ANNEXA\

RULES ON ACCREDITATION OF EXTERNAL 'ACCOUNTANTS ANDtACCOUNTING' FIRMS FOR THE PURPOSE OF CONDUCTING

VERIFICATION'OF THE DOCUMENTS SUBMITTED BY DISTRIBUTIONUTILITIES RELATIVE TO THEIR COMPLIANCE FILING APPLICATIONS

WITH THE ENERGY REGULATORY COMMISSION

Pursuant to Section 43 (s) and (t) of Republic Act No. 9136 or the Act, Rule 7 ofits Implementing Rules and Regulations (IRR) and Article 5, Section 5 of the "RulesGoverning the Automatic Cost Adjustment Mechanisms and True-Up Mechanisms andCo"esponding Confinnation Process for Distribution Utilities", the Energy RegulatoryCommission (ERC) hereby adopts and promulgates thes~ Rules to es~~ish aprocedure for the conduct of verification process by external ~ccQu!1tants., and~ccounting firms that would govern in the ERC's confirmation process for the automaticcost adjustments and true-up mechanisms.

ARTICLE I

GENERAL PROVISIONS

SECTION 1. OBJECTIVES

These Rules shall have the following objectives:

1.1 To put in place a fair and transparent process for the accreditation of externalaccountants and accounting firms that may be engaged by the DUs to undertake~greed uj:)on J:)rocedures relative to the confirmation of their automatic costadjustments and true-up charges subje-6tOf the 'E RC'-sconfi rmation process.

1.2 To ensure that the accredited external accountants and accounting firms f)ossessthe required professional qualifications necessary to undertake ~greed _.~f)onprocedures relative to the confirm~tlo~ of the DUs' automatic cost adjustmentsand true-up charges.

1.3 To define the scope/extent of ~uthori!y of the accredited external ~ccountantS' .and ~ccounting ~and_ fina(1cial_Q.utsourdng firm~, the conditio~s" for: thei';engagement by the DUs and other responsibilities imposed on them.

SECTION 2. DEFINITION OF TERMS

In these Rules, the following terms or expressions shall have the correspondingmeaning assigned to them:

2.1

~.2

Accounting Firm - shall refer to the firm owned or operated by a sole proprietorCertified Public Accountant (CPA) or a professional partnership of Certified PublicAccountants providing accounting services.

Agreed'Upon Procedures Engagement - shall refer to an engagement in which'

~

anaccountant is contracted to carry out procedures of an accounting in .nature tdhich the accountant, the Distribution Utility (DU) and the Energy Regulato~

I ommission (ERG) have agreed thereto and to report o!'!.:fa~tualJiQdings on th~~aid eng~gement.1 .

2.3 Certified Public Accountants (CPAs) - shall refer to those persons who holdvalid certificates issued by the Board of Accountancy (BOA) and are licensed topractice the profession of accountancy'in the Philippines.

2.4 Code of Ethics for Professional Accountants in the Philippines - shall referto the set of rules, guidelines and procedures that govern the behavior of everyprofessional accountants in the Philippines for the practice of the accountancyprofession promulgated by the Board of Accountancy (BOA) and approved by theProfessional Regulation Commission (PRC) in 1978, as amended effective June30, 2008. Reference to the Code of Ethics for Professional Accountants in thePhilippines shall include all prospective amendments thereto that may affect theprovisions in these Rules.

~.5 Com-petitive Selection Proc-ess (CSP) - shall refer to the process wherein ~External Regulatory Accountant is selected through transparent and competitive''process undertaken by the DU.to_s~cur~ tile service~ of such External Reg~_L~~C?~~ccountant at the le~st cost.1

2.6 Distribution Utilities (DUs) - shall refer to any electric cooperative, privatecorporation, government-owned utility or owned and operated by an existing localgovernment unit which has an exclusive franchise to operate an electricitydistribution system in accordance with Section 4(q) of Republic Act No. 9136.

2.7 Energy Regulatory Commission (ERC) - shall refer to the regulatory agencycreated under Section 38 of Republic Act No. 9136.

2.8 Engagement Contract - shall refer to the legal document that binds the ExternalRegulatory ~untantS in providing the services as agreed upon with theassigned DU and approved by the ERC. The said contract shall embody therequirements as specified in the Terms of Reference (ToR).

2.9 Engagement Team - shall refer to all personnel performing an engagement,including experts contracted by the External Regulatory K6~~~ritar;ts inconnection with that engagement.

2.10 External Regulatory Accountant (ERA) - shall refer to an independent CPA oran ~CCou_f1tingpr. fina-nCial services outsourcing firrii ?~~r~.~ited by the ERC,whose relationship to the client is to perform ~greed ,uPof1.PIocedure.S:as requiredby the ERC.

2.11 Financial Interest - shall refer to an interest in equity or other security,debenture, loan or other debt instrument of an entity, including rights andobligations to acquire such an interest and derivatives directly related to suchinterest.

2~~~'-~-FinancialServices Outsourcing - shall refEirto-the firm-owned and managed byrPAS providing financial services such as accounting' and bookkeeping, accountmaintenance, accounts receivable collection, accounts payable administration,payroll processing, asset management, financial analysis and auditing,:management consulting, inventory control and purchasing, expense and revenue!reporting, financial reporting, tax reporting, and other finance-related services~u~1lC!S fif1arlci~L!~_C!sing,credit card administra_~i~I]_,facto~ilJ_g~nd stoc!<_bro!5.eIi!1.g~

2.13 Gross Negligence - shall refer to such entire want of care as to raise apresumption that the person in fault is conscious of the probable consequences ofcarelessness, and is indifferent, or worse, to the danger of injury to person orproperty of others. The negligence must amount to a reckless disregard of thesafety of person or property.

2.14 Independence - based on the definition as provided in the Code of Ethics forProfessional Accountants in the Philippines, shall refer to as follows:

Independence is:

(a) Independence of mind - the state of mind that permits the provision of anopinion without being affected by influences that compromise professionaljudgment, allowing an individual to act with integrity, and exerciseobjectivity and professional skepticism; and

(b) Independence in appearance - the avoidance of facts and circumstancesthat are so significant a reasonable and informed third party, havingknowledge of all relevant information, including any safeguards applied,would reasonably conclude a firm's or a member of the assurance team orthe ERA and members of the engagement team's integrity. objectivity orprofessional skepticism had been compromised.

2.15 Individual Practitioner - shall refer to an individual CPA engaged in the practiceof accountancy.

2.16 Partner - shall refer to one of the individuals or persons who is part or is amember of a partnership (general professional partnership of CPAs) with the solepurpose of exercising a common profession.

2.17

~.18

2.19

2.20

2.21

Partnership - shall refer to a general professional company/association of CPAsforming an accounting/auditing firm engaged in the practice of public accountancyand duly registered with the Securities and Exchange Commission (SEC) andaccredited by the' BOA in the case of individual practitioners andaccounting/auditing firms.

Request for Proposal (RfP) - shall refer to the written communication to be'ssued by the DU requesting prospective External Regulatory Accountants to,fUbmrit pro~osals on an~ regulatory activitY~_~.~_t..willreq~ire ~~e~.~I'!lces.-9.fthEi~

Single/Sole Proprietorship - shall refer to an accounting/auditing firm owned oroperated by an individual practitioner engaged in the practice of publicaccountancy, duly registered with the Department of Trade and Industry (DTI) andaccredited by the BOA.

Terms of Reference (ToR) - shall refer to the document containing all the termsand conditions for the specific engagement that shall serve as the basis of acontractual relationship between the contracting DU and the External RegulatorylAccountant that shall be responsible for carrying out such engagement.

Verification Process - shall refer to External Regulatory ~~~()untant'~systematic process of objectively validating, determining the accuracy, existenceand completeness of information/data and records of a DU based on establishedcriteria to determine if they are in accordance with the rules, regulations,guidelines and procedures promulgated or issued by the ERC. The process shallbe conducted in accordance with the applicable Philippines Standards of Auditing(PSA).

ARTICLE II

ACCREDITATION PROCESS

SECTION 3. QUALIFICATION REQUIREMENTS

Only those applicants who possess the following qualifications shall beaccredited by the ERC as ERA:

3.1. For Individual Practitioners, Individual Partners in PartnershiJ)Accounting/Auditing Firms, :cPA Owners of Financial Services Outs.Qu.!cing[Firms and Individual CPAs Under the Employ of Accounting/Auditing FirmsOpting to Apply for Accreditation

3.1.1 Must be duly registered with the Professional Regulation Commission(PRC). engaged in public accountancy as defined under Republic Act No.9298 (R.A. No. 9298), otherwise known as "The Philippine AccountancyAct of 2004" and accredited by the Board of Accountancy (BOAr for thepractice of public accountancy.

3.1.2 At the time of the application. the applicant must have at least five (5)years' experience performing external accounting/audit services.

3.1.3 At the time of the application, must have no outstanding complaints I~g_~dpr fijed, with the BOA, PRC, SEC and any other government agenciesinvolving professional conduct.

3.2 For Accounting/Auditing Firms

3.3.1 The firm must be duly accredited by the BOA for the practice of publicaccountancy.

3.3.2 At the time of application, the proprietor, in case of a single/soleproprietorship firm or at least one (1) of the partners, in case of apartnership firm, must have at least five (5) years' experience performingexternal audit services.

3.3.3 Must have no outstanding complaints ~ged_or filed with the BOA, PRC,SEC and any other government agencies involving professional conduct.

3.3.4 At the time of application, at least one (1) signing partner, in case of apartnership firm, is already accredited or is qualified and is applying foraccreditation by the ERC.

3.3 toJ:..B!!a~cial_Servi.ces _qy~_~_~r£!I!g.E~rrry~

@A:.L~ust be owned_and manag~y a registered CPA or group_of_C~~s.i~~Ile.,eh!lippinesr

~.4.2 At the time of application, the owner or one of the owners. must have at:~ast five _(Qt y~8:l~~e~pe!ience _i,n_a.ccou_Qti~g(a.~d!t_services _~!!g~g.ement~ith DUs.'

~.4~3 Musfhave no outstanding case involving civil or criminal acts filed with'rny courts in the Philippines .?!ld..~.~~o~~taints filed with af!y__goyer!!l'Tle!1_~egencies 9I.l!!st~ume~taliJi~~)

[3.4.4At the'time of application. at least one (1) signing CPA \owner, is alr~a.~~~ccredited9! Is.qualified and is.ap~lylngJQr_accreditatjon by the gB9/

SECTION 4. APPLICATION REQUIREMENTS

The following are the requirements for application for accreditation and renewalof accreditation for individual practitioners, individual partners of partnerships orindividual CPAs under the employ of accounting/auditing firms opting to apply foraccreditation and single/sole proprietorship, financial services outsourcing firms andpartnership accounting/auditing firms located in the Philippines:

4.1 Application for Accreditation. New applicants shall submit a dulyaccomplished and notarized application form (see "Form 1"), together with thedocuments listed hereunder, duly labeled and placed in a long folder.

For Individual Practitioners, Individual Partners of Partnerships, ~eApwnerls_ofJ:inancial_Se~iceS:O~tsourcing Firms, Individual CPAs Underthe Employ of Auditing Firms

i. Application letter addressed to the ERC duly signed by the applicant

ii. Two (2) copies of most recent 1" x 1" 10 picture of the applicant

iii. Two (2) copies of resume (duly signee on all pages) of the applicant whichshall contain the following information:

1. Name, complete address and contact number

2. Educational background - provide the description of the course, title,name of school, year finished and honors received. if any.

3. Employment background - Name/s of company/ies, position. status ofappointment, inclusive dates of employment

,4. List of trainings/seminars attended for the last five (5) years (title, date,

number of hours credited, venue, organizer)

5. Examinations passed or licenses/eligibility obtained/acquired - Attachphotocopy of the PRC License and/or certificates or any evidence ofexaminations/ eligibilities passed.

6. Skills and specializations

iv. Photocopy of the Certificate of Accreditation as a public practitioner issuedg~the BOA/PRC which ~hould be current and effective KnoLapplicable t9~PA Owners of Financial Services Outsourcing Firms)

v. Proof of payment of appropriate professional/privilege tax ~not aQQlicabletQ:CPAOwners of FinanciarseiVJCes Outsourci~g.Firmi): .. -. .-.-

vi. Proof of audit experience, enumerating the most recent top five (5) clients interms of total assets showing eng!gement period ~flot :~pprrcable to CP.A;~~ners of Financial Services OutsOU~<2Lflg.F:ir~~)

vii. Certificate of Good Moral Character issued by two (2) disinterestedpersons, who are members.in good standing of PICPA

viii. Proof of payment of application fee in the amount of PhP3.000.00

ix. Undertaking under oath that the applicant shall fully cooperate with theERC's working requirements including the preservation of working papers.supporting documents, reports, as well as electronic copies of the same, fora period of seven (7) years and making them available to the ERC and itsrepresentatives when required or directed to do so.

For Accounting/Auditing Firms (Single/Sole Proprietorships andPartnerships)

i. Application letter addressed to the ERC duly signed by the proprietor, incase of a single/sole proprietorship, or the managing partner, in case of apartnersh ip

ii. Photocopy of the Certificate of Accreditation as a public practitioner issuedby the BOA/PRC which should be current and effective. It should include acopy of the list issued by the BOA which indicates the names of qualifiedpartner/s of the firm.

iii. Proof of payment of appropriate professional/privilege tax by the firm

iv. Certified copies of all business permits and licenses issued. by the localand/or national government (shall include but are not limited to: DTIregistration for single/sole proprietorships, SEC registration for partnerships,Mayor's permit and licenses)

v. Copy of Quality Assurance Manual containing adequate audit proceduresthat will ensure full compliance with accounting and regulatory requirementsand a written general description of client acceptance and retention policies,consultation process, procedures for monitoring professional ethics andindependence from clients, risk management policies, and review andevaluation procedures

vi. Certificate of no pending "administrative and criminal case issued by theLegal Department of PRC

vii. Proof of payment of application fee in the amount of PhP10,000.00

viii. Undertaking under oath that the firm shall fully cooperate with the ERC'sworking requirements including the preservation of working papers,supporting documents, reports, as well as electronic copies of the same, fora period of seven (7) years and making them available to the ERC and itsrepresentatives when required or directed to do so

for FinanciaiServiCeSOuts.ourcingnfirm~

r AppTicaiionletter addressed to the ERC duly signed by the proprietor, inEase of a s!ngle!.so!e.P.Iopri.etors~ip,..or thenman~gLl}g_~artner, in ca.!!~9f~~,P-artnershiR

ii. Photocopy of the PRe License/s of the ownerls and manager/s whiCh'----J ---_______ _" ., ," ._ - _.. - - .,~hould be valid and effective

~ Certified copies of all business permits and licenses issued by the localland/or national government (shall include but are not limited to: OTi~egistration for single/sole prQprietorshl~s,~~C regj?1r~ti()nfor pa!1Q.e!~hipJ).•!M~yo(~J?~rmit and licenses),

!i-'-Certificate of no pending administrative and criminal case issu.ed.P.Y.J!!!ikegCiI.Q~~fJ._rtmentof PRC for the CPA owner/s and manager/s

~ .P!~()f.Qf..p~ymentof aQQlicationfee in the amount of PhP5,OOO,OQ

vi. jUndertaking under oath that the firm shall fully cooperate with the ERe's~orking requirements including the' preservation of working papers,~.~'pportingdocuments, reports, as w~1Ias eleqtrqniq copies of the sal"lJe,_fo~

f~aperiOdof seven (7) years and making them available to the ERC andJ~epresentatives when required or directed to do sd-".- - --. .. ..•. - _... .•. _. --............- __ .--J

4.2 Renewal of Accreditation. Applicants applying for a renewal of accreditation,within sixty (60) calendar days prior to its expiration, shall submit a dulyaccomplished and notarized application form (see "Form 1"), together with thedocuments listed hereunder, duly labeled and placed in a long folder.

For Individual Practitioners, Individual Partners of Partnerships, ~~~:Owner/s of Financial Services Outsourcing Firm$, Individual CPAs Underthe Employ of Auditing Firms

i. Photocopy of recent Certificate of Accreditation as a public practitionerissued by the BOA/PRC which should be current and effective

ii. Copy of the previous ERC Certificate of Accreditation

iii. Photocopies of updated documents which were submitted to the ERCduring the previous application for accreditation

iv. Payment of renewal fee in the amount of PhP3,000.00

For Accounting/Auditing Firms (Single/Sole Proprietorships andPartnerships)

i. Photocopy of recent Certificate of Accreditation as a public practitionerissued by the BOA/PRC which should be current and effective. It shouldinclude a copy of the list issued by the BOA which indicates the names ofqualified partner/s of the firm.

ii. Copy of the previous ERC Certificate of Accreditation

iii. Photocopies of updated documents which were submitted to the EReduring the previous application for accred itation

iv. Payment of renewal fee in the amount of PhP10,000.00

for FinanciarServices Outsourcing Firms:

i. Photocopy of recent PRC Ucense/s-of the ownerls and manager/s which'. ~hOulc:l.be_cuI~en~ .~.r:!.d~~ff~~~~ --.-------.-... . .-.. --~

Ii=COJ:lY_o.f.!t.le.P!e~ous. ERQ_Cert.ificate_of..~cc!~d[tal ton~hotocoPies of updated documents which wer~ubmitted to the ERe:

~g~pr..~.':1ous. app!!catio!lior_ aCC?fe91tati9D.

iv. Pa~ment9D~new?!.!ee JQ..the.amount .of.~~E5,9.90:0.0,

SECTION 5. EVALUATION PROCEDURE FOR ACCREDITATION

5.1. Applications and all the required documents shall be evaluated for itscompleteness and veracity by the authorized ERC staff within twenty (20)working days from filing.

5.2. Any additional documents not previously listed in Section 4 hereof, but aredeemed necessary, may be requested from the applicant within seven (7)working days from receipt of the application.

5.3. Applicants, whenever necessary, may be required to appear personally for aninterview and/or to present the original/verified copies of the submitteddocuments for validation purposes.

SECTION 6. DISQUALIFICATION FROM ACCREDITATION

Applicants shall be disqualified from accreditation by the ERG on the followinggrounds:

6.1. Those who have been found misrepresenting the accounting/auditing firms, inthe case of partnership, and/or whose license have been revoked or cancelled bythe PRC/BOA for any reason.

6.2. Falsification of documents or forging of signatures of the authorized signingauditor or partners of the partnership firms.

6.3. Those who have been found guilty by a competent court and/or by anadministrative agency of any case involving crime, moral turpitude, fraud and/orunethical practices or of aiding or abetting or causing the commission of anysuch offense by another.

6.4. Those who have been found withholding information on any case involving theapplicant's professional conduct pending before a competent court and/or anadministrative agency.

SECTION 7. ISSUANCE OF CERTIFICATE OF ACCREDITATION ANDRENEWAL

7.1 For applications with incomplete documents, the ERC shall issue, within fifteen(15) working days from review of the application, a written notice informing theapplicant of the lacking requirements. For applications with incompletedocuments, it shall be required to submit the lacking documents within ten (10)working days from receipt of the notice.

7.2 A Certificate of Accreditation shall be issued to the applicant within five (5)working days upon approval of the application by the ERG. The accreditation ofan ERA shall be valid for a period of three (3) years from date of approval ofaccreditation subject to its renewal.

7.3 Application for renewal shall be made through a letter, addressed to the Head ofthe ERC, not later than sixty (60) calendar days before the expiration of theCertificate of Accreditation.

ARTICLE III

RESPONSIBILITIES AND CONDITIONS FORENGAGEMENT REQUIREMENTS

SECTION 8. SCOPE OF RESPONSIBILITIES OF AN ERA

The accredited external accountant shall verify all the documents, which mayalso include the conduct of on-the-spot inspection of the records of the DUs, as part ofthe confirmation process of all the automatic cost adjustment mechanisms.

SECTION 9. CONDITIONS FOR ENGAGEMENT OF AN ERA

In the appointment of an ERA for purposes of providing agreed upon services toa specific DU, the following conditions for engagement must be met:

9.1 pnly individual practition~rs, sole proprietorships and partnerships, (fIn~nci~-!~_enticesout~OU[<;?.i!1g.fjrfl1~, signing partner of the auditing firm who shall beresponsible for the engagement, who are accredited by the ERG, shall beengaged by DUs for the conduct of verification process.

9.2 The ERA, including members of the engagement team to an audit and theirfamily related up to the fourth civil degree of consanguinity or affinity should nothave any direct or indirect financial interest in the DU subject of the currentengagement or should not have committed to acquire such direct or indirectfinancial interest, or his/her independence is considered impaired under thecircumstances specified in the Code of Ethics for Professional Accountants in thePhilippines.

9.3 The ERA including members of the engagement team should not be related up tothe fourth civil degree of consanguinity or affinity to any officer or employee of theDU subject of the current engagement.

9.4 The ERA, including members of the engagement team, should not be currentlyengaged or should not have been engaged during the past three (3) years inproviding the below-listed non-audit services to the DU, unless the safeguardsunder the Code of Ethics for Professional Accountants in the Philippines areundertaken by the ERA to eliminate any doubt as to its independence:

a. Bookkeeping or other services related to the accounting records orfinancial statements of regulatory audit client OUts;

b. Management accounting;c. Preparation of Financial Statements;d. Internal audit functions;e. Actuarial Services;f. Appraisal or valuation services;g. Financial and other information systems design, implementation and

assessment;h. Management functions or human resources;i. Broker or dealer, investment adviser or investment banking services;j. Legal services and expert services unrelated to audit; andk. Such other services which could affect his/her independence as may be

determined by the ERC or as may be declared as impermissible by theERe.

In case of a partnership ~rieI]Tri.?n~i~t~~rVi~E?s-outsourclrig'fi'r'ry,~,this limitationshall apply not only to the firm but also to the partners, associates, ownerls andthe auditor-in-charge of the current engagement.

9.5 The external auditors of the DU shall not be allowed to become the ERA orbecome a member of the engagement team for the said DU to avoid conflict ofinterest on the part of the ERA.

9.6 For the immediately preceding three (3) years, the ERA, including members ofthe engagement team should not have served as the certifying external auditor ofthe DU subject of the current engagement. .

9.7 For the immediately preceding three (3) years, the ERA, including members ofthe engagement team should not have held any position in the DU subject of thecurrent engagement, relevant to the conduct of verification such as but notlimited to Chief Executive Officer, Chief Operating Officer, President, General

~O.1

Manager, Chief Financial Officer, Finance Manager, Comptroller, Accountant.Bookkeeper, Audit Committee, Auditor.

9.8 For the immediately preceding three (3) years, the ERA, including members ofthe engagement team should not have been an employee or officer of the DUsubject of the current engagement, any of its affiliates and/or sister companies orhave been a member of the Board of Directors of the said DU or any of itsaffiliates and/or sister companies.

9.9 The ERA shall at all times during the terms of engagement, comply, observe andsubmit the following:

a. Terms of its engagement letter/contract of services and its undertakings;b. Reportorial requirements and directives of the ERC;c. Provisions in these Rules relative to the delivery of services to theassigned DU;

d. Code of Ethics for Professional Accountants which include rules onindependence or objectivity; and

e. Other pertinent laws, rules and regulations.

SECTION 10. PROCUREMENT PROCESS IN ENGAGING OF AN ERA;'-- - - . . .... ~ -~-'--.- -----

Award of Engagement Contract to an ERA. Engagement Contract shall berwarded to the winning ERA following a successful transparent and competitive:selection process or by Direct Negotiation as provided for in 10.3 below. A CSPis successful if the DU receives at least two (2) qualified bids from ERAs with'Which the DU is not prohibited from enteringJ!:1.!Q.~.~D.g~g.ementGol}t~~.~!for the$ervices to be Rrovided by such ERAsJ

10.2 Competitive Selection Process. A DU shall undertake a transparent and,pompetitive selection process before contracting for the services of an ERA. in~.cco!da_nce.wIth.the,Ierms o(R~feref1ce. to pe jssued_.bytile ERC.

~0.3

ttO.4

Direct Negotiation. Direct negotiation with an interested ERA for 'the provision'pf services may be made by the DU after at least two (2) failed CSPs. A CSP is

Iconsi~~!ed J~ll~g .Y"Q,en,.during. its conduct, any of the following circum~~ance~. t I.exls ;,

~. No proposal was received by the DU~b. Only one (1) ERA submitted an offer; andP. Competitive offers of prospective ERAs ~f-ai-Ie-d-to-m-e~e~t-t-he-r-e-qu-i-re-m-e-n-t~sprescribed under the Terms Qf Reference, as determined by the D~l:LJ3.id~and Awards Committee.''------_._----

Proof of Conduct of Selection Process or Direct Negotiation. Filing of thePU's application for approval of over or under recoveries in the implementation of'pass through charges shall be accompanied by a proof that it had conducted aitransparent and competitive selection process in contracting of the winning ERA!or proof offailure of at least two {~) CSPs resulting to a direct n~g9!ia~i.on_~it~.tt}~~Rj\ it_conf!?~!~ci!

SECTION 11. TERMS OF REFERENCE (ToR) AND ENGAGEMENT CONTRACT

11.1 Terms of Reference. The ERC shall issue the Terms of Reference (ToR) for"each periodic verification process that ERAs may be qualified to engage in. Thesaid ToR shall be included in the Request for Proposals (RfP) which a DU shall!ransrnJt to an accredited ERA.

.-

11.2 Evaluation of Proposals. The DU shall evaluate each proposal to determinewhich ERA to select and engage for the purpose of accomplishing its proposal of)over or under recoveries in its i~l?lemented Rass through charg,_e_s_, /For the guidance of the DU, it may consider the following:

a. Manpower complement to work on the project;"b. Qualifications and experience of manpower;c. Period to complete the project and submission of the required reports and

documents to the ERC; .d. Procedures to be applied by the ERA; ande. Full details of the cost to be charged for the project.

11.3 :Engagement Contract. The selected ERA and the DU shall enter into ari'bngagement contract based on the provisions as specified in the ToR. All th~posts relative to the engagement contract shall be for the account of the DU and

i

shall be included as a recoverable expense in the confirmation of automatic cost~djustments upon proof of actual payment made therein as provided in Article 5,1Section 5 of the "Rules Governing the Automatic Cost Adjustment and True-Up'fMechanisms and Corresponding Confirmation Process for Distribution Utilities".l~he contract between the ERA and the DU shall contain a provision that th~~isclosure of information by the ERA to the ERG shall not be a ground for <?Jv!!t~.criminal or disciQlinarY_Rroc~~dingsagainst the ERA.'

SECTION 12. REPORTORIAL REQUIREMENTS

The required reports to be submitted by the ERA to the ERG shall strictly followthe timelines as set forth in the RfP and the ToR.

The ERC may, at its discretion, issue an Order before, during, and after thereferral of the case. to the ERA for the submission of specific reports within a period asprescribed in the RfP and ToR. In all instances, these submissions must beaccompanied by a notarized certification on the completeness, accuracy and veracity ofthe statements and findings therein.

ARTICLE IV

SANCTIONS AND CANCELLATION OF ACCREDITATION

SECTION 13. SANCTIONS

13.1 Grounds for Imposition of Fines and Penalties. The following shall constitutea violation by an ERA of these Rules:

13.1.1 Failure to submit within the prescribed period the reports required by theERG relative to the ERA's terms of engagement

13.1.2 Any material misrepresentation in the following information ordocuments:

a. Application for accreditation;b. Certifications submitted with the application; andc. Report required by the ERG.

13.1.3 Refusal for no valid reason, upon lawful order of the ERG, to submitrequested documents in connection with an ongoing case.

".

13.1.4 Gross negligence in the conduct of the verification process to complywith any of the requirements of the ERC.

13.1.5 Conduct of the verification process despite lack or eventual loss ofindependence as provided for under the Code of Professional Ethics forCPAs. :

13.1.6 Conduct of any of the non-audit services enumerated under Section 9.4of these Rules, if the ERA has not undertaken the safeguards asprovided.

13.2 Applicable Fines. Any violation of these Rules shall be subject to the fines andpenalties as provided in Resolution NO.3, Series of 2009, entitled, "ResolutionAmending the Guidelines to Govern the Imposition of Administrative Sanctions inthe Form of Fines and Penalties Pursuant to Section 46 of Republic Act No.9136", as amended.

13.3 Non-Monetary Sanctions. The imposition of penalties shall be withoutprejudice to other administrative, civil or criminal remedies that the ERe maypursue, including the revocation of the accreditation and the recommendation toproper disciplining authorities of the erring ERA for revocation or suspension ofthe authority to practice his/her profession.

SECTION 14. REVOCATION OR CANCELLATION OF ACCREDITATION ORAPPOINTMENT

The accreditation or appointment herein granted or issued shall be revoked, afterdue notice and giving the concerned ERA an opportunity to be heard, under any of thefollowing circumstances:

14.1 Failure to settle the penalty within the prescribed period assessed for any of theviolation under Section 12.1 hereof;

14.2 Loss of any of the qualifications or having any of the disqualifications provided forin Section 3 of these Rules and continuous failure to comply with all the otherrequirements of these Rules. However, expiration of registration as arequirement under Sections 3.1.1 and 3.2.1 shall not automatically be a groundfor revocation or cancellation of accreditation hereof pending renewal thereof.The accreditation with the ERC shall be deemed conditional pending theissuance of the concerned government agency of the certificate of renewal. TheERA is required to submit to the ERG the certificate of renewal so as to revertback to the regular accredited status.

14.3 Withholding or concealing of information by an ERA or of the engagement teamthat may have an impact or implication on its report;

14.4 Directly or indirectly attempting to influence, or offering or agreeing to attemptto influence the official action of any officer or employee of the ERC by the use ofthreats, false accusations, duress or coercion, or by offering any specialinducement or promise of advantage or by bestowing any gift, favor or thing ofsubstantial value;

14.5 Certifying. ~he accuracy and veracity of any report and other submissions to theERC without conducting an actual verification/evaluation and review of thepertinent documents;

14.6 In case of partnership's dissolution, except for the purpose of admitting new. partner/s, as evidenced by an Affidavit of Dissolution submitted to the BOA, orupon findings by the ERC that the partnership is dissolved; and

14.7 Any other justifiable cause as may be determined by the ERG.

ARTICLE V

FINAL PROVISIONS

SECTION 15. SEPARABILITY CLAUSE

If for any reason. any part or section of these Rules is declared unconstitutionalor invalid, the other parts or sections hereof which are not affected thereby shallcontinue to be in full force and effect.

SECTION 16. EFFECTIVITY

These Rules shall take effect fifteen (15) days following its publication in anewspaper of general circulation.

Pasig City, _

ZENAIDA G. CRUZ-DUCUTChairperson

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ALFREDO J. NONCommissioner

JOSEPHINA PATRICIA A. MAGPALE-ASIRITCommissioner

rsV wsblfscj02.16.2015

GLORIA VICTORIA C. YAP-TARUCCommissioner

GERONIMO D. STA. ANACommissioner