audit of their financial statements.”

A fine ranging from P100,000 to P400,000 is also imposed by the SEC against auditing firms or responsible external auditors who will be found violating the accreditation requirement.

The RTC granted the petition for declaratory relief filed by 1Accountants Party List, Inc., represented by its president, Christian Jay D. Lim, and fellow CPAs Froilan G. Ampil, Allan M. Basarte, Virgilio F. Agunod, and Jonas P. Mascarinas.

The SEC elevated the case to the SC challenging the RTC’s ruling. In denying the SEC’s petition, the SC ruled:

“The SEC's jurisdiction is only over juridical entities and their directors, officers and stockholders, as well as those that directly deal with the securities issued by said entities, such as brokers, dealers, salesmen, underwriters and promoters.

“Individual CPAs are not under petitioner's (SEC) authority and jurisdiction, and thus cannot be governed by the same rules.

“Similarly, in the case before Us, CPAs are burdened with the accreditation requirement which is in addition to their CPA license.

“Proof of this burden is the scale of fines (Section 12.4) imposed by SEC MC No. 13-2009 for violation of the said requirement. Thus, CPAs are left with no choice but to go through the accreditation process should they wish to conduct a statutory audit of corporate financial statements, when in fact, such is part of the practice of accountancy for which their CPA license already suffices.

“... the power to supervise the accounting profession and to impose regulations on CPAs is exclusively delegated to the Professional Regulatory Board of Accountancy. Yet, this exclusive delegation is contravened by the provisions in MC No. 13-2009, in particular penal clauses such as the aforementioned scale of fines (Section 12.4) and the suspension or delisting of accreditation (Section 12.6).

“While petitioner argues that there is no barrier preventing CPAs from applying for accreditation, the accreditation itself is the barrier, however flimsy, which prevents the practice of external auditing of covered entities.

“Petitioner further argues that it executed a MOA (memorandum of agreement) with the Board which allows for such accreditation with the SEC.

“However, We remind petitioner of another legal maxim, ‘delegata potestas non potest delegari’ or what has been delegated by Congress can no longer be further delegated or redelegated by the original delegate to another.

“Moreover, a private agreement such as the MOA cannot operate to validate a transgression of a provision of law. Thus, the MOA is void and cannot serve as authorization for the petitioner to make the assailed issuances.

“WHEREFORE, the present petition for review on certiorari is DENIED. The Decision dated March 20, 2018 of the Regional Trial Court (RTC), Davao City, Branch 15, in Civil Case No. R-DVO-15-02294-SC is AFFIRMED. Paragraph 3, Rule 68 of the IRR of the SRC and SEC MC No. 13-2009 are declared null and void. SO ORDERED.”

TAGS: #SC #CPAs #SEC #1Accountants Party-List