UNIT C

THE PROFESSIONAL PRACTICE OF

PUBLIC ACCOUNTING

Outline
1. Public accounting as a profession

a. Public accounting as a profession

b. Organizations that affect public accounting

i. Regulatory government agencies
ii. Standard-setting bodies

c. Regulation of the public accounting practice

i. Philippine Accountancy Act of 2004 / Implementing Rules and Regulations
ii. SEC rulings on financial statement presentation

2. The CPA’s professional responsibilities

a. Philippine standards on Auditing

b. Code of Ethics for Professional accountants in the Philippines

c. Responsibilities on Fraud, error, and noncompliance

Objectives:

At the end of the unit, the student should be able to:

1. Appreciate the practice of public accounting

2. Identify the different government agencies and standard setting bodies for the
practice of accountancy profession;

3. Know and describe the responsibilities of a professional certified public accountant

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 THE PROFESSIONAL PRACTICE OF PUBLIC ACCOUNTING

PUBLIC ACCOUNTING AS A PROFESSION

Society holds in high esteem people who are engaged in a profession. Cabrera (2017) identifies
five characteristics of an ideal profession. The Accountancy profession satisfy these characteristics,
namely:

1. Systematic theory. The accountancy profession consists of accounting theory, which refers
generally accepted accounting principles and practices, and auditing theory, a science of
validation. The professional accountant (Certified Public Accountant) achieves this through
formal education in an academic environment

2. Professional authority. The professional accountant is able to help users of financial

statements and other accounting information by lending credibility on these FS or through
attestation, verification, evaluation and subsequently expressing their conclusions and or
recommendations. The authority of professional accountants emanates from his/her
expertise in systematic theory.

3. Community sanction. Admission to the accountancy profession is a process controlled by

the government. One has to satisfy the requirements to become a professional accountant.

4. Regulations code. The accountancy profession is governed by law and a code of ethics
which ensures discipline and adherences to policies and standards of accounting and
auditing by the members of the profession.

5. A Culture. Accountancy is a time-honored profession. CPAs have the responsibility to

ensure that it remains so thus affecting his/her behavior in society.

The Code of Ethics for Professional Accountants in the Philippines, which is based on the
International Code of Ethics, states that the profession is distinguished by certain characteristics,
including:

 Mastery of a particular intellectual skill, acquired by training and education;

 Adherence by its members to a common code of values and conduct established by its
administering body, including maintaining an outlook which is essentially objective; and

 Acceptance of a duty to society as a whole.

The Certified Public Accountant

A Certified Public Accountant is a person who, after obtaining the required education, passes an
extensive examination and is licensed by the country to practice as a professional accounting
(Cabrera, 2017).

Not all CPAs practice public accounting. To go into this field, certain requirements have to be
complied with, including accreditation with the Professional Regulation Commission (PRC) Board of

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Accountancy (BOA). Some young professionals prefer to work in the industry, government and
education sectors.

Organizations That Affect Public Accounting

Every profession is regulated by certain government bodies or agencies. Basically, there are
three groups of organizations affecting the practice of accountancy in the Philippines: 1) Regulatory
Government Agencies, 2) Professional Organizations, and 3) Standard-Setting Bodies

Regulatory Government Agencies

1. Professional Regulation Commission (PRC)

PRC administers, implements and enforces the regulatory policies of the national
government with respect to the regulation and licensing of the various professions under its
jurisdiction including the maintenance of professional standards and ethics and the
enforcement of the rules and regulations relative thereto. This commission has the overall
jurisdiction over the regulatory boards in the Philippines including the Board of Accountancy.

2. Board of Accountancy (BOA)

The BOA consists of a chairman and six member is tasked to administer the Accountancy
Law. This is the only body that may issue and revoke CPA certificates and grant license to
practice. Its functions are provided in the Philippine Accountancy Act of 2004.

3. Securities and Exchange Commission (SEC)

SEC is the government agency that regulates the registration and operations of corporations,
partnerships, and other forms of associations in the Philippines. Its objective is to assist in
providing investors with reliable information upon which to make investment decisions. To
this end, companies planning to issue new securities to the public must submit a registration
statement to the SEC for approval. The SEC, upon finding submissions required of these
companies adequate, gives permission for these companies to sell their securities through
the stock exchange.

Since CPAs or CPA firms usually have clients that file accounting reports with the SEC, the
practice is affected by pronouncement and issuances of this commission.

4. Commission on Audit (COA)

COA is a government agency that audits or determines whether government units handle
their funds according to existing laws and regulations and whether their programs are being
conducted efficiently and economically

Professional Organizations

1. Philippine Institute of Certified Public Accountants (PICPA)

PICPA is the accredited national professional organization (APO) of CPAs. Its serves all
members in the different sectors of the accounting profession namely, public practice,

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 education, government and commerce and industry through a set of technical and social
services. PICPA publishes issuances and pronouncement by the Financial Reporting
Standards Council (FRSC) and the Auditing and Assurance Standards Council (AASC)

2. Sectoral Organizations

These are organizations that complement PICPA’s objective and provide specific professional
development and other requirements of CPAs in the different sectors:

a. Association of CPAs in Public Practice (ACPAPP)

b. Association of CPAs in Education (ACPAE)
c. Association of CPAs in Commerce and Industry (ACPACI)
d. Government Association of CPAs (GACPA)

Standard-Setting Bodies

1. Financial Reporting Standard Council (FRSC)

The Financial Reporting Standards Council (FRSC) was established by the Professional
Regulatory Commission under the Implementing Rules and Regulations of the Philippine
Accountancy of Act of 2004 to assist the Board of Accountancy in carrying out its power and
function to promulgate accounting standards in the Philippines. The FRSC’s main function is
to establish generally accepted accounting principles in the Philippines.

The FRSC consists of a Chairman and 14 members appointed by the BOA, as follows:

No. of members
Chairman 1
Board of Accountancy 1
Securities and Exchange Commission 1
Bangko Sentral ng Pilipinas 1
Bureau of Internal Revenue
A major organization composed of preparers and users of FS 1
Commission on Audit 1
Philippine Institute of CPAs:
Public Practice 2
Commerce and Industry 2
Academe/Education 2
Government 2
Total 15

The FRSC has full discretion in developing and pursuing the technical agenda for setting
accounting standards in the Philippines. Financial support is received principally from the
PICPA Foundation. The FRSC monitors the technical activities of the IASB and invites
comments on exposure drafts of proposed IFRSs as these are issued by the IASB. When
finalized, these are adopted as Philippine Financial Reporting Standards (PFRSs). The FRSC
similarly monitors issuances of the International Financial Reporting Interpretations
Committee (IFRIC) of the IASB, which it adopts as Philippine Interpretations–IFRIC. PFRSs and

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 Philippine Interpretations–IFRIC approved for adoption are submitted to the BOA and PRC
for approval.

2. Auditing and Assurance Standards Council (AASC)

The Auditing and Assurance Standards Council (AASC) was created in December 2005, under
the Philippine Accountancy Act of 2004, by the Professional Regulation Commission upon
the recommendation of the Board of Accountancy (BOA). The AASC is tasked to assist the
BOA to establish and promulgate auditing standards in the Philippines.

The AASC have 18 regular members with a term of three years, renewable for another term,
coming from the following:

No. of members
Chairman 1
Board of Accountancy 1
Securities and Exchange Commission 1
Bangko Sentral ng Pilipinas 1
Commission on Audit 1
Association of CPAs in Public Practice 1
Philippine Institute of CPAs:
Public Practice 9
Commerce and Industry 1
Academe/Education 1
Government 1
Total 18

3. International Federation of Accountants (IFA)

4. International Accounting Standards Board (IASB)
5. International Auditing and Assurance Standards Board (IAASB)

Regulation of the Public Accounting Practice

The BOA, SEC, and the Courts of Justice are responsible for the public regulation of public
accounting practice. The objective of regulation is to protect the investing public from fraud, gross
negligence, and failure to comply with the laws and regulations related to the independent audit of
financial statements.

The regulation of the accountancy profession is specifically provided for in the Philippine
Accountancy Act of 2004 and its Implementing Rules and Regulations implemented by the Board of
Accountancy.

Inquiries and investigations on allegations of failure of audit may also be conducted by the SEC in
accordance with its mandate.

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The Philippine Accountancy Act of 2004 and Its Implementing Rules and Regulations

Republic Act 9298, otherwise known as the Accountancy Act of 2004, has for its objectives the
following:

1. The standardization and regulation of accounting education;

2. The examination for registration of certified public accountants; and
3. The supervision, control, and regulation of the practice of public accountancy in the
Philippines

(Please read Annex A - Republic Act 9298 and Annex B – IRR of RA 9298)

Selected Provisions from the Republic act. No 9298 (RA No. 9298) and Implementing Rules and
Regulations (IRR)

 Section 4 – Scope of Practice

The practice shall include, but not limited to, the following:

1. Practice of Public Accountancy – shall constitute in a person, be it his/her individual capacity,

or as a partner or as a staff member in an accounting or auditing firm, holding out
himself/herself as one skilled in the knowledge, sciences and practice of accounting, and as a
qualified person to render professional services as a CPA; or offering or rendering, or both to
more than one client an free basis or otherwise, services such as:

a. The audit or verification of financial transaction and accounting records;

b. The preparation, signing, or certification for clients of reports for audit, balance
sheet, and other financial, accounting and related schedules, exhibit statements or
report which are to be used by stockholders or for publication or for credit purposes,
or to be filed with a court or government agency, or to be used for any other
purposes;
c. The design, installation, review and revision of a accounting system;
d. The preparation and/or review of income tax return when related to accounting and
auditing procedures;
e. When he/she represents his/her clients before government agencies on tax and
other matters related to accounting
f. Renders professional assistance in matters relating to accounting procedures and
the recording and presentation of financial facts or data.

2. Practice in Commerce and Industry – shall constitute in a person

a. Involved In decision making requiring professional knowledge in the science of

accounting, as well as the accounting aspects of finance and taxation; or
b. When he/she represent his/her employer before government agencies on tax and
other matters related to accounting; or
c. When such employment or position requires that the holder thereof must be a
certified public accountant.

In this connection, any position in any business or company in the private sector which
requires supervising the recording of financial transaction, preparation of financial

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 statements, coordinating with the external auditors for the audit of such financial
statements and other related functions shall be occupied only by a duly registered CPA.

Provided, That the business or company where the above position exists has a paid-up
capital of at least Five Million pesos (P5,000,000.00) and/or an annual revenue of at
least Ten Million Pesos(P10,000,000.00);

Provided Further, That this provision shall apply only to person to be employed after the
effectivity of the IRR;

Provided, Finally, That this provision shall not result to deprivation of the employment of
incumbents to the position.

3. Practice in Education/Academe – shall constitute in a person

a. In an educational institution which involve teaching of accounting, auditing,

management advisory services, accounting aspects of finance, business law, taxation
and other technically related subjects:

Provided, That members of the Integrated Bar of the Philippines may be allowed to
teach business law and taxation subject.

Provided, Further, That the position of either the dean or the department chairman or
its equivalent that supervises the Bachelors of Science in Accountancy program of an
educational institution is deemed to be in practice of accountancy in the academe /
education and therefore must be occupied only by a duly registered CPA.

4. Practice in the Government – shall constitute in a person.

a. Who holds, or is appointed to a position in an accounting professional group in
government or in a government-owned and/or controlled corporation, including
those performing propriety functions, where decisions making requires professional
knowledge in the science of accounting, or
b. Where a civil service eligibility as a certified public accountant is a prerequisite.

 Section 14 to 18: The CPA Board Exams

1. Any person applying for examination shall establish the following requisites to the Board
that he/she:
a. Is a Filipino citizen;
b. Is of good moral character;
c. Is a holder of the degree of Bachelor of Science in accountancy conferred by a
school, college, academy or institute duly recognized and/or accredited by the
CHED or other authorized government offices; and
d. Has not been convicted of any criminal offense involving moral turpitude.

2. The Board, subject to the approval of the commission, may revise or exclude any of the
subjects and their syllabi, and add new ones as the need arises, provided that the change
shall not be more often than every three (3) years.

3. General average of seventy-five percent (75%), with no grades lower than sixty-five percent
(65%) in any given subject = PASSED. If a candidate obtains a rating of seventy-five percent

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 (75%) and above in at least a majority in subject tested = CONDITIONAL credits for subject
passed.

4. Removal examination: The remaining subject must be taken within two years from the
preceding examination. If the candidate fails to obtain at least a general average of seventy-
five percent (75%) and a rating of at least sixty-five percent (65%) in each of the subjects
reexamined, she/he shall be considered as failed in the entire examination. The original
exam and the removal exam are counted as one exam only.

5. Refresher course: any candidate who fails in two (2) complete CPA Board Examinations shall
be disqualified from taking another set of examinations unless he/she submits evidence to
the satisfaction of the Board that he/she enrolled in and completed at least twenty-four (24)
units of subjects given in the licensure examination.

Provided, that such refresher course shall be offered only by an educational institution
granting a degree of Bachelor of Science in Accountancy.

Provided further, that the candidates shall have the option of taking the aforesaid subjects
in the regular course offering or in a special refresher course duly accredited by the Board.

6. For purposes of RA No. 9298, the examination in which the candidates was conditioned
together with the removal examination on the subject in which he/she failed shall be
counted as one complete examination.

 Section 19- Oath

All successful candidates in the examination shall be required to take an oath of profession
before any member of the Board or before any government official authorized by the
Commission or any person authorized by law to administer oaths.

 Section 20- Issuance of Certificates of Registration and Professional Identification Card

1. The certificates of Registration shall bear the signature of the chairperson of the Commission
and the chairman and members of the Board, stamped with the official seal of the
Commission and of the Board, indicating that the person named therein is entitled to
practice of the profession with all the privileges appurtenant thereto.
2. A Professional ID bearing the registration number, date of issuance, expiry date, duly signed
by the chairperson of the Commission, shall likewise be issued to every registrant renewable
every three (3) years.

 Section 22- Indication of Certificate of Registration, Identification Card, and professional Tax
Receipt
The CPA shall be required to indicate the numbers of his/her certificate of registration and
professional identification card with its date of issuance and the duration of validity, including
the Professional Tax Receipt number which the City/Municipal Treasurer shall issue to the
registered CPA upon presentation of his/her current professional identification card, on the
documents he/she signs, uses or issues in connection with the practice of his/her profession.

Notes:
1. The Board shall not register either, any person who has falsely sworn, or misinterpreted
himself/herself in his/her application for examination.
2. Registration shall not be refused and a name shall not be removed from the roster of CPAs
on conviction for a political offense or for an offense which shall not, in the opinion of the

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 Board, either from the nature of the offense or from the circumstances of the case,
disqualify a person from practicing accountancy under RA No. 9298.

 Section 24- Suspension and Revocation of Certificates of Registration and Professional

Identification Card and Cancellation of Special Permit
The Board shall have the power, upon due notice and hearing, to suspend or revoke the
practitioner’s certificate of registration and professional identification card or suspend him/her
from the practice of his/her profession or cancel his/her special permit for any of the causes or
grounds mentioned under Section 23 of RA No. 9298 or for any unprofessional or unethical
conduct, malpractice, violation of any of the provisions of RA No. 9298, and its implementing
rules and regulations, the Certified Public Accountants Code of Ethics and the technical and
professional standards of practice for certified public accountants.

 Section 25- Reinstatement, Reissuance, and Replacement or Revoked or Lost Certificates

The Board may, after the expiration of two (2) years from the date of revocation of a certificates
of registration and upon application and for reasons deemed proper and sufficient, and after
being convinced of applicant’s remorse and rehabilitation, reinstate the validity of a revoked
certificate of registration and in so doing, may, in its discretion, exempt the applicant from
taking examination.

A new certificate of registration to replace lost, destroyed, or mutilated certificate/license may

be issued, subject to the rules promulgated by the Board and the Commission, upon payment of
the required fees.

 Section 26 – Prohibition in the Practice of Accountancy

There shall no practice accountancy in this country, or use the title “Certified Public
Accountant”, or use the abbreviated title “CPA” or display or use any title, sign, card,
advertisement, or other device to indicate such person practices or offers to practice
accountancy, or is a certified public accountant, unless such person shall have received from the
Board a certificate of registration/professional license and be issued a professional identification
card or a valid temporary/special permit duly issued to him/her by the Board Of Commission.

 Section 28 – Limitation of the Practice of Public Accountancy

Single practitioners and partnerships for the practice of public accountancy shall be registered
certified pubic accounts in the Philippines. The Securities and Exchange Commission shall not
register any corporation organized for the practice of public accountancy.

A certificate of accreditation shall be issued to CPAs in public practice only upon showing, in
accordance with rules and regulations promulgated by the Board and approved by the
Commission, that such registrant has acquired a minimum of three (3) years meaningful
experience in any of the areas of public practice including taxation. Partnerships engaged in the
practice of public accountancy may be carried on in the form of general partnerships (GP) or
limited liability partnerships (LLP) organized in accordance with Philippine Laws.

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 Meaningful Experience is defined as follows

In commerce Includes significant involvement in:

and Industry: - General accounting, budgeting and tax administration
- Internal auditing and liaison with external auditors
- Representing his/her employer before government agencies on tax
and matters related to accounting or any related functions
In the Academe Shall include:
or Education: - Teaching for at least three (3) trimesters or two (2) semesters
subjects in either financial accounting, business law and tax,
auditing problems, auditing theory, financial management and
management services
- Provided, that the accumulated teaching experience on these
subjects shall not be less than three (3) school years.
In Government: Includes significant involvement in:
- General accounting - internal auditing
- Budgeting - liaison with the COA or
- Tax administration - any other related functions
In the Public Shall include:
Practice: - At least one year as audit assistant and
- At least two years as auditor-in-charge of audit engagements
covering full audit functions of significant clients.

 Section 29 – Ownership of Working Papers

All working papers, schedules and memoranda made by a CPA and his staff in the course of an
examination, including those prepared and submitted by the client, incident to or in the course
of an examination, by such CPA, except reports submitted by a certified public accountant to a
client shall be treated confidential and privileged and remain the property of such CPA in the
absence of a written agreements between the CPA and the client, to the contrary, unless such
documents are required to be produced through subpoena issued by any court, tribunal, or
government regulatory or administrative body in accordance with Philippine Laws.

 Section 30 – Accredited Professional Organization

All registered CPAs whose names appear in the roster of certified public accountants shall be
united and integrated through their membership in a one and only registered and accredited
national professional organization of registered and licensed CPAs, which shall be registered
with the Securities and Exchange Commission as a nonprofit corporation and recognized by the
Board, subject to the approval by the Commission. Memberships in the integrated organization
shall not be a bar to memberships in any other association of CPAs.

 Section 31 – Accreditation to Practice Public Accountancy

CPAs, firms and partnerships of certified public accountants, engaged in the practice of public
accountancy, including partners and staff members thereof, shall register with Commission and
the Board, such registration to be renewed every three (3) years.

 Section 32 – Continuing Professional Education (CPE) Program

All CPAs shall abide by the requirements, rules and regulations on continuing professional
education to be promulgated by the Board, subject to the approval of the Commission, in
coordination with the accredited national professional organization of certified public
accountants and shall be offered by any duly accredited educational institutions.

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 Section 33 – Seal and Use of Seal
All licensed CPAs shall obtain and use seal of a design prescribed by the Board bearing the
registrant’s name, registration number and title. The auditor’s reports shall be stamped with
said seal, indicating therein his/her current Professional Tax Receipt (PTR) number, date/place of
payment when filed with government authorities or when used professionally.

 Section 34 –Foreign Reciprocity

Subject or citizens of foreign countries may be allowed to practice Accountancy in the
Philippines in accordance with the provisions of existing laws, international treaty obligations
including mutual recognition agreements entered into by the Philippine government with other
countries. A person who is not a citizen of the Philippines shall not be allowed to practice
accountancy in the Philippines unless he/she can prove, in the manner provided by the rules of
court that, by specific provision of law, the country of which he/she is a citizen, subject or
national admits citizens of the Philippines to the practice of the same profession without
restriction.

Note: a foreign CPA or its equivalent, who desires to practice accountancy in the Philippines
through reciprocity has the burden to initiate the establish of the reciprocity between his
country/state and the Philippines.

 Section 35 – Coverage of Temporary/Special Permits

Special/temporary permit may issue by the Board to the approval of the Commission and
payment of the fees the latter has prescribed and charged thereof to a foreign CPA:

1. Called for consultation of for a specific purpose which, in the judgment of the Board, is
essential for the development of the country: Provided, that his/her practice shall be limited
only for the particular work that he/she is being engaged: Provided, further, that there is no
Filipino CPA qualified for such consultation or specific purpose.

2. Engaged as professor, lecturer or critic in fields essential to accountancy education in the

Philippines and his/her engagement is confined to teaching only; and

3. Who is an internationally recognized expert or without specialization in any branch of

accountancy and his/her service is essential for the advancement of accountancy in the
Philippines.

 Section 36 – Penal Provision

Any person who shall violate any of the provisions of RA No. 9298 or any of its implementing
rules and regulations as promulgated by the Board subject to the approval of the Commission,
shall, upon conviction, be punished by a fine of not less than fifty thousand pesos (P 50,000.00)
or by imprisonment for a period not exceeding two (2) years or both.

 Section 39 – Enforcement of RA No. 9298

It shall be the primary duty of the Commission and the Board to effectively enforce the
provisions of RA No. 9298 and its IRR. All duly constituted law enforcement agencies and officers
of national, provincial, city or municipal government or of any political subdivision thereof,
shall, upon the call or request of the Commission or the Board, render assistance in enforcing
the provisions of RA No. 9298 and its IRR and to prosecute any person violating the provision of
the same. The Secretary of Justice or his duly designated representative shall act as legal adviser
to the Commission and the Board and shall render legal assistance as maybe necessary in
carrying out the provisions of RA No. 9298 and its IRR.

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 Section 41 – Transitory Provision
The incumbent chairman and members of the Board shall continue to serve in their respective
position under the terms for which they have been appointed under Presidential Decree No.
692, without the need of new appointments.

All graduates with a Bachelors Degree, major in Accounting shall be allowed to take CPA
Licensure Examination within two (2) years from the effectivity of RA No. 9298 under the rules
and regulations to be promulgated by the Board subject to the approval by the Commission.

Management of an Accounting Practice

1. Registration for accreditation shall be valid for a period of three (3) years and may be
renewed every three (3) years on or before September 30 on the year of expiry upon
compliance of the requirements provided in the IRR.

2. CPAs (individuals, firms partnerships) shall not commence public practice until a valid
Certificate of Registration has been issued to such CPA(s).

3. The application for registration shall be accomplished in the form prescribed by the Board, in
triplicate, and duly signed by the applicant CPA.

4. The BOA shall duly authenticate all applicants for registration received in proper form, and
after having passed upon such application, shall recommend to the PRC the approval or
denial thereof not later than sixty (60) days after the receipt of the aforementioned
applications.

5. The PRC shall, upon favorable recommendation of the BOA, issue to the applicant the
corresponding Certificate of Registration to practice public accountancy.

6. Certificate of Registration shall be valid for three (3) years and shall be renewable every
three (3) years upon payment of the fees in accordance with the IRR to RA9298 (unless
revoked, canceled or withdrawn).

Rules on Names
1. Individual CPA shall do business under registered name with the BOA and the PRC and as
printed on his/her CPA Certificate.

2. Firms shall do business under their respective duly registered and authorized firm name
appearing in the registration documents issued by the Department of Trade and Industry
(DTI) of any other proper government office(s) (firm name shall include the real name of the
sole proprietor as printed in his/her CPA certificate or other similar firm names).

3. Registered partnership shall do business under their respective partnership names as

indicate in their current Articles of Partnership and certificates of registration issued by the
SEC. Unregistered partnerships shall do business under the partnership names as indicate in
their current articles of partnership.

4. CPAs shall practice only under a name allowed by law and shall not include any fictitious
name, indicates specialization or is misleading as to the type of organization.

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 5. A partner surviving the death or withdrawal of all the other partners in a partnership may
continue to practice under the partnership name for a period of not more than two (2) years
after becoming a sole proprietor.

Rules on Foreign CPAs

1. Under no circumstances shall the correspondent relationship, membership, or business
dealings with foreign CPAs be a scheme for the foreign CPAs to engage in the practice of
public accountancy in the Philippines who/which under the present laws are limited to
Filipino CPAs (except as provided for in Sections 34 and 35 of RA9298).

2. The individual CPA, Firm or Partnership of CPAs duly registered shall not have as its owner,
sole proprietor, partner, or any staff thereof, any foreign CPA, unless he/she qualifies to
practice under Sections 34 and 35 of RA9298 and/or other relevant laws and/or treaties.

Relevant requirements for accreditation:

1. Code of Good Governance

2. Copy of internal quality review procedures being implemented to ensure compliance with
professional, ethical and technical standards.

3. Personnel must have a meaningful participation in their respective quality review process
and have undergone adequate and effective training on all the current accounting and
auditing standards, and other documents required in the practice of public accountancy.

4. Personnel must have good moral character and have not been found guilty by a competent
court and/or administrative body of any case involving moral turpitude and/or unethical
practices and that neither anyone of them is a defendant in any case of similar nature
pending before any competent court and/or administrative agencies.

5. Should the individual CPA, sole proprietor of the Firm, or partner or any of the staff
members is a defendant in a case of such nature, an attachment is required to be included
with the application for registration stating that the defendant has a valid and material
defense.

6. For first-time registrants, the individual CPA, sole proprietor of the firm, and all partners of
the partnership must have at least three (3) years of meaningful experience in any of the
areas of public practice, including taxation.

Fees and Billing

1. When entering into negotiations regarding professional services, a professional account in
public practice may quote whatever fee deemed to be appropriate. The fact that one
professional accountant in public practice may quote a fee lower than other is not in itself
unethical.

2. Fees charged for assurance engagements should be a fair reflection of the value of the work
involved and should take into account, among others:

a. The skill and knowledge required for the type of work involved;
b. The level of training and experience of the persons necessarily engaged on the work;
c. The time necessarily occupied by each person engaged on the work; and
d. The degree of responsibility and urgency that the work entails.

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 3. Methods of Billing Clients
a. Fixed fee or flat fee basis – Client and auditor agree on a lump-sum audit fee. The
charges out-of-pocket expenses are separate from the audit fee and are to be billed
separately.
b. Per diem or actual charge basis – the charges are based on the actual amount of time
spent. This would include all the members of the assurance team.
c. Maximum fee basis – a combination of the fixed fee and per diem bases. Under this
arrangement, the auditor bills in a manner similar to per diem, subject to maximum limit
as agreed between the client and the auditor.
d. Retainer fee basis – the client pays a uniform monthly charge, plus an additional fee
annually, payable upon submission of the audit report.

4. An assurance engagement should not be performed for a fee that is contingent on the result
of the assurance work or on items that are the subject matter of the assurance engagement.

Publicity, Solicitation, and Advertising

1. A professional accountant in public practice should not bring the profession into disrepute
when marketing professional services. The professional accountant in public practice should
be honest and truthful and should not:
a. Make exaggerated claims for services offered, qualifications possessed or experience
gained;
b. Make disparaging references to unsubstantiated comparisons to the work of another.

2. If the professional accountant in public practice is in doubt whether a proposed form of

advertising or marketing is appropriate, the professional accountant in public practice
should consult with the relevant professional body.

3. Publicity – the communication to the public of facts about a professional accountant which
are not designed for the deliberate promotion of that professional accountant.

4. Advertising – 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.

5. Solicitation – the approach to a potential client for the purpose of offering professional
services.

Death or Disability of an Individual CPA, and Dissolution or Liquidation

1. Must be reported to the BOA by any designated staff member of the individual CPA, or by
the sole practitioner of a firm (or his/her designated staff member if the proprietor is
unavailable), or by the managing partner (or any designated partner in case the managing
partner is unavailable) not later than 30 days from the date of such death, dissolution or
liquidation.

2. Report must be in the form of an affidavit or certified copy of dissolution or liquidation filed
with the SEC.

3. Failure to notify the BOA shall subject the designated individual to penalty.

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Fees and Penalties
1. Fee for initial registration, renewal, or request for reinstatement: P1,000 or to such amount
which the PRC may prescribe.

2. Penalties:
a. Suspension of CPA certificate, certificate of registration (to practice), and PRC ID. If
violators(s) are criminally liable, such party or parties responsible shall be proceeded
against criminally, independent of any action therein provided.
b. Subject to the approval of the PRC, the BOA may, for justifiable reasons, lift the
sanctions imposed on violators.

3. Examples of Violations
a. Engaging in public accounting practice without first registering with the BOA and the PRC
b. Continuing to engage in public accounting practice after the expiration of registration
c. Continuing to engage in public accounting practice after suspension, revocation or
withdrawal of registration
d. Giving any false information, data, statistics, reports or other statement which tend to
mislead, obstruct, or obscure the registration of an individual CPA, Firm or Partnership of
CPAs under the IRR.
e. Giving any misrepresentations to the effect that registration was secured when in truth
and in fact, it was not secured.
f. Failure of refusal to undergo quality review
g. Failure to comply with the requirements provided under Paragraph 1(c) of the IRR-
accomplishment of the application for registration, including submission of required
documents.

SEC Rulings on Financial Statement Presentation

SEC pronouncements affecting the audit of financial statements include the following:

1. Revised Securities Regulation Code (RSRC) Rule 68 (Please read Annex C) sets the
requirements applicable to the form and content of financial statements required to be filled
with the SEC by corporations meeting different thresholds as provided in the code.

2. SEC Memorandum Circular No. 2 (SEC Code of Corporate Governance) is applicable to

corporations whose securities are registered or listed, corporations which are grantees of
permits/licenses and secondary franchise from the SEC and public companies. (please read
Annex D)

THE CPA’S PROFESSIONAL RESPONSIBILITIES

Philippine standards on Auditing

The audit of financial statements involves the assumption of certain professional responsibilities
by the auditor. The opinion expressed by the auditor on the financial statements must be based on
evidences gathered during an examination conducted in accordance with professional standards

66
established by authorized standard-setting bodies. Non-compliance with these standards may
expose the auditor to unnecessary risks resulting to loss of public confidence, or at worse, legal
damages and criminal liabilities.

Standards are established to measure the quality of performance of individuals and

organizations (Salosagcol, 2014). Standards relating to the accounting profession concern
themselves with CPA’s professional qualities, the judgment exercised by CPAs in the performance of
their professional engagement, and the CPA firm’s quality control policies and procedures.

The AASC has been given the task to promulgate auditing standards, practices and procedures
which shall be general accepted by the accountancy profession in the Philippines. Figure 2.1 shows
the structure of these pronouncements (Adopted from Salosagcol)

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Figure 2.1 Structure of AASC Pronouncements

AASC Pronouncements

Framework for Assurance Engagements Related Services

Audit Review Other Assurance Agreed Upon Procedures Compilation

Engagements Engagement Engagements

Phil. Standards Phil. Standards Phil. Standards

Phil. Standards
on Auditing on Review on Assurance
on Related
PSAs 100-999 Engagements Engagements
Services
PSREs 2000-2699 PSAEs 3000-3699
PSRSs 4000-4699

Phil. Auditing Phil. Review Phil. Assurance Phil. Related

Practice Engagements Engagements Services Practice
Statements Practice Statements Practice Statements Statements
PAPSs 1000-1999 PREPs 2700-2999 PAEPs 3700-3999 PAEPs 4700-4999

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 To facilitate the preparation by the AASC of its pronouncements and to attain uniformity of
those pronouncements with international auditing standards, the AASC has approved the adoption
of the International Standards on Auditing (ISAs), International Standards on Assurance
Engagements (ISAE0, International Standards on Review Engagements (ISREs), and International
Standards on Related Services (ISREs) issued by the International Auditing and Assurance Board
(IAASB created by the International Federation of Accountants (IFAC).

Practice Statements are also issued to provide practical assistance to auditors in implementing
the standards and to promote good practice in the accountancy profession.

The AASC reviews standards and practice statements issued by the IASB to determine whether
these issuances have no conflict with existing laws or practices in the Philippines. Otherwise, the
international standards and practice statements are revised to suit the Philippine setting.

Code of Ethics for Professional accountants in the Philippines

According to the Code of Ethics for Professional Accountants issued by the International Ethics
Standard Board (IESB) of the IFAC, “A distinguishing mark of the accountancy profession is its
acceptance of responsibility to the public. Therefore, a professional accountant’s responsibility is not
exclusively to satisfy the needs of individual client or employer. In acting in the public interest, a
professional accountant shall observe and comply with the code of professional ethics.”

Public trust and confidence can be maintained through the professional accountants’ adherence
to standards of ethical conduct that embody and demonstrate integrity, objectivity, and concern for
the public.

The Code of Ethics for Professional Accountants in the Philippines is based on the IFAC Code of
Ethics for Professional Accountants, PICPA being a member of IFAC. The Code of Ethics issued in
2008 is divided into three parts. Part A establishes fundamental principles of professional ethics and
provides conceptual framework that professional accountants shall apply. Part B and C describe
how the conceptual framework applies in certain situations and provide examples of appropriate
safeguards that address threats to compliance with fundamental principles. Part B applies to
professional accountants in public practice while Part C applies to professional accountants in
business.

The parts of the Code are described as follows:

PART A – General Application

In acting in the public interest, professional accountants have to observe a number of

prerequisites or fundamental principles.

Fundamental Principles

1. Integrity. A professional accountant should be straightforward and hones in professional

and business relationship. Integrity implies not merely honesty but fair dealing and
truthfulness.

2. Objectivity. The principle of objectivity imposes the obligation of all professional

accountants to be fair, intellectually honest and free of conflicts of interests. A professional

69
 accountant should be fair and should not allow prejudice or bias, conflict of interest or
influence of others to override objectivity.

3. Professional competence and due care. A professional accountant should not undertake
any engagement or accept an employment which he or she cannot reasonably expect to
discharge with professional competence. A professional accountant should continually
strive to improve his knowledge and skill to ensure that a client or employer receives the
advantage of competent professional service based on up-to-date developments in practice,
legislation and techniques. He or she should always act diligently in accordance with
applicable professional standards.

Professional competence is divided into two phases:

a. Attainment of professional competence - through formal education, professional

examination and a period of experience

b. Maintenance of professional competence - by being aware of all the developments

affecting the profession and adopting a program to ensure quality in the performance of
professional services.

4. Confidentiality. A professional accountant should respect the confidentiality of information

acquired during the course of performing professional services and should not use or
disclose any such information without proper and specific authority or unless there is a legal
or professional right or duty to disclose.

Confidential information may, however be disclosed under the following circumstances:

a. Disclosure is permitted by the client or employer;
b. Required by law such as compliance with subpoena issued by a court in the course of
legal proceedings
c. When there is a professional duty or right to disclose confidential information

5. Professional behavior. A professional accountant should comply with relevant laws and
regulations and refrain from any conduct which might bring discredit to the profession.

Conceptual Framework Approach

As it is quite impossible to identify every situation that creates threats to the fundamental
principles, the Code establishes a conceptual framework approach that requires the professional
accountant to:

a. Identify threats to compliance with the fundamental principles

b. Evaluate the significance of threats identified
c. Apply safeguards, when necessary, to eliminate the threats or reduce them to an
acceptable level.

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Threats to Compliance with Fundamental Principles

Threats refer to circumstances that could compromise an accountant’s compliance with the
fundamental principles. Such threats fall into one or more of the following categories:

1. Self-interest threat – is the threat that a financial or other interest will inappropriately
influence the professional accountant’s judgment or behavior.

Examples:
a. A direct financial interest or material indirect financial interest in a client
b. A loan or guarantee to or from a client or any of its directors or officers
c. Undue dependence on total fees from a particular client
d. Concern about the possibility of losing the engagement
e. Having a close business relationship with a client
f. Potential employment with a client
g. Contingent fees relating to an engagement

2. Self-review threat – the threat that a professional accountant will not objectively evaluate
the results of the previous judgment made or service performed in forming a conclusion
about the subject matter of the engagement.

Examples:
a. A member of the engagement team being, or having recently been, a director or officer
of the client
b. A member of the engagement team being, or having recently been, an employee of the
client in a position to exert direct and significant influence over the subject matter of the
engagement
c. Performing services for a client that directly affect the subject matter of the engagement
d. Preparation of original data used to generate financial statements or preparation of
other records that are the subject matter of another engagement
e. Reporting on the operation of financial systems after being involved in their design or
implementation
f. The discovery of a significant error during re-evaluation of the work of the professional
accountant in public practice

3. Advocacy threat – the threat that a professional accountant will promote a client’s or
employer’s position to the point that the professional accountant’s objectivity is
compromised.

Examples:
a. Dealing in, or being a promoter of, share or other securities in a client; and
b. Acting as an advocate on behalf of client in litigation or in resolving disputes with third
parties.

4. Familiarity threat – occurs when, by virtue of a close relationship with a client, its directors,
officers or employees, a firm or a member of the engagement team becomes too
sympathetic to the client’s interests.

71
 Examples:
a. A member of the engagement team having an immediate family member who is a
director or officer of the client
b. A member of the engagement team having an immediate family member or close family
member who, as an employee of the assurance client, is in a position to exert direct and
significant influence over the subject matter of the engagement
c. A former partner of the firm being a director, officer of the client or an employee in a
position to exert direct and significant influence over the subject matter of the
engagement
d. Long association of a senior member of the engagement team with the client
e. Acceptance of gifts or preferential treatment, unless the value is clearly insignificant,
from a client, its directors, officers or employees.

5. Intimidation threat – the threat that the professional accountant will be deterred from
acting objectively because of actual or perceived pressures, including attempts to exercise
undue influence over the professional accountant.

Examples:
a. Being threatened with litigation
b. Being threatened with dismissal or replacement over a disagreement with the
application of an accounting principle
c. Being pressured to reduce inappropriately the extent of work performed in order to
reduce fees

Safeguards

A professional accountant shall evaluate any threats to compliance with the fundamental
principles. Both quantitative and qualitative factors must be considered in evaluating the
significance of a threat. Once a significant threat has been identified and evaluated, appropriate
safeguards should be considered and applied as necessary.

Safeguards are actions or other measure that may eliminate threats or reduce them to an
acceptable level. The nature of the safeguards to be applied will vary depending upon the
circumstances. Consideration should always be given to what a reasonable and informed third
party having knowledge of all relevant information including safeguards applied, would
reasonably conclude to be unacceptable. The consideration will be affected by matters such as
the significance of the threat, the nature of the engagement and the structure of the firm.

Safeguards fall into two broad categories:

1. Safeguards created by the profession, legislation or regulation include the following:

a. Educational, training and experience requirements for entry into the profession;
b. Continuing education requirements;
c. Corporate governance corporation;
d. Professional standards and monitoring and disciplinary processes; and
e. External review of a firm’s quality control system

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2. Safeguards in the work environment consist of firm-wide safeguards and engagement
specific safeguards.

a. Firm-wide safeguards in the work environment may include:

 Leadership of the firm that stresses the importance of compliance with the
fundamental principles.
 Leadership of the firm that establishes the expectation that member of an
assurance team will act in the public interest.
 Policies and procedures to implement and monitor quality control of
engagements.
 Documented policies regarding the identification of threats to compliance with
the fundamental; principles, the evaluation of significance of these threats and
the identification and the application of safeguards to eliminate or reduce the
threats, other than those that are clearly insignificant, to an acceptable level.
 For firms that perform assurance engagements, documented independence*
policies regarding the identification of threats to independence, the evaluation
of the significance of these threats and the evaluation and application of
safeguards to eliminate or reduce the threats, other than those that are clearly
insignificant, to an acceptable level.
 Documented internal policies and procedures requiring compliance with the
fundamental principles.
 Policies and procedures that will enable the identification of interests or
relationships between the firm or members of engagement teams and clients.
 Policies and procedures to monitor and, if necessary, manage the reliance on
revenue received from a single client.
 Using different partners and engagement teams with separate reporting lines
for the provision of non-assurance services to an assurance client.
 Policies and procedures to prohibit who are not members of an engagement
team from inappropriately influencing the outcome of the engagement.
 Timely communication of a firm’s policies and procedures, including any changes
to them, to all partners and professional staff, and appropriate training and
education on such policies and procedures.
 Designating a member of senior management to be responsible for overseeing
the adequate functioning of the firm’s quality control system.
 Advising partners and professional staff of those assurance clients and related
entities from which they must be independent.
 A disciplinary mechanism to promote compliance with policies and procedures.
 Published policies and procedures to encourage and empower staff
communicate to senior levels within the firm any issue relating to compliance
with the fundamental principles that concerns them.

b. Engagement specific safeguards may include:

 Involving an additional professional accountant to review the work done or
otherwise advise as necessary.
 Consulting an independent third party, such as a committee of independent
directors, a professional regulatory body of another professional accountant.
 Discussing ethical issues with those charged with governance of the client.
 Disclosing to those charged with governance of the client the nature of services
provided and extent of fees charged.

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  Involving another firm to perform or re-perform part of the engagement.
 Rotating senior assurance team personnel.

In addition to the above safeguards, professional accountants in public practice may also
be able to rely on safeguards that the client has implemented. Safeguards within the client’s
systems and procedures may include:

 When a client appoints a firm in public practice to perform an engagement, persons

other than management ratify or approve the appointment.
 The client has competent employees with experience and seniority to make
managerial decisions.
 The client has implemented internal procedures that ensure objective choices in
commissioning non-assurance engagements.
 The client has a corporate governance structure that provides appropriate oversight
and communications regarding the firm’s services.

Although these safeguards could also reduce the threat to compliance with fundamental
principles, it is not possible for professional accountant to rely solely on these safeguards to
reduce threats to an acceptable level.

In certain situations, no safeguards are available to eliminate or reduce the threat to an

acceptable level. Hence, the only possible actions would be to eliminate the activities or
interest creating the threat, or to refuse to accept or continue the engagement.

PART B- Professional Accountants in Public Practice

Professional Appointment

a. Client Acceptance

Before accepting a new client relationship, a professional accountant in public practice

should consider whether acceptance would create any threats to compliance with the
fundamental principles. Potential threats to integrity and professional behavior may be
created if the client is involved in illegal activities or if the client’s owners or management
lack integrity.

Appropriate safeguards nay include obtaining knowledge and understanding of the client, its
owners, managers and those responsible for its governance and business activities or
securing the client’s commitment to improve corporate governance practices or internal
controls.

b. Engagement Acceptance

A professional accountant in public practice should practice agree to provide only those
services that he is competent to perform. A self-interest threat to competence and due care
principle is created if the engagement team does not possess, or cannot acquire, the
competence necessary to properly carry out the engagement.

Appropriate safeguards may include:

 Acquiring an appropriate understanding of the nature of the client’s business, the
complexity of its operations, the specific requirements of the engagement and the
purpose, nature and scope of the work to be performed.

74
  Acquiring knowledge of relevant industries of subject matters.
 Possessing or obtaining experience with relevant regulatory or reporting requirements.
 Assigning sufficient staff with the necessary competencies.
 Using experts where necessary.
 Agreeing on a realistic time frame for the performance of the engagement.
 Complying with quality control policies and procedures designed to provide reasonable
assurance that specific engagements are accepted only when that can be performed
competently.

c. Changes in a Professional Appointment

A professional accountant in public practice who is asked to replace another professional

accountant in public practice, or who is considering tendering for an engagement currently
held by another professional accountant in public practice, should determine whether there
are any reasons, professional or other, for not accepting the engagement, such as
circumstances that threaten compliance with the fundamental principles. For example, there
may be a threat to professional competence and due care if a professional accountant in
public practice accepts the engagement before knowing all the pertinent facts.

Appropriate safeguards may include:

 Discussing the client’s affairs fully and freely with the existing accountant;
 Asking the existing accountant to provide known information on any facts or
circumstances, that, in the existing accountant’s opinion, the proposed accountant
should be aware of before deciding whether to accept the engagement;
 When replying to requests to submit tenders, stating in the render that, before
accepting the engagement, contract with the existing accountant will be requested so
that inquiries may be made as to whether there are any professional or other reasons
why the appointments should not be accepted.

A professional accountant in public practice will ordinarily need to obtain the client’s
permission, preferably in writing, to initiate discussion with an existing accountant. If the
proposed accountant is unable to communicate with the existing accountant, the proposed
accountant should try to obtain information about any parties or background investigations
on senior management or those charged with governance of the client.

Conflicts of Interest

A professional accountant in public practice should take reasonable steps to identify

circumstances that could pose a conflict of interest. For example, a threat to objectivity may be
created when a professional accountant in public practice competes directly with a client or has
joint venture or similar arrangement with a major competitor of a client. A threat to objectivity
or confidentiality may also be created when a professional accountant in public practice
performs services for clients whose interests are in conflict or the clients are in dispute with each
other in relation to the matter or transaction in question.

Depending upon the circumstances giving rise to the conflict, safeguards should ordinarily
include the professional accountant in public practice.

 Notifying the client of the firm’s business interest or activities that may represent a conflict
of interest, and obtaining their consent to act in such circumstances; or
 Notifying all known relevant parties that the professional accountant in public practice is
acting for two or more parties in respect of a matter where their respective interests are in
conflict, and obtaining their consent to so act; or

75
 Notifying the client that the professional accountant in public practice does not act
exclusively for any one client in the provision of proposed services (for example, in a
particular market sector or with respect to a specific service) and obtaining their consent to
so act.

Additional safeguards that should also be considered include:

 The sue of a separate engagement teams; and

 Procedures to prevent access to information (e.g., strict physical separation of such teams,
confidential and secure data filing); and
 Clear guidelines for members of the engagement team on issues of security and
confidentiality; and
 The use of confidentiality agreements signed by employees and partners of the firm; and
 Regular review of the application of safeguards by a senior individual not involved with
relevant client engagements.

Second Opinion

A professional accountant in public practice who is asked to provide a second opinion on the
application of accounting, auditing, reporting or other standards or principles to specific
circumstances or transactions by or on behalf of a company or an entity that is not an existing
client may give rise to threats to compliance with the fundamental principles. For example, there
are may be a threat to professional competence and due care in circumstances where the
second opinion is not based on the same set facts that were made available to the existing
accountant, or is based on inadequate evidence. The significance of the threat will depend on
the circumstances of the request and all the other available facts and assumptions relevant to
the expression of professional judgment.

Appropriate safeguards may include seeking client permission to contract the existing
accountant, describing the limitations surrounding any opinion in communications with the
client and providing the entity seeking the opinion will not permit communication with the
existing accountant, a professional accountant in public practice should consider whether, taking
all the circumstances into account, it is appropriate to provide the opinion sought.

Fees and Other Types of Remuneration

 Professional Fess

Professional fees should be a fair reflection of the value of the professional services
performed for the client, taking into account:

1. The skill and knowledge required for the type of professional services involved;
2. The level of training and experience of the persons necessarily engaged in performing
the professional services;
3. The time necessarily occupied by each person engaged in performing the professional
services; and
4. The degree of responsibility that performing those services entails.

The fact that one professional accountant in public practice may quote a fee lower than
another is not in itself unethical. Nevertheless, there may be a self-interest threat to
professional competence and due care created if the fee is low that it may be a difficult to

76
 perform the engagement in accordance with applicable technical and professional standards
for that price.

An appropriate safeguard which may be adopted includes:

 Making the client aware of the items of the engagement and, in particular, the basis on
which fees are charged and which services are covered by the quoted fee.
 Assigning appropriate time and qualified to the task.

 Continuing Fees

Continuing fees may give rise to a self-interest threat to objectivity. The significance of such
threats will depend on factors including:
 The nature of engagement.
 The range of possible fee amounts.
 The basis for determining the fee.
 Whether the outcome or result of the transaction is to be reviewed by an independent
third party.

Appropriate safeguards may include:

 An advance written agreement with the client as to basis of remuneration.
 Disclosure to intended users of the work performed by the professional accountant in
public practice and the basis of remuneration.
 Quality control policies and procedures.
 Review by an objective third party of the work performed by the professional
accountant in public practice.

 Referral Fee or Commission

In certain circumstances, a professional accountant in public practice may receive referral

fee or commission relating to a client. For example, where the professional accountant in
public practice does not provide the specific service required, a fee may be received for
referring a continuing client to another professional accountant in public practice or other
expert. A professional accountant in public practice may receive a commission from a third
party (e.g., a software vendor) in connection with the sale of goods or services to a client.
Accepting such a referral fee or commission may give rise to self-interest threat to
objectivity and professional competence and other care.

A professional accountant in public practice should not pay or receive a referral fee or
commission, unless the professional accountant in public practice has established
safeguards to eliminate the threats or reduce them to an acceptable level. Such safeguards
may include:
 Disclosing to the client arrangements to pay referral fee to another professional
accountant for the work referred.
 Disclosing to the client any arrangements to receive a referral fee for referring the client
to another professional accountant in public practice.
 Obtaining advance agreement from the client for commission arrangements in
connection with the sale by a third party of goods or services to the client.

A professional accountant in public practice may purchase all or part of another firm on the
basis that payments will be made to individuals formerly owning the firm or to their heirs or

77
 estates. Such payments are not regarded as commissions or referral fees for the purpose of
this book.

Marketing Professional Services

When a professional accountant in public practice solicits new work through advertising or
other forms of marketing, a self-interest threat to professional behavior is created if services,
achievements or products are marketed in a way that is inconsistent with that principle.

A professional accountant in public practice should not bring the profession into disrepute when
marketing professional services. The professional accountant in public practice should be honest
and truthful and should not:
 Make exaggerated claims for services offers, qualifications possessed or experience gained;
or
 Make disparaging references to unsubstantiated comparisons to the work of another.

Generally, any form of advertisements is allowed.

Gifts and Hospitability

A professional accountant in public practice, or an immediate or close family member, may be

offered gifts and undue hospitality from a client. Such an offer ordinarily gives rise to threats to
compliance with the fundamental principles. For example, self-interest threats to objectivity
may be created if a gift from a client is accepted intimidation threats to objectivity may result
from the possibility of such offers being made public.

Appropriate safeguards should be considered and applied as necessary to eliminate them or

reduce them to an acceptable level. When the threats cannot be eliminated or reduced to an
acceptable level through the application of safeguards, a professional accountant in public
practice should not accept such an offer.

Custody of Client Assets

A professional accountant in public practice should not assume custody of client monies or other
assets unless permitted to do so by law and, if so, in compliance with any additional legal duties
imposed on a professional accountant in public practice holding such assets.

The holding of client assets creates self-interest threat to professional behavior and may be a
self interest threat to objectivity. To safeguard against such threats, a professional accountant
in public practice entrusted with money (for other assets) belong to others should:

 Keep such assets separately from personal or firm assets;

 Use such assets only for the purpose for which they are intended;
 At all times, be ready to account for those assets, and any income, dividends or gains
generated to any persons entitled to such accounting; and
 Make appropriate inquiries of the source of such assets comply with all relevant laws and
regulations relevant to the holding of and accounting for such assets.

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Objectivity-All Services

A professional accountant in public practice should consider when providing any professional
service whether there are threats to compliance with the fundamental principle of objectivity
resulting from having interests in, or relationships with, a client or directions, officers or
employees. For example, a familiarity threat to objectivity may be created from a family or close
personal or business relationship.

A professional accountant in public practice who provides an assurance service is required to be

independent of the assurance client. 280.3. The existence of threats to objectivity when
providing any professional service will depend upon the particular circumstances of the
engagement and the nature of the work that the professional accountant in public practice is
performing.

A professional accountant in public practice should evaluate the significance of identified threats
and, if they are other than clearly insignificant, safeguards should be considered and applied as
necessary to eliminate them or reduce them to an acceptable level. Such safeguards may
include:

 Withdraw from the engagement team.

 Supervisory procedures
 Terminating the financial or business relationship giving rise to the threat.
 Discussing the issue with higher level of management within the firm.
 Discussing the issue with those charged with governance of the client.

Independence

Independence in auditing means taking an unbiased viewpoint in the performance of the

examination and in the preparation of the report. Independence is an essential element of the
CPA profession. If the assurance engagement is to enhance credibility of information, it is
important that users of this information perceive the professional accountant as being objective
and impartial. The CPAs reports on financial information will be of little or no value to the
financial statement readers is aware that the CPAs are not independent with respect to their
clients.

Section 290 of the Code of Ethics provides a framework for identifying evaluating and
responding to threats to independence including the appropriate safeguards capable of
eliminating the threats or reducing them to an acceptable level.

There are two phase’s independence; the independence of mind and the independence in
appearance. Independence of mind is the auditor’s perception of his own independence. A
state of mind that permits the expression of a consideration without being affected by
influences that compromise professional judgment, allowing an individual to act with integrity,
and exercise objectivity and professional skepticism. Independence in appearance, on the other
hand, refers to the public’s perception of the professional accountant’s so significant that a
reasonable and informed third person would reasonably conclude that the firm’s integrity,
objectivity and professional skepticism had been compromised.

The Code of Ethics does not only require the professional accountants to maintain independence
in mental attitude, but professional accountants should also avoid circumstances which would
cause the public to doubt their independence.

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 Engagement Period

The members of the assurance team and the firm should be independent of the assurance
client the period of the assurance engagement. The period of the engagement starts when
the assurance team begins to perform assurance services and ends when the assurance
report Is issued, except when the assurance engagement is expected to recur, the period of
the assurance engagement ends with the notification by either party assurance professional
relationship has terminated of the issuance of the final assurance report, whichever comes
later.

In the case of a financial statement audit engagement, the engagement period includes the
period covered by the financial statement period includes the period covered by the
financial statements reported on by the firm.

 Independence Requirement

Not all services provided to professional accountants would require independence.

Independence is required only whenever the auditor provides assurance services. For the
purpose of applying the principle of independence, assurance engagements are classified
into three namely; financial statement audit, non-audit (not restricted) and non- audit
(restricted).

 For financial statement audit engagements, the members of assurance team, the firm
and network firms are required to be independence of the audit client.
 For non-audit assurance engagements, where the distribution of the report is not
restricted, the independent of the assurance team and the firm must be independent of
the assurance client.
 For non-audit assurance engagements, where the distribution of the reports is restricted
to specified users, the members of the assurance team must be independent of the
assurance client. In addition, the firm should not have any material financial interest in
an assurance client.

The table below summarizes the independence requirements of different assurance

engagements.

Members of
Assurance team Firm Network Firm
Audit yes yes yes
Non-audit (not-restricted) yes yes no
Non-audit (restricted) Yes no no

Note: As an additional for non- audit (restricted) assurance engagements the firm should not
have any material financial interest (whether direct or indirect) in an assurance client.

 Independence Interpretations and Rulings

It is impossible to describe all situations that could impair the CPA’s independence. The
following independence interpretations and rulings, however, may serve as guidelines to
professional accountants.

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 Financial Interest

In evaluating the significance of threat created by a financial interest, it is important to

determine materiality of the financial interest and the type of financial interest.

When control exists, the financial interest should be considered direct. Otherwise,
when the individual has no control over the financial interest, it should be considered
indirect.

Any direct financial interest in an assurance client, whether material or immaterial,

impairs the CPA’s independence. Indirect financial interest must be material in order
to impair independence.

 Loans and Guarantees

A loan from, or a guarantee thereof by, an assurance client that is a financial

institution will not impair the CPA’s independence provided the loan is

 Immaterial to both the firm and assurance client; and

 Made under normal lending procedures, terms and requirements of the financial
institution

A loan from an assurance client that is not a financial institution or a guarantee of

assurance client’s borrowing will normally impair a CPA’s independence unless the
amount of the loan or guarantee is immaterial to the firm and to the assurance client.

 Close Business Relationships

Business relationships maybe between a firm or a member of the assurance team and
the assurance client or its management, or between the firm, a network form and a
financial statement audit client that involve a commercial or common financial
interest. These are considered as indirect financial interest and may create self-
interest and intimidation threats:

Examples:
• Having a material financial interest in a joint venture with the assurance client
• Arrangements to combine one or more services or products of the assurance
client
• Distribution or marketing arrangement under which the firm acts as a distributor
or marketer of the assurance client’s products or services, or the assurance client
acts as the distributor or marketer of the products or services of the firm

 Family and Personal Relationships

Independence is impaired when a member of an assurance team has an immediate
family member who is a director, an officer or an employee of an assurance client in a
position to influence the subject matter of the assurance engagement.

 Past Employment with an Assurance Client

Independence is impaired if, during the period covered by the assurance report, a
member of the assurance team has served as a director, an officer or an employee of

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 the of the assurance client in a position to influence her subject matter of the
assurance engagement.

 Serving as an Officer or Director on the Board of Assurance Clients

Independence is impaired if a partner or an employee of a firm or network firm serves
as an officer or a director on the board of an assurance client, except when he/she
serves as honorary member and does not participate in the management or
operations of the assurance client.

 Long Association with Assurance Clients

May create familiarity threat. May be reduced to an acceptable level by employing
adequate safeguards such as rotating the personnel and independent quality reviews.

 Provision of Accounting and Bookkeeping Services to Assurance Clients

A firm or network firm should not provide these services to public interest entity since
independence may be impaired, in fact and in appearance.

 Provision of Taxation Services to Assurance Clients

Will not impair the CPA’s independence.

 Provision of Legal Services to Assurance Clients

When the legal service rendered is advisory in nature (e.g. legal advice, contract
support, legal due diligence and restructuring), the CPA’s independence is not usually
impaired. If the CPA acts as an advocate in the resolution of a dispute or litigation
where the amount involved is material to the FS of the client, independence is
impaired.

 Recruiting Senior Management

When a firm recruits a senior management for an assurance client, independence is
normally impaired. If the service in the recruitment process is consultancy or advisory
in nature such as reviewing qualifications, then independence is not impaired.

 Fees Overdue
Independence is usually impaired if prior year/s’ professional fees from the client
remain unpaid at the time of issuance of the assurance report.

 Contingent Fees
A contingent fee charged by a firm for an assurance engagement will impair
independence. Fees are not to be regarded as contingent if these are a) fixed by a
court or other public authority, and b) determined based on the results of judicial or
government agency proceedings.

 Gifts and Hospitality

A professional accountant should neither accept nor offer gifts or entertainment
which might reasonably be believed to have a significant and improper influence on
their professional judgment or with those they deal with. A professional accountant’s
acceptance of more than a token gift from an assurance client impairs his or her
independence.

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  Actual or Threatened Litigation
Litigation involving the firm or a member of the assurance team and the assurance
client may create self-interest and intimidation threats.

Responsibilities on Fraud, Error, and Noncompliance

Management has the responsibility for the fair presentation of financial statements in
accordance with applicable financial reporting standards. The auditor’s responsibility is express and
opinion on these FS by designing the audit to provide reasonable assurance of detecting material
misstatements in the FS. These misstatements may be caused by 1) error, 2) fraud, and/or 3) non-
compliance with laws and regulations.

Error

This refers to unintentional misstatements in the FS, including the omission of an amount or a
disclosure, such as:

 Mathematical or clerical mistakes in the underlying records and accounting data

 An incorrect accounting estimate arising from oversight or misinterpretation of facts
 Mistake in the application of accounting policies

Fraud

Fraud refers to intentional act by one or more individuals among management, those charged
with governance, employees, or third parties, involving the use of deception to obtain an unjust
or illegal advantage. Although fraud is a broad legal concept, the auditor is primarily concerned
with fraudulent acts that cause a material misstatement in the FS.

Types of Fraud:

1. Fraudulent financial reporting – involves intentional misstatements or omissions of

amounts or disclosures in the FS to deceive users. This type of fraud is also known as
management fraud as it usually involves members of management or those charged with
governance. This may involve:
a. Manipulation, falsification or alteration of records and documents
b. Misrepresentation in or intentional omission of the effects of transactions from
records or documents
c. Recording of transactions without substance
d. Intentional misapplication of accounting policies

2. Misappropriation of assets or employee fraud – involves theft of an entity’s assets

committed by the entity’s employees. This type of fraud is often accompanied by false or
misleading records or documents in order to conceal the fact that the assets are missing.
May include:
a. Embezzling receipts
b. Stealing an entity’s assets such as cash, marketable securities, inventory, etc.
c. Lapping of accounts receivable

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Responsibility of Management and Those Changed with Governance for Fraud and Error

The responsibility for the prevention and detention of fraud and error rests with both
management and those charged with the governance of the entity. In this regard, PSA 240 requires.

 Management to establish a control environment and to implement internal control policies

and procedures designed to ensure, among others, detention and prevention of fraud and
error.

 Individuals charged with governance of an entity to ensure the integrity of an entity’s

accounting and financial reporting systems and that appropriate controls are in place.

Auditor Responsibility

Although the annual audit of financial statements may act as deterrent to fraud and error, the
auditor is not is not and cannot be held responsible for the prevention of fraud and error. The
auditor’s responsibility is to design the audit to obtain reasonable assurance that the financial
statements are free from material misstatements, whether caused by error or fraud.

The auditor’s responsibility is fulfilled by observing the following:

Planning Phase

1. When planning an audit, the auditor should make inquiries of management about the
possibility of misstatements due to fraud and error. Such inquiries may include
 Management’s assessment of risks due to fraud
 Controls established to address the risks
 Any material error or fraud that has affected the entity or suspected fraud that the
entity is investigating

The auditor’s inquiries of management may provide useful information concerning the risk
of material misstatement in the financial statements resulting from employee fraud.
However, such inquiries are unlikely to provide useful information regarding the risk of
material misstatement in the financial statements resulting from management fraud.
Accordingly, the auditor should also inquire of those individual in charge of governance to
seek their views on the adequacy of accounting and internal control system in place, the risk
of fraud and error, and the integrity of management.

2. The auditor should assess the risk that fraud or error may cause the financial statements to
contain material misstatements. In this regard, PSA 240 requires the auditor to specifically
“assess the risk of material misstatements due to fraud and consider that assessment in
designing the audit procedures to be performed”.

The fact that fraud is usually concealed can make it very difficult to detect. Nevertheless,
using the auditor’s knowledge of the business, the auditor may identify events or conditions
that provide an opportunity, a motive or a means to commit fraud, or indicate that fraud
may already have occurred. Such events or conditions are referred to as “fraud risk factors”.
Fraud risk factors do not necessarily indicate the existence of fraud, however, they have
occurred. Examples of fraud risk factors taken from PSA 240 are set out at the end of this
chapter.

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 Judgments about the increased risk of material misstatement due to fraud may influence the
auditor’s professional judgments in the following ways:
 The auditor may approach the audit with a heightened level of professional skepticism.
 The auditor’s ability to assess control risk at less than high level may be reduced and the
auditor should be sensitive to the ability of the management to override controls.
 The audit team may be selected in ways that ensure that the knowledge, skill, and ability
of personnel assigned significant responsibilities are commensurate with the auditor’s
assessment of risk.
 The auditor may decide to consider management selection and application of significant
accounting policies, particularly those related to income determination and asset
valuation.

Testing Phase

1. During the course of the audit, the audit may encounter circumstances that may indicate the
possibility of fraud or error. For example, there are discrepancies found in the accounting
records, conflicting or missing documents or lack of cooperation from management. In these
circumstances, the auditor should perform procedures necessary to determine whether
material misstatements exist.

2. After identifying material misstatement in the financial statements the auditor should
consider whether such a misstatement resulted from a fraud or an error: This is important
because errors will on ly result to an adjustment of financial statements but fraud may have
other implications on an audit.

3. If the auditor believes that the misstatement is, or may be the result of fraud, but the effect
on the financial statements is not material, the auditor should
 Refer the matter to the appropriate level of management at least one least one level
above those involve, and
 Be satisfied that, given the position of the likely perpetrator, the fraud has no other
implications for other aspects of the audit or that those implications have been
adequately considered.

However, if the auditor detects a material fraud or has been unable to evaluate whether
the effect on financial statement is material or immaterial, the auditor should
 Consider implication for other aspects of the audit particularly the reliability of
management representations.
 Discuss the matter and the approach further investigation with an appropriate level that
is at least one level above those involved.
 Attempt to obtain evidence to determine whether a material fraud in fact exists and, if
so, their effect, and
 Suggest that the client consult with legal counsel about questions of law.

Completion Phase

1. The audit should obtain a written representation from the client’s management that
 It acknowledges its responsibility for the implementation and operations of accounting
and internal control systems that are designed to prevent and detect fraud and error;
 It believes the effects of those uncorrected financial statement misstatements
aggregated by the by the auditor during the audit are immaterial, both individually and

85
 in the aggregate, to the financial statements taken as a whole. A summary of such items
should items should be included in or attached to the written representation.
 It has disclosed to the auditor all significant facts relating to any frauds or suspected
frauds known to management that may have affected the entity; and
 It has disclosed to the auditor the results of its assessment of the risk that the financial
statements may be materially misstated as a result of fraud.

Consider the Effect on the Auditor’s Report

1. When the auditor believes that the material error or fraud exists, be should request the
management to revise the financial statements. Otherwise, the auditor will express a
qualified or adverse opinion.

2. If the auditor is unable to evaluate the effect of fraud on the financial statements because of
a limitation on the scope of the auditor’s examination, the auditor should either qualify or
disclaim his opinion on the financial statements.

Because of the inherent limitation of an audit there is an unavoidable risk that material
misstatements in the financial statements resulting from fraud and error may not be detected.
Therefore, the subsequent discovery of material misstatement in the financial statements
resulting from fraud or error does not, in and of itself, indicate that the auditor has failed to
adhere to the basic principles and essential procedures of an audit.

The risk of not detecting a material misstatement resulting from fraud is higher than the risk
of not detecting of misstatement resulting from error. This is due to the fact that fraud may
involved sophisticated and carefully organizes schemes designed to conceal it, such as forgery,
deliberate failure to record transactions, or intentional misrepresentation being made to the
auditor. Hence, audit procedures that are effective material fraud, especially those concealed
through collusion.

Furthermore, the risk of the auditor not detecting a material misstatement resulting from
the management fraud is greater than for employee fraud, because those charged with
governance and management are often in a position that assumes their integrity and enables
them to override the formally established control procedures. Certain level of management may
be in position to override control procedures designed to prevent similar frauds by other
employees, for example, by directing subordinates to record transactions incorrectly or to
conceal them. Given its position of authority within an entity, management has the ability to
either direct employee to do something or solicit their help to assist management in carrying out
a fraud, with or without the employees’ knowledge.

Noncompliance with Laws and Regulations

Noncompliance refers to acts of omission or commission by the entity being audited, either
intentional or unintentional, which are contrary to the prevailing laws or regulations. Such acts
include transactions entered into by, or in the name of, the entity or on its behalf by its
managements or employees. Common examples include:
 Tax evasion
 Violation of environmental protection laws
 Inside trading of securities

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Management’s Responsibility

It is management’s responsibility to ensure that the entity’s operations are conducted in

accordance with laws and regulations. The responsibility for the prevention and detection of
noncompliance rests with management. (PSA 250)

The following policies and procedures, among others, may assist management in discharging
its responsibilities for the prevention and detention of non-compliance:
 Monitoring legal requirements and ensuring that operating procedures are designed
to meet these requirements.
 Instituting and operating appropriate systems of internal control.
 Developing, publicizing and following a Code of Conduct
 Ensuring of employees are properly trained and understand the Code of Conduct
 Monitoring compliance with the Code of Conduct and acting appropriately to
discipline employees who fail to comply with it.
 Engaging legal advisors to assist in monitoring legal requirements.
 Maintaining a register of significant law with which the entity has to comply within
its particular industry and a record of complaints.

In larger entities, these policies and procedures may be supplemented by signing

appropriate responsibilities to an internal audit function an audit committee.

Planning Phase

1. In order to plan the audit, the auditor should obtain a general understanding of the
legal and regulatory framework applicable to the entity and the industry and how the
entity is complying with the framework.

To obtain the general understanding of laws and regulations, the auditor would
ordinarily:
 Use the existing knowledge of the entity’s industry and business.
 Inquire of management concerning the entity’s policies and procedures regarding
compliance with laws and regulations.
 Inquire of management as to the laws or regulation that may be expected to have a
fundamental effect on the operations of the entity.
 Discuss with management the policies or procedures adopted for identifying,
evaluating and accounting for litigation claims and assessments.
 Discuss the legal and regulatory framework with auditors of subsidiaries in other
countries (for example, if the subsidiary is required to adhere to the securities
regulations of the parent company).

2. After the general understanding, the auditor should design procedures to help identify
instances of noncompliance with those laws and regulations where noncompliance
should be considered when preparing financial statements, such as:
 Inquiring of management as to the entity is in compliance with such laws and
regulations.
 Inspecting correspondence with the relevant licensing or regulatory authorities.

3. The auditor should also design audit procedures to obtain sufficient appropriate audit
evidence about compliance with those laws and regulations generally recognized by the

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 auditor to have an effect on the determination of material amount and disclosures in
financial statements.

Testing Phase

1. When the auditor become aware of information concerning a possible instance of

noncompliance, the auditor should obtain an understanding of the nature of the act and
the circumstances in which it has occurred, and sufficient other information to evaluate
the possible effect on the financial statements. When evaluating the possible effect on
the financial statements, the auditor considers:
 The potential financial consequences, such as fines penalties damages, threat of
expropriation of assets, enforced discontinuation of operations and litigation
 Whether the potential financial consequences require disclosure.
 Whether the financial consequences are so serious as to call into question the fair
presentation given by the financial statements.

2. When the auditor believes there may be noncompliance, the auditor should document
the findings, discuss them with management, and consider the implication on other
aspects of the audit.

Completion Phase

1. The auditor should obtain written representations that management has disclosed to
the auditor all known actual or possible noncompliance with laws and regulations that
could materially affect the financial statements

Consider the Effect on the Auditor’s Report

1. When the auditor believes that there is noncompliance with laws and regulations that
materially affects the financial statements, be should request the management to revise the
financial statement. Otherwise, a qualified or adverse opinion will be issued.

2. If a scope limitation has precluded the auditor from obtaining sufficient appropriate
evidence to evaluate the effect of noncompliance with laws and regulations, the auditor
should express a qualified opinion or a disclaimer of opinion.

An audit is subject to the unavoidable risk that some material misstatements in the financial
statements will not be detected, even though the audit is properly planned and performed
in accordance with PSAs. This risk is higher with regard to material misstatements resulting
from noncompliance with laws and regulations because:

 There are many laws and regulations relating principally to the operating aspects of
the entity that typically do not have a direct and material effect in the financial
statements. Hence, auditors do not normally design audit procedures to detect
noncompliance that will not directly affect the fair presentation of the financial
statements unless the results of other procedures that were applied cause the
auditor to suspect that a material indirect effect noncompliance may have occurred.
 Noncompliance may involve conduct designed to conceal it, such as collusion,
forgery, deliberate, failure to record transactions, senior management override of
controls or intentional misrepresentations being made to the auditor.

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Examples of Risk Factors Relating to Misstatements Resulting from Fraud

The fraud risk factors identified below are examples of such factors typically faced by
auditors in a broad range of situations. However, the fraud risk factors listed below are only
examples; not all of these factors are likely to be present in all audits, nor is the list necessarily
complete. Furthermore, the auditor exercises professional judgment when considering fraud risk
factors individually or in combination and whether there are specific controls that mitigate the risk.

Fraud Risk Factors Relating to Misstatements Resulting from Fraudulent Financial

Reporting

Fraud risk factors that relate to misstatements resulting from fraudulent financial reporting
may be grouped in the following three categories;

1. Management’s Characteristics and Influence over the Control Environment

2. Industry Conditions.

3. Operating Characteristics and Financial Stability.

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REFERENCES:

Cabarles L., Ocampo R., and Valez R. A Risk-Based Approach Part I – Theory (2019), Dom Dane
Publishers and Made Easy Books

Cabrera, E.B. & Cabrera, G.B., Principles of Auditing & Assurance Services, (2020), Manila: GIC
Enterprises & Co., Inc.

Salosagcol, J. G., Tiu, M. F., Hermosilla, R. E., Auditing Theory, A Guide in Understanding PSA (2017),
Manila: GIC Enterprises & Co., Inc.

Code of Ethics for Professional Accountants in the Philippines

The Accountancy Act

PSAs

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 REVIEW QUESTIONS

A . MULTIPLE CHOICE – PROFESSIONAL PRACTICE OF ACCOUNTNG

Write the letter corresponding to the correct answer on the space before the item number.

1. A profession is distinguished by certain characteristics including

I. Mastery of a particular intellectual skill, acquired by training and education
II. Adherence by its members to a common code of values and conduct established by its
administrating body, including maintaining an outlook which is essentially subjective.
III. Acceptance of a duty to society as a whole (usually in return for restrictions in use of a title
or in the granting of a qualification)
a. I, II and III c. I and III only
b. I and II only d. II and III only

4. This document contains the norms and Principles governing the practice of the accountancy
profession of highest standards of ethical conduct:
a. Code of Ethics for CPAs in the Philippines c. IRR to RA 9298
b. Republic Act No. 9298 d. PSA 220 on Quality Control

5. Indicate whether the following functions would be performed by: P Partner; M – Manager; S –
Senior Associate; or A – Associate
i. Signs the audit report. ________
ii. Assumes overall responsibility for the audit ________
iii. Performs detailed audit procedures. ________
iv. Prepares the audit program and performs more complex audit procedures. ________
v. Tasked with liaison work between partners and other team members. ________

6. Several organizations affect the practice of the public accountancy. Identify the organization
being described by each of the following statements:
_______ This is the government agency that regulates the registration and operations
of corporations, partnerships, and other forms of associations in the
Philippines.
_______ This organization aims to raise revenues for the government through the
effective and efficient collection of taxes, provide quality service to
taxpayers , and enforce tax laws in an impartial and uniform manner.
_______ This organization administers, implements and enforces the regulatory
polices of the Philippine Government with respect to the regulation and
licensing of the various profession under its jurisdiction, one of which is
accountancy.
_______ Its mandate is to regulate and supervise the insurance industry for the
promotion of the national interest.
_______ The primary objective of this agency is to maintain price stability conducive
to a balanced and sustainable growth.
_______ This agency is empowered to administer the Philippine Accountancy Act of
2004.

7. The following are the duties of the Commission on Audit, except

a. Define the scope of its audit and examination

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 b. Promulgate accounting rules and regulations
c. Keep the general accounts of the government
d. Assume fiscal responsibility for the Government and its instrumentalities

8. Who appoints the members of the COA?

a. The Commissioner of the PRC
b. The Chairman of the PRC BOA
c. The President, with the concurrence of the Commission on Appointments
d. The Chairman of the AASC

9. Which of the following is a correct qualification of the Chairman and Two Commissioners of the
COA?
a. A naturalized citizen of the Philippines
b. At least 40 years of age upon appointment
c. CPAs with no less than 5 years of auditing experience or members of the Philippine bar who
have been engaged in law practice for at least 5 years
d. Must not have been candidates for any elective position preceding appointment

10. In the international arena, this body oversees the IFAC’s standard-setting activities in the areas
of auditing and assurance, ethics and education
a. Monitoring Group (MG)
b. Public Interest Oversight Board
c. IFAC /Regulatory Liaison Group
d. International Auditing and Assurance Standards Board

11. The core competence of CPAs include

a. Assurance and information integrity c. Strategic and critical thinking skills
b. Objectivity d. Pursuit of life-long learning and
excellence

12. This government agency is responsible for the registration of corporations and partnerships, as
well as monitoring of compliance with the Corporation Code, Civil Code provisions on
partnerships, Foreign Investments Act, and other related laws.
a. Bangko /Sentral ng Pilipinas (BSP)
b. Securities and Exchange Commission (SEC)
c. Bureau of Internal Revenue (BIR)
d. Philippine Stock Exchange (PSE)

13. The following laws govern the registration of corporations and partnerships with the SEC,
except:
a. Civil Code c. Family Code
b. Corporation Code of the Philippines d. Securities Regulation Code

14. Which of the following entities need not be registered with the SEC?
a. Sole proprietorships c. Stock corporations
b. General and limited partnerships d. Non-stock corporations

15. The SEC is composed of a chairperson and four (4) commissioners appointed by the president of
the Philippines for a term of
a. 3 years c. 7 years
b. 6 years d. 8 years

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16. The following statements relate to the qualifications of the SEC commissioners. Which is
incorrect?
a. The commissioners must be natural-born citizens of the Philippines
b. The commissioners must be of good moral character, of unquestionable integrity, of
known probity and patriotism, and with recognized competence in social and economic
disciplines
c. The majority of the commissioners, including the chairperson, shall be members of the
Philippine Bar
d. The chairperson and the commissioners must be at least thirty-five (35) years of age

17. Rule 68 of the Securities Regulation Code (SRC) prescribes the requirements applicable to the
form and content of financial statements to be filed by all corporations except those whose paid
up capital is less than
a. P500,000 c. P250,000
b. P50,000 d. P400,000

18. The audited financial statements to be filed with the SEC shall be accompanied by a
a. Management Report
b. Registration Statement
c. Statement of Management’s Responsibility for Financial Statements
d. Statement of the Board of Directors’ Responsibility for Financial Statements

19. All audited financial statements which are required to be filed with the SEC shall, at the time of
first filing, be accompanied by, in addition to the auditor’s report
a. Statement of Auditor’s Independence
b. Management Representation Letter
c. Certificate of Accreditation
d. Statement of Representation

20. The Statement of Management’s Responsibility to accompany the financial statements to be

filed with the SEC shall be signed by the
I. Chairman of the Board of Directors
II. Chief Executive Officer
III. Chief Financial Officer

a. II and III only c. I and II only

b. I only d. I, II and III only

21. Companies covered by Section 17 of the Securities Regulation Code (SRC) are required to file an
annual report (on SEC Form 17-A) within ___ calendar days after the end of the fiscal year
covered by the report.
a. 135 c. 90
b. 105 d. 60

22. The primary objective of this government agency is to maintain price stability conducive to a
balanced and sustainable economic growth. It also aims to promote and preserve monetary
stability and the convertibility of the peso
a. Bureau of Internal Revenue (BIR)
b. Securities and Exchange Commission (SEC)
c. Philippine Deposit and Insurance Corporation (PDIC)
d. Bangko Sentral ng Pilipinas (BSP)

93
23. Which of the following is not a function of the BSP?
a. Recommend measures to improve the efficiency and effectiveness of government
operations
b. Supervise banks and exercise regulatory powers over non-bank institutions performing
quasi-bank functions
c. Determine the exchange rate policy of the Philippines
d. Extend discounts, loans, and receivables to banking institutions for liquidity purposes

24. The powers and functions of the BSP shall be exercised by the
a. Board of Directors c. Board of Trustees
b. Monetary Board d. BSP Governor

25. Which of the following are the qualifications of the internal auditor of a universal or commercial
bank?
I. He/she must be a CPA
II. He/she must have at least five (5) years experience in the regular audit (internal or
external) of a universal or commercial bank as auditor-in-charge, senior auditor, or audit
manager
a. I only c. Neither I nor II
b. II only d. Both I and II

26. In its Circular No 245, Series of 2000, the BSP requires that only external auditors accredited by
the BSP shall be engaged by banks for regular audit or special engagements. Which of the
following is not an accreditation requirement for external auditors?
a. No external auditor may be engaged by a bank if he/she had or was committed to acquire
any direct or material indirect financial interest in the bank, or if his/her independence is
considered impaired under the circumstances specified in the Code of Professional Ethics
for CPAs
b. The external auditor and the members of the audit teams do not have/shall not have
outstanding loans or any credit accommodations (including credit card obligations) with
any bank to be audited/being audited at the time of signing the engagement and during
the engagement
c. The external auditor should have at least five (5) years track record in conducting external
audit.
d. The external auditor and members of the audit team adhere to the highest standards of
professional conduct, including integrity and objectivity

27. The Commission on Audit (COA) is composed of

a. A Chairman and two (2) commissioners
b. A chairman and three (3) commissioners
c. A chairman and four (4) commissioners
d. A chairman and five (5) commissioners

28. Which of the following is not one of the principal duties of the COA?
a. Keep the general accounts of the government and preserve the vouchers and supporting
papers pertaining thereto
b. Maintain price stability conducive to a balanced and sustainable economic growth
c. Promulgate accounting and auditing rules and regulations including those for the
prevention and disallowance of irregular, unnecessary, excessive, extravagant or
unconscionable expenditures, or uses of government funds and properties

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 d. Submit to the president of the Philippines and congress, within the time fixed by law, an
annual report covering the financial condition and operation of the government

29. The COA conducts a comprehensive audit that includes

a. Financial and compliance audits
b. Compliance and performance audits
c. Financial and financial-related audits
d. Financial, compliance and performance audits

30. An Annual Audit Report (AAR) should be prepared for each government agency. Which of the
following components of the AAR includes digest of significant findings with the corresponding
recommendations resulting from the audit?
a. Transmittal letter
b. Audit Certificate
c. Audited Financial Statements
d. Comments and observations

31. The firm should establish a system of quality control designed to provide it with reasonable
assurance regarding:
a. Compliance with professional standards
b. Compliance with regulatory requirements
c. Appropriateness of reports issued by the firm or engagement partners
d. All of these

32. Rule 68 of the Securities Regulation Code (SRC) prescribes the requirements applicable to the
form and content of financial statements to be filed by all corporations except those whose
paid-up capital is less than
a. P500,000 b. P50,000 c. P250,000 d. P400,000

33. In addition to the requirements prescribed under Rule 68 of the SRC, Rule 68.1 of the same code
prescribes special requirements on the financial statements required to be filed with the SEC by
I. An issuer which has sold a class of its securities pursuant to a registration under Section 12
of the SRC
II. An issuer with a class of securities listed for trading on an Exchange
III. An issuer with assets of at least P50 M and has 200 or more traders, each holding at least
100 shares of a class of its equity securities as of the first day of the issuer’s fiscal year

a. I only b. II only c. II and III only d. I, II and III

34. In case of initial public offering (IPO) of securities by a company, the interim financial statements
to accompany the Registration Statement (SEC Form12-1 as amended) shall be audited by an
external auditor accredited by
a. BOA b. PRC c. BOA/PRC d. BOA/PRC and
SEC

35. Which of the following entities need not be registered with the SEC?
a. Sole Proprietorships
b. General and limited partnerships
c. Stock corporations
d. Non-stock corporations

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36. The following securities are exempted from the registration requirement under Subsection 8.1
of the Securities Regulation Code (SRC), except
a. A bank’s own shares of stock
b. Any security issued or guaranteed by the Government of the Philippines
c. Any security issued by the Government of any country with which the Philippines maintains
diplomatic relations on the basis of reciprocity
d. Land Use Regulatory Board, or the Bureau of Internal Revenue

37. Which of the following cases that may be discovered by a Bangko ng Pilipinas accredited
external auditor during his/her audit fieldwork must be reported to the BSP?

I. Any material finding discovered during the period of audit involving fraud or dishonesty
(except cases that were resolved during the audit period).
II. Adjustments or potential losses, the aggregate of which amounts to at least 1% of the
capital funds of the bank
III. Any finding to the effect that the total bank assets, on a going concern basis, are no longer
adequate to cover the total claims of creditors

a. I only b. II and III only c. I and II only d. I, II and III

38. The following are among the powers and functions of the Board of Accountancy, except:
a. To prescribe and adopt the rules and regulations necessary for implementing RA9298.
b. To prescribed and/or adopt a Code of Ethics for the practice of Accountancy.
c. To ensure, in coordination with the DECS that all higher educational instruction and offering
of accountancy comply with prescribed policies, standards and requirements of the course.
d. To conduct an oversight into the quality of audits of financial statements.

39. Who is the person that has the authority to suspend or remove a member of the BOA, on valid
grounds and after due process?
a. The President of the Republic of the Philippines
b. The Chairman of the Professional Regulatory Board of Accountancy, unless he is the one
who is under investigation.
c. The Commissioner of the Professional Regulation Commission
d. None of them.

40. The firm should establish a system of quality control designed to provide it with reasonable
assurance regarding:
e. Compliance with professional standards
f. Compliance with regulatory requirements
g. Appropriateness of reports issued by the firm or engagement partners
h. All of these

B. MULTIPLE CHOICE – Accountancy Act

Write the letter corresponding to the correct answer on the space before the item number.

2. Which of the following is not an objective of the Philippine Accountancy Act of 2004?
a. The standardization and regulation of accounting education
b. The examination for registration of certified public accountants
c. The supervision, control and regulation of the practice of accountancy in the Philippines

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 d. The development and improvement of accounting standards that will be generally accepted
in the Philippines

3. Section 4 of the Rules and Regulation Implementing RA 9298 (IRR) provides that any position in
any business or company in the private sector which requires supervising the recording of
financial transactions, preparation of financial statements, coordinating with the external
auditors for the audit of such FS, and other related functions should be occupied by a duly
registered CPA. It provides further that
a. The business or company where such position exists has a paid-up capital of at least
P5,000,000 and/or annual revenue of at least P10,000,000
b. The business or company where such position exists has a paid-up capital of at least
P10,000,000 and/or annual revenue of at least P5,000,000
c. The section applies to all incumbents to the position
d. The section applies only to persons to be employed after the effectivity of the Code of Ethics

4. The members of the Professional Regulatory Board of Accountancy shall be appointed by

a. PICPA
b. PRC
c. President of the Philippines
d. Association of CPAs in Public Practice (ACPAP)

5. The following statements relate to the submission of nominations to the Board of Accountancy.
Which is correct?
a. The Accredited National Professional Organization of CPAs (APO) shall submit its
nominations to the president of the Philippines not later than sixty (60) days prior to the
expiry of the term of an incumbent chairman or member
b. The APO shall submit its nominations to the PRC not later than thirty (30) days prior to the
expiry of the term of an incumbent chairman or members
c. If the APO fails to submit its own nominee(s) to the PRC within the required period, the PRC
in consultation with the BOA shall submit to the president of the Philippines a list of five
nominees for each position
d. There should be adequate documentation to show the qualifications and primary field of
professional activity of the nominee

6. The following statements relate to the term of office of the chairman and members of the Board
of Accountancy (BOA). Which is false?
a. The members and chairman of the BOA shall hold office for a term of three years
b. Any vacancy occurring within the term of a member shall be filled up for the unexpired
portion of the term only
c. No person who has served two successive complete terms as Chairman or member shall be
eligible for reappointment until the lapse of two (2) years.
d. Appointment to fill up an unexpired term is not to be considered as a complete term

7. The BOA has the power to conduct oversight into the quality of audits of financial statements
through a review of the quality control measures instituted by auditors in order to ensure
compliance with the accounting and auditing standards and practices. This power of the BOA is
called
a. Quality assurance review c. Appraisal
b. Peer review d. Quality Control

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8. The following documents shall be submitted by applicants for the CPA licensure examination,
except
a. Certificate of live birth in NSO security paper
b. Marriage contract in NSO security paper for married male applicants
c. NBI clearance
d. Transcript of records with indication therein of date of graduation and Special Order number
unless it is not required

9. This refers to those persons who hold a valid certificate issued by the Board of Accountancy (i.e.,
Certified Public Accountant), whether they be in public practice (including a sole proprietorship
or partnership), industry, commerce, the public sector or education
a. Professional accountant c. Senior accounting practitioner
b. Professional accountant in public practice d. Audit associate

10. This term refers to the area of practice of accountancy namely public accountancy, commerce
and industry, academe/education, and government
11. Line b. Section c. Sector d. Segment

10. Which of the following is not a ground for suspension or removal of members of BOA?
a. Negligence in the performance of duties, or lack of professional competence
b. Intolerance of violations of the Philippine Accountancy Act
c. Final judgment of crimes involving moral turpitude
d. Rigging of the CPA licensure examination results

11. Regulation of the accounting profession include:

a. Public Regulation as provided for in the Philippine Accountancy Act of 2004.
b. Regulation within the profession, through the implementation of the Code of Ethics.
c. Regulation within the firm, through the implementation of a system of quality control.
d. All of the answers.

12. The Philippine Accountancy Act of 2004 – shall provide for and govern:
a. The standardization and regulation of accounting education.
b. The examination for regulation of accounting education.
c. The supervision, control, and regulation of the practice of accountancy in the Philippines.
d. All of the answers.

13. Which organization has the primary duty of effectively enforcing the provisions of RA 9298?
a. BOA and DOJ b. PRC and DOJ c. BOA and PRC d. DOLE

14. This document contains the norms and Principles governing the practice of the accountancy
profession of highest standards of ethical conduct:
c. Code of Ethics for CPAs in the Philippines c. IRR to RA 9298
d. Republic Act No. 9298 d. PSA 220 on Quality Control

15. A person is deemed to be in practice of the accounting profession in commerce and industry
when he/she:
a. Holds, or is appointed to a position in an accounting professional group in government or in
a government-owned and/or controlled corporation, where decision-making requires
professional knowledge in the science of accounting.

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 b. Is involved in decision-making requiring professional knowledge in the science of accounting,
as well as the accounting aspects of finance and taxation, or is employed in a position that
requires a CPA.
c. Is in an educational institution which involves teaching of accounting, auditing, management
advisory services, accounting aspect of finance, business law, taxation, and other technically-
related subjects.
d. Holds out himself/herself as one skilled in the knowledge, science and practice of
accounting, and as someone qualified to render professional services as a CPA.

16. The practice of accountancy includes the following except:

a. Being appointed as the marking manager of a business enterprise.
b. Serving as audit examiner for the Commission on Audit.
c. Working as the Dean of a College that grants a degree of BS accountancy.
d. Provision of assurance services to more than one client and on a fee basis.

17. Sectoral organizations have been established to promote the interests of groups of professional
accountants. Which of the following is the sectoral organization for CPAs in public practice?
a. GACPA b. ACPAPP c. ACPACI d. ACPAE

18. CPAs may practice under the following forms of organization, except
a. Sole proprietorships c. Corporations
b. Partnerships d. No exception

19. A(an) ______________ shall do business under their respective duly registered and authorized
firm name appearing in the registration documents issued by the Department of Trade and
Industry or any other proper government office
a. Individual CPA c. Partnership of CPAs
b. Firm d. Corporation of CPAs

20. Below are names of three CPA firms and pertinent facts relative to each firm. Unless otherwise
indicated, the individuals named are CPAs and partners, and there are no other partners. Which
of these indicates a violation of the IRR of RA 9298?
a. A, B and C, CPAs (A died seven years ago; B and C are continuing the firm)
b. G and H, CPAs (G died 3 years ago, and H is continuing the firm as a sole proprietor)
c. D and E, CPAs (the name of F, a third active partner is omitted from the firm name)
d. K and L, CPAs (K died 3 years ago, L was admitted into the partnership two months after K’s
death. There are seven other active partners, all of whom have their names omitted from
the firm name)

21. George and Gelai, CPAs, organized a partnership for the practice of public accounting. Which of
the following is the best name for the firm?
a. George and Gelai, CPAs
b. George and Gelai, Consoldiated CPAs
c. George and Gelai, PFRS experts and Auditors
d. George and Gelai, Assurance Providers and Tax Consultants

22. The amount of audit fees depend largely on the

a. Size and capitalization of the company under audit
b. Amount of profit for the year
c. Availability of cash
d. Volume of audit work and degree of competence and responsibilities involved

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23. The following statements relate to fees and commissions. Which statement is incorrect?
a. It is improper for a CPA in public practice to charge a client a lower fee than has previously
been charged for similar services
b. Contingent fees are fees calculated on a pre-determined basis relating to the outcome or
result of a transaction or the result of the work performed
c. Fees are regarded as not being contingent if a court or other public authority has established
them
d. Payment and receipt of referral fees between CPAs in public practice when no services are
performed by the referring CPA are not allowed in the Philippines

24. Which of the following statements is correct?

a. The chairman and members of the Board of Accountancy shall receive compensation and
allowances comparable to that being received by the Chairman and the members of existing
regulatory boards under the PRC as provided for in the General Appropriations Act
b. No person shall serve in the Board for more than nine years
c. The BOA Chairman has the sole power to administer oaths in connection with the
administration of the Accountancy Law
d. The Board shall be under the administrative supervision of the PICPA

25. Which of the following statements concerning the practice of accountancy in the
academe/education is incorrect?
a. Members of the Integrated Bar of the Philippines are not allowed to teach business law and
taxation subjects
b. The position of either the dean or the department chairman or its equivalent that supervises
the Bachelor of Science in Accountancy program of an educational institution is deemed to
be in practice of accountancy in the academe/education
c. CPAs are not allowed to teach business law subjects
d. The position of either the dean or the department chairman or its equivalent that supervises
the Bachelor of Science in Accountancy program of an educational institution must be
occupied only by a duly registered CPA

26. The Financial Reporting Standards Council shall be composed of

a. 14 members c. 8 members
b. 17 members d. not given

27. The Auditing and Assurance Standards Council (AASC) shall be composed of
a. 14 members c. 15 members
b. 17 members d. Not given

28. Which of the following is not represented in the AASC?

a. Board of Accountancy c. Bureau of Internal REvenue
b. Bangko Sentral ng Pilipinas d. Commission on Audit

29. The following documents shall be submitted by applicants for the CPA licensure examination,
except
a. Certificate of live birth in National Statistics Office (NSO) security paper
b. Baptismal certificate
c. Marriage contract in NSO security paper for married female applicants
d. Transcript of records with indication therein of date of graduation and Special Order number
unless it is not required

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30. To pass the CPA licensure examination, a candidate must obtain a
a. General average of sixty-five percent (65%), with no grade lower than 75% in any given
subject
b. General average of 75%, with no grade lower than 65% in any given subject
c. General average of 75%
d. General average of 65%

31. Which of the following statements is correct?

a. Any candidate who fails in 2 complete CPA board examinations will no longer be allowed to
take another set of examinations
b. Any candidate who fails in 2 complete CPA board examinations shall be disqualified from
taking another set of examinations unless he/she submits evidence to the satisfaction of the
Board that he/she enrolled in and completed at least 24 units of subjects given in the
licensure examination
c. The examination in which the candidate was conditioned and the removal examination on
the subject in which he/she failed shall be counted as 2 complete examinations
d. The refresher course should be completed within 2 years from the preceding examination

32. Which of the following statements concerning ownership of working papers is incorrect?
a. All working papers made by a CPA and his/her staff in the course of an examination remain
the property of such CPA in the absence of a written agreement between the CPA and the
client to the contrary
b. Working papers include schedules and memoranda prepared and submitted by the client of
the CPA
c. Working papers include reports submitted by a CPA to his/her client
d. Working papers shall be treated confidential and privileged unless such documents are
required to be produced through subpoena issued by any court, tribunal, or government
regulatory or administrative body

33. The following documents are to be submitted by a foreign applicant whose letter/document and
the copy of the law on foreign reciprocity of his/her country/state are satisfactory to the BOA,
except
a. Certificate of Religious affiliation
b. Original or authenticated copy of transcript of records or equivalent document of the course
for licensure examination where he/she studied, duly authorized or accredited by his
country/state
c. The original or certified copy of any official documents issued by the Bureau of Immigration
and Deportation allowing the applicant to enter and reside in the Philippines
d. Certificate of registration or its equivalent stating that the foreign applicant is duly
registered or licensed CPA or its equivalent in his/her country/state

34. Section 36 (penal Provision) of RA 9298 states that any person who shall violate any of the
provisions of the Philippine Accountnacy Act or any of its implementing rules and regulations
shall, upon conviction, be punished by
a. A fine of not less than P50,000
b. Imprisonment for a period not exceeding two years
c. A fine of not less than P50,000 or by imprisonment for a period not exceeding two years
d. A fine of not less than P50,000 or by imprisonment for a period not exceeding two years, or
both

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35. Which of the following is the accredited national professional organization of CPAs (APO)?
a. PICPA c. AASB
b. ASC d. FRSC

36. A partner surviving the death or withdrawal of all the other partners in a partnership may
continue to practice under the partnership name for a period of not more than ____ years after
becoming a sole proprietor
a. 1 b. 2 c. 3 d. 4

37. Its function is to conduct a quality review on applicants for registration to practice public
accountancy and render a report which shall be attached to the application for registration
a. Board of Quality Reviewers c. Quality Review Committee
b. Quality Review Board d. Quality Review Group

38. The Chairman and the members of the QRC shall have a term of ___ years renewable for
another term
a. 1 b. 2 c. 3 d. 4

39. The death or disability of an individual CPA and/or the dissolution and liquidation of a firm or
partnership of CPAs shall be reported to the BOA not later than ____ days from the date of such
death, dissolution or liequidation
a. 15 b. 30 c. 60 d. 90

40. The following statements relate to the exemption from CPE requirements. Which is false?
a. A registered professional shall be permanently exempted from CPE requirements upon
reaching the age of 60 years old
b. A registered professional shall be permanently exempted from CPE requirements upon
reaching the age of 65 years old
c. A registered professional who is working or practicing his/her profession abroad shall be
temporarily exempted from compliance with CPE requirements during the period of his/her
stay abroad provided that he/she has been out of the country for at least two years
immediately prior to the date of renewal
d. A registered professional who is furthering his/her studies abroad shall be temporarily
exempted from compliance with CPE requirements during the period of his/her stay abroad
provided that he/she has been out of the country for at least two years immediately prior to
the date of renewal

41. Matet, CPA from Country A, wants to practice accountancy in the Philippines. Who has the
burden of proving that Filipino CPAs are allowed to practice without restriction in Country A?
a. Matet c. The BOA of Country A
b. The Philippine Board of Accountancy d. The PRC

42. All licensed CPAs shall obtain and use a seal of a design prescribed by the
b. ASC c. BOA
c. PICPA d. PRC

43. The following are grounds for the refusal to issue a certificate of registration and professional
identification card (select the exception):
a. Conviction of a criminal offense involving moral turpitude.
b. Guilty of immoral or dishonorable conduct.
c. Unsound mind.

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 d. Conviction for a political offense

44. Any candidate who fails in ______complete CPA Board Examinations shall be disqualified from
taking another set of examinations unless he/she submits evidence to the satisfaction of the
BOA that he/she enrolled in and completed at least ______ of subjects given in the licensure
examination.
a. 3,15 units per year for a total of 60 units c. 2,15 units per year for a total of
60 units
b. 2,24 units d. 3,24 units

45. S1 A BSA graduate is allowed to practice public accountancy under his or her own name
immediately upon passing the CPA Board Exams.
S2 The certificate of accreditation to practice public accountancy is granted only once and
remains in effect unit withdraw, suspended, or revoked in accordance with R.A No. 9298.
a. True, true b. True, false c. False, True d. False, false

46. The following are among the powers and functions of the Board of Accountancy, except:
e. To prescribe and adopt the rules and regulations necessary for implementing RA9298.
f. To prescribed and/or adopt a Code of Ethics for the practice of Accountancy.
g. To ensure, in coordination with the DECS that all higher educational instruction and offering
of accountancy comply with prescribed policies, standards and requirements of the course.
h. To conduct an oversight into the quality of audits of financial statements.

47. Who is the person that has the authority to suspend or remove a member of the BOA, on valid
grounds and after due process?
e. The President of the Republic of the Philippines
f. The Chairman of the Professional Regulatory Board of Accountancy, unless he is the one
who is under investigation.
g. The Commissioner of the Professional Regulation Commission
h. None of them.

48. Unless there is a valid reason to have additional representation, the PICPA shall have how many
national directors?
a. 12 b. 14 c. 15 d. 20

49. The PICPA national directors shall be apportioned according to four geographic sectors based on
the ratio of the latest available number of members in good standing from those areas. Which of
the following is not a geographic sector?
a. Luzon b. NCR c. Mindanao d. CAR

50. A PICPA director can only represent a sector in a region if he/she has been a member in good
standing in such a sector in the region for at least ____ years at the time of his/her nomination:
a. Two years b. Three years c. Four years d. Five years

51. The PICPA certificate of accreditation shall be cancelled for suspended by the PRC upon the
recommendation by the BOA after due hearing under any of the following grounds or causes,
except:
a. It has ceased to possess any of the qualifications for accreditation.
b. It no longer serves he best interest of CPAs.
c. Two years have passed and it has not yet enlisted into active membership the majority of
CPAs in the practice of accountancy.

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 d. It has committed acts inimical to its members and to the profession.

52. PICPA shall renew its certificate of accreditation once:

a. Annually b. Every 3 years c. Every 4 years d. Every 5
years

53. The PICPA certificate of accreditation shall be cancelled or suspended by the PRC upon the
recommendation by the BOA after due hearing under any of the following grounds or causes,
except:
a. It has ceased to possess any of the qualifications for accreditation
b. It no longer serves the best interest of CPAs
c. Two years have passed and it has not yet enlisted into active membership the majority of
CPAs in the practice of accountancy
d. It has committed acts inimical to its members and to the profession

54. The PRC CPE Council shall be composed of:

a. A chairperson and three members
b. A chairperson, a vice-chairperson and two members
c. A chairperson and two members
d. A chairperson, a vice-chairperson and three members

55. A study, appraisal, or review by the Board or its duly authorized representatives, of the quality of
audit of financial statements through a review of the quality control measures instituted by an
CPAs engaged in the practice of public accountancy to ascertain his/her/its compliance with
prescribed professional, ethical and technical standard of public service.
a. CPA review b. Quality review c. CPE review d. Peer
review

56. According to the IRR, this council is tasked to assist the BOA in continuously upgrading
accountancy education in the Philippines to make the Filipino CPAs globally competitive
a. Quality /Review Committee c. CPE Council
b. Education Technical Council d. CHED

57. The Auditing and Assurance Standards Council has ____ representatives from PICPA (public
sector), ____ representatives from BSP, and ___ representatives from COA;
a. Six, one, one c. Nine, zero, one
b. Eight, one, one d. Seven, zero, one

58. In the international arena, this body oversees the IFAC’s standard-setting activities in the areas
of auditing and assurance, ethics and education
a. Monitoring Group (MG)
b. Public Interest Oversight Board
c. IFAC /Regulatory Liaison Group
d. International Auditing and Assurance Standards Board

59. A requirement of the application of PSAs is for the auditor

a. Not to obtain clients by solicitation
b. To undertake a proper study and evaluation of the existing internal control
c. To charge fees fairly and in relation to time and cost of the engagement
d. To inspect all fixed assets acquired during the year

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60. The core competence of CPAs include
a. Assurance and information integrity c. Strategic and critical thinking skills
b. Objectivity d. Pursuit of life-long learning and excellence

C. MULTIPLE CHOICE – Code of Ethics

Write the letter corresponding to the correct answer on the space before the item number.

I. Which of the following statements best describes why the CPA profession has deemed it
essential to promulgate a code of professional ethics and to establish a mechanism for enforcing
observation of the Code?
c. A distinguishing mark of a profession is its acceptance of responsibility to the public.
d. A pre-requisite to success the establishment of an ethical code that primarily defines the
professional’s responsibility to clients and colleagues.
e. A requirement of most state laws calls for the profession to establish a code of ethics.
f. An essential means of self-protection for the profession is the establishment of flexible
ethical standards by the profession.

22. S1 Professional accountants refer to persons who are registered in the PRC as CPAs and hold a
valid certificate issued by the BOA, whether they be in any sector of practice of accountancy.
S2 The Code of Ethics for Professional Accountants in the Philippines is mandatory for all CPAs.
a. True, false b. False, true c. True, true d. False, false

23. The code of Ethics for Professional Accountants in the Philippines is applicable to professional
services performed in the Philippines on or after.
a. January 1, 2004 b. June 30, 2008 c. Dec. 31,2008 d. Dec. 31,
2009

24. In the few instances where the domestic laws are in conflict with the IFAC Code,
a. Bothe are applied simultaneously.
b. The IFAC Code requirement prevails
c. The local law prevails
d. There will be no ruling for that particular requirement.

25. S1 It is practical to establish ethical requirements which apply to all situations and circumstances
that CPAs may encounter.
S2 CPAs should consider the ethical requirements as the ideal principles which they should
follow in performing their work.
a. True, false b. False, true c. True, true d. False. false

26. S1 Under the 2008 Code of Ethics, the word corporation was retained because a corporate form
for the professional practice of accountancy is now allowed in the Philippines.
S2 In adopting the Revised IFAC Code for the Philippines, several modifications were made to the
Code, such as the period of rotation of the engagement partner was changed from five to seven
years.
a. True, false b. false, true c. True, true d. False, false

27. The 2008 Code comes in how many parts?

a. Two parts b. Three parts c. Four parts d. Five parts

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28. The fundamental principle of integrity requires a CPA to
a. Be straightforward and honest in performing professional services.
b. Be fair and should not allow prejudice or bias, conflicts of interest or influence of others to
override objectivity.
c. Perform professional services with due care, competence and diligence.
d. Act in a manner consistent with the good reputation of the profession and refrain from any
conduct which might bring discredit to the profession.

29. This fundamental principle required a CPA not use disclose information acquired during the
course of performing professional services without proper and specific authority:
i. Objectivity c. Professional Behavior
ii. Professional Competence and due care d. Confidentiality

30. The following steps are part of the conceptual framework approach to the Code of Ethics. Set
the steps in proper order.
I. Address threats which are than clearly insignificant though the application of safeguards.
II. Evaluate the significance of threats to compliance with fundamental principles.
III. Identify threats to compliance with the fundamental principles
i. I,II, III b. II,III,I c. III,I,II d. III,II,I

31. If a CPA cannot implement appropriate safeguards, the professional accountant should do the
following, except:
i. Decline the specific professional service involved.
ii. Discontinue the specific professional service involved.
iii. Resign from the client or the employing organization, as necessary.
iv. Issue an adverse opinion on the subject matter of the engagement.

32. An inadvertent violation of the Code of Ethics, depending on the nature and significance of the
matter, may not compromise compliance with the fundamental principles provided, once the
violation is discovered.
i. The CPA withdraws from the specific professional service involved.
ii. A disclaimer of opinion is issued to the clients as a result of the violation.
iii. The violation is corrected promptly and any necessary safeguards are applied.
iv. The engagement is promptly transferred to another, non-violating professional account.

33. Compliance with fundamental principles may potentially be threatened by a broad range of
circumstances.
These are known as:
i. Fraud risk factors. C. Threats to independence
ii. Threats to fundamental principles d. Safeguards to threats.

Numbers 14 to 18: Identify the threat being described in each of the following statements.

34. Many occur as a result of the financial or other interests of a professional accountant or of an
immediate or close family member.

35. May occur when a previous judgment needs to be re-evaluated by the professional accountant
responsible for that judgment.

36. May occur when a professional accountant promotes a position or opinion to the point that
subsequent objectivity may be compromised.

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37. May occur when, because of a close relationship a professional accountant becomes too
sympathetic to the interests of others.

38. May occur when a professional accountant may be deterred from acting objectively by threats,
actual or perceived.

39. These are policies and procedures designed to eliminate or to reduce threats to fundamental
principles to an acceptable level.
i. Internal controls c. Safeguards
ii. Control activities d. Segregation of duties

40. Certain safeguards may increase the likelihood of identifying or deterring unethical behavior.
Such safeguards, which may be created by the accounting profession, legislation, regulation or
an employing organization, included, but are not restricted to:
I. Effective , well publicized complaints systems operated by the employing organization, the
profession or a regular, which enable colleagues, employers and members of the public to
draw attention to unprofessional or unethical behavior.
II. An explicitly stated duty to report breaches of ethical requirements.
i. I, only b. II only c. I and II d. Neither I nor II

41. When initialing either a formal or informal conflict resolution process, a CPA should consider the
following, either individually or together with others, as part of the resolution process:
I. Relevant facts
II. Ethical issues involved
III. Fundamental principles related to the matter in question
IV. Established internal procedures
V. Alternative courses of action
i. I, II,III, and V c. I,II,V
ii. I,III,IV and V d. I,II,III,IV,V

42. In ethical conflict resolution, if the matter remains unresolved, the CPA should
i. Consult with other appropriate person with those charged with governance of the
organization for help in obtaining resolution.
ii. Consider consulting with those charged governance of the organization, such as the board of
directors or the audit committee.
iii. Document the substance of the issue and details of any discussions held or decision taken,
concerning that issue, as necessary.
iv. All of the above.

43. Under the Revised Code, which fundamental principle is explicitly mentioned to be safeguarded
even as the CPA consults with relevant professional bodies and legal advisors?
i. Technicality b. Confidentiality c. Integrity d.
Objectivity

44. Tisha, CPA, has exhausted all relevant possibilities in an ethical conflict which she is trying to
resolve. The conflict remains unresolved. Accordingly, the revised Code allows which of the
following steps to be taken by Tisha?

I. Refuse to remain associated with the matter creating the conflict.

II. Withdraw from the engagement team or specific assignment.

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 III. Resign from the engagement
IV. Resign from the firm or the employing organization
i. I and II b. III and IV c. II,III and IV d. I,II,III and IV

45. Madonna Corp. is under audit by Hilorie, CPA. Madonna Corp. is asking for a change in the
engagement (from audits to review) in order to restrict the scope of the engagement. Madonna
Corp. Could not provide justifiable reasons for the chance. Under these circumstances, Hilorie
should:
i. Issue a disclaimer of opinion due to give scope limitation.
ii. Refuse management’s request for a change in the engagement, then continue to perform the
audit engagement.
iii. Issue an adverse opinion.
iv. Withdraw from the engagement.

46. A CPA should not be associated with reports, returns, communications or other information
where they believe that the information:
i. Contains a materially false or misleading statement.
ii. Contains statements or information furnished recklessly.
iii. Omits or obscures information required to be included where such omission or obscurity
would be misleading.
iv. All of these.

47. Objectivity in the Code refers to a CPA’s ability:

i. To maintain an impartial attitude on all matters which come under the CPA’s review.
ii. To independently distinguish between accounting practices that are acceptable and those
that are not.
iii. To be unyielding in all matters dealing with auditing procedures.
iv. To independently choose between alternate accounting principles and auditing standards.

48. A CPA should maintain objectivity and free conflicts of interest when performing:
i. Audits, but not any other professional services.
ii. All attestation services, but not other professional services.
iii. All attestation and tax services, but not other professional services.
iv. All professional services.

49. The principle of professional competence and due care imposes which of the following
obligations on CPAs?
I. To maintain professional knowledge and skill at the level required to ensure that clients or
employers receive competent professional service.
II. To act diligently in accordance with applicable technical and professional standards when
providing professional services.
i. I only b. II only c. I and II d. Neither I nor II

50. Which of these phrases describe attainment of professional competence?

i. A high standard of general education followed by specific education, training and
examination in professionally relevant subjects, and whether prescribed or not, a period of
work experience.
ii. A continuing awareness and an understanding of relevant technical professional and business
developments.
iii. The responsibility to act in accordance with the requirements of an assignment, carefully,
thoroughly and on a timely basis.

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 iv. Making clients, employers or other users of the professional services aware of limitations
inherent in the services to avoid the misinterpretation of an expression of opinion as an
assertion of fact

51. Competence as a CPA includes all of the following except:

i. Having the technical qualifications to perform an engagement.
ii. Possessing the ability to supervise and evaluate the quality of staff work.
iii. Warranting the infallibility of the work performed.
iv. Consulting others if additional technical; information is needed.

52. After beginning an audit of a new client, Sydney, CPA, discovers that the professional
competence necessary for the engagement is lacking. Sydney informs management of the
situation and recommends another CPA, and management engages the other CPA. Under these
circumstances:
i. Sydney’s lack of competence should be considered to be a violation of generally accepted
auditing standards.
ii. Sydney may request compensation from the client for any professional services rendered to it
in connection with the audit.
iii. Sydney’s request for a commission from the other CPA is permitted because a more
competent audit can now be performed.
iv. Sydney may be indebted to the CPA since the other CPA can collect from the client only the
amount the client originally agreed to pay Sydney.

53. Samuel Commercial Inc. engages the services of Rita Ube, CPA to make a project study of the
expanded food vending operations of the corporation with the corresponding staffing and
compensation package for its executive staff. Rita, however, has primary auditing expertise and
only in general merchandising operations.
Ms. Ube may properly:
i.Accept the engagement and carry it out consistent with GAAS.
ii.Accept the engagement but exercise due professional care.
iii.Accept the engagement and acquire the necessary competence or consult with established
authorities.
iv.Decline the engagement for lack of experience or competence in an entirely in an entirely new
line of specialization.

54. S1 A CPA should maintain confidentiality even in a social environment.

S2 A CPA should also maintain confidentiality of information disclosed by a prospective client or
employer.
i. True, false b. false, true c. True, true d. False, false

55. A CPA shall not disclose any confidential information obtained in the course of a professional
engagement expect with the consent of the client. This rule should be understood to preclude a
CPA from responding from an inquiry made by:
i. The trial board of the Code of Professional Ethics.
ii. An investigative body of a CPA society.
iii. A CPA-shareholder of the client corporation.
iv. A code of Professional Conduct voluntary quality review body.

36. In which of the situations given below would disclosure by a CPA in violation of the Code?
A. Disclosing confidential information in order to properly discharge the CPA’s responsibilities
in accordance with his professional standards.

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 B. Disclosing confidential information in compliance with a subpoena issued by a court.
C. Disclosing confidential information to another accountant interested in purchasing the CPA’s
practice.
D. Disclosing confidential information in a review of the CPA’s professional practice by the
PICPA Quality Review Committee.

37. In deciding whether to disclose confidential information, professional accountants should

consider the following points:
A. Effect of the disclosure on the interests of the client, the CPA, and third parties, even if
consent of the client was given.
B. Knowledge and substantiation of all relevant information, to the extent practicable.
C. Type of communication that is expected and to whom it is addressed.
D. All of the above are considered.

38. In marketing and promoting themselves and their work, CPAs should NOT
A. Bring the profession into dispute.
B. Make exaggerated claims for the services they are able to offer, the qualifications they
possess, or experience they have gained.
C. Make disparaging references or unsubstantiated comparisons to the work of others.
D. All of the above.

39. A CPA in public practice should NOT

A. Engage in any business, occupation or activity aside from his/her public accounting practice.
B. Engage in any business, occupation or activity that impairs or might impair integrity,
objectivity or the good reputation of the profession.
C. Engage in teaching or provision of accounting instruction while still in public practice, since
this would cause a division of time and effort, resulting to impairment of the quality of
service provided to clients.
D. Engage in non-accounting related activities which also involve members of the companies
that comprise his/her audit clients.

40. The nature and significance of threats may differ depending on whether they arise in relation to
the provision of services to a client. In which of the following types of clients would the Revised
Code provide the strictest set of requirements regarding independence?
A. A financial statement audit client.
B. A non-financial statement audit assurance client.
C. A non-assurance client.
D. A non-client.

41. Client issues that, if unknown, could threaten compliance with the fundamental principles
include the following, except:
A. Client involvement in illegal activities (such as money laundering)
B. Dishonesty
C. Questionable financial reporting practices
D. Conservative basis in determining accounting estimates

42. Appropriate safeguards during client acceptance may include:

A. Obtaining knowledge and understanding of the client
B. Obtaining knowledge and understanding about the client’s owners, managers and those
responsible for its governance and business activities

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 C. Securing the client’s commitment to improve corporate governance practices or internal
controls
D. All of these

43. S1 A CPA in public practice should agree to provide only those services that the CPA in public
practice is competent to perform.
S2 Acceptance decisions need not be periodically reviewed for recurring client engagements.
A. True, false B. False, true C. True, true D. False, false

44. S1 An existing accountant is bound by confidentiality

S2 Written client permission is required, when initiating communication with an existing
accountant.
A. True, false B. False, true C. True, true D. False, false

45. Regarding conflicts of interest, the following safeguards are applicable (select the exception):
A. Notifying the client of the firm’s business interest of activities that may represent a conflict
of interest, and obtaining their consent to act in such circumstances.
B. Notifying all known relevant parties that the CPA in public practice is acting for two or more
parties in respect of a matter where their respective interests are in conflict, and
obtaining their consent to so act.
C. Notifying the client that the CPA in public practice does not act exclusively for any one client
in the provision of proposed services and obtaining their consent to so act.
D. Clear guidelines for members of the client personnel on issues of security and confidentiality.

46. Which fundamental principle may be threatened when the CPA in public practice is asked to
provide a second opinion on the application of accounting, auditing, reporting or other
standards or principles to specific circumstances or transactions by, or on behalf of a company or
entity that is not an existing client?
A. Integrity C. Confidentiality
B. Professional competence and due care D. Professional behavior

47. A client seeking a second opinion does not permit the CPA to communicate with the existing
accountant. In such cases, the CPA should:
A. Issue a disclaimer of opinion due to a significant client-imposed scope limitation.
B. Consider whether, taking all the circumstances into account, it is appropriate to provide the
opinion sought.
C. Consider whether to issue a qualified opinion or disclaimer of opinion due to a significant
client-imposed scope limitation.
D. Communicate the client’s refusal directly to the existing accountant.

48. In which of the following situations would a CPA be in violation of the rules of professional ethics
in determining professional fees?
A. A fee based on appropriate rates per hour or per day for the time of each person engaged in
performing professional service.
B. A fee which is lower compared to the fee charged in the prior year for similar services.
C. A fee based on appropriate rates per hour, where the appropriate rate is based on the
fundamental premise that the organization and conduct of the CPA and the services
provided to clients are well planned, controlled and managed.
D. A fee that is based on 10% of the client’s adjusted net income for the current year.

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49. Professional fees should be a fair reflection of the value of the professional services performed
for the client, taking into account:
A. The skill and knowledge required for the type of professional services involved.
B. The level of training and experience of the persons necessarily engaged in performing the
professional services.
C. The time necessarily occupied by each person engaged in performing the professional
services.
D. The degree of responsibility and urgency that performing those services entails
E. All of the answers

50. Contingent fees are widely used for certain types of non-assurance engagements. They may,
however, give rise to threats to compliance with the fundamental principles, especially the
principle of:

A. Objectivity C. Confidentiality
B. Professional competence and due care D. Professional behavior

51. The Code of Ethics would be violated if a CPA represents that specific consulting services will be
performed for a stated fee and it is apparent at the time of the representation that the

A. Actual fee would be substantially higher.

B. Actual fee would be substantially lower than the fees charged by other professional
accountants for comparable services.
C. Fee was a competitive bid.
D. CPA would not be independent.

52. A CPA in public practice should not pay or receive a referral fee or commission, unless the CPA in
public practice has established:

A. Internal controls designed to scientifically compute the referral fee or commission.

B. That explicit approval to pay or receive commissions has been obtained from the Securities
and Exchange Commission.
C. Safeguards to eliminate or reduce threats to fundamental principles to an acceptable level.
D. Another company as recipient, whose name does not include the name of the CPA in public
practice.

53. The payment of receipt of referral fees or commissions may create threats to which fundamental
principles?

I . Integrity
II. Objectivity
III. Professional competence and due care
IV. Professional behavior
A. I and III B. I and IV C. II, III and IV D. II and III

54. The receipt of gifts and hospitality from a client may create threats to fundamental principles.
Which of the following is a correct combination of threat and fundamental principle created by
this situation?
A. Self-interest threat – professional competence and due care
B. Intimidation threat – integrity
C. Self-interest threat – objectivity

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 D. Advocacy threat – objectivity

55. Which statement is incorrect regarding custody of clients’ assets?

A. Client’s assets should not be held by the CPA if there is reason to believe that the assets were
obtained from, or are to be used for, illegal activities.
B. Custody of clients’ assets may create a self-interest threat to objectivity and professional
behavior.
C. No safeguards are applicable to reduce threats created by having custody of clients’ assets.
D. Fees due from a client may be drawn from client’s monies, subject to client approval.

56. The states of mind that permits the provision of an opinion without being affected by influences
that compromise professional judgments, allowing an individual to act with integrity, and
exercise objectivity and professional judgment.
A. Professional skepticism C. Objectivity
B. Integrity D. Independence of mind

57. The avoidance of facts and circumstances that are so significant a reasonable and informed third
party, having knowledge of all relevant information, including any safeguards applied, would
reasonably conclude a firm’s, or a member of the assurance team’s, integrity, objectivity or
professional skepticism had been compromised.
A. Principle of segregation C. Functional integrity
B. Independence in appearance D. Preemptive estoppels

58. If the firm had a material financial interest, whether direct or indirect, in the assurance client,
the self-interest threat created:
A. Can be reduced by the application of appropriate safeguards as mentioned in Section
290.32 of the Revised Code.
B. Would be insignificant if the financial interests are disposed of within the most practicable
time (i.e., within three months from the date of acceptance of the engagement)
C. Must be eliminated by written disclosure to the BOA, the SEC, and the AASC of such material
financial interest, provided such disclosure is made within sixty (60) days from the date of
acceptance of the engagement.
D. Would be so significant no safeguard could reduce the threat to an acceptable level.

59. Certain entities may be of significant public interest because, as a result of their business, their
size of their corporate status they have a wide range of stakeholders. Examples of these entities
include (select the exception):
A. Non-listed companies C. Insurance companies
B. Credit institutions D. Pension funds

60. A CPA in business may be:

A. a salaried employee
B. a partner, director (whether executive or non-executive) or an owner manager.
C. a volunteer or another working for one or more employing organization
D. any of these

61. S1 The legal form of the relationship with the employing organization, if any, has no bearing on
the ethical responsibilities incumbent on the professional accountant in business
S2 A professional accountant in business has a responsibility to further support all the business
aims of their employing organization
A. True, false B. False, true C. True, true D. False, false

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62. CPA in business should maintain information for which he/she is responsible in a manner that:
A. Describes clearly the true nature of business transactions, assets or liabilities.
B. Classifies and records information in a timely and proper manner.
C. Represents the facts accurately and completely in all material respects.
D. All of these.

63. When a CPA in business is pressured to become associated with misleading information or to
become associated with misleading information through the actions of others, what kinds of
threats might arise?

A. Self-interest and self-review threats C. Familiarity and self-review threats

B. Self-interest and intimidated threats D. Self-review and advocacy threats

64. Circumstances that threaten the ability of a professional accountant in business to perform
duties with the appropriate degree of professional competence and due care include the
following, except
A. Insufficient time for properly performing or completing the relevant duties.
B. Incomplete, restricted or otherwise inadequate information for performing the duties
properly.
C. Sufficient experience, training and/or education.
D. Inadequate resources for the proper performance of the duties.

65. Discuss the safeguards available to a firm or a network firm that has a financial interest in a FS
audit client, assuming the presence of the following:

1. Direct financial interest

2. Material indirect financial interest
3. Material financial interest in an entity that has a controlling interest in a FS audit
client.

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