The Securities and Exchange Commission (SEC) found a surge in quality management deficiencies among the nation’s largest accounting firms in its latest multiyear inspection cycle, even as individual corporate audits showed signs of improvement.

The regulator’s 2026 SEC Oversight Assurance Review (SOAR) Public Inspection Report, released this month, detailed findings from investigations conducted between 2022 and 2025. The inspection focused on six of the country’s dominant accounting practices.

These firms collectively audit roughly 87 percent of publicly listed companies and command about 99 percent of the total market capitalization on the Philippine Stock Exchange (PSE).

The report, spearhead by the SEC Office of the General Accountant, evaluated firms on two tiers: institutional system-level quality management and individual engagement performance. Regulators attributed the spike in system-level findings to the industry’s complex transition to Philippine Standard on Quality Management 1. The specific friction points surfaced in ethical requirements, monitoring, governance, and risk assessment protocols.

Accounting firms faced these regulatory hurdles while navigating persistent post-pandemic disruptions, according to the SEC. Remote work frameworks, a drop in face-to-face training sessions, heavier workloads, and industry-wide staffing shortages all compounded project management pressures during the four-year review period.

Conversely, the SEC reported that actual engagement-level performance improved. Auditors benefited from refined internal consultations, stricter engagement reviews, and better assembly of final audit files. Still, the regulator identified recurring vulnerabilities in how auditors handle accounting estimates, audit sampling, and complex group audits.

To mitigate these gaps, the commission is pushing firms to adopt root-cause analysis to permanently wipe out systemic errors. The SEC also urged the sector to integrate automated data analytics, visualization tools, and artificial intelligence into their workflows to improve overall audit depth.

The policy shift comes as the SEC sharpens its focus on corporate governance to attract foreign capital. SEC Chairperson Francis Lim framed the oversight as a broader economic strategy rather than a bureaucratic hurdle. For the Philippines to become Southeast Asia’s premier investment destination, its regulatory framework must align with the highest global standards, Lim said, adding that financial transparency lowers the cost of capital and builds economic resilience.

The report also underscored a major regulatory pivot toward environmental compliance, highlighting the commission’s roadmap for sustainability reporting, which becomes mandatory for certain corporate entities starting this year. The SEC noted that sustainability disclosures are no longer just a tool for compliance, but a necessary measure to enhance market reputation and open doors to purpose-driven investments. (James A. Loyola)