P 
THIRTEENTH CONGRESS OF THE RHTJI3LIC 
OF rn 
PHILIPPINES 
1 
First Regular Session 
dl 
I 
896 
SENATE 
Senate Bill No. 
Introduced by Senator Lacson 
EXPLANATORY N07E 
Our country is facing a crisis of confidence that is eroding the public's trust in our 
markets, and poses a real threat to the economy. 'I'he present state of our laws requires a 
strong and balanced response to the accounting and corporate responsibility problems 
confronting our financial markets. The problem of deteriorating investor confidence has 
become more and iiiore widespread. 
'I'hus, it is critical to put provisions in place that will deter and punish corporate 
and accounting fi-aud and corruption, ensure justice for wrongdoers, and protect the 
interests of workers and shareholders. 
This bill aims to improve the quality and transparency of financial reporting, 
independent audits, and accounting services for piiblic companies. It strengthens the 
independence of firms that audit public companies; increases corporate responsibility and 
the Lisefiilness of corporate financial disclosure; penalizes corporate wrongdoing and 
protects the objectivity and independence of securities analysts 
Moreover; to intensify corporate responsibility, chief executive officers and chief 
financial officers must personally vouch for the truth and fairness of their company's 
disclosures under pain of sanctions that include reimbursenient of any bonus or ottier 
incentive/equity-based compensation they have received from the issuer and the protits 
t!wy have realized fi-om the sale of securities of the issuer within the 12 niontli period 
following the first piiblig issuance or the flling wilt1 the Securities and Exchange 
Coriirnissiori of' t lie tinancial document embodying such financial report, The proposed 
measure likewise specifically provides l'or penalties [or the destriiction, alteration or 
f'alsilication of corporate audit record or any otlier record t o  obstruct government 
investigation. Increased criininal penalties are likewise imposed on those who comniit 
securities fraud. 
Furtliermore, corporate misdeeds will be found and punished by furthering the 
authority of the SEC to gjicover wrongdoing. The SEC may now bar dishonest directors 
and ofl-icers from ever again serving in positions of corporate respoiisibility. 
For the reasons above-stated, approvald this bill is tlieref'orc earnestly requested 
P 
CSON 


THIRTEENTH CONGmSS OF TEE REPUBLIC f 
OF TME PIIILIPPJNES 
1 
First Regular Session 
1 
SENATE 
$46 
Senate Bill No. 
Introduced by Senator Lacson 
TO PROTECT INVESTORS 
RELIABILITY 
0% CORQO 
DISCLOSURES, AND FOR OTHER PURPOSES. 
Re if e m c  fed by the S‘eiinfc mid Howe of l~~~~r’e.reiitnti\)e.r. 
oj’ the Philippities irr 
SECTTON 1. Sliorl Title: ’ This Act shall be known as the “Corporate 
Coiigr’es‘s cr.csemhlecf: 
Accountability and Responsibility Act of’ 2004”. 
Sec. 2. Dcclnr.nlion of Policy. - The state recognizes the vital role of the private 
sector in nation building and shall endeavor to actively protnote corporate governance 
reforms aimed at raising iilvestor’s confidence, develop capital market and help achieve 
high sustained growth for the corporate sector and the economy. Towards this end, a 
system designed to improve the quality of‘ financial reporting, independent audits and 
accounting services for public companies, the independence of accounting firms that audit 
public companies atid increase the responsibility of management for financial and 
corporate disclosures are hereby adopted. 
d 
(1) AUDIT- The tknn ‘audit’ means an examiiiation of the financial statements of 
any issuer by an independent public accounting firm in accordance with the generally 
accepted auditing and related standards or the rules of the Commission for the purpose of 
expressing a i  opinioii on such statements. 
(2) AUDIT COMMLTTEE- The term ’audit committee’ nieans-- 
(A) 
a committee established by and amongst the board of directors of an issuer 
for the purpose of overseeing the accounting and financial reporting processes of the 
issuer and audits of the financial statements of the issuer; and 
(n) 
if no such coininittee exists with respect to an issuer, the entire board of‘ 
directors of‘ LIE issucr. 
(A) 
(€3) in which a piiblic accounting firm either--- 
prepared following an audil pei~fol-med lor pul-poses of’ coiiipliaiice by an 
issuer with the requirements ofthe securities laws; and 
(i) sets forth the opinion of that firm regarding a financial statement, report, or 
other doctimiit; or 
2 


, 
(ii) asserts that no such opinion can be expressed 
(4) 
COMMISSION- The term refers to the Securities and Exchange 
Commission. 
(5) 
INDEPENDENT DIREC'T'BR - refers to a person other than an officer or 
eiiiployee of the corporation, its parent or subsidiaries, or any other individual having any 
relationship with the corporation, which would interfere with the exercise of independent 
judgment in carrying out thf responsibilities of a director. This means that apart from the 
directors' i'ees and shareholdings, he shoirld be independent of management and free from 
any business or other relationship which could materially interfere with the exercise of his 
independent judgment. 
(A) 
ISSUER- The term 'issuer' means a corporation whose securities are 
registered or listed in a stock exchauge or a corporation which is a grantee of' 
permit/license and secondary franchise f~oni the Coniniissioil or a piiblic company as 
defined herein or a brandh or subsitliai-y of a foreign corporation operating in the 
Philippines whose securities are registered or listed in a stock excliange. 
(7) 
NON-AUDIT SERVICES- Tlie term 'nom-audit services' means any 
professional services provided to an isslier by a registered public accounting firm, other- 
than those provided to an issuer in connection with an audit or a review of the financial 
statements of an issuer. Examples include: 
(A) bookkeeping or other services related to the accounting records or financial 
statements of the audit client; 
(B) financial information systems design and implementation; 
(C) appraisal or valuation services, fairness opinions, or contribution-in-kind 
reports; 
(D) actuarial services; 
(Ti) itltciml a t i d i t  oiilsourcitig sctviccs; 
(1.:) managetiient liinctions or h~rman r-eso~rrces; 
(C;) broker 01' de:iIer, investtnetit adviser, o r  itivestiiietit baiikirig sct-vices; aiid 
(1) any other service as 
authority . 
may be determined by the appropriate government 
(8) PERSON ASSOCIATED WIT11 A PIJ13t,lC ACCOIJNTING FIRM- (A) IN 
GENERAL- The terms 'person associated with a piildic accounting firm' and 'associated 
person of a public accounting firin' mean any individiial proprietor, partner, shareholder, 
principal, accountant, or other proikssional employee of a public accounting firm that, in 
connection with the preparation or issuance of any audit report-- 
(i) shares in' tIie profits 
that firm; or 
or receives compensation in any ot~ier form from, 
(ii) participates as agent or otherwise on behalf of' such accounting firm in any 
activity ol'that tirm. 
(D) 
IXEMI'TION A l  JTI 10Rl'I'Y- The Commission inay, by riilc, exempt 
persons engaged only in tninisterial tasks li-om the delinit ion in subparagraph (A), t o  the 
extent that the Commission dcier-mines that aity such exemption is consistent with the 
purposes of'this Act, the public iriter-est, or the protection of investors. 
(1 0) 
PROFESSIONAL STANDARDS- 'The term 'professional standards' 
nieans- 
6 
3 


(A) accounting principles that are- 
(i) established by the Accounting Standards Could and the rules promulgated 
by the Commission with regard to the preparttion of hancial staternents; and 
(ii) relevant to audit reports for particular issuers, or dealt with in the quality 
control system of a particular registered public accounting firm; and 
(B) 
auditing standards that are established by the Auditillg Standards and 
Practices Coiincil, strindarcis for attestation engagements, qiiality control Imlicies and 
procedures, ethical and competency standards, and independence standards (including 
rules implcmenting Title 111) that the Commission deteriiiines- 
(i) relate to the preparatioll or issuance of audit reports for issuers; and 
(ii) are established or promulgated as rules of the Commission. 
(1 1) PUBLIC ACCOUNTING FIRM- The term ’public accounting firm’ means- 
(A) a prop-ietorship, professional partnership, limited liability partnership, or other 
legal entity that is engaged in the practice of public accounting or preparing or issuing 
audit reports; and 
(B) to the extent so designated by the rilles of the Commission, any associated 
person of any entity described in subparagraph (A). 
(12) PUBLIC, COMPANY - The term ‘public company’ refers to any corporation 
with a class of equity seckirities listed in an Exchange or with assets in excess of Fifly 
Million Pesos (P50,000,000.00) and having two hundred (ZOO) or more stockholders each 
holding at least one hundred (100) shares ofa class of’ its securities. 
< 
(13) SECURITY- ?‘lie term rel’ers to the “securities” referred Lo in Section 3.1 of 
Republic Act 8799, otherwise known as the Securities Regulation Code; 
(1 4) SECIJRI’I’IES LAWS- ‘I’he term reikrs to I<epiiblic Act 8799, ollierwise 
known as the Securities Regulation Code and the rules, regulations, and orders issued by 
the Coinniission thereunder. 
SEC. 4, ~ ~ ~ ( ~ ~ ~ ~ t ~ i i ~ ~ . s ~ ( ~ ~ i  
Rilles mid 1 k f i ) t w t w u l .  - (cr) Ikgiil(tiory Actiori. - The 
Commission shall promulgate siicli rules and regiilations, as may be necessary or 
appropriate in the public interest or for the protection of investors, and in furtherance of 
this Act. 
(71) Eflbct 
.. 
(VI Coumissioji Airihorifj?. .- Nothing in this Act shall be construed to 
impair or limit-- 
( I )  the authority of the Commission to regillate the accounting 
profession, accounting firms, or persons associated with such firins for purposes of 
enforcement of the securities laws; 
(2) the authority of I he Commission to set standards fbr accoiinting or aiiditing 
practices or auditor inctependence, clerivcti fi-on1 othcr provisions of tho securities laws or 
 he rules or rcgiilations thereunder, fix purposes 01‘ the prepara~ion and issuance of any 
audit report, or olhel-wise ~iiider applicable low; or 
(3) the ability of the Commission to take, on the initiative of the Commission, 
legal, administrative, or disciplinary action against any director, executive, or finance 
oflicer of an issuer or any registered accounting firm or any associated person hereof. 
4, 


TITLE I 
GO w PO RAT E R E d P Q N s I B I L B TY 
Sec. 5. Ptihlic Company Aiidit Committees. - (a) The Board of Directors of an 
issuer shall constitute an Audit Committee in aid of good corporate governance. 
(b) The Audit Committee shall be composed of at least three (3) Board members, 
preferably with accounting arid finance background, one of whom shall be an independent 
director and another should have related audit experience. It shall have the following 
specific fiinctions: 
( 1) Provide oversight over the senior management’s activities in managing credit, 
market, liquidity, operational, legal and ollicr risks ol‘ the corporalion. This fiinction sliall 
include receiving fi-om senior management periodic information on risk exposures and risk 
management activities. However, in consideration of the risk profile of the corporation, 
the Board may cotistitLite a separate Risk Management Coniniittee to fbcus on cariying 
out this oversight role over risk managelnetit; 
(2) I)rovitfe oversight of‘tlie corporation’s internal and external aiiditors; 
( 3 )  Review and approve audit scope and frequency, and the annual internal audit 
plan; 
(4) Discuss with the external auditor before the audit commences the nature and 
scope of tlie audit, and ensure coordination where more than one audit firm is involved; 
(5) Responsible for the setting-up of an internal audit department and consider the 
appointment of an internal auditor as well as an independent external auditor, the audit fee 
and any question of resignation or dismissal; 
(6) Monitor and evaluate the adequacy and ef’f’ectiveness of tlie corporation’s 
internal control system; 
d 
(7) Receive and review reports of internal and external auditors and regulatory 
agencies, where applicable and ensure that management is taking appropriate corrective 
actions, in a timely manner in addressing control and compliance fiinctions with regulatory 
agencies; 
(8)Review the quarterly, half-year and annual financial statements before 
(A) Any chaIige/s in accounting policies and practices 
(H) Major judgmental areas 
(C) Significant adjustments resulting b i n  the audit 
(D) Going concern assuinption 
(E) Compliance with accounting standards 
(F) Compliance with tax, legal, and stoclc exchange requiretnents 
submission to the Board, focusing particularly on: 
(9) Res p o ti s ibl e for coordinating, monitor i I 1s and fii c i I i t a t i ng co m p 1 i a nce wit 11 
it may also constitute ii Cotlipliarice Unit fir this 
existing laws, rules and regdations. 
13 LI rpose , 
( 10) Evaluate and determine non-audit services by external auditors and keep 
under review the ‘non-audit fees paid to the external auditor both in relation to their 
significance to the auditor and in relation to the company’s total expenditure on 
consultancy. ‘The non-audit services should be disclosed in the annual report. 
5 


(1 1) Establish and identie the reporting dine of the chief audit executive SO that the 
reporting level allows the internal audit activity to fillfill its responsibilities. The chief audit 
executive shall report directly to’the Audit committee fLinctionally. The Audit Committee 
shall ensure that the internal auditors shall have fi-ee and full access to all the company’s 
records, properties and personnel relevant to the internal audit activity and that the internal 
audit activity should be free from interference in determining tlie scope of internal auditing 
examinations, performing work, and coinmunicating results, and sliall provide a veniie for 
the Audit Committee to review and approve the annual internal audit plan. 
(c) The Chairman of this cornmittee should be an independent director. I ie should 
be responsible for inculcating in the minds of the Board members the importance of 
management responsibilities in maintaining a souiid syslem of internal control and the 
noard’s oversight responsibility. 
(d) For Philippine brai~clies or subsidiaries of fhr-cign cctrpor-at tons covered by this 
Code, the local audit head for such entities sliould be independent of the Philippine 
operations and should report to the regional or corporate headquarters. 
Sec. 6. ~’orporcrle l ~ ~ ~ s ~ ~ o t ~ . ~ i t ~ i l i t y  
I;or I+i’ticirrcial 1 h p ~ t . s .  (io 
lkg-iilirtiom 
Xeqiiiretl - The Comtiiission shall, by nilc, require, tbr each conipany filing periodic 
reports to the Commission, that the principal executive of’ficer or officers and the principal 
financial oMicer or oficers, or persons performing similar functions, certifjr in each annual 
or quarterly report filed or submitted iinder either such section of‘ such Act that - 
(1) The signing oficer has reviewed the report; 
(2) Based on the oficer’s knowledge, the report does not contain any untrue 
statement of a material fact or omit to state a material fact necessary in order to make the 
statements made, in light of llie circumstances under which such statements were made, 
not in i sl ea d i 1-1 g ; 
( 3 )  13asetI oii such bf’ficer’s knowledge,  lie liriancial stateineiits, and other financial 
information incliided in the report, fiiirly present in all material respects the linancial 
condition, results of operations and cash flows of the issuer as of; and for, the periods 
presented in the report; 
(4) ‘I’hc signing ollicers-- 
(A) are respoiisibl~~for 
establishing and maintaining interrial controls; 
(€3) 
have designed such internal controls to enstire that inaterial information 
relating to the issuer and its consolidated subsidiaries is made known to such officers by 
others within those entities, particiilarly diiring tlie period in which t tie periodic reports are 
being prepared; 
(C) have evaliialed the efkctiveness of the issuer’s internal controls as of a date 
within 90 (lays prior t o  the report; and 
(‘D) have presented in the report their conclusions about the efTectivetiess of their 
internal controls based on their evaliiation as 01’ that date; 
(5)  he signing ofiicers liave disclosed to the issiier’s auditors and the a d i t  
committee of the board of directors (or persons tiilfiIling tlie equivalent f’unction)-- 
6 


(A) all significant deficiencies in the design or operation of internal controls which 
could adversely affect the issuer's ability to record, process, summarize, and report 
financial data and have identified for the issuer's auditors any material weaknesses in 
internal controls; and 
(B) any fiaud, dhether or not material, that involves management or other 
employees who have a signilicant role in the issuer's internal controls; and 
(6) The signing officers have indicated in the report whether or not there were 
significant changes in internal controls or in other factors that could significantly affect 
intertiat controls subsequent to the date of their evaluation, including any corrective 
actions with regard to significant deficiencies and material weaknesscs. 
4, 
(b) Z;hreign R~.-iiicorpoi.ntioiis Hnve No Igfficf - Nothing in this section shall be 
interpreted or applied in any way to allow any issiier to lessen the legal force of' the 
statement required under this section, by ah issuer having reincorporated or having 
engaged in any other transaction that resulted in the transfer of the corporate domicile or 
oflices of ilie issuer fro111 inside tlie Philippines to outside of the Philippines. 
Sec. 7. J I T I ~ I - O ~ C I *  
T~!Jliieiice 
O i l  (.'oiidrict Of Aridits. - (a) Rlties 7;) I'r.ohihit - It 
sliall be unlawfLi1, in contravention of sircli rules or regdations as the Commission shall 
prescribe as necessary atid appropriate in the public interest or for the protection of 
investors, for ariy oficer or director of an issuer, or any other person acting under the 
direction thet'eo[ to take any action to t'raudulently influence, coerce, manipulate, or 
inislead any itidcpcnticnt puhlic or ccrtificd accountant engaged in the perfonnance of' an 
audit of' the financial stateiiierits of' that issriet 1'01 h c  piitpose of' rencict-ing such litiancial 
statements materially misleading. 
(r,) Enforecmeirt - In any civil proceeding, the Commission shall have exclusive 
authority fo enforce this. section and any rule or regulation issued under this section. 
(c) No I'recwtptiori of O/lier. 1,m - The provisions of subsection (a> shall be in 
addition to, and shall not supersede or preempt, any other provision of law or any rule or 
regulation issued thereunder . 
Sec. 8. I;o~;feifitr*e of Cei*taj/i Roiiiises nriti Pi*ofif8v. - fir) Additionnl C~oni~ierrsnlioir 
Prior To Noiiconiplimce Wifh Conii?ii.c~ior~ 
'.v Fimticinl Ncpoi*iirig RerpiiI-meii/s - If an 
issuer is required to prepare an accountins restatement due to the material noncompliance 
of the issuer, as a result of misconduct, with any financial reporting requirement under the 
seciirities laws, the chief executive officer and cliief financial officer of the issuer shall 
rcirnbursc the issuer I'or -- 
( I )  any bonus or other incentive-based or equity-based conipcnsat ion received by 
that person from the issrter during the 12-inonth period following the first public issuance 
or filing with tlie Commission (whichever first occurs) of the financial document 
embodying such financial reporting requirement; and 
(2) any profits realized from the sale of securities of the issuer during that 12- 
month period. 
8 
(b) (.'oi?tnris.9io~i :P A'xervpit,fim~ 
Aii/l?oi+ity 
- The Commission may exempt any person 
from the application of subsection (a), as it deems necessary and appropriate. 
TITLE I! 
ENHANCED FINANC1AL REPORTlNG AND DISCLOSURES 
Sec. 9. Disclosrrks In Periodic Reporis. - (a) .Accitracy qf Financial R e p ~ t L ~  
- 
Each financial report that contains financial stalements and required to be prepared in 
accordance with generally accepted accounting principles under this title and filed with the 
7 


Commission s M  reflect all material correcting adjustments that have been identified by a 
public accounting firm in accordance with generally accepted accounting principles and 
the rules and regulations of the Commission. 
(h) Off-€-rZnkn 
ICC S h e  t Tlm1snct iot i s  - Each annual and quarterly f-i na ncia I report 
required to be filed with the Conmission shall disclose all inaterial off-balance sheet 
transactions, arrangements, obligations (including contingent obligations), and other 
relationships of the issuer with unconsolidated entities or other persons, that may have a 
inaterial current or fiiture eRect on financial condition, changes in financial condition, 
results of operations, liquidity, capital expenditures, capital resources, or significant 
components of revenues or expenses. 
(c) 1hiIe.s Otr 1’t.o 1;iwmcr l~igiit*es 
--- Pro Corma financial iiifoi-niation included in any 
periodic or other report filed with the Commission pursuant to tlie securities laws, or in 
any public disclosure or press or other release, shall be presented in a manner that-- 
( I )  
does not caitain an untrue statement of a inaterial fiict or omit to state a 
rnaterial f k t  necessary in order to rriake the pro forma financial inf’ornlation, in light of tlie 
circuinstances under which it is presented, iioi misleading; and 
(2) 
reconciles it with the financial condition and results ot‘ operations of the 
issuer under generally accepted accoiinting principles 
Sec. I 0. Etihnrtcw‘ Crmjliict Of 1)itere.rt Provjsiom. - 1)i.sclosur.c. l<eqiiired 0 1 1  
Peix~md 1mm.s I b  Lxec~~iiws 
- (4 
Iri Getrerwl - Any issuer directly or indirectly, 
including through any subsidiary, extending or maintaining credit, arranging for the 
extension of credit, or renewing an extension of credit, in the form of a personal loan to or 
for any director or executive officer (or eqnivhlent thereof) of that issuer, is required to 
disclose such fact in its annual reporl subrnitted to tlie Commission. An extension of credit 
maintained by the issuer on the date of enactmelit of this subsection shall not be subject to 
the provisions of Illis subsection, provided that there is no material riiodilication to any 
term of any S L I C ~  extension of’ credit or any renewal of any siicti extension ot‘ credit on or 
;I II el’ t 1 I R  1 da 1 c: 0 1’ WiI cl IllCll L 
(2) !,it~ri/ci[ioti - Paragraph ( I  ) does not apply to any lioiiie iinprovement and home 
loans, consumer credit, or any extension of credit under an open end credit plan, or a 
charge card, or any extension of credit by a registered broker or dealer to an employee of 
that broker or dealer to buy, trade, or carty securities, that is-- 
(A) made or provided in tlie ordinary course of the coiisiimer credit business of 
such issuer; 
(El) of a type that is generally made available by such issuer to the public; and 
(C) made by such issiier on niarket terms, or terms that are no more favorable than 
those oII’ered by the issuer to the general public for such extensions of credit. 
Scc. I I . i>isclosiri*cs c? f 7i.crtr.ccrciioir.s iwolvitig Rdiuiirgcm’rf A t d  Priticipl 
S t o c A h  Me t *s. - 
( I )  I XI-C 
c*~oi:\, Ofj/iicet:s, A I rJ Pr It icipif 
Sfockholckt4.s lt‘cqrritui ‘Ib /#?le - 
Every pesson w110 is directly or indirectly the 
beneficial owner oC more than 10 percent of any class of any equity security (other than an 
exempted security) which is registkred piii’suarit to sectiorl 8, o r  who is a director or an 
officer of‘ the issuer of’ such security, shall file ihe statenients reqiiired by this subsection 
with the Commission (and, if’siicli security is registered with the Exchange, also with the 
Exchange). 
(I!) i) i.sc1o.si ires It‘e y ii ire ii - 
.. 
.B 
8 ” 


(2) Tinit. ofl?/iiig - The statements required by this subsection shall be filed -- (A) 
at the time of the registration of such security 011 a national securities exchange or by the 
efyective date of a registration st,atement filed pursuant to section 8 of the Securities 
.Regulation Code; 
(B) within 10 days aAer he or she becomes such heneficial owner, director, or 
officer; 
(C) if there has been a change in such ownership. 
(3) Coiiletils of Stniemeiits - A statement filed -- (A) Under subparagraph (A) or 
(B) of paragraph (2) shall contain a staternetit of the amount of all equity securities of such 
issuer oI'wliicIi the filing person is [he benelicial owner; and 
(n) IJnder subparagraph ( C )  of sirch paragraph shall indicate ownership by tlie 
filing person at the date of filing, any SLIC~I changes in such ownership, and such pudlases 
and sales of the security-based swap agreements as have occurred since the most recent 
such filing under such subparagraph. 
(4) ICIecftmiic /;i/iti,y Arid Avciilcrhi/i/y - Beginning not later than 1 year aRer the 
(A) a statement Iiled tinder subparagraph (C) or 
date of enactment of' this Act -- 
paragraph (2) shall be filed electroJi,ically; 
(B) The Commission shall provide each such statement on a publicly accessible 
Internet site not later than the end of the business day following that filing; and 
(C) The issuer shall provide that statement on that corporaf e website if it has one, 
not later than the end of the business day following that filing. 
Sec. 12. k h a g e t h r i f  A,cse.sst~~ei~~ 
Of Ititet-ticrl ('oiiftds. - (cr) IiiiIes Keqriifw' - 
The Commission shall prescribe rules requiring each anniral report to contain an internal 
control report, whicli shall-- 
(I ) state the responsibility of management for establishing and maintaining an 
adequate internal control structure and procedures for financial reporting; and 
(2) contain an as&ssment, as of the end of the most recent fiscal year of the issuer, 
of the efl'ectivencss of the internal control sti-uctirre and procedures of the issuer for 
financial reporting. 
(b) 
Itiferrla/ Cotwol ZSwdimiioti A i d  I k p r l i t g  - With respect to the internal 
control assessmerit reqrrired by subsection (a), each registered public accounting firm that 
prepares or issues tlie audit report for the issuer shall attest to, and report on, the 
assessment made by the management of tlie issuer. An attestation made under this 
subsection shall be made in accordance with standards for attestation engagements issued 
or adopted by the Board. Any such attestation shall be the subject of a separate 
engagement. 
(a) C.hIe Cjf IXthics 
Iliscfosi~re - 'i'he Commission shall issue rdes to 1-equire each issuer, together with 
periodic reports required to be submitted to the Comrnission, to disclose whether or not, 
and if not, tlie reason therefor, such issuer has adopted a code of ethics for senior financial 
officers, applicable to its principal financial officer and comptroller or principal accounting 
of-llcer, or persons performing similar functions. 
Sec. I 3. Code of Miics k'or Setiioi. 1~'itwicid OfjIcei*.s. - 
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(3) Defiililioll - Tn this sgction, the term 'code of ethjcs' means such standards as 
are reasonably necessary to promote-- 
(1) honest and ethical conduct, including the ethical handling of actual or apparent 
canllicts of interest between personal and professional relationships; 
(2) full, fiiir, accurate, timely, and understandable disclosure in the periodic reports 
required to be filed by the issue$ and 
(1) compliance with applicahle governmental rules and regulations 
(h) Xci.iew (.'ritcrin - For purposes of scheduling the reviews required by 
siibsection (a), the Commission shall consider, among other factors -- 
( 1) issuers that have issued niaterial restatements of financial results; 
(2) issuers that experience significant volatility in their stock price as compared to 
o t tier i ssuers; 
(3) issuers with the largest market capitalization; 
(4) emerging companies with disparities in price to earning ratios; 
(5) issuers whose operations significantly af'i'ect any material sector of the 
economy; and 
(6) any other fiictors that thc Coinniission may considcr relevant. 
(c) Miiiimitm /<t)vit)w I'erioci. I- In no event shall an issuer required to file reports 
with the Commission be reviewed under this section less freqtrently than once every 3 
years. 
Sec. 15. Ii'enl 'li'ruc 1s.swr l)isc/r,,nires. - Each issuer reporting under section I7 
of the Securities Regulation.Code shall disclose to Ihe public on a rapid and current basis 
such additional itiformation concerning inaterial changes in the financia1 condition or 
operations of the issuer, &In plain English, which may include trend and qualitative 
information and graphic presentations, as the Commission determines, by rule, is necessary 
or usefill for the protection of investors and in the public interest. 
Sec. 16. Aw'itit?g QiinJity CToiiisol, Aiic-l iridqxwtJettce LSimtdmLs miti I<ri/cs. - (cd 
Aidititig, Qiicrlily Cotilrol Atid Ii3iic.s Slcitriimzls - ( I )  111 Geiiercd - The Cominission 
shall, Izy rule, establish, including, to the extent it determines appropriate, through 
adoption of standards proposed by 
I or more prof'essional groups of accountants 
designated pursuant to &uagraph (3)(A) or advisory groups convened pursuant to 
paragraph (4), and amend or otherwise rnodifjl or alter, such auditing anti related 
attestation standards, such qualily control standards, and such etl~ics standarcls to be used 
by public xcounling firnms in the preparation and issuance of audit reports, as required by 
this Act or the rules of the Commission, or as may be necessary or appropriate in the 
public int.erest or for the protection of investors. 
(2) I<ti/c lkcpircrtwt/s - Tn carrying out paragraph ( 1 )? the Commission- 
I O  


(A) shall include in the auditing standards that it adopts, requirements that each 
public accounting firm shall-- 
(i) prepare, and tnaint.ain for a period of riot less than S years, audit work papers, 
and other information related to any audit report, in suficient detail to support the 
concIusions reached in such report; 
(ii) provide a concurring or second partner review and approval of such audit 
report (and other related information), and concurring approval in its issuance, by a 
qualified person (as prescribed by the Coinmission) associated with the public accountiiig 
firm, other than the person in charge of the audit; and 
8 
(iii) describe in a report separate from the audit report the scope of the auditor’s 
testing of the internal control structure and procediires of the issuer, required by section 
I2(b), and present in such separate report-- 
(I) the findings of the auditor fr-om such testing; 
(11) an evaluation of wliether siicli internal control structure and procedures-- 
(aa) include maintenance of records that in reasonable detail accurately and fairly 
& 
reflect the transactions and dispositions of the assets of the issuer; 
(bb) provide reasonable assurance that transactions are recorded as necessary to 
permit preparation of financial statements in accordance with generally accepted 
accounting principles, and that receipts and expenditiires of the issuer are being made only 
in accordance with authorizations of management and directors of the issuer; and 
(Ill) a description, at a minimum, of material weaknesses in siicli internal controls, 
and of any material noncompliance found on the basis of such testing. 
(B) shall include, in the quality control standards that it adop~s with respect to the 
issuance of audit reports, requirements for every public accounting firm relating to- 
(i) monitoring of professional ethics and independence from issuers on behalf of 
which the firm issues audit reports; 
(ii) consultation within such firm on accounting and auditing questions; 
(iii) supervision of audit work; 
(iv) hiring, professional development, and advancement of personnel; 
(v) the acceptance and continuation of engagements; 
(vi) internal inspection; and I 
(vii) such ‘otlie‘r rcqiiirements as {lie Commission may presci-itx, stit)ject to 
subsection (a)( I ). 
(3) A~/fiiorily 
72) Adopi O l h .  Skutdmk - (A) f i i  Chietul - In cai-ryins out this 
subsection, the Commission -- (i) may adopt as its 1-des any portion of any statement of 
auditing standards or othdr professional standards that the Coinmission determines satisfy 
the requirements of paragraph ( I ) ,  
and that were proposed by 1 or more professional 
1 1  . .  


groups of accountants that shall be designated or recognized by the Commission, by nile, 
for such purpose, pursuant to ihis paragraph or 1 or more advisory groups convened 
pursuant to paragraph (4); and 
(ii) Notwithstanding clause (i), shall retain fill1 authority to modi&, supplement, 
revise, or subsequently amend, modi@, or repeal, in whole or in part, any portion of any 
statement described in clause (i). 
(B) Initio1 ntd liwisifiotml Stcni~k;r‘du - The Commission shall adopt standards 
described in subparagraph (A)(i) as initial or transitional standards, to the extent the 
Commission determines necessary. 
(4) Aclvisoty G r m p  - The Commission shall convene, or authorize its staff to 
convene, such expert advisory groups as may be appropriate, which may include 
reprcseirtalives o!’ llie I’liilippine Insliliite 01‘ C‘eililictl I’iiblic Accoiintants, Accounting 
Standards Council, Auditing Standards and Pi-actices Council, practicing accountants and 
other experts, as well‘as representatives o1.ot11er interestect groups, suliject to suctl rules as 
the Commission may prescribe to prevent conflicts of interest, to make recommendations 
concerning the content (including proposed drafts) of auditing, quality control, ethics, 
inctepcndence, or other standards required IO he established under this seciion. 
(h) Itit/epctdc,tice ,S/irnrdmds arid iMcs - The Commission shall establish such rules 
as may be necessary or appropriate in the public interest or for the protection of investors. 
(e) Coopiutio)l wiih Desigmtcd Prwfessiciticil Groups qf Accumfculis cud 
Advisory G t a o i i p . .  - (I) iri General - The Commission shall cooperate on an ongoing 
basis with professional groups of accountants designated under subsection (a)(3)(A) and 
advisory groups convened under subsection (a)(4) in the examination of the need for 
changes in any standards subject to its authority under subsection (a), reconmiend issues 
for inclusion on the agendas of such designated professional groups of accountants or 
advisory groups, and take such other steps as it deeins appropriate to increase the 
cfl’ectiveness of the standard setting proccss. 
d 
(2) Cot?missioti 1~e.syirise.s. - The Commission shall respond in a timely fashion to 
requests from designated professional groups of accountants and advisory groups referred 
to in paragraph ( I )  for any changes in standards‘over which the Coinmission has authority. 
AUDITOR INDEPENDENCE 
Sec. 17. Notwlrrdit S‘en~ices. - A public accounting firm (and any associated 
person of that firm, to tlie extent determined appropriate by the Commission) that 
performs for any issuer any audit required by this title or the rules of the Coinmission 
tinder this title may provide to that issuer, contemporaneously with the audit, any non- 
audit services; 
hMdeci’, that, such non-audit services shall not compromise the 
independence and objectivity of the external audit. In general, the provision of tax services 
contemporaneously with the external audit shall not be deemed to compromise the 
independence and objectivity of the external aridit. ‘l’he provision of non-audit services 
should, however, be disclosed by the issuer in tlie annual report submitted io the 
Cotnmission. 
Sec. 1 8. 
Aw’if Pcrrfticr’ l<o/~ziio~~ 
- ‘The lead (or coordinating) audit partner 
(having primary responsibility 1‘01- the audit), or the audit partner responsible Tor reviewing 
the audit, should be changed or rotated every live (5) years or earlier. 
12 


Sec. 19. Airdiior Reports to A idil Comnzittees. - Reports to Audit Committees - 
Each public accounting firm that performs for any issuer any audit required by this title 
shall timely report to the audit committee of the issuer-- 
& 
(1) all critical accounting policies and practices to be used; 
(2) all alternative trea~meiits of financial information within generally accepted 
accounting principles that have been discussed with management oflicials of the issuer, 
ramifications of the use of such alternative disclosures and treatments, and the treatment 
preferred by the registered public accounting firm; and 
4 
( 3 )  other material written communications between the registered public, 
accounting firm and the managernent of the issiier, sirch as any iiianagennent letter or 
schcdulc of unaci.jnstcd difl'crenccs . 
Sec. 20. ("o~f/ic/ 
c?J'Z~i/t~e.s/. 
- It siiall be iinlawhl for a public accounting tirni to 
perform for an issuer any audit service required by this title, il' a chief executive otticer, 
controller, chief financial officer, chief accounting of'ficer, or any person serving in an 
equivalent position for the issuer, was employed by that registered independent piiblic 
accounting firm as a partner and participated iri the audit of that issuer dill-ing the I-year 
period preceding the date of the initiation of the audit 
TITLE IV 
ANALYST CONFLICTS OF INJEREST 
Sec. 2 1 . Treatmetit of Seciiri ties A~rctfy.s~s 
by Regi..viet.etl S'uwrities A.s.r.ociniioiu 
tmcl Ndioml Secwities fi,xctinttge.s. - Secirr.itier Amnlj.st.s mid i<esecrrch I?epot-ts. - (cr) 
Atinfysts Prulections - The Commission, or upon the authorization and direction of the 
Commission, the Exchange, shall flave adopted, not later than 1 year after the date of 
enactment of this section, rilles reasonably designed to address conflicts ot' interest that 
can arise when securities analysts rccornmend equity securities in research reports and 
public appearances, in order to improve the objectivity of research and provide investors 
with niore useful and reliable information, including rules designed -- 
(I) to foster greater public confidence in securities research, and to protect the 
objectivity and indcpendence of securities analysts, by -- (A) restricting the prepublication 
clearance or approval of Pesearcli reports by persons employed by the broker or deaier 
who are engaged in investment banking activities, or persons not directly responsible for 
investnient research, other than legal or coinpliance staft 
(B) limiting the supervision and compensatory evaluation of securities analysts to 
officials employed by the broker or dealer who are not engaged in investment banking 
activities; and 
4 
(C) requiring that a broker or dealer and persons eniployed by a broker or dealer 
who are involved with investment banking activities may not, directly or indirectly, 
reialiate against or threaten to retaliate against any securities analyst employed by that 
broker or dealer or its affiliates as a result 01' 
an adveise, negative, or otherwise 
unfavorable research report that niay adversely at'fect the present or prospective 
investment banking relationship of the broker or dealer with tile issuer that is the subject 
of the research report, except that sucli rilles may not limit the authority or a broker or 
dealer to discipline a securities analyst for causes other than such research report in 
accordance with the policies and procedures of'the firm, 
13 


(2) to define periods during which brokers or dealers w11o have participated, or are 
to participate, in a piiblic offering, of securities as irnderwriters or dealers should not 
publish or otherwise distribute research reports relating to such securities or to the issuer 
of such securities; 
+ 
(3) to establish structriral and institutional safeguards within registered brokers or 
dealers to assirre tliat securities analysts are separated by appropriate inforlnational 
partitions within the firm from the review, pressure, or oversight of those whose 
involvement in investmerib banking activities might potentially bias their judgment or 
supervision; and 
(4) to address such other issues as the Commission, or such association or 
exchange, determines appropriate. 
(h) /)i.scfo.snrc - The Commission, o r  upoil the authorization and ctircction of the 
Commission, the Exclian ’e, sliall have adopted, i ~ o t  later thaii I year ailer the date of 
enactment of’ this section, rules reasonably designed t o  require each securities analyst to 
disclose in public appearances, and each registered broker or dealer to disclose in each 
research report, as applicable, conflicts of interest that are known or shoiild have been 
Itnown by the securities analyst or the broker or dealer, to exist at the time of the 
appearance or the date of’dist~ibiition ot’ttie report, including-- 
$. 
(1) the extent to which the secyrities analyst has debt or equity investments in the 
issuer that is the subject of the appearance or research report; 
(2) whether any compensation has been received by the registered broker or 
dealer, or any afliliate thereof, including the secirrities analyst, from the issuer that is the 
subject of the appearance or research report, subject to such exemptions as the 
Commission may determine appropriate and necessary to prevent disciosiire by virtue of 
this paragraph of material non-public information regarding specific potential fiiture 
investment banking transactions of siich issuer, as is appropriate in the public interest and 
consistent with t lie prolcction of investors; 
(3) whether an issuer, the securities of which are recommended in the appearance 
or research report, currently is, or during the 1-year period preceding the date of the 
appearance or date of distribution of the report has been, a client of the registered broker 
or dealer, and if so, stating the types of services provided to the issuer; 
(4) whether the securities analyst received compensation with respect to a research 
report, based upon (among any other factors) the investment banking revenues (either 
generally or specifically earned from the issuer being analyzed) of the registered broker or 
dealer; and 
(5) such other disclosures of conflicts of interest that are material to investors, 
research analysts, or the broker or dealer as the Commission, or sllcli association or 
exchange, determines appropriate. 
(c) 1hfiw’fioji.s - ‘ I n  this section -- ( I )  the tertii ‘.secw*ifie.s 
m , d y . y f  ’ means any 
associated person ol‘ a registered broker o r  dealer tliat is principally resporisible for, and 
any associated person who reporis direct ly or indirectly t o  a securities analyst in 
connection with, the preparation 01’ the substance of a research report, whether or not any 
such person has the job title of ‘securities analyst’; and 
d 


(2) the term 
includes an analysis 
provides information 
‘resen~clr report ’ means a written or electronic communication that 
of’ equity securities of individual companies or industries, and that 
reasonably sufficient upon which to base an investment decision. 
(21’) C~o~~imi.~.sioii 
Airf/ioriv - The Commission may promulgate and anlend its 
regulations, or direct the Exchange to promulgate and amend its niles, and to carry out the 
provisions of the Securities Regulation Code as is necessary for the protection of investors 
and in the pirblic interest. 
TITLE V 
CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY 
Sec.22. ’rimitid 1’ericrliie.s i t b r .  A ftcritig 1hcrtitimf.s. - (rtj !~~~~.s/riicfioii, 
AIfctniiotl 
or i+2iI,s~ficu/ioti (?# I~c.cotvls iri lirr~esfi~~i~ioti,s 
t i r i i l  Ihuikrtiptq~ 
‘I‘he penalty O S  
iniprisoninent ranging from li>ur years wtid one day lo eight years or a line 01‘ h e  1~11~ireti 
thousand pesos (I’500,000.00), or both at the discretion of the court shall be hiposed 
upon any person who knowingly alters, destroys, mutilates, conceals, covers L I ~ ,  fdsifies, 
or makes a false entry in any record, document, or tangible object with the intent to 
impede, obstruct, or influence the investigation or proper administration of any matter 
within the jiirisdiction of any department or agency of’ the Pliilippiries or any case filed 
under the provisions of thiB Act and the Securities Regillation Code, or in relation to or 
contemplation of-‘ any such matter or case. 
(b) l)c.stri{ctioii of’ Clorpomte Audit I2ecord - Any accountant who conducts an 
audit of an issuer shall maintain all audit or review work-papers for a period of 5 years 
from the end of the fiscal period in which tile audit or review was concluded. 
(c) PeilfllQafi,r Vrdntimz - The penalty of imprisonment ranging from four years 
and one day to six years Qr a fine of five hirndred tiioiisand pesos (1’500,000.0~), or both 
at the discretion of the Eourt shall be imposed upon any person who kriowingly and 
willfully violates subsection (b) of this Act 
((0 1)rrty to M i h t ( i i t i  I)ocriinetil.r - Nothing in this section shall be deemed to 
ciiminish or relieve any person of any other duty or obligation iniposecI by law or 
regulation to maintain, or refrain from destroying, any docurnetit. 
Sec.23. Skitrife of I ~ ~ ~ ~ i l ~ n t j ~ ~ ~ ~ s . ~ ~ ) ~ .  
Scciir-ities /;im~d. - fi-g III Getierzrl - A private 
right of action that involves a claim of fraud, deceit, manipulation, or contrivance in 
contravention of a regiilatory requirement concerning the seciirities laws, may be brought 
not later than the earlier of-- 
(1) 2 years after the discovery of the f%cts constituting the violation; or 
(3) 5 years after such violation. 
(h) l@ectiw I h t l  - ?lie limitations period provided in the preceding section shall 
apply to all proceedings addressed by this section that are commenced on or after the date 
of enactment ofthis Act. 
15 


,j 
1 
discharge, demote, suspend, threaten, harass, or in any other manner discriminate against 
an employee in the terms and conditions of eanliloyrnent because of any lawful act done 
by the employee to provide information, cause infomation to be provided, or otherwise 
assist in an investigation regarding any conduct which the employee reasonably believes 
con3itutes a violation of' my rule or regulation of the Commission, or my provision of 
law relating to fraud against sharelwldess; or to file, cause to be filed, testifgr, ~~~~~~~~~~ 
in, QT oflienwise assist in a proceeding filed or about to be filed (with any ~~o~~~~~ of 
the employer) relating to an alleged violation of any rule or ~
e
~
l
a
~
~
~
~
of the 
Cornmission, or any provision of law relating to faaud against shareholders. 
Sec.25. Clriminul Penalties ,for lkfrmdirag Shareholders of Publicly l'i-ided 
C'onipunies. - Securilies jrmid - The penahy of iInpn'sonn-ient ranging from six years 
and one day to eight years or a line of live hundred thousand pesos (1'500,000.00), or 
both at the discretion of the court shall be imposed tipon any person vodm knowingly 
executes, Of attempts to exewte, u schcme o r  urlifice -- (1) to defraud any gPcrsun in 
connection with any security of an issuer with a class of securities registered under 
section 8 of the Securities Regulation Code or that is required to Pile reports under 
section 17 of the Securities Regulation Code; or 
(2) to obtain, by means of false or liaiidulent pretenses, representations, or 
promises, any money or propxty in connection with the purchase or sale of any security 
of an issuer with a class of securities registered under section 8 of the Securities 
Regulation Code or that is required ta file reports under section 17 of the Securities 
Regulation Code; 
CORPOMTE WESPONSIBIILITY FOR FI 
NCIAL REPORTS 
Sec. 26. Clorporcile Repmsihility For Financial 12epor-ts. - Failure ofcorpora!e 
ojicsrs to cerl{fijinuncial reports. - fiI) Ceri!ficution q/'Yeriodiic F'inrmcial Reporis - 
Each periodic report containing financial statements filed by an issuer with the 
Commission pursuant to the Seciirities Regulation Code shall be accompanied by a 
written statement by the chief executive officer and chief financial oficer OF any oficial 
of similar rank of the issuer. 
(i) C'oriknt - The statement required under subsection (a) shall certify that the 
periodic report containing the financial statements hlly complies with the requirements 
of the Securities Regulatibn Code and that the information contained in the periodic 
report fairly presents, in all material respects, the financial condition and results of 
operations of the issuer. 
(c) Crimind Yenallies - The penalty of imprisonment of six yean or a fine of 
five hundred thousand pesos (P500,000.00), or both at the discretion of the court shall be 
imposed upon any person who shall willfully cedi@ any statement as set forth in 
subsections (a) and (b) of this section knowing that the periodic report accompanying the 
statement does not comply with all the requirements set forth in this section. 
4
c
 


Sec. 28. 
Ten poimy F w e x  Autlrnrily qf the Secririties und Exchmge 
C:ornnrission. - Ten2~?oriry 
Freeze - (2) hz Gencrul - (9 Issuance of Te?qnomr.y Order - 
Whenever, during the codrse of a Iawfbl investigation involving possible violations of the 
securities laws b y m  issuer of publicly traded securities or any of its directors, officers, 
p,xtners, controlling persons, agents, or employees, it shall appear to the Commission 
that it is likely that the issuer will make extraordinary payments (whether compensation 
or otherwise) to any of the foregoing persons, the Commission may petition the regional 
trid court for a temporary order requiring the issuer to escrow, subject to court 
supervision, those payments in an interest-bearing account for 45 days. 
4: 
(ii) LSfcrndcwcJ - A temporary ordcr shall be entered under the preceding section 
only after notice and opportuni.ty for a heariqg, unless the court determines that notice 
and hearing prior to entry of the order would be impracticable or contrary to the public 
interest. 
(iii) l?flectivc Period - A temporcay order issued under clause shall be effective 
and may be extended or terminated under the: conditions set forth under the Revised 
Rules of Court. 
Sec. 29. AutJiorily of the ikntmi.s.sio$a to Prohibit Persons j w r i  Serving (JS 
Oflcert; or Direciors. - In any cease-and-desist proceeding under Section 64 of the 
Securities Regulation Code, the Commission may issue an order to prohibit, 
conditionally or unconditionally, md pernxmently or for such period of time as it shall 
determine, any person who has violated the mles or replations thereunder from acting as 
an officer or director of any issuer that has a class of securities registered pursuant t~ 
section 8, or that is required to file reports pursuant to section 17, if the conduct of that 
person demonstrates unfitness to serve as an ofijcer or director of any such issuer. 
Sec. 30. hiplcmen~ing Rides iavld Repli~tiom. - The Securities and Exchange 
Commission in cotmiltation with the Bangko Sentrat ng Pilipinas @SI?), Professional 
Regulations Commission (PRC), Board of 
Accountancy and other concerned 
government agencies shall poimilgate within one hundred eighty ( 180) days the 
implementing rules and regulations that shall be necessary to implement the provisions of 
this act 
See. 3 1. Seprrrdility Clazrse. - if any of the provisions of this Act is hefd or 
declared. to be unconstitutional or invalid by a competent cotii-i, the other provisions 
hereof not so declared shall continue to be in force as if the provision as annulled or 
voided had never been iqplemented in this Act. 
Sec.32. Repding C7lazrse. - All laws, executive orders, presidential decrees, 
rules and regulation or parts thereof which are inconsistent with any part of this Act are 
hereby repealed or amended accordingly. 
Sec.33. Effectivity Clause. - This Act shall take effect after fifteen (15) days 
fooflowing its publicatior$ in the Official Gazette or in two (2) newspapers of general 
circulation in the Philippines. 
A,pproved,