Regulatory Alert

The Securities and Exchange Commission (SEC) issued Memorandum Circular no. 18 series of 2024, providing guidelines for applicable public interest entities which aim to enhance transparency regarding the independence of external auditors by aligning fee disclosure requirements with the Code of Ethics for Professional Accountants in the Philippines.

Companies covered

Public interest entities, including:

• Listed companies or issuers with securities listed for trading.
• Issuers with securities sold under registration.
• Public companies with assets of at least ₱50 million and 200 or more shareholders.
• Companies filing financial statements for public market issuance.
• Holders of secondary licenses from SEC, BSP, and IC.
• Other corporations that the Commission may consider in the future as imbued with public interest.

Disclosure requirements

Covered companies must disclose:

1. Audit Fees: Fees paid or payable to external auditors for auditing financial statements.
2. Non-Audit Fees: Fees for other services provided by the external auditor or network firms.
3. Related Entities Fees: Fees charged to related entities controlled by the covered company.
4. Fee Dependency: If fees from a single client exceed 15% of the auditor's total fees for two consecutive years.

Exceptions

• A parent entity that also prepares group/consolidated financial statements provided that the supplementary schedule is attached to the group/consolidated financial statements on which the same external auditor/audit firm or its network firm expresses an opinion on; or
• An entity that is (directly or indirectly) wholly-owned by another PIE provided that the information is consolidated to and the supplementary schedule is attached to the group/consolidated financial statements on which the same external auditor/audit firm or its network firm expresses an opinion on.

Under the second item above, the exception does not cover those PIE subsidiaries that are required to file financial statements under Part II of SRC Rule 68 or are in the process of filing their financial statements for the purpose of issuing any class of instruments in a public market or any PIE-controlled companies with non-controlling interest or minority shareholders.

Effectivity

The requirements under the Guidelines shall become effective for AFS ending December 31, 2024, and thereafter for applicable Companies. The two (2)-year comparative presentation shall be applicable in the initial year of implementation.

Visit the SEC website for more information. https://www.sec.gov.ph/mc-2024/sec-mc-no-18-series-of-2024-guidelines-on-the-disclosure-of-fee-related-information-of-external-auditors