THE Securities and Exchange Commission (SEC) has expanded its oversight of major government contractors by requiring them to engage accredited independent auditors under stricter financial reporting rules.
Memorandum Circular (MC) 26, series of 2026, amends the accreditation guidelines for auditing firms and external auditors under Revised Rule 68 of the Securities Regulation Code.
Corporate general contractors must engage Group A independent auditors if they hold a single government contract exceeding P750 million or cumulative contracts worth more than P1 billion.
Those with a single contract valued at P400 million to P750 million, or cumulative contracts of P500 million to P1 billion, must engage Group B auditors.
The rules cover contracts for goods, consulting services and infrastructure projects awarded by the national government, government-owned or -controlled corporations, state universities and colleges, and local government units.
Accredited auditors must remain engaged until the covered projects are completed or delivered. Contractors must also submit a notarized schedule detailing their projects, costs and status, accompanied by an auditor’s report.
SEC Chairman Francis Lim said the tighter standards would improve audit quality, strengthen accountability and protect public funds through independent financial reporting.
The SEC also raised the qualifications for auditing firms seeking accreditation.
Group A applicants must have at least five corporate clients, each with total assets of at least P100 million, double the previous P50-million threshold.
Group B applicants must have at least five clients with assets of at least P50 million each, up from the previous three clients with at least P20 million each.
Group C applicants must have at least five clients with assets of at least P5 million each, compared with three clients previously.
MC 26 also introduced grounds for the outright denial of accreditation applications. These include misrepresentation or concealment of information, failure to maintain auditor independence and the issuance of an unqualified opinion despite the use of an incorrect accounting framework that caused material misstatements.
Applications may also be denied if regulators find at least six material deficiencies in a single set of financial statements. An auditor’s direct preparation of a client’s financial statements will be considered a breach of independence.
Group A and B applicants seeking five-year accreditation must submit audit work showing no material findings. Minor findings must not exceed two per financial statement for Group A applicants and three for Group B applicants.
The circular will apply to annual or interim financial statements for periods ending on or after June 30, 2027. Its other provisions will take effect after publication.
Nazylen Joy Mabanglo