1. 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 5
of the “Rules Governing the Automatic Cost Adjustment Mechanisms and True–
Up Mechanisms and Corresponding Confirmation Process for Distribution
Utilities”, the Energy Regulatory Commission (ERC) hereby adopts and
promulgates these Rules to establish a procedure for the conduct of verification
process by external auditors and auditing firms that would govern in the ERC’s
confirmation process for the automatic cost adjustments and true-up
mechanisms.
ARTICLE I
GENERAL PROVISIONS
SECTION 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 TERMS
2.1 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. 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 PROCESS
SECTION 3. PROFESSIONAL QUALIFICATION REQUIREMENTS
Only those applicants who possess the following professional
qualifications 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

3. “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 of
partnerships or auditing firms who may either be sole proprietorships or
partnerships, 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

4. Two (2) copies of most recent 1” x
1” ID picture of the applicant
Two (2) copies of résumé (duly
signed on all pages) of the
applicant which shall contain the
following 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

5. Photocopy of the Certificate of Photocopy of the Certificate of
Accreditation as a public Accreditation as a public
practitioner issued by the practitioner issued by the
BOA/PRC which should be current BOA/PRC which should be
and 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
firm
Proof of payment of appropriate Proof of payment of appropriate
professional/privilege tax professional/privilege tax by the
firm
Certified copies of all business
permits issued by the local and/or
national government
Proof of audit experience, such as
list of clients showing engagement
period and audited financial
statements of such clients with the
audit report duly signed by the
applicant
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 procedures
Certificate of Good Moral Certificate of no pending
Character issued by two (2) administrative and criminal case
disinterested persons, who are from appropriate authorities
members in good standing of
PICPA
Proof of payment of application fee
in the amount of PhP3,000.00

6. 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)
years
4.2 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;

7. SECTION 5. EVALUATION PROCEDURE FOR ACCREDITATION
5.1. 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 the
following 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 another
6.4. 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 RENEWAL
7.1 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.

8. ARTICLE III
RESPONSIBILITIES AND CONDITIONS FOR
ENGAGEMENT REQUIREMENTS
SECTION 8. SCOPE OF RESPONSIBILITIES OF AN ERA
8.1 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 services
to 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

9. 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
CONTRACT
10.1 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. 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 shall
strictly follow the timelines as set in the RfP and ToR.
The ERC may, at its discretion, issue an Order before, during, and after
the referral of the case, to the ERA for the submission of specific reports within
a period as prescribed in the RfP and ToR. In all instances, these submissions
must be accompanied by a notarized certification on the completeness,
accuracy and veracity of the statements and findings therein.
ARTICLE IV
SANCTIONS AND CANCELLATION OF ACCREDITATION
SECTION 12. SANCTIONS
12.1 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.

11. 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 be
revoked, after due notice and giving the concerned ERA an opportunity to be
heard, 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;
and
13.7 Any other justifiable cause as may be determined by the ERC.

12. ARTICLE V
FINAL PROVISIONS
SECTION 14. SEPARABILITY CLAUSE
If for any reason, any part or section of these Rules is declared
unconstitutional or invalid, the other parts or sections hereof which are not
affected thereby shall continue to be in full force and effect.
SECTION 15. EFFECTIVITY
These Rules shall take effect immediately following its publication in a
newspaper 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 Commissioner
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