SEC plans to add more guidelines for auditors of listed companies

THE Securities and Exchange Commission (SEC) is asking interested parties to comment on its proposals for changes in the SEC Oversight Assurance Review (SOAR) inspection program, which was revised to align with the International Forum of Independent Audit Regulators’ guide on audit regulation.

“SOAR Inspections are intended to enhance the quality of audits of the financial statements of publicly-listed companies,” the SEC said.

The program is an initiative of the corporate regulator to do on-site reviews of accredited audit firms auditing listed companies in the Philippine Stock Exchange and the Philippine Dealing & Exchange Corp.

“For instances of extraordinary events which necessitate the flexibility on the manner of inspection… the Inspection Team, upon coordination with the firm, may perform remote or virtual inspection for a period of at least three weeks,” the commission said.

The commission plans to choose more than one of the company’s issuer audits for review.

“Our selection of audits for review does not constitute a representative sample of the firm’s total population of issuer audits,” the SEC said.

The SEC plans to add deputy inspection team leaders to the SOAR’s inspection team. An evaluation report of the firm’s remediation based on the team’s inspection will need to be approved by the commission en banc before it is given to the inspected firm.

Inspections will be done at the engagement-level and at the firm-level.

Company policies and procedures should align with the system on quality control under the redrafted Philippine Standards on Quality Control (PSQC) 1 or any of its amendments, Quality Control for Firms that Perform Audits and Reviews of Financial Statements or its amendments, and the firm’s documentation should be deemed sufficient.

Additionally, the commission will look to the redrafted Philippine Standards on Auditing 220 or its amendments.

The commission will notify the firm with details and purpose of the inspection at least 60 calendar days before it begins. Meanwhile, the firm of the selected audit engagement will be given at least 15 days before the inspection.

The audit team is responsible for preparing the following documents to the inspection team on the first day of inspection: completed Engagement Information Form, background about the firm, proof of archiving and certification from the managing partner and engagement partner that the engagement work papers provided to the inspection team are the original final version.

“The frequency of inspection shall be based on the relative size of the audited publicly-listed companies in terms of market capitalization,” the SEC said.

For firms with a client portfolio of 10% or more of the total market capitalization of publicly listed companies, inspections would be conducted once every two years. Meanwhile, those with less than 10% will be inspected once every three years.

However, the commission may order more inspections on firms should it deem necessary.

Findings of the inspection team may be classified as either opportunities for improvements or for enhancements or as significant deficiencies.

“Firms may request for another discussion with the Inspection Team, after the status meeting, but before the issuance of the LOF (Letter of Findings), to further clarify matters that were raised during the status meeting,” the commission said. 

The LOF will be serving as the basis in preparing the SOAR inspection report. Firms being expected may request to extend until 15 days the time given to reply to the LOF or the SOAR inspection report.

The proposed amendments for the SOAR inspection program also adds instructions for the remediation process, evaluation of remedial actions, as well as guidelines in case there are contested findings.

Actions may be published on the SEC website within 30 calendar days after the evaluation report of the firm’s remediation.

“The commission shall issue and publish an Annual Inspection Report which aims to provide the public with insights on observations noted during SOAR inspections,” the SEC said.

Revisions are proposed to further protect public interest and investors, and those who use a company’s audited financial statements.

“The revised rules on the frequency of inspection shall apply to firms that will be inspected starting year 2022,” the commission proposed. — Keren Concepcion G. Valmonte