New SEC Audit Threshold and MSME Entity Classifications (SEC MC No. 4, 2026)

The Philippine Securities and Exchange Commission (SEC) issued SEC Memorandum Circular No. 4 Series of 2026 (dated January 20, 2026), which amends the Revised Securities Regulation Code (RSC) Rule 68, pursuant to Section 74 of the Revised Corporation Code (RCC) by significantly increasing the audit threshold to reflect current economic conditions and align with national MSME policies. Additionally, this aims to lower compliance costs for micro-enterprises while ensuring transparency through the strengthened accountability for certifying officers. 

New SEC Audit Threshold and Other Related Updates

For guidance of corporations and entities subject to the Commission’s oversight, the following are the key amendments and operational guidelines from the Circular: 

1. General Application of the New Audit Threshold

The updated audit threshold raises the requirement for an Audited Financial Statement (AFS) from the previous PHP 600,000 to more than PHP 3,000,000 in total assets or liabilities. Consequently, only stock and non-stock corporations exceeding the new PHP 3,000,000 limit are now required to submit an AFS.

2. Filing Requirements for Exempt Corporations

While corporations with total assets or liabilities at or below the updated threshold are exempt from submitting Audited Financial Statements (AFS), they must still submit financial statements accompanied by a sworn Statement of Management’s Responsibility (SMR), wherein signatories assume full liability for the accuracy and truthfulness of the data.

For exempt stock and non-stock corporations, the document requires the signatures of the Chairman of the Board, the President or CEO, and the Treasurer or CFO, all of whom must be duly authorized by the Board of Directors. For One Person Corporations (OPCs), the SMR must be signed by both the President and the Treasurer. In the absence of the authorized signatories, the Board of Directors may expressly delegate such authority to a specific officer or director vested with equivalent authority.

3. Important Exclusions

The audit exemption, however, does not apply to entities classified as Group A, Group B, or Group C as enumerated under Part I, Section 3 (B) of the Revised SRC Rule 68, nor to the corporations deemed “vested with public interest” pursuant to the provisions of the RCC through subsequent regulatory issuances. Given the nature of their regulatory obligations and the degree of public interest they represent, these entities must remain subject to mandatory audit requirements, irrespective of their total asset or liability size. 

4. New Small and Micro Entity Classifications

Following the adjustment of the audit threshold, the SEC has also revised the classifications and reporting frameworks for small and micro entities. Small entities are now defined as those with total assets or liabilities between PHP 3,000,000 and PHP 100,000,000 (calculated on a consolidated basis for parent companies). Meanwhile, micro entities are those falling at or below the PHP 3,000,000 threshold.

For reporting, micro entities may choose between the income tax basis or the PFRS for SEs (Philippine Financial Reporting Standard for Small Entities) as their framework. Regardless of the chosen framework, their filings must include a sworn Statement of Management’s Responsibility (SMR), a Statement of Financial Position, a Statement of Income, and relevant Notes to Financial Statements, covering a two-year comparative period where applicable.

5. Effectivity and Transitory Provisions

The new audit threshold applies to financial statements covering fiscal years ending on or after December 31, 2025. Corporations with fiscal year-ends prior to the effectivity of the Circular must comply with the audit threshold in effect as of the close of their respective fiscal year.