Code of Ethics for CPAs in the Philippines

Sources: Code of Ethics for Professional Accountants in the Philippines

Fundamental Principles
(a) Integrity - A professional accountant should be straightforward and honest in all
professional and business relationships.
(b) Objectivity - A professional accountant should not allow bias, conflict of interest or
undue influence of others to override professional or business judgments.
(c) 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. A professional
accountant should act diligently and in accordance with applicable technical and
professional standards when providing professional services.In addition, they should
conform 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
(d) Confidentiality - A professional accountant should respect the confidentiality of
information acquired as a result of professional and business relationships and
should not disclose any such information to third parties without proper and specific
authority unless there is a legal or professional right or duty to disclose. Confidential
information acquired as a result of professional and business relationships should
not be used for the personal advantage of the professional accountant or third
parties.
(e) Professional Behavior - A professional accountant should comply with relevant laws
and regulations and should avoid any action that discredits the profession.

Conceptual Framework Approach

 The Code of Ethics is a FRAMEWORK. The code serves as a guide in determining
possible threats. It does not set out clear violations because there might be some
threats to compliance that may not be clearly identified.
 Safeguards should be applied when threats are identified, to mitigate the threat. If the
threat cannot be eliminated, the engagement should not be continued.
 The practitioner has the duty to identify those threats to compliance when there is a
way to know such.
 The practitioner should consider quantitative and qualitative factors in identifying
threats to compliance. If it cannot be mitigated, the practitioner should withdraw.
 If the practitioner unknowingly violates the code, once the violation was made known
to him or her, he/she shall correct it promptly.
 Part B and C of the Code pertains to instances specific for each practice (public and
private)
Threats to Compliance with the Fundamental Principles
(a) Self-interest threats - which may occur as a result of the financial or other interests of
a professional accountant or of an immediate or close family member;
(b) Self-review threats - which may occur when a previous judgment needs to be re-
evaluated by the professional accountant responsible for that judgment;
(c) Advocacy threats - which may occur when a professional accountant promotes a
position or opinion to the point that subsequent objectivity may be compromised;
(d) Familiarity threats - which may occur when, because of a close relationship, a
professional accountant becomes too sympathetic to the interests of others; and
(e) Intimidation threats - which may occur when a professional accountant may be
deterred from acting objectively by threats, actual or perceived.

Safeguards

Safeguards that may eliminate or reduce such threats to an acceptable level fall into two
broad categories:
(a) Safeguards created by the profession, legislation or regulation; and
(b) Safeguards in the work environment.

Safeguards created by the profession, legislation or regulation include, but are not restricted
to:
 Educational, training and experience requirements for entry into the profession.
 Continuing professional development requirements.
 Corporate governance regulations.
 Professional standards.
 Professional or regulatory monitoring and disciplinary procedures.
 External review by a legally empowered third party of the reports, returns,
communications or
 information produced by a professional accountant.

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, include, but are not restricted to:
 Effective, well publicized complaints systems operated by the employing
organization, the profession or a regulator, which enable colleagues, employers and
members of the public to draw attention to unprofessional or unethical behavior.
 An explicitly stated duty to report breaches of ethical requirements.

The nature of the safeguards to be applied will vary depending on the circumstances. In
exercising professional judgment, a professional accountant should consider what a
reasonable and informed third party, having knowledge of all relevant information, including
the significance of the threat and the safeguards applied, would conclude to be
unacceptable.

Ethical Conflict Resolution

When initiating either a formal or informal conflict resolution process, a professional
accountant should consider the following, either individually or together with others, as part
of the resolution process:
(a) Relevant facts;
(b) Ethical issues involved;
(c) Fundamental principles related to the matter in question;
(d) Established internal procedures; and
(e) Alternative courses of action.

What to do?
 Determine the appropriate course of action that is consistent with the fundamental
principles.
 Weigh the consequences of each possible course of action
 If the matter remains unresolved, the professional accountant should consult with
other appropriate persons within the firm or employing organization for help.

Line of action when there is conflict:

 Proceed to those charged with governance or the audit committee
 Gather advice from the relevant professional body or legal advisors
 If conflict cannot be resolved, withdraw from engagement

Fundamental Principles:

Integrity
 Imposes an obligation on all professional accountants to be straightforward and
honest in professional and business relationships.
 Implies fair dealing and truthfulness.
 A professional accountant should not be associated with reports, returns,
communications or other information where they believe that the information:
o (a) Contains a materially false or misleading statement;
o (b) Contains statements or information furnished recklessly; or
o (c) Omits or obscures information required to be included where such
omission or obscurity would be misleading.
 A modified report shall be issued if matters stated above are involved in an
engagement.

Objectivity
 The principle of objectivity imposes an obligation on all professional accountants not
to compromise their professional or business judgment because of bias, conflict of
interest or the undue influence of others.
 A professional accountant may be exposed to situations that may impair objectivity. It
is impracticable to define and prescribe all such situations. A professional accountant
shall not perform a professional service if a circumstance or relationship biases or
unduly influences the accountant’s professional judgment with respect to that service.

Professional Competence and Due Care

 Imposes the following obligations on professional accountants:
 o (a) To maintain professional knowledge and skill at the level required to
ensure that clients or employers receive competent professional service; and
o (b) To act diligently in accordance with applicable technical and professional
standards when providing professional services.
 Competent professional service requires the exercise of sound judgment in applying
professional knowledge and skill in the performance of such service. Professional
competence may be divided into two separate phases:
o (a) Attainment of professional competence; and
o (b) Maintenance of professional competence.
 Professional competence is achieved by:
o College Education (BS Accountancy)
o Passing the board exams
o Continuing professional Development through trainings and seminars
o Work experience
 The maintenance of professional competence requires a continuing awareness and
an understanding of relevant technical professional and business developments.
 Diligence encompasses the responsibility to act in accordance with the requirements
of an assignment, carefully, thoroughly and on a timely basis.
 A professional accountant should take steps to ensure that those working under the
professional accountant’s authority in a professional capacity have appropriate
training and supervision.
 Where appropriate, a professional accountant should make 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.

Confidentiality
 Imposes an obligation on professional accountants to refrain from:
o (a) Disclosing outside the firm or employing organization confidential
information acquired as a result of professional and business relationships
without proper and specific authority or unless there is a legal or professional
right or duty to disclose; and
o (b) Using confidential information acquired as a result of professional and
business relationships to their personal advantage or the advantage of third
parties.
 A professional accountant should:
o maintain confidentiality even in a social environment; be alert to the possibility
of inadvertent disclosure, particularly in circumstances involving long
association with a business associate or a close or immediate family member.
o maintain confidentiality of information disclosed by a prospective client or
employer.
o consider the need to maintain confidentiality of information within the firm or
employing organization.
o take all reasonable steps to ensure that staff under the professional
accountant’s control and persons from whom advice and assistance is
obtained respect the professional accountant’s duty of confidentiality.
 The need to comply with the principle of confidentiality continues even after the end
of relationships between a professional accountant and a client or employer. When a
 professional accountant changes employment or acquires a new client, the
professional accountant is entitled to use prior experience. The professional
accountant should not, however, use or disclose any confidential information either
acquired or received as a result of a professional or business relationship.
 Circumstances where professional accountants are or may be required to disclose
confidential information or when such disclosure may be appropriate:
o (a) Disclosure is permitted by law and is authorized by the client or the
employer;
o (b) Disclosure is required by law, for example:
 (i) Production of documents or other provision of evidence in the
course of legal proceedings; or
 (ii) Disclosure to the appropriate public authorities of infringements of
the law that come to light; and
o (c) There is a professional duty or right to disclose, when not prohibited by
law:
 (i) To comply with the quality review of a member body or professional
body;
 (ii) To respond to an inquiry or investigation by a member body or
regulatory body;
 (iii) To protect the professional interests of a professional accountant
in legal proceedings; or
 (iv) To comply with technical standards and ethics requirements.
 In determining to disclose, the accountant should determine whether:
o Interests of all parties could be harmed by the disclosure
o Information is complete and substantiated. Professional judgment should be
used for incomplete information.
o Type of communication and addressees are appropriate.

Professional Behavior
 Imposes an obligation on professional accountants to comply with relevant laws and
regulations and avoid any action that may bring discredit to the profession.
 In marketing and promoting themselves and their work, professional accountants
should not bring the profession into disrepute. Professional accountants should be
honest and truthful and should not:
o (a) Make exaggerated claims for the services they are able to offer, the
qualifications they possess, or experience they have gained; or
o (b) Make disparaging references or unsubstantiated comparisons to the work
of others.

Code of Ethics – Part B

This Part of the Code illustrates how the conceptual framework contained in Part A is to be
applied by professional accountants in public practice. The examples are not intended to be,
nor should they be interpreted as, an exhaustive list of all circumstances experienced by a
professional accountant in public practice that may create threats to compliance with the
principles. Consequently, it is not sufficient for a professional accountant in public practice
merely to comply with the examples presented; rather, the framework should be applied to
the particular circumstances faced.

A professional accountant in public practice should not engage in any business, occupation
or activity that impairs or might impair integrity, objectivity or the good reputation of the
profession and as a result would be incompatible with the rendering of professional services

Threats and Safeguards

Examples of circumstances that may create the listed threats for a professional accountant
in public practice include, but are not limited to:

Self-Interest Threats
 A financial interest in a client or jointly holding a financial interest 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 assurance engagement

Self-Review Threats
 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.

Advocacy Threats
 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.

Familiarity Threats
 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.

Intimidation Threats
 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.

A professional accountant in public practice may also find that specific circumstances give
rise to unique threats to compliance with one or more of the fundamental principles. Such
unique threats obviously cannot be categorized. In either professional or business
relationships, a professional accountant in public practice should always be on the alert for
such circumstances and threats.

Safeguards that may eliminate or reduce threats to an acceptable level fall into two broad
categories:
 Safeguards created by the profession, legislation or regulation; and
 Safeguard in the work environment.

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 or professional behavior
may be created from, for example, questionable issues associated with the client (its
owners, management and activities).
 Where it is not possible to reduce the threats to an acceptable level, a professional
accountant in public practice should decline to enter into the Client relationship.
 Acceptance decisions should be periodically reviewed for recurring client
engagements.

Engagement Acceptance

Safeguards to eliminate threats or reduce them to an acceptable level 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.
 Acquiring knowledge of relevant industries or 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 they can
be performed competently.

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.
 An existing accountant is bound by confidentiality. The extent to which the
professional accountant in public practice can and should discuss the affairs of a
client with a proposed accountant will depend on the nature of the engagement and
on:
o Whether the client’s permission to do so has been obtained; or
o The legal or ethical requirements relating to such communications and
disclosure, which may vary by jurisdiction.
 In the absence of specific instructions by the client, an existing accountant should not
ordinarily volunteer information about the client’s affairs.
 Safeguards may include:
o Discussing the client’s affairs fully and freely with the existing accountant.
o 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.
o When replying to requests to submit tenders, stating in the tender that, before
accepting the engagement, contact 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 appointment 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
 Where the threats cannot be eliminated or reduced to an acceptable level through
the application of safeguards, a professional accountant in public practice should,
unless there is satisfaction as to necessary facts by other means, decline the
engagement.

Conflicts of Interest
 A professional accountant in public practice should take reasonable steps to identify
circumstances that could pose a conflict of interest. Such circumstances may give
rise to threats to compliance with the fundamental principles.
 A professional accountant in public practice should evaluate the significance of any
threats.
 Depending upon the circumstances giving rise to the conflict, safeguards should
ordinarily include the professional accountant in public practice:
 o 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
o 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
o 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.
 The following additional safeguards should also be considered:
o (a) The use of separate engagement teams; and
o (b) Procedures to prevent access to information (e.g., strict physical
separation of such teams, confidential and secure data filing); and
o (c) Clear guidelines for members of the engagement team on issues of
security and confidentiality; and
o (d) The use of confidentiality agreements signed by employees and partners
of the firm; and
o (e) Regular review of the application of safeguards by a senior individual not
involved with relevant client engagements.
 Where a conflict of interest poses a threat to one or more of the fundamental
principles, including objectivity, confidentiality or professional behavior, that cannot
be eliminated or reduced to an acceptable level through the application of
safeguards, the professional accountant in public practice should conclude that it is
not appropriate to accept a specific engagement or that resignation from one or more
conflicting engagements is required.

Second Opinions
Situations where a professional accountant 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 an entity that is not
an existing client may give rise to threats to compliance with the fundamental principles.

When asked to provide such an opinion, a professional accountant in public practice should
evaluate the significance of the 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.

If the company or 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

When entering into negotiations regarding professional services, a professional accountant
in public practice may quote whatever fee deemed to be appropriate.
Nevertheless, there may be threats to compliance with the fundamental principles arising
from the level of fees quoted.

Safeguards which may be adopted include:

 Making the client aware of the terms 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 staff to the task

Fees charged for assurance engagements should be a fair reflection of the value of the work
involved and should take into account, among others:
 the skill and knowledge required for the type of work involved;
 the level of training and experience of the persons necessarily engaged on the work;
 the time necessarily occupied by each person engaged on the work; and
 the degree of responsibility and urgency that the work entails

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 in certain
circumstances. They may give rise to a self-interest threat to objectivity.
 The significance of such threats will depend on factors including:
o The nature of the engagement.
o The range of possible fee amounts.
o The basis for determining the fee.
o Whether the outcome or result of the transaction is to be reviewed by an
independent third party.
 The significance of such threats should be evaluated and, if they are other than
clearly insignificant, safeguards should be considered and applied as necessary to
eliminate or reduce them to an acceptable level. Such safeguards may include:
o An advance written agreement with the client as to the basis of remuneration.
o Disclosure to intended users of the work performed by the professional
accountant in public practice and the basis of remuneration.
o Quality control policies and procedures.
o Review by an objective third party of the work performed by the professional
accountant in public practice.

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

fee or commission relating to a client.

A professional accountant in public practice may also pay a referral fee to obtain a client, for
example, where the client continues as a client of another professional accountant in public
practice but requires specialist services not offered by the existing accountant.

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 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 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

Marketing Professional Services

The professional accountant in public practice should be honest and truthful and should not:
 Make exaggerated claims for services offered, qualifications possessed or
experience gained; or
 Make disparaging references to unsubstantiated comparisons to the work of another.

Gifts and Hospitality

A professional accountant in public practice, or an immediate or close family member, may
be offered gifts and hospitality from a client. Such an offer ordinarily gives rise to threats to
compliance with the fundamental principles.

The significance of such threats will depend on the nature, value and intent behind the offer.
Where gifts or hospitality which a reasonable and informed third party, having knowledge of
all relevant information, would consider clearly insignificant are made a professional
accountant in public practice may conclude that the offer is made in the normal course of
business without the specific intent to influence decision making or to obtain information.

If evaluated threats are other than clearly insignificant, 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.

To safeguard against such threats, a professional accountant in public practice entrusted

with money (or other Assets) belonging to others should:
 Keep such assets separately from personal or firm assets; and
 Use such assets only for the purpose for which they are intended; and
 At all times, be ready to account for those assets, and any income, dividends or gain
generated, to any persons entitled to such accounting; and
 Comply with all holding of and accounting for such assets.

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 directors,
officers or employees.
A professional accountant in public practice who provides an assurance service is required
to be independent of the assurance client.

Safeguards may include:

 Withdrawing from the engagement team.
 Supervisory procedures.
 Terminating the financial or business relationship giving rise to the threat.
 Discussing the issue with higher levels of management within the firm.
 Discussing the issue with those charged with governance of the client