RELEVANT FACTS

1. Believing and relaying on the faithfulness of the

representation of Bankard’s Financial Statement,

RCBC Capital Corporation (RCBC), entered into a

contact of a Share Purchase Agreement (SPA) with

Equitable PCI Bank, Inc. (EPCIB) and the individual

shareholders of Bankard, Inc. on May 24, 2000,

wherein RCBC will purchase the interest of Bankard,

through 226,460,000 shares, for the price of PhP

1,786,769,400.

2. Under the SPA, it is agreed that on the date of

contract execution, RCBC is to deposit PhP

357,353,880 in an escrow account as 20% downpayment

of the purchase price.

3. Before the execution of the contract, it was assured

to RCBC that the balance sheet of Bankard as of 31

December 1999, as prepared and certified by SGV &

Co. (SGV), and the unaudited balance sheet for the

first quarter ended 31 March 2000; the statements of

Bankard’s profit and loss accounts for the fiscal

years 1996 to 1999, as prepared and certified by

SGV; and the audited financial statements of Bankard

for the three (3) fiscal years ended December 31,

1997, 1998 and 1999, and the unaudited financial

statements for the first quarter ended 31 March

2000, are fair and accurate, and complete in all

material respects, and have been prepared in

accordance with generally accepted accounting

 principles consistently followed throughout the

period indicated.

4. Further, it was presented with certainty that

Bankard, as of such dates and up to 31 May 2000, had

and have no liabilities, omissions or mistakes in

its records which will have material adverse effect

on the net worth or financial condition of Bankard

to the extent of more than One Hundred Million Pesos

(P100,000,000.00) in the aggregate.

5. The parties (RCBC & Bankard) agreed that if material

adverse effect on the net worth or financial

condition of Bankard exceeds One Hundred Million

Pesos (P100,000,000.00), the Purchase Price shall be

reduced.

6. If there was a breach to the agreement, the guilty

party shall cure such breach, and/or seek damages,

by providing notice. Provided that the breach was

discovered within three (3) years from the Closing

Date (closing date is 31 March 2000).

7. On May 5, 2003, RCBC claimed that there was an

overstatement of valuation of Bankard’s accounts

amounting to PhP 478 million, resulting to their

overpayment of over PhP 616 million.

8. According to RCBC, it is clear that there was

an overstatement because of improper accounting

practices which led them to overpay for the

shares.
 FUNDAMENTAL PRINCIPLES RELATED TO THE MATTER IN

QUESTION

The auditor of Equitable PCI Bank, Inc.‘s financial

statement failed to exhibit Professional Competence

and Due Care. According to Section 130.1 (a) of the

Code of Ethics for Professional Accountants an

accountant shall always “act diligently in accordance

with applicable technical and professional standards

when performing professional activities or providing

professional services.” Further Section 130.2 of the

same code states that “Competent professional service

requires the exercise of sound judgment in applying

professional knowledge and skill in the performance of

such service.”, which the auditor of SGV & Co. failed

to observe, thus the material overstatement of

Bankard’s income amounting to PhP 478 million. Section

130.4 further emphasized that “Diligence encompasses

the responsibility to act in accordance with the

requirements of an assignment, carefully, thoroughly

and on a timely basis.” Had the auditor practiced

professional competence and due care in auditing the

Bankard’s accounts, there would be no breach between

RCBC and Equitable PCI Bank, Inc. The overvaluation

presupposes mistakes in the entries in the financial

statements and amounts to a breach.

ALTERNATIVE COURSES OF ACTION

 CONCLUSION

It is only right to rely on the professional services

of an accountant when it comes to presentation of

financial statements. The RCBC purchased the shares of

the Bankard in full hopes that the same is in good

faith, with regards to the presentation. As the

auditor, it is his duty to properly account and audit

the financial statement of the clients, to avoid

disputes and misrepresentations.