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RA 8799 SECURITIES REGULATION CODE

RULE 68 (Revised Securities Regulations Code)

1. What is the Securities Regulation Code or RA 8799?

- The fundamental law governing securities offerings in The Philippines is Republic Act
Number 8799, the Securities Regulation Code of 2000, under the administration of the
Securities and Exchange Commission.
- The Securities and regulation Code or RA 8799 is a law that regulates the issuance and
trading of equity securities and debt securities in the country. All securities are required to be
registered before they are sold to the public.

2. What are the purposes of SRC? Protect investing public?

- The principal purpose of laws and regulations governing securities in the Philippines is to
protect the public against the nefarious practices of unscrupulous brokers and salesmen in
selling securities.
- Securities Regulation Code, Sec 2. Declaration of State Policy. The State shall:
a. Establish a socially-conscious, free market that regulates itself
b. Encourage the widest participation of ownership in enterprises
c. Enhance the democratization of wealth
d. Promote the development of capital market
e. Protect investors
f. Ensure fair and full disclosure about securities and
g. Minimize if not totally eliminate insider trading and other fraudulent and manipulative
devices and practices which create distortions in the free market.

A. SECURITIES

3. Define securities.
- Securities - shares, participation or interests in a corporation or in a commercial enterprise
or profit-making venture and evidenced by a certificate, contract, instruments, whether
written or electronic in character.

A.1. KINDS OF SECURITIES

4. Kinds of securities
a) Shares of stock, bonds, government Securities, commercial papers, debentures, notes,
evidences of indebtedness, asset-backed securities;
b) Investment contracts, certificates of interest or participation in a profit sharing agreement,
certificates of deposit for a future subscription;
c) Fractional undivided interests in oil, gas or other mineral rights;
d) Derivatives like option and warrants;
- Derivatives - are those whose value depends on the interest in or performance of an
underlying security but which does not require any investment of principal in the
underlying security.
- Options - are contracts that give the buyer the right but not the obligation to buy or sell
an underlying security at a predetermined price (exercise or strike price) on or before a
predetermined date (expiry date) which can only be extended in accordance with rules of
the exchange.
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- Warrants - are rights to subscribe or purchase new shares or existing shares in a

company on or before a predetermined date (expiry date) and generally have a longer
exercise period than options.
e) Certificates of assignments, certificates of participation, trust certificates, voting trust
certificates or similar instruments;
f) Proprietary or nonproprietary membership certificates in corporations; and
- Proprietary - an evidence of interest or participation of or privileged in a corporation
which not only entitles the holder to enjoy the use of a specific property but also to
dividend or earning of a company. Upon liquidation, a holder shall have proportionate
ownership over its assets. [IRR: require that the outstanding shares of corp. That will
conduct an IPO and those that will apply for listing on an exchange by which an
introduction must be registered.]
- Non-proprietary - ian evidence of interest or privilege over a certain property of a
corporation in view of the amount paid by the holder for the said share or certificate.
While the holder is entitled to the use of the property, he has no right over the dividend
or of the assets of the company upon liquidation.
g) Other instruments as may in the future be determined by the Commission.
h) Debt securities/instruments include any evidence of indebtedness such as bonds, notes,
debentures, commercial papers, treasury bills, treasury bonds and other similar instruments
as may be determined by the Commission.
i) Equity securities include shares of stock in a corporation.
 Investment Contract - contracts, transactions or schemes whereby a person invests his money
in a common enterprise and is led to expect profits from the efforts of others. It is tested via
Howey Test
 Howey Test - elements of an investment contract include 1) there must me a contract,
investment or scheme, 2) an investment of money, 3) in a common enterprise, 4) expectation
of profit, 5) to be derived from the efforts of others.

A.2. PROCEDURE FOR REGISTRATION OF SECURITIES

5. Outline the procedure for registration of securities. Make sure that you will provide the
definition of the technical terms. Cross reference the technical terms from the Definition
section of SRC.

a) Application process
- Issuers must file a Registration Statement in the main office of the SEC, with a sworn
registration statement with the respect to such securities, containing the necessary
information and supporting documents as well as prospectus required or permitted to be
delivered.
a. Registration statement - the application for the registration of securities required to
be filed with the Commission.
b. Prospectus - the document made by or on behalf of an issuer, underwriter or dealer
to sell or offer securities for sale to the public through a registration statement filed
with the Commission.
- The SEC may conditionally approve the Registration Statement under such terms as it
may deem necessary.
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- The Commission may specify the terms and conditions under which any written
communication, including any summary prospectus, shall be deemed not to constitute an
offer for sale under this Section.
- A record of the Registration of Securities shall be kept in Register Securities and it must
be available to the public for inspection.

b) What are included in the registration statement?

- The Commission may require the registration statement to contain such information or
documents as it may, by rule, prescribe. It may dispense with any such requirements, or
may require additional information or documents, including written information from an
expert, depending on the necessity thereof or their applicability to the class of securities
sought to be registered.

c) What other information are required for the registration of securities?

- Information must include the effect of the securities issue on ownership, on the mix of
ownership, especially foreign and local ownership.
- Registration Statement shall be signed by the issuer’s executive officer, its principal
accounting officer, its principal operating officer and other persons with similar
functions accompanied by a duly verified resolution of the board of directors of the issuer
of the corporation.

d) What is required if an expert has certified the registration statement?

- The written consent of the expert named as having certified any part of the registration
statement or any document used in connection therewith shall also be filed.
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e) What is required if the shares are sold by the shareholders?

- Where the registration statement shares to be sold by selling shareholders, a written
certification by such selling shareholders as to the accuracy of any part of the
registration statement contributed to by such selling shareholders shall be filed.

f) How much the fee to be imposed to the issuer?

- Upon filing, the issuer shall pay to the SEC a fee of not more than one-tenth (1/10) of 1%
of the maximum aggregate price at which such securities are proposed to be offered.

g) Notice and publication (when to be published, frequency of publication, details to be

included)
- Notice of the filing of the RS shall be immediately published by the issuer, at his own
expense, in 2 newspapers of general circulation in the PH, once a week for 2 consecutive
weeks, reciting that a RS for the sale of such securities has been filed and the info about
the RS are open for public inspection at reasonable hours of business, and a copy,
photostatic or otherwise shall be furnished to interested parties at such reasonable
charge as the Commission may prescribe.
 It should be widely disseminated given to as many people as possible such that
sufficient copies should be made available to everyone who may desire to have one;
this is the pre-selling. A notice stating that interested persons are entitled to a copy
of the prospectus. The issuer may circulate a preliminary prospectus to potential
investors even PRIOR to the effectiveness of the RS.
 The preliminary prospectus has to contain a statement to the effect that that the RS
has been filed with the SEC but has not yet been declared effective and therefore, no
offer to buy the securities can be accepted and no part of the purchase price can be
received until the RS has become effective and any such offer may be withdrawn or
revoked without obligation or commitment of any kind at any time prior to notice of
its acceptance given after the effective date.

h) The power that the SEC can exercise regarding offer for sale.
- The SEC may compel the production of all the books and papers of such issuer, and may
administer oaths to and examine the officers of such the issuer or any other person
connected.
 The use of the prospectus and the right to sell and offer for sale may be
SUSPENDED if there is a material change in any of the information to be included
or if the accompanying financial statements are more than 225 days old.

i) Within what period shall the ruling be declared?

- Within 45 days after the date of filing the RS, or by such later date to which the issuer has
consented, the SEC shall declare the RS effective or rejected unless the applicant is
allowed to amend the RS as provided in Section 14 hereof.
 If a registration statement is on its face incomplete or inaccurate in any material
respect, the Commission shall issue an order directing the amendment of the
registration statement. Upon compliance with such order, the amended registration
statement shall become effective in accordance with the procedure mentioned in
Subsection 12.6 hereof.
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 Preliminary or Final in nature it must be DATED and must be WIDELY

disseminated. It must also contain the information required by the SEC (address of
the principal office, email address of the issuer, the stock exchange where the
securities may be listed, the issuer company, contract details of the issuer’s
representative, and it SHOULD contain the EFFECT of the securities issue on
ownership, on the mix of ownership, especially foreign and local ownership. The
information should be captioned or should have appropriate headings and should
reasonably indicate the subject matter in CLEAR and UNDERSTANDABLE
language.)

j) When is the effectivity of the registration statement?

- Commission shall enter an order declaring the RS to be effective if it finds that the RS
with all the docs necessary are complete and requirements have been complied with.
- Commission may impose such terms and conditions as may be necessary or appropriate
for the protection of the investors.
- Upon effectivity, the issuer shall state in every prospectus that all Registration
Requirements have been met and that all info is true and correct. Any untrue statement or
omission of material fact shall constitute a fraud.
 In which case, if a third person suffers damage because of such untrue statements of
material facts or omission, that third person may sue and recover damages from
the issuer, any director at the time of the filing of the RS, anyone named in the
statement, every auditor or auditing firm named as having certified any financial
statements which are used in connection with the RS or prospectus, the underwriter
or any person who has taken part or certified the statement ro matter used in
connection with the RS. Those are the persons who may be held liable in case of
damage.
 The sale of securities subject of the RS shall commence within 10 business days from
the date of effectivity of the RS and shall continue until the end of the offering period
or until the sale is terminated by the issuer. If the sale was not commenced within 10
business days then the RS shall be cancelled and all fees that the issuer has paid
will now be forfeited. After the termination of the offering the issuer will now file a
notice of completion or termination with the SEC within 3 business days from the
date of completion and it should state the number of securities sold. However, in the
case of shelf registration (delayed and continuous offering and sale of securities)
they may be offered for a period not to exceed three (#) years from the effectivity
date of the RS.

6. What are the grounds for rejection and revocation? Provide an outline.
- Rejection and Revocation of Registration of Securities
- The Commission may reject a registration statement and refuse registration of the security
there-under, or revoke the affectivity of a registration statement and the registration of the
security there-under after the due notice and hearing, they found out that:
a. The issuer has been judicially declared insolvent; has violated any of the provision of
this Code; has been or is engaged or is about to engage in fraudulent transactions; has
made any false or misleading representation of material facts in any prospectus
concerning the issuer or its securities; and has failed to comply with any requirements
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that the Commission may impose as a condition for registration of the security for which
the registration statement has been filed; or
b. The registration statement is on its face incomplete or inaccurate in any material
respect or includes any untrue statements of a material fact required to be stated therein
or necessary to make the statement therein not misleading; or
c. The issuer, any officer, director or controlling person performing similar functions, or
any underwriter has been convicted, by a competent judicial or administrative body,
upon plea of guilty, or otherwise, of an offense involving moral turpitude and /or fraud
or is enjoined or restrained by the Commission or other competent or administrative
body for violations of securities, commodities, and other related laws.
- For the purposes of this subsection, the term "competent judicial or administrative body"
shall include a foreign court of competent jurisdiction as provided for under Rules of Court.

A.3. PROHIBITION OF FRAUD, MANIPULATION AND INSIDER TRADING

7. How is manipulation of security prices committed?

- Section 24. Manipulation of Security Prices; Devices and Practices
It shall be unlawful for any person acting for himself or through a dealer or broker,
directly or indirectly:
a. To create a false or misleading appearance of active trading in any listed security traded
in an exchange of any other trading market.
 By effecting any transaction in such security which involves no change in the
beneficial ownership thereof;
 By entering an order or orders for the purchase or sale of such security with the
knowledge that a simultaneous order or orders of substantially the same size, time
and price, for the sale or purchase of any such security, has or will be entered by or
for the same or different parties; or
 By performing a similar act where there is no change in beneficial ownership.
b. To affect, alone or with others, a securities or transactions in securities that:
 Raises their price to induce the purchase of a security, whether of the same or a
different class of the same issuer or of controlling, controlled, or commonly
controlled company by others; or
 Creates active trading to induce such a purchase or sale through manipulative
devices such as marking the close, painting the tape, squeezing the float, hype and
dump, boiler room operations and such other similar devices.
c. To circulate or disseminate information that the price of any security listed in an
Exchange will or is likely to rise or fall because of manipulative market operations of any
one or more persons conducted for the purpose of raising or depressing the price of the
security for the purpose of inducing the purpose of sale of such security.
d. To make a false or misleading statement with respect to any material fact, which he knew
or had reasonable ground to believe was so false or misleading, for the purpose of
inducing the purchase or sale of any security listed or traded in an Exchange.
e. To effect, either alone or others, any series of transactions for the purchase and/or sale
of any security traded in an Exchange for the purpose of pegging, fixing or stabilizing the
price of such security; unless otherwise allowed by this Code or by rules of the
Commission.

8. Enumerate and define the manipulative and deceptive devices.

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a. Marking the close - the practice of buying a security at the very end of the trading day at a
significantly higher price than the current price of the security. The purpose of the practice of
marking the close is to raise the closing price of the security, making it appear to be higher-
valued than it actually is.
b. Painting the tape - engaging in a series of transactions in securities that are reported
publicly to give the impression of activity or price movement in a security.
c. Squeezing the float - taking advantage of a shortage of securities in the market by
controlling the demand side and exploring market congestion during such shortages in a way
as to create artificial prices.
d. Hype and Dump - buying of increasingly higher prices and selling in the market at the
higher prices and vice versa.
e. Boiler room operations - is a scheme in which salespeople apply high-pressure sales tactics
to persuade investors to purchase securities, including speculative and fraudulent securities.
Most boiler room salespersons contact potential investors through cold calls or calls
randomly. Some notable boiler room tactics include making claims that cannot be easily
verified by the investor, demanding immediate payment, or issuing threats for
noncompliance.
f. Wash Sale - as one that occurs when an individual sells or trades a security at a loss, and
within 30 days before or after this sale, buys a “substantially identical” stock or security, or
acquires a contract or option to do so.
g. Improper Matched Order - both the buy and sell orders are entered at the same time with the
same price and quantity by different parties.
h. Daisy Chain - series of purchases and sales of the same issue at successively higher or
lower prices by the same group of people with the purpose of manipulating prices and
drawing unsuspecting buyers/investors into the market leaving them defrauded of their money
or securities.
i. Circulating unverified rumor - based market information using the media in order to move
the price of a security in a direction that is favorable to a position held or a transaction. To
make a misleading statement to induce the purchase or sell.

9. What is option trading?

- Option trading is basically the trading of options and is typically done with securities on the
stock or bond market. Options may be call options or put options.
- This is regulated under Section 25, wherein; No member of an Exchange shall, directly or
indirectly endorse or guarantee the performance of any put, call, straddle, option or privilege
in relation to any security registered on a securities exchange. The terms "put", "call",
"straddle", "option", or "privilege" shall not include any registered warrant, right or
convertible security.
 Options - contracts that give the buyer the right but not the obligation to buy or sell an
underlying security at a predetermined price which is called the exercise or strike price
on or before a predetermined date which is called the expiry date which can only be
extended in accordance with the rules of the exchange.
 Put - an option which in a consideration of premium paid gives the purchaser the right to
make the seller take from him a given number of shares of a named stock between a given
time and at stipulated price which is usually below the prevailing market price of the
stock at the time the put is purchased.
 Call - an option which in a consideration of premium paid entitles the buyer to compel
the seller to deliver to him a certain number of shares within a given time at a stipulated
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price which is usually higher than the prevailing market price at the time the call is
bought.
 Straddle - is the double privilege of a put and a call and secures to the holder the right to
demand of the seller at a certain price within a certain time a certain number of shares of
a specified stock or to require him to take at a price at the same time the same shares of
stock.

10. What are fraudulent transactions?

- Section 26. Fraudulent Transactions
It shall be unlawful for any person, directly or indirectly, in connection with the purchase or
sale of any securities to:
 Employ any device, scheme, or artifice to defraud;
 Obtain money or property by means of any untrue statement of a material fact of any
omission to state a material fact necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading; or
 Engage in any act, transaction, practice or course of business which operates or would
operate as a fraud or deceit upon any person.

11. What is insider’s trading?

- Insider trading is the practice of purchasing or selling a publicly-traded company’s securities
while in possession of material information that is not yet public information.
 Material information - any and all information that may result in a substantial impact on
the decision of an investor regarding whether to buy or sell the security.
 Non-public information - information is not legally out in the public domain and that only
a handful of people directly related to the information possess.

12. Define who is an insider.

- An insider is a person within a group or organization, especially someone privy to
information unavailable to others.
- Insider means:
a. The issuer
b. Director/officer/person controlling the issuer
c. A person whose relationship or former relationship to the issuer gives or gave him access
to nonpublic info about the issuer and he security.
d. Gov’t employee/director/officer of an exchange, clearing agency and/or self-regulating
organization who has access to material nonpublic info about the issuer and the Security.
e. A person who learns such info by a communication from any of the foregoing insiders.

13. Define an information considered as “material non-public”.

- Information is "material nonpublic" if:
a. It has not been generally disclosed to the public and would likely affect the market price
of the security after being disseminated to the public and the lapse of a reasonable time
for the market to absorb the information; or
b. Would be considered by a reasonable person important under the circumstances in
determining his course of action whether to buy, sell or hold a security.
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14. Enumerate other unlawful activities

- Sale of a security which the seller does not own or any

sale which is consummated by the delivery of a security
borrowed by, or for the account of the seller with the
commitment of the seller or securities borrower to
return or deliver said securities or their equivalent to
the lender on a determined or determinable future date;
1. Short sale or
- Where the seller purchase the securities later either to
offset what has been earlier sold or to return the shares
purchased to the lender.
 The only time short sale are allowed is if there are
done in accordance with rules and regulations of the
SEC.
- Orders placed with a broker to buy a specific stock once
a stock reaches a certain price. It is designed to limit an
2. Stop- loss orders investor’s loss on security position and they are
prohibited unless done in accordance with the rules of
the SEC.
- - A Broker Dealer, Associated Person or salesman of
a Broker Dealer, a paying agent, transfer agent, trustee,
or any other person acting in a similar fiduciary
capacity, who has received information as to the
3. Use of Information Obtained ownership of securities, shall not make use of such
in Fiduciary Capacity information for the purpose of soliciting or making
purchases, sales or exchanges of securities or, except as
provided in SRC Rule 30.2.9, provide such information
to any person who does not need such information to
fulfill his responsibilities under the Code.
4. Prohibited Representation, - It shall be unlawful for any:
Dealings, and Solicitations  Person to represent that he has been registered as a
securities intermediary with the Commission unless
such person is registered under the Code. Provided,
registration under the Corporation Code shall not be
deemed to be registration under the Code;
 Broker Dealer to represent that the registration of the
Broker Dealer under the Code, or the failure of the
Commission to deny, suspend, or revoke such
registration, indicates in any way that the
Commission has passed upon or approved the
financial standing, business, or conduct of such
Broker Dealer, or the merits of any security or any
transaction/s conducted thereby;
 Person to represent that a security is a particular
type of security when such representation is
inconsistent with a stated definition under the Code
or rules or regulations adopted thereunder.
 Person to represent that a security to be sold,
transferred, pledged, mortgaged, encumbered, used
for delivery, or any other purpose to another entity or
itself has been legally authorized by the registered
owner when such representation is not true and
documented in writing at the time and date it was
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used.
 Person, whether as principal or agent, to buy, sell or
deal in securities or solicit investments in securities
and other investment contracts, unless he is a
registered broker, dealer or licensed salesman of a
broker dealer and the securities are registered under
the Code or exempt from registration pursuant to
Sections 9 and 10 thereof.

A.4. PROTECTION OF SHAREHOLDERS

15. Outline the protection of shareholders provided by SRC.

a) Tender offers
- Any person, or group of persons acting in concert, who intends to:
 Acquire at least 15% of;
 Acquire at least 30% over a period of 12 months of;
 Any class of equity securities of a listed corporation
 Any class of equity securities of a corporation with assets of at least Php 50M
and having 200 or more stockholders with at least 100 shares each.
- Are obliged to do the following:
 Make tender offer to stockholders by filing with SEC a declaration to that effect and
furnish issuer a statement containing such of the info required of issues as SEC may
prescribe
 Publish all requests or invitations for tender
 File with SEC and send to the issuer copies of any additional material soliciting or
requesting such tender offers subsequent to the initial solicitation or request.
 Pay one-tenth of 1% of the proposed aggregate purchase price.

b) Proxy solicitations
- Proxies must be issued and proxy solicitation must be made in accordance with rules and
regulations to be issued by the Commission;
- Proxies must be in writing, signed by the stockholder or his duly authorized
representative and file before the scheduled meeting with the corporate secretary.
- Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it
is intended. No proxy shall be valid only for the meeting for which it is intended. No
proxy shall be valid and effective for a period longer than five (5) years at one time.
- No broker or dealer shall give any proxy, consent or any authorization, in respect of any
security carried for the account of the customer, to a person other than the customer,
without written authorization of such customer.
- A broker or dealer who holds or acquire the proxy for at least ten percent (10%) or such
percentage as the commission may prescribe of the outstanding share of such issuer,
shall submit a report identifying the beneficial owner of ten days after such acquisition,
for its own account or customer, to the issuer of security, to the exchange where the
security is traded and to the Commission.
- Fees of Tender Offers and Certain Proxy Solicitations.
 At the time of filling with the Commission of any statement required under Section 19
for any tender offer or issuer purchases, or for proxy or consent solicitation, The
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Commission may require that the person making such filing pay a fee of not more
than one-tenth (1/10)(1%) of;
 The propose aggregate purchase price in the case of a transaction under Section
20 or 72.2; or
 The proposed payment in cash, and ion value of any securities or property to be
transferred in the acquisition, merger or consolidation, or the cash and value of
any securities proposed to be received upon the sale disposition of such assets in
the case of a solicitation under Section 20. The Commission shall prescribe by
rule diminishing fees in inverse proportion to the value of the aggregate price of
the offering.

c) Internal record keeping and accounting controls

- Every issuer which has a class of securities that satisfies the requirements of Subsection
17.2 shall: Device and maintain a system of internal accounting controls sufficient to
provide reasonable assurance that:
 Transactions and access to assets are pursuant to management authorization;
 Financial statements are provided in conformity with generally accepted accounting
principles that are adopted by the Accounting standards council and the rules
promulgated by the Commission with the regard to the preparation of the financial
statements; and
 Recorded assets are compared with existing assets at reasonable intervals and
differences are reconciled.

d) Transactions involving directors, officers and principal stockholders

- Reportorial Requirements
 Every person who is directly or indirectly the beneficial owner of more than 10% of
any class of equity securities or is a director or an officer of the issuer of such
security
 Shall file within 10 days after he becomes a beneficial owner, a statement containing
the amount of all equity securities of such issuer of which he is the beneficial owner
to the SEC and the exchange where it may be listed. And within 10 days after the
close of each calendar month thereafter, a statement indicating his ownership at the
close of the calendar month as have occurred during such a calendar month.

B. SECURITIES REGULATION CODE (RULE 68)

1. Make an outline for Parts 1, 2 and 3 which should focus on the following topics.        

PART I

a) General Financial Reporting Requirements

- Reportorial Requirements:
a. Annual report composed of a Balance Sheet, Profit and Loss Statement of Cash
Flows certified by a CPA and a management discussion and analysis of results of
operation.
b. Other periodical reports for interim fiscal periods and current reports on significant
developments of the issuer as the SEC may prescribe as necessary to keep current
information on the operation of the business and financial condition of the issuer.
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b) Application and Definition of Terms

- APPLICATION
 This Rule states the requirements applicable to the form and content of financial
statements required to be filed with the Commission for corporations which meet the
threshold as follows:

Type of Corporation Capital Threshold

1. Stock Total Assets or Total Liabilities of ₱600,000 or
more as prescribed under the Revised Corporation
Code of the Philippines and any of its subsequent
revisions or such amount as may be subsequently
prescribed.
2. Non-stock Total Assets or Total Liabilities of ₱600,000 or
more as prescribed under the Revised Corporation
Code of the Philippines and any of its subsequent
revisions or such amount as may be subsequently
prescribed.
3. Branch Office or Assigned capital in the equivalent amount of
Representative Offices of ₱1,000,000 or more.
Stock Foreign
Corporations
4. Branch Office or Assigned capital in the equivalent amount of
Representative Offices of ₱1,000,000 or more.
Non-stock Foreign
Corporations
5. Regional Operating Total Revenues in the equivalent amount of
Headquarters of Foreign ₱1,000,000 or more.
Corporations

 Financial statements of branch offices of foreign corporations licensed to do business

in the Philippines by the Commission shall comply with the requirements of this Rule
unless otherwise determined by the Commission as not applicable.
 Submission of Financial Statements (Who are required?)
 All corporations and organizations registered under SEC as of the fiscal year.
 Previously incorporated corporations
 Newly incorporated corporations during the current fiscal year.

Fiscal Year End of Financial Statement Submission Dates

Corporation
In accordance with annual schedule of filing
Depending on the last numerical digit of the SEC
registration or license number.
December 31
1- June 1 to 30 5 & 6- September 1-30
2- July 1 to 31 7 & 8- October 1-31
3 & 4- August 1-31 9 & 0- November 1-30
Other than December 31 120 days after the end of the fiscal year

- DEFINITION OF TERMS
1. Financial Reporting Framework - A set of accounting principles, standards,
interpretations and pronouncements that must be adopted in the preparation and
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submission of the annual financial statements of a particular class of entities, as

defined in this Rule by the Commission.
2. Entity - A juridical person or a corporation registered under the Corporation Code
3. Error - An unintentional mistake in the financial statements which reduces or
increases the consolidated total assets, total liabilities, total equity, gross revenue,
total expenses, net income (loss) or total comprehensive income of the company by
five per cent (5%) or more.
4. Fraud - An intentional act by one or more individuals involving the use of deception
to obtain an unjust or illegal advantage that results in financial statements
misrepresentation
5. Gross Negligence - Wanton or reckless disregard of the duty of due care in
complying with Philippine Standards on Auditing (PSA).
6. Issuer - Any entity authorized by the SEC to offer to sell, sell or promote the sale to
the public of its equity, bonds, instruments of indebtedness and other forms of
securities.
7. Key Audit Partners - Pertain to the engagement partner or signing partner, the
engagement quality control reviewer and other audit partners. Makers of key
decisions or judgments.
8. Material Information - Information whose omission or misstatement could influence
the economic decisions of its users.
9. Significant Subsidiary - Subsidiary, including its subsidiaries, which meets any of
the following conditions:
 Parent company’s investment in and advances to its subsidiaries; or Parents
company’s and its subsidiaries investment in and advances to other subsidiaries
- Exceed 20% of the total consolidated assets as of the current fiscal year.
 Subsidiaries total assets, revenue, or, net income (loss) (after intragroup
eliminations) - Exceed 20% of the total consolidated assets, revenue, net income
(loss) of the most recently completed fiscal year.
10. SEC Oversight Assurance Review (SOAR) Program
 An on-site:
 review of the quality control policies and procedures of the accredited
auditing firms auditing companies with equity or debt securities listed in an
Exchange,
 review of portions of the audit work of selected audit engagements from time
to time.
 The Commission, however, is not precluded from subjecting the Independent
Auditors of other companies for inspection as the circumstances would warrant.
11. Related Accounts - Classification and aggregation on the face of the FS as case may
be.

c) Financial Reporting Framework

- Financial reporting framework is a set of accounting principles, standards,
interpretations and pronouncements that must be adopted in the preparation and
submission of the annual financial statements of a particular class of entities, as defined
in this Rule by the Commission.
 Philippine Financial Reporting Standards (PFRSs)
 PFRSs for Small and Medium-sized Entities (PFRSs for SMEs)
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 PFRS for Small Entities (PFRSs for SEs)

 Financial reporting framework other than PFRS that complies with the regulatory
reportorial requirements of:
 Bangko Sentral ng Pilipinas
 Insurance Commission
- Applicability:

ENTITY CRITERIA FRAMEWORK

1. Large and/or Assets: More than 350 million Philippine Financial
Publicly- Liabilities: More than 250 Million Reporting Standard as
Accountable Required to file FS adopted by the
Entities FS purpose is for issuing any class of Commission
instrument in the public market
Holders of secondary licenses issued by
regulatory agencies
2. Small and Assets: 3 million to 350 Million PFRS for SMEs
Medium sized Liabilities: 3 million to 250 million
entities Not required to file FS
Filing FS purpose is not for issuing any
class of instrument in the public market
Not holders of secondary licenses issued
by regulatory agencies
3. Micro-entities Assets: Less than 3 million Either PFRS for SMEs
Liabilities: Less than 3 million or Income tax basis or
Not required to file FS Accounting standards
FS purpose is not for issuing any class of in effect
instrument in the public market
Not holders of secondary licenses issued
by regulatory agencies

d) Responsibility of Financial Statements

Management Board of Directors Independent Auditors

Fairness of Approves the FSs before Only expresses his opinion
the representation made in they are submitted to on the FSs which he has
the FSs is implicit the stockholders.  audited
and integral part
of management responsibilit
y
Primarily responsible for the Not allowed or required to
FSs. prepare the FSs. 

e) Qualifications And Reports Of Independent Auditors

A. AUDIT OF FINANCIAL STATEMENTS BY INDEPENDENT AUDITORS
- Independent  auditors shall possess the following qualifications:
 Duly registered and licensed with the Board of Accountancy (BOA) of the
Professional Regulation Commission (PRC)
 corporation with financial statements audited by an independent auditor who is
not registered and licensed with the BOA - subject to appropriate fines and
penalties
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B. CATEGORIES OF ENTITIES IN NEED OF INDEPENDENT AUDITOR

GROUP A GROUP B GROUP C

 Issuers of registered  Issuers of registered  Financing companies
securities except those timeshares, whose assets are above
issuers of registered proprietary and non- P10 Million
timeshares, proprietary proprietary  Lending companies
and non-proprietary membership whose assets are above
membership certificates. certificates. 5 million
(Corporations applying (corporations applying  Transfer agents
for the registration of for the registration of  Non-stock, non-profit
their securities) such securities) corporations which
 Issuers with a class of  Investment houses solicit or receive
securities listed for  Brokers and dealers of annual donations or
trading in an Exchange securities contributions and/or
 Public companies or  Government securities with fund balance
those which have total eligible dealers amounting to more
assets of at least Fifty  Universal banks than P25 Million and
Million Pesos (P50 registered as P100 Million,
Million) and having two underwriters of respectively, over the
hundred (200) or more securities preceding three (3)
holders each holding at  Investment company years
least one hundred (100) advisers  Corporations with
shares  Special purpose bank borrowings
 Clearing agency and corporations aggregating to more
clearing agency as registered under the than P250 Million with
depository Securitization Act of remaining tenor of
 Stock and securities 2004 more than 12 months
exchange/s and other  Such other as of end of the
Self-Regulatory corporations which reporting period
Organizations. may be required by  Such other
law to be supervised corporations that the
by the Commission Commission may
consider as imbued
with public interest.

C. SCOPE AND LIMITATION OF ACCREDITATION

- Auditing Firms engaged by companies under Groups A, B and C - must be accredited
by the Commission
- Sole practitioners
 may be accredited by the Commission
 may be engaged by Group C companies
 They are expected to convert from a Sole Proprietorship to a Partnership
structure until June 30, 2022
- Group A Companies
 Accreditation shall be considered a general accreditation which shall allow the
independent auditor to also audit companies under Groups B and C
- Group B Companies
 accreditation can likewise audit companies under Group C
- Group C Companies
 Only accredited partners, with accreditation under the appropriate group
category, are allowed
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Selection of Engagement The Commission shall not be liable for any liability
or loss that may arise from the selection and
engagement of accredited independent auditor and/or
auditing firm.
Expiration After 3 years
Evaluation on Financial During the processing of his application covers only
Statement the companies’ compliance with the applicable
financial reporting framework
Accreditation of an auditing  Request for withdrawal of accreditation is
firm, partner or sole approved
practitioner shall be  Accreditation is suspended or revoked due to
effective unless any of the failure in complying with requirements provided
following occurs  BOA registration and license have expired and
no application for renewal has been filed

D. ACCREDITATION REQUIREMENTS

General Requirements
 The applicant shall be registered and licensed with the BOA
 At the time of application, the applicant shall have at least five (5) years of
experience (manager or partner or its equivalent) in external audit.
 The applicant shall have adequate policies and procedures related to the elements of
a system of quality control provided for under PSA No. 220, PSQC No. 1, which shall
be reflected in his Quality Assurance Manual (QAM).
 An application for accreditation of an external auditor shall not be recommended for
approval if it could be established that:
a. The auditor allowed violation by issuing unqualified opinion despite discoveries of

violations during audit

b. The violation subject of this paragraph shall pertain to a decision or judgment.
Specific Requirements
 Applicant shall have sufficient knowledge on the regulatory requirements, operations
and functions of companies under which group he is applying for.
 The applicant shall have a total of 30 units of training and seminars, on the following
topics, with 10 units each topic, within the last three (3) years: PFRS, PSA and laws
and regulations being implemented by the Commission.
 The quality of audit work shall meet the prescribed level under Annex “68-A”
 At the time of application, the applicant shall have the following track record:
GROUP A GROUP B GROUP C
shall have had a shall have had a shall have had a
minimum of 5 corporate minimum of 3 corporate minimum of 3 corporate
clients with total assets of clients with total assets of clients with total assets of
at least P50 Million each, at least P20 Million each, at least P5 Million each,
or such amount as may or such amount as may or such amount as may
be prescribed by the be prescribed by the be prescribed by the
Commission Commission Commission
asada
Specific Requirements (Application Documents)
1. For initial accreditation, a notarized application form (SEC Form ExA-001) shall be
submitted by the applicant to the Commission, together with the prescribed
supporting documents.
2. The accreditation may be renewed by filing a notarized renewal application form
(SEC Form ExA-001-R) together with the prescribed supporting documents.
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3. Applications for initial or renewal of external auditors or partners of auditing firms

shall be assessed with the appropriate filing fee.

FOR AUDITING FIRMS

1. The auditing firm shall be accredited with the BOA
2. At the time of application, it shall have at least 2 signing independent auditors who
are accredited under the same category.
3. It shall have adequate policies and procedures related to the elements of a system of
quality control provided for under PSA No. 220, PSQC No. 1, which shall be
reflected in his Quality Assurance Manual (QAM).
- The auditing firm shall submit a certification on the number of its personnel or staff
4. The auditing Firm shall submit a disclosure under oath attesting to its independence
5. In addition to the above-stated accreditation requirements, the Commission may
prescribe through subsequent issuances, other qualification requirements and
supporting documents as it may consider necessary.
Application Documents
1. For initial accreditation, a notarized application form (SEC Form AuF-002) shall be
signed by the managing partner of the auditing firm and shall be submitted to the
Commission together with the prescribed supporting documents.
2. The accreditation may be renewed by filing a notarized renewal application form
(SEC Form AuF-002-R) together with the prescribed supporting documents.
3. Applications for initial or renewal accreditation of auditing firms shall be assessed
with the appropriate filing fee as indicated in SEC MC No, 03, Series of 2017.

MUTUAL RECOGNITION POLICY

a. The mutual recognition policy covering auditors of Group C companies is subject to
the BSP restriction, only one (1) independent auditor or auditing firm shall audit
their individual and consolidated financial statements.
b. The existing mutual recognition policy between and among financial regulators is
limited to compliance by applicants with the basic qualification and documentary
requirements.

OPERATIONAL REQUIREMENTS
1. They shall strictly observe the Code of Ethics for Professional Accountants.
2. They shall comply with the following
a. Terms of the engagement letter and its undertakings
b. The PSA and other issuances of the Auditing and Assurance Standards Council
        (AASC) and the Commission
c. Applicable provisions of this Rule and other relevant regulations and circulars by
SEC
d. Other pertinent laws, rules and regulations.
3. Maintain the number of partners necessary to comply with the rotation policy.
4. They shall comply with the reportorial requirements.
5. They shall maintain the prescribed quality of audit work under Annex “68-A”
6. They shall implement their respective QAM.
7. They shall retain copies of their working papers, audit evidences and other audit
related records for a period of ten (10) years reckoned from the day following the
completion of the audit.
8. In relation to an on-going investigation of a regulated entity, accredited independent
auditors and auditing firms shall, upon order of the Commission, present their
working papers, audit evidence and other audit related records.
9. All Independent Auditors accredited with the Commission shall each obtain a total of
thirty (30) units of training and seminars.
10. Auditing firms with listed clients shall allow the Commission to conduct an on-site
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examination in accordance with the SOAR Program.

11. They shall comply with such orders and guidelines as may be issued by the
Commission.

REPORTORIAL REQUIREMENTS
a. In relation to an on-going investigation of a regulated entity, accredited independent
auditors and auditing firms shall, upon order of the Commission, present their
working papers, audit evidence and other audit related records.
b. All Independent Auditors accredited with the Commission shall each obtain a total of
thirty (30) units of training and seminars.
c. Auditing firms with listed clients shall allow the Commission to conduct an on-site
examination in accordance with the SOAR Program.
d. They shall comply with such orders and guidelines as may be issued by the
Commission.

 The independent auditor shall submit his findings to the client-company’s Audit
Committee or Board of Directors, as applicable.
 The independent auditor shall document management’s explanation and/or
corrective action taken regarding his adverse findings.
 The engagement contract between the company and the independent auditor shall
contain a provision that the disclosure of information by the independent auditor.

PART II
ADDITIONAL REQUIREMENTS FOR ISSUERS OF SECURITIES TO THE PUBLIC

A. APPLICATION
a. Corporations which filed registration statements under Section 12 of the SRC
b. Which meet the following criteria with respect to the requirements to file reports:
 Issuer which has sold a class of its securities pursuant to a registration under Section 12
of the SRC;
 Issuer with a class of securities listed for trading on an Exchange; and
 Issuer with assets of ≥ P 50M or such other amount as the Commission shall prescribe
and has ≥ 200 holders each holding ≥ 100 shares of a class of its equity as of the first day
of the issuer’s fiscal year

B. PERIODIC REPRESENTATION
a. Registration Statements
 Consolidated Balance Sheets or Statement of Financial Position

CONDITION WHAT TO FILE? AS OF WHAT DATE

a) If registrant exist for audited balance sheet or as of a date within 135
less than one fiscal year statement of financial days of the date of filing the
position registration statement
b) If a filing on SEC Form include audited as of the end of each of the
12 -1 is made within consolidated balance sheets two (2) years prior to the
one hundred five (105) or statements of financial most recently ended fiscal
days after the end of the position year as of the end of the
most recently ended most recently ended fiscal
fiscal year a separate interim balance year
sheet
c) If a filing on SEC Form include audited as of the end of each of the
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12 -1 is made more consolidated balance sheets two most recently ended

than one hundred five or statements of financial fiscal years
(105) days but not more position
than one hundred thirty
five (135) days after the
end of the most recently
ended fiscal year
d) If a filing on SEC Form include audited as of the end of each of the
12 -1 is made more consolidated balance sheets two most recently ended
than one hundred thirty or statements of financial fiscal years
five (135) days but not position
more than two hundred as of the end of the first
twenty five (225) days a separate interim balance fiscal quarter subsequent to
after the end of the sheet or statement of the most recent fiscal year
most recently ended financial position end.
fiscal year
e) If a filing on SEC Form include audited as of the end of each of the
12 -1 is made more consolidated balance sheets two most recently ended
than two hundred or statements of financial fiscal years
twenty five (225) days position
but not more than three as of the end of the second
hundred fifteen (315) a separate interim balance fiscal quarter subsequent to
days after the end of the sheet or statement of the most recent fiscal year
most recently ended financial position end
fiscal year,
f) If a filing on Form 12 include audited as of the end of each of the
-1 is made more than consolidated balance sheets two most recently ended
three hundred fifteen or statements of financial fiscal years
(315) days after the end position
of the most recently as of the end of the third
ended fiscal year a separate interim balance fiscal quarter subsequent to
sheet the most recent fiscal year
end.

 Consolidated Statement of Comprehensive Income, Statement of Changes in Equity, and

Statement of Cash Flows
a) audited statement in a comparative format for each of the three most recent
completed fiscal years or such shorter period as the registrant (including
predecessors) has been in existence.
b) provide any interim period between the latest audited balance sheet or statement of
financial position and the date of the most recent interim balance sheet being filed,
and for the corresponding period of the preceding year

 Interim Financial Statements

a) No need to have the interim financial statements audited. In the case of a company's
initial public offering of securities, interim financial statements must be audited by a
Commission-accredited independent auditor (Group A category) and must be as
detailed as a full fiscal year financial report.
b) The submission of reviewed interim financial statements in lieu of audited interim
financial statements is allowed public offering takes place in the Philippines and
other countries, interim reviewed financial statements are permitted under the rules
of the said foreign countrie, age requirement for financial statements shall be
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complied with, and submission of audited interim financial statements will not be
practical due to time constraints. The review by an independent auditor of the
financial statements shall be in accordance with the applicable standards.

 Age Requirement of FS
a) The financial information in a registration statement on SEC Form 12-1 must be as
of a date within 135 days of the effective date, or such longer period as the
Commission may allow upon favorable consideration of a written request by the
registrant.
b) Interim financial statements required to maintain the registration statement current
do not need to be audited, but they must comply with PAS 34 on Interim Financial
Statements or any of its amendments.

b. Annual Reports (SEC Form 17-A)

WHAT TO FILE AS OF WHAT DATE

Comparative consolidated audited balance
as of the end of each of the two most recent
sheets or statements of financial position
completed fiscal years
(except if not applicable)
Comparative Statement of Comprehensive for the three most recent completed fiscal
Income, Statement of Cash Flows and years or such shorter period as the company
Statement of Changes in Equity (including predecessors) has been in
existence

c. Information Statements (SEC Form 20-IS)

WHAT TO FILE AS OF WHAT DATE

Comparative consolidated audited balance
sheets or statements of financial position
(except if not applicable) as of the end of each of the two most recent
completed fiscal years
Additions: If the meeting date is beyond one
hundred thirty five (135) days from the as of the end of the most recent quarter as of
company’s fiscal year end, a separate the end of the preceding fiscal year
comparative interim unaudited balance sheet
or statement of financial position
Comparative Statement of Comprehensive
Income, Statement of Cash Flows and for the three most recent completed fiscal
Statement of Changes in Equity years or such shorter period as the company
(including predecessors) has been in
Additions: If the meeting date is beyond one existence
hundred thirty five (135) days from the
company’s fiscal year end, separate for the most recent quarter for period ending
comparative interim unaudited statements of the same quarter of the preceding year.
shall likewise be filed.

C. APPLICABILITY WITH OTHER REPORTS

 The schedules provided under Annex 68-E (Schedules) are not required in management
reports to be distributed to shareholders as part of the information statement.

D. ADDITIONAL DISCLOSURE REQUIREMENTS

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a. Balance Sheet
b. Statement of Comprehensive Income
c. General Notes to Financial Statements
d. Schedules

E. INTERIM FINANCIAL STATEMENTS

1. Applicable for the purpose of preparing the interim financial statements, the The financial
statements shall show:
 Earnings per share in the Comprehensive income statement
 Dividends declared per share in the Comprehensive income statement
 Combined result of the pooled business (For entities involved in business combination)
 Pro forma disclosures of the results of operations as of date (For business combination
as result of purchase)
 Date of any material accounting change and reason for changing
 Adjustments which management deems necessary for fair presentation
2. Quarterly report shall be prepared in accordance with PFRS
3. Other interim financial information required by the Commission

F. CONSOLIDATED FINANCIAL STATEMENTS

The following requirements shall be complied with by companies covered by Part II of this Rule:
a) A company covered by Part II of this Rule that has a significant foreign subsidiary or
subsidiaries shall submit to the Commission copies of the financial statements of said
subsidiaries.
b) A parent company covered by Part II of this Rule shall submit consolidated AFS
accompanied by its separate Audited Financial Statements shall be duly received by the BIR
or its authorized banks
- unless the BIR allows an alternative proof of submission for its authorized banks or
prohibits acceptance of the financial statements in certain cases

PART III
PENALTIES AND OTHER GENERAL IMPLEMENTING PROVISIONS

A. VIOLATIONS AND CORRESPONDING PENALTIES

VIOLATION BY AN ERRING COMPANY PENALTY

 The independent auditor shall submit his findings to
the client-company’s Audit Committee or Board of
Directors, as applicable.
 The independent auditor shall document Addition to the fine imposed due to late or
management’s explanation and/or corrective action incomplete filing of other parts of any
taken regarding his adverse findings. report to which FS are required to be
 The engagement contract between the company and attached
the independent auditor shall contain a provision
that the disclosure of information by the
independent auditor.
 Failure to submit any of the reports required Prescribe by the commission
 Any material misrepresentation in:
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a. Application for accreditation

b. Certification submitted with the application
c. Any of the reports required
 Refusal for no valid reason, upon lawful order of
the commission to submit requested document in
connection with ongoing investigation.
 Gross negligence in the conduct of audit or failure
to comply with PSA and AASC or the Commission
 Issuance of unqualified opinion which is
unsupported by full compliance by the auditee with
the applicable financial reporting framework due to
Prescribe by the commission
material financial deficiency of misstatement in the
FS
 Conduct of an audit despite the lack or eventual loss
of independence as provided for under Code of
Ethics
 Conduct of any non-audit services for his statutory
audit clients, if he has not undertaken the
safeguards to reduce the threat to his independence
 Failure to comply with any of the operational
requirements for accredited auditing firms or sole
Prescribe by the commission
practitioners
 Failure to obtain from the commission on
accreditation appropriate to the company’s client
category prior to engagement or during period of
audit and signing of auditor’s report

B. TEST OF MATERIALITY

TYPE OF TEST GUIDELINES TO BE CONSIDERED AS MATERIAL

GENERAL GUIDELINES
- Omissions and misstatement are material if:
 it individually or collectively influences the economic decisions of the user
 it depends on either the size and nature or the combination of both of the item used as
determining factor
 it should be taken into account in overall rather than by piecemeal quantitative and
qualitative factors.
1. QUANTITATIVE Deficiency or Inconsistency:
 Failure to submit any component of the FS
prescribed shall be considered a material
deficiency
 Disclosure deficiency or inconsistency in the within
the FS shall be material if transaction amounted to
10% or more of the total related transaction. For
issuers of securities to the public and public
companies, test to be used is 5% . Total assets and
liabilities can also be used as a baseline as
circumstances identified by the Commission.

Misstatement:
 Represents 10% or more of total related accounts
or transaction.
 Disclosure deficiency or inconsistency in the within
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the FS shall be material if transaction amounted to

10% or more of the total related transaction. For
issuers of securities to the public and public
companies, test to be used is 5% . Total assets and
liabilities can also be used as a baseline as
circumstances identified by the Commission.
 Affects compliance with debt covenants or other
contractual requirements
 Immaterial incorrect selection of application of
accounting policy that would likely to have
material effect on the future period FS
 Masks a change in arings or other trends
 Affect ratios used to evaluate entities position
 Affect segment information presented in FS
 Has the effect of increasing management
2. QUALITATIVE
compensation
 Is significant in light of the auditor's knowledge of
previous communication with users
 Affects compliance with regulatory requirements
 Relates items involving particular parties
 Omission of information not specifically required
by the applicable financial reporting framework
 Affects information that will be communicated in
documents containing AFS

C. RE-ISSUANCE OF FS
 For FS that may be found by the Commision to be deficient and/or misstated, it shall make a
determination whether such misstatement or incompleteness is significantly material that
would necessitate the re-issuance of such FS
 Corporations covered by Part II of this rule shall not re-issue their audited FS without prior
request from and approved by the Commission
 An amendment or re-issuance of the FS shall not exonerate the company from the penalty
that may be assessed by the commision due to material deficiency or misstatement of the
original FS