SEC Chairman Lilia R. Bautista said: "It’s better if there is such a thing. We welcome it This would improve the quality and transparency of financial reporting and independent audits."
Under the proposed bill authored by Tarlac Rep. Jesli A. Lapus, the public company accounting oversight board will establish auditing, quality control, ethics and other standards relating to audit reports. It shall also inspect, investigate and discipline as appropriate registered public accounting firms.
The bill seeks to regulate corporate abuses by increasing corporate responsibility and penalizing violators of securities rules and law. The proposed legislation also makes it unlawful for any person, company or accounting firm to shred or alter corporate documents while under investigation. Destruction or falsification of corporate files is punishable with imprisonment of up to 20 years.
Bautista said the bill, once signed into law, will codify many of the SEC’s existing rules and regulations and provide the framework of the adoption of prudential measures in the pipeline.
Among the existing SEC rules include requiring chief executive officers of companies to certify to the accuracy of their financial reports and the rotation of an accounting partner overseeing the audits of a specific company every five years.
Apart from these, accounting firms are prohibited from providing most consulting services to companies they are auditing while listed firms are banned from extending loans to their officers and directors.
A similar bill has been filed by Sen. Panfilo Lacson at the Senate seeking to strengthen corporate responsibility and disbar dishonest directors and officers.
Based on Rule 68 of the Securities Regulation Code, all corporations are required to submit a statement of management’s responsibility that the "board of directors reviews the financial statements before such are approved and submitted to the stockholders of the company,"
Normally, the audit committee of the corporation (which is composed of at least three directors of the company) oversees and monitors the management’s and the external auditor’s participation in the financial reporting process.
The Enron case highlighted the need to toughen up the country’s accounting rules. It has brought to light that corporate reports and corporate accounts can be meaningless unless accurate information is disclosed. Companies can bloat their financial performance and conceal their activities in special arrangements and partnerships with their long-time external auditors.