SRC Rule 68 applies to stock corporations with paid-up capital stock of P50,000.

00 or
more.

SRC Rule 68 applies to non-stock corporations with total assets of P500,000.00 or more,
or with gross annual receipts of P100,000.00 or more.

Financial statements of branch offices of foreign corporations licensed to do business in

the Philippines must comply with the requirements of SRC Rule 68, unless otherwise
determined by the Commission.

"Financial reporting framework" means a set of accounting principles, standards,

interpretations, and pronouncements that must be adopted in the preparation and submission of
the annual financial statements of a particular class of entities, as defined by the Commission.
This includes, but is not limited to, the Philippine Financial Reporting Standards and the
Philippine Financial Reporting Standards for Small and Medium Entities.

The Commission considers the pronouncements and interpretations of the Bangko Sentral ng
Pilipinas and Insurance Commission, the Philippine Financial Reporting Standards Council, or
the International Accounting Standards Board.

In case of conflict, the Commission has the authority, subject to prior consultation with
concerned parties, to prescribe the most appropriate requirement that shall form part of the
applicable financial reporting framework of corporations covered by SRC Rule 68.

"Entity" refers to a juridical person or a corporation registered under the Corporation Code.

"Error" in financial statements is an unintentional mistake which reduces or increases the

consolidated total assets, total liabilities, or income of the company by five percent (5%). It may
involve:

●​ Mathematical or clerical mistakes

●​ Oversight or misinterpretation of facts
●​ Unintentional misapplication of accounting policies

"Fraud" is an intentional act by one or more individuals among management, employees, or

third parties that results in a misrepresentation of financial statements which reduces or
increases the consolidated total assets, total liabilities, or income of the company by five percent
(5%). It may involve:

●​ Manipulation, falsification, or alteration of records

●​ Misappropriation of assets
●​ Suppression or omission of the effects of transactions
●​ Recording of transactions without substance
●​ Intentional misapplication of accounting policies
●​ Omission of material information
"Gross negligence" means wanton or reckless disregard of the duty of due care in complying
with Philippine Standards on Auditing.

"Material information" means information whose omission or misstatement could influence the
economic decisions of its users.

"Significant subsidiary" is defined by meeting any of the following conditions:

●​ The corporation’s and its other subsidiaries’ investments in and advances to the
subsidiary exceed ten percent (10%) of the total assets of the corporation and its
subsidiaries consolidated as of the end of the most recently completed fiscal year.
●​ The corporation’s and its other subsidiaries' proportionate share of the total assets (after
inter-company eliminations) of the subsidiary exceeds ten percent (10%) of the total
assets of the corporation and its subsidiaries consolidated as of the end of the most
recently completed fiscal year.
●​ The corporation’s and its other subsidiaries’ equity in the income from continuing
operations before income taxes exceeds ten percent (10%) of such income of the
corporation and its subsidiaries consolidated for the most recently completed fiscal year.

For income testing, the following guidance applies:

●​ When a loss has been incurred by either the parent and its subsidiaries consolidated or
the tested subsidiary, but not both, the equity in the income or loss of the tested
subsidiary shall be excluded from the income of the corporation and its subsidiaries
consolidated for purposes of the computation.
●​ If income of the corporation and its subsidiaries consolidated for the most recent fiscal
year is at least 10 percent lower than the average of the income for the last five (5) fiscal
years, such average income shall be substituted for purposes of the computation.
●​ Where the test involves combined entities, entities reporting losses shall not be
aggregated with entities reporting income.

"Summarized financial information" includes the presentation of summarized financial

information as to the assets, liabilities, and results of operations of the entity for which the
information is required. It includes disclosures of:

●​ Current and noncurrent assets and liabilities

●​ Net sales or gross revenues
●​ Gross profit (or costs and expenses applicable to net sales or gross revenues)
●​ Income or loss from continuing operations
●​ Net income or loss

Large or publicly accountable entities are those that meet any of the following criteria:

●​ Total assets of more than P350 Million or total liabilities of more than P250 Million
●​ Are required to file financial statements under Part II of SRC Rule 68
 ●​ Are in the process of filing their financial statements for the purpose of issuing any class
of instruments in a public market
●​ Are holders of secondary licenses issued by regulatory agencies

Large and/or publicly-accountable entities shall use as their financial reporting framework
the Philippine Financial Reporting Standards (“PFRS”) as adopted by the Commission.
Small and medium-sized entities (SMEs) are those that meet all of the following criteria:

●​ Total assets of between P3M to P350 Million or total liabilities of between P3M to P250
Million. If the entity is a parent company, the said amounts shall be based on the
consolidated figures.
●​ Are not required to file financial statements under Part II of SRC Rule 68.
●​ Are not in the process of filing their financial statements for the purpose of issuing any
class of instruments in a public market.
●​ Are not holders of secondary licenses issued by regulatory agencies.

SMEs shall use as their financial reporting framework the Philippine Financial Reporting
Standards for SMEs (“PFRS for SMEs”) as adopted by the Commission.
The following SMEs shall be exempt from the mandatory adoption of the PFRS for SMEs
and may instead apply, at their option, the PFRS:

●​ An SME which is a subsidiary of a parent company reporting under the PFRS.

●​ An SME which is a subsidiary of a foreign parent company which will be moving towards
International Financial Reporting Standards (“IFRS”) pursuant to the foreign country’s
published convergence plan.
●​ An SME which is a subsidiary of a foreign parent company and has been applying the
standards for a non-publicly accountable entity for local reporting purposes.
●​ An SME, either as a significant joint venture or associate, that is part of a group reporting
under the PFRS.
●​ An SME which is a branch office or regional operating headquarter of a foreign company
reporting under the IFRS.
●​ An SME which has a subsidiary that is mandated to report under the PFRS.
●​ An SME which has a short-term projection that shows it will breach the quantitative
thresholds set in the criteria for an SME.
●​ An SME which has a concrete plan to conduct an initial public offering within the next
two (2) years.
●​ An SME which has been preparing financial statements using PFRS and has decided to
liquidate.

An SME availing of any of the above-mentioned grounds for exemption shall provide a
discussion in its notes to financial statements of the facts supporting its adoption of the PFRS
instead of the PFRS for SMEs.

If an SME using the PFRS for SMEs in a current year breaches the floor or ceiling of the size
criteria at the end of that current year, and the event that caused the change is considered
“significant and continuing,” the entity shall transition to the applicable financial reporting
framework in the next accounting period.
Micro entities are those that meet all of the following criteria:

●​ Total assets and liabilities are below P3 Million.

●​ Are not required to file financial statements under Part II of SRC Rule 68.
●​ Are not in the process of filing their financial statements for the purpose of issuing any
class of instruments in a public market.
●​ Are not holders of secondary licenses issued by regulatory agencies.

Micro entities have the option to use as their financial reporting framework either:

●​ The income tax basis,

●​ Accounting standards in effect as of December 31, 2004, or
●​ PFRS for SMEs.

The financial statements filed with the Commission are primarily the responsibility of the
management of the reporting company.

The Chairman of the Board, Chief Executive Officer, and Chief Finance Officer shall all
sign the Statement of Management’s Responsibility (SMR).

The failure of any prescribed signatory to sign the SMR constitutes a material deficiency in
the financial statements.

For branch offices or regional operating headquarters of foreign corporations, the SMR
shall be signed by its local manager who is in charge of its operations within the Philippines.

In the audit of the company’s financial statements, the management shall provide the
external auditor with:

●​ A complete set of financial statements as prescribed under the applicable financial

reporting framework of the entity, and, if applicable, schedules and reconciliation forming
part of the financial statements required under the existing rules of the Commission.
●​ All information (records, documentation, and other matters) relevant to the preparation
and presentation of the financial statements.
●​ Any additional information that the auditor may request from management and, when
appropriate, from those tasked to perform governance.

A company should never allow nor require its independent auditor to prepare its financial
statements and/or any of its supporting documents.

Financial statements shall be filed in such form and order, and shall use such generally
accepted terminology as best indicates their significance and character in light of the applicable
provisions.
The acceptance and receipt by the Commission of the financial statements shall be without
prejudice to fines that may be imposed for any material deficiency or misstatement found upon
evaluation.

A corporation with financial statements audited by an independent auditor not registered

with the BOA shall be subject to appropriate fines.

The following regulated entities shall have independent auditors accredited by the
Commission under the appropriate category:

●​ Group A: Issuers of registered securities, issuers with a class of securities listed for
trading in an Exchange, public companies.
●​ Group B: Issuers of registered timeshares, investment houses, brokers and dealers of
securities, investment companies, Government Securities Eligible Dealers (GSEDs),
universal banks registered as underwriters of securities, investment company advisers,
clearing agencies (and clearing agency as depository), stock and securities exchanges,
special purpose vehicles, and special purpose corporations.
●​ Group C: Financing companies, lending companies, transfer agents.
●​ Group D: Companies mandated by other regulatory agencies to have an independent
auditor accredited by the Commission.

The accreditation requirements for individual independent auditors or signing partners

include:

●​ Accreditation with the BOA.

●​ At least five (5) years of experience in external audit.
●​ Adequate policies and procedures related to a system of quality control.
●​ Sufficient knowledge of the regulatory requirements, operations, and functions of
companies under Groups A, B, or C for which the auditor is applying.
●​ A total of 60 units of trainings and seminars on specific topics within the last 3 years.
●​ Acceptable quality of audit work based on evaluations of client financial statements.
●​ A specific track record of corporate clients with minimum total assets depending on the
group for which the auditor is applying.

The accreditation requirements for auditing firms include:

●​ The auditing firm shall be accredited with the BOA.

●​ At the time of application, the firm must have at least one (1) signing independent auditor
accredited under the same category as the firm is applying for.
●​ The firm must have adequate policies and procedures related to a system of quality
control.

The accreditation of an independent auditor and/or auditing firm shall expire or be

automatically delisted after three (3) years from the date of approval of the accreditation unless
an application for renewal is filed not later than thirty (30) business days before its expiration.
Accredited auditing firms or independent auditors shall not engage in any of the
following non-audit services for their statutory audit clients, unless safeguards under the
Code of Ethics for CPAs are undertaken:

●​ Bookkeeping or other services related to the accounting records or financial statements

of the audit client.
●​ Financial information systems design and implementation.
●​ Appraisal or valuation services, fairness opinions, or contribution-in-kind reports.
●​ Actuarial services.
●​ Internal audit outsourcing services.
●​ Management functions or human resources.
●​ Broker or dealer, investment adviser, or investment banking services.
●​ Legal services and other professional services unrelated to the audit.
●​ Any other services that the Commission may declare as not permissible.

The following findings must be disclosed to the Commission by a regulated entity's

independent auditor:

●​ Any material findings involving fraud or error.

●​ Losses or potential losses that aggregate to at least ten percent (10%) of the
consolidated total assets of the company.
●​ Any finding that the consolidated assets of the company, on a going concern basis, are
no longer adequate to cover total creditor claims.
●​ Material internal control weaknesses that may lead to financial reporting problems.

The independent auditors of regulated entities shall be rotated after every five (5) years of
engagement.
Prior to engaging an independent auditor, a company should:

●​ Conduct due diligence to confirm the personal identification and professional

qualifications of the auditor.
●​ Require the auditor to present a copy of their professional license from the Professional
Regulation Commission (PRC) and the Certificate of Accreditation issued by the Board
of Accountancy (BOA).
●​ Confirm the authenticity of the BOA Certificate of Accreditation by checking the latest list
of accredited practitioners issued by the BOA.
●​ Require the presentation of the Commission’s Certificate of Accreditation (if applicable)
for both the auditor and its auditing firm.
●​ Verify the authenticity of the certificate against the official list of accredited auditors and
firms.

An auditor's report should include:

●​ The date.
 ●​ The signature of the certifying independent auditor.
●​ Identification of the financial statements covered by the report.
●​ The signing accountant's License, Tax Identification and PTR numbers, and the
registration number with the BOA (including its expiration date).
●​ The complete mailing address of both the client and the auditor.
●​ The certifying partner's signature and an indication that they are signing for the firm
(including the firm's name).
●​ The signing auditor/partner’s accreditation number, category, and expiration date of
accreditation.
●​ A statement of whether the examination was conducted in accordance with Philippine
Standards on Auditing.
●​ A clear opinion on the fairness of presentation in conformity with the prescribed financial
reporting framework.

The external auditor of a company that has incurred a capital deficiency should include in
the audit report an emphasis paragraph indicating:

●​ That the company has incurred a capital deficiency raising an issue on its going concern
status.
●​ A brief discussion of a concrete plan by the company to address the capital deficiency,
with a reference to the note to the financial statements providing full disclosure.
●​ A statement that the auditor conducted sufficient audit procedures to verify the validity of
the plan.

The requirement to include an emphasis paragraph in the audit report is not applicable if
the capital deficiency is due to:

●​ The entity being at a pre-operating stage.

●​ Significant losses in prior years but with positive current results due to business
developments or regularization.
●​ A current-period capital deficiency resulting solely from a significant adjustment due to
the adoption of a new financial reporting framework or a non-recurring transaction.

The purpose of the supplemental written statement of an auditor for stock corporations filing
under Part I of SRC Rule 68 is to state the number of stockholders owning one hundred (100) or
more shares each.

The following documents shall be filed with the annual audited financial statements for
non-stock and non-profit organizations:

●​ A schedule showing the nature and amount of each item comprising total receipts and
disbursements according to sources and activities.

The sworn statement of the foundation’s President and Treasurer must include:

●​ Specific sources of funds.

 ●​ Application of funds with details on activities accomplished, ongoing, and planned.

Issuers of securities to the public, and stock corporations with unrestricted retained
earnings in excess of 100% of paid-in capital stock should include a Reconciliation of Retained
Earnings Available for Dividend Declaration, presenting the prescribed adjustments as indicated
in Annex 68-C of this Rule.

Listed companies and investment houses that are part of a conglomerate or group of
companies should include a map showing the relationships among the company and its
ultimate parent, middle parent, subsidiaries or co-subsidiaries, and associates.

Large and/or publicly-accountable entities should include a schedule (in table format) that
lists all effective standards and interpretations under the PFRS as of year-end, with an indication
next to each on whether it is “Adopted,” “Not adopted,” or “Not applicable.”

The financial statements filed with the Commission shall be presented in comparative form.

Audited financial statements of companies covered by Part II of this Rule that have an
auditor’s opinion other than unqualified—whether due to deviation(s) from the required financial
reporting framework or due to a scope limitation—shall be considered a violation of this Rule.

The Statement of Management’s Responsibility for companies covered under Part II of

this Rule shall, in addition to the requirements under paragraph (2)(B) of Part I, be signed under
oath.

If a filing on SEC Form 12-1 is made within 105 days after the end of the most recently
ended fiscal year, the filing shall include:

●​ Audited consolidated balance sheets or statements of financial position as of the end of

each of the two (2) years prior to the most recently ended fiscal year.
●​ A separate interim balance sheet as of the end of the most recently ended fiscal year.

For initial public offerings, such interim financial statements shall be audited by an accredited
independent auditor (Group A category) of the Commission and shall be as detailed as a full
fiscal year financial report.

If any of the following transactions occurs after the date of the most recent balance sheet
or during the interim period, the audited financial statements of the business acquired and the
pro forma financial information shall be submitted with the report or registration statement:

●​ A significant business combination accounted for as a purchase has occurred.

●​ Consummation of a significant business combination that has occurred or is probable.
●​ Securities being registered by the registrant are to be offered to the security holders of a
significant business to be acquired or the proceeds from the offered securities will be
applied (directly or indirectly) to the purchase of a specific significant business.
 ●​ The disposition of a significant portion of a business (by sale, abandonment, or
distribution to shareholders via a spin-off, split-up, or split-off) has occurred or is
probable, and such disposition is not fully reflected in the registrant’s financial
statements.
●​ Acquisition of one or more real estate operations or properties which, in aggregate, are
significant.
●​ The registrant was previously part of another entity and it is necessary to reflect the
registrant’s operations and financial position as an autonomous entity.
●​ Consummation of other events or transactions that have occurred or are probable for
which disclosure of pro forma financial information would be material to investors.

For purposes of SRC Rule 68, the term "business" shall be evaluated in light of the facts and
circumstances involved and whether there is sufficient continuity of the acquired entity's
operations before and after the transactions so that disclosure of prior financial information is
material to understanding future operations.

Pro forma financial information shall provide investors with information about the continuing
impact of a particular transaction by showing how historical financial statements might have
been affected if the transaction had been consummated earlier.
Pro forma financial information shall consist of:

●​ A pro forma condensed balance sheet.

●​ Pro forma condensed statements of income.
●​ Cash flow statements.
●​ Statements of changes in equity.
●​ Accompanying explanatory notes.

In addition to those required under the applicable financial reporting framework,

companies covered by Part II of this Rule must comply with the following requirements:

●​ Disclosure about Subsidiaries Not Consolidated and 50 Percent or Less Owned

Persons.
●​ A company with a significant foreign subsidiary or subsidiaries shall submit to the
Commission copies of the financial statements of such subsidiaries.
●​ A parent company shall submit consolidated audited financial statements accompanied
by separate audited financial statements that have been stamped as received by the BIR
or its authorized banks.

Penalties may be imposed by the Commission for violations of SRC Rule 68, such as:

●​ Material misrepresentation in the financial statements.

●​ Any material misstatement resulting from material deviation from the applicable financial
reporting framework.
●​ Failure to submit financial statements audited by a qualified independent certified public
accountant.
●​ Failure to submit a complete Statement of Management’s Responsibility.
●​ Failure to comply with any other requirements under Parts I or II of this Rule.