Changing structure of the Philippine audit industry

Until not so long ago Sycip Gorres Velayo & Co. was far and away the leader of this country’s audit industry and the managers of the largest Philippine business establishments almost instinctively thought of SGV when they looked for an external auditor for their businesses. Indeed, SGV was virtually synonymous with Philippine auditing.

That has ceased to be the case. SGV is no longer synonymous with Philippine auditing. The structure of this country’s auditing industry has been changing in recent years. There are several explanations for this.

One explanation has to be the series of breakaways of senior SGV personnel from the firm that Washington Sycip, Ramon Gorres and Alfredo Velayo founded in 1946. A partner or two breaking away from a firm on an occasional basis is something that happens even to the best of institutions. But the simultaneous departure of several, or a group of, partners from a firm recurrently is not a sign of cohesion and harmony within an organization. And breakaways have been taking place at SGV.

The first to break away, many years ago, was senior partner Benjamin Punongbayan who joined Jose Araullo, former president of Philippine Savings Bank, to set up an auditing practice. Punongbayan and Araullo has gone on to become the external auditor of many major Philippine business establishments.

Punongbayan was subsequently joined by other senior partners who wanted to find out if there was life after SGV. They apparently all found out that there was.

The most recent breakaways from The Firm were Roman Felipe Reyes and Protacio Tacandong, who left with a large number of other senior SGV folk to form the auditing firm that bears their name.  Reyes Tacandong & Co., which recently moved into two floors of a pricey Ayala-area building, say that they now have twenty-two principals and partners and a staff of around 500 individuals. That surely is not bad after only a few years away from The Firm.

Another explanation for the change in the structure of the Philippine auditing industry is the stronger presence in this country of some of the major players in the world auditing industry. The foreign firm with the highest profile in the Philippines today is undoubtedly KPMG, the successor to the renowned firm Peat Marwick. Other major foreign auditing firms have come in KPMG’s wake but have chosen to maintain low profiles.

The talk used to be that SGV had anywhere up to eighty percent of the Philippine external-audit market. What that share is today, after the entry of the KPMGs and the Reyes Tacondongs, it is difficult to say with any degree of certainty.

Is the Philippine audit industry’s structure likely to change further with the coming into force next year of the Asean Economic Community, which will make possible the operation in this country of regional auditing firms? That development is virtually certain. But it should be remembered in this connection that SGV once had the largest network of affiliate firms in the whole of East Asia.

A third explanation, it must be said, for the Philippine audit industry’s structural shift away from SGV dominance is the departure from The Firm, through death and retirement, of practically all the partners that trained under, and had the longest direct association with, Wash Sycip and Fred Velayo. The Roberto Ongpins, the Rodolfo Jacobs, the Rizalino Navarros and their contemporaries – they are all gone.

Despite the change that has taken place in the Philippine audit industry structure, one thing is beyond doubt. SGV remains the industry leader and is likely to stay in that position for some time to come. Unless there are more partner hemorrhages of the Reyes Tacandong kind.

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