Ethics

- based on well-founded standards of right and wrong that prescribe what humans ought to
do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues.
- A system of moral principles.

Code of Ethics
- represent a set of moral principles, rules or conduct or values (generic)
- intended to assist members in understanding the difference between right and wrong and
in applying that understanding to their decisions (professional) (providing guidelines but
decided by the member’s judgment)
- applied when an individual has to decide from various alternatives regarding moral
principles

Purpose of Code of Ethics

- A distinguishing mark of the accountancy profession is its acceptance of its
responsibility to act in the public interest which is the collective well-being of the
community of people and institutions the CPA serves. (1)
- All recognized professions have developed code of professional ethics. (2)
- The profession’s attempt to achieve a number of common interests and by its observance
of certain fundamental principles of that purpose.

(1)
Why there is a need of standards?
- Work with highest standards of professionalism
- To attain the highest level of performance
- To meet public interest requirement

Four basic needs to be met (CPCQ)

- Credibility
- Professionalism
- Quality of Services
- Confidence

(2)
Characteristics of a Profession
- 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
administrating body, including maintaining an outlook which is essentially objective.
- Acceptance of a duty to society as a whole.

Adoption of the Code

- The Board has the power and function to prescribe and/or adopt a Code of Ethics for the
practice of accountancy
Standards governing bodies adopted by IFAC:
1. International Ethics Standards Board for Accountants (IESBA) Code of Ethics,
2. IASB
3. IAASB

Adoption of Accounting and Auditing Standards:

FRSC and AASC are subdivided into working groups:
Discussion papers (used to document the process of the review of international standards) 
Exposure Drafts  Stakeholders (Public) (to provide comments, suggestions, and
recommendations)  Final Draft  BOA (for approval)

Approval and Exposure Period of the Exposure Drafts:

Approval of Exposure Period Approval of the
Exposure Drafts Final Draft

FRSC (Accounting Approved by the 60 days (general) Approved by the

Standards) majority of the As low as 30 days majority of the
members (urgent need or members
requirement to adopt the
standard
AASC (Auditing Approved by the At least 90 days Approved by 10
Standards) majority of the members
members

The Final Draft considers the comments, suggestions, and recommendations of the public.

Code should be seen as Basic Principles:

- It is not practical to establish ethical requirements which apply to all situations and
circumstances that professional accountants may encounter. Therefore, professional
accountants should consider the ethical requirements as the basic principles which they
follow in performing their work. Judgment – professional accountant

Complying with the Code:

Rule: All Professional Accountants (regardless of sector)
Conflicting Requirement of two countries: When a professional accountant performs services in
a country other than the home country and differences on specific matters exist between ethical
requirement of two countries, apply the requirement with stricter provision.
Conflict of local laws
- The international code is intended to serve as a model on which base national ethical
guidance.
- The accountancy profession throughout the world operates in an environment with
different cultures and regulatory requirements.
- In those instances where a national requirement is in conflict of the provision in the Code,
the national requirement would prevail.

Fundamental Principles
1. Integrity - straightforward and honest
o Avoid people without or lacking integrity
 If associated with people without or lacks integrity, no trust and
confidence from the public. Work will be little or no value.
o Do not associate to information that lacks integrity – compromised name and
profession
Information that lacks integrity:
 Recklessly furnished
 Intended to mislead other people
 Contains misstatements

2. Objectivity – to exercise professional or business judgment without being compromised

by bias conflict of interest, or undue influence (boss-subordinate) of, or undue reliance on
individuals, organizations, technology or other factors.

3. Professionalism competence and due care

- To attain and maintain professional knowledge and skill at the level required to ensure
that a client or employing organization receives competent professional service, based on
current on technical and professional standards and relevant legislation.

2 Stages of Professional Competence

1. Attainment of Professional Competence – process of acquiring necessary skills and
knowledge
2. Maintenance of Professional Competence – continuing awareness

- To act diligently and in accordance with applicable technical and professional standards.

4. Confidentiality – exemption: acting with appropriate consent and legal requirement

5. Professional Behavior – to comply with relevant laws and regulations, behave in a

manner consistent with the profession’s responsibility to act in a public interest in all
professional activities and business relationships, and avoid any conduct that the
professional accountant knows and should know might discredit the profession.

When applying conceptual framework, the professional accountant shall:

a. Having an inquiring mind
b. Exercise professional judgment
 c. Use the reasonable and informed third-party test.

Forming a Conclusion:
The Professional Accountant is required to step-back through the following actions:
1. Review any significant judgments made or conclusions reached; and
2. Use the reasonable and informed third-party test.

Professional Accountants in Business (PAIB) – is a professional accountant working in areas

such as commerce, industry, service, the public sector, education, the non-for-profit sector, or in
regulatory or professional bodies, who might be an employee, contractor, director (executive or
non-executive), partner, owner-manager or volunteer.

Senior PAIB – a director, officer or senior employee who is able to exert significant influence
over, and make decisions regarding, the acquisition, deployment and control of the employing
organization’s human, financial, technological, physical and intangible resources.

Circumstances Concepts Main Funadamental

Threat/s Principles
Created Affected
Conflict of Interest Incompatible duties are segregated Self-interest Objectivity If it exists, there
(segregation of duties) would be
Oversight disclosure of
conflict of interest.
Appropriate
safeguards
Preparation and Prepared in the accordance with the Self- All
separation of applicable standards interest,
information Not intended to mislead users intimidation
(integrity and Should not omit any information that
objectivity) mislead the users
Acting with Knowledgeable and accord to necessary Self-interest Professional
sufficient expertise skills and knowledge competence and
Not allowed to exaggerate your expertise due care
Contribute to the development of another
PAIB
Financial Interest, Self-interest Objectivity,
Compensation and Confidentiality
Incentives
Inducements, Not to accept gifts and hospitality Self- Integrity, Accept gifts and
Including Gifts and Inducements – no influence to judgment interest, Objectivity, preferential
Hospitality Familiarity, Professional treatment if the
Intimidation Behavior value is clearly
insignificant
If significant,
appropriate
safeguards must be
 applied.
Responding to To obtain and understanding of the Self- Integrity,
Non-compliance NOCLAR interest, Professional
with Laws and Determine whether there is NOCLAR or intimidation Behavior
Regulations not.
(NOCLAR) Obtain sufficient information if there is
identified NOCLAR.
Communicate it with the appropriate
members of the organization (one level
higher or immediate superior)
If there is legal requirement to disclose
such NOCLAR (affects the community or
other specific regulator), communicate
the information to proper authority
Pressure to Breach Intimidation All
the Fundamental
Principles

Professional Accountants in Public Practice (PAPPs) – a professional accountant, irrespective of

functional classification (for example, audit, tax, or consulting) in a firm that provides
professional services (engaged in public practice). This term is also used to refer to a firm of
professional accountants in public practice.

Circumstances Concepts Main Funadamental

Threat/s Principles
Created Affected
Conflict of Self-interest Objectivity
interest
Professional Client acceptance or engagement All All If accepted and evaluated that
Appointments acceptance there is no or lack of
Evaluate to client’s integrity (client professional skills and
acceptance) knowledge, withdraw the
Evaluate if there is professional skills engagement and refer to
and knowledge (engagement another CPA.
acceptance) If there is reasonable
justification of the request,
Request to change initial agree the change of
appointment engagement.
If there is no reasonable
justification of the request,
Second If there is existing professional Self-interest Professional Before accepting second
Opinions accountant and he/she doesn’t Competence opinion engagement, will you
believe on the opinion of the existing and Due Care able to obtain the necessary
accountant, he/she consults other information that could serve
accountant. the basis in expressing your
Express an appropriate opinion opinion?
 If yes, accept
If no, better not to accept the
engagement
Fees and other Relative size Self-interest Professional Price is indicator of quality.
types of Factors: level of skills and Competence Higher price – higher quality,
remuneration knowledge, level of training, time to and Due Care, more competent (as opposed to
be spent, degree of responsibility Objectivity equal competence with other
Determine the amount to be charged accountants)
to the client – it should not be Lower price – lax procedures,
substantially higher or lower than the leads to no basis of opinion or
amount to be determine by another inappropriate report, abusado
professional accountant if they are client
the one who determine it. Overdue fees – prior to the
Contingent fees – not allowed to issuance of the current year’s
determine the fees based on a report on a particular subject
contingency or future event. matter must need to be paid.
Overdue fees – rendered past years
report but not been paid.
Commission – not allowed to give or
receive commissions without
performing procedures.
Inducement, Self- Integrity,
Including Gifts interest, Objectivity,
and Hospitality Familiarity, Professional
Intimidation Behavior
Custody of Exemption: if required by law Self-interest Objectivity, Requirement: There should be
Client’s Assets Professional a complete separation of your
Behavior assets and client’s assets in any
point of time. Complete
accounting of client’s assets
Not allowed to use client’s
assets without a proper consent
Responding to Self- Integrity,
Non- interest, Professional
compliance intimidation Behavior
with Laws and
Regulations
(NOCLAR)

Responding to NOCLAR in Audits of Financial Statements:

1. Becoming aware of the matter – through procedures performed or conversation through
entity’s personnel (suspected NOCLAR).
2. Obtaining an understanding of the matter – if it exists or not
3. Addressing the matter – gathering enough information (idenfied) (e.g. check whether or
not the subject matter of the engagement (FS) will be affected to non compliance)
4. Communicate with respect to groups. (consider other auditors affected)
 5. Determining whether further action is needed. (communicate to management or adjust
financial statements)
6. Determining whether to disclose to appropriate authority. (check if there is legal
requirement that overrides the confidentiality clause) (e.g. if there is an effect to FS –
adjust the FS, if not permitted – communicate to those charged with governance, if not
again permitted – modify auditor’s report)
7. Documentation (procedures performed, information obtained, conclusion reached)

Responding to NONCLAR in Non-Audit Financial Statements:

1. Becoming aware of the matter.
2. Obtaining understanding of the matter.
3. Addressing the matter with management and TCWG (those charged with governance)
4. Communicating the matter to the entity’s external auditor.
5. Determining whether further action is needed
6. Seek legal advise
7. Documentation

1. Professional Accountant – accountants in any sectors, CPAs (broadest in scope0

2. Practitioner – CPA in public practice
3. Audit and Review Engagement – Auditor

Independent Engagement Team Requirement: (for both audit and review)

1. Engagement Team
2. Other members of the firm who will have a participation in rendering the service
3. Network firms

Financial Interests
1. Direct financial interest regardless of materiality – impaired independence
(not accept the engagement unless there is disposal of direct financial interest)
E.g. Control – auditor or his/her immediate family member
2. Indirect material financial interest – impaired independence
(reduce to an acceptably low level)
E.g. Post-employment plan

Difference: Control on decision-making

Loans and guarantees
Client if it is a bank: Was it made on normal lending procedure?
Yes:
If the amount involved is immaterial to both parties – regardless of the amount
acceptable (not impaired independence)
If the amount is material to both parties – appropriate safeguards must be done
(impaired independence)

No: Impaired independence

Client if it is not a bank:

If the amount involved is immaterial to both parties – regardless of the amount
acceptable (not impaired independence)
If the amount is material to both parties – appropriate safeguards must be done
(impaired independence)

Reports on special purpose FS that include restriction on use and distribution (audit and review
engagements – Threats Created: All

Assurance engagements may include:

1. Assurance on an entity’s key performance indicators – entity’s performance.
Major users of the auditor’s report: Owners or representative (BOD)
Performance indicators established by the owners
2. Assurance on entity’s compliance with law or regulation.
Focus: Compliance with law or regulation
3. Assurance on performance criteria, such as value or money, achieved by a public sector
body.
Ex. Government – utilization of funds entrusted to the government
4. Assurance on the effectiveness of an entity’s system of internal control.
Evaluation of processes and policies and procedures of the company
5. Assurance on an entity’s greenhouse gas statement.
6. An audit on specific elements, accounts, or items of a financial statements.