SEC tightens disclosure rules on auditor fees
Companies are now required to disclose how much they pay their external auditors to enhance transparency and accountability in their reports.
The Securities and Exchange Commission (SEC) issued last Dec. 26 Memorandum Circular No. 18, Series of 2024, or the Guidelines on the Disclosure of Fee-related Information of External Auditors.
According to the SEC, the guidelines are meant to “enhance transparency relevant to external auditors’ independence.”
All companies that the circular covers will have to disclose fees paid or payable to auditors for auditing and expressing their opinions on financial statements within a two-year period.
Additional requirements
This document will serve as a supplementary schedule to the company’s filed audited financial statement, the SEC said.
Additionally, a company will also need to disclose if their payments to the external auditor are equivalent to at least 15 percent of the total fees that the latter receives.
Paying auditors too much may compromise their opinion on companies’ financial statements.
The auditors’ opinion on financial statements is used as a guide by investors to determine if there are any red flags in public disclosures, and also as proof that the financial documents capture the true financial situation of covered companies.
The new guidelines will be applied to annual financial statements of covered companies—publicly listed firms, issuers that have sold a class of securities pursuant to a registration under the Securities Regulation Code (SRC), and companies with assets of at least P50 million, among others—for the period ending Dec. 31, 2024.
Secondary licensees
Under the new rules, companies in the process of filing their financial statements in preparation for the issuance of any class of instruments to the public are also covered.
Holders of secondary licenses issued by the SEC, Bangko Sentral ng Pilipinas and Insurance Commission are likewise required to submit the document.
“The covered company can provide additional information on details on nonaudit services if it will enhance user’s understanding of the services,” the SEC said in its circular.
The commission noted, however, that covered companies would not need to comply with the guidelines if the additional information pertains to parent companies.
Those that do not comply with the guidelines will have to pay penalties as prescribed by the SEC under the Revised SRC Rule 68, the regulator said.
