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Rules on external_auditors
 

Rules on external_auditors

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    Rules on external_auditors Rules on external_auditors Document Transcript

    • RULES ON ACCREDITATION OF EXTERNAL AUDITORS AND AUDITING FIRMS FOR THE PURPOSE OF CONDUCTING VERIFICATION OF THE DOCUMENTS SUBMITTED BY DISTRIBUTION UTILITIES RELATIVE TO THEIR COMPLIANCE FILING APPLICATIONS WITH THE ENERGY REGULATORY COMMISSION Pursuant to Section 43 (s) and (t) of Republic Act No. 9136 or the Act,Rule 7 of its Implementing Rules and Regulations (IRR) and Article 5, Section 5of the “Rules Governing the Automatic Cost Adjustment Mechanisms and True–Up Mechanisms and Corresponding Confirmation Process for DistributionUtilities”, the Energy Regulatory Commission (ERC) hereby adopts andpromulgates these Rules to establish a procedure for the conduct of verificationprocess by external auditors and auditing firms that would govern in the ERC’sconfirmation process for the automatic cost adjustments and true-upmechanisms. ARTICLE I GENERAL PROVISIONSSECTION 1. OBJECTIVES These Rules shall have the following objectives:1.1 To put in place a fair and transparent process for the accreditation of external auditors and auditing firms that may be engaged by the DUs to audit their automatic cost adjustments and true–up charges subject of the ERC’s confirmation process.1.2 To ensure that the accredited external auditors and auditing firms possess the required professional qualifications necessary to undertake the audit of the DUs’ automatic cost adjustments and true–up charges.1.3 To define the scope/extent of authority of the accredited external auditors and auditing firms, the conditions for their engagement by the DUs and other responsibilities imposed on them.SECTION 2. DEFINITION OF TERMS2.1 Auditing Firm – shall refer to the firm owned or operated by a sole proprietor Certified Public Accountant (CPA) or a professional partnership providing audit services.2.2 Certified Public Accountants (CPAs) – shall refer to those persons who hold valid certificates issued by the Board of Accountancy (BOA) and are licensed to practice the profession of public accountancy in the Philippines.
    • 2.3 Distribution Utilities (DUs) – shall refer to any electric cooperative, private corporation, government–owned utility or owned and operated by an existing local government unit which has an exclusive franchise to operate an electricity distribution system in accordance with Section 4(q) of Republic Act No. 9136.2.4 Energy Regulatory Commission (ERC) – shall refer to the regulatory agency created under Section 38 of Republic Act No. 9136.2.5 External Regulatory Auditor (ERA) – shall refer to an independent CPA or an auditing firm accredited by the ERC, whose relationship to the client is to perform regulatory audit services as required by the ERC.2.6 Individual Practitioner – shall refer to an individual CPA engaged in the practice of public accountancy.2.7 Partner – shall refer to one of the individuals or persons who is part or is a member of a partnership (general professional partnership of CPAs) with the sole purpose of exercising a common profession.2.8 Partnership – shall refer to a general professional company/association of CPAs forming an auditing firm engaged in the practice of public accountancy and duly registered with the Securities and Exchange Commission (SEC) and accredited by the BOA.2.9 Sole Proprietorship – shall refer to an auditing firm owned or operated by an individual practitioner engaged in the practice of public accountancy and duly registered with the Department of Trade and Industry (DTI) and accredited by the BOA.2.10 Verification Process – shall refer to ERA’s systematic process of objectively validating, determining the authenticity, presence and completeness of records of a DU based on established criteria to determine if they are in accordance with the rules, regulations, guidelines and procedures promulgated or issued by the ERC. ARTICLE II ACCREDITATION PROCESSSECTION 3. PROFESSIONAL QUALIFICATION REQUIREMENTS Only those applicants who possess the following professionalqualifications shall be accredited by the ERC as ERA:3.1. For Individual Practitioners and Individual Partners in Partnership Auditing Firms 3.1.1 Must be duly registered with the Professional Regulation Commission (PRC), engaged in public accountancy as defined under Republic Act No. 9298 (R.A. No. 9298), otherwise known as
    • “The Philippine Accountancy Act of 2004” and accredited by the Board of Accountancy (BOA) for the practice of public accountancy. 3.1.2 At the time of the application, the applicant shall have at least five (5) years experience performing external audit services. The audit experience must have been acquired as an in-charge, manager or partner or their equivalent. 3.1.3 At the time of the application, must have no outstanding complaints with the BOA, PRC, SEC and any other government agencies involving professional conduct.3.2 For Auditing Firms 3.2.1 The firm must be duly accredited by the BOA for the practice of public accountancy. 3.2.2 At the time of application, the firm must be in operation for at least five (5) years and must be engaged in the performance of external audit services for the same period of time. 3.2.3 Must have no outstanding complaints with the BOA, PRC, SEC and any other government agencies involving professional conduct. 3.2.4 At the time of application, must have at least one (1) signing practitioner or partner who is already accredited or who is qualified and is applying for accreditation by the ERC.SECTION 4. APPLICATION REQUIREMENTS All applicants either individual practitioners or individual partners ofpartnerships or auditing firms who may either be sole proprietorships orpartnerships, located in the National Capital Region or in other regional areas,applying for accreditation with the ERC shall be required to submit the following:4.1 Application for Accreditation. New applicants shall submit a duly accomplished and notarized application form (annexed to these Rules), together with the documents listed hereunder, duly labeled and placed in a long folder. Individual Practitioners, Individual CPA Partners of Auditing Firm Partnerships, Individual (Sole Proprietorships and Auditors Under the Employ of Partnerships) Auditing Firms Application letter addressed to the Application letter addressed to the ERC duly signed by the applicant ERC duly signed by the proprietor, in case of a sole proprietorship, or the managing partner, in case of a partnership
    • Two (2) copies of most recent 1” x1” ID picture of the applicantTwo (2) copies of résumé (dulysigned on all pages) of theapplicant which shall contain thefollowing information: 1. Name, complete address and contact number 2. Educational background - Attach photocopies of college diploma and scholastic transcript of record 3. Employment background - Name/s of company/ies, position, status of appointment, inclusive dates of appointment 4. List of trainings/seminars attended (title, date, number of hours credited, venue, organizer) - Attach photocopies of most recent certificate of attendance/participation in any relevant trainings/ seminars/workshops/ conventions, etc. 5. Examinations passed or licenses /eligibility obtained / acquired - Attach photocopy of the PRC License and/or certificates or any evidence of examinations/ eligibilities passed. 6. Skills and specializations
    • Photocopy of the Certificate of Photocopy of the Certificate ofAccreditation as a public Accreditation as a publicpractitioner issued by the practitioner issued by theBOA/PRC which should be current BOA/PRC which should beand effective current and effective. It should include a copy of the list issued by the BOA which indicates the names of qualified partner/s of the firmProof of payment of appropriate Proof of payment of appropriateprofessional/privilege tax professional/privilege tax by the firm Certified copies of all business permits issued by the local and/or national governmentProof of audit experience, such aslist of clients showing engagementperiod and audited financialstatements of such clients with theaudit report duly signed by theapplicant Copy of Quality Assurance Manual containing adequate audit procedures that will ensure full compliance with accounting and regulatory requirements and a written general description of client acceptance and retention policies, consultation process, procedures for monitoring professional ethics and independence from clients, risk management policies, and review and evaluation proceduresCertificate of Good Moral Certificate of no pendingCharacter issued by two (2) administrative and criminal casedisinterested persons, who are from appropriate authoritiesmembers in good standing ofPICPAProof of payment of application feein the amount of PhP3,000.00
    • Undertaking under oath that the Undertaking under oath that the applicant shall fully cooperate with firm shall fully cooperate with the the ERC’s working requirements ERC’s working requirements including the preservation of including the preservation of working papers, supporting working papers, supporting documents, reports, as well as documents, reports, as well as electronic copies of the same, for a electronic copies of the same, for period of seven (7) years and a period of seven (7) years and making them available to the ERC making them available to the ERC and its representatives when and its representatives when required or directed to do so required or directed to do so Copy of audited financial statements of the firm for the immediately preceding two (2) years4.2 Renewal of Accreditation. Applicants applying for a renewal of accreditation, within sixty (60) days prior to its expiration, shall submit a duly accomplished and notarized application form (annexed to these Rules), together with the documents listed hereunder, duly labeled and placed in a long folder. Individual Practitioners, Individual CPA Partners of Auditing Firm Partnerships, Individual (Sole Proprietorships and Auditors Under the Employ of Partnerships) Auditing Firms Photocopy of recent Certificate of Photocopy of recent Certificate of Accreditation as a public Accreditation as a public practitioner issued by the practitioner issued by the BOA/PRC BOA/PRC. It should include a copy of the list issued by the BOA which indicates the names of qualified partner/s of the firm. Copy of the previous ERC Copy of the previous ERC Certificate of Accreditation Certificate of Accreditation Photocopies of updated Photocopies of updated documents which were submitted documents which were submitted to the ERC during the previous to the ERC during the previous application for accreditation application for accreditation Payment of renewal fee in the amount of PhP3,000.00;
    • SECTION 5. EVALUATION PROCEDURE FOR ACCREDITATION5.1. Applications and all the required documents shall be evaluated by the authorized ERC staff within twenty (20) days from their submission, for its completeness and veracity.5.2. Any additional documents not previously listed in Section 4 hereof, but are deemed necessary, may be requested from the applicant within seven (7) days from receipt of the application.5.3. Applicants, whenever necessary, may be required to appear personally for an interview and/or present original/authenticated copies of the submitted documents for authentication purposes.SECTION 6. DISQUALIFICATION FROM ACCREDITATION Applicants shall be disqualified from accreditation by the ERC on thefollowing grounds:6.1. Those who have been found misrepresenting the auditing firms, in the case of partnership, and/or whose license have been revoked or cancelled by the PRC/BOA for any reason.6.2. Falsification of documents or forging of signatures of the authorized signing auditor or partners of the partnership firms.6.3. Those who have been found guilty by a competent court and/or by an administrative agency of any case involving crime, moral turpitude, fraud and/or unethical practices or of aiding or abetting or causing the commission of any such offense by another6.4. Those who have found withholding information on any case involving applicant’s professional conduct pending before a competent court and/or an administrative agency.SECTION 7. ISSUANCE OF CERTIFICATE OF ACCREDITATION AND RENEWAL7.1 For applications with incomplete documents, the ERC shall issue, within fifteen (15) days from review of the application, a written notice informing the applicant of the lacking requirements. For applications with incomplete documents, it shall be required to submit the lacking documents within five (5) days from receipt of the notice.7.2 A Certificate of Accreditation shall be issued to the applicant within five (5) days upon approval of the application by the ERC. The accreditation of an ERA shall be valid for a period of three (3) years from date of approval of accreditation subject to its renewal.7.3 Application for renewal shall be made through a letter, addressed to the Head of the ERC, not later than sixty (60) days before the expiration of the Certificate of Accreditation.
    • ARTICLE III RESPONSIBILITIES AND CONDITIONS FOR ENGAGEMENT REQUIREMENTSSECTION 8. SCOPE OF RESPONSIBILITIES OF AN ERA8.1 The accredited external auditor shall verify all the documents, which may also include the conduct of on-the-spot inspection of the records of the DUs, as part of the confirmation process of all the automatic cost adjustment mechanisms.SECTION 9. CONDITIONS FOR ENGAGEMENT OF AN ERA In the appointment of an ERA for purposes of providing auditing servicesto a specific DU, the following conditions for engagement must be met:9.1 Only individual practitioners, sole proprietorships and partnerships, signing partner of the auditing firm responsible for the engagement, who are accredited by the ERC, shall be engaged by DUs for the conduct of verification process.9.2 The ERA, including members of the engagement team to an audit and their immediate family should not have any direct or indirect financial interest in the DU subject for verification or should not have committed to acquire such direct or indirect financial interest, or his/her independence is considered impaired under the circumstances specified in the Code of Professional Ethics for Certified Public Accountants.9.3 The ERA including members of the engagement team should not be related up to the fourth degree civil of consanguinity or affinity to any officer or employee of the DU subject of this audit.9.4 The ERA, including members of the engagement team, should not be currently engaged or should not have been engaged during the past three (3) years in providing the below-listed non-audit services to the DU, unless the safeguards under the Code of Ethics for CPAs are undertaken by the ERA to eliminate any doubt as to its independence: a. Bookkeeping or other services related to the accounting records or financial statements of regulatory audit client DU/s; b. Management accounting; c. Preparation of Financial Statements; d. Internal audit functions; e. Actuarial Services; f. Appraisal or valuation services; g. Financial and other information systems design, implementation and assessment; h. Management functions or human resources; i. Broker or dealer, investment adviser or investment banking services; j. Legal services and expert services unrelated to audit; and
    • k. Such other services which could affect his/her independence as may be determined by the ERC or as may be declared as impermissible by the ERC. In case of a partnership, this limitation shall apply not only to the firm but also to the partners, associates and the auditor-in-charge of the engagement.9.5 For the immediate preceding three (3) years, the ERA, including members of the engagement team should not have held any position in the DU subject of the audit, relevant to the conduct of audit such as but not limited to Chief Executive Officer, Chief Operating Officer, President, General Manager, Chief Financial Officer, Finance Manager, Comptroller, Accountant, Bookkeeper, Audit Committee, Auditor.9.6 For the immediate preceding three (3) years, the ERA, including members of the engagement team should not have been an employee or officer of the DU subject of the audit, any of its affiliates and/or sister companies or have been a member of the Board of Directors of the said DU or any of its affiliates and/or sister companies.9.7 The ERA shall at all times during the terms of engagement, comply, observe and submit the following: a. Terms of its engagement letter/contract of services and its undertakings; b. Reportorial requirements and directives of the ERC; c. Provisions in these Rules relative to the delivery of services to the assigned DU; d. Code of Professional Ethics which include independence rules; and e. Other pertinent laws, rules and regulations.SECTION 10. TERMS OF REFERENCE (ToR) AND ENGAGEMENT CONTRACT10.1 Terms of Reference. The ERC shall issue the Terms of Reference (ToR) for each periodic regulatory audit that ERAs may be qualified to engage in. The said ToR shall be included in the Request for Proposals (RfP) which shall be transmitted to all ERAs of which the latter shall submit their respective proposals.10.2 Evaluation of Proposals. The ERC shall evaluate each proposal to determine which ERA shall be appointed for each DU undergoing verification process. In evaluating the proposals, the ERC shall consider the following: a. Manpower compliment to work on the project; b. Qualifications and experience of manpower; c. Period to complete the project and submission of the required reports and documents to the ERC; d. Procedures to be applied by the ERA; and e. Full details of the cost to be charged for the project.
    • 10.3 Engagement Contract. After selection by the ERC, the appointed ERA and the specific DU shall enter into an engagement contract based on the provisions as specified in the RfP and ToR and the approved proposal as evaluated. All the costs relative to the engagement contract shall be for the account of the DU and shall be included as a recoverable expense in the confirmation of automatic cost adjustments upon proof of actual payment made therein as provided in Article 5, Section 5 of the “Rules Governing the Automatic Cost Adjustment and True-Up Mechanisms and Corresponding Confirmation Process for Distribution Utilities”. The contract between the ERA and the DU shall contain a provision that the disclosure of information by the ERA to the ERC shall not be a ground for civil, criminal or disciplinary proceedings against the ERA.SECTION 11. REPORTORIAL REQUIREMENTS The required reports to be submitted by the ERA to the ERC which shallstrictly follow the timelines as set in the RfP and ToR. The ERC may, at its discretion, issue an Order before, during, and afterthe referral of the case, to the ERA for the submission of specific reports withina period as prescribed in the RfP and ToR. In all instances, these submissionsmust be accompanied by a notarized certification on the completeness,accuracy and veracity of the statements and findings therein. ARTICLE IV SANCTIONS AND CANCELLATION OF ACCREDITATIONSECTION 12. SANCTIONS12.1 Grounds for Imposition of Fines and Penalties. The following shall constitute a violation by an ERA of these Rules: 12.1.1 Failure to submit within the prescribed period the reports required by the ERC relative to the ERA’s terms of engagement 12.1.2 Any material misrepresentation in the following information or documents: a. Application for accreditation; b. Certifications submitted with the application; and c. Report required by the ERC. 12.1.3 Refusal for no valid reason, upon lawful order of the ERC, to submit requested documents in connection with an ongoing case. 12.1.4 Gross negligence in the conduct of the verification process to comply with any of the requirements of the ERC.
    • 12.1.5 Conduct of the verification process despite lack or eventual loss of independence as provided for under the Code of Professional Ethics for CPAs. 12.1.6 Conduct of any of the non-audit services enumerated under Section 9.4 of these Rules, if the ERA has not undertaken the safeguards as provided.12.2 Applicable Fines. Any violation of these Rules shall be subject to the fines and penalties as provided in Resolution No. 3, Series of 2009, entitled, “Resolution Amending the Guidelines to Govern the Imposition of Administrative Sanctions in the Form of Fines and Penalties Pursuant to Section 46 of Republic Act No. 9136”, as amended.12.3 Non-Monetary Sanctions. The imposition of penalties shall be without prejudice to other administrative, civil or criminal remedies that the ERC may pursue, including the revocation of the accreditation and the recommendation to proper disciplining authorities of the erring ERA for revocation or suspension of the authority to practice his/her profession.SECTION 13. REVOCATION OR CANCELLATION OF ACCREDITATION OR APPOINTMENT The accreditation or appointment herein granted or issued shall berevoked, after due notice and giving the concerned ERA an opportunity to beheard, under any of the following circumstances:13.1 Failure to settle the penalty within the prescribed period assessed for any of the violation under Section 12.1 hereof;13.2 Loss of any of the qualifications or having any of the disqualifications provided for in Section 3 of these Rules and continuous failure to comply with all the other requirements of these Rules;13.3 Withholding or concealing of information by an ERA or of the engagement team that may have an impact or implication on its report;13.4 Directly or indirectly attempting to influence, or offering or agreeing to attempt to influence the official action of any officer or employee of the ERC by the use of threats, false accusations, duress or coercion, or by offering any special inducement or promise of advantage or by bestowing any gift, favor or thing of substantial value;13.5 Certifying the accuracy and veracity of any report and other submissions to the ERC without conducting an actual verification/evaluation and review of the pertinent documents;13.6 In case of partnership’s dissolution, except for the purpose of admitting new partner/s, as evidenced by an Affidavit of Dissolution submitted to the BOA, or upon findings by the ERC that the partnership is dissolved; and13.7 Any other justifiable cause as may be determined by the ERC.
    • ARTICLE V FINAL PROVISIONSSECTION 14. SEPARABILITY CLAUSE If for any reason, any part or section of these Rules is declaredunconstitutional or invalid, the other parts or sections hereof which are notaffected thereby shall continue to be in full force and effect.SECTION 15. EFFECTIVITY These Rules shall take effect immediately following its publication in anewspaper of general circulation. Pasig City, February ___, 2012. ZENAIDA G. CRUZ-DUCUT Chairperson MARIA TERESA A.R. CASTAÑEDA JOSE C. REYES Commissioner Commissioner ALFREDO J. NON GLORIA VICTORIA C. YAP-TARUC Commissioner Commissionerrsl/ jacf/ ngc/ fscj2/21/2012 2:50 PM