The Securities and Exchange Commission said Monday it barred KL Siy & Associates from securing accreditation as external auditor for gross negligence over a scheme that resulted in the collapse of the 50-year-old brokerage R&L Investments Inc.
SEC’s Office of the General Accountant, in an order issued on July 21, effectively disqualified KLSA, along with managing partner Kathleen Mary Siy and partner Arturo Sabino, from acting as external auditor of entities regulated by the SEC.
It said Siy’s accreditation was deemed cancelled, which would have remained effective until Sept. 6, with the expiration of KLSA’s conditional accreditation.
R&L was reportedly forced to stop operating in November 2019 after stocks worth more than P700 million were allegedly stolen by a rogue employee.
The SEC accredited KLSA under Group A, allowing the firm to serve as external auditor of issuers of registered securities, public companies, clearing agencies, exchanges and other self-regulatory organizations, among others.
Siy, the signing partner for the audited financial statements of R&L Investments, secured a Group B accreditation that allowed her to audit entities such as investment houses, brokers and dealers of securities, government securities eligible dealers and investment company advisers.
Aside from the disqualification, SEC also ordered KLSA to pay P314,570.65 as penalty for material disclosure deficiencies and misstatements and for violation of independence rules.
The OGA issued the order after finding that KLSA failed to comply with the auditing standards and other rules adopted by the SEC under the Securities Regulation Code Rule 68, resulting in gross negligence in the audit of R&L Investments’ financial statements for the year 2018.
“The failure to flag the misappropriation of securities through the conduct of appropriate audit procedures contributed to the continuation of the illegal acts which resulted to the massive loss of securities in the total amount of P606,641,351 as of December 31, 2018 belonging to numerous number of investors,” the OGA said.
“The misappropriation of the said securities under the custody of R&L Investments did not only cause damage to the concerned investors but also created a negative impact on investors’ confidence to the Philippine stock market,” it said.
R&L Investments booked client securities worth P738.897 million in its 2018 audited financial statements.
However, the Business Partner Portfolio Report provided by the Philippine Depositary & Trust Corp. showed the brokerage’s client portfolio only amounted to P132.255 million.
SEC said KLSA admitted that it relied on the BP Portfolio Report furnished by R&L Investments, which turned out to be altered and accepted the same as audit evidence to validate the information in the brokerage’s Inventory Report.
The OGA also found that KLSA itself prepared the audited financial statements of R&L Investments, in violation of the independence requirement for external auditors.
“KLSA’s responsibility is confined to the expression of an opinion on the fairness of the financial statements,” the OGA noted.
“KLSA’s inability to exhibit impartiality hindered the early detection or prevention of fraud which has caused substantial losses to investors,” it said.