DECEMBER is often called the most wonderful time of the year. A season of giving, Christmas caroling and overflowing reunions. For accountants and auditors, this also signals the arrival of the busy tax and reporting season. While people gather and celebrate this festive season, professionals in the accounting field gear up to ensure compliance and integrity in corporate reporting.
The Securities and Exchange Commission (SEC) plays an important role in ensuring the integrity of financial reporting and corporate compliance in the Philippines. This article explores key SEC inspection findings and provides timely reminders to help organizations navigate their regulatory responsibilities, ensuring that financial integrity shines as brightly as the holiday lights.
The SEC’s inspections are aimed at maintaining transparency, accountability and reliability in corporate financial reporting. Findings from these inspections often reveal recurring issues across organizations, including challenges in financial reporting, audit quality, corporate governance and regulatory compliance.
Issues in financial reporting frequently stem from noncompliance with Philippine Financial Reporting Standards (PFRS), including the misclassification of accounts, inconsistent application of accounting policies, and errors in recognizing, measuring and presenting financial statement items.
Additionally, disclosures are often inaccurate, specifically in areas such as related-party transactions, contingent liabilities and going concern assumptions. For instance, International Financial Reporting Standard 18 (effective from 2024, replacing International Accounting Standards [IAS] 1), Presentation of Financial Statements, mandates entities to give clear and comprehensive disclosures to ensure that users of financial statements can make accurate decisions.
Audit deficiencies are another area of concern. These include failure to comply with Philippine Standards on Auditing (PSA), often due to insufficient evidence, inadequate documentation or the failure to address key risks. Issues related to auditor independence also arise, with some auditors providing non-audit services that compromise their objectivity.
For example, PSA 200, Overall Objectives of the Independent Auditor, emphasizes the need for auditors to maintain independence and obtain sufficient audit evidence to support their opinions. Furthermore, improper audit opinions are sometimes issued despite significant misstatements in financial statements, which violates the guidelines of PSA 700, Forming an Opinion and Reporting on Financial Statements.
Corporate governance and internal controls sometimes come under scrutiny during SEC inspections. Weak internal control systems and noncompliance with SEC Memorandum Circulars regarding board and management responsibilities are common issues.
Related-party transactions often lack proper disclosure and fail to meet board or stockholder approval requirements, further undermining governance standards. According to IAS 24, Related Party Disclosures, entities must disclose the nature and extent of related-party relationships and transactions to prevent conflicts of interest and promote transparency.
The SEC religiously issues reminders to guide companies and auditors in maintaining high standards of compliance and reporting. These reminders emphasize the importance of timely and accurate submissions of audited financial statements, adherence to the latest PFRS updates and comprehensive financial statement disclosures.
Companies are encouraged to prioritize risk-based approaches, adequate documentation and the consistent application of materiality and professional skepticism. Additionally, SEC Memorandum Circular 15, Series of 2019, underscores the need for entities to strengthen corporate governance frameworks and comply with disclosure requirements.
Regulatory compliance obligations extend beyond financial reporting to include timely submission of the General Information Sheet (GIS) and maintenance of internal records that demonstrate adherence to SEC rules. Governance practices, particularly around fraud prevention and related-party transactions, require continual strengthening. Transparency and proper approval processes for material transactions are essential to maintaining trust and accountability.
The SEC’s findings and reminders serve as valuable resources for companies striving to enhance their compliance frameworks. Addressing deficiencies in internal controls, disclosures and audit quality can significantly reduce regulatory risks and foster investor confidence.
By staying updated on the latest standards and leveraging SEC guidance, companies can uphold the principles of good governance and financial integrity. Regular training on accounting standards, governance practices and regulatory updates is essential for organizations and professionals. Compliance is not merely about avoiding penalties; it is a cornerstone of sustainable business growth and trustworthiness in the market.
Ken John B. Asadon, CPA, CTT, MBA, CrFA is a junior partner of Paguio, Dumayas & Associates, CPAs (PrimeGlobal Philippines), an institutional member of the Association of CPAs in Public Practice (ACPAPP). The opinion of the writer does not reflect in any way those of these institutions.
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