The Securities and Exchange Commission (SEC) has required publicly listed companies and other corporations with public interest to disclose fees paid to their external auditors.
In a statement, the commission said this requirement is meant to enhance transparency and accountability in reporting corporations’ financial and operational results.
The SEC issued Memorandum Circular No. 18, Series of 2024, on Dec. 26, 2024 that provided guidelines on disclosing fee-related information of external auditors, in line with the Code of Ethics for Professional Accountants.
The guidelines apply to the annual financial statements (AFS) of covered companies for the period ending Dec. 31, 2024, and thereafter.
Companies covered by the guidelines include: public interest entities such as listed companies; issuers that have sold a class of securities pursuant to registration under Section 12 of the Securities Regulation Code (SRC); public companies with assets of at least P50 million and 200 or more holders of at least 100 shares of a class of equity securities each; companies filing financial statements to issue any class of instruments in a public market; holders of secondary licenses issued by the SEC, Bangko Sentral ng Pilipinas, and Insurance Commission; and other corporations the SEC may consider public interest entities in the future.
Under the guidelines, all covered companies must present specific fee-related information in a two-year comparative format as a supplement to their AFS.
The required disclosure covers fees paid or payable to the external auditor/audit firm and network firms for auditing financial statements.
Fees charged to the covered company and its related entities (where it has direct or indirect control) and consolidated in the financial statements must also be presented in a two-year comparative format.
Any fees charged to other related entities directly or indirectly controlled by a covered company for services by the external auditor/audit firm or a network firm are also subject to the new disclosure guidelines.
If applicable, total fees received by the external auditor/audit firm from the covered company that represent, or are likely to represent, over 15 percent of the total fees received by the external auditor for two consecutive years (fee dependency) must be disclosed. The year this situation first arose must also be disclosed.
Covered companies are not required to comply with the guidelines if the information relates to a parent entity or an entity directly or indirectly wholly-owned by another public interest entity that is also preparing group/consolidated financial statements that already include the supplementary schedule.
Failure to comply with the guidelines will result in penalties, after notice and hearing, as prescribed under Revised SRC Rule 68 and the consolidated scale of fines and penalties of the Commission.