SEC Accreditation of CPAs: Supreme Court Limits SEC Power Over Accountancy Practice

The Supreme Court has ruled that the Securities and Exchange Commission (SEC) overstepped its authority when it required Certified Public Accountants (CPAs) to secure SEC accreditation before they could act as external auditors of corporations issuing registered securities. In Securities and Exchange Commission v. 1Accountants Party-List, Inc. (G.R. No. 246027, June 21, 2022), the Court En Banc affirmed that the power to regulate the practice of accountancy belongs exclusively to the Professional Regulatory Board of Accountancy under Republic Act No. 9298, the Philippine Accountancy Act of 2004. The ruling clarifies the limits of the SEC's regulatory jurisdiction and protects the professional independence of CPAs.

Background of the Case

The case began when 1Accountants Party-List, Inc., together with several CPAs, filed a petition for declaratory relief before the Regional Trial Court of Davao City. They challenged two SEC issuances: Paragraph 3, Rule 68 of the Amended Implementing Rules and Regulations of the Securities Regulation Code (Republic Act No. 8799), and SEC. Since 2002, these issuances required CPAs who serve as external auditors of SEC-regulated companies to obtain accreditation from the SEC, subject to filing fees and penalties for non-compliance.

The petitioners argued that the SEC had no authority to impose these requirements. They pointed to Section 31 of the Philippine Accountancy Act, which states that CPAs engaged in public accountancy shall register with the Commission and the Board, and that the Board—subject to approval of the Professional Regulation Commission—shall promulgate rules for registration requirements. The SEC countered that its authority came from its general powers under the Securities Regulation Code and the Corporation Code.

The Core Legal Issue

The principal issue before the Supreme Court was whether the SEC had the legal authority to require the accreditation of CPAs as external auditors. The SEC invoked several provisions, including of the Securities Regulation Code, which grants it jurisdiction over corporations and the power to regulate persons to ensure compliance, and of the Corporation Code, which requires corporations to submit annual reports certified by an independent CPA.

The Court rejected these arguments. It observed that the cited provisions all pertain to juridical entities—corporations, partnerships, and associations—and not to individual CPAs. Applying the principle that when the language of a statute is clear, no interpretation contrary to its words should be made, the Court held that the SEC's powers over corporations do not extend to regulating the professional practice of individual accountants.

Accreditation as an Additional Licensing Burden

The Court drew an analogy from an earlier ruling involving customs brokers, where accreditation imposed by the Bureau of Customs was struck down as an additional licensing requirement that curtailed the right to practice one's profession. Similarly, the SEC's accreditation requirement burdened CPAs with an extra layer of regulation on top of their CPA license, which already authorizes them to practice public accountancy. The scale of fines imposed for non-compliance left CPAs with no practical choice but to submit to the SEC's accreditation process.

The Board of Accountancy Holds Exclusive Authority

The Court emphasized that Republic Act No. 9298 vests in the Professional Regulatory Board of Accountancy the power to supervise the registration, licensure, and practice of accountancy in the Philippines. The Board is also tasked with conducting oversight of audit quality and promulgating accounting and auditing standards. By imposing its own accreditation scheme, the SEC effectively duplicated and encroached upon the Board's exclusive domain.

The Court also rejected the SEC's reliance on a Memorandum of Agreement it had executed with the Bangko Sentral ng Pilipinas, the Insurance Commission, and the Board of Accountancy. Under the principle that a delegated power cannot be further delegated, the Board could not transfer to the SEC the regulatory authority that Congress had reposed in it. Moreover, a private agreement cannot validate an act that contravenes a provision of law.

Practical Takeaways

• The SEC cannot require CPAs to secure SEC accreditation before performing statutory audits of SEC-regulated companies. A CPA license issued under the Philippine Accountancy Act is sufficient authorization to practice public accountancy.
• The Professional Regulatory Board of Accountancy has exclusive authority to regulate the practice of accountancy, including registration, licensure, and the promulgation of rules on accreditation and penalties.
• Regulatory agencies may only exercise powers expressly granted by law. General grants of authority over corporations do not extend to regulating individual professionals unless Congress clearly provides otherwise.
• Accreditation schemes that operate as additional licensing requirements and curtail the right to practice a profession will be struck down as invalid.
• Corporations that engage external auditors should ensure their auditors hold valid CPA licenses and comply with Board of Accountancy requirements, but need not require SEC accreditation for the audit itself.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.