How to Choose an External Auditor in the Philippines

Why External Auditor Selection Matters

The external auditor's report is attached to your corporation's audited financial statements and submitted to the BIR and SEC. The credibility and quality of that report depends on the qualifications and independence of the auditing firm. Selecting the right auditor for your company's size, industry, and complexity is a meaningful governance decision.

Accreditation Requirements

Under SEC Memorandum Circular rules, external auditors of corporations registered with the SEC must be accredited by the SEC's Office of the General Accountant. The level of accreditation required depends on the corporation's size and whether it is publicly listed or a public interest entity.

BIR accreditation is separately required for CPAs and CPA firms signing tax returns and related documents. Confirm that any auditor you engage holds current and applicable SEC and BIR accreditation before engaging their services.

Key Factors to Evaluate

• →Industry experience: Does the firm have experience auditing companies in your industry? Sector-specific knowledge affects the quality of the audit and the auditor's ability to identify relevant risks.
• →Firm size and capacity: Match the firm's capacity to your company's size and transaction volume. A firm that is too small for your engagement may face resource constraints; one that is too large may assign junior staff without adequate supervision.
• →Independence: The auditor must be independent of management. Evaluate potential conflicts of interest, particularly if the same firm performs accounting, tax, or consulting work for your company.
• →Methodology and communication: Ask how the firm structures its audit process, how it communicates findings, and how it handles open items and management letters.
• →Turnaround and deadlines: Confirm that the firm can complete the engagement within the timeline you need, taking into account BIR and SEC filing deadlines.

Questions to Ask Before Engaging

• →What is the scope of the audit engagement and what is included in the engagement letter?
• →Who will be the engagement partner and what is their experience with similar companies?
• →What documents and records will the firm require, and by when?
• →How will the firm communicate findings and open items during the audit?
• →What is the estimated timeline from records submission to final audit report?
• →Does the firm hold current SEC and BIR accreditation applicable to our company?

Rotating Auditors

SEC rules require rotation of external auditors for certain corporations after a specified number of years. Confirm whether your company is subject to mandatory rotation requirements and plan the transition with sufficient lead time to allow a new auditor to understand your business before the audit begins.