Code of Ethics of Professional Accountants in the Philippines

Focus Notes

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

Threats and Safeguards

• Unique Threats to compliance with one or more fundamental principles that cannot be categorized

Threats May occur when Part B: In Public Practice Part C: In Business

Including but not limited to: Including but not limited to:
Self-interest Financial or - financial interest in a client - financial interests, loans or
other interests of - undue dependence on total fees from a guarantees
a professional client - incentive compensation
- close business relationship with client arrangements
accountant or of
- concern about possibility of losing a - inappropriate personal use
an immediate or client of corporate assets
close family - potential employment with a client - concern over employment
member - contingent fees relating to an assurance security
engagement - commercial pressure from
outside the employing
organization
Self-review A previous - reporting on operation of financial - business decisions or data
judgment needs systems after being involved in their being subject to review and
to be re- design or implementation justification by the same
- having prepared the original data used professional accountant in
evaluated by the
to generate records which are the business responsible for
professional subject matter of the engagement making those decisions or
accountant - a member of the assurance team, having preparing such data
responsible for previously employed by the client in a
that judgment position to exert direct and significant
influence over the subject matter
Advocacy A professional - promoting shares in a listed entity who - furthering legitimate goals
account is a financial statement audit client of employing organizations
promotes a - acting as an advocate on behalf of an through promoting
assurance client in litigation or disputes organization’s position using
position or
with third parties false or misleading
opinion that statements
subsequent
activity may be
compromised
Familiarity A professional - member of the assurance team having - a professional accountant in
accountant close or immediate family relationship the position to influence
becomes too with the client’s director/officer or financial or non-financial
employee in the position to exert direct reporting having an
sympathetic
or significant influence on the subject immediate or close family
because of a matter member who is in a position
close - accepting gifts or preferential treatment to benefit from such
relationship from client, unless value is clearly influence
insignificant - long association with
- long association of senior personnel business contacts
with client influencing business
decisions
- acceptance of a gift or
preferential treatment,
unless value is clearly
insignificant
Intimidation A professional - Being threatened with - Threats of
accountant may dismissal/replacement/litigation dismissal/replacement of a
be deterred from - Being pressured to reduce close or immediate family
inappropriately extent of work to member
acting
reduce fees - A dominant personality
objectively by attempting to influence the
threats, actual or decision-making process
perceived.
 Code of Ethics of Professional Accountants in the Philippines

Safeguards In Public Practice (Part B) In Business (Part C)

Including but not limited to: Including but not
limited to:
Safeguards created by the - Educational, training and experience requirements for entry in the
profession, legislation or profession
regulation - Continuing professional development requirements
- Corporate governance regulations
- Professional standards
- Regulatory monitoring and disciplinary procedures
- External review of legally empowered third party of reports,
communications and information produced
Safeguards in Firm-wide - Leadership that stresses the importance of - Employing
the work safeguards compliance with fundamental principles organization’s
environment - Policies and procedures: systems of
- - that implement and monitor quality control of corporate
engagements, compliance with fundamental oversight, ethics
principles and conduct
- - enables the identification of interests or programs
relationships between members of assurance - Strong internal
team and clients controls
- - monitor the reliance on revenue received from a - Appropriate
single client disciplinary
- Using different partners and engagement teams practices
for the provision of non-assurance services to an - Policies and
assurance client procedures to
- Overseeing the adequate functioning of the implement and
firm’s quality control system monitor quality
Engagement- - Involving an additional professional accountant of employee
specific to review the work done performance
safeguards - Consulting an independent third party, such as - Timely
committee of independent directors, etc. communication
- Discussing ethical issues with those charged with of such policies
governance of the client and disclosing to them
the nature of service provided and extent of fees
charged
- Rotating senior assurance team personnel
Safeguards implemented by client - Client has competent employees to make
managerial decisions
- Client has implemented internal procedures to
ensure objective choices in commissioning non-
assurance engagements
- Client has corporate governance structure that
provides appropriate oversight and
communications

Other Matters Concerning Professional Accountants in Public Practice (Part B of the Code)
Safeguards
Client should consider whether - Obtaining knowledge and
Acceptance acceptance would create any understanding of the client and its
threats to compliance with activities
fundamental principles;
decline to enter if threats could
Professional not be reduced to an acceptable
Appointment level
Engagement should only agree to provide - Acquiring knowledge of relevant
Acceptance those services which the industries
professional accountant is - Assigning sufficient staff with
necessary competencies
competent to perform
- Agreeing on realistic time frame for
the performance
 Code of Ethics of Professional Accountants in the Philippines

Changes in determine reasons for not - Discussing client’s affairs fully and
Professional accepting the engagement, freely with existing accountant
Appointment such as circumstances that may - If unable to communicate with the
latter, try to obtain information about
threaten compliance to
any possible threats
fundamental principles; still
bound by confidentiality
- Notifying client of firm’s activities
Conflicts of which may present conflict of interest
Interest - Use of separate engagement teams
- Use of confidentiality agreements
There may be threat if second opinion is based on - Seeking client permission to contact
Second inadequate evidence existing accountant
Opinions - Providing the latter with copy of
opinion
Fees charged should be a fair reflection of the - Making the client aware of the basis on
Fees and Other value of work involved: which fees are charged
Types of -skill and knowledge required - Quality control procedures
- Review by an objective third party
Remunerations -level of training and experience
-time occupied by each person
Should not bring the profession into disrepute:
- make exaggerated claims on the services
Marketing offered, qualifications possessed or
Professional experience gained
- make unsubstantiated comparisons to the
work of others
Gifts and Significance of such threat will depend on nature, Safeguards should be considered
Hospitality value or intent behind offer otherwise, offer should not be accepted
Should not assume custody of client monies or - keep assets separate from personal or
Custody of other assets unless permitted to do so by law firm assets
Client Assets - use assets only for purpose intended
- be ready to account for those assets
Objectivity – All A professional accountant in public practice who provides an assurance service is
Services required to be independent of the assurance client.
Independence –
Assurance
Engagements

Possible threats to independence:

If threat is clearly not insignificant, When it wouldn’t impair

such safeguards are available to independence of the firm:
eliminate or reduce threat to
acceptable level:
When interest is held as a - Dispose of the direct financial - The firm have
trustee, such interest interest prior to becoming a established policies and
should only be held when: member of the assurance team procedures that require
- Dispose of the indirect financial all professionals to
- Interest held is not
interest in total or to a sufficient report promptly any
material
amount that is no longer breaches resulting from
- Member of assurance
material prior to becoming a any acquisition of a
team does not have
Financial member of the assurance team financial interest in an
significant influence
- Remove the member of the assurance client
interests over any investment
assurance team from the ✓The firm promptly notify
decision involving a
assurance engagement the professional that
financial interest in the
assurance client - Excluding the individual from financial interest should
any substantive decision-making
be disposed of
concerning the assurance
engagement ✓ Disposal occurs at the
earliest practical date
after identification of the
 Code of Ethics of Professional Accountants in the Philippines

issue, or professional is
removed from assurance
team
If the firm or member of the assurance team makes a loan to an - If loan is immaterial
assurance client, that is not a bank or similar institutions, or and/or held under
Loans and normal commercial
guarantees such client’s borrowings, the threat would be so
guarantees terms or procedures
significant no safeguard could reduce the threat to an
-
acceptable level
The threat would be so - Terminate the business - Relationship is clearly
significant no safeguard relationship insignificant to the firm
could reduce the threat to - Reduce the magnitude of the and audit client
relationship so the financial - Interest held is
an acceptable level.
interest would be immaterial and immaterial
relationship be insignificant - Interest does not give
- Refuse to perform the assurance the investor the ability
engagement to control the closely
held entity
Significance of the threat - Removing the individual from - Firm has established
will depend on factors the assurance team policies that require all
such as: - Structuring the responsibilities professionals to report
of the assurance team so that the promptly any breaches
- position the immediate
professional does not deal with resulting from changes
family holds with the client matters that are within the in employment status of
- role of the professional on responsibility of the immediate immediate or close
the assurance team family member family members
- Policies to empower staff to - Responsibilities of the
communicate to senior levels assurance team have
any issue of independence and been restructured so the
objectivity professional does not
- To withdraw from the assurance deal with matters
Close engagement concerning those of
immediate family
business
member
relationships - Additional care is given
with to review the work of
assurance the professional
clients If a member of the - Considering the appropriateness
Family and assurance team, partner or necessity of modifying the
personal or former partner of the assurance plan for the assurance
engagement
relationships firm has joined the
- Involving an additional
assurance client, threat professional accountant who
will depend on the was not a member of the
following: assurance team to review the
-position he has taken at work done
the assurance client - Quality control review of the
-amount of involvement assurance engagement
- Individual concerned is not
with the assurance team
entitled to any benefits or
- length of time passed payments from the firm unless
since he was a member of these are made in accordance
the assurance team with fixed pre-determined
- former position in the arrangements
assurance team or firm - He does not continue to
participate in the firm’s business
activities
Threat is created when a - Policies and procedures to
member of the assurance require the individual to notify
team participates in the the firm when entering serious
employment negotiations with
engagement having
assurance client
reason to believe that he - Removal of the individual from
the engagement
 Code of Ethics of Professional Accountants in the Philippines

may join the client some

time in the future
If DURING the period covered by the assurance report, a
member of the assurance team had served as an
officer/director/employee of the assurance client in the position to
exert significant influence over the subject matter, such
individual should not be assigned to the assurance team
If PRIOR the period - Involving an additional
covered by the assurance accountant to review the work
report, a member of the done
- Discussing the issue with those
assurance team had served
charged with governance, such
as an as the audit committee
Recent officer/director/employee
service with of the assurance client in
assurance the position to exert
clients significant influence over
the subject matter, the
threat will depend on the
following factors:
-position of the individual
with the assurance client
-length of time that passed
since he left the assurance
client
-role of the individual in
the assurance team
In case of financial statement audit engagement, the only
Serving as an
course of action is to refuse to perform or withdraw from the
officer or
assurance engagement
director on
When practice is specifically permitted under local law, the
the board of
duties and functions undertaken should be limited to those of
assurance
routine and formal administrative nature such as the preparation of
clients
minutes and maintenance of statutory returns
Significance of the threat - Rotating the senior personnel off
shall depend on: the assurance team
-length of time that the - Involving an additional
professional accountant who
individual has been a
was not a member of the
member of the assurance assurance team to review the
team work done
Long -role in the assurance team - Independent internal quality
association of - structure of the firm reviews
senior -nature of the assurance
personnel engagement
with For financial statement - Rotation should be for a pre-
audit clients that are defined period, normally no
assurance
listed entities: more than 5 years
clients - Such individual rotating should
not participate in the audit
engagement until a further
period of time, normally 2 years,
has elapsed
- Some degree of timing in the
rotation may be necessary in
some circumstances
Provision of The following list of activities would create threats so significant
non- that the only safeguard to reduce it to an acceptable level would
assurance be refusal to perform the assurance engagement:
 Code of Ethics of Professional Accountants in the Philippines

services to -authorizing, consummating a transaction or otherwise exercising

assurance authority on behalf of the assurance client
clients -determining which recommendation of the firm should be
implemented
-reporting, in a management role, to those charged with
governance
The following activities - Making arrangements so that -
may also create threats: personnel providing such
-having custody of client’s services does not participate in
the engagement
assets
- Involving additional
-supervising assurance professional accountant to
client employees in the review the work done
performance of their - Other relevant safeguards set out
normal recurring activities in national regulations
-preparing source - Policies and procedures that
documents or originating prohibit professional staff from
making management decisions
data evidencing occurrence
for assurance clients
of transaction - Discussing independence issues
regarding provision of non-
assurance with those charged
with governance
Provision of accounting - Firm should not assume any - Services do not involve
and bookkeeping services managerial role the exercise of
to audit clients that are - Audit client should accept judgment
responsibility of the work results - Divisions or
listed and non-listed
- Personnel providing the services subsidiaries for which
entitites should not participate in the the services provided
audit are collectively
immaterial to the audit
client
- Fees are clearly
insignificant
Provision of valuation services material to FS and involves - Provision of tax
significant degree of subjectivity, such valuation services should services to FS audit
not be provided / withdraw from the FS audit engagement clients
- Provision of internal
Provision of valuation - Involving an additional
audit services provided
services immaterial to FS professional accountant to
that personnel do not
and do not involve a review work done
act in capacity equal to
Valuation - Confirming with client
significant degree of a member of client
understanding of the underlying
services subjectivity mgmt.
assumptions of valuation
- Provision of legal
- Making arrangements so
services provided that
personnel providing such
members of assurance
services do not participate in
team are not involved in
audit engagement
providing the service;
audit client makes
ultimate decision
Significance of the threat - Discussing extent and nature of
depends on: fees charged with those charged
-firm structure with governance
- Taking steps to reduce client
-whether firm is well-
dependency
established or newly - External quality control reviews
Fees and created - Consulting third party,
pricing professional regulatory body or
other accountant
If amount of fee for non-assurance engagement was agreed and
contingent upon the result of an assurance engagement, the
threats could not be reduced to an acceptable level; only
acceptable action is not to accept such arrangements
 Code of Ethics of Professional Accountants in the Philippines

Gifts and A firm or member of assurance team should not accept gifts or - When value is clearly
hospitality hospitality insignificant
Significance of threat will - Disclosing to those charged with -
depend on: governance the nature and extent
-materiality of litigation of litigation
- Removing anyone involved in
Actual or -nature of assurance
the litigation from the assurance
threatened engagement team
litigation -whether it relates to prior - Involving an additional
assurance engagament professional accountant to
review work done
- Withdraw from or refuse to
accept the engagement

Professional Accountants in Business (Part C)

• Professional accountants in business may be responsible:
o solely or jointly for the preparation and reporting of financial and other information, which both
their employing organizations and third parties may rely on
o for providing effective financial management and competent advice on a variety of business-related
matters
• A professional accountant in business may be a/an:
o salaried employee
o partner
o director (whether executive or non-executive)
o owner manager
o volunteer or another working for one or more employing organization
Potential Conflicts
• A professional accountant in business may face pressure to:
o Act contrary to law or regulation
o Act contrary to technical or professional standards
o Facilitate unethical or illegal earnings management strategies
o Lie to, or otherwise intentionally mislead (including misleading by remaining silent) others, in
particular:
▪ The auditors of the employing organization
▪ Regulators
o Issue, or otherwise be associated with, a financial or non-financial report that materially
misrepresents the facts, including statements in connection with, for example:
▪ The financial statements
▪ Tax compliance
▪ Legal compliance
▪ Reports required by securities regulators
• Safeguards that may eliminate or reduce threats arising from pressures:
o Obtaining advice where appropriate from within the employing organization, an independent
professional advisor or a relevant professional body
o The existence of a formal dispute resolution process within the employing organization
o Seeking legal advice
Preparation and Reporting of Information
• A professional accountant in business should maintain information for which the professional accountant in
business is responsible in a manner that:
o Describes clearly the true nature of business transactions, assets or liabilities
o Classifies and records information in a timely and proper manner
o Represents the facts accurately and completely in all material respects
• Where it is not possible to reduce the threat to an acceptable level, a professional accountant in business
should refuse to remain associated with information they consider is or may be misleading

Acting with Sufficient Expertise

• Examples of circumstances that threaten the ability of a professional accountant in business to perform
duties with the appropriate degree of professional competence and due care:
o Insufficient time for properly performing or completing the relevant duties
o Incomplete, restricted or otherwise inadequate information for performing the duties properly
o Insufficient experience, training and/or education
o Inadequate resources for the proper performance of the duties
 Code of Ethics of Professional Accountants in the Philippines

• Safeguards that may eliminate or reduce threats:

o Obtaining additional advice or training
o Ensuring that there is adequate time available for performing the relevant duties
o Obtaining assistance from someone with the necessary expertise
o Consulting, where appropriate, with:
▪ Superiors within the employing organization
▪ Independent experts
▪ A relevant professional body
Financial Interests
• Examples of circumstances that may create self-interest threats:
o Holds a direct or indirect financial interest in the employing organization
o Is eligible for a profit related bonus and the value of that bonus could be directly affected by
decisions made by the professional accountant in business
o Holds, directly or indirectly, share options in the employing organization
o Holds, directly or indirectly, share options in the employing organization which are, or will soon
be, eligible for conversion
o May qualify for share options in the employing organization or performance related bonuses if
certain targets are achieved
• Safeguards that may eliminate or reduce threats:
o Policies and procedures for a committee independent of management to determine the level of form
of remuneration of senior management
o Disclosure of all relevant interests, and of any plans to trade in relevant shares to those charged
with the governance of the employing organization, in accordance with any internal policies
o Consultation, where appropriate, with superiors within the employing organization
o Consultation, where appropriate, with those charged with the governance of the employing
organization or relevant professional bodies
o Internal and external audit procedures
o Up-to-date education on ethical issues and the legal restrictions and other regulations around
potential insider trading
Inducements
• Receiving Offers
o A professional accountant in business should assess the risk associated with all such offers and
consider whether the following actions should be taken:
▪ Where such offers have been made, immediately inform higher levels of management or
those charged with governance of the employing organization
▪ Inform third parties of the offer
▪ Advise immediate or close family members of relevant threats and safeguards where they
are potentially in positions that might result in offers of inducements
▪ Inform higher levels of management or those charged with governance of the employing
organization where immediate or close family members are employed by competitors or
potential suppliers of that organization
• Making Offers
o Sources of pressures to make offers:
▪ within the employing organization
▪ external individual or organization