EN BANC
[ G.R. No. 246027, January 28, 2025 ]
SECURITIES AND EXCHANGE COMMISSION, PETITIONER, VS. 1ACCOUNTANTS PARTY-LIST, INC., REPRESENTED BY ITS PRESIDENT, CHRISTIAN JAY D. LIM, CHRISTIAN JAY D. LIM IN HIS PERSONAL CAPACITY AS CPA, FROILAN G. AMPIL, ALLAN M. BASARTE, VIRGILIO F. AGUNOD, AND JONAS P. MASCARIÑAS, RESPONDENTS.
DISSENTING OPINION
CAGUIOA, J.:
In this present second Motion for Reconsideration of petitioner Securities and Exchange Commission (SEC), the ponencia reconsiders its Decision1 dated June 21, 2022 (main decision). The ponencia now declares as valid Rule 68, paragraph 3 of the Implementing Rules and Regulations (IRR) of Republic Act (R.A.) No. 8799 or the Securities Regulation Code (SRC), as amended, and SEC Memorandum Circular No. 13, s. 2009, thereby holding that the SEC is authorized to require the accreditation of Certified Public Accountants (CPAs) acting as external auditors of corporations issuing registered securities and possessing secondary licenses (otherwise referred to as covered entities).
With due respect, I disagree with this complete turnabout. I maintain my concurrence in the main decision and submit that Rule 68, paragraph 3 of the IRR of R.A. No. 8799, as amended, and SEC Memorandum Circular No. 13, s. 2009 are null and void.
The ponencia posits that under Section 5(n) of the SRC, the SEC is authorized to exercise not only express powers but also those which may be implied from, or which are necessary or incidental to carry out, the express powers granted to it in order to achieve the objectives and purposes of the law. Section 72 also provides in part that the SEC may issue, amend, and rescind such rules and regulations and orders necessary or appropriate, including rules and regulations defining accounting, technical, and trade terms used in the SRC. The ponencia then reads these provisions together with Section 5(d) of the SRC, which provides the SEC with the power to regulate, investigate or supervise the activities of persons to ensure compliance.
The ponencia further cites R.A. No. 11232 or the Revised Corporation Code of the Philippines (RCC) to support the above position. According to the ponencia, Section 179(p) of the RCC similarly grants the SEC the power to exercise such other powers provided by law or those which may be necessary or incidental to carrying out the powers expressly granted to it. As well, to promote corporate governance and protect minority investors, Section 179(d) of the RCC allegedly empowers the SEC to issue rules and regulations consistent with international best practices.
To be sure, the doctrine of necessary implication provides that what is implied in a statute is as much a part thereof as that which is expressed.2 This is in recognition of the fact that no statute can be enacted that can provide all the details involved in its application. There is always an omission that may not meet a particular situation and there may be so-called gaps in the law that develop as it is enforced.3 The premise, therefore, is that there must be a gap or omission that justifies the operation of the doctrine to begin with. In this case, however, there is actually no gap or omission to speak of, as in fact, the accreditation of individual CPAs, which includes external auditors of covered entities, is expressly vested by R.A. No. 9298 or the Philippine Accountancy Act of 2004 to the Professional Regulatory Board of Accountancy (BOA) and the Professional Regulation Commission of the Philippines (PRC).4 As likewise observed by the ponencia, the accreditation by the SEC is merely complementary or is just an additional layer of supervision and regulation to that of the BOA's in order to comply with the more stringent requirements demanded of regulated entities.5
The above laudable objectives of the SEC, notwithstanding, the SEC cannot validly claim to be vested with a supposed implied power to accredit external auditors of covered entities in light of the fact that the power to accredit CPAs resides in another agency. The ruling in Gatchalian v. Urrutia,6 by analogy, is instructive. In ruling whether the power of the vice-mayor to appoint officials and employees of the sangguniang panlungsod carries with it the power to discipline the same officials and employees, the Court elaborated in this wise:
Urrutia invokes the doctrine of implication in relation to Section 456(a)(2) of the Local Government Code of 1991, stating that the vice-mayor's power to appoint officials and employees of the sangguniang panlungsod carries with it the power to discipline the same officials and employees, absent any contrary statutory provision. This doctrine was also used as basis by the CSC and CA for its rulings. Section 456(a)(2) reads:
Section 456. Powers, Duties and Compensation.
(a) The city vice-mayor shall:
x x x x
(2) Subject to civil service law, rules and regulations, appoint all officials and employees of the sangguniang panlungsod, except those whose manner of appointment is specifically provided in this Code;
x x x x
. . . .
Second, the Court highlights that there is an exception to the doctrine of implication expressed in the phrase "absent any contrary statutory provision. " The power to remove is impliedly included in the power to appoint except when such power to remove is expressly vested by law in an office or authority other than the appointing power. In short, the general rule is that power to appoint carries with it the power to discipline. The exception is when the power to discipline or to remove is expressly vested in another office or authority. The exception applies to the case at bar.
There is a clear contrary statutory provision expressed in Section 8(b)(1)(jj) of RA 8526 or the Charter of Valenzuela City.7 (Emphasis supplied, citations omitted).
The ponencia further points out, however, that the requirement that the financial statements of certain entities should be audited by SEC-accredited CPAs is justified, since the RCC allows the SEC to issue rules in relation to corporate reportorial requirements. According to the ponencia, while the general rule in Section 177 of the RCC is that the auditor of the annual financial statement of a corporation only needs to be an independent CPA, the addition of the phrase "[e]xcept as otherwise provided in this Code or in the rules issued by the Commission"8 manifests the Legislature's intent to allow the SEC to formulate exceptions to such general rule, such as requiring the independent CPA to also be SEC-accredited.
Again, I respectfully beg to differ.
Section 177 of the RCC reads in part:
SEC. 177. Reportorial Requirements of Corporations. – Except as otherwise provided in this Code or in the rules issued by the Commission, every corporation, domestic or foreign, doing business in the Philippines shall submit to the Commission:
(a) Annual financial statements audited by an independent certified public accountant: Provided, That if the total assets or total liabilities of the corporation are less than Six hundred thousand pesos (₱600,000.00), the financial statements shall be certified under oath by the corporation's treasurer or chief financial officer; and
(b) A general information sheet. (Emphasis supplied)
Clearly, the phrase "[e]xcept as otherwise provided in this Code or in the rules issued by the Commission"9 precedes and modifies the phrase "every corporation, domestic or foreign, doing business in the Philippines shall submit to the Commission."10 What it simply means, therefore, is that as a general rule, every corporation, whether domestic or foreign but doing business in the Philippines, is obliged to submit annual financial statements and a general information sheet to the SEC. However, as an exception, the RCC or the SEC may exempt a corporation from this submission requirement.
Quite tellingly, as the ponencia itself discusses,11 the precursor bills of the RCC, House Bills Nos. 528 and 877, suggested that Section 177 be amended to include that the annual financial statements to be submitted by corporations be audited by an independent CPA who is accredited by the BOA and who possesses such other accreditation as the Commission may require. This last phrase, however, was ostensibly not carried over or adopted in the final bill, House Bill No. 8374.
Similarly, the Senate version, Senate Bill No. 1280, originally provided in its Committee Report version that the annual financial statements to be submitted by corporations be audited by an independent CPA accredited by the Commission.12 However, as with its counterpart before the House of Representatives the requirement of accreditation by the Commission was also left out in the final version of the bill.13
Hence, what has been finally crafted in Section 177 of the RCC, as shown earlier, is only a requirement that the annual financial statements be audited by an independent CPA—and nothing more.
What is abundantly clear from the foregoing legislative history of Section 177 of the RCC is that the Legislature deliberately did not include an accreditation by the SEC as an additional requirement for an independent CPA who audits a corporation's annual financial statement. The Legislature contemplated it when it crafted the amendment of then Section 141 of the former Corporation Code. It could have facilely retained the draft of an additional requirement in Section 177 of the RCC, but it clearly did not do so. The only logical conclusion from this is that the Legislature did not intend to require independent CPAs to be SEC-accredited as well.
Given the language of Section 177 of RCC, therefore, it does not matter if there are current pieces of legislation governing the banking and insurance industries, cooperatives, and tax agents that allow various regulators to accredit external auditors.14 The fact still remains that no piece of legislation allows the same at present, insofar as external auditors of covered entities are concerned. The Court cannot simply impute into the RCC and the SRC a requirement that the Legislature obviously chose not to incorporate.
Verily, Rule 68, paragraph 3 of the IRR of the SRC and SEC Memorandum Circular No. 13, s. 2009, which both require the accreditation by the SEC of CPAs acting as external auditors of covered entities, are null and void for being ultra vires. While the authority of the SEC to issue these assailed issuances to carry out the express legislative purpose of the SRC, or to effect its operation and enforcement is recognized,15 it is imperative that the administrative issuances it issues must not subvert the SRC or be contrary to any other existing statutes.16 Well-settled is the rule that the power of administrative agencies is confined to implementing the law or putting it into effect. It can neither extend the law and amend a legislative enactment, nor even engraft additional non-contradictory requirements not contemplated by the Legislature.17 Thus, here, that Rule 68, paragraph 3 of the IRR of the SRC and SEC Memorandum Circular No. 13, s. 2009 are intended to aid the SEC in realizing its mandate only begs the question.18 The purpose, no matter how commendable, should not detract from the fact that the assailed issuances have enlarged the provisions of the law it administers and enforces.19 Simply put, the best intentions of the SEC in promulgating the assailed issuances cannot be denied, but this end will not justify the means.20
Moreover, I disagree with the ponencia's new finding that Airlift Asia Customs Brokerage, Inc. v. Court of Appeals21 (Airlift Asia) is not on all fours with the present case after all. In reversing its finding in the main decision and ruling that the case does not apply, the ponencia thus held:
First, unlike the Accountancy Act, the Customs Brokers Act of 2004 expressly provides that those who pass the licensure examination shall be allowed to practice the customs broker profession in any collection district "without the need of securing another license from the BOC." Hence, the subject CAO in Airlift Asia contravened an express provision of law whereas the assailed regulations here did not contravene any express provision of law.
Second, We held in Airlift Asia that the mandate of the BOC Commissioner to enforce tariff laws and prevent smuggling does not necessarily include the power to regulate and supervise the customs broker profession. Here, the express power of the SEC to regulate and supervise the activities of persons to ensure compliance necessarily, if not impliedly or incidentally, includes the power to regulate and supervise the activities of external auditors of covered entities.
Third, while the SEC's power to issue rules may be considered a general power as compared to the specific power granted by the Accountancy Act to the BOA to promulgate rules involving the regulation of the practice of accountancy, the rule of statutory construction that general rule-making power gives way to the specific grant of power applies only in instances of conflict between the two. Respondents have not shown any conflict between the SEC's accreditation of external auditors and the BOA's specific power to supervise their practice. Au contraire, the fact that the country's financial sector regulators were able to ink a multilateral MOA with the BOA on the accreditation of external auditors, aimed at promoting ease of doing business and adherence to internationally recognized standards in auditing, is a clear indication that there is no conflict between the general power of the SEC and the specific power of the BOA, the former being complementary to the latter.
Finally, unlike in Airlift Asia where we observed that a large part of a customs broker's work involves practice before the BOC, thus compelling practically all customs brokers to comply with the accreditation requirement for them to practice their profession, it could not be said that a large part of a CPA's work involves practice before the covered entities. In fact, as aptly observed by petitioner, the assailed regulations apply to less than 3% of registered corporations and those who do not wish to apply for accreditation can still be engaged by the remaining 97%. CPAs are not even prevented from working for entities covered by the assailed regulations for as long as they are not engaged to do statutory audit of financial statements. Hence, BOC accreditation of customs brokers cannot be reasonably compared with SEC accreditation of external auditors.22 (Citation omitted)
The first two arguments in the ponencia have been sufficiently addressed in the earlier discussion that Rule 68, paragraph 3 of the IRR of the SRC and SEC Memorandum Circular No. 13, s. 2009 are ultra vires, and the SEC cannot validly claim justification for issuing the same on the basis of the doctrine of necessary implication. The fact that R.A. No. 9298 or the Philippine Accountancy Act of 2004 does not expressly mirror the language of R.A. No. 9280 or the Customs Brokers Act of 2004, i.e., "without the need of securing another license from the BOC,"23 does not negate the BOA's exclusive authority to accredit CPAs. To reiterate, R.A. No. 9298 expressly vests such authority to the BOA and neither the SRC nor the RCC similarly vests the same to the SEC. As shown earlier, as well, Congress could have included such authority when it amended the RCC in 2019, yet, it ultimately opted not to.
Additionally, the supposed express power of the SEC "to regulate and supervise the activities of persons to ensure compliance"24 under Section 5(d) of the SRC does not necessarily, impliedly, or incidentally, include the power to regulate and supervise the activities of external auditors of covered entities. Following Associate Justice Amy C. Lazaro-Javier's (Justice Lazaro-Javier) accurate observation in her Concurring Opinion in the main decision, Section 5(d) must be read together with the other provisions of the SRC and the related relevant provisions of the RCC. The regulation and supervision of activities of persons adverted to in Section 5(d) should be interpreted to pertain to the regulation of certain activities of the "thinking heads or managers"25 of corporations or similar bodies that are clearly under the jurisdiction of the SEC. The regulation and supervision of activities provided for in Section 5(d) cannot be interpreted to extend to just about any person and any activity, including CPAs and the practice of accountancy.
Furthermore, the Memorandum of Agreement (MOA) the SEC executed with the BOA, which allows the accreditation of the CPAs with the SEC, does not dispel the conflict between the authority of the BOA and the assailed issuances to accredit CPAs. The fact that the assailed issuances directly contravene R.A. No. 9298 and enlarge the provisions of the SRC should settle the validity of the subject MOA. In other words, the MOA cannot cure the defects of the assailed issuances. More importantly, as declared in the main decision more cogently:
Petitioner further argues that it executed a MOA with the Board which allows for such accreditation with the SEC. However, We remind petitioner of another legal maxim, "delegata potestas non potest delegari" or what has been delegated by Congress can no longer be further delegated or redelegated by the original delegate to another:
x x x having been reposed by law exclusively with the respondent Board, it has no choice but to exercise the same as mandated by law, i.e., as a collegial body, and not transfer it elsewhere or discharge said power through the intervening mind of another. Delegata potestas non potest delegari — a delegated power cannot be delegated." . . .
Moreover, a private agreement such as the MOA cannot operate to validate a transgression of a provision of law. Thus, the MOA is void and cannot serve as authorization for the petitioner to make the assailed issuances.26 (Emphasis in the original, citations omitted)
Finally, it should be of no moment that the assailed issuances affect only a small number of CPAs. The reach of a law or administrative issuance is not determinative of the validity thereof. The fact remains that the assailed issuances here are null and void and have no place, therefore, in the annals of legislation and jurisprudence. Indeed, the right to practice a profession is only a privilege and a mere property right that holds the least weight in the scale of values. This does not mean, however, that the right does not deserve protection at all and must always give way to regulation easily. On this score, the Court's discussion in Airlift Asia is illuminating:
We are unconvinced by the BOC Commissioner's claim that CAO 3-2006's accreditation requirement is not a form of license. 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." Since it is only by complying with CAO 3-2006 that a customs broker can practice his profession before the BOC, the accreditation takes the form of a licensing requirement proscribed by the law. It amounts to an additional burden on PRC-certified customs brokers and curtails their right to practice their profession. Under RA 9280, a successful examinee of the customs brokers examinations acquires a Certificate of Registration, which entitles him to practice the profession as a customs broker with all the benefits and privileges appurtenant thereto.27 (Emphasis in the original, citations omitted)
Here, the assailed issuances' accreditation requirement is also a form of license since it is only by complying with the same that CPAs can practice their profession as external auditors of corporations issuing registered securities and possessing secondary licenses. This imposes an additional burden on CPAs who are already certified, registered, and accredited by the BOA and the PRC, and curtails their right to practice as an external auditor of said covered entities, which, as aptly noted by Justice Lazaro-Javier, is part and parcel of the practice of accountancy.28 As with Airlift Asia, as well, R.A. No. 9298 likewise provides that successful examinees of the licensure examinations for accountants acquire a Certificate of Registration, which entitles them to practice the profession with all the benefits and privileges appurtenant thereto.29 For the practice of public accountancy, in particular, CPAs must also be a holder of a certificate of accreditation and R.A. No. 9298 expressly vests the authority to issue the same to the BOA and the PRC.30
In view of the foregoing, I maintain my vote to declare Rule 68, paragraph 3, of the IRR of R.A. No. 8799, as amended, and SEC Memorandum Circular No. 13, s. 2009 null and void.
For the ponente's consideration.
Footnotes
1 Securities and Exchange Commission v. 1Accountants Party-List Inc., 923 Phil. 590 (2022) [Per J. Rosario, En Banc].
2 See Department of Environment and Natural Resources (DENR) v. United Planners Consultants, Inc. (UPCI), 754 Phil. 513, 530 (2015) [Per J. Perlas-Bernabe, First Division].
3 Id.
4 Republic Act No. 9298 (2004), sec. 31, provides:
SEC. 31. Accreditation to Practice Public Accountancy. – Certified public accountants, firms and partnerships of certified public accountants, engaged in the practice of public accountancy, including partners and staff members thereof, shall register with the Commission and the Board, such registration to be renewed every three (3) years, Provided, That subject to the approval of the Commission, the Board shall promulgate rules and regulations for the implementation of registration requirements including the fees and penalties for violation thereof. (Emphasis in the original)
5 Ponencia, p. 8.
6 921 Phil. 97 (2022) [Per J. Hernando, Second Division].
7 Id. at 106-108.
8 Emphasis supplied.
9 Republic Act No. 11232 (2019), sec. 177. (Emphasis supplied)
10 Id.
11 Ponencia, p. 11.
12 Senate Bill No. 1280 (2016), 17th Congress, 1st Session, sec. 66.
13 Senate Bill No. 1280 (2018), 17th Congress, 3rd Session, sec. 178(1).
14 Ponencia, pp. 12-13.
15 See Lokin, Jr. v. COMELEC, 635 Phil. 372, 392 (2010) [Per J. Bersamin, En Banc].
16 Id.
17 Id. at 392, 394.
18See Genuino v. De Lima, 829 Phil. 691, 728 (2018) [Per J. Reyes, Jr., En Banc], where the Court stated:
The DOJ is confined to filling in the gaps and the necessary details in carrying into effect the law as enacted. Without a clear mandate of an existing law, an administrative issuance is ultra vires.
Consistent with the foregoing, there must be an enabling law from which DOJ Circular No. 41 must derive its life. Unfortunately, all of the supposed statutory authorities relied upon by the DOJ did not pass the completeness test and sufficient standard test. The DOJ miserably failed to establish the existence of the enabling law that will justify the issuance of the questioned circular.
That DOJ Circular No. 41 was intended to aid the department in realizing its mandate only begs the question. The purpose, no matter how commendable, will not obliterate the lack of authority of the DOJ to issue the said issuance. Surely, the DOJ must have the best intentions in promulgating DOJ Circular No. 41, but the end will not justify the means. (Citation omitted)
19 Id.
20 Id.
21 739 Phil. 718 (2014) [Per J. Brion, Second Division].
22 Ponencia, pp. 13-14.
23 Id., citing Republic Act No. 9280 (2004), sec. 19.
24 Id. at 14. (Emphasis supplied)
25 J. Lazaro-Javier, Concurring Opinion in Securities and Exchange Commission v. 1Accountants Party-List, Inc., supra note 1, at 612.
26 Securities and Exchange Commission v. 1Accountants Party-List, Inc., supra note 1, at 605.
27 Airlift Asia Customs Brokerage, Inc. v. Court of Appeals, supra note 21, at 730.
28 See J. Lazaro-Javier, Concurring Opinion in Securities and Exchange Commission v. 1Accountants Party-List, Inc., supra note 1, at 611.
29 Republic Act No. 9298 (2004), sec. 20, states:
SEC. 20. Issuance of Certificates of Registration and Professional Identification Card. – A certificate of registration shall be issued to examinees who pass the licensure examination subject to payment of fees prescribed by the Commission. The Certificate of Registration shall bear the signature of the chairperson of the Commission and the chairman and members of the Board, stamped with the official seal of the Commission and of the Board, indicating that the person named therein is entitled to the practice of the profession with all the privileges appurtenant thereto. The said certificate shall remain in full force and effect until withdrawn, suspended or revoked in accordance with this Act. (Emphasis in the original)
30 Republic Act No. 9298 (2004), secs. 28, 31, viz.:
SEC. 28. Limitation of the Practice of Public Accountancy. – Single practitioners and partnerships organized for the practice of public accountancy shall be registered certified public accountants in the Philippines; Provided, That from the effectivity of this Act, a certificate of accreditation shall be issued to certified public accountants in public practice only upon showing, in accordance with rules and regulations promulgated by the Board and approved by the Commission, that such registrant has acquired a minimum of three (3) years meaningful experience in any of the areas of public practice including taxation[.]
. . . .
SEC. 31. Accreditation to Practice Public Accountancy. – Certified public accountants, firms and partnerships of certified public accountants engaged in the practice of public accountancy, including partners and staff members thereof, shall register with the Commission and the Board, such registration to be renewed every three (3) years, Provided, That subject to the approval of the Commission, the Board shall promulgate rules and regulations for the implementation of registration requirements including the fees and penalties for violation thereof. (Emphasis in the original)
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