Ateneo de Naga University

College of Business and Accountancy

ACCM456: AUDITING THEORY ___________ ___ 2nd SEM s/y 2018-2019

THE PROFESSIONAL PRACTICE OF ACCOUNTING

Attributes that make Accountancy a Profession

1. Mastery of particular intellectual skill/Standards of admission to the profession.
 To join the profession, an individual must first obtain a degree of Bachelor of Science in Accountancy (BSA) and
continue learning through the working experience and continuing professional education. The CPA Board Exams must
be passed before a CPA Licence is given. To pass the CPA Licensure examination, a candidate must obtain a general
average of seventy-five percent (75%), with no grade lower than sixty-five percent (65%) in any given subject.
 Acquired by training and education.

2. Adherence by its members to a common code of values and conduct

 CPAs have their own Code of Ethics which is mandatory to all members of the profession. Failure to adhere to the
Code will usually result in an investigation of the CPAs conduct.

3. Acceptance of a duty to a society as a whole/Responsibility to serve the public.

 The CPAs paramount concern is the public. They are viewed as the guardians of the public interest. By providing
assurance to financial statements and other subject matter, they serve as connecting arm between the financial
statements prepared by management, and the public.

4. Complex body of knowledge

 Any practitioner of accounting has only to look at the abundance of authoritative pronouncements governing financial
reports to realize that accounting is complex body of knowledge..

Selected Provisions from the Republic Act 9298:

Republic Act 9298 known as “The Philippine Accountancy Act of 2004”

 An Act regulating the practice of accountancy in the Philippines, enacted by the House of Representative of the
Philippine in Congress and by the Senate on February 6, 2004 and February 7, 2004, respectively.

Objective of RA 9298 (Section 3):

a) The standardization and regulation of accounting education;
b) The examination for registration of certified public accountants;
c) The supervision, control, and regulation of the practice of accountancy in the Philippines.

Scope of Practice (Section 4 of RA 9298)

1. Practice of Public Accountancy
A. A person, be it his/her individual capacity, or as a partner or a staff member in an accounting or auditing firm,
holding out himself/herself as one skilled in the knowledge, science and practice of accounting, and as a qualified
person to render professional services as a CPA, or offering or rendering, or both, to more than one client on a
fee basis.
2. Practice in Commerce and Industry
A. Shall constitute in a person:
i. Involved in decision making requiring professional knowledge in the science of accounting, as well as
the accounting aspects of finance or taxation; or
ii. When he/she represents his/her employer before government agencies on tax & other matters related
to accounting; or
iii. When such employment or position requires that the holder thereof must be a certified public
accountant.
3. Practice in Education/Academe
A. Shall constitute in a person in an educational institution which involve teaching of accounting, auditing,
management advisory services, accounting aspects of finance, business law, taxation, and other technically
related subjects. Provided that members of the Integrated Bar of the Philippines may be allowed to teach
business law and taxation subject.
B. Provided, further, that the position of either Dean or the Department Chairman or its equivalent that supervises
the Bachelor of Science in Accountancy program of an educational institution and must be occupied only by a
duly registered CPA.
4. Practice in the Government
A. Shall constitute in person who holds, or is appointed to, a position in accounting professional group in government
or in a government-owned or controlled corporation, including those proprietary functions, where decision making
requires professional knowledge in the science of accounting, or
B. where civil service eligibility as a certified public accountant is a prerequisite.

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Ratings in the Licensure Examination (Sec 16 of RA 9298).
 To be qualified having passed the licensure examination for accountants, a candidate must obtain a general
average of seventy five percent (75%), with no grades lower than sixty-five percent (65%) in any given subject.
 In the event a candidate obtains rating of seventy-five percent (75%) and above in an at least a majority of the
subjects as provided in this Act, he/she received conditional credit for the subjects passed.
 Provided that a candidate shall take examination in the remaining subjects within two years from the preceding
examination.
 Provided further, that if the candidate fails to obtain at least a general average of seventy-five percent (75%)
and a rating of at least sixty-five percent (65%) in each of the subject examined, he/she shall considered as
failed in the entire examination.

Refusal to Issue Certificate of Registration and Professional Identification Card

The Board shall not register and issue certificate of registration and professional identification card to any successful
examinee who:
1. Was convicted by a competent jurisdiction of a criminal offense involving moral turpitude.
 Moral Turpitude. A phrase used in Criminal Law to describe conduct that is considered contrary to
community standards of justice, honesty, or good morals.
2. Is guilty of immoral and dishonourable conduct.
3. Has an unsound mind.

Notes:
 The Board shall not register either, any person who has falsely sworn, or misrepresented himself/herself
in his/her application for examination.
 Registration shall not be refused and a name shall not be removed from the roster of CPAs on conviction
for a political offense or for an offense which shall not, in the opinion of the Board, either from the
nature of the offense or from circumstances of the case, disqualify a person from practicing accountancy
under RA 9298.

Reinstatement, Reissuance and Replacement of Revoked or Lost Certificates (Section 25)

 The Board may, after the expiration of two (2) years from the date of revocation of a certificate of registration and upon
the application and for reasons deemed proper and sufficient, and after being convinced of applicant’s remorse and
rehabilitation, reinstate validity of a revoked certificate of registration and in so doing, may, in its discretion, exempt the
applicant from taking another examination.

Prohibition in the Practice of Accountancy (Section 26)

 No person shall practice in this country, or use the title “ Certified Public Accountant”, or use the abbreviated title “CPA”
or display or use any title, sign, card, advertisement, or other device to indicate such person practices or offers to practice
accountancy, or is a certified public accountant, unless such person shall have received from the Board a certificate of
registration/professional license and be issued a professional identification card or valid temporary/special permit duly
issued by the Board and the Commission.

Limitation of the Practice of Accountancy (Section 28)

 Single proprietorship and partnerships for the practice of public accountancy shall be registered certified public accountants
in the Philippines. The Securities and Exchange Commission shall not register any corporation organized for the practice
of public accountancy.

Seal and Use of Seal (Section 33)

 All licensed CPAs shall obtain and use a seal of a design prescribed by the Board bearing the registrant’s name, registration
number and title. The auditor’s reports shall be stamped with a seal, indicating therein current Professional Tax Receipts
(PTR) number, date/place of payment when filed with government authorities or when use professionally.

Foreign Reciprocity (Section 34)

 Subject or citizens of foreign countries may be allowed to practice accountancy in the Philippines in accordance with the
provisions of existing laws, international treaty obligations including mutual recognition agreements entered into by
Philippine Government with other countries.
 A person who is not a citizen of the Philippines shall not be allowed to practice accountancy in the Philippines unless he/she
can prove, in the manner provided by the rules of court that, by specific provision of law, the country whis he/she is
citizen, subject or national admits citizens of the Philippines to practice the same without restriction.

Penal Provision (Section 36)

 Any person who shall violate any of the provision of RA 9298 or any of its implementing rules and regulations as
promulgated by the Board subject to approval of the Commission, shall, upon conviction, be punished by a fine not less
than fifty thousand pesos (P50,000.00) or by imprisonment for a period not exceeding two (2) years or both.

Enforcement of RA 9298 (Section 39)

 It shall be the primary duty of the Commission and the Board to effectively enforce the provisions of RA 9298 and its IRR.
The Secretary of Justice or a duly designated representative shall act as legal adviser to the Commission and the Board
and shall render legal assistance as may be necessary in carrying out the provisions of the RA No 9298 and its IRR.

Fees and Billing:

 When entering negotiations regarding professional services, a professional accountant in public practice may quote
whenever fee deemed appropriate. The fact that one professional accountant in public practice may quote lower than
another is not in itself unethical.

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 Fees charge for assurance engagement should be a fair of the value of the work involved and should take into account,
among others:
o The skill and knowledge required for the type of work involved;
o The level of training and experience of the persons necessary to engaged on the work;
o The time necessarily occupied by each person engaged on the work; and
o The degree of responsibility and urgency that the work entails.
 An assurance engagement should not be performed for a fee that is contingent on the result of the assurance work or on
items that are the subject matter of the assurance engagement.
 Methods of Billing:
o Flat fee or flat fee basis – client and auditor agree on a lump sum audit fee. The charges for out-of-pocket
expenses are separate from the audit fee and are to be billed separately.
o Per diem or actual charge basis – the charges are based on actual amount of time spent. This would include
all the members of the assurance team.
o Minimum fee basis – a combination of the fixed fee and per diem bases. Under this agreement, the auditor
bills in a manner similar to per diem, subject to a maximum limit as agreed between the client and auditor.
o Retainer fee basis – the client pays a uniform monthly charge, plus an additional fee annually, payable upon
submission of the audit report.

Organizations affecting the practice of accountancy

 Professional Regulation Commission (PRC)  Bangko Sentral ng Pilipinas (BSP)
 Professional Regulatory Board of Accountancy (BOA)  Bureau of Internal Revenue (BIR)
 Commission on Audit  Insurance Commission.
 Securities and Exchange Commission (SEC)

Professional Regulation Commission (PRC)

 This agency administers, implements and enforces the regulatory policies of the Philippine Government with
respect to the regulation and licensing of the various professions under its jurisdiction.

Professional Regulatory Board of Accountancy (BOA)

 The agency empowered to administer the Philippine Accountancy Act of 2004. The BOA consists of one chairman,
and six members (all appointed by the President, with the terms of 3 years.

Commission on Audit (COA)

 The highest and final authority in state auditing. Its jurisdiction and responsibility is defined by the constitution.
Recommend measures to improve efficiency and effectiveness of the government operations.

Securities and Exchange Commission (SEC)

 The government agency that regulates the registration and operations of corporations, partnerships, and other
forms of associations in the Philippines.

Bangko Sentral ng Pilipinas (BSP)

 The primary objective of this agency is to maintain price stability conducive to a balanced and sustainable
economic growth. It also aims to promote and preserve monetary stability and the convertibility of the peso.
Supervise banks and exercise regulatory powers over non-bank institutions performing quasi-bank functions,
determine the exchange rate policy of the Philippines, extend discounts, loans, and receivables to banking
institutions for liquidity purposes.

Bureau of Internal Revenue (BIR)

 This organization aims to raise revenues for the government through the effective and efficient collection of taxes,
provide quality service to taxpayers, and enforce tax laws in an impartial and uniform manner.

Insurance Commission (IC)

 Its mandate is to regulate and supervise the insurance industry for the promotion of the national interest.

Local Standard Setting Bodies

1. Financial Reporting Standards Council (FRSC)
 Formalizes the accounting standard-setting function in the Philippines.
2. Auditing & Assurance Standard Council (AASC)
 Formalizes the auditing standard-setting function in the Philippines.
 FRSC and AASC are created pursuant to the provision of IRR to RA No. 9288.

Foreign Standard-Setting Bodies

1. International Accounting Standards Board (IASB)
 Foreign counterpart of the FRSC. Replaces the International Accounting Standards Committee (IASC)
2. International Auditing and Assurance Standards Board (IAASB)
 Foreign counterpart of AASC which replaces International Auditing and Practice Committee (IAPC).

International Federation of Accountants (IFAC)

 The IFAC is the global organization for the accountancy profession. Founded in 1977, its mission is “to serve the
public interest”.

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Philippine Institute of Certified Public Accountant (PICPA)
 The accredited national professional organization in the Philippines.
 It is the globally recognized and integrated national organization of Filipino CPAs in all sector. PICPA must renew
its accreditation once every three years.
 PICPA is a member of the International Federation of Accountants (IFAC/Federation), committed to a coordinated
worldwide accountancy profession with harmonized standards. (IFAC’s 179 members & associates in 130
countries, representing more than 2.5 million accountants.
 PICPA, upon signing Statement of Member’s Obligation (SMO)Nos. 1 - 7, is obliged to support the work of the
Federation by informing its members of every pronouncement developed by the Federation.

Code of Ethics for CPAs

 Ethics as the bedrock of the accountancy profession.
 The Code of Ethics for Professional Accountants in the Philippines is based on the revised Code of Ethics for
Professional Accountants developed by the Federation 2013 and adopted by PRC/BOA in 2015, pursuant to
Professional Regulatory Board of Acountancy Resolution # 263 .
 Professional accountants refer to persons who are registered in the PRC as Certified Public Accountants (CPAs)
and who hold a valid certificate issued by the BOA
 where the domestic laws are in conflict with the Federation’s Code, the local law shall prevail
 Apparent failure to do so may result in an investigation into the CPA’s conduct.

The word “PROFESSIONAL”

 A responsibility for conduct that extends beyond satisfying the person’s responsibilities to himself/herself,
recognizes a responsibility to public, to the client, and to fellow practitioners, including honorable behavior, even
if means personal sacrifice.

Objectives of the Code of Ethics

1. CREDIBILITY
 In the whole society there is a need for credibility in information and information systems.
2. PROFESSIONALISM
 There is a need for individuals who can clearly identified by the clients, employers and other interested
parties as professional persons in the accountancy field.
3. QUALITY SERVICES
 There is a need for assurance that all services obtained from professional accountant are carried out to the
highest standards of performance.
4. CONFIDENCE
 Users of the services of professional accountant would be able to feel confident that there exists a framework
of professional ethics which governs the provision of this services.

Code of Ethics for Professional Accountants in the Philippines.

Code of Ethics for CPAs

 The new code of ethics is based on international Code of Ethics for Professional Accountants developed by
International Federation of Accountants (IFAC).
 The code of professional CPAs in the Philippines has been approved by the board of directors of PICPA to be
recommended for adoption by the BOA and approval of the PRC. This takes effect January 1, 2004.
 This Code is in three parts.
o Part A establishes the fundamental principles of professional ethics for professional accountants and
provides a conceptual framework for applying those principles.
o Part B illustrates how the conceptual framework is to be applied in specific situations to professional
accountants in public practice.
o Part C applies to professional accountants in business.

Fundamental principles of CPA as profession

1. Integrity
2. Objectivity
3. Professional competence and Due Care
4. Confidentiality
5. Professional behavior
 A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public
interest not exclusively to satisfy the needs of an individual client or employer.

a) Integrity - straightforward and honest in all professional and business relationships. Integrity also implies fair dealing
and truthfulness. A CPA should not be associated with reports, returns, communications or other information where he
believes that the information:
 Contains a materially false or misleading statement;
 Contains statements or information furnished recklessly; or
 Omits or obscures information required to be included where such omission or obscurity would be misleading.

Integrity:
(a) Is measured in terms of what is right and just;
(b) Requires a member to observe principles of objectivity, independence, and due care

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b) Objectivity
 A professional accountant should not allow bias, conflict of interest or undue influence of others to override
professional or business judgments.
 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.
Objectivity imposes obligation to be impartial, intellectually honest, and free of conflicts of interest.

c) Professional Competence and Due Care

o The principle of professional competence and due care imposes the following obligations on professional
accountants:
 To maintain professional knowledge and skill at the level required to ensure that clients or employers
receive competent professional service; and
 To act diligently in accordance with applicable technical and professional standards when providing
professional services.
 Diligence encompasses the responsibility to act in accordance with the requirements of an
assignment, carefully, thoroughly and on a timely basis.

o Professional competence may be divided into two separate phases:

a) Attainment of professional competence - The attainment of professional competence requires initially a
high standard of general education followed by specific education, training and examination in
professionally relevant subjects, and whether prescribed or not, a period of work experience.;
b) Maintenance of professional competence - The maintenance of professional competence requires a
continuing awareness and an understanding of relevant technical professional and business
developments. Continuing professional development under BOA Resolution No. 358 series of 2016.

Increasing the required Continuing Professional Development (CPD) units from sixty (60) to one hundred twenty (120)
credit units within a compliance period of Three years for all certified public accountants (CPAs) and changing the
thematic areas to competence areas.

A. TECHNICAL COMPETENCE 90
1. Standards applicable to the professional practice.
2. Laws, Rules and Regulations affecting professional practice.
3. Environment of the practice

B. PROFESSIONAL SKILLS 15
1. Professional development activities that enhance the CPAs intellectual, interpersonal,
communication, personal and organizational skills

C. PROFESSIONAL VALUES, ETHICS AND ATTITUTDES 15

a. Code of ethics for professional accountants;
b. Quality standards based on issuances of bodies affecting professional practice;
c. Government principles and intervention;
d. Social responsibility, principles and interventions.
120 credits units

Required CPD Credit units within a Compliance period. All CPAs regardless of areas/sector of practice, shall be required
to comply with the one hundred twenty (120) CPD credit units within a compliance period of three (3) years, and which
shall be implemented in phases as follows:

Year of Required No. of Minimum Units Flexible Required Min. Units earned from the
Renewal CPD units under required CPD Units previous years for license renewal
Competency Areas
2016 60 40 20 0
2017 80 40 40 0
2018 100 40 60 20 units from the immediately
preceding year
2019 120 40 80 20 units earned from each of 2
immediaely preceding year

d) Confidentiality
o Respect the confidentiality of information acquired as a result of professional and business relationships and should
not disclose any such information to third parties.
o A CPA should respect the confidentiality acquired as a result of professional and business relationships and should
not disclosed any such information to third parties without proper and specific authority unless there is a legal or
professional right or duty to disclose.

Circumstances where Disclosure of Confidential Information is permitted

1. Disclosure is permitted by law & its authorized by the client or the employer.
2. Disclosure is required by law:
• Provision of evidence in the course of legal court proceedings.
• Disclosure to the appropriate authorities of infringement of the law that come to light.

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 3. There is a professional duty or right to disclose, when not prohibited by law.
 To comply with the quality review of a member body or professional body;
 To respond to an inquiry or investigation by a member body or regulatory body;
 To protect the professional interest of a professional accountant in legal proceedings; or
 To comply with technical standards and ethical requirements.

e) Professional Behavior
o A professional accountant should comply with relevant laws and regulations and should avoid any action that
discredits the profession.
o The professional accountant should be honest & truthful and should not make exaggerated claims for the services
they are to offer, qualifications they possess or experienced they have gained.

Part B illustrates how the conceptual framework is to be applied in specific situations to professional
accountants in public practice.

Conceptual Framework Approach

o This Code provides a framework to assist a professional accountant to identify, evaluate and respond to threats to
compliance with the fundamental principles. If identified threats are other than clearly insignificant, a professional
accountant should, where appropriate, apply safeguards to eliminate the threats or reduce them to an acceptable
level, such that compliance with the fundamental principles is not compromised.

o If a professional accountant cannot implement appropriate safeguards, the professional accountant should decline or
discontinue the specific professional service involved, or where necessary resign from the team (in the case of a
professional accountant in public practice) or the employing organization (in the case of a professional accountant in
business).

Threats and Safeguards

 Compliance with the fundamental principles may potentially be threatened by a broad range of circumstances. Many
threats fall into the following categories:

(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; ex:
o A Financial Interest in a client or jointly holding a financial interest with a client.
o Contingent Fees relating to an assurance engagement.
o Self –Interest Threat (examples)
 A financial interest in a client or jointly holding a financial interest with client. Financial interest is defined
in the code as “an interest in an equity or other security, debenture, loan or other debt instrument of
an entity including rights and obligations to acquire such an interest and derivatives directly related to
such interest.”
 Undue dependence on total fees of 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
 A loan to or from assurance client or any of its directors or officers.
o Potential benefit to a member from a financial interest in, or some financial relationship with, an attest client
(e.g., having a direct financial interest in the client).

(b) Self-review threats, which may occur when a previous judgment needs to be re-evaluated by the professional
accountant responsible for that judgment; ex:
(a) A member of the Assurance Team being, or having recently been, a director or officer of that client.
(b) Performing a service for a client that directly affects the subject matter of the assurance engagement.
Self-Review Threats
 Occurs when:
 Any product or judgment of a previous assurance engagement or non-assurance engagement needs to
be re-evaluated in reaching conclusions on the assurance engagement; or
 When a member of assurance team was former director or officer of the assurance client, being or was
an employee in a position to exert direct and significant influence over the subject matter or the
assurance engagement.
 Reviewing evidence that results from the member’s own work.

Self-Review Threats (Examples)

 Discovery of significant error during re-evaluation of the work of the professional accountant in public practice.
 Reporting operation of financial systems after being involve 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 the client.
 Performing service for a client that directly affects the subject matter of the assurance engagement.

(c) Advocacy threats, which may occur when a professional accountant promotes a position or opinion to the point
that subsequent objectivity may be compromised; ex:
 Acting as an advocate on behalf of an assurance client in litigation or disputes with third parties.

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 Advocacy Threats
 Occurs when firm or member of assurance team promotes, or may be perceived to promote, an assurance
client position or opinion to exert direct or opinion to the point that objectivity may, or may perceived to be
compromised.
 Actions promoting the client’s interests or position.
 Example:
 Dealing, promoter of shares or securities in an assurance client, and
 Acting as an advocate on behalf of the assurance client in litigation or in resolving disputes with 3rd
parties.

(d) Familiarity threats, which may occur when, because of a close relationship, a professional accountant becomes too
sympathetic to the interests of others; ex:
 Accepting gifts or preferential treatments from a client, unless the value is clearly insignificant.
 A long association of senior personnel with the assurance client.
 Members having a close or longstanding relationship with client or knowing individuals or entities who performed
non-attest services for the client, (e.g., a member of the attest engagement team whose spouse is in a key
position at the client).

Familiarity Threats
 There is close relationship with assurance client, its directors, officer or employees, firm or member of
assurance team becomes too sympathetic to clients interest.
 Examples:

 Having a close or immediate family relationship with an employee of the client who is in position to exert direct
& significant influence over the subject matter engagement
 Acceptance of gifts or hospitality, unless the value is clearly insignificant.
 Long association of senior personnel with the assurance client.

(e) Intimidation threats, which may occur when a professional accountant may be deterred from acting objectively by
threats, actual or perceived. ex:
 Pressure to reduce inappropriately the extent of work performed in order to reduce fees
Intimidation Threats
 A member of assurance team may be deterred from acting objectively and exercising the professional
skepticism by threats, from directors, officers or employees of an assurance client.

 A member of assurance team may be deterred from acting objectively and exercising the professional
skepticism by threats, from directors, officers or employees of an assurance client.

Safeguards that may eliminate or reduce threats to an acceptable level

1. Safeguards created by the profession , legislation or regulation
2. Safeguard in the work environment
 Firm-wide safeguards
 Engagement specific safeguards

Safeguards created by the Profession, Legislation or Regulation includes but are not restricted to:
 Educational, training and experience requirements for entry into the profession.
 Continuing professional development requirements.
 Corporate governance regulations. (SEC Circulars 2 and 6 series of 2002/2009; BSP circular 283 series of 2001 and
IC Circular Letter 31-2005)
 Professional standards.
 Professional or regulatory monitoring and disciplinary procedures.
 External review by a legally empowered third party of the reports produced by a professional accountant.

Safeguard in the work environment (Firm-wide) may include:

 stresses the importance of compliance with the fundamental principles.
 monitor quality control of engagements.
 Documented policies regarding the identification of threats to compliance with the fundamental principles, and the
application of safeguards.
 Documented internal policies and procedures requiring compliance with the fundamental principles.
 Document internal policies & procedures requiring compliance with the fundamental principles.
 Involving an additional CPA to review the work done or otherwise advice as necessary.
 Consulting an independent third party, such as a professional regulatory body or another CPA.
 Discussing ethical issues with those charged with governance of the client. Modified by the 2012 and 2014 Revisions,
as follows:
o Disclosing to those charged with governance of the client the nature of service provided and extent of fees
charged.
o Involving another firm to perform or re-perform part of the engagement.
o Rotating senior assurance team personnel.
o The use of separate engagement teams; and
o Procedures to prevent access to information (e.g., strict physical separation of such teams, confidential and
secure data filing); and
o Clear guidelines for members of the engagement team on issues of security and confidentiality; and
o The use of confidentiality agreements signed by employees and partners of the firm; and

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 o Regular review of the application of safeguards by a senior individual not involved with relevant client
engagements.

Engagement-specific safeguards/Safeguards within the Client’s Systems:

 When a client appoints a firm in public practice to perform an engagement, persons other than management ratify or
approve the appointment.
 The client has competent employees
 The client has implemented internal procedures
 The client has a corporate governance structure.

Ethical Conflict Resolution

 Evaluating compliance with the fundamental principles, a professional accountant should consider the following
conflict resolution process, either individually or together with others, as part of resolution process:
1. Relevant facts;
2. Ethical issues involved;
3. Fundamental principles related to the matter in question;
4. Established internal procedures; and
5. Alternative courses of action.
 If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, the professional accountant may
determine that, in the circumstances, it is appropriate to withdraw from the engagement team* or specific assignment,
or to resign altogether from the engagement, the firm or the employing {business} organization.

INDEPENDENCE
1. Independence of mind
 The state of mind that permits expression of a conclusion without being affected by influences that
compromised professional judgment, allowing an individual to act with integrity, exercise objectivity &
professional skepticism.

2. Independence in appearance
 The avoidance of facts & circumstances that are so significant that a reasonable & informed third party,
having knowledge of relevant information, would reasonably conclude a firm’s or member of the assurance
team’s integrity, objectivity or professional skepticism had been compromised.

Conceptual approach to independence

1. Identify threats to independence;
2. Evaluate whether these threats are clearly insignificant
3. In cases when threats are not clearly insignificant, identify and apply appropriate safeguards to eliminate or reduce
the threats to an acceptable level.

 A professional accountant in public practice should not engage in any business, as a result would be incompatible with the
rendering of professional services. (Section 200)
 A professional accountant in public practice should agree to provide only those services that the professional accountant
in public practice is competent to perform (section 210).
 A professional accountant in public practice should:
o Acquire an appropriate understanding of the nature of the client’s business
o Acquire knowledge of relevant industries or subject matters.
 When asked to provide a second opinion, seek client permission to contact the existing accountant, describing the
limitations surrounding any opinion in communications with the client and providing the existing accountant with a copy
of the opinion (section 230-Second Opinion).
 The fact that one professional accountant in public practice may quote a fee lower than another is not in itself
unethical. Contingent fees are widely used for certain types of non-assurance engagements. (SECTION 240 - Fees and
Other Types of Remuneration)
 A professional accountant in public practice may give or receive a referral fee or receive commission relating to a client,
where the professional accountant in public practice does not provide the specific service required.
 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.

SECTION 250 - Marketing Professional Services

The professional accountant in public practice should be honest and truthful and should not:

 Make exaggerated claims; or

 Make disparaging references to unsubstantiated comparisons to the work of another.

In case of doubt as to the propriety of a proposed form of advertising, the professional accountant in public
practice should consult with the relevant professional body.

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*Requirement/Prohibitions.
Note:
 No code, no matter how severely enforced will make truly bad people good.*
 When everyone clearly knows the ethical standards of an organization they are more likely to recognize
wrongdoing; and do something about it*.
 Second, miscreants are often hesitant to commit an unethical act if they believe that everyone else around
them knows it is wrong.

Rules on Advertising
 Reasons for not allowing advertisement in the past include:
o advertising can lead to undue competition between practitioners,
o advertising would encourage a more commercial approach within the profession.
o the cost of advertising would outweigh any savings which might result from competition,

 With the adoption of the new Federation’s Code of Ethics for Accountants, advertising in any media, provided
it is truthful, is now allowed:
o to better educate the public;
o Truth in advertising must be verifiable since false, misleading or deceptive advertising is not only
unethical but also illegal and subject to sanctions by both the Department of Trade and Industry and
the Board of Accountancy, as well as a lawsuit by clients and the public.

 These rules on advertising apply to all advertising and marketing materials in the media, telephone directory,
roadside, etc., including Internet and other cyberspace media.

Rules on Advertising and Solicitation

 A CPA or CPA firm shall not advertise in a manner that:
o Brings the Accountancy Profession into disrepute
o Is false in a material particular; or
o Is misleading or deceptive or is likely to mislead or deceive; or
o Offer a discount, gift or inducement to attract a person to use the services; or
o Advertise fees or compare fees with other CPAs or CPA firms

 A CPA or CPA firm may not use the term “Accredited” or any similar words or phrases calculated to convey
the same meaning if the claimed board accreditation (BOA, SEC, BSP, IC or CDA) has expired and has not
been renewed at the time the advertising in question was published or broadcast.

 The use of the name of an international accounting firm affiliation/correspondence other than a notation that
it is a “member/correspondent firm of that foreign firm” shall not be allowed so as to imply that the foreign
firm is practicing in the Philippines.

 No motto, slogan or jingle that is false or misleading may be used in any advertisement in the public media.

 Since “quality” and “world class” are such an ethereal concepts to define and even more difficult to
substantiate objectively, such terms should be avoided in advertising and marketing materials.
 Office signs, signage or directory listing in the lobby of an office building shall:
o not be more than reasonably necessary
o not be in bad taste
o not be unnecessarily large, conspicuous or numerous.
o must not be on premises other than those in which the practice is located.

 Business cards should be of “normal size”, and contain only the name of the CPA and his Firm’s name, name
of practice, degrees, address, telephone number, and the description “CPA”.

 Use of business cards must be discreet and shall be confined to occasions on which it is proper that he should
establish his professional identity.

End of Topic

“There are no secrets to success: it is the result of preparation, hardwork and learning from failures.” – Collin Powell
“Challenges are what makes life interesting; overcoming them is what life meaningful.”
-Joshua J. Marine

The Professional Practice of Accounting | 9