SEC Requires Listed Companies, Other Public Interest Entities to Disclose Fees Paid to External Auditors

​The Securities and Exchange Commission (SEC) has required publicly listed companies and other corporations imbued with public interest to disclose fees paid to their external auditors to enhance transparency and accountability in the reporting of their financial and operational results.

The Commission on December 26, 2024 issued SEC Memorandum Circular No. 18, Series of 2024, which provided for the Guidelines on the Disclosure of Fee[1]related Information of External Auditors, in line with requirements under the Code of Ethics for Professional Accountants. The guidelines shall apply to the annual financial statements (AFS) of covered companies for the period ending December 31, 2024, and thereafter.

Companies covered by the guidelines include public interest entities such as listed companies; issuers which have sold a class of its securities pursuant to a registration under Section 12 of Republic Act No. 8799, or the Securities Regulation Code (SRC); and public companies or firms with assets of at least P50 million and has 200 or more holders of at least 100 shares of a class of equity securities each.

The guidelines also cover companies in the process of filing their financial statements for the issuance of any class of instruments in a public market; holders of secondary licenses issued by the SEC, Bangko Sentral ng Pilipinas, and Insurance Commission; and such other corporations that the SEC may consider in the future as public interest entities.

Under the guidelines, all covered companies are required to present in two[1]year comparative format specific fee-related information as a supplement to their AFS.

The required disclosure covers fees paid or payable to, or as agreed with, the external auditor/audit firm and network firms for the audit of financial statements on which the external auditor expresses an opinion.

Fees charged to the covered company and its related entities, where it has direct or indirect control, and are consolidated in the financial statements on which the external auditor/audit firm will express an opinion, shall also be presented in a two-year comparative format.

Any fees charged to any other related entities directly or indirectly controlled by a covered company for the services by the external auditor/audit firm or a network firm are also subject to the new disclosure guidelines.

If applicable, total fees received by the external auditor/audit firm from the covered company that represent, or are likely to represent, over 15% of the total fees received by the external auditor for two consecutive years (fee dependency), and the year that this situation first arose are also required to be disclosed in the two-year comparative format.

Covered companies are not required to comply with the guidelines if the information relates to a parent entity, or to an entity that is directly or indirectly wholly-owned by another public interest entity, that is also preparing group/consolidated financial statements which already includes the supplementary schedule.

Failure to comply with the guidelines will result in the imposition of penalties, after notice and hearing, as prescribed under the Revised SRC Rule 68 and the consolidated scale of fines and penalties of the Commission.