Code of Ethics for

Professional Accountants
Definition
“set of concepts and principles that guide us in determining what
behavior helps or harms and individual and/or society.”

“represents a set of moral principles, rules of conduct or values.”

2
Basic Objective
“assist members in understanding the difference between right and
wrong”

“applying that understanding to their decisions”

3
Why do PAs need a Code of Ethics?

◉ Acceptance of ◉ Required for an

the responsibility activity to be
to act in the considered as a
public interest. profession.

4
Acceptance of the responsibility
to act in the public interest.

FOUR BASIC NEEDS TO BE MET FOR

ACCOUNTANCY TO HAVE VALUE TO THE SOCIETY.
Of information and information systems.
Credibility
Individuals identifiable as professional
Professionalism persons in the accountancy field.
Assurance that all services are of the
Quality of services highest standards.
To feel confident that there exists a
Confidence framework of professional ethics.

5
Code of Ethics for
Professional Accountants
in the Philippines
Purpose of the Code
“reflecting the profession’s recognition of its public interest
responsibility.”

7
 Overarching requirements

Fundamental Conceptual International

Principles of Framework Independence
Standards
Ethics for
Professional
Accountants
(COBID)
8
Structure of the Code
Part Conceptual
and 1 – Complying
Framework
with the Code, Fundamental Principles,

Part 1 – Complying with the Code, Fundamental Principles,

and Conceptual Framework

Part
in Business
2 – Professional
(PAIBs) Accountants Part 3 –Practice
Public Professional
(PAPPs)
Accountants in

Part 2 – Professional
Part 3 – Professional Accountants in
Accountants
Public Practice (PAPPs)
in Business (PAIBs)

Part 4A – Independence for Audit and Review Part 4B – Independence for Assurance other than
Engagements
Part 4A – Audit and Review Engagements
Part 4B – Independence
Independence for for Assurance other
Audit and Review than Audit and Review
Engagements Engagements

G L O S S A R Y ( N E W ) 9
 Part 1

Complying with the code Fundamental Principles Conceptual Framework

Complying Fundamental Conceptual

with the code Principles Framework

10
 Complying with the Code

Code of Ethics vs Laws and regulations

Laws and Regulations shall prevail.
Conflicting requirements of Apply the code of ethics
Two Countries with stricter requirements.

In terms of breach of code, - Take action as soon as

A PA should: possible.
- Determine whether to
report the breach to
relevant parties.
11
Fundamental Principles

Fundamental Principle Definition and Requirements

R1: Straightforward and Honest in all
Integrity professional relationships.

12
Fundamental Principles

Fundamental Principle Definition and Requirements

R1: Not to compromise judgment due
Objectivity to bias, conflict of interest, and undue
influence.

13
 Fundamental Principles

Fundamental Principle Definition and Requirements

Professional R1: 1Attain and maintain professional

knowledge and skill at the level
Competence1 and Due required and 2act diligently according
to the standards.
Care2

14
Fundamental Principles
Fundamental Principle Definition and Requirements
R1: Respect the confidentiality of
information acquired.
PA shall:
- Not disclose information without
proper authority.
Confidentiality - Not use the information for
personal advantage.
- Not disclose information after the
relationship ended.
- Be alert of possibility of
inadvertent disclosure.
15
Fundamental Principles

Fundamental Principle Definition and Requirements

PA shall:
- Maintain confidentiality within firm.
- Maintain confidentiality disclosed
Confidentiality by a prospective client.
- Ensure personnel under PA’s
control respect the PA’s duty of
confidentiality.

16
Fundamental Principles

Fundamental Principle Definition and Requirements

R1: Comply with relevant laws
Professional and regulations and avoid any
Behavior conduct that might discredit
profession.

17
Conceptual
Framework
- The environment where PA renders its services may create threats
to compliance.

- Has been set out to present requirements on how to appropriately

deal with such threats.

18
Conceptual Framework
Three-step
Process
Forming Overall
Conclusion
Fundamental
Principles
(COBID)

Familiarity
threat

19
Conceptual Framework

Use the reasonable

Exercise Professional
informed third party test
Judgment

Evaluating Threats

Remain alert for new

info and changes in facts
and circumstances 20
Conceptual Framework
(Three-step Approach)
Step Discussion
- Self-interest threat
- Self review threat
Identifying threats - Advocacy threat
- Familiarity threat
- Intimidation threat
- Evaluate if such threats is at
Evaluating threats an acceptable level1.
- shall re-evaluate and
address that threat
accordingly.
21
Conceptual Framework
(Three-step Approach)
Step Discussion
Address in one of the three
ways:
- Eliminate the circumstance.
- Apply safeguards1.
Addressing threats - by the profession,
legislation, or regulation
- in the work environment
- Decline or end2 the activity.

22
 Conceptual Framework
(Forming Overall Conclusion)

Step Discussion

Consideration of Significant Through the following:

- Review significant judgments
Judgments Made and
and conclusions.
Overall Conclusions - Use the reasonable and
Reached informed third party test1.

23
Considerations for Audits,
Reviews and Other Assurance
Engagements
Independence – linked to objectivity & integrity.
- Independence of mind - state of mind without being
affected by influences.
- Independence in appearance - avoidance of
circumstances.
Professional Skepticism - when planning and performing
audits, reviews and other assurance engagements. Linked
to all fundamental principles.
24
PAIBs
“plays an important role as to the reliability of information that
investors, creditors, employing organizations and other business
sectors, as well as governments and the general public, may
rely upon.

25
Circumstances that may
create Threats (PAIBs)

26
Conflicts of
Interest
Conflicts of Interest

◉ Not allow a conflict of interest to compromise

professional or business judgment.
◉ Take reasonable steps to identify
circumstances that might create a conflict of
interest.
◉ Remain alert to changes over time in the
nature of the activities, interests and
relationships that might create a conflict of
interest 28
 Conflict of Interest
Circumstance Main Threat/s Main Fundamental
Principle Affected
Conflict of Interest Self-interest Objectivity

Example/s Possible Safeguard/s

- PA undertakes a professional activity - Segregation of Duties

for two or more parties with - Appropriate Oversight
conflicting interests.
- Interest of PA and the interest of
party whom the accountant works
for are in conflict.

29
Preparation and
Presentation of
Information
Preparation and Presentation
of Information
◉ When preparing or presenting
information:
○ Prepare or present info:
■ according to relevant reporting
framework
■ In a manner not intended to mislead
outcomes
○ Exercise professional judgment
○ Not omit anything 31
Preparation and Presentation
of Information
◉ Shall not exercise such discretion with the
intention of misleading others inappropriately.
◉ Exercise of professional judgment when:
○ There are activities not requiring compliance, to
identify purpose, context, and the audience.
○ Intending to rely on work of others to determine
what steps to take

32
 Preparation and Presentation
of Information
Circumstance Main Threat/s Main Fundamental
Principle Affected
Preparation and Self-interest, Intimidation All
Presentation of
Information

Example/s Possible Safeguard/s

- Discussing concerns with a superior

- Preparing and presenting misleading - Requesting such individuals to
information for self advantage, and/or resolve the matter
due to pressure by management or - Consulting the policies
other third-party. - Shall refuse to be or to remain
associated with the information.

33
Acting with
sufficient
expertise
Acting with sufficient
expertise
◉ Not intentionally mislead an employing organization as
to the level of expertise or experience possessed.
◉ Shall determine whether to decline to perform the
duties in question. If declining is appropriate, the
accountant shall communicate the reasons.

35
 Acting with sufficient expertise
Circumstance Main Threat/s Main Fundamental
Principle Affected
Acting with sufficient Self-interest Professional competence
expertise and due care

Example/s Possible Safeguard/s

- Insufficient time for proper - Obtain additional training.

performance - Ensuring there is adequate time.
- Incomplete, restricted, inadequate - Obtaining assistance
information - Consulting with superiors,
- Insufficient experience independent experts, relevant
- Inadequate resources for proper professional body
performance - Can refuse performance
36
Financial Interests,
Compensation and
Incentives
Financial Interests,
Compensation and Incentives
◉ Not manipulate information or use confidential
information for personal gain or for the financial gain of
others.

38
 Financial Interests,
Compensation and Incentives
Circumstance Main Threat/s Main Fundamental
Principle Affected
Financial Interests, Self-interest Objectivity;
Compensation and Confidentiality
Incentives
Example/s Possible Safeguard/s

- Independent committee policies and

A PA, or immediate or close family
procedures regarding remuneration
member of PA:
- Consulting to superiors, TCWG, and
- Holds a direct or indirect financial
relevant professional bodies
interest in the employing organization
- Internal and external audit
- Eligible for profit related bonus
procedures
- Holds share options
- Up-to-date education on ethical
- May qualify for share options or
issues around potential insider
performance-related bonus 39
trading.
Inducements,
including Gifts
and Hospitality
 Inducements, including Gifts
and Hospitality
◉ Inducements Prohibited by Laws and Regulations
■ shall obtain an understanding of relevant laws and
regulations and comply with them
◉ Inducements Not Prohibited by Laws and Regulations
○ Inducements with Intent to Improperly Influence Behavior
■ shall not offer or accept any inducement that is made with
the intent to improperly influence the behavior of the
recipient
○ Inducements with No Intent to Improperly Influence
Behavior
■ an inducement is trivial and inconsequential, any threats
created will be at an acceptable level. 41
 Inducements, including Gifts
and Hospitality
◉ Remain alert to potential threats to the accountant’s
compliance by the offering of an inducement by/to an
immediate or close family member of the accountant to a
counterparty.
◉ PA becomes aware, shall advise the immediate or close family
member not to offer or accept the inducement.

42
 Inducements, including Gifts
and Hospitality
Circumstance Main Threat/s Main Fundamental
Principle Affected
Inducements, including Self-interest; Familiarity; Integrity; Objectivity;
Gifts and Hospitality Intimidation Professional Behavior

Example/s Possible Safeguard/s

- PA is offered part-time employment - Being transparent with senior

- PA regularly takes a customer or management and TCWG
supplier to sporting events - Registering inducement in a log
- PA accepts hospitality which can be - Having an appropriate reviewer
viewed as inappropriate - Donating the inducement to the
- An immediate family offered an charity
inducement to a counterparty and - Reimbursing the cost of inducement
vice-versa - Return the inducement
43
Responding to
Non-Compliance with
Laws and Regulations
(NOCLAR)
Responding to
Non-Compliance with
Laws and Regulations (NOCLAR)
Circumstance Main Threat/s Main Fundamental
Principle Affected
Responding to Self-interest; Integrity;
Non-Compliance with Laws Intimidation Professional Behavior
and Regulations (NOCLAR)

Examples of laws and regulations which this section addresses include those that
deal with:
- Fraud, corruption and bribery.
- Money laundering, terrorist financing and proceeds of crime.
- Securities markets and trading.
- Banking and other financial products and services.
- Data protection.
- Tax and pension liabilities and payments.
- Environmental protection.
- Public health and safety. 45
 Responding to Non-Compliance with
Laws and Regulations (NOCLAR)
PAIBs
Objectives of the PA in responding to
To comply, alert management, and take further action,
NOCLAR

Identifying and addressing NOCLAR by Employing organization,

Responsibility of management and TCWG
Individual CWG, Member of management, & other individuals

Consider existing protocols, and take actions in a timely

Responsibilities of all PAs
manner.
- Obtain understanding of the NOCLAR
- Discuss the matter with superior, and take appropriate steps
Responsibilities of Senior PAIBs and other
- Determine whether disclosure to the external auditor is
PA’s
needed.
- Determine whether further action is needed
46
Pressure to Breach
the Fundamental
Principles
 Pressure to Breach the
Fundamental Principles
◉ A professional accountant shall not:
○ Allow pressure from others to result in a breach of compliance
with the fundamental principles; or
○ Place pressure on others that the accountant knows, or has
reason to believe, would result in the other individuals breaching
the fundamental principles.
◉ Pressure might be explicit or implicit and might come from:
○ Within the employing organization
○ An external individual or organization
○ Internal or external targets and expectations

48
 Pressure to Breach the
Fundamental Principles
Circumstance Main Threat/s Main Fundamental
Principle Affected
Pressure to Breach the Self-interest, Intimidation All
Fundamental Principles

Example/s Possible Safeguard/s

- Pressure from a family member - Discussing the matter with the:

bidding to act as a vendor to the - individual who is exerting the
professional accountant’s employing pressure
organization to select the family - accountant’s superior
member over another prospective - Escalating the matter within the
vendor. employing organization, with:
- Pressure to report misleading - Higher levels of management.
financial results to meet investor, - Internal or external auditors.
analyst or lender expectations. - Those charged with governance.
49
 Pressure to Breach the
Fundamental Principles
Example/s Possible Safeguard/s

- Pressure from superiors to inappropriately reduce - Disclosing the matter in line with the employing
the extent of work performed. organization’s policies
- Pressure from superiors, colleagues or others, for - Consulting with:
example, those who might benefit from - A colleague, superior, human resources
participation in compensation or incentive personnel, or another professional accountant;
arrangements to manipulate performance - Relevant professional or regulatory bodies or
indicators. industry associations; or
- Pressure from others, either internal or external to - Legal counsel.
the employing organization, to offer inducements - Request for a restructuring or segregation of duties
to influence inappropriately the judgment or
decision-making process of an individual or
organization.
- Pressure to structure a transaction to evade tax.

50
PAPPs
“plays an important role in the efficiency and effectiveness of
financial markets and reliability of information.

“irrespective of classification, they provide professional services.

Also refers to a firm of professional accountants in public
practice.

51
Circumstances that may
create Threats (PAPPs)

52
Conflict of
Interest
 Conflicts of Interest

◉ Prior to accepting client relationship and even during

engagement, shall be alert for circumstances that might
lead to conflict of interest.
◉ Disclosure and Consent
○ Shall exercise professional judgment to determine whether a conflict
of interest is significant that explicit consent are necessary.
○ The client has refused to provide consent, PA shall either:
■ End or decline to perform professional services
■ End relevant relationships to eliminate the threat or
reduce it to an acceptable level.

54
 Conflicts of Interest
◉ Confidentiality
○ Remain alert when making disclosures
○ When disclosure to obtain consent would breach
confidentiality therefore consent cannot be obtained, shall
only accept/continue engagement if:
■ Does not act in an advocacy role
■ Specific measures are in place
■ It is appropriate for the firm to continue from conclusion
in RITP test
◉ Documentation
○ nature of the circumstances,
○ specific measures in place
○ Why it is appropriate to accept or continue the engagement 55
 Conflict of Interest
Circumstance Main Threat/s Main Fundamental
Principle Affected
Conflict of Interest Self-interest Objectivity

Example/s Possible Safeguard/s

- Advising a client on acquiring a - The existence of separate practice

business which the firm is also areas for specialty functions within
interested in acquiring. the firm.
- Advising a client on buying a product - Having separate engagement teams.
or service while having a royalty or - Having an appropriate reviewer,
commission agreement with a
potential seller of that product or
service.

56
Professional
Appointments
 Professional Appointments
◉ Changes in a Professional Appointment
○ Communicating with the Existing or Predecessor Accountant
■ shall take other reasonable steps to obtain information
○ Communicating with the Proposed Accountant
■ When asked to respond, predecessor PA shall comply with relevant
laws and provide any info honestly and unambiguously.
○ Changes in Audit or Review Appointments
■ Proposed PA should be provided information by predecessor prior
to acceptance.
◉ Client and Engagement Continuance
○ Shall periodically review whether to continue with the engagement.
◉ Using the Work of an Expert
○ shall determine whether the use is warranted. 58
Professional Appointments
Circumstance Main Threat/s Main Fundamental
Principle Affected
Professional All All
Appointments

Example/s Possible Safeguard/s

- Questionable issues associated with - Asking the existing or predecessor

the client. accountant
- If the engagement team does not - Obtaining information from other
possess, or cannot acquire, the sources
competencies to perform the
professional services.

59
Second
Opinions
 Second Opinions

◉ PA might be asked to provide a second opinion on:

○ specific circumstances
○ transactions by or on behalf of a company or an entity that is
not an existing client
◉ When Permission to Communicate is Not Provided
○ Shall determine whether he/she may provide the second
opinion sought.

61
Second Opinions
Circumstance Main Threat/s Main Fundamental
Principle Affected
Self-Interest Professional Competence
Second Opinions and Due Care

Example/s Possible Safeguard/s

- Obtaining information from the

existing or predecessor accountant.
- If the second opinion is not based on - Describing the limitations surrounding
the same facts that the existing or any opinion in communications with
predecessor accountant had or is the client.
based on inadequate evidence. - Providing the existing or predecessor
accountant with a copy of the
opinion.

62
Fees and
other types of
remuneration
 Fees and other types
of remuneration
Circumstance Main Threat/s Main Fundamental
Principle Affected
Fees and Self-Interest Professional Competence
other types of and Due Care;
remuneration Objectivity

Types of fees and remuneration in this section:

- Regular fees
- Contingent fees
- Referral Fees/Commissions
- Purchase or Sale of a firm

64
Fees and other types of
remuneration

Level of fees:
- Quoting a fee lower than another accountant
is not in itself unethical.
- if the fee quoted is so low that it might be
difficult to perform the engagement in
accordance with applicable technical and
professional standards.

65
Fees and other types of
remuneration

Possible safeguards in level of fees:

- Adjusting the level of fees or the scope of the
engagement.
- Having an appropriate reviewer review the
work performed.

66
Fees and other types of
remuneration

Contingent fees:
- Used for certain types of non-assurance
services.
- Pre-determined basis relating to result of the
services performed by the firm.
- PA might compromise the result.

67
Fees and other types of
remuneration

Possible safeguards in contingent fees:

- Having an appropriate reviewer who was not
involved in performing the non-assurance
service review the work performed by the
professional accountant.
- Obtaining an advance written agreement with
the client based on remuneration.

68
Fees and other types of
remuneration

Referral fees or commissions:

A fee received for referring a continuing client to
another professional accountant or other expert
where the existing accountant:
- does not provide the specific professional
service required by the client.
- requires specialist services not offered by that
accountant.
69
Fees and other types of
remuneration

Possible safeguards in referral fees:

- Obtaining an advance agreement from the
client for commission arrangements.
- Disclosing to clients any referral fees or
commission arrangements paid to, or received
from, another professional accountant or third
party.

70
Fees and other types of
remuneration

Purchase or sale of the firm:

Payments made to individuals
formerly owning the firm are
NOT REFERRAL FEES OR COMMISSIONS.

71
Inducements,
including Gifts
and Hospitality
 Inducements, including
Gifts and Hospitality
Circumstance Main Threat/s Main Fundamental
Principle Affected
Self-Interest; Integrity;
Inducements, including
Familiarity; Objectivity;
Gifts and Hospitality Intimidation Professional Behavior

PAIBs PAPPs

- It occurs between PAs and relevant - It occurs between PAs and existing or
business parties. prospective client/s.

73
Custody of
Client Assets
 Custody of Client Assets
Circumstance Main Threat/s Main Fundamental
Principle Affected
Custody of Self-Interest Objectivity;
Client Assets Professional Behavior

Before Taking Custody After Taking Custody

Not assumed unless Custodian of the assets, but not the

As to
permitted by law or a ownership.
custody:
condition.
- Make inquiries about - Comply with the laws and regulations.
the source of the - Keep such assets separate from
Respons assets personal/firm assets.
ibilities: - Consider related legal - Use for its intended purposes only.
and regulatory - Be ready at all times to account for any
obligations gains generated to the respective owner.
75
Responding to
Non-Compliance with
Laws and Regulations
(NOCLAR)
 Responding to Non-Compliance with
Laws and Regulations (NOCLAR)
PAIBs PAPPs
Objectives of the PA in To comply, alert management, and take To comply, alert management,
responding to NOCLAR further action, and take further action,
Identifying and addressing
Identifying and addressing NOCLAR by
NOCLAR by Client, Individual
Responsibility of Employing organization, Individual
CWG, Member of management,
management and TCWG CWG, Member of management, & other
& other individuals
individuals

Consider existing protocols, and take Consider existing protocols, and

Responsibilities of all PAs
actions in a timely manner. take actions in a timely manner.
- Obtain understanding of the NOCLAR
- Discuss the matter with superior, and
Responsibilities of Senior
take appropriate steps -
PAIBs and other PA’s
- Determine whether further action is
needed 77
AUDIT
 Responding to Non-Compliance with
Laws and Regulations (NOCLAR)

Audit
Nature of NOCLAR, and the circumstances they might
Obtaining an Understanding of the
occur. Also, discuss the matter with management, or if
Matter
they are involved then to TCWG.
- Advise to take appropriate action, if not done so, to:
Rectify consequences, Deter the possible
commission, and Disclose to appropriate authority
Addressing the Matter - Consider whether they understand their
responsibilities.
- PA shall comply with laws, and requirements under
auditing standards.

79
 Responding to Non-Compliance with
Laws and Regulations (NOCLAR)

Audit
Component Level
PA shall communicate the matter to the group
engagement partner (GEP) if he is requested by the
GEP to work on FS of the component or he is
Communication with Respect to engaged to perform audit of the component like
Group Audits statutory audit
Group Level
The GEP shall consider whether the matter might be
relevant to one or more components. If relevant,
communicate it.

80
 Responding to Non-Compliance with
Laws and Regulations (NOCLAR)

Audit
- assess the appropriateness of the response
of management
- determine if further action is needed in the
public interest
Determining Whether
- exercise professional judgment in
Further Action Is Needed determining the need for further action
- If PA withdrawn, he shall provide all
relevant facts about identified non-
compliance to the proposed accountant

81
 Responding to Non-Compliance with
Laws and Regulations (NOCLAR)
Audit
Determining Whether to - If PA determined that disclosure to appropriate
authority is the appropriate CA, he shall act in
Disclose the Matter to an good faith and exercise caution when making
Appropriate Authority statements and assertions
- might become aware of actual imminent breach,
shall exercise professional judgment and
Imminent Breach determine whether to disclose the matter
immediately to an appropriate authority in order
to prevent such
- shall document how management responded to
Documentation the matter, the courses of action the accountant
considered, and how the accountant is satisfied.
82
SERVICES OTHER
THAN AUDIT
 Responding to Non-Compliance with
Laws and Regulations (NOCLAR)
Services other than Audit
Nature of NOCLAR, and the circumstances they
Obtaining an Understanding of the Matter** might occur. Also, discuss the matter with
management or TCWG.
If the PA is performing a non-audit service for:
Scenario 1:
- Audit client of the firm or NF
- Component of an audit client of the firm or NF
ACTION: Communicate NOCLAR within the firm or
Communicating the Matter to the Entity’s the network
external Auditor Scenario 2:
- Not an audit client of the firm or network firm.
- Not component of an audit client of firm or
network firm.
ACTION: Consider whether to communicate NOCLAR
to the client’s external auditor. 84
 Responding to Non-Compliance with
Laws and Regulations (NOCLAR)

Audit
- consider whether further action is needed in the
public interest.
Considering Whether Further
- determines that disclosure to an appropriate
Action Is Needed** authority is an appropriate course of action, shall
act in good faith and exercise caution
- might become aware of actual imminent breach,
shall exercise professional judgment and
Imminent Breach** determine whether to disclose the matter
immediately to an appropriate authority in order
to prevent such

85
Responding to Non-Compliance with
Laws and Regulations (NOCLAR)
Circumstance Main Threat/s Main Fundamental
Principle Affected
Responding to
Non-Compliance with Self-Interest; Integrity;
Laws and Regulations Intimidation Professional Behavior
(NOCLAR)

86
Part 4A
Independence for Audit and Review Engagements, which applies
when performing audit or review engagements

87
Period During which
Independence is required
Independence shall be maintained during both:
- The engagement period
- The period covered by the financial statements.

Period during which independence is required

Engagement Period

Period Covered by FSs

Start of period of Start of audit End of period of End of audit 88

the FSs work the FSs
Network Firms
A network is larger structure:
- That is aimed at co-operation.
- That is clearly aimed at:
- profit or cost sharing
- common ownership, control or management.
- common quality control policies
- common business strategy
- common use of a common brand name
- common use of significant part of professional resources

89
Network Firms (NF)

Part 4A Part 4B
A NF shall be independent from When a firm has reason to
the other firms within the believe that interests and
network. relationships of a network firm
create a threat to the firm’s
independence, the firm shall
evaluate and address any such
threat.

90
General Documentation of
Independence for Audit and
Review Engagements
Firms are required to document their compliance
with the independence requirements:
Documentation required:
The nature of threat and
Safeguards are applied
safeguards applied.
Threat required significant
analysis and the firm concluded The nature of the threat and the
that it was already at an rationale for the conclusion.
acceptable level.

91
Merger and Acquisitions
After the merger/acquisition:
- Identify, evaluate current interest and relationship with the related entity
- End any interest or relationship that are not permitted by the Code.

If the said interest and/or relationship cannot be ended:

- Evaluate Threat
- Discuss why the interest cannot be reasonably ended.

If TWCG request to continue despite that, the PA shall only do so if:

- Interest will be ended as soon as possible but not less than 6 months.
- Any individual will not be a member of the engagement team
- Transitional measures 92
Breach of an Independence
Provision for an Audit and
Review Engagements
Requires the exercise of professional judgment and “step-back” approach.

If a breach is identified, the firm shall:

- End the interest of relationship
- Consider whether any legal requirements apply to the breach, then comply with
it.
- Communicate the breach to the engagement partner
- Evaluate the significance of breach and its impact
- Determine whether to end or take action that satisfactorily addresses the
consequences of the breach

93
1/7

94
2/7

95
3/7

96
4/7

97
5/7

98
6/7

99
7/7

100
 Long Association Provisions
Circumstance Main Threat/s

Long Association
Self-Interest; Familiarity;
Provisions

When an individual is involved in an audit engagement over a long

period of time.
Safeguards:
- Changing the role
- Appropriate reviewer
- Regular independent quality reviews
101
Long Association Provisions
Level of the threats created can only be addressed by rotating the individual off the audit team:

CLIENT RULES
Determine an appropriate period for that
Not a PIE
individual to not be a Key Audit Partner (KAP).
7-year “time-on-period”
KAP roles are not allowed for a period
> 7 cumulative years
PIE
Serve a “cooling-off” period
5 years – Engagement partner
3 years – Engagement Quality Control Reviewer
2 years – Other KAP roles
4 or more cumulative years
Combination of KAP Roles
5-year cooling off period
102
Long Association Provisions
EXCEPTIONS TO THE 7-YEAR TIME-ON-PERIOD:
ADDITIONAL YEAR/S RULES

KAP whose continuity is important to audit quality

As long as:
1 more year - Concurred by the Board
- Threat can be eliminated/ reduced to an acceptable
level
Served 6 or more cumulative years when the client
2 more years
becomes a PIE

ROTATION OF EXTERNAL AUDITORS (UNDER SRC RULE 68, AMENDED)

Independent auditors or signing partner rotated after every 5
Time-on period
years.
2-year cooling-off period for re-engagement of the
Cooling-off period
independent auditor or the same signing partner.
103
Part 4B
Independence for Assurance Engagements Other Than Audit or
Review Engagements

104
Period During which
Independence is required
Independence shall be maintained during both:
- The engagement period
- The period covered by the subject matter information.

Period during which independence is required

Engagement Period

Period Covered by SMI

Start of period of Start of End of period of End of engagement 105

the SMI engagement work the SMI work
Network Firms (NF)

Part 4A Part 4B
A NF shall be independent from When a firm has reason to
the other firms within the believe that interests and
network. relationships of a network firm
create a threat to the firm’s
independence, the firm shall
evaluate and address any such
threat.

106
General Documentation of
Independence for Assurance
Engagements other than Audit
and Review Engagements
Firms are required to document their compliance
with the independence requirements:
Documentation required:
The nature of threat and
Safeguards are applied
safeguards applied.
Threat required significant
analysis and the firm concluded The nature of the threat and the
that it was already at an rationale for the conclusion.
acceptable level.

107
Breach of an Independence
Provision for Assurance
Engagements other than Audit
and Review Engagements

Requires the exercise of professional judgment and “step-

back” approach.

If a breach is identified, the firm shall:

- End the interest of relationship
- Evaluate the significance of breach and its impact
- Determine whether to end or take action that
satisfactorily addresses the consequences of the breach
108
109
References

◉ IESBA-Handbook-Code-of-Ethics-2018.pdf
(ifac.org)
◉ IESBA-High-Level-Summary-of-Prohibitions-
November-2019.pdf (ifac.org)
◉ Auditing & Assurance Services Theory and
Principles (2021) by Escala & Bercasio

110
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