Code of Ethics of Professional Accountants in the Philippines

Kristine R. Apale
Focus Notes

AC516 12:00 3:00

Fundamental Principles
A. Integrity
All professional accountants to be straightforward and honest
A professional accountant should not be associated with reports or other information which:
o Contain a materially false or misleading statements
o Contain statements or information furnished recklessly
o Omit or obscure information required where such omission/obscurity would be misleading
B. Objectivity
Not to compromise a professional accountants judgment because of bias, conflict of interest or
undue influence of others
C. Professional Competence and Due Care
To maintain professional knowledge and skill at the level required and to act diligently in
accordance with applicable technical and professional standards
Professional Competence is divided into two (2) phases:
1. ATTAINMENT OF PROFESSIONAL COMPETENCE -Requires initially a high
standard of general education, followed by specific education, training and
examination
2. MAINTENANCE OF PROFESSIONAL COMPETENCE -Requires continuing
awareness and understanding of relevant technical professional developments
D. Confidentiality
Obligation to refrain from:
o Disclosing confidential information acquired without proper and specific authority or
unless there is legal or professional right or duty to disclose; and
o Using confidential information acquired to their/third parties personal advantage
Ensure that the staff under the professional accountants control respect such duty of
confidentiality.
Compliance to such principle even after the end of the client/employer-professional accountant
relationship
Where disclosure may be appropriate:
o Permitted by law, authorized by client or employer
o Required by law (production of documents in the course of legal proceedings, disclosure to
public authorities of law infringements that come to light)
o Professional duty or right to disclose; when not prohibited by law (To comply with quality
review or respond to an inquiry/investigation of a member or professional body, to protect
professional interests of an accountant in legal proceedings, to comply with technical
standards and ethics requirements)
E. Professional Behavior
to comply with relevant laws and regulations and avoid any action that may bring discredit to the
profession
professional accountants should be honest and truthful in marketing themselves and their work and
should not:
o make exaggerated claims on the services offered, qualifications possessed or experience
gained
o make unsubstantiated comparisons to the work of others
F.

G. Threats and Safeguards

Unique Threats to compliance with one or more fundamental principles that cannot be categorized
H. Thr
eat
s
N. Self
inte
rest

P. Self
revi
ew

R. Adv
oca
cy

T. Fa
mili
arit
y

I.

May
occur
when
O. Financia
l or
other
interests
of a
professi
onal
account
ant or of
an
immedia
te or
close
family
member
Q. A
previous
judgmen
t needs
to be reevaluate
d by the
professi
onal
account
ant
responsi
ble for
that
judgmen
t
S. A
professi
onal
account
promote
sa
position
or
opinion
that
subsequ
ent
activity
may be
compro
mised
U. A
professi
onal
account

J. Part B: In Public Practice

K. Including but not limited to:
-financial interest in a client
-undue dependence on total fees from a
client
-close business relationship with client
-concern about possibility of losing a client
-potential employment with a client
-contingent fees relating to an assurance
engagement

L. Part C: In Business
M. Including but not
limited to:
-financial interests, loans or
guarantees
-incentive compensation
arrangements
-inappropriate personal use of
corporate assets
-concern over employment
security
-commercial pressure from
outside the employing
organization

-reporting on operation of financial systems -business decisions or data being

after being involved in their design or
subject to review and
implementation
justification by the same
-having prepared the original data used to
professional accountant in
generate records which are the subject
business responsible for
matter of the engagement
making those decisions or
-a member of the assurance team, having
preparing such data
previously employed by the client in a
position to exert direct and significant
influence over the subject matter

-promoting shares in a listed entity who is a -furthering legitimate goals of

financial statement audit client
employing organizations
-acting as an advocate on behalf of an
through promoting
assurance client in litigation or disputes
organizations position using
with third parties
false or misleading
statements

-member of the assurance team having

close or immediate family relationship
with the clients director/officer or
employee in the position to exert direct
or significant influence on the subject

-a professional accountant in the

position to influence
financial or non-financial
reporting having an
immediate or close family

ant
becomes
too
sympath
etic
because
of a
close
relations
hip
W. A
professi
onal
account
ant may
be
deterred
from
acting
objectiv
ely by
threats,
actual or
perceive
d.

V. Inti
mid
atio
n

matter
-accepting gifts or preferential treatment
from client, unless value is clearly
insignificant
-long association of senior personnel with
client

member who is in a position

to benefit from such
influence
-long association with business
contacts influencing
business decisions
-acceptance of a gift or
preferential treatment,
unless value is clearly
insignificant

-Being threatened with

dismissal/replacement/litigation
-Being pressured to reduce inappropriately
extent of work to reduce fees

-Threats of
dismissal/replacement of a
close or immediate family
member
-A dominant personality
attempting to influence the
decision-making process

X.
Y.
Z.
AA.

Safeguards

AF. Safeguards created by the

profession, legislation or
regulation

AG.

afeguar
ds in the
work
environ
ment

AH.
Firmwide
safeg
uards

AB.
In Public Practice (Part B)
AC.Including but not limited to:

AD.

In
Business
(Part C)
AE.
Incl
uding but
not limited
to:
-Educational, training and experience requirements for entry in the
profession
-Continuing professional development requirements
-Corporate governance regulations
-Professional standards
-Regulatory monitoring and disciplinary procedures
-External review of legally empowered third party of reports,
communications and information produced
-Leadership that stresses the importance of
-Employing
compliance with fundamental principles
organizations
-Policies and procedures:
systems of
-- that implement and monitor quality control of
corporate
engagements, compliance with fundamental
oversight, ethics
principles
and conduct
-- enables the identification of interests or
programs
relationships between members of assurance
-Strong internal
team and clients
controls
-- monitor the reliance on revenue received from a
-Appropriate
single client
disciplinary
-Using different partners and engagement teams for
practices
the provision of non-assurance services to an
-Policies and
assurance client
procedures to
-Overseeing the adequate functioning of the firms
implement and
quality control system

AK.
-Involving an additional professional accountant to
monitor quality
of employee
review the work done
Engagem
-Consulting
an
independent
third
party,
such
as
performance
entcommittee
of
independent
directors,
etc.
-Timely
specif
-Discussing ethical issues with those charged with
communication
ic
governance of the client and disclosing to them
of such policies
safeg
AI.
the nature of service provided and extent of fees
uards
charged
-Rotating senior assurance team personnel
AM.
Safeguards
AN.
-Client has competent employees to make managerial
decisions
implemented by client
-Client has implemented internal procedures to
ensure objective choices in commissioning nonassurance engagements
-Client has corporate governance structure that
provides appropriate oversight and
communications
AO.
AP. Other Matters Concerning Professional Accountants in Public Practice (Part B of the Code)
AT. Safeguards
AQ.
AR.
AS.
AV. Client
Accep
tance

AU.

P
rofessio
nal
Appoint
ment

AY.Engag
ement
Accep
tance

BB.Chang
es in
Profes
sional
Appoi
ntmen
t

BD.

C
onflicts
of
Interest
BG.
S
econd
Opinion
s
BI. Fees
and
Other
Types of

BE.

BH.

AW.
should
consider
whether
acceptance
would
create any threats to
compliance
with
fundamental
principles; decline to
enter if threats could
not be reduced to an
acceptable level
AZ.
should only
agree to provide those
services which the
professional
accountant
is
competent to perform
BC.
determine
reasons
for
not
accepting
the
engagement, such as
circumstances
that
may
threaten
compliance
to
fundamental
principles; still bound
by confidentiality
BF.

-Obtaining knowledge and understanding

of the client and its activities

-Acquiring knowledge of relevant

industries
-Assigning sufficient staff with necessary
competencies
-Agreeing on realistic time frame for the
performance
-Discussing clients affairs fully and freely
with existing accountant
-If unable to communicate with the latter,
try to obtain information about any
possible threats

-Notifying client of firms activities which

may present conflict of interest
-Use of separate engagement teams
-Use of confidentiality agreements

There may be threat if second -Seeking client permission to contact

existing accountant
opinion is based on inadequate evidence
-Providing the latter with copy of opinion

BJ. Fees charged should be a fair reflection -Making the client aware of the basis on
which fees are charged
of the value of work involved:
-Quality control procedures
BK.
-skill and knowledge required
-Review by an objective third party
BL. -level of training and experience

Remune
rations

BM.
BO.

BN.

BQ.

M
arketing
Professi
onal
-

-time occupied by each person

Should not bring the profession

into disrepute:
make exaggerated claims on the services
offered,
qualifications
possessed
or
experience gained
make unsubstantiated comparisons to the
work of others
BR.Significance of such threat will depend
on nature, value or intent behind offer

BP.

G
BS. Safeguards should be considered
ifts and
otherwise, offer should not be
Hospita
accepted
lity
BT. Custody
BU.
Should not assume custody of -keep assets separate from personal or firm
assets
of
client monies or other assets unless
-use assets only for purpose intended
Client
permitted to do so by law
-be ready to account for those assets
Assets
BV. Objectiv
BW.
A professional accountant in public practice who provides an assurance
ity All
service is required to be independent of the assurance client.
Services
BX.Indepen
dence
Assuran
ce
Engage
ments
BZ.
CA.
Possible threats to independence:
CB.
CE. If threat is clearly not
CF. When it wouldnt
CC.
CD.
insignificant, such
impair
safeguards are available to
independence of
eliminate or reduce threat
the firm:
to acceptable level:
CH.
When
-Dispose of the direct financial
-The firm have established
interest prior to becoming a
policies and procedures
interest is held as
member of the assurance team
that require all
a trustee, such
-Dispose
of
the
indirect
financial
professionals to report
interest should
interest
in
total
or
to
a
sufficient
promptly any breaches
only be held
amount that is no longer
resulting from any
when:
material prior to becoming a
acquisition of a
-Interest held is not material
member
of
the
assurance
team
financial interest in an
-Member of assurance team
CG.
-Remove the member of the
assurance client
does not have
Financial
assurance team from the

The
firm promptly notify
significant influence
intere
assurance engagement
the professional that
over any investment
-Excluding the individual from any
sts
financial interest should
decision involving a
substantive decision-making
be disposed of
financial interest in the
concerning the assurance
Disposal occurs at the
assurance client
engagement
earliest practical date
after identification of the
issue, or professional is
removed from assurance
team
CI. Loan
CJ. If the firm or member of the assurance team makes a loan -If loan is immaterial and/or
held under normal
s and
to an assurance client, that is not a bank or similar
commercial terms or
guar
institutions, or guarantees such clients borrowings, the
procedures
antee
threat would be so significant no safeguard could
s
reduce the threat to an acceptable level
CK.Close
CM.
The threat -Terminate the business relationship -Relationship is clearly

busin
ess
relati
onshi
ps
with
assur
ance
client
s
CL. Fami
ly
and
perso
nal
relati
onshi
ps

would be so
significant no
safeguard could
reduce the threat
to an acceptable
level.
CO.
Significan
ce of the threat
will depend on
factors such as:
CP. - position the
immediate family
holds with the
client
CQ.
- role of
the professional on
the assurance team

-Reduce the magnitude of the

insignificant to the firm
and audit client
relationship so the financial
-Interest
held is immaterial
interest would be immaterial and
-Interest
does not give the
relationship be insignificant
investor the ability to
-Refuse to perform the assurance
control the closely held
engagement
entity
-Removing the individual from the
-Firm has established
assurance team
policies that require all
-Structuring the responsibilities of
professionals to report
the assurance team so that the
promptly any breaches
professional does not deal with
resulting from changes
matters that are within the
in employment status of
responsibility of the immediate
immediate or close
family member
family members
-Policies to empower staff to
-Responsibilities of the
communicate to senior levels
assurance team have
any issue of independence and
been restructured so the
objectivity
professional does not
-To withdraw from the assurance
deal with matters
engagement
concerning those of
immediate family
member
-Additional care is given to
review the work of the
professional
CX.
-Considering the appropriateness or
necessity of modifying the
assurance plan for the assurance
engagement
-Involving an additional professional
accountant who was not a
member of the assurance team to
review the work done
-Quality control review of the
assurance engagement
-Individual concerned is not entitled
to any benefits or payments
from the firm unless these are
made in accordance with fixed
pre-determined arrangements
-He does not continue to participate
in the firms business activities

CS. If a member of
the assurance
team, partner or
former partner of
the firm has
joined the
assurance client,
threat will depend
on the following:
CT. -position he has
taken at the
assurance client
CU.
-amount of
involvement with
the assurance team
CV.- length of time
passed since he
was a member of
the assurance team
CW.
- former
position in the
assurance team or
firm
CZ.
Threat is -Policies and procedures to require
the individual to notify the firm
created when a
when entering serious
member of the
employment negotiations with
assurance team
assurance client
participates in the
-Removal
of the individual from the
engagement
engagement
having reason to
believe that he
may join the
client some time

DA.

in the future
DC.
If DURING the period covered by the
assurance report, a member of the assurance team had
served as an officer/director/employee of the assurance
client in the position to exert significant influence over
the subject matter, such individual should not be
assigned to the assurance team
DF. If PRIOR the
-Involving an additional accountant
to review the work done
period covered by
-Discussing the issue with those
the assurance
charged with governance, such
report, a member
as the audit committee
of the assurance
DB.
Recent
servi
ce
with
assur
ance
client
s

DK.
Serving
as an
office
r or
direct
or on
the
boar
d of
assur
ance
client
s
DQ.
Long
assoc
iatio
n of
senio
r
perso
nnel

team had served as

an
officer/director/em
ployee of the
assurance client in
the position to
exert significant
influence over the
subject matter, the
threat will depend
on the following
factors:
DG.
-position
of the individual
with the assurance
client
DH.
-length of
time that passed
since he left the
assurance client
DI. -role of the
individual in the
assurance team
DL.
In case of financial statement audit
engagement, the only course of action is to refuse to
perform or withdraw from the assurance engagement
DO.
When practice is specifically permitted under
local law, the duties and functions undertaken should be
limited to those of routine and formal administrative
nature such as the preparation of minutes and
maintenance of statutory returns

DR.
Significan -Rotating the senior personnel off
the assurance team
ce of the threat
-Involving
an additional professional
shall depend on:
accountant
who was not a
DS. -length of time that
member of the assurance team to
the individual has
review the work done
been a member of
-Independent internal quality
the assurance team
reviews
DT.-role in the
assurance team

DD.

DJ.

DM.

DP.

DW.

with
assur
ance
client
s

EA.Provi
sion
of
nonassur
ance
servi
ces to
assur
ance
client
s

EL.

EN.
Valuation
servi
ces

DU.
- structure
of the firm
DV.-nature of the
assurance
engagement
DY.For financial
statement audit
clients that are
listed entities:

-Rotation should be for a pre-defined

period, normally no more than 5
years
-Such individual rotating should not
participate in the audit
engagement until a further
period of time, normally 2 years,
has elapsed
-Some degree of timing in the
rotation may be necessary in
some circumstances
EB.The following list of activities would create threats so
significant that the only safeguard to reduce it to an
acceptable level would be refusal to perform the
assurance engagement:
EC. -authorizing, consummating a transaction or otherwise
exercising authority on behalf of the assurance client
ED.-determining which recommendation of the firm should
be implemented
EE. -reporting, in a management role, to those charged with
governance
EH.The following
-Making arrangements so that
personnel
providing
such
activities may also
services does not participate in
create threats:
the engagement
EI. -having custody of
-Involving
additional professional
clients assets
accountant to review the work
EJ. -supervising
done
assurance client
-Other relevant safeguards set out in
employees in the
national regulations
performance of
-Policies and procedures that
their normal
prohibit professional staff from
recurring activities
making management decisions
EK.-preparing source
for assurance clients
-Discussing independence issues
documents or
regarding provision of nonoriginating data
assurance with those charged
evidencing
with governance
occurrence of
transaction
EM.
Provision
of accounting and
bookkeeping
services to audit
clients that are
listed and nonlisted entitites

DZ.

EF.

-Firm should not assume any

-Services do not involve the
managerial role
exercise of judgment
-Audit client should accept
-Divisions or subsidiaries
responsibility of the work results
for which the services
-Personnel providing the services
provided are
should not participate in the
collectively immaterial
audit
to the audit client
-Fees are clearly
insignificant
EO.
Provision of valuation services material to FS and -Provision of tax services to
FS audit clients
involves significant degree of subjectivity, such
-Provision of internal audit
valuation services should not be provided / withdraw
services provided that
from the FS audit engagement
personnel do not act in
EQ.Provision of
-Involving an additional professional
capacity equal to a
accountant to review work done
valuation services
member of client mgmt.
-Confirming with client
immaterial to FS
understanding of the underlying -Provision of legal services

and do not involve

assumptions of valuation
a significant degree -Making arrangements so personnel
providing such services do not
of subjectivity
participate in audit engagement

ES. Fees
and
prici
ng

FA. Gifts
and
hospi
tality

FC.Actu
al or
threa
tened
litiga
tion

provided that members

of assurance team are
not involved in
providing the service;
audit client makes
ultimate decision
EW.

-Discussing extent and nature of fees

charged with those charged with
governance
-Taking steps to reduce client
dependency
-External quality control reviews
-Consulting third party, professional
regulatory body or other
accountant
EY.If amount of fee for non-assurance engagement was
EZ.
agreed and contingent upon the result of an assurance
engagement, the threats could not be reduced to an
acceptable level; only acceptable action is not to accept
such arrangements
FB. A firm or member of assurance team should not accept
-When value is clearly
insignificant
gifts or hospitality
ET.Significance of the
threat depends
on:
EU.-firm structure
EV. -whether firm is
well-established or
newly created

FD. Significance of
threat will depend
on:
FE. -materiality of
litigation
FF. -nature of
assurance
engagement
FG. -whether it relates
to prior assurance
engagament

-Disclosing to those charged with

governance the nature and extent
of litigation
-Removing anyone involved in the
litigation from the assurance
team
-Involving an additional professional
accountant to review work done
-Withdraw from or refuse to accept
the engagement

FH.
FI. Professional Accountants in Business (Part C)

Professional accountants in business may be responsible:

o solely or jointly for the preparation and reporting of financial and other information, which both
their employing organizations and third parties may rely on
o for providing effective financial management and competent advice on a variety of business-related
matters
A professional accountant in business may be a/an:
o salaried employee
o partner
o director (whether executive or non-executive)
o owner manager
o volunteer or another working for one or more employing organization
FJ. Potential Conflicts

A professional accountant in business may face pressure to:

o Act contrary to law or regulation
o Act contrary to technical or professional standards
o Facilitate unethical or illegal earnings management strategies
o Lie to, or otherwise intentionally mislead (including misleading by remaining silent) others, in
particular:
The auditors of the employing organization
Regulators
o Issue, or otherwise be associated with, a financial or non-financial report that materially
misrepresents the facts, including statements in connection with, for example:
The financial statements

 Tax compliance
Legal compliance
Reports required by securities regulators
Safeguards that may eliminate or reduce threats arising from pressures:
o Obtaining advice where appropriate from within the employing organization, an independent
professional advisor or a relevant professional body
o The existence of a formal dispute resolution process within the employing organization
o Seeking legal advice
FK.
Preparation and Reporting of Information

A professional accountant in business should maintain information for which the professional accountant in
business is responsible in a manner that:
o Describes clearly the true nature of business transactions, assets or liabilities
o Classifies and records information in a timely and proper manner
o Represents the facts accurately and completely in all material respects
Where it is not possible to reduce the threat to an acceptable level, a professional accountant in business
should refuse to remain associated with information they consider is or may be misleading

FL.
FM.

Acting with Sufficient Expertise

Examples of circumstances that threaten the ability of a professional accountant in business to perform
duties with the appropriate degree of professional competence and due care:
o Insufficient time for properly performing or completing the relevant duties
o Incomplete, restricted or otherwise inadequate information for performing the duties properly
o Insufficient experience, training and/or education
o Inadequate resources for the proper performance of the duties
Safeguards that may eliminate or reduce threats:
o Obtaining additional advice or training
o Ensuring that there is adequate time available for performing the relevant duties
o Obtaining assistance from someone with the necessary expertise
o Consulting, where appropriate, with:
Superiors within the employing organization
Independent experts
A relevant professional body
FN.Financial Interests

Examples of circumstances that may create self-interest threats:

o Holds a direct or indirect financial interest in the employing organization
o Is eligible for a profit related bonus and the value of that bonus could be directly affected by
decisions made by the professional accountant in business
o Holds, directly or indirectly, share options in the employing organization
o Holds, directly or indirectly, share options in the employing organization which are, or will soon
be, eligible for conversion
o May qualify for share options in the employing organization or performance related bonuses if
certain targets are achieved
Safeguards that may eliminate or reduce threats:
o Policies and procedures for a committee independent of management to determine the level of form
of remuneration of senior management
o Disclosure of all relevant interests, and of any plans to trade in relevant shares to those charged
with the governance of the employing organization, in accordance with any internal policies
o Consultation, where appropriate, with superiors within the employing organization
o Consultation, where appropriate, with those charged with the governance of the employing
organization or relevant professional bodies
o Internal and external audit procedures
o Up-to-date education on ethical issues and the legal restrictions and other regulations around
potential insider trading
FO.
Inducements

Receiving Offers
o A professional accountant in business should assess the risk associated with all such offers and
consider whether the following actions should be taken:
Where such offers have been made, immediately inform higher levels of management or
those charged with governance of the employing organization
Inform third parties of the offer

Advise immediate or close family members of relevant threats and safeguards where they
are potentially in positions that might result in offers of inducements
Inform higher levels of management or those charged with governance of the employing
organization where immediate or close family members are employed by competitors or
potential suppliers of that organization

Making Offers
o Sources of pressures to make offers:
within the employing organization
external individual or organization
FP.