Accountancy Code of Ethics in the Philippines

8/22/2019 Accountancy Code of Ethics in the Philippines

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PART A: GENERAL APPLICATION OF THE

CODE PART B: PROFESSIONAL ACCOUNTANTS

IN PUBLIC PRACTICE

PART C: PROFESSIONAL ACCOUNTANTSIN BUSINESS



Introduction and Fundamental Principles

Integrity

Objectivity

Professional Competence and Due Care

Confidentiality

Professional Behavior

Back to table of content



Introduction

Professional Appointment

Conflicts of Interest

Second Opinions Fees and Other Types of Remuneration

Marketing Professional Services

Gifts and Hospitality Custody of Client Assets

Objectivity–All Services

Independence– Assurance Engagements




The Code of Ethics (A, B, and C)

Part A establishes the fundamental principles of ethics for professional accountants and provides aconceptual framework for applying those principles.

Parts B and C illustrate how the conceptualframework is to be applied in specific situations.

• Part B applies to professional accountants in

public practice. • Part C applies to professional accountants inbusiness.



Conceptual Framework Approach

A conceptual framework requires a professionalaccountant to identify, evaluate and address

threats to compliance with the fundamental

principles, rather than merely comply with a set of

specific rules which may be arbitrary.

If threats to ethics are not clearly insignificant, a

professional accountant should apply safeguards

to eliminate the threats or reduce them to anacceptable level.



Threats and Safeguards

Compliance with the fundamental principles maypotentially be threatened by a broad range of circumstances. Many threats fall into the following

categories:

Self-interest threats

Self-review threats

Advocacy threats Familiarity threats

Intimidation threats

Continuation…



Self-Interest Threat

A Self-interest threat occurs as a result of the

financial or other interests of a professional

accountant or of an immediate or close family member;



Self Interest Threats Circumstances

A financial interest in a client or jointly holding a financialinterest with a client.

Undue dependence on total fees from a client.

Having a close business relationship with a client.

Concern about the possibility of losing a client.

Potential employment with a client. Contingent fees relating to an engagement.

A loan to or from a client or any of its directors or officers.



Self-Review Threat

Self-Review Threat occurs occur when a previous

judgment needs to be re-evaluated by the

professional accountant responsible for that judgment.



Self-Review Threats Circumstances

The discovery of a significant error during a re-evaluation of thework of the auditor.

Reporting on the operation of financial systems after beinginvolved in their design or implementation.

Having prepared the original data used to generate records thatare the subject matter of the engagement.

A member of the team being, or having recently been, a director or officer of that client.

A member of the team being, or having recently been, employed

by the client in a position to exert direct and significant influenceover the subject matter of the engagement.

Performing a service for a client that directly affects the subjectmatter of the engagement.



Advocacy Threat

An Advocacy Threat occurs when a professionalaccountant promotes a position or opinion to thepoint that subsequent objectivity may be

compromised.

Examples of circumstances that create advocacythreats :

Selling, underwriting or otherwise dealing in financial

securities or shares of a client; Acting as an advocate on behalf of a client inlitigation or disputes with third parties.



Familiarity Threat

Fam il iari ty Threat occurs when, by virtue of a close

relationship with a client, its directors, officers or employees, an auditor becomes too sympathetic to

the client’s interests.



Familiarity Threats Circumstances

Immediate family member or close family member who is adirector, officer, or influential employee of the client;

A member of the team having a close family member who, as

an employee of the client, is in a position to exert direct andsignificant influence over the subject matter of theengagement;

A former partner of the firm being a director, officer of theclient or an employee in a position of significant influence;

Long association of a senior member of the team with theclient

Acceptance of gifts or hospitality, unless the value is clearlyinsignificant, from the client, its directors, officers or employees.



Intimidation Threat

Int imidat ion Threat occur when a professional

accountant may be deterred from acting objectively by

threats, either actual or perceived.

Examples of circumstances:

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.



Safeguards

Safeguards that may eliminate or reduce such threats

to an acceptable level fall into three broad categories:

◦ Safeguards created by the profession, legislation or

regulation;

◦ Safeguards within the client; and

◦

Safeguards within the firm’s own systems andprocedures.



Safeguards created by the profession, legislation or

regulation

Educational, training and experience requirementsfor entry into the profession.

Continuing professional developmentrequirements.

Corporate governance regulations.Professional standards.

Professional or regulatory monitoring anddisciplinary procedures

External review by a third party of the reports,returns, communications or information producedby a professional accountant.



Safeguards within the Client

When the client’s management appoints the firm, persons

other than management ratify or approve the appointment;

The client has competent employees to make managerialdecisions;

Policies and procedures that emphasize the client’s

commitment to fair financial reporting;

A corporate governance structure, such as an auditcommittee, that provides appropriate oversight and

communications regarding a firm’s services.



Safeguards in the work environment

leadership that stresses the importance of independence and the

expectation that members of the teams will act in the public

interest.

Policies and procedures to implement and monitor quality control

of the engagements;

Documented independence policies regarding the identification of

threats to independence, the evaluation of the significance of

these threats and the identification and application of safeguardsto eliminate or reduce the threats, other than those that are clearly

insignificant, to an acceptable level;



Resolution of Ethical Conflicts

If the matter remains unresolved, the professionalaccountant should consult with other appropriate personswithin the firm

Where a matter involves a conflict with, or within, anorganization, consult with those charged with governanceof the organization, such as the board of directors or theaudit committee.

If a significant conflict cannot be resolved, obtainprofessional advice from the relevant professional bodyor legal advisors.

If, after exhausting all relevant possibilities, the ethicalconflict remains unresolved, a professional accountantshould, where possible, refuse to remain associated withthe matter creating the conflict.



Professional Appointment

Client Acceptance - consider whether acceptance

would create any threats to compliance with the

fundamental principles

Engagement Acceptance - agree to provide only

those services that the accountant is competent to

perform.



Changes in a Professional Appointment

Before accepting an appointment involving services

that were carried out by another, the proposed auditor

should:

◦ Request permission from the client to contact former

auditor directly;

◦ Contact existing auditor before beginning audit.



Information from Existing Auditor

Once the client permission is obtained, the existingauditor should provide information honestly andunambiguously.

If the proposed auditor is unable to communicate withthe existing auditor, the proposed auditor should tryto obtain information about any possible threats byother means such as through inquiries of third partiesor background investigations on senior management.

The existing auditor is no longer required to provideinformation in writing or regarding reasons not to takean audit.

Back to part b



Conflicts of Interest

A professional accountant in practice should takereasonable steps to identify circumstances that could

pose a conflict of interest. Such circumstances maygive rise to threats to compliance with thefundamental principles

Back to part b



THREAT:

THREAT TO PROFESSIONAL DUE CARE AND COMPETENCE

- not based on the same set of facts that were made

available to the existing accountant or auditor

-based on inadequate evidence

SAFEGUARDS:

Seeking client permission to contact the existingaccountant, describing the limitations surrounding any

opinion in communications with the client and providingthe existing accountant with a copy of the opinion.

Back to part b



“Fees charged for assurance engagements should be a fairreflection of the value of the work involved and should takeinto account, among others:

(a) the skill and knowledge required for the type of workinvolved;

(b) the level of training and experience of the personsnecessarily engaged on the work;

(c) the time necessarily occupied by each person engagedon the work; and

(d) the degree of responsibility and urgency that the workentails.”



THREAT:

SELF-INTEREST THREAT TO PROFESSIONAL COMPETENCE

AND DUE CARE

- The fee is too low so that a proper service or audit cannot beconducted-Undue dependence on total fees from a single client

SAFEGUARDS:

-Making the client aware of the terms of the engagement and , in

particular, the basis on which fees are charged and which servicesare covered by the quoted fee.-Assigning appropriate time and qualified staff to the task



THREAT:SELF-INTEREST THREAT TO OBJECTIVITY

The significance of such threats will depend on factorsincluding:-The nature of the engagement

-The range of possible fee amounts

-The basis for determining the fee-Whether the outcome or result of the transaction is tobe reviewed by an independent third party



SAFEGUARDS:

-And Advance written agreement with the client as to the basis

of remuneration.

-Disclosure to intended users of the work performed by theprofessional 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 inpublic practice.



THREAT:SELF-INTEREST THREATS TO OBJECTIVITY AND PROFESSIONAL

COMPETENCE AND DUE CARE-where the client continues as a client of another professionalaccountant in public practice but requires specialist services notoffered by the existing accountant.

SAFEGUARDS:-Disclosing to the client any arrangements to pay a 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 publicpractice.-Obtaining advance agreement from the client for commission

arrangements in connection with the sale by a third party of goods orservices to the client.

Back to part b



THREAT:

SELF-INTEREST THREAT TO COMPLIANCE WITHTHE PRINCIPLEOF PROFESSIONAL BEHAVIOR

- An exaggerated claim for services offered,qualifications possessed or experience gained

-Make disparaging references or unsubstantiated

comparisons to the work of others- Improper use of the CPA logo

Back to part b



THREAT:

SELF-INTEREST THREATS TO OBJECTIVITY

- If the gift from a client is accepted- If the gift or hospitality becomes a form of bribery inreturn for favours (this is also a criminal offense)

SAFEGUARDS:

-A professional accountant in public practice shouldnot accept such an offer.

Back to part b



THREAT:

SELF-INTEREST TO PROFESSIONAL BEHAVIOR AND MAY BE A SELF-INTEREST TO OBJECTIVITY ARISING FROM HOLDING CLIENTS ASSET

- The accountant intermingles client and firm monies

- The accountant has not complied with the law

regarding the holding of client assets



SAFEGUARDS:

(a) Keep such assets separately from personal or firmassets; and

(b) Use such assets only for the purpose for which they

are intended; and

(c) At all times, be ready to account for those assets, andany income, dividends or gain

generated, to any persons entitled to such accounting;and

(d) Comply with all holding of and accounting for such

assets. Back to part b



THREAT:THREAT TO OBJECTIVITY

Examples of potential threats include:- A close family friend is an employee of the client- The auditor went to school with the client managing director

SAFEGUARDS:-Withdrawing from the engagement team.

-Supervisory procedures.-Terminating the financial or business relationship giving rise tothe threat.-Discussing the issue with higher levels of management withinthe firm.

-Discussing the issue with those charged with governance of theclient.

Back to part b



Requires : (a) Independence of mind – the states of mind that permits the

provision of an opinion without being affected by inf luences

that compromise professional judgment, allowing an individual

to act with integrity, and exercise objectivity and professional judgment

(b) Independence in appearance – 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.



Network

A larger structure:(a) That is aimed at co-operation, and

(b) That is clearly aimed at profit or cost sharing or sharescommon ownership, control or management, commonquality control policies and procedures, commonbusiness strategy, the use of a common brand-name, or asignificant part of professional resources.

Network firm- A firm or entity that belongs to a network.



When the audit client is a listed entity, auditclient will always

include its related entities.

o Those Charged with

Governance



the member shall document the nature of the threatand the safeguards in place or applied that reduce thethreat to an acceptable level

the member shall document the nature of the threatand the rationale for the conclusion.



The engagement period starts when the audit team

begins to perform audit services. The engagementperiod ends when the audit report is issued.

o Mergers and Acquisitions

• An entity becomes a related entity of an auditclient, the firm shall identify and evaluateprevious and current interests and relationships

with the related entity that, taking into accountavailable safeguards, could affect its independenceand therefore its ability to continue the auditengagement after the effective date of the merger

or acquisition.



Assertion-based Assurance

Engagements- The members of the assurance team and the firmshall be independent of the assurance client (theparty responsible for the subject matter information,

and which may be responsible for the matter).



-The members of the assurance team and the firmshall be independent of the assurance client.

• Reports that Include a Restriction on

Use and Distribution

(a) are knowledgeable as to the purpose, subject matter

information and limitations of the report

(b) explicitly agree to the application of the modifiedindependence requirements.



The materiality of the subject matter information (orof the subject matter) for which the particularresponsible party is responsible

The degree of public interest associated with theengagement.



The firm shall determine whether any threats toindependence are created by

Financial or business relationships with the assuranceclient during or after the period covered by the subjectmatter information but before accepting the assuranceengagement;

Previous services provided to the assurance client.

Back to table of contents



PROFESSIONAL

ACCOUNTANTS

IN BUSINESS




Section 300 Introduction

Section 310 Potential Conflicts

Section 320 Preparation and Reporting of

Information Section 330 Acting with Sufficient Expertise

Section 340 Financial Interests

Section 350 Inducements




•PROFESSIONAL •RESPONSIBILITIES

•POSITION •

THREATS •SAFEGUARDS

Back to part c



Person formally certified by aprofessional body of belonging to aspecific profession by virtue of having

completed a required course of studiesand/or practice.And whose competence can usually be

measured against an established set ofstandards.

Back to INTRODUCTION



Prepare and report financial and otherinformation, which both their employing organizations and third parties may rely on.

Provide effective financial management andcompetent advice on a variety of business-related matters.

To further the legitimate aims of their

employing organization.




POSITION

• salaried employee• a partner

• director (whether executive or non-

executive)• an owner manager

• a volunteer

• working for one or more employingorganization

• Senior position



Senior Position

• A professional accountant in business often

holds a senior position within an

organization.

• The more senior the position, the greater will

be the ability and opportunity to influence

events, practices and attitudes.




THREATS

• Self-interest

• Self-review

• Advocacy

• Familiarity

• Intimidation




SAFEGUARDS

• Safeguards created by

the profession,

legislation or regulation

• Safeguards in the work

environment.




Potential Conflicts

• A professional accountant in business has a

professional obligation to comply with the

fundamental principles. There may be times,

however, when their responsibilities to anemploying organization and the professional

obligations to comply with the fundamental

principles are in conflict.



Potential Conflicts

• As a consequence of responsibilities to an

employing organization, a professional

accountant in business may be under pressure

to act or behave in ways that could directly orindirectly threaten compliance with the

fundamental principles. Such pressure may be

explicit or implicit; it may come from asupervisor, manager, director or another

individual within the employing organization.



Pressure• Act contrary to law or regulation.

• Act contrary to technical or professional standards.

• Facilitate unethical or illegal earnings management strategies.

• Lie to, or otherwise intentionally mislead (including misleading by

remaining silent) others, in particular:

o The auditors of the employing organization; oro Regulators.

• Issue, or otherwise be associated with, a financial or non-financial report

that materially misrepresents the facts, including statements in

connection with, for example:

o The financial statements;

o Tax compliance;

o Legal compliance; or

o Reports required by securities regulators.



SAFEGUARDS• Obtaining advice where appropriate

from within the employing

organization, an independent

professional advisor or a relevantprofessional body.

• The existence of a formal dispute

resolution process within theemploying organization.

• Seeking legal advice.Back to part c

Preparation and Reporting of



Preparation and Reporting of

Information

• INFORMATION - include financial ormanagement information

o Describes clearly the true nature of business transactions,assets or liabilities;

o Classifies and records information in a timely and propermanner

o Represents the facts accurately and completely in allmaterial respects.

• A professional accountant in business should

PREPARE and/or PRESENT such informationo fairly

o honestly

o in accordance with relevant professional standards

Back to part c



Acting With Sufficient Expertise

• Expert

- Professional who has acquired

knowledge and skills through studyand practice over the years, in a

particular field or subject, to the extent

that his or her opinion may be helpfulin fact finding, problem solving, or

understanding of a situation.



Acting With Sufficient Expertise

• the Professional Accountant in business

– has, or can obtain, sufficient specific training or

experience;

– should not intentionally mislead an employer as tothe level of expertise or experience possessed;

– nor should a professional accountant in business

fail to seek appropriate expert advice and

assistance when required.

Back to part c



Financial Interests

• is anything of monetary value, including, but not

limited to, salary, consulting fees, honoraria,

equity interests (e.g., stocks, stock options or

other ownership interests), interests in real orpersonal property, dividends, royalties, rent,

capital gains, intellectual property (e.g., patents,

copyrights and royalties from such rights.



Financial Interests

• Professional accountants in business may havefinancial interests, or may know of financialinterests of immediate or close family members,that could, in certain circumstances, give rise tothreats to compliance with the fundamentalprinciples.

• Nevertheless a professional accountant in

business should neither manipulate informationnor use confidential information for personalgain.

Back to part c



INDUCEMENT

• An advantage or benefit that precipitates a particular action on the part of an

individual.

• A professional accountant in business or animmediate or close family member may be

offered an inducement. Inducements may

take various forms, including gifts,hospitality, preferential treatment and

inappropriate appeals to friendship or

loyalty.



Receiving Offers

• A professional accountant in business should assess the risk

associated with all such offers and consider whether the

following actions should be taken:

(a) Where such offers have been made, immediately inform

higher levels of management or those charged withgovernance of the employing organization;

(b) Inform third parties of the offer – for example, a professional

body or the employer of the individual who made the offer; a

professional accountant in business should, however, considerseeking legal advice before taking such a step; and



Receiving Offers

(c) Advise immediate or close family members of relevant threats and safeguards where they arepotentially in positions that might result in offersof inducements, for example as a result of theiremployment situation; and

(d) Inform higher levels of management or thosecharged with governance of the employing

organization where immediate or close familymembers are employed by competitors orpotential suppliers of that organization.



Making Offers

• A professional accountant in business may be in a

situation where the professional accountant in

business is expected to, or is under other pressure

to, offer inducements to subordinate the judgment

of another individual or organization, influence a

decision-making process or obtain confidential

information.

• However a professional accountant in businessshould not offer an inducement to improperly

influence professional judgment of a third party.

Back to part c

Accountancy Code of Ethics in the Philippines

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