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Code of Ethics for Professional
Accountants in the Philippines
Code of Ethics for Professional Accountants in
the Philippines
Preface
The statement that is incorrect regarding the Code of Ethics for Professional Accountants in the Philippines is: b. Where a national statutory requirement is in conflict with a provision of the IFAC Code, the IFAC Code requirement prevails.
The statement that is correct regarding the Code of Ethics for Professional Accountants in the Philippines is: a. Professional accountants refer to persons who are Certified Public Accountants (CPA) in public practice and who hold a valid certificate issued by the Board of Accountancy.
Modifications to the IFAC Code
The definition from the IFAC Code that was not modified to consider Philippine regulatory requirements and circumstances is: d. Lead engagement partner
The modification to the IFAC Code that was not made to consider Philippine regulatory requirements and circumstances is: c. Additional examples relating to anniversaries and websites wherein publicity is acceptable, as provided in BOA Resolution 19, Series of 2000, were included.
Definitions
The following is not included in the definition of an assurance engagement: b. An engagement conducted to provide a moderate level of assurance that the subject matter is plausible in the circumstances.
The following is not included in the definition of close family: c. Non- dependent child
The assurance team includes: a. All professionals participating in the assurance engagement b. All others within a firm who can directly influence the outcome of the assurance engagement
A financial interest means: d. An interest in an equity or other security, debenture, loan or other debt instrument of an entity, including rights
and obligations to acquire such an interest and derivatives directly related to such interest.
A direct financial interest is a financial interest: a. owned directly by and under the control of an individual or entity (including those managed on a discretionary basis by other)
The following is not included in the definition of a firm: b. An entity that controls a partnership of professional accountants.
Independence
The statement regarding independence that is incorrect is: d. Independence is a combination of impartiality, intellectual honesty and a freedom from conflicts of interest.
A financial interest beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the individual or entity has no control is an: a. Indirect financial interest
The combination of impartiality, intellectual honesty and a freedom from conflicts of interest is: d. Independence
The lead engagement partner is: a. The partner responsible for signing the report on the consolidated financial statement of the audit client, where relevant, the partner responsible for signing the report in respect of any entity whose financial statements form part of the consolidated financial statements and on which a separate stand-alone report is issued, and when no consolidated financial statements are prepared, the partner responsible for signing the report on the financial statements.
A distinct sub-group, whether organized on geographical or practice lines, is referred to as an: a. Office
The Code of Ethics for Professional Accountants in the Philippines defined "practice" as: d. A sole proprietor or a partnership of professional accountants which offers professional services to the public.
The communication to the public of facts about a professional accountant which are not designed for the deliberate promotion of that professional accountant is referred to as: a. Publicity
Advertising, as defined in the Code of Ethics, means: c. The communication to the public of information as to the services or skills provided by professional accountants in public practice with a view to procuring professional business.
Existing accountant, as defined in the Code of Ethics, means: b. A professional accountant in public practice currently holding an audit appointment or carrying out accounting, taxation, consulting or similar professional services for a client.
The Code of Ethics for Professional
Accountants in the Philippines
Fundamental Principles
Integrity and Objectivity : Professional accountants should be straightforward and honest in performing professional services. They should be fair and should not allow prejudice, bias, conflict of interest, or influence of others to override their objectivity. They should perform professional services with due care, competence, and diligence, and act in a manner consistent with the good reputation of the profession, refraining from any conduct that might bring discredit to the profession.
Resolution of Ethical Conflicts : When faced with significant ethical issues, professional accountants should follow the established policies of their employing organization to seek a resolution. If the organization's policies do not resolve the conflict, they should review the issue with their immediate superior. If the problem is not resolved at that level, they may seek confidential counseling and advice from an independent advisor or the applicable professional accountancy body or regulatory body.
Professional Competence : Attaining professional competence requires a high standard of general education, specific education and training in professionally relevant subjects, a period of meaningful work experience, and a continuing awareness of developments in the accountancy profession. Professional accountants should not portray themselves as having expertise or experience they do not possess.
Confidentiality : Professional accountants have an obligation to respect the confidentiality of information about a client's or employer's affairs acquired in the course of professional services. This duty of confidentiality continues even after the end of the relationship between the professional accountant and the client or employer. Confidentiality should be observed unless specific authority has been given to disclose information or there is a legal or professional duty to disclose.
Tax Practice : When rendering professional tax services, a professional accountant is entitled to put forward the best position in favor of a client or an employer, and may resolve any doubt in their favor if there is reasonable support for the position. However, the professional accountant should ensure that the client or employer is aware of the limitations of the tax advice and services, so that they do not misinterpret an expression of opinion as an assertion of fact.
Cross-Border Activities : When a professional accountant performs services in a country other than their home country, and there are differences in ethical requirements between the two countries, the more strict requirements should be applied.
Publicity : In the marketing and promotion of themselves and their work, professional accountants should not use means that bring the profession into disrepute, make exaggerated claims, or denigrate the work of other accountants.
Assurance Engagements
Independence : For assurance engagements, the members of the assurance team and the firm should be independent of the client, except in the case of assurance engagements provided to clients that are not audit clients, where the assurance report is expressly restricted for use by identified users.
Threats to Independence : Independence can be affected by various threats, including self-interest, self-review, advocacy, familiarity, and intimidation threats. Examples of circumstances that may create these threats include financial interests in the client, recent employment with the client, and promotion of the client's position.
Self-Interest Threat : This threat occurs when a firm or a member of the assurance team could benefit from a financial interest in, or other self-interest conflict with, an assurance client. Examples include contingent fees, direct or material indirect financial interests, and loans or guarantees to or from the client.
Self-Review Threat : This threat occurs when any product or judgment of a previous assurance engagement or non-assurance engagement needs to be re-evaluated in reaching conclusions on the assurance engagement, or when a member of the assurance team was previously a director, officer, or employee in a position to exert direct and significant influence over the subject matter of the assurance engagement.
Advocacy Threat : This threat occurs when a firm or a member of the assurance team promotes, or may be perceived to promote, an assurance client's position or opinion to the point that objectivity may, or may be perceived to be, compromised.
Financial Interests – Provisions applicable to
all assurance clients
Financial Interests of Assurance Team Members and Their
Immediate Family
If a member of the assurance team, or their immediate family member, has a direct financial interest or a material indirect financial interest in the assurance client, the self-interest threat created would be so significant that the only safeguards available to eliminate the threat or reduce it to an acceptable level would be to:
a. The firm, and the network firm, has established policies and procedures that require all professionals to report promptly to the firm any breaches resulting from the purchase, inheritance, or other acquisition of a financial interest in the assurance client. b. The firm, and the network firm, promptly notifies the professional that the financial interest should be disposed of. c. The disposal occurs at the earliest practical date after identification of the issue, or the professional is removed from the assurance team. d. All of the above.
Financial Interests – Provisions applicable to
audit clients
If a firm, or a network firm, has a direct financial interest in an audit client of the firm, the self-interest threat created would be so significant that no safeguard could reduce the threat to an acceptable level. The appropriate action would be to:
a. Dispose of the financial interest. b. Dispose of a sufficient amount of it so that the remaining interest is no longer material. c. Either a or b.
The self-interest threat created would be so significant that no safeguard could reduce the threat to an acceptable level, except:
a. If a firm, or a network firm, has a direct financial interest in an audit client of the firm. b. If a firm, or a network firm, has a material indirect financial interest in an audit client of the firm. c. If a firm, or a network firm, has a material financial interest in an entity that has a controlling interest in an audit client. d. If the retirement benefit plan of a firm, or network firm, has a financial interest in an audit client.
Loans and Guarantees
The following loans and guarantees would not create a threat to independence, except:
a. A loan from, or a guarantee thereof by, an assurance client that is a bank or a similar institution, to the firm, provided the loan is made under normal lending procedures, terms and requirements and the loan is immaterial to both the firm and the assurance client. b. A loan from, or a guarantee thereof by, an assurance client that is a bank or a similar institution, to a member of the assurance team or their immediate family, provided the loan is made under normal lending procedures, terms and requirements. c. Deposits made by, or brokerage accounts of, a firm or a member of the assurance team with an assurance client that is a bank, broker or similar institution, provided the deposit or account is held under normal commercial terms. d. If the firm, or a member of the assurance team, makes a loan to an assurance client, that is not a bank or similar institution, or guarantees such an assurance client's borrowing.
Close Business Relationship with Assurance
Clients
Examples of close business relationships that may create self-interest and intimidation threats least likely include:
a. Having a material financial interest in a joint venture with the assurance client or a controlling owner, director, officer or other individual who performs senior managerial functions for that client. b. Arrangements to combine one or more services or products of the firm with one or more services or products of the assurance client and to market the package with reference to both parties. c. The firm and the assurance client are jointly involved in a significant business development project or other joint venture.
Distribution or Marketing Arrangements
The firm may act as a distributor or marketer of the assurance client's products or services, or the assurance client may act as the distributor or marketer of the products or services of the firm. This type of arrangement could create a self-interest threat.
Purchase of Goods and Services
The purchase of goods and services from an assurance client by the firm (or from an audit client by a network firm) or a member of the assurance team is permitted, provided the transaction is in the normal course of business and on an arm's length basis. This would not create a threat to independence.
Family and Personal Relationships
Family and personal relationships between a member of the assurance team and a director, an officer or certain employees of the assurance client, depending on their role, least likely create a familiarity threat.
An inadvertent violation of the rules on family and personal relationships would not impair the independence of a firm or a member of the assurance team when:
Policies and Procedures
The firm has established policies and procedures that require all professionals to report promptly to the firm any breaches resulting from changes in the employment status of their immediate or close family members or other personal relationships that create threats to independence.
Partner or Employee Serving as Officer or Director
A partner or employee of the firm serves as an officer or as a director on the board of an assurance client.
Partner or Employee Serving as Company Secretary
A partner or employee of the firm or a network firm serves as Company Secretary for an audit client, the duties and functions undertaken are limited to those of a routine and formal administrative nature as such as the preparation of minutes and maintenance of statutory returns.
Long Association of Senior Personnel with
Assurance Clients – General Provisions
Using the same senior personnel on an assurance engagement over a long period of time may create a familiarity threat. The significance of the threat will least likely depend upon the length of time that the individual has been a member of the assurance team, the role of the individual on the assurance team, the structure of the client, or the nature of the assurance engagement.
Long Association of Senior Personnel with
Assurance Clients – Audit Clients that are
Listed Entities
Incorrect Statement
Which statement is incorrect regarding long association of senior personnel with audit clients that are listed entities?
Using the same lead engagement partner on an audit over a prolonged period may create a familiarity threat.
The lead engagement partner should be rotated after a pre-defined period, normally no more than seven (7) years.
A partner rotating after a pre-defined period should not resume the lead engagement partner role until a further period of time, normally two years, has elapsed.
When audit client becomes a listed entity the length of time the lead engagement partner has served the audit client in that capacity should be considered in determining when the partner should rotated.
Lead Engagement Partner Rotation Period
The partner may continue to serve as the lead engagement partner before rotating off the engagement for two years after the audit client becomes a listed entity.
Flexibility in Rotation Timing
While the lead engagement partner should be rotated after such a pre- defined period, some degree of flexibility over timing of rotation may be necessary in certain circumstances, such as:
Situations when the lead engagement partner's continuity is especially important to the audit client, for example, when there will be major changes to the audit client's structure that would otherwise coincide with the rotation of the lead engagement partner.
Situations when, due to the size of the firm, rotation is not possible or does not constitute an appropriate safeguard.
Provision of Non-Assurance Services to
Assurance Clients
The following activity would generally not create self-interest or self-review threats that are so significant that only avoidance of the activity or refusal to perform the assurance engagement would reduce the threats to an acceptable level:
Providing technical assistance and advice on accounting principles for audit clients.
Preparing Accounting Records and Financial
Statements
If firm, or network firm, personnel providing such assistance make management decisions, the self-review threat created could not be reduced to an acceptable level by any safeguards. Examples of such managerial decisions include:
Determining or changing journal entries, or the classifications for accounts or transactions or other accounting records without obtaining the approval of the audit clients.
Authorizing or approving transactions.
Preparing source documents or originating data (including decisions on evaluation assumptions), or making changes to such documents or data.
The following services are considered to be a normal part of the audit process and do not, under circumstances, threaten independence:
Analyzing and accumulating information for regulatory reporting.
Assisting in the preparation of consolidated financial statements.
Drafting disclosure items.
not be seen as impairing independence with respect to the audit client provided that the services do not involve the exercise of judgment, the divisions or subsidiaries for which the service is provided are collectively immaterial to the audit client, and the services provided are collectively immaterial to the division or subsidiary.
Preparing Accounting Records and Financial
Statements – Emergency Situations
The provision of accounting and bookkeeping services to audit clients in emergency or other unusual situations, when it is impractical for the audit client to make other arrangements, would not be considered to pose an unacceptable threat to independence provided:
The firm, or network firm, does not assume any managerial role or make any managerial decisions.
The audit client accepts responsibility for the results of the work.
Personnel providing the services are not members of the assurance team.
Valuation Services
If the valuation services involves the valuation of matters material to the financial statements and the valuation involves a significant degree of subjectivity, the self-review threat created could be reduced to an acceptable level by the application of safeguards.
The following would not generally create a significant threat to independence:
When a firm, or a network firm, performs a valuation service for an audit client for the purposes of making a filing or return to a tax authority.
The firm provides formal taxation opinions and assistance in the resolution of tax disputes to an audit client.
The firm renders internal services involving an extension of the procedures required to conduct an audit in accordance with Philippine Standards on Auditing to an audit client.
Provision of IT Systems Services to Audit
Clients
The provision of services by a firm or network firm to an audit client that involve the design and implementation of financial information technology systems that are used to generate information forming part of a client's financial statements may most likely create a self-review threat.
The provision of services in connection with the assessment, design and implementation of internal accounting controls and risk management controls is least likely considered to create a threat to independence.
Provision of Litigation Support Services to
Audit Clients
Definition of Legal Services
Legal services are defined as: a. The making of assumptions with regard to future developments, the application of certain methodologies and techniques, and the combination of both in order to compute a certain value, or range of values, for an asset, a liability or for a business as a whole. b. A broad range of services, including compliance, planning, provision of formal taxation opinions and assistance in the resolution of tax disputes. c. May include such activities as acting as an expert witness, calculating estimated damages or other amounts that might become receivable or payable as the result of litigation or other legal dispute, and assistance with document management and retrieval in relation to a dispute or litigation. d. Any services for which the person providing the services must either be admitted to practice before the Courts of the jurisdiction in which such services are to be provided, or have the required legal training to practice law.
Threats to Independence
The following threats to independence can be eliminated or reduced to an acceptable level: a. Acting for an audit client in the resolution of a dispute or litigation in such circumstances when the amounts involved are material in relation to the financial statements of the audit client. b. When a firm is asked to act in an advocacy role for an audit client in the resolution of a dispute or litigation in circumstances when the amounts involved are not material to the financial statements of the audit client. c. The appointment of a partner or an employee of the firm or network firm as General Counsel for legal affairs to an audit client.
Recruiting Senior Management
The recruitment of senior management for an assurance client, such as those in a position to affect the subject of the assurance engagement, is least likely to create a familiarity threat.
Corporate Finance and Similar Activities
Certain corporate finance services may create advocacy or self-review threats; however, safeguards may be available to reduce these threats to an acceptable level. Examples of such services include the following, except: a. Committing the assurance client to the terms of a transaction or consummating a transaction on behalf of the client.
Activities Incompatible with the Practice of
Public Accountancy
The following statement is incorrect regarding activities incompatible with the practice of public accountancy: c. The rendering of two or more types of professional services concurrently does by itself impair integrity, objectivity or independence.
Clients' Monies
The following statement is incorrect regarding clients' monies: d. Fees due from a client may be drawn from client's monies without the need of notifying the client.
Relations with Other Professional
Accountants in Public Practice
The following statement is incorrect regarding relations with other professional accountants in public practice: d. The receiving accountant may express any criticism of the professional services of the existing accountant without giving the latter an opportunity to provide all relevant information.
The existing accountant, on receipt of the communication from the proposed professional accountant in public practice, should not: d. Disclose all information needed by the proposed professional accountant in public practice to be able to decide whether or not to accept the appointment, if permission is not granted.
Advertising and Solicitation
The following is true regarding advertising and solicitation: b. It is clearly desirable that the public should be aware of the range of services available from a professional accountant.
Publicity by individual professional accountants in public practice is acceptable provided: a. It has as its object the notification to the public or such sectors of the public as are concerned, of matters of fact in a manner that is not false, misleading or deceptive. c. It avoids frequent repetition of, and any undue prominence being given to the name of the professional accountant in public practice.
The following is not acceptable: a. Advertising, but not solicitation, by individual professional accountants in public practice is permitted in the Philippines.
Professional Accountant's Conduct and
Responsibilities
Acceptable Practices for Professional Accountants
A professional accountant who authors an article on a professional subject may state their name, professional qualifications, and the name of their organization.
A professional accountant in public practice may indicate on their stationery that they are a tax expert.
A professional accountant may invite clients to attend training courses or seminars conducted for the assistance of their staff.
A job specification that gives some detail as to the services provided to clients by the professional accountant in public practice may be communicated to the public through the classified ads section of a newspaper.
Unacceptable Practices for Professional Accountants
A professional accountant should not write a letter to another professional accountant seeking employment or professional business.
A professional accountant should not be listed in a directory that could reasonably be regarded as a promotional advertisement for those listed therein.
A professional accountant should not develop a website that contains self-laudatory statements designed to solicit clients.
Responsibilities of Employed Professional Accountants
Employed professional accountants owe a duty of loyalty to their employer as well as to the profession, and there may be times when the two are in conflict.
A professional accountant, particularly one having authority over others, should give due weight to the need for their staff to develop and hold their own judgment in accounting matters, and should deal with differences of opinion in a professional way.
When undertaking significant tasks for which a professional accountant has not had sufficient specific training or experience, they should not mislead the employer as to the degree of expertise or experience they possess, and where appropriate, expert advice and assistance should be sought.
