SEC vs. 1Accountants Party-List, Inc.

The SEC has no authority to impose an accreditation requirement on individual CPAs acting as external auditors, because the power to supervise and regulate the practice of accountancy — including accreditation, promulgation of rules, and imposition of penalties — is exclusively delegated to the Professional Regulatory Board of Accountancy under R.A. No. 9298; any SEC issuance imposing such requirement is ultra vires and null and void.

1Accountants Party-List, Inc. is a non-stock and non-profit sectoral organization duly organized under the SEC, represented by its president, Christian Jay D. Lim, who also sued in his personal capacity as a Certified Public Accountant, together with fellow CPAs Froilan G. Ampil, Allan M. Basarte, Virgilio F. Agunod, and Jonas P. Mascariñas. The SEC is a government regulatory agency mandated to supervise the corporate sector and regulate the securities industry. Since 2002, the SEC had required accreditation of CPAs acting as external auditors of corporations issuing registered securities and possessing secondary licenses, through a series of memorandum circulars and implementing rules. The regulatory framework for the accountancy profession was substantially altered by Congress through R.A. No. 9298, the Philippine Accountancy Act of 2004, which vested the power to supervise the registration, licensure, and practice of accountancy — including the promulgation of rules on accreditation — exclusively in the Professional Regulatory Board of Accountancy, subject to the approval of the Professional Regulation Commission.

1Accountants Party-List, Inc. is a non-stock and non-profit sectoral organization duly organized and registered under the SEC. Its president, Christian Jay D. Lim, together with fellow CPAs Froilan G. Ampil, Allan M. Basarte, Virgilio F. Agunod, and Jonas P. Mascariñas, filed a Petition for Declaratory Relief with Prayer for Preliminary Injunction and Temporary Restraining Order before the RTC of Davao City, Branch 15, against the SEC. The petition assailed the SEC's regulations requiring the accreditation of CPAs acting as external auditors of corporations issuing registered securities and possessing secondary licenses — specifically, Paragraph 3, Rule 68 of the Amended IRR of the Securities Regulation Code and SEC Memorandum Circular No. 13-2009, as well as all other similar memorandum circulars issued since 2002.

Paragraph 3 of Rule 68 of the Revised SRC provides that certain entities shall have independent auditors accredited by the Commission, framing the accreditation as a quality control mechanism or quality assurance review. SEC MC No. 13-2009 elaborates on this requirement, providing that only an external auditor and his auditing firm accredited by the Commission may be engaged by covered corporations for the statutory audit of their financial statements. The circular prescribes filing fees for initial or renewal accreditation applications, ranging from ₱2,000.00 to ₱20,000.00 depending on the group classification. It also imposes penalties for violation of the accreditation requirement: auditing firms or external auditors who enter into engagements with covered companies without appropriate accreditation face fines escalating with each offense, from ₱10,000.00 to ₱400,000.00 depending on the company group. Covered companies that engage non-accredited external auditors likewise face fines ranging from ₱25,000.00 to ₱100,000.00.

Respondents assailed these issuances on the grounds that they were issued without authority (ultra vires), contravene R.A. No. 9298 or the Philippine Accountancy Act of 2004, restrict the right of CPAs to practice accountancy, and violate the rights to due process and equal protection. The SEC countered that it was authorized under the SRC and the Corporation Code to issue the regulations, that these did not contravene R.A. No. 9298 nor restrict the right to practice accountancy, that MC No. 13-2009 was duly published and filed with the UP Law Center, and that the circular rested on a valid and reasonable classification satisfying the four-pronged test for equal protection.

The SEC anchored its authority on several provisions: Section 5(a), (d), (f), (g), and (n) of the SRC granting it jurisdiction over corporations and the power to regulate, investigate, supervise, impose sanctions, and issue rules; Section 68 of the SRC on special accounting rules; Section 141 of the Corporation Code requiring annual reports; and a Memorandum of Agreement jointly executed with the BSP and the IC, in which the Board of Accountancy (BOA) agreed that firms and individual partners auditing regulated entities would each apply for accreditation with the SEC, BSP, or IC. Respondents countered that the cited SRC and Corporation Code provisions pertained only to juridical entities and not to individual CPAs, that R.A. No. 9298 exclusively lodged the power to regulate accountancy accreditation with the Board, that the MOA was void for contravening Section 31 of the Philippine Accountancy Act and the doctrine of non-delegation of delegated power, and that the SEC misconstrued the role of external auditors by attributing to them responsibility for the reliability of financial statements when such responsibility properly belongs to company management.

On March 20, 2018, the RTC declared Paragraph 3, Rule 68 of the IRR of the SRC and SEC MC No. 13-2009 null and void for being contrary to R.A. No. 9298, unconstitutional, and issued ultra vires. The SEC's motion for reconsideration was denied by Order dated February 20, 2019, prompting the present Rule 45 petition.

• Statutory Authority: Petitioner argued that it was authorized by the SRC (Sections 5(a), (d), (f), (g), and (n)) and Section 68 thereof, as well as Section 141 of the Corporation Code, to issue the assailed regulations, as these provisions granted it jurisdiction and supervision over corporations, the power to regulate and supervise activities to ensure compliance, impose sanctions, and promulgate rules, including special accounting rules.
• MOA as Authorization: Petitioner emphasized the Memorandum of Agreement it jointly executed with the BSP and the IC, wherein it was agreed that firms and individual partners who audit or intend to audit regulated entities shall be the subject of accreditation with the SEC, BSP, or IC.
• No Contravention of R.A. No. 9298: Petitioner insisted that the assailed issuances do not contravene R.A. No. 9298 nor restrict the right of CPAs to practice their profession, as the issuances merely regulate the practice of accountancy pursuant to the State's police power, with the purpose of ensuring the quality of financial reporting for the protection of the investing public.
• Equal Protection: Petitioner argued that SEC MC No. 13-2009 satisfies the four-pronged test of reasonableness: it rests on a substantial distinction requiring accreditation only for CPAs employed as external auditors of covered corporations; the classification is germane to the SRC's purpose of promoting control and discipline in the financial environment; the classification is not limited to existing conditions but applies to future CPAs as well; and the circular applies equally to all members of the same class.
• Due Process: Petitioner maintained that MC No. 13-2009 did not violate respondents' due process rights because it was published in a newspaper of general circulation and filed with the UP Law Center.

• Lack of Authority (Ultra Vires): Respondent maintained that petitioner has no legal authority to regulate the accounting profession and acted ultra vires when it required additional accreditation, as the SRC and Corporation Code provisions cited by petitioner pertain only to juridical entities — corporations, partnerships, or associations — and not to individual CPAs.
• Exclusive Delegation to the Board: Respondent argued that R.A. No. 9298 exclusively lodges the power to regulate accountants with the Professional Regulatory Board of Accountancy, particularly under Section 9 (powers and functions of the Board) and Section 31 (accreditation to practice public accountancy), and that the Board cannot delegate to another body what Congress has delegated to it, pursuant to the maxim "potestas delegate non delegare potest."
• Invalidity of the MOA: Respondent contended that the MOA executed by the SEC with the BSP and IC is void for contravening Section 31 of the Philippine Accountancy Act, which exclusively lodged the power to promulgate rules and regulations for the accreditation of CPAs with the Board.
• Invalid Classification: Respondent posited that SEC MC No. 13-2009's classification of CPAs into four groups (A to D) for accreditation purposes has no basis in law, since no law provides for such classification, and the SEC has no legal mandate to impose its own classification.
• Misconstrued Role of External Auditors: Respondent argued that petitioner misconstrued the role of external auditors as being responsible for the reliability of financial statements, when under Rule 68 of the Amended IRR of the SRC itself, management is responsible for the preparation and fair presentation of financial statements; thus, the accreditation requirement has no rational connection with ensuring the reliability of financial reports.

• Authority to Regulate CPAs: Whether the SEC has the authority under the SRC and the Corporation Code to impose an accreditation requirement on individual CPAs acting as external auditors of covered corporations.
• Contravention of R.A. No. 9298: Whether the assailed issuances contravene R.A. No. 9298, which exclusively delegates to the Professional Regulatory Board of Accountancy the power to supervise the practice of accountancy and to promulgate rules on accreditation.
• Validity of the MOA: Whether the MOA executed by the SEC with the BSP and IC can serve as authorization for the SEC to impose the accreditation requirement on CPAs.
• Restriction on the Right to Practice: Whether the accreditation requirement amounts to an additional licensing burden that curtails the right of CPAs to practice their profession.

• Authority to Regulate CPAs: No. The SRC and Corporation Code provisions cited by petitioner pertain only to juridical entities such as corporations, and do not extend to individual CPAs; the SEC's jurisdiction is limited to corporations and those who directly deal with securities issued by such entities.
• Contravention of R.A. No. 9298: Yes. R.A. No. 9298 exclusively delegates to the Professional Regulatory Board of Accountancy the power to supervise the registration, licensure, and practice of accountancy, including the promulgation of rules on accreditation, fees, and penalties; the SEC's assailed issuances contravene this exclusive delegation.
• Validity of the MOA: No. The MOA is void because it contravenes Section 31 of the Philippine Accountancy Act, and the Board cannot delegate to another body what Congress has delegated to it under the doctrine of delegata potestas non potest delegari; a private agreement cannot operate to validate a transgression of a provision of law.
• Restriction on the Right to Practice: Yes. The accreditation requirement amounts to an additional licensing burden on CPAs, curtailing their right to practice their profession, as CPAs are left with no choice but to undergo accreditation despite already holding a CPA license, with fines imposed for non-compliance.

• Authority to Regulate CPAs: The Court applied the maxim "quoties in verbis nulla est ambiguitas, ibi nulla expositio contra verba fienda est" — when there is no ambiguity in the language of an instrument, no interpretation is to be made contrary to the words. The cited provisions of the SRC (Section 5(a), (d), (f), (g), (n)) and Section 68, as well as Section 141 of the Corporation Code, clearly pertain to juridical entities — corporations, partnerships, or associations — and not to individual CPAs. Section 5(a) grants jurisdiction over "all corporations, partnerships or associations"; Section 141 requires "every corporation" to submit annual reports. Reading the other SRC provisions together with Section 5(a), as required by the principle that statutes must be construed as a whole, all powers granted flow from the SEC's jurisdiction over corporations and cannot be made to apply to individual CPAs. While the SEC may regulate corporations and the securities market, such regulation does not extend to an authority to restrict, even in the slightest degree, the practice of accountancy.

• Contravention of R.A. No. 9298: Sections 9 and 31 of R.A. No. 9298 demonstrate that the power to supervise the accounting profession and to impose regulations on CPAs is exclusively delegated to the Professional Regulatory Board of Accountancy. Section 9(b) empowers the Board to "supervise the registration, licensure and practice of accountancy"; Section 9(g) authorizes it to adopt measures including "promulgation of accounting and auditing standards, rules and regulations"; Section 9(h) grants it oversight into "the quality of audits of financial statements"; and Section 31 provides that the Board shall promulgate rules and regulations for the implementation of registration requirements including fees and penalties. The penal clauses in MC No. 13-2009 — the scale of fines under Section 12.4 and the suspension or delisting of accreditation under Section 12.6 — contravene this exclusive delegation. The accreditation itself is the barrier that prevents the practice of external auditing of covered entities, however flimsy that barrier may be.

• Validity of the MOA: The Court invoked the maxim "delegata potestas non potest delegari" — a delegated power cannot be delegated. Having been reposed by law exclusively with the Board, the power to regulate accountancy accreditation must be exercised by the Board as mandated, as a collegial body, and not transferred elsewhere or discharged through the intervening mind of another. The MOA, being a private agreement, cannot operate to validate a transgression of a provision of law. Accordingly, the MOA is void and cannot serve as authorization for the SEC to issue the assailed regulations.

• Restriction on the Right to Practice: Applying the doctrine from Airlift Asia Customs Brokerage, Inc. vs. Court of Appeals, the Court held that a license is a "permission to do a particular thing, to exercise a certain privilege or to carry on a particular business or to pursue a certain occupation." The accreditation requirement takes the form of a licensing requirement that amounts to an additional burden on CPAs and curtails their right to practice their profession. The scale of fines under Section 12.4 of MC No. 13-2009 demonstrates this burden, as CPAs are left with no choice but to undergo the accreditation process should they wish to conduct a statutory audit of corporate financial statements, when such audit is part of the practice of accountancy for which their CPA license already suffices.

• Delegata potestas non potest delegari — A delegated power cannot be further delegated or redelegated by the original delegate to another. Congress delegated the power to regulate the accountancy profession exclusively to the Professional Regulatory Board of Accountancy under R.A. No. 9298; the Board cannot transfer this power to the SEC through a MOA. The Board must exercise the power as mandated, as a collegial body, and not discharge it through the intervening mind of another.

• Quoties in verbis nulla est ambiguitas, ibi nulla expositio contra verba fienda est — When there is no ambiguity in the language of an instrument, no interpretation is to be made contrary to the words. Applied to hold that the SRC and Corporation Code provisions granting the SEC authority over "corporations, partnerships or associations" and "every corporation" clearly apply to juridical entities only and cannot be extended to individual CPAs.

• Ultra vires administrative issuances — Administrative agencies possess only such powers as are expressly granted by law or necessarily implied therefrom. An agency cannot exercise a power already expressly granted by Congress to another body. Issuances made beyond an agency's authority are null and void.

• Accreditation as licensing requirement — When compliance with an accreditation requirement is a precondition to practicing a profession before a particular entity, the accreditation takes the form of a licensing requirement that amounts to an additional burden on professionals already holding a valid license, thereby curtailing their right to practice. (Following Airlift Asia Customs Brokerage, Inc. vs. Court of Appeals)

• Statutory construction — whole-act rule — Courts must take the thought conveyed by the statute as a whole, construe the constituent parts together, ascertain the legislative intent from the whole act, consider each provision in light of the general purpose, and endeavor to make every part effective, harmonious, and sensible. All powers granted under the SRC flow from the SEC's jurisdiction over corporations and cannot be extended to individual CPAs.

• "While petitioner may regulate corporations as well as the securities market, such regulation does not extend to an authority to restrict, even in the slightest degree, the practice of accountancy." — This passage articulates the boundary of the SEC's regulatory authority: it may regulate corporations and securities, but it cannot regulate the accountancy profession, which falls under the exclusive domain of the Board of Accountancy.

• "The accreditation itself is the barrier, however flimsy, which prevents the practice of external auditing of covered entities." — This defines the Court's characterization of the accreditation requirement as a licensing burden that curtails the right to practice, rejecting the SEC's argument that there is no barrier preventing CPAs from applying.

• "A private agreement such as the MOA cannot operate to validate a transgression of a provision of law." — This establishes the principle that administrative agencies cannot cure an ultra vires act through inter-agency agreements, as such agreements are subordinate to and cannot override statutory law.

• "CPAs are left with no choice but to go through the accreditation process should they wish to conduct a statutory audit of corporate financial statements, when in fact, such is part of the practice of accountancy for which their CPA license already suffices." — This passage captures the ratio decidendi on the restriction of the right to practice: the accreditation is an additional, unwarranted burden on CPAs whose existing license already authorizes them to perform statutory audits.

• Airlift Asia Customs Brokerage, Inc. vs. Court of Appeals, 739 Phil. 718 (2014) — Followed. The Court applied the doctrine that an accreditation requirement imposed by a government agency on professionals already holding a valid PRC license amounts to a licensing requirement that curtails the right to practice the profession. The same principle was applied to CPAs burdened with the SEC's accreditation requirement.

• Section 5(a), (d), (f), (g), (n), Securities Regulation Code (R.A. No. 8799) — Grants the SEC jurisdiction and supervision over corporations, partnerships, or associations; the power to regulate, investigate, or supervise activities to ensure compliance; impose sanctions; prepare, approve, amend, or repeal rules; and exercise other powers necessary or incidental to its express powers. The Court held these provisions pertain to juridical entities only and do not extend to individual CPAs.

• Section 68, Securities Regulation Code (R.A. No. 8799) — Grants the SEC authority to make, amend, and rescind accounting rules and regulations necessary to carry out the provisions of the Code. The Court held this must be read together with Section 5(a) and thus flows from the SEC's jurisdiction over corporations, not individual CPAs.

• Section 141, Corporation Code — Requires every corporation doing business in the Philippines to submit an annual report with a financial statement certified by an independent CPA, "and such other requirements as the Securities and Exchange Commission may require." The Court held this provision pertains to corporations and does not extend to individual CPAs.

• Section 9, R.A. No. 9298 (Philippine Accountancy Act of 2004) — Enumerates the powers and functions of the Professional Regulatory Board of Accountancy, including supervising the registration, licensure, and practice of accountancy; promulgating accounting and auditing standards, rules, and regulations; and conducting oversight into the quality of audits of financial statements. The Court held this provision exclusively delegates to the Board the power to regulate the accountancy profession.

• Section 31, R.A. No. 9298 (Philippine Accountancy Act of 2004) — Provides that CPAs engaged in the practice of public accountancy shall register with the Commission and the Board, and that the Board shall promulgate rules and regulations for the implementation of registration requirements including fees and penalties, subject to the approval of the Commission. The Court held this provision exclusively lodges accreditation authority with the Board, which cannot be delegated to the SEC.

• Article 1306, New Civil Code — Provides that contracting parties may establish stipulations, clauses, terms, and conditions as they deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Cited to support the ruling that the MOA, as a private agreement, cannot validate a transgression of a provision of law.

Gesmundo, C.J., Leonen, SAJ., Caguioa, Hernando, Inting, Zalameda, M. Lopez, Gaerlan, J. Lopez, Dimaampao, Marquez, Kho, Jr., and Singh, JJ., concurred.

Lazaro-Javier, J., filed a concurring opinion. The text of the concurring opinion is not included in the provided source material; its reasoning cannot be summarized from the available text.