AccountingSEC Increases Audit Threshold to ₱3 Million: How it Affects Financial Reporting in the Philippines

The SEC has implemented a huge change to the audit requirements for companies in the Philippines. The requirement to get an external audit has increased to PHP 3 million in Total Assets and Liabilities. This change in regulation means thousands of companies that fall within the criteria for either Stock or Non-Stock Corporations will no longer be required to pay yearly audit fees. However, there is a greater demand for reliable financial reporting services. Companies that fall foul of the new requirements may find themselves out of compliance with either the SEC or the BIR. Boards should be aware of the new requirements and ensure they understand what audit requirements apply to them. You should ensure you know what audit requirements apply to your company as you prepare your Financial Statements for the year-end (or later) of 2025 or later.

Understanding the SEC Audit Requirement 2026

The SEC Audit Requirement 2026 is a huge change to company financial reporting in the Philippines and has changed Revised SRC Rule 68. The previous requirement has been set at PHP 600,000 and has not changed for years despite inflation, property prices, and operating costs increasing. The increase to 5 times the previous amount, with the approval of the Department of Finance, will see companies that fall within the criteria no longer paying for external audits. This means you can utilize your capital to invest in your company but will still need to produce annual Financial Statements.

Total Assets and Liabilities Requirement:

Companies which are Stock or Non-Stock Corporations and have Total Assets or Total Liabilities of over PHP 3 Million will now be required to get an external audit. Companies that have less than or equal to PHP 3 Million in Total Assets and Total Liabilities will fall into the category of being a Micro Entity and will not be required to get an audit.

Reporting Requirement:

The requirement to have PHP 3 million in Total Assets and Total Liabilities has been applied to companies with Financial Statements for years ending on or after 31st December 2025. If your year-end is before this date, you will still be required to adhere to the PHP 600,000 requirement.

Statement of Management Responsibility:

Companies that do not require an audit will still be required to produce unaudited Financial Statements. However, you will need to provide a sworn Statement of Management Responsibility. This must be signed by the Chairman of the Board, President/CEO, and Treasurer/CFO of a normal Stock or Non-Stock Corporation.

Micro and Small Entity Definitions:

Micro Entities will now be defined as companies with Total Assets and Total Liabilities of less than or equal to PHP 3 Million. Small Entities will be defined as companies with Total Assets and Total Liabilities of over PHP 3 Million but less than PHP 100 Million. Micro Entities will be able to choose whether they want to use the Income Tax basis or PFRS for Small Entities.

Requirement to Upload on Portal:

You will still be required to submit your Financial Statements for your annual report. You will need to upload your full Financial Statements, including your Statement of Financial Position, Statement of Income, and Notes to Financial Statements (if applicable for 2 years).

Warning:

The SEC has put a warning in place that if you submit incomplete, inaccurate, false, and/or misleading unaudited Financial Statements, you will face severe administrative penalties. You will also be subject to an audit.

Impact on Audited Financial Statements in the Philippines

The new requirement will mean you should have a different view on preparing your Audited Financial Statements. Previously, almost any active company with some office equipment, Lease Improvements, and/or Paid-Up Capital would be above the PHP 600,000 requirement and would therefore be required to get an audit from an accredited external auditor. Now, companies that have minimal assets will be able to legally skip paying for an external audit. However, you should make sure you understand that just because you are not required to get an external audit, you will not be able to relax your controls.

Cash:

If you have any Cash on hand from your investors, escrow, and/or have significant amounts of Cash in your company bank account, you will need to record this as Current Assets. Even if you have a start-up with little physical assets, you will still be required to get an audit if your Cash Total Assets are over PHP 3 Million.

Liabilities:

The PHP 3 Million requirement will apply to both sides of your balance sheet. If you have Total Assets of less than PHP 1.5 Million but have Total Liabilities of PHP 3.5 Million (Bank Loans, Shareholder Advances, or Payables), you will still be required to produce Audited Financial Statements.

Personal Liability:

When an external auditor signs off on your Financial Statements, you will have an independent third party verifying your figures. If you are not getting an audit, the officers of the company signing the Statement of Management Responsibility will be personally liable for the figures.

Bank and Investor Requirements:

Statutory exemptions do not apply to private financial institutions. If you are a Bank, Venture Capital Firm, or Grant Institution, you will often require Audited Financial Statements.

Documentation:

Companies that will not be getting an audit will need to ensure their General Ledger is in order. You will also need to ensure your monthly bank reconciliations, Official Receipts, Vendor Contracts, Payables, and Receivables are in order. If the SEC asks for a spot check or clarification, you will need to be able to provide evidence for everything on your balance sheet.

BIR Tax Requirements vs SEC Financial Statement Requirements

One of the most common mistakes companies make in the Philippines is assuming that if you do not need to get an audit from the SEC, you will not need to get an audit from the BIR. The SEC and BIR have completely different requirements. The SEC looks at your company size based on your balance sheet (Total Assets and Liabilities), whereas the BIR looks at your turnover. If you do not understand the difference, you could face rejection of your Income Tax Returns and face large surcharges.

• SEC Balance Sheet Requirement: The SEC will look purely at your Total Assets and Total Liabilities to determine if you need to get an audit.
• BIR Gross Turnover Requirement: As amended by the TRAIN Law, the BIR requires companies to get an audit if their Gross Annual Sales/Earnings/Receipts/Output are over PHP 3 Million (Section 232(A) National Internal Revenue Code).
• High Turnover: If you are a Trading Company, Consultancy, or Digital Services Company, you may have very few assets and liabilities; however, you still have Gross Sales of PHP 10 Million. This means you will not be required to get an audit from the SEC but will be required to get an audit from the BIR.
• Order of Submission: In the Philippines, companies must submit their Annual Income Tax Return and Financial Statements to the BIR first (usually by 15th April for Calendar Year). You will then need to upload your attachments to the BIR eAFS system before sending your acknowledged copies to the SEC.
• Consistent Figures: The figures you provide in your unaudited Financial Statements must match the figures in your financial schedules, balance sheet, and income statement you submit to the BIR. These discrepancies will be flagged using the BIR matching system and could lead to tax investigations.

When Are Financial Statements Required to Be Audited

Even if your Total Assets, Total Liabilities, and Gross Annual Sales are below PHP 3 Million, you may still be required to have your Financial Statements audited. The SEC has wide powers and can require companies that pose a greater risk to the public, financially or to investors, to get an independent audit. You should ensure you verify with your board and legal advisors if your company falls into any of the statutory exemptions.

• Public Interest Entities (Group A/B/C): If your company falls into Group A/B/C (Publicly Listed Companies, Registered Security Issuers, Banks, Insurance Providers or Large Non-Stock Foundations), you will be required to have an independent audit each year.
• Secondary License Holders: Companies that hold a Secondary License from the SEC (Financing Companies, Lending Companies, Investment Houses, and Broker Dealers) will be required to have strict annual audits in place to protect financial consumers.
• Large Government Contractors: Under SEC Memorandum Circular No. 26 Series of 2026, if your company has a Government Contract of PHP 400 Million or more for one contract or PHP 500 Million or more for multiple contracts, you will be required to get an audit from Group A/B Accredited External Auditors.
• SEC Powers: Memorandum Circular No. 4 clearly states that the Commission can require any company to get an independent audit no matter what their balance sheet is, to protect investors, investigate complaints from shareholders, and to ensure they are in compliance.
• Company By-Laws: Your Company Articles of Incorporation or By-Laws may contain historical clauses requiring your company to get an external audit each year from a Certified Public Accountant. If your board and stockholders do not amend these documents, you will be contractually obliged to get an audit each year.

Why Use a Financial Reporting Service?

Understanding the requirements of the SEC Memorandum Circular No. 4, BIR Turnover Requirements, and PFRS can be complicated. It is essential to utilize the services of BusinessRegistrationPhilippines.com. There are many complexities, and if you misclassify anything on your balance sheet, tax return, or sworn statement, you could face penalties from multiple government bodies. BusinessRegistrationPhilippines.com is a trusted source of corporate compliance and accounting solutions in the Philippines. We will ensure your Financial Statements are in order.

• Accurate Threshold Determination: Our experienced accountants will review your Trial Balance, Revenue Recognition Policies, and Accrued Liabilities to determine if your company will fall within the exemption for both the SEC and BIR.
• PFRS Statements: Even your unaudited statements must be prepared using PFRS for Small Entities or Income Tax Basis. Our specialists will prepare accurate Statements of Financial Position, Statements of Income, and detailed Notes to Financial Statements.
• Protect Officers Signing Statement of Management Responsibility: As the officers of the company are personally liable for signing the Statement of Management Responsibility, having your unaudited statements reviewed and compiled by Certified Public Accountants will protect your leadership.
• eAFS/eFAST Submission: Our compliance team will prepare your statements for submission. We will format them, convert to PDF/A, organize notarisation, and meet strict deadlines.
• External Auditor: If your company exceeds the PHP 3 million threshold or you wish to get an audit to secure funding from a bank/investor, we will liaise with your accredited external auditors.

What Can You Do?

As the 2026 reporting period has begun, it is important to prepare your company for the new requirements. Often companies will leave it until April to complete their taxes and therefore will rush to complete their statements. This can cause issues with missing deadlines on the eFAST system and incurring unnecessary late surcharges. By having a strict end-of-year closing process, you will ensure your company remains in good standing.

• Review Balance Sheet: Try to estimate what your Total Assets and Total Liabilities will be 60 days before the end of your year-end.
• Prepare Monthly General Ledger: Ensure your bank reconciliations, Accounts Receivable Aging, Inventory, and Fixed Asset Register are up to date.
• Board Approval: Ensure you have passed the relevant board resolutions to allow the Chairman, President, and Treasurer (or nominated officers) to sign the sworn Statement of Management Responsibility.
• Track Gross Receipts: Keep track of your Gross Sales throughout the year to ensure your finance team is not surprised by the BIR requirement.
• SEC Deadlines: Ensure you are aware of the deadlines for submitting your statements to the SEC. Usually, this will be 120 calendar days from the end of your year. This will ensure you do not incur penalties each month and your company remains active.

Key Takeaways

The SEC has increased the Audit Threshold to PHP 3 Million, which will provide relief to companies in the Philippines. However, it puts more responsibility on company leadership. Using a reliable financial reporting service will ensure your company is aware of the differences between the SEC and BIR requirements and has clean, compliant records. By having a strict end-of-year closing process and utilizing expert advice, you can take advantage of the exemption.

Is Assistance Available?

Yes! BusinessRegistrationPhilippines.com can help your company understand the complexities of these requirements. We can provide you with comprehensive financial reporting services to ensure your company is in compliance. Contact our team of Certified Public Accountants and Compliance Specialists today to protect your business from any penalties. Contact us today to speak to one of our experts.

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