SEC’s New Audit Exemption for MSMEs: Compliance Cost Savings and Impact

Micro, small, and medium enterprises (MSMEs) are the backbone of the Philippine economy. Recognizing their importance, the Securities and Exchange Commission (SEC) has proposed a major policy change to ease regulatory burdens — allowing more corporations to be exempt from filing audited financial statements.

This initiative aims to reduce compliance costs and support the government’s broader goal of driving inclusive economic development. The SEC’s proposal, detailed in its policy paper to the Department of Finance (DOF) on October 28, 2025, is a step toward creating a more enabling business environment for micro enterprises.

A Higher Threshold for Audit Exemption

Under the proposed policy, corporations with total assets or liabilities not exceeding ₱3 million will no longer be required to submit audited financial statements. Instead, they will only need to file annual financial statements certified under oath by their treasurer or chief financial officer.

This new rule is proposed to apply to financial statements covering fiscal years ending on or after December 31, 2025, pending final DOF approval.

Currently, the audit requirement applies to corporations with assets or liabilities of at least ₱600,000, as stated in Section 177 of the Revised Corporation Code (RCC).

Those below the threshold may already submit unaudited financial statements certified by their officers. However, this ₱600,000 limit has long been seen as outdated and restrictive for micro enterprises.

By raising the threshold to ₱3 million, the SEC aims to ease both regulatory and financial burdens on small firms — aligning corporate reporting rules with existing tax regulations and modernizing compliance standards.

What This Means for MSMEs

The SEC’s proposal directly benefits micro enterprises in several key ways:

1. Lower Compliance Costs

Audited financial statements can be expensive, especially for small businesses. By exempting those with total assets or liabilities below ₱3 million, the SEC helps MSMEs save thousands of pesos annually — funds that can instead be reinvested in operations, technology, or expansion.

2. Simplified Filing and Reporting

Micro enterprises will only need to submit financial statements certified by their treasurer or chief financial officer. This simplified process reduces administrative work and makes compliance less intimidating for business owners.

3. Encouragement for Business Formalization

By lowering compliance hurdles, the SEC hopes more entrepreneurs will register their businesses as corporations, integrating them into the formal economy. This supports national goals of inclusive economic growth and ease of doing business initiatives.

4. Reduced “Rubber-Stamp” Audits

The SEC also notes that this policy will help reduce the occurrence of “rubber-stamp audits” — low-quality audits conducted merely to satisfy filing requirements. Eliminating unnecessary audits ensures that accounting resources are used more meaningfully and that oversight focuses on higher-risk entities.

Maintaining Oversight and Accountability

Despite removing the audit requirement for smaller companies, the SEC emphasized that regulatory oversight will not be compromised.

Through its visitorial powers under the RCC, the SEC retains the authority to require audits when warranted by public interest or in cases involving larger, regulated sectors such as public infrastructure projects or companies exceeding the ₱3 million threshold.

As SEC Chairperson Francis Lim stated, the goal is to cut unnecessary compliance requirements for micro entities while still ensuring proper governance and accountability. He stressed that MSMEs are the “backbone of the Philippine economy,” and that the Commission remains committed to policies that help entrepreneurs navigate the business landscape more easily.

Impact on Auditing Firms

For auditing professionals, this change may initially reduce the number of mandatory small-scale audits. However, it opens the door for audit firms to refocus on value-added services such as financial management, tax advisory, and business consulting.

By concentrating efforts on larger entities and high-risk sectors, auditors can enhance the overall quality of their work. This shift mirrors global trends where auditing firms pivot to advisory and compliance services, catering to the evolving needs of SMEs in an increasingly digital economy.

How the Philippines Compares Globally

The SEC’s move is consistent with international best practices:

• United Kingdom: Small companies with assets below £5.1 million or turnover under £10.2 million are exempt from audits.

• Singapore: Private companies under S$10 million in total assets or revenue can file unaudited statements.

• Malaysia: Companies with assets not exceeding RM300,000 are exempt.

Compared to these thresholds, the Philippines’ ₱3 million limit remains conservative — but it represents a crucial step toward proportionate regulation. This aligns with the global recognition that one-size-fits-all audit rules can stifle micro enterprise growth.

A Step Toward Inclusive Economic Growth

Chairperson Lim summarized the spirit of this policy best:

“Our proposed policy will not only improve the ease of doing business but will also cut unnecessary compliance requirements for micro entities, in support of the government’s goal of driving inclusive economic development.”

By reducing compliance costs and simplifying reporting, the SEC’s proposal allows small businesses to focus more on growth, innovation, and job creation. It’s a reform that supports both economic inclusivity and responsible regulation — a win for MSMEs and the Philippine economy alike.

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