SEC Issues a Reminder for Strict Compliance of Financial Reporting Obligations

April 14, 2014 SEC ADVISORY SEC ISSUES A REMINDER FOR STRICT COMPLIANCE OF FINANCIAL REPORTING OBLIGATIONS The Securities and Exchange Commission issues a reminder to all the Boards of Directors and management of registered corporations to strictly observe their responsibilities over the preparation and submission of their annual financial statements. The Securities Regulation Code (SRC) Rule 68, as amended, provides that the corporations' financial statements are primarily the responsibility of their respective management and accordingly, the fairness of the representations made therein is an implicit and integral part of the management's responsibility. The Board of Directors, in discharging its responsibilities, reviews and approves the financial statements before these are submitted to the stockholders. These responsibilities are reflected in the Statement of Management's Responsibility that must be signed by the corporation's Chairman of the Board, Chief Executive Officer and Chief Finance Officer, and that must be attached to the annual financial statements. During the independent examination of the corporation's financial statements, the management should provide the external auditor with the complete set of financial statements as prescribed under the financial reporting framework, and if applicable, the schedules and reconciliation forming part of the financial statements that are required under the existing rules of the Commission. In order to have an independent review of the financial statements prepared by the management, the external auditor must not create a template format of financial statements for mere accomplishment by the management. The management should provide the external auditor his review n all information, such as records and documentation, and other matters that are relevant to the financial statements prepared by the management. These include schedules, computations, projections, reconciliations, reports, analyses and such additional information that the auditor may request from management and when appropriate, from those tasked to perform governance. The management shall provide unrestricted access to records and personnel of the entity from whom the auditor deems it necessary to obtain audit evidence. The corporation shall neither allow nor require its independent auditor to prepare its financial statements and/or any of its supporting documents. There should be a clear understanding on the part of the management that the external auditor's duty is to conduct an independent examination of the company's financial statements and supporting documents pursuant to the prescribed auditing standards and practices. Philippine Standard on Auditing (PSA) 210 (revised) and PSA 580 (revised and redrafted) particularly require that the auditor and the management should agree with the audit engagement terms and conditions before proceeding with the actual audit which include the responsibility of the management to prepare the corporation's financial statements. Thus, the management is expected to have sufficient knowledge of the process followed by the corporation in preparing and presenting the financial statements and the assertions therein on which to base its written representations. Atty. Teresita J. Herbosa, Chairperson of the Commission commented: "The Commission firmly believes that it has set sufficient regulations and has actively conducted administrative actions towards a change in the old culture in financial reporting that incorrectly allowed external auditors to prepare and review the financial statements at the same time. Corporations and external auditors must strictly observe their respective responsibilities over financial statements otherwise, appropriate penalties shall be imposed on them pursuant to the existing rules and Scale of Fines and Penalties." n Note from the Publisher: Copied verbatim from the official document.