USPF College of Accountancy

Topic: The CPA’s Professional Responsibilities

Code of Ethics for Professional Accountants in the Philippines

The Code of Ethics for Professional Accountants in the Philippines is based on the revised Code of Ethics for Professional
Accountants (2006 revision) developed by the International Federation of Accountants (IFAC).

The Code of Ethics is mandatory for all CPAs and is applicable to professional services performed in the Philippines on or
after June 30, 2008.

The Code of Ethics consists of three parts. Part A establishes the fundamental principles for professional accountants
and provides a conceptual framework for their application. Parts B and C illustrate how the conceptual framework is to be
applied in specific situations. Part B applies to professional accountants in public practice. Part C applies to professional
accountants in business.

I. Part A of the Code establishes the following fundamental ethical principles:

1. Professional behavior
- A professional accountant should comply with relevant laws and regulations and should avoid any action that
discredits the profession.
2. Integrity
- A professional accountant should be straightforward and honest in all professional and business relationships.
3. Confidentiality
- A professional accountant should respect the confidentiality of information acquired as a result of professional
and business relationships. Such information should not be disclosed to third parties without proper and
specific authority unless there is legal or professional right or duty to disclose.
4. Objectivity
- A professional accountant should not allow bias, conflict of interest or undue influence of others to override
professional or business judgments.
5. Professional Competence and Due Care
- A professional accountant has a continuing duty to maintain professional knowledge and skill at the level
required to ensure that a client or employer receives competent professional service based on current
developments in practice, legislation and techniques. When rendering professional services, a professional
accountant should act diligently and in accordance with applicable technical and professional standards.

Professional accountants should comply with the technical and professional standards of the following:
• Board of Accountancy (BOA)
• Professional Regulation Commission (PRC)
• Securities and Exchange Commission (SEC)
• Financial Reporting Standards Council (FRSC)
• Auditing and Assurance Standards Council (AASC)
• Relevant legislation

Under the principle of integrity, professional accountants are required to be straightforward and honest in professional and
business relationships.
A professional accountant should not be associated with report, returns, communications or other information that is
believed to:
1. Contain a materially false or misleading statement;
2. Contain statements or information furnished recklessly; or
3. Omit or obscure required information where such omission or obscurity would be misleading.
There will be no violation of the above provision if a modified report is issued in respect of a matter described in the
foregoing paragraph.
Professional competence may be divided into two phases: attainment of professional competence and maintenance
of professional competence.
The attainment of professional competence requires the following:
1. Initially, a high standard of education
2. Specific education, training, and examination in professional relevant subjects
3. Whether prescribed or not, a period of work experience
To maintain professional competence, a professional accountant should have continuing awareness and an
understanding of relevant technical professional and business developments.

The Code of Ethics provides a conceptual framework to identify, evaluate, and respond to threats to compliance with the
fundamental ethical principles.

The Code of Ethics identifies the following threats to compliance with the fundamental principles:
1. Self-interest threat
- May occur as a result of the financial or other interests of a professional accountant or of an immediate or
close family member. As defined in the Code, an immediate family member is a spouse (or equivalent) or
dependent while a close family member is a parent, child or sibling, who is not an immediate family member.
2. Self-review threat
- May occur when a previous judgment needs to be reevaluated by the professional accountant responsible for
that judgment.
3. Advocacy threat
- May occur when a professional accountant promotes a position or opinion to the point that subsequent
objectivity may be compromised
4. Familiarity threat
- May occur when, because of a close relationship, a professional accountant becomes too sympathetic to the
interests of others.
5. Intimidation threat
- May occur when a professional accountant may be deterred from acting objectively by threats, actual or
perceived.

If identified threats are other than clearly insignificant, a professional accountant should identify and apply safeguards to
eliminate or reduce such threats to an acceptable level. This will ensure that compliance with the fundamental principles
is not compromised.
Safeguards are categorized into:
1. Safeguards created by the profession, legislation, and regulation; and
2. Safeguards in the work environment

If appropriate safeguards cannot be implemented, a professional accountant should:

1. Decline or discontinue the specific professional service involved; or
2. Where necessary, resign from the client (if in public practice) or the employing organization (if in business).

According to the Code of Ethics, safeguards created by the profession, legislation or regulation include, but are not limited
to, the following:
1. Educational, training and experience requirements for entry into the profession.
2. Continuing professional development requirements.
3. Corporate governance regulations.
4. Professional standards
5. Professional or regulatory monitoring and disciplinary procedures.
6. External review by a legally empowered third party of the reports, returns, communications or information
produced by a professional accountant.

Firm-wide and engagement specific safeguards are safeguards in the work environment.

The Code of Ethics gives the following examples of circumstances that may create self-interest threats for a professional
accountant in public practice:
1. A financial interest in a client or jointly holding a financial interest with a client. Financial interest is defined in the
Code as “an interest in an equity or other security, debenture, loan or other debt instrument of an entity, including
rights and obligations to acquire such an interest and derivatives directly related to such interest”.
2. Undue dependence on total fees from a client.
3. Having a close business relationship with a client.
4. Concern about the possibility of losing a client
5. Potential employment with a client.
6. Contingent fees relating to an assurance engagement.

As defined in the Code, a contingent fee is “a fee calculated on a predetermined basis relating to the outcome or result of
a transaction or the result of the work performed”.

According to the Code of Ethics, a fee established by a court or other public authority is not a contingent fee.

In an assurance engagement, a professional accountant in public practice expresses a conclusion designed to enhance
the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or
measurement of a subject matter against criteria.
Examples of circumstances that may create self-review threats include, but are not limited to:
• The discovery of a significant error during a re-evaluation of the work of the professional accountant in public
practice.
• Reporting on the operation of financial systems after being involved in their design or implementation
• Having prepared the original data used to generate records that are the subject matter of the engagement.
• A member of the assurance team being, or having recently been , a director or officer of that client
• A member of the assurance team being, or having recently been, employed by the client in a position to exert
direct and significant influence over the subject matter of the engagement.
• Performing a service for a client that directly affects the subject matter of the assurance engagement.

Examples of circumstances that may create advocacy threats include, but are not limited to:
• Promoting shares in a listed entity when that entity is a financial statement audit client.
• Acting as an advocate on behalf of an assurance client in litigation or disputes with third parties.

Examples of circumstances that may create familiarity threats include, but are not limited to:
• A member of the engagement team having a close or immediate family relationship with a director or officer of the
client
• A member of the engagement team having a close or immediate family relationship with an employee of the client
who is in a position to exert direct and significant influence over the subject matter of the engagement.
• A former partner of the firm being a director or officer of the client or an employee in a position to exert direct and
significant influence over the subject matter of the engagement.
• Accepting gifts or preferential treatment from a client, unless the value is clearly insignificant.
• Long association of senior personnel with the assurance client.

Examples of circumstances that may create intimidation threats include, but are not limited to:
• Being threatened with dismissal or replacement in relation to a client engagement.
• Being threatened with litigation.
• Being pressured to reduce inappropriately the extent of work performed in order to reduce fees.

The Code provides that, depending on the engagement, a professional accountant in public practice may also be able to
rely on safeguards within the client’s systems and procedures. However, a professional accountant cannot rely solely
on such safeguards to reduce threats to an acceptable level.

The Code gives the following safeguards within the client’s systems and procedures:
1. When a client appoints a firm in public practice to perform an engagement, persons other than management ratify
or approve the appointment.
2. The client has competent employees with experience and seniority to make managerial decisions.
3. The client has implemented internal procedures that ensure objective choices in commissioning non-assurance
engagements.
4. The client has a corporate governance structure that provides appropriate oversight and communications
regarding the firm’s services.

Firm-wide safeguards in the work environment may include:

1. Leadership of the firm that stresses the importance of compliance with the fundamental principles
2. Leadership of the firm that establishes the expectation those members of an assurance team will act in the public
interest.
3. Policies and procedures to implement and monitor quality control of engagements.
4. Documented policies regarding the identification of threats to compliance with the fundamental principles, the
evaluation of the significane 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.
5. 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.
6. Documented internal policies and procedures requiring compliance with the fundamental principles.
7. Policies and procedures that will enable the identification of interests or relationships between the firm or
members of engagement teams and clients.
8. Policies and procedures to monitor and, if necessary, manage the reliance on revenue received from a single
client.
9. Using different partners and engagement teams with separate reporting lines for the provision of non-assurance
services to an assurance client.
10. Policies and procedures to prohibit individuals who are not members of an engagement team from appropriately
influencing the outcome of the engagement.
11. 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.
12. Designating a member of senior management to be responsible for overseeing the adequate functioning of the
firm’s quality control system.
13. Advising partners and professional staff of those assurance clients and related entities from which they must be
independent.
14. A disciplinary mechanism to promote compliance with the firm’s policies and procedures.
15. Published policies and procedures to encourage and empower staff to communicate to senior levels within the
firm any issue relating to compliance with the fundamental principles that concerns them.
Engagement-specific safeguards in the work environment may include:
1. Involving an additional professional accountant to review the work done or otherwise advise as necessary.
2. Consulting an independent third party, such as a committee of independent auditors, a professional regulatory
body or another professional accountant.
3. Discussing ethical issues with those charged with governance of the client.
4. Disclosing to those charged with governance of the client the nature of service provided and extent of fees
charged.
5. Involving another firm to perform or re-perform part of the engagement.
6. Rotating senior assurance team personnel.

II. Part B: Concept of Independence, as stated in the Code of Ethics, requires:

Independence of mind – The state of mind that permits the expression of a conclusion 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 – The avoidance of facts and circumstances that are so significant that a reasonable and
informed third party, having knowledge of all relevant information, including safeguards applied, would reasonably
conclude a firm’s, or a member of the assurance team’s integrity, objectivity or professional skepticism has been
compromised.

It is impossible for a person exercising professional judgment to be free from all economic, financial and other
relationships as every member of society has relationship with others. The significance of economic, financial and other
relationships should be evaluated to identify threats that may exist.

The Code of Ethics defines a network, as a larger structure that is:

• Aimed at cooperation, and
• Clearly aimed at profit or cost sharing or shares common ownership, control or management, common
quality control policies and procedures, common business strategy, the use of a common brand name, or
a significant part of professional resources.

According to Section 290.5 of the Code, professional resources include:

• Common systems that enable firms o exchange information such as client data, billing and time records;
• Partners and staff;
• Technical departments to consult on technical or industry specific issues, transactions or events for assurance
engagements.
• Audit methodology or audit manuals; and
• Training courses and facilities.

The firm should communicate orally and in writing at least annually, all relationships and other matters between the firm,
network firms and the financial statement audit client that in the firm’s professional judgment may be thought to bear on
independence.

The Code of Ethics provides that:

1. The engagement period starts when the assurance team begins to perform assurance services and ends when
the assurance report is issued, except when the assurance engagement is of a recurring nature.
2. If the engagement is expected to recur, the engagement period ends with the notification by either party that the
professional relationship has terminated or the issuance of the firnal assurance report, whichever is later.
3. In the case of a financial statement audit, the engagement period includes the period covered by the financial
statements reported on by the firm.

According to the Code of Ethics, a loan, or a guarantee of a loan, from an assurance client, that is a bank or a similar
institution, to a member of the assuranc team or his immediate family would not create a threat to independence provided
the loan, or guarantee, is made under normal lending procedures, terms and requirements. Examples of such loans
include credit card obligations which are normally available to other credit card holders and fully secured car loans and
housing loans which are not past due.

The Code of Ethics states that deposits made by, or brokerage accounts of, a firm or a member of the assurance team
with an assurance client that is a bank, broker or similar institution would not create a threat to independence provided the
deposit or account is held under normal commercial terms.
III. Other Important Rules Applicable to All Professional Accountants:

• TAX PRACTICE

a. The professional accountant should ensure that the client or the employer are aware of the limitations attaching to tax
advice and services so that they do not misinterpret an expression of opinion as an assertion of fact.
b. A professional accountant should not be associated with any return or communication
in which there is reason to believe that it:
1. Contains a false or misleading statement;
2. Contains statements or information furnished recklessly or without any real knowledge of whether they are true
or false; or
3. Omits or obscure information required to be submitted and such omission or obscurity would mislead the
revenue authorities.

c. When a professional accountant learns of a material error or omission in a tax return of a prior year, or the failure to file
a required tax return, he/she has a responsibility to:
1. Promptly advise the client or employer of the error or omission and recommend that disclosure be made to the
revenue authorities.
2. If the client or employer does not correct the error, he/she:
a. Should inform the client or the employer that it is possible to act for them in connection with that return
or other related information submitted to the authorities; and
b. Should consider whether continued association with the client or employer in any capacity is
consistent with professional responsibilities.

• CROSS BORDER ACTIVITIES

When a professional accountant performs services in a country other than the home country and differences on
specific matters exist between ethical requirements of the two countries, the following provisions should be applied:
1. When the ethical requirements of the country in which the services are being performed are LESS STRICT than the
Philippine Code of Ethics, then our code should be applied.
2. When the ethical requirements of the country in which the services are being performed are STRICTER than our code,
then the ethical requirements in the country where services are being performed should be applied.
3. When the ethical requirements of the Philippines are mandatory for services performed outside the Philippines and are
stricter than that set out in (1) and (2) above, then the ethical requirements of the Philippines should be applied.

• PUBLICITY

In the marketing and promotion of themselves and their work, professional accountants should:
a. Not use means which brings the profession into disrepute.
b. Not make exaggerated claims for the services they are able to offer, the qualifications
they possess, or experience they have gained; and
c. Not denigrate the work of other accountants.

NOTHING FOLLOWS

“If you want something you’ve never had before then you’ve got to do something you’ve never done before”