SEC secures DOF approval to exempt micro enterprises from submitting audited FS, releases draft rules

The Securities and Exchange Commission (SEC) has secured approval from the Department of Finance (DOF) to simplify the reportorial requirements of micro enterprises by allowing them to submit certified, instead of audited, financial statements.

Accordingly, the Commission on December 9 issued for public comment the proposed Amendments to the Application and Definition of Terms under the Revised SRC Rule 68 in Relation to the Adjustment of the Audit Threshold.

Under the proposal, the Commission seeks to amend Part I, Section 1(A) of the Rule 68 of Republic Act No. 8799, or the Securities and Regulation Code (SRC), to exempt both stock and nonstock corporations with total assets or liabilities not exceeding P3 million from submitting audited financial statements.

At present, only stock and nonstock corporations with total assets or liabilities less than P600,000 are exempted from mandatory audit. The SEC targets to apply the higher P3 million threshold to financial statements covering fiscal years ending on or after December 31, 2025.

In lieu of audited financial statements, a corporation within the audit threshold will be allowed to submit financial statements certified under oath by both the president and treasurer or chief financial officer, as duly authorized by the board of directors.

The certifying officers will assume full responsibility for the accuracy and completeness of the submitted financial statements. Any incomplete, inaccurate, false or misleading statements will be subject to penalties under the SRC and Republic Act No. 11232, or the Revised Corporation Code of the Philippines (RCC), without prejudice to the Commission’s authority to require audited financial statements when necessary for investor protection, regulatory enforcement, or public interest.

The proposed higher threshold will not apply to entities classified under Groups A, B and C, as enumerated under Part I, Section 3 (B) of the Revised SRC Rule 68, and corporations vested with public interest due to the nature of their regulatory obligations and the degree of public interest they represent.

Group A covers corporations such as public companies or those with at least P50 million worth of assets, and with 200 or more holders, each holding at least 100 shares; issuers of securities listed in an exchange; and stock and securities exchanges, and other self-regulatory organizations, among others.

Group B includes Issuers of registered timeshares, proprietary and non proprietary membership certificates, and corporations applying for the registration of such securities; investment houses; brokers and dealers; government securities eligible dealers; and universal banks registered as underwriters of securities.

Group C is composed of financing companies with assets of over P10 million in the preceding year; lending firms with assets of over P5 million the year before; transfer agents; and non-stock, non-profit corporations, including foundations, which solicit or receive annual donations or contributions and/or with fund balance of more than P25 million, among others.

Section 74 of the RCC authorizes the SEC to revise the prescribed audit threshold, subject to the approval of the DOF.

In October, the SEC recommended to the DOF to exempt more companies from the mandatory submission of audited financial statements to relieve financial pressures on MSMEs, reduce incidents of rubber-stamp audits, and simplify compliance obligations.

In a letter dated November 18, the DOF approved the adjustment of the audit threshold, confirming that such a policy aligns with the government’s effort to stimulate economic growth, while ensuring strong compliance monitoring and accountability of certifying officers.

The public may submit their comments on the proposed policy to [email protected] until December 24.