The Securities and Exchange Commission (SEC) has raised the financial threshold at which corporations are required to submit audited financial statements, a move intended to reduce compliance burdens for micro and small enterprises in the Philippines. The change takes effect through Memorandum Circular 4, Series of 2026, issued on 20 January and applying to financial statements for fiscal years ending on or after 31 December 2025.

Under the new rules, stock and non-stock corporations with total assets or total liabilities of ₱3 million or less are no longer required to file audited financial statements. These entities must instead submit certified financial statements accompanied by a Statement of Management Responsibility (SMR) signed under oath by senior officers. The exemption also applies to One Person Corporations, subject to tailored SMR signatory rules.

The revision marks a significant increase from the previous audit exemption threshold of ₱600,000, which had been in place for years and widely considered outdated relative to prevailing business costs and enterprise scale. The SEC said the reform aims to reduce compliance costs for micro enterprises and enable them to redirect resources toward business operations and growth. The Commission emphasized that accountability will continue to be enforced through sworn SMRs and targeted oversight.

Who Benefits and Who Does Not

The exemption covers both stock and non-stock corporations registered with the SEC, including One Person Corporations, provided they fall under the new ₱3-million threshold. However, the change does not apply to entities considered to have public accountability or whose activities require higher regulatory scrutiny.

Excluded categories include public companies, listed issuers, exchanges, self-regulatory organizations, investment houses, brokers and dealers, and government securities eligible dealers. Certain non-bank lenders and non-profit foundations also remain outside the exemption if they meet asset, fundraising, or solicitation thresholds. Entities vested with public interest remain subject to existing audit requirements.

What Must Be Submitted Instead

Corporations qualifying for the exemption must submit:

• certified financial statements; and

• an SMR signed by authorized officers.

For stock and non-stock corporations, the SMR must be signed by the chairman of the board or president/CEO, and by the treasurer/CFO. For One Person Corporations, the president and treasurer serve as signatories. The sworn statements attest to the accuracy and completeness of the financial report, with penalties applicable for false or misleading submissions.

Policy Context and Rationale

The Philippines has pursued several regulatory adjustments in recent years intended to make it easier for micro and small enterprises to comply with corporate, tax, and reporting rules. MSMEs represent a majority of the country’s registered firms, employ large segments of the labor force, and remain central to local economic activity, yet often face disproportionate compliance costs relative to their operational scale.

The SEC stated that increasing the audit exemption threshold aligns with efforts to reduce administrative burdens, support micro enterprise growth, and preserve accountability through management attestations. Business groups and policy analysts have previously noted that audit fees can be material for the smallest corporations, sometimes approaching or exceeding their working capital capacity.

The new exemption also brings the Philippines closer to practices in several regional peers that apply tiered financial reporting or audit relief for micro-sized entities. Analysts have pointed out that such reforms are commonly used to support business formalization, encourage incorporation, and improve compliance rates by lowering barriers to entry.

Implementation Timeline

The revised rules apply to financial statements for fiscal years ending 31 December 2025 and onwards. Corporations with fiscal years ending earlier must continue using the prior threshold. The SEC is expected to issue additional clarifications on procedural requirements during the transition period.

While the reform is narrow in scope and technical in nature, it affects a substantial share of registered corporations and may become relevant to MSME support discussions, ease-of-doing-business efforts, and regulatory modernization debates. The Commission indicated that audit requirements for entities with public interest will remain unchanged to preserve market integrity and protect stakeholders.

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