STATE PROSECUTORS have begun documentation of incidents that will support the Department of Justice (DoJ)’s petition for proscription to declare the Communist Party of the Philippines (CPP) and New People’s Army (NPA) as terrorist organizations, in accordance with President Rodrigo R. Duterte’s proclamations to that effect. “I have around 15 incidents. Baka i-zero namin ito sa (We might bring this down to) 10 or 12. These are very recent incidents,” Prosecutor Peter L. Ong said in a press briefing on Jan. 3. Mr. Ong said the prosecution will focus on the incidents that transpired “after (Mr. Duterte) assumed (the) presidency on July 1, 2016.” He added: “Kasi (Because) at that point, the President was extending his hand by showing good faith and sincerity for a just and lasting peace and yet…tactical offensives ang naging kapalit ng (were the response to) peace negotiations,” Mr. Ong said. The prosecutor said the DoJ is finalizing its petition and may submit this to the Supreme Court “within the month.” — Minde Nyl R. dela Cruz
By Krista A.M. Montealegre, National Correspondent
STOCKS trekked higher to open the year, breaking past the 8,700 level for the first time to end at a fresh record high, on sustained buying momentum amid expectations of another year of strong gains.
The benchmark Philippine Stock Exchange index (PSEi) rallied to a new all-time high and intraday peak of 8,724.13 on Wednesday, surging 165.71 points or 1.93% from its previous close.
The broader all-shares index climbed 64.68 points or 1.29% to 5,054.65.
The local market extended a record-breaking rally to a third straight session after a late surge pushed the PSEi to all-time high at the close of 2017.
“Philippine markets resumed their bullish climb on opening day with another record high. Investors are continuing to make their bets on issues they believe will outperform for the rest of the year,” Luis A. Limlingan, business development head at Regina Capital Development Corp., said in a mobile phone message.
“There was strong momentum buying from last year. Investors are positioning themselves for another good year due to the tax reform program, strong economy and infrastructure projects taking off,” Astro C. del Castillo, managing director at First Grade Finance, Inc., said in a phone interview.
Coming off a two-day break, local stocks rode on the extended gains in Asian shares, buoyed by a rally in technology companies that lifted US stocks to record highs.
The Dow Jones Industrial Average went up 104.79 points or 0.42% to 24,824.01; the S&P 500 rose 22.18 points or 0.83% to 2,695.81; and the Nasdaq Composite gained 103.51 points or 1.50% to 7,006.90.
All counters ended the session in the green led by holding firms, which soared 253.88 points or 2.94% to 8,870.39.
Property added 90.31 points or 2.27% to 4,068.50; services increased by 16.94 points or 1.04% to 1,636.78; mining and oil advanced 96.22 points or 0.83% to 11,598.80; industrials jumped 68.08 points or 0.60% to 11,299.38; and financials inched up 10.47 points or 0.46% to 2,240.64.
Value turnover picked up slightly to P7.29 billion from P7.26 billion, as 712.83 million shares changed hands.
Advancers edged out decliners, 118 to 102, while 38 issues were unchanged.
Foreign investors remained in buying territory albeit at a slower pace of P348 million compared to the P1.79 billion registered in the prior session.
“The market will eventually correct — that’s the art of supply and demand. Investors are looking for an excuse to take profits but as of now, wala pa (there are none),” First Grade Finance’s Mr. Del Castillo said.
Most Southeast Asian stock markets also rose on Wednesday as a bevy of strong manufacturing data that underscored an upturn in world economic growth boosted risk appetite, lifting broader Asian stocks to a fresh decade high. — with Reuters
FOR ALL THE BUZZ about pea protein and lab-grown burgers, Americans are set to eat more meat in 2018 than ever before.
To be precise, the average consumer will eat 222.2 pounds (100.8 kilos) of red meat and poultry this year, according to the US Department of Agriculture (USDA), surpassing a record set in 2004. Meanwhile, domestic production will surpass 100 billion pounds for the first time, as livestock owners expand their herds on the back of cheap feed grain.
Though the USDA’s per-capita measure isn’t a true gauge of consumption, it serves as a common proxy. It shows egg demand reaching an all-time high as well in 2018. Dairy items like cheese and butter have also been growing in popularity.
“If you look at the items that consumers say they want more of in their diet, protein tops the list,” said David Portalatin, a Houston-based food industry adviser for NPD Group.
Prices have gotten cheaper at the grocery store as supply grows. Chicken breast costs in November were the lowest in five years, and steak and ham are getting less expensive, government data show.
Many Americans are actively shunning carbohydrates in favor of protein, though any health benefits may be outweighed by the sheer volume of meat, eggs and dairy being consumed. While the government recommends that adults eat 5 to 6.5 ounces of protein daily, the USDA forecasts the average person will down almost 10 ounces of meat and poultry each day in 2018.
It’s a sharp turnaround from 2007 through 2014, a time when per-capita meat and poultry demand slumped 9% as rising corn-based ethanol demand and a drought sent commodity prices sharply higher. Though cattle and hogs are now far cheaper than their 2014 peak, prices have staged a rebound. US meat exports have soared as the global economy improves, outpacing the gains in domestic demand.
Most-active cattle futures in Chicago rose 4.7% in 2017, the first gain in three years, and hogs climbed 8.5%. Cash livestock prices may fall in 2018, the USDA forecasts.
Meat substitutes have gained attention in recent years amid concerns about the impact of a carnivorous diet on health, animal welfare and the environment. For example, Chicago-based Epic Burger, Inc. last year started selling the Beyond Burger plant-based patty that mimics meat. Protein from plants, insects or cultured meat are a top food trend to watch, though the category isn’t expected to significantly dent animal product sales just yet, according to a November report from CoBank.
“Ten years from now, there will be higher plant consumption, but beef will always be king,” Epic Burger founder David Friedman said. “People are always looking to put more protein into their diets. But they want high quality and transparency in the food they’re eating.” — Bloomberg
THE PHILIPPINES’ manufacturing performance bested those of Association of Southeast Asian Nations (ASEAN) counterparts for the third straight month in December, according to a monthly survey conducted by IHS Markit for Nikkei, Inc. Read the full story.
IN AN AREA OF JAPAN still decimated by a nuclear disaster, sake is giving cause for hope.
For the past five years, the sake brewers of Fukushima, on a two-decade quest to develop premium products, have captured the most gold medals in a key national competition and have won numerous international awards. Drinkers worldwide have noticed the rising quality, with the result that sake exports from Fukushima have more than doubled since 2012.
Now the prefectural government and local brewers are promoting their success. The hope is that Fukushima’s championship sake — made from local rice and water — will serve as a symbol of the safety of local agricultural and fishery products and of the prospects for the prefecture’s broader revival.
“If we can show that Fukushima makes the best sake in the world, surely we can overcome the stigma,” said Hiroyuki Karahashi, the president of Homare Sake Brewery Co., which won first place in the sake category at the 2015 London International Wine Challenge.
Fukushima’s challenge is enormous. The earthquake, tsunami and nuclear meltdown that devastated the region in March 2011 killed 4,000 people in Fukushima alone. Many of the 50,000 people forced to leave their homes have no plans to return. The local economy has been largely propped up by reconstruction spending the years since, but that spending is expected to fall in the years to come.
Meanwhile, local companies still struggle with lingering public fears of radiation contamination. Only around 30% of businesses in the important fisheries and food processing sectors have seen their sales rise to pre-disaster levels, according to the nation’s reconstruction agency.
All agricultural products from Fukushima — including every bag of rice — are tested for radiation using internationally accepted standards before shipment. Since 2015, no rice has registered radiation above the safety level, national broadcaster NHK has reported.
Still, 55 countries have some kind of restriction or requirement for additional documentation on imports of Fukushima products, according to Japan’s Foreign Affairs Ministry.
Takahiro Ichimura, a director of trade promotion at the Fukushima Prefectural Government, who’s spearheading efforts on the sake promotion efforts, said the importance of ingredients in the sake should help change people’s perception of Fukushima.
“Water and rice are crucial,” he said. “Once Fukushima’s sake gains broader recognition and more people drink it, we think that overall appreciation for Fukushima should also increase.”
The surge in sake exports follows a plunge in consumption in Japan — by half over the past 20 years, as consumers broadened their tastes.
Fukushima is trying to increase sales in the US and Europe, including with promotional tours, Ichimura said. It has allocated ¥100 million ($880,000) this fiscal year to promote local sake at events in major cities in Japan and abroad, as well as at trade shows and promotional Web sites, in a campaign run by a private public relations agency. It plans to increase the budget 10% next year.
One event near Shimbashi station, a Tokyo business area teeming with salarymen, drew 30,000 people this year, up from 20,000 last year, according to the prefecture.
Behind the brewers’ recent success lies a shift in strategy toward premium products. Twenty years ago many of Fukushima’s breweries produced cheap sake that included distilled alcohol, earning them a poor reputation in Japan’s northeast, historically a major sake-producing region.
The prefectural sake academy, established in 1992, changed the game. The various breweries’ heirs came together there to pool their secret brewing techniques, raising the bar for the entire prefecture. At one three-century old brewery, the focus is now on using organic rice, while at another an older, more time-consuming technique to create yeast mash — a key ingredient — is being revived to improve flavor.
To be sure, changing Fukushima’s image will be a struggle. While Japan’s latest national budget included billions of yen for the purpose, 13% of Japanese respondents to a recent survey said they would hesitate before buying produce from Fukushima due to worries about radiation.
Ichimura remains optimistic.
“Fukushima’s sake is a symbol of its recovery,” he said. “It’s managed to achieve results despite the odds. My hope is that people will see this, and see how Fukushima is moving forward.” — Bloomberg
BDO Unibank, Inc. (BDO) remained the biggest bank in the Philippines at end-September 2017 in terms of assets, capital, deposits and loans, data from the Bangko Sentral ng Pilipinas showed.
BDO was the largest lender in the country in asset terms with P2.49 trillion as of September, followed by Metropolitan Bank & Trust Co. (Metrobank) founded by banker George S.K. Ty with P1.63 trillion.
Ayala-led Bank of the Philippine Islands (BPI) regained the third spot with assets worth P1.54 trillion, pushing government-run Land Bank of the Philippines (Landbank) to the fourth spot with P1.48 trillion in assets.
Security Bank Corp. remained at fifth place as its assets stood at P796.96 billion at end-September last year, followed by Lucio C. Tan, Sr.’s Philippine National Bank (PNB) with P758.92 billion, and Sy-led China Banking Corp. (China Bank) with P607.57 billion.
State-run Development Bank of the Philippines (DBP) finished at eighth place, booking P557.46 billion worth of assets at end-September, followed by Aboitiz-led Union Bank of the Philippines (UnionBank) with P488.05 billion and Rizal Commercial Banking Corp. (RCBC) of the Yuchengcos with P420.35 billion.
BDO also led the sector in terms of total stockholder’s equity with a capital of P293.99 billion, followed by Metrobank with P199.94 billion, BPI with P174.86 billion, PNB with P106.03 billion and Landbank with P101.94 billion.
Security Bank ranked sixth in terms of capital with P101.5 billion, then China Bank with P75.95 billion, UnionBank with P65.94 billion, RCBC with P64.86 billion and DBP with P46.55 billion.
In terms of total deposit liabilities, BDO also dominated the industry as it booked P2.02 trillion worth of deposits at end-September, followed by Landbank (P1.31 trillion), BPI (P1.27 trillion), Metrobank (P1.26 trillion) and PNB (P574.52 billion).
The Sy-led bank also led the ranking in terms total loans and receivables with P1.67 trillion, followed by BPI (P919.89 billion), Metrobank (P915.3 billion), Landbank (P599.13 billion) and PNB (P415.54 billion).
BDO booked a P20.4-billion net income in the first nine months of 2017, up 5% from the P19.3 billion booked in the comparable 2016 period. The increase in its earnings was mainly attributable to higher income from its core and fee-based businesses. —K.A.N. Vidal
The government, particularly the Transport department, reportedly made significant progress at the close of last year in addressing the woes of the commuting public with respect to the Metro Rail Transit (MRT) Line 3.
In his desire to bring the country to a brighter destination, President Rodrigo R. Duterte also ended 2017 by paving the way for the other TRAIN (Tax Reform for Acceleration and Inclusion).
On Dec. 19, the President signed Republic Act 10963, or the TRAIN law, which amends certain provisions of the 1997 National Internal Revenue Code (NIRC). To make the ride smoother for taxpayers, the President made some repairs to the TRAIN as assembled by the legislature by vetoing some parts of the law.
The Constitution grants the President the power to veto any item of legislation. This is an integral part of the law-making process. It is said that while the legislature has the affirmative power to enact laws, the President has the negative power in which he may defeat the will of the legislature by objecting or vetoing any bill passed (Benzon vs. Secretary of Justice, G.R. No. 42821, Jan. 18, 1936).
Of course, the legislature can override the President’s veto by a two-thirds vote by the House, and also a two-thirds vote of the Senate. However, given that the President enjoys Congressional support, it is unlikely that the latter will override the veto.
One of the items vetoed is the preferential tax rate of employees of Regional Headquarters (RHQs), Regional Operating Headquarters (ROHQs), Offshore Banking Units (OBUs) and petroleum service contractors or subcontractors. The President particularly vetoed the following proviso of Section 6(F) of the TRAIN:
“Provided, however, that the existing RHQs/ROHQs, OBUs or petroleum service contractors or subcontractors presently availing of preferential tax rates for qualified employees shall continue to be entitled to avail of the preferential tax rate for present and future qualified employees.”
Notably, the President did not veto the first part of the Section 6(F) which states that the preferential tax treatment provided in Subsections (C), (D) and (E) of this section shall not be applicable to RHQs/ROHQs, OBUs and petroleum service contractors registering with the Securities and Exchange Commission after Jan. 1, 2018. Clearly, as far as newly formed RHQs/ROHQs, OBUs and petroleum service contractors are concerned, the 15% special compensation tax rate is no longer available.
The President explained in his veto message that the above proviso violated the Equal Protection Clause of the Constitution, as well as the rule on equity and uniformity in the application of the burden of taxation. According to the President, the overriding consideration is the promotion of fairness of the tax system for individuals performing similar work. Given the significant reduction in the personal income tax, the employees of these firms should follow the regular tax rate applicable to other individual taxpayers.
A cursory reading of the President’s veto message on this item may lead one to immediately think that the veto effectively removed altogether the 15% special tax rate on qualified employees. This has created some confusion and differing views as to the real effect of this veto.
However, looking more closely at the President’s veto can lead to only one conclusion (assuming it is not overridden), and that is, retaining the status quo for qualified employees of existing RHQs/ROHQs, OBUs and petroleum service contractors. In other words, such employees would still enjoy the 15% preferential tax rate unless an amendment to the NIRC is passed categorically removing such a tax regime and subjecting them to the regular tax rate.
This is because the President specifically vetoed only the proviso under Section 6(F) of the TRAIN without vetoing Subsections (C), (D) and (E) which contain the existing 15% special tax rate of qualified employees of these firms. Thus, if the vetoed provision is adopted by our lawmakers, the 15% tax regime would still subsist because Subsections (C), (D) and (E) would remain intact.
To take the President’s veto of Section 6(F) of the TRAIN as a withdrawal of the 15% special tax rate altogether and to subject the qualified employees to the regular tax rate would, I believe, allow the President to make an affirmative act of legislation which is beyond his power. A scenario that would likely create complications and legal controversies. This brings to mind the incident that occurred sometime in August 2014 where one MRT train overshot the track causing injuries to the passengers. Thus, in taking this direction, the ride could be very bumpy, if not dangerous.
On the other hand, the status quo view would admittedly represent a glitch in the TRAIN law since this would leave behind the intended amendment of the taxation of qualified employees of RHQs/ROHQs, OBUs or petroleum service contractors or subcontractors. Nonetheless, given that this is just the first of five tax reform packages, there is always the next trip, another opportunity to amend the NIRC to give way to the desire of the President.
This one line-item veto alone is an indication that the TRAIN ride could be a bumpy one. I hope that those who will implement the TRAIN (the Department of Finance and the Bureau of Internal Revenue) will conduct a thorough study of how the veto should be effected with minimal complications so as not to disrupt the entire journey of the TRAIN. Let’s just hope that, as drivers of the TRAIN, they will hold on firmly to the wheel and deliver us to our final destination safely. Most important, let us pray that God blesses our trip.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Brando C. Cabalsi is a Director at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of PwC global network.
When former President Benigno S. C. Aquino III got elected in June 2010, he vowed to get rid of corruption and institute good governance reforms.
Three months into his term, he signed an Executive Order (EO) to stop government-owned and -controlledcorporations (GOCC) officials from receiving excessive bonuses — a practice that was institutionalized during his predecessor’s administration.
Upon signing EO No. 7, then-President Aquino imposed a moratorium on increases in the rates of salaries, allowances, incentives, and other benefits on all GOCCs.
Despite disallowing directors of government corporations from writing their own checks, they were nevertheless entitled to increased adjustments, thanks to Joint Resolution No. 4 of 2009, or the Salary Standardization Law (SSL) 3 — which some GOCCs currently follow and which was approved by then-President Gloria Macapagal Arroyo, then-Senate President Juan Ponce Enrile, and then-Speaker Prospero C. Nograles.
To further tighten check government executives’ salaries and performance, President Aquino signed Republic Act (RA) 10149 into law.
The GOCC Governance Act of 2011 created a regulatory body for the state-run corporations called Governance Commission on GOCCs (GCG), resulting in the review for a standardized compensation scheme for government corporations.
Four and a half years later, Mr. Aquino signed EO 203, allowing all GOCCs covered by the Governance Act to adopt a Compensation and Position Classification System (CPCS). Simply put, the move makes GOCCs’ salary schedule competitive with their private sector counterparts, and more attractive than the SSL3 adopted by national government agencies, as well as some government-run firms.
The measure also intended to curb abuses — as any additional incentives outside the schedule has to be approved by the GCG and the President — but still allowed them to enjoy higher paychecks, “to attract, retain and motivate a corps of competent civil servants.”
Meanwhile, this same presidential directive — which makes salaries of government executives commensurate to private sector pay — was suspended later on by Mr. Aquino’s successor.
A year after assuming office, President Rodrigo R. Duterte signed EO 36, which discontinued Mr. Aquino’s EO 203, due to the same problem: GOCCs’ abuse of excessive salaries and perks. This included the repeal of Section 6 in the same EO, which authorizes additional incentives outside the CPCS upon the approval of the GCG and the President.
In suspending Mr. Aquino’s EO, President Duterte even made sure that any pitch to increase salaries in government-led corporations will have to pass by his office first, adding he wasn’t inclined to approve it.
“You cannot do it on your own. You have to direct it to the Executive Secretary and I will just tell you, I am not inclined to give increases right now,” the President said in his second State of the Nation Address, days before he signed EO 36.
Without these incentives, Mr. Duterte’s directive may discourage officials — especially those coming from the private sector — to continue working in government corporations.
However, according to GCG spokesperson Johann Carlos S. Barcena, these orders nevertheless had the effect of allowing officials to see increases in their salaries, thereby making them stay in their positions.
After all, even though Mr. Duterte suspended Mr. Aquino’s EO 203, officials were still entitled to increased adjustments, based on Joint Resolution No. 4 of 2009.
As a result, “there were officers and employees affected in the sense that their compensation even increased,” Mr. Barcena said in an interview.
This is because ever since Mr. Aquino laid out GOCCs’ uniform salaries, and the approved additional allowances that came with them, none of the state-run firms really had the capacity to adopt it.
“Despite the issuance of EO 203, no GOCC was able to fully comply with its requirements. As such, GOCCs still remained to either be SSL-covered or SSL exempt,” said Mr. Barcena. Salary adjustments still would “depend on the financial capability of the GOCC and their corporate operating budget,” he added.
Currently, almost half of over 200 GOCCs covered by GCG are bound by the 2009 SSL, while some are exempt.
Based on Mr. Duterte’s order, SSL-covered GOCCs shall uniformly adopt theModified Salary Schedule under EO 201. On the other hand, those exempted can choose to maintain their current compensation framework, or likewise follow EO 201, with the GCG’s approval.
“So by implementing EO 36, that actually moved to retain talent in these corporations that followed the SSL,” said Mr. Barcena. “It was the issuance of EO 36 that would allow these GOCCs to follow the compensation schedule under EO 201.”
Since the moratorium, some SSL-exempt GOCCs haven’t had any salary increases for the past seven years, even adjustments for inflation.
“So in that sense, that move was to at least retain certain talent in these corporations instead of seeing them move to the private sector or elsewhere,” Mr. Barcena said.
However, it does not end there. EO 36 only acts as an interim measure, a prelude to a bigger reform agenda for a new rationalized and harmonized compensation plan — which the GCG is currently reviewing.
“EO 36 is… an interim measure, moving forward for implementing a CPCS, unique to government corporations,” Mr. Barcena said.
The new scheme would be consistent with the same standards laid out in RA 10149, ensuring that the rates of government employees in the government corporate sector would be comparable to the private sector.
“We’re really keen on reforms, even under this administration,” Mr. Barcena said. “They want results at the shortest possible time, and we’re trying to do the best that we can to deliver the results to ensure that during the term of the President, we can have something to show that will benefit the people.”
Elijah Joseph C. Tubayan is a reporter for BusinessWorld. He covers the Department of Finance and the macroeconomy sector.
SycipGorres Velayo & Co. (SGV) continues to be the most sought-after auditing firm by the country’s biggest corporations in 2016.
Not only did it manage to keep its top ranking among auditors, it also increased its market share, bagging more than half of the companies in this year’s listing.
The Philippine member of Ernst & Young (EY) audited the financial statements of 513 companies that made it to the latest Top 1000 Corporations ranking, adding 74 more than in 2015 and increasing its market share to 51.3% from 43.9% in the previous year.
Meanwhile, Isla Lipana & Co. (ILC), the Philippine member of PricewaterhouseCoopers (PwC) landed on the second spot with 152 clients, adding 12 more firms from the previous edition’s 140. Consequently, its market share increased 15.2% from 14% previously.
R. G. Manabat & Co. (RGM), a member of KPMG International, followed with 98 firms or 9.8% market share, down from the last edition’s 118.
Punongbayan & Araullo, a member of Grant Thornton International, maintained its fourth spot as 45 of its clients landed on the Top 1000 list, lower by four companies from the previous year.
Completing the top five auditing firms was Reyes Tacandong & Co. — a member firm of RSM network which is administered by RSM International Ltd. — with a 2.3% market share, or 23 client firms which made it to the list. However, this was lower than the 30 firms in the previous edition.
“In the last five years, through SGV’s Talent Hub and the EY Global Delivery Services office, SGV has focused on delivery support to the audit and advisory services of the global EY organization. Our service footprint has expanded not just locally but also into the international market,” said SGV Chair and Managing Partner J. Carlitos G. Cruz.
For their part, ILC Chair and Senior Partner Alexander B. Cabrera said: “We focus not only on our core business but also help certain sectors of the industry.”
“You can help and you don’t need to earn all the time. If that helps business, or the economy in general it is still worth it. There is nothing wrong about working to improve the overall business climate and business environment because that is the environment where we play,” he added.
Meanwhile, RGM Chair and Chief Executive Officer-Designate Sharon G. Dayoan said: “Since the new management took over 10 years ago, we have been able to register a positive growth in our revenues and clientele despite economic and regulatory challenges.”
Companies in the top 20 spots retained their auditors except for Pilipinas Shell Petroleum Corp. (4th in this year’s Top 1000 list) and Toshiba Information Equipment (Philippines), Inc. (5th spot). Pilipinas Shell Petroleum Corp. was previously engaged with ILC but tapped SGV in 2016. It was the other way around for Toshiba Information Equipment (Philippines), Inc. (from SGV to ILC).
On the other hand, companies who changed auditors were 65th-placer Metro Drug, Inc. (moved to RGM from ILC), 107th-placerSTMicroelectronics, Inc. (from ILC to SGV), 110th-placerAlaska Milk Corp. (from RGM to ILC), 130th-placer Shell Philippines Exploration B.V. (from ILC to SGV) and 141st-placer Pilipinas Kao, Inc. (from SGV to ILC).
The number of auditors that had five or more clients in this year’s Top 1000 dropped to 11 from the previous edition’s 13.
Christine Joyce S. Castañeda is a senior researcher of BusinessWorld’s Research Department.
What follows are excerpts of the interview with the top three firms’ executives.
How does your firm keep its edge?
J. Carlitos G. Cruz, SGV chair and managing partner
SGV Chair and Managing Partner J. Carlitos G. Cruz: Given our 71-year track record in the Philippines and the region, SGV understands that we should always stay ahead of the curve of the ever changing business environment while maintaining our values of integrity, excellence and accountability. In order to do this, we have to be able to spot and move beyond barriers that reduce our ability to engage, creatively solve problems, and continuously learn and perform on the job.
One of our core values is lifelong learning and we take this to heart by constantly updating our knowledge and skills, sharing valuable thought leadership on the market, industries, business developments and future trends that can help businesses forge ahead.
From quality client service to the personal and professional development of its people, SGV’s deep and abiding quest for excellence flows through the entire organization — and even beyond, as seen in the numerous professionals who have gone to serve as outstanding leaders in both the public and private sectors.
ILC Chair and Senior Partner Alexander B. Cabrera: It’s not about keeping the edge. It’s about keeping true to who we are as a firm and as a group of professionals. We strive to be excellent in our profession, but we are not just about our profession. That’s why we also stay close to the advocacies of our people and we look for different ways to express those advocacies and our people’s creativity.
The medium of expression can be intra-firm, or to the business community, or through social corporate responsibility projects. For example, we act as knowledge partner for different organizations and come up with unique publications that not only provide information but also amuse the readers.
RGM Chair and Chief Executive Officer-Designate Sharon G. Dayoan: We differentiate ourselves by keeping our clients at the center of our business coupled with strong evidence of our commitment to consistently observe professional standards and regulations. We make sure that we understand our clients’ business and growth ambitions to be able to deliver quality professional work and value added services to them. We do this by enhancing our expertise on high-growth sectors — building and sharing knowledge on these sectors across our audit, tax and advisory teams. Our affiliation with KPMG also ensures that resources to build our capability such as various Centers of Excellence and global leading practices and methodologies are accessible.
Technology also plays a big part in keeping our edge. In audit, for example, we have adopted Data & Analytics which has enabled us to test complete data populations and understand reasons behind outliers and anomalies thus providing a more efficient and value adding audit.
Lastly, and more importantly, we have not wavered in our focus on our people. Our people and training programs are top priorities and we regularly send our people to secondments and trainings abroad to hone them professionally and to bring over best practices.
What do you think are the reasons why companies have entrusted or have continued to entrust their financial reports to you? How do you take care of your clients?
Mr. Cruz: SGV has earned a reputation for excellence in serving the Philippines’ top companies. The depth and breadth of our organization provides us with the resources to meet a multitude of client needs. Our unparalleled services have been sought by emerging companies as well, making our client network stronger and more diverse. It is our goal to not only provide top-quality audit services, but to also become a trusted business advisor for our clients.
All our services are designed to address every client’s particular needs. A key element of the firm’s process is our focus on the business itself on top of the financial aspects of a business’ operations. SGV’s emphasis has always been on selecting and developing the very best people because the competence, care, and commitment of the individuals who perform the audit make the real difference in the quality of our service.
SGV has in place a Quality Management System to ensure quality in the delivery of its services and compliance with local and global professional standards. In our work, we recognize our responsibility not only to our clients but also to a broader group of stakeholders who rely on our work such as investors, financial lending institutions, the profession, the government, and the public in general.
Mr. Cabrera: Firstly, we need to stay agile, even as we take care of our clients’ and our firm’s reputation. If that reputation is protected, the co-branding that you’ve established with the client is also protected. Our reputation over the firm’s 95 years of existence is built with integrity at its core. Agility requires us to really understand, solve not only the inquiries that our clients put forward but to solve their business issues. We focus on the business issue behind the problem, not only the surface of the problem.
Sharon G. Dayoan, RGM chair and CEO-designate
The financial reports are just some of the things that they entrust to us. The firm is so much more than the audit or assurance. The firm is about taxation planning, business consulting, a lot of IT-related services, deals assistance and corporate finance, and data analytics. Nowadays, it’s really more than just the financial report. It’s how you maximize that financial report and other data outside the report to your advantage.
Ms. Dayoan: Trust is not earned overnight. We believe that our commitment to quality and excellent service are the main reasons why we have become over time a trusted auditor and advisor.
We take care of our clients in many ways possible. We invest in infrastructure and hire highly talented people for our clients. We evolve, innovate and access technological and technical solutions that are responsive to their current issues and challenges. We ensure that our level of engagement that we have with them allows working shoulder-to-shoulder for more upfront and frequent discussions on issues. We don’t stop thinking on how to further improve our services.
How was the competition in the auditing industry last year?
Mr. Cruz: Competition, as always, has been brisk and challenging. We welcome this, because we believe that the rise of the competition from audit firms is an excellent indicator of the sound fundamentals of the Philippine economy. This pushes us to provide better services for our clients, which, in the long run, can translate into a stronger business community for the country. In the end, the clients will always benefit from a highly competitive, increasingly competent professional services industry.
Mr. Cabrera: I would say that the competition sometimes engages in a race to the bottom. We are very careful in proposing this way because we are not working around the fee that was set but rather what really needed to be done. In our case, regardless of the fee that we propose, we need to come up with quality work that is required. We don’t take any shortcuts — you can blame us for that — but that is also how we have protected our reputation.
Ms. Dayoan: The competition in the auditing industry has been steadily increasing given the demands of the business sector and regulatory charges. The local regulators are increasing focus on audit practices and stepping up their efforts to be in line with what the members of the IFIAR are doing. A lot is also happening outside the Philippines. The audit firm rotation in EU has caught on. There are some global companies who voluntarily adopted the same policy. Accordingly, a number of global tenders have been made and this affects the local industry as well. The impact can go both ways for the local players.
Last year, what were the challenges you faced in auditing companies’ financial reports? How were you able to cope with those challenges?
Mr. Cruz: Digitalization and globalization, coupled with more complex accounting standards, have made business transactions, processes and eventually the preparation of companies’ financial statements and other reports more complex. We were able to address these through the application of our audit methodology and risk management processes, utilizing the strength and resources of our global network, and supported by rigorous training for our people with an increased emphasis on professional scepticism and quality service delivery.
Mr. Cabrera: I think the challenge would be — not for us in particular but for the entire industry in general — is the expectation of the companies. Somehow, they’re bordering on the expectation that you will catch fraudulent transactions and this is actually a challenge for all auditing firms because the inherent limitation of audit is fraud and collusion. You need a special kind of audit — the forensic audit — in order to uncover fraud and collusion inside the company. Clients have some expectation that you will catch fraud happening. That’s very challenging for an auditing firm especially if the scope is not for that purpose. I think that’s a problem not only for us but for the entire industry, these changing expectations. This is even made more difficult by the fact that sometimes the
Alexander B. Cabrera, ILC chair and senior partner
audit firms race to the bottom as far as fees are concerned. It is more difficult for the fee not to impact the resources you will devote.
We grow our clients to the extent that we can still give them our personal attention because that is what clients like about us: that we’re able to engage them in a more personal manner and we need to be present when they need to see us.
Coming up with more efficient ways of working is also important. The rest of it is just really living with these realities. We try to educate our clients about the value that we bring. If clients value those things that we can provide, then they would also appreciate that it is really value for money that they’re getting.
Ms. Dayoan: Last year was the first time that a discussion of Key Audit Matters (KAM) is required to be included in the audit report on financial statements of companies with publicly traded shares. KAM are matters, which in the auditor’s judgement, were considered significant in the audit of the current period financial statements.
Although this was implemented in 2016, we have been preparing for this much earlier. In 2014, our partners and teams already started discussions about this with our clients. Then in 2015, we presented customized draft KAM to our clients’ Board of Directors and/or Audit Committees (ACs) to give them an opportunity to see, much earlier, how KAM will look like, what matters are discussed and address any concerns that they may have had with this requirement of the Philippine Standards on Auditing at least a year before implementation. This has allowed better communication with by the Board and ACs when the KAM discussion was made mandatory in the 2016 audit reports. Internally, the firm designated a committee of experienced partners that was tasked to review the KAMs drafted by audit teams to ensure consistency of compliance with the requirements and with leading benchmarks.
