MEMORANDUM CIRCULAR NO. 2019-10
Series of 2019
TO : ALL CONCERNED
SUBJECT : REVISED GUIDELINES ON THE ACCREDITATION OF COOPERATIVE EXTERNAL AUDITORS
Pursuant to Section 3 (f) of Republic Act 6939, an Act creating the Cooperative Development Authority (CDA) and Article 80 of Republic Act 9520, otherwise known as the Philippine Cooperative Code of 2008, the following guidelines are issued to govern the accreditation of cooperative external auditors:
SECTION 1. Definition of Terms
ACCREDITATION- refers to the act of giving official authorization or approval to a qualified auditor to conduct financial audit to cooperatives.
COOPERATIVE DEVELOPMENT AUTHORITY or CDA – refers to the only government agency granting juridical personality to cooperatives, herein referred to as the Authority.
AUDITING FIRM – refers to either the partners of a firm providing audit services or a sole practitioner providing audit services, as appropriate.
AUDITOR-IN-CHARGE – refers to the team leader of the audit engagement.
COOPERATIVE EXTERNAL AUDITOR – refers to an independent Certified Public Accountant (CPA) accredited by the CDA, whose relationship to the client is to express an opinion on the financial statements. He/she may be the signing partner in an auditing firm or a sole practitioner.
FRAUD – refers to an intentional act by one or more individuals among management, employees, or third parties that result in a misrepresentation of financial statements. It may involve:
– Manipulation, falsification or alteration of records or documents.
– Misappropriation of assets.
– Suppression or omission of the effects of transactions from records or documents.
– Recording of transactions without substance.
– Intentional misapplication of accounting policies.
– Omission of material information
– And any other instance/factor which may be classified as fraud.
PARTNER – refers to all members of a partnership or an audit firm but not necessarily conducting audit to cooperatives.
PARTNERSHIP – refers a professional partnership engaged in the practice of public accountancy duly registered with the Securities and Exchange Commission. [Art 1, Sec 1(g), Board of Accountancy Resolution No. 69, Series of 2003]
AUDIT ENGAGEMENT LETTER – refers to a letter that informs the cooperative of an upcoming audit. It details the audit objectives, the timeline, and the audit team members. It also covers the pre-audit meeting, expected deliverables, and the audit team’s mission.
SECTION 2. Application Requirements for Initial Accreditation
An individual Certified Public Accountant (CPA) who seeks to be accredited as Cooperative External Auditor must accomplish and file the following documents directly to the Cooperative Development Authority – Extension Office (CDA-EO) where such CPA/ Partnership/Auditing Firm is based:
1. For Individual CPA
i. Letter application (Annex 1.1)
ii. Profile of the Applicant with attached 2 x 2 colored ID picture; (Annex 2.1)
iii. Valid Professional Regulation Commission Identification Card (PRC ID);
iv. Valid Certificate of Accreditation with the Professional Regulation Commission – Board of Accountancy (PRC-BOA);
v. Current Professional Tax Receipt (PTR) issued by the local government;
vi. Valid Certificate of Membership in Good Standing with the Philippine Institute of Certified Public Accountants (PICPA); or Certification of Life Sustaining Membership issued by the PICPA
vii. Certificate of Attendance to training equivalent to a minimum of 24 hours of required training as provided in Section 4 of this Guidelines; and
viii. Other documents that may be required by the CDA in case of inconsistencies in the submitted documents.
2. For Partnership/Auditing Firm
i. Application letter (Annex 1.2)
ii. Profile of the Firm/Partnership (Annex 2.2);
iii. Profile of the signing partners with 2 X 2 colored ID picture (Annex 2.3);
iv. SEC Registration Certificate of Partnership;
v. Articles of Partnership and/or its amendment;
vi. Partnership’s Valid Certificate of Accreditation with the PRC BOA;
vii. PTR of individual signing partner/s;
viii. Valid Certificate of Membership in Good Standing with PICPA of the signing partners;
ix. Certificate of Attendance to training of signing partner/s equivalent to a minimum of 24 hours of required training as provided in Section 4 of this Guidelines; and
x. Other documents that may be required by the CDA in case of inconsistencies in the submitted documents.
SECTION 3. Application Requirements for Renewal of Accreditation
Interested party must accomplish the following documents and file application for renewal directly to the CDA EO where such CPA/Partnership/Auditing Firm is based:
1. For Individual CPA
i. Application letter (Annex 1.3)
ii. Updated profile of the applicant with updated 2 x 2 colored ID picture (Annex 2.1)
iii. Valid PRC ID;
iv. Valid Certificate of Accreditation with the PRC-BOA;
v. Current PTR issued by the local government;
vi. Valid Certificate of Membership in Good Standing with PICPA or its Chapter;
vii. Certificate of Training equivalent to 24 hours of required training for renewal as provided in Section 4 of this Guidelines;
viii. Previous Certificate of Accreditation issued by the CDA;
ix. List of cooperative-clients and years audited (Annex 3.1)
x. Sworn statement by the cooperative external auditor that she/he has engaged in Cooperative External Audit or Preparation of financial statement to at least one (1) micro cooperative that is free of charge as part of his/her social responsibility, duly supported with Certification from cooperatives that received such services; and
xi. Sworn statement by the Cooperative External Auditor that he/she has observed the conditions prescribed under Sec. 9 of these guidelines.
2. For partnership/Firm
i. Letter application (Annex 1.4);
ii. Updated profile of the audit firm (Annex 2.2);
iii. Updated profile of the individual signing partners with updated 2 x 2 colored ID picture (Annex 2.3);
iv. SEC Registration Certificate;
v. Articles of partnership and/or its amendment;
vi. Partnership’s valid Certificate of Accreditation with the PRC BOA;
vii. Current PTR of signing partners;
viii. Certificate of Membership in Good Standing with PICPA of the signing partners;
ix. Certificate of Training of signing partners equivalent to 24 hours of required training for renewal as provided in
Section 4 of this Guidelines;
x. Latest Certificate of Accreditation issued by the CDA;
xi. List of cooperative-clients and years audited (Annex 3.1)
xii. Sworn statement by the cooperative external auditor that she/he has engaged in Cooperative External Audit or Preparation of financial statement to at least one (1) micro cooperative that is free of charge as part of his/her social responsibility, duly supported with Certification from cooperatives that received such services; and
xiii. Sworn statement that the partnership/firm has observed the conditions prescribed under Section 9 of this Guidelines.
The above requirements for accreditation either for initial or renewal, shall be submitted in complete set with presentation of ORIGINAL COPIES, for authentication. Otherwise, applications will not be accepted/processed.
SECTION 4. Training Requirements
The training requirements for the Accreditation of Cooperative External Auditors shall be equivalent to a minimum of 24 hours of training both for initial and renewal.
These trainings shall be conducted by the PICPA in coordination with CDA in accordance with the prescribed training course outlines attached in this Circular (Annex 4.1 and 4.2). The PICPA Chapter in coordination with the PICPA National may conduct the training for the accreditation of cooperative external auditors.
Further, the training attended by the CPA is valid for five (5) years from the date of issue of the Certificate of Attendance to Training. Moreover, Certificate of Training for renewal can only be used once by the applicant. This means that Certificates of Training which were already used for renewal of Accreditation to CDA cannot be used for succeeding renewals.
SECTION 5. Accrediting Body
The accreditation of Cooperative External Auditor shall be approved by the CDA Board of Administrators (CDA-BOA) upon recommendation of the CRITD/IDD of the CDA-CO through the Executive Director.
SECTION 6. Validity of Accreditation and Inclusion in CDA List
The accreditation of external auditor shall be valid for a period of three (3) years from the date of issue.
The CDA accredited cooperative external auditors may apply for the renewal of their accreditation within three (3) months prior to the expiration. The provisions of Section 3 of this Accreditation Criteria shall likewise apply.
The CDA will circularize to all cooperatives the list of accredited cooperative external auditors periodically through its website. The CDA, however, shall not be held liable for any damage or loss that may arise from the selection of the accredited cooperative external auditors to be engaged by the cooperatives for regular or special audit engagements.
SECTION 7. Accreditation Fees
Individual – Two Thousand Pesos (P2, 000.00)
Partnership or Firm – Five Thousand Pesos (P5, 000.00)
Individual – One Thousand Pesos (P1, 000.00).
Partnership or Firm – Three Thousand Pesos (P3, 000.00)
Individual – Two Thousand Pesos (P2, 000.00).
Partnership or Firm – Five Thousand Pesos (P5, 000.00)
In case of denial/non-approval of application, any fees paid shall be non-refundable.
SECTION 8. Audit Coverage
Accredited cooperative external auditors may accept audit engagement from cooperatives in different regions and are not be limited to the region where he/she applied for accreditation.
SECTION 9. Conditions for Engagement of an External Auditor
a) No external auditor may be engaged/qualified in the audit of a cooperative and any of its subsidiary if he/she or any member of his/her immediate family had or has committed to acquire any direct or indirect financial interest in the cooperative, or if his/her independence is considered impaired under the circumstances specified in the Code of Professional Ethics for Certified Public Accountants. In the case of a partnership, this limitation shall apply to all the partners, associates, and the auditor-in-charge of the engagement and members of their immediate family up to 3rd degree of consanguinity or affinity.
b) The external auditor and the members of the audit team do not have/shall not have outstanding loans or any credit accommodations with the cooperative at the time of signing of the engagement and during the engagement. In the case of partnership, this prohibition shall apply to all the partners and the auditor-in-charge of the engagement.
c) The external auditor must not be currently engaged nor was engaged during the past 3 years in providing the following services to the Cooperative:
i. Internal audit functions;
ii. Information systems design, implementation, and assessment; and
iii. Such other services, which could affect his/her independence as, may be determined by the CDA.
d) The external auditor, auditor-in-charge, and members of the audit team must adhere to the highest standards of professional conduct and shall carry out services in accordance with relevant ethical, auditing and reporting standards, such as the Code of Professional Ethics for Certified Public Accountants; Philippine Standards on Auditing (PSA); and the Philippine Financial Reporting Framework for Cooperatives
e) For the immediate past three years, the external auditor must not have held a position relevant to the conduct of audit such as, but not limited to, Chief Executive Officer, Chief Financial Officer, Comptroller, Accountant, Bookkeeper, Audit Committee, etc;
f) For the immediate past three years, the external auditor must not have been a member/officer of the cooperative or employee/officer of a federation/union to which the cooperative being audited is affiliated;
g) The external auditor must not be related to any officer and employee of the cooperative up to the fourth degree of consanguinity or affinity; and
h) The external auditor, whether on his/her individual capacity or as partner of a firm, may undertake the external audit of the concerned cooperative for five (5) consecutive years, provided that the external auditor may be allowed to audit the same client after a rest period or cooling off of two (2) years. Provided further that in case of the firm/partnership, rotation among the signing partners is not allowed.
SECTION 10. Reportorial Requirements
a) The External Auditor shall prepare the audited financial statements in accordance with Philippine Financial Reporting Framework (PFRF) for Cooperatives taking into consideration cooperative laws, rules and regulations. At the minimum, the report shall meet the following requirements:
a.1) Standard presentation of the audited financial statements with comparative figures of the immediately preceding year, which will include the following:
– Auditors’ Report
– Statements of Financial Condition
– Statements of Operations
– Statements of Cash Flows
– Statements of Changes in Equity (to include changes in Statutory Funds)
– Notes to Financial Statements
a.2) Statement of Management Responsibility
a.3) Statement of representation of the external auditor to the Authority
a.4) Audit findings and recommendations
a.5) Ratios using Cooperative Financial Standards (STEPS/PESOS)
b) Disclosure of external auditor’s adverse findings
b.1. To enable timely and appropriate remedial action, the external auditor must report to the CDA EOs where the cooperative being audited is registered, within thirty (30) calendar days after discovery, the following cases:
b.1.1. Any material findings involving fraud or dishonesty including cases that were resolved during the period of audit;
b.1.2. Any potential losses the aggregate of which amounts to at least five percent (5%) of the total asset; and
b.1.3. Insufficiency of the cooperative’s assets to cover claims of creditors.
b.2. The external auditor shall report directly to the CDA EO where the cooperative being audited is registered, within fifteen (15) calendar days after the occurrence of the following:
b.2.1. Termination or resignation as external auditor, prior to the completion of audit engagement, and stating the reason thereof;
b.2.2. Discovery of a material breach of cooperative laws or these rules and regulations such as, but not limited to;
b.2.2.1. Net worth to risk assets ratio; Loans and other risk assets review and classification using portfolio at risk; and
b.2.2.2. Findings on matters of cooperative governance that may require urgent action by the Authority.
b.3. The external auditor shall inform and/or discuss with the management of the cooperative details of the adverse findings with the corresponding corrective measures.
SECTION 11. Signing of Audit Report done by an Audit firm/Partnership
For financial audit conducted by an Accredited Audit firm/partnership, only the partner/s of the audit firm/partnership who have attended the training requirements and have submitted the necessary documents to the CDA shall sign the audit report of the cooperatives to ensure that the requirement of the Authority on financial audit of cooperatives are substantially complied with.
SECTION 12. Working Paper Retention
In all cases, accredited external auditor shall maintain the audit working paper for a minimum period of seven (7) years.
SECTION 13. Updating of Records
Records of the Accredited Cooperative External Auditors submitted to the CDA shall be valid/updated at all times. In case the effectivity/validity of these records have lapsed, the cooperative external auditor must submit the valid documents to update his/her records to the CDA. Failure to do so shall prompt the CDA to suspend/invalidate his/her accreditation.
SECTION 14. Grounds for non-approval of renewal:
1. Non-conduct of audit service or preparation of financial statement to at least one (1) micro cooperative free of charge as part of his/her social responsibility;
2. Non-observance of the five (5) year limitation of audit engagement to a particular cooperative as provided in Section 9 of this Guidelines and further clarified in MC 2014-02;
3. Conduct of audit with invalid accreditation with CDA and PRC BOA, and with expired PRC ID;
4. Failure to adopt of the Standard Chart of Accounts, Philippine Financial Reporting Framework for Cooperatives and other standards for cooperatives; and
5. Non-disclosure of adverse findings to cooperatives as provided in Section 10 (b) of this Guidelines.
The External Auditors who have committed the above violations may re-apply for accreditation after a period of three (3) years following the initial accreditation process.
SECTION 15. Revocation/Cancellation of Accreditation
The following shall be the grounds for revocation and/or cancellation for accreditation:
1. Misrepresentation of Financial Statements which are used by the cooperatives in fraudulent acts;
2. Allowing the use of Accreditation number by any unauthorized external auditor; and
3. Other acts analogous to the foregoing.
The procedures for revocation/cancellation of accreditation shall be in accordance with the rules of procedure to be promulgated by the Authority.
An external auditor who found to have committed the above mentioned violations which resulted to the detriment of the cooperatives shall be barred from conducting audit to cooperatives.
SECTION 16. Repealing Clause
Memorandum Circular No. 2009 – 03 dated September 14, 2009 and all other issuances inconsistent with these guidelines shall be deemed repealed and/or modified accordingly.
SECTION 17. Effectivity
This Circular shall take effect fifteen (15) days following its filing three (3) copies hereof with the Office of National Administration Register (ONAR), University of the Philippines Law Center, Diliman, Quezon City pursuant to Presidential Memorandum Circular No. 11 dated 09 October 1992.
Approved per CDA Board Resolution No.309, S-2019 dated July 15, 2019.
(Sgd) ORLANDO R. RAVANERA