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January, 2004

CODE OF ETHICS FOR


PROFESSIONAL
CONTENTS ACCOUNTANTS
________________________________________________________________________
IN THE PHILIPPINES Paragraph
PREFACE
DEFINITIONS
PART A-APPLICABLE TO ALL PROFESSIONAL ACCOUNTANTS
INTRODUCTION
1. Integrity .......................................................................................................
and Objectivity......................................................................................
PART
THE B-APPLICABLE
PUBLIC INTEREST TO..........................................................................................
PROFESSIONAL ACCOUNTANTS IN PUBLIC
2. Resolution
PRACTICE of Ethical Conflicts...........................................................................
OBJECTIVES..............................................................................................................
PART
3. C-APPLICABLE
Professional TO EMPLOYED PROFESSIONAL ACCOUNTANTS
Competence.....................................................................................
8. Independence
FUNDAMENTAL
15. forPRINCIPLES
Conflict of Loyalties Assurance Engagements ........................................................
..............................................................................
............................................................................................
4.
9. Confidentiality......................................................................................................
Professional Competence and Responsibilities Regarding 1
THE
16.Tax
5. CODE
Support ..................................................................................................................
for ..........................................................................................................
Practice Professional Colleagues................................................................... 9
17.the Use of Non-Accountants
Professional ...............................................................................
Competence..................................................................................... 1.1
6. Cross
10. Fees Border Activities........................................................................................
and Commissions......................................................................................... 14
2.1
18.
7. Presentation of Information................................................................................. 8.1
11.Publicity................................................................................................................
Activities Incompatible with the Practice of Public Accountancy ................... 15
3.1
12. Client’s Monies .................................................................................................... 17
9.1
4.1
13. Relations with Other professional Accountants in Public Practice................... 10.1
5.1
15.1
14. Advertising and Solicitation................................................................................ 10.1
6.1 1
16.1
11.1
7.1
17.1
12.1
18.1
13.1
PREFACE TO THE CODE OF ETHICS FOR
PROFESSIONAL
This Preface and the following ACCOUNTANTS
Code of Ethics for Certified IN THE
Public PHILIPPINES
Accountants (CPAs)
in
1. the Philippines, have been approved by the Board of Directors of the Philippine
Institute of Certified Public Accountants (PICPA) to be recommended for adoption by the
BoardPICPA as a member
of Accountancy of theand
(BOA) International
approval ofFederation of Accountants
the Professional Regulation (IFAC) is
Commission
(PRC)committed
Asasapart of to
conditionthethe
of IFAC’s
rules broad objective
and regulations
its membership, of theof
PICPA developing
isBOA
obligedfor to and
thesupportenhancing
practice the aaccountancy
ofwork
the coordinated
of IFAC by
worldwide
profession.
informing accountancyofprofession with harmonized standards. In working
and totoward
This
this Code its
of members
objective, Ethics
IFAC for
every pronouncement
Professional
develops guidanceAccountants
onextent
developed
(Code)
ethicspossible
for inby
theIFAC,
professional Philippines
accountants.
work
is based
IFAC
towards
on the implementation,
International Code when
of and
Ethics to
for the
Professional under
Accountants local circumstances,
developed by
believes
This
of Code
those that issuing such guidance will improve the degree of
of Ethics is mandatory for all CPAs and is applicable to professional
pronouncements. uniformity of
IFAC.
services Professional
professional ethics
performed accountants
throughout
in refer
the
the Philippines to
onpersons
world. or the who
afterstatus are Certified
January 1, 2004. Public
An explanatory
Accountants foreword
(CPA) andwill whobe issued
hold on
a valid certificate of issued
each additional
by the BoardIFAC of
pronouncement
Where deemed
Accountancy on Ethics.
necessary,
whether The
be inexplanatory
theyadditional ethical
public foreword
requirements
practice will indicate
(including may which additional
be proprietorship
a sole developed on or
pronouncement on Ethics is adopted inpublic
the Philippines; and if notWhere
adopted, the reason
2. matters of relevance
partnership),
therefor
industry, not covered
commerce, by
thean IFAC pronouncement.
sector or education. a national
statutoryshall be stated.
requirement is in conflict with a provision of the IFAC Code, the national
3. statutory requirement prevails. In the few instances where the national statutory
4. requirement prevailed over a provision of the IFAC Code, the basic intent of the
5. IFAC Code was always respected. (See modifications made to the IFAC Code)
2
6.
All CPAs are expected to comply with the ethical requirements of this Code and
other ethical
It is not requirements
practical thatethical
to establish may be adopted andwhich
requirements approved
applybytoIFAC. Apparent
all situations and
failure to do sothat
circumstances mayprofessional
result in an accountants
investigationmay
intoencounter.
the CPA’sTherefore,
conduct. professional
7.
accountants should consider the ethical requirements as the basic principles which
Modifications
they should to theinIFAC
follow Code their work.
performing
8.
The following changes have been made to the IFAC Code to consider Philippine
regulatory requirements
Introduction, and circumstances.
paragraph 16
The section on Technical Standards was modified to list the sources of technical and
professional standards in the Philippines as follows:
Board of Accountancy(BOA)/Professional Regulation Commission (PRC);
Definitions Securities and Exchange Commission (SEC);
Auditing Standards and Practices Council (ASPC);
Firm; Practice: The word
Accounting “corporation”
Standards was
Council deleted from the Definitions because
(ASC);
a corporate
Professional form for
Relevant theThe
professional
legislation.
accountants: practice
phrase “who of accountancy
are Certified is not allowed(CPAs)
Public Accountants in
the Philippines.
and who hold valid certificate issued by the Board of Accountancy” was
Professional accountants in public practice: The phrase “a sole proprietor was added.
added.
Long Association of Senior Personnel with Assurance Clients, Paragraph 8.151.a
The period for rotation of the lead engagement partner was changed from seven to
five years. 3
Commission, Paragraph 10.10
This paragraph was deleted since payment and receipt of commissions are not
permitted in and
Advertising the Philippines.
Solicitation
Paragraph 14.1 was modified to read as follows:
Advertising and solicitation by individual professional accountants in public practice
are not permitted
Paragraphs in the
14.2 and Philippines.
14.3 were deleted since advertising and solicitation are not
permitted
Paragraph in the Philippines.
14.8
Additional examples relating to anniversaries and websites wherein publicity is
4 acceptable, as provided in BOA Resolution 19, Series of 2000, were included.
DEFINITIONS
In this Code of Ethics for professional Accountants the following expressions appear in
bold type when they are first used and have the following meanings assigned to them:
Advertising
The communication to the public of information as to the
services
An entityorinskills
respectprovided
of whichby aprofessional
firm conducts accountants
an audit in
public practice
engagement. with a view to procuring professional
An assuranceWhen
business.
the audit
engagement to client
provideis aa high
listedlevel
entity,
of audit
client will that
assurance always include
financial its relatedare
statements entities.
free of material
An entity in respect of which a firm conducts an
misstatement,
assurance such as an engagement in accordance with
engagement.
An engagement
Philippine conducted
Standards to provide:
on Auditing. This includes a
Statutory
(a) a high Audit
level ofwhich is an audit
assurance required
that the subjectbymatter
national
legislation
(b)conforms orinother
a moderate all
levelregulation.
material respects
of assurance with
that theidentified
subject matter
suitable criteria;
is plausible in theorcircumstances.
This would include an engagement in accordance with the
Philippine Standard on Assurance Engagement(s) issued 5
by the Philippine Auditing Standards and Practices
Audit client Council as approved by the Board of Accountancy
Audit engagement
Assurance client
Assurance engagement
(BOA)/Professional Regulation Commission (PRC) or in
Assurance team accordance with specific standards for assurance
engagement(s) issued by the ASPC as approved by
(a) All professionals
BOA/PRC such as anparticipating in the
audit or review of assurance
financial
(b)engagement;
statements in accordance
All others with
within a firm whoPhilippine Standards
can directly on
influence
Auditing.
the outcome of the assurance engagement, including:
those who recommend the compensation of, or
who
thoseprovide direct consultation
who provide supervisory, regarding
management or
other oversight
technical or of thespecific
industry assurance engagement
issues,
those who
partner provide quality
infor
connection with control
the fortransactions
the of
performance
or events
assurance the assurance
engagement; engagement; and
the assurance engagement. For the purposes of
an audit engagement, this includes those at all
successively senior levels above the lead
and engagement partner through the firm's chief
(c) For theexecutive;
purposes of an audit client, all those within a
Client account network firm who can directly influence the outcome
of the audit engagement.
Any bank account which is used solely for the banking of
6 clients’ monies.
Clients’ monies
Any monies – including documents of title to money e.g.,
bills of exchange,
A parent, promissory
non-dependent childnotes, and documents of the
or sibling.
title which can be converted into money e.g., bearer bonds
A financialby
- received interest:
a professional accountant in public practice
to be held or paid out on the instruction of the person
from owned
whom directly
or on whose behalf
by and they
under theare received.
control of an
individual
beneficiallyorowned
entity through
(including those managed
a collective on a
investment
discretionary
vehicle, estate,basis
trustby
orother); or
other intermediary over which
Close family
the individual or entity has control.
Direct financial interest

Directors and officers


Those charged with the governance of an entity,
regardless of their
A professional title. employed
accountant
commerce, the public sector or education. in
industry,
Employed professional
accountant
Existing accountant
A professional accountant in public practice currently
holding an audit
An interest in an appointment or security,
equity or other carrying out accounting,
debenture, loan
taxation,
or other consulting
debt or similar
instrument of an professional
entity, services
including rightsfor a
and
(a) A sole
client. proprietor or partnership of professional
obligations to
accountants; acquire such an interest and derivatives
Financial interest directly related to such interest.
Firm
7
(b) An entity that controls such parties; and
(c) An entity controlled by such parties.
Immediate family
Independence
A spouse (or equivalent) or dependent.
Independence is:
(a) Independence of mind - the state of mind that permits
(b)the provision ofinanappearance
Independence opinion without being affected
- the avoidance by
of facts
influences that compromise
and circumstances that are soprofessional
significant judgment,
a reasonable
Indirect financial interest allowing an individual to act withknowledge
integrity, and
and informed third party, having of all
exercise
A financial objectivity and professional
interest beneficially
relevant information, including owned skepticism;
through
any safeguards a and
collective
In applied, investment
connectionwould an vehicle,
withreasonably estate,
conclude
audit, the partnertrust or other
aresponsible
firm's or a for
intermediary
member
signing the of over which theteam’s
the assurance
report on individual
the consolidated or entity
integrity,
financial has no
objectivity
statement
Lead engagement partner control.
of or
theprofessional
audit client,skepticism
and, wherehad been compromised.
relevant, the partner
8 responsible for signing the report in respect of any entity
whose financial statements form part of the consolidated
financial statements and on which a separate stand-alone
report is issued.When no consolidated financial
statements are prepared, the lead engagement partner
would be the partner responsible for signing the report on
the financial statements.
Listed entity
An entity whose shares, stock or debt are quoted or listed
on
Anaentity
recognized stock exchange,
under common control,orownership
are marketed
or under
the regulations
management of athe
with recognized
firm or stock
any exchange
entity that a or other
reasonable
A combination
equivalent body. of impartiality, intellectual honesty and a
and informed
freedom from third partyofhaving
conflicts knowledge of all relevant
interest.
A distinct sub-group, whether organized on
information would reasonably conclude as being part of geographical
or
A practice
thesole lines. orora internationally.
firmproprietor
nationally partnership of professional
Those persons who hold aprofessional
accountants which offers services
valid certificate issuedto by
thethe
public.of Accountancy (i.e., Certified Public Accountants),
Board
A sole proprietor, or each partner or person occupying a
whether
position they be in
similar to publicof practice,
a partner(including
thataccountancy and a sole
each staff
Any service
proprietorship requiring
or partnership), or related
industry, skillsin a
commerce,
practice providing
performed by a professional
professional accountant to a client the
services including
public sectorof
irrespective ortheir
education.
functional classification (e.g., audit, 9
Network firm tax or consulting) and professional accountants in a
practice having managerial responsibilities. This term is
Objectivity
also used to refer to a firm of professional accountants in
Office public practice.
Practice
Professional accountant
Professional accountant
in public practice
Professional services
accounting, auditing, taxation, management consulting
Publicity and financial management services.
The communication to the public of facts about a
professional
A professional accountant
accountant which are not
in public designed
practice for thethe
to whom
deliberate
existing promotionorofclient
accountant that professional
of the existingaccountant.
accountant
An entity that has any of the following relationships with
has referred audit, accounting, taxation, consulting or
the An
client:
(a)
similar entity that has direct
appointments, or whoorisindirect control
consulted overtothe
in order meet
theclient
needsprovided
of the the
client.client is material to
(b) An entity with a direct financial interest in the such entity;
client
(c)provided
An entitythat such
over entity
which thehas significant
client has direct influence
of indirect
over the client and the interest in the client is material
control;
(d)toAn entity in
such entity; which the client, or an entity related to
(e)the
Anclient
entityunder
which(c)is above, has a direct
under common financial
control with the
interest that gives ita “sister
client (hereinafter significant influence
entity”) providedoverthe
such
sister
Receiving accountant entity
entity and
and the
the interest
client are is both
material to thetoclient
material and its
the entity
Related entity related entity in (c); and
that controls both the client and sister entity.
10
Solicitation
The approach to a potential client for the purpose of
offering professional services. 11
CODE OF ETHI CS FOR
PROFESSIONAL ACCOUNTANTS IN THE PHILIPPINES
INTRODUCTION
1.
The International Federation of Accountants (IFAC) believes that due to
national
However,differences
IFAC believes of culture,
that thelanguage,
identity legal
of theand social systems,
accountancy the task
profession is of
preparing
characterizeddetailed ethical
worldwide requirements
by itsthe
endeavor is primarily
to achieve that of
a number the member
of common bodies in
IFAC,
each therefore,
country recognizing
concerned and that responsibilities
they also have of responsibility
the the accountancy profession
toforimplement
objectives
as such, and
and suchby its
considering observance of certain fundamental principles that
and
This enforce
international
purpose. Code isitsintended
requirements. own roletotoserve
be that
as aofmodel
providing guidance,
on which to base
encouraging
national continuity
ethical guidance. of It
efforts,
sets and promoting
standards of harmonization,
conduct for has deemed it
professional
Section 8toofestablish
essential this Codeanestablishes
international a conceptual
Code of framework
Ethics for for independence*
Professional
accountants and states the fundamental
assurance principles thatisshould be observedstandard
by
requirements
Accountants
* See Definitions. forbe
to
professional accountants the basis on engagements
in orderwhich the ethical
to achieve
that the international
*requirements
common (code of ethics,
objectives.The
on
which
detailednational
rules, standards should
guidelines, standardsbe based.
of Accordingly,
conducts, etc.) for no member body or
professional
2. accountancy profession throughout the world operates in an environment with
firm * is allowed
accountants to each
* in applycountry
less stringent
should standards
be founded. than those stated in that
3. different cultures and regulatory requirements. The basic intent of the Code,
section. However, if member bodies or firms are prohibited from complying
however, should always be respected. It is also acknowledged that, in those
4. instances where a national requirement is in conflict with a provision in the
12 Code, the national requirement would prevail.
with certain parts of Section 8 by law or regulation, they should comply with all
5. other parts of that section.
Further, the Code is established on the basis that unless a limitation is
specifically
A professionstated, the objectives
is distinguished and fundamental
by certain principles
characteristics are equally valid
including:
for all professional accountants, whether they be in public practice1* industry,
commerce, the public sector or education.

7.
Mastery of a particular intellectual skill, acquired by training and
6. education;
Adherence by its members to a common code of values and conduct
Members’established
duty to theirbyprofession and to society
its administrating body, may at times
including seem to conflict
maintaining an
with their immediate
outlook self
which interest
is or
essentially their duty
objective;of loyalty
and
To ensure the highest quality of performance and to maintain public to their employer.
confidence
8. Acceptance
in the profession, of a duty to
the Philippine societyofasCertified
Institute a whole Public
(usuallyAccountants
in return for
(PICPA) has restrictions
adopted thein use of aCode
IFAC title or
of in the granting
Ethics of a qualification).
which certain modifications to
* See Definitions.
take into consideration Philippine circumstances (see Preface to Code of Ethics
for Professional Accountants in the Philippines). 13
THE PUBLIC INTEREST
9.
A distinguishing mark of a profession is acceptance of its responsibility to the
public. The accountancy profession's public consists of clients, credit grantors,
governments, employers, employees, investors, the business and financial
community, Independent
and others auditors
who relyhelp to maintain
on the objectivity the integrity and efficiency
2* and integrity of of the
financial
professional
Financial statements
accountants
executives presented
to maintain
serve the to financial
orderly
in various institutions
functioning
financial in partial
of commerce.
management support
This
capacities
for
reliance imposes
in loans and tointerest
a auditors
public
organizations stockholders
and contribute fortoobtaining
responsibility the on thecapital;
efficientaccountancy
andinternal profession.
effective use of the
Internal provide assurance about a sound control
The publicorganization’s
interest
system is
which defined as the
resources;
enhances collective
the reliabilitywell-being
of the of thefinancial
external community of
people andTax experts help
institutions
information thethe
of
to establish confidence
professional
employer; accountant and efficiency in, and the fair
serves.
application
A professional
Management of,
accountant’sthe responsibility
tax
consultantssystem;
have and
a is not exclusively
responsibility to satisfy
toward the needs
the public
of an individual
interestclient or employer.
in advocating soundThemanagement
standards ofdecision-making.
the accountancy
10.
profession are heavily determined by the public interest, for example:

11.
Professional accountants have an important role in society. Investors, creditors,
employers
Professionaland other sectors
accountants canofremain
the business community, asposition
in this advantageous well as only
the by
government
continuing and
to the public
provide the at large
public rely
with on professional
these unique accountants
services at a levelfor sound
which
12. financial accounting
demonstrates that theand reporting,
public effective
confidence financial
is firmly management
founded. and
It is in the best
competent advice on a variety of business and taxation matters. The attitude and
* See Definitions.

14 behavior of professional accountants in providing such services have an impact


on the economic well-being of their community and country.
interest of the worldwide accountancy profession to make known to users of the
13. services provided by professional accountants that they are executed at the
highest level of performance and in accordance with ethical requirements that
In formulating
strive to ensuretheir
suchnational code of ethics, member bodies should therefore
performance.
consider the public service and user expectations of the ethical standards of
OBJECTIVES
professional accountants and take their views into account. By doing so, any
14. existing “expectation gap” between the standards expected and those prescribed
can be
The addressed
Code or explained.
recognizes that the objectives of the accountancy profession are to
work to the highest standards of professionalism, to attain the highest levels of
performance and generally to meet the public interest requirement set out above.
Credibility
These objectives require four basic needs to be met:
In the whole of society there is a need for credibility in information and
Professionalism
information
There is aof systems.
need for individuals who can be clearly identified by clients,
Quality Services
employers and other interestedthat
There is a need for assurance parties as professional
all services obtainedpersons
from a in the
Confidence
accountancy field.
professional
Users of the services of professional accountants should be ableofto feel
accountant are carried out to the highest standards
performance.
confident that there exists a framework of professional ethics which
governs the provision of those services.

FUNDAMENTAL PRINCIPLES
15.
In order to achieve the objectives of the accountancy profession, professional
accountants have to observe a number of prerequisites or fundamental 15
principles.
16.
The fundamental principles are:

Integrity
A professional accountant should be straightforward and honest in
Objectivity
performing professional
A professional services.
accountant should *
be fair and should not allow prejudice
or bias, conflict of interest or influence of others to override objectivity.

Professional Competence and due Care


A professional accountant should perform professional services with
Confidentiality
dueprofessional
A care, competence and diligence
accountant and has
should respect theaconfidentiality
continuing duty ofto
Professional
maintain Behavior
professional knowledge and skill at a level required to ensure
information
A acquired
professional during the
accountantreceives course
should the
act in of performing professional
a mannerofconsistent
that a client
Technical
services and or employer
Standards
should not use or discloseadvantage
any such competentwith
information
the
without
good
A reputation
professional
professional of the
service
accountantprofession
based on and refrain
up-to-date
should carry from any conduct
developments
out professional in which
practice,
services in
properbring
might and specific
discredit authority or unless there
to the profession. is a legal or
Theprofessional
obligation professional
tostandards.
refrain from
legislation
accordance
right or dutyand
to techniques.
with the relevant
disclose. technical and
any
Professional accountants have a duty to carry out with carerequires
conduct which might bring discredit to the profession and skill,
IFAC member bodies
the instructions of the to consider,
client when developing
or employer ethical
insofar as they are compatible
requirements, the responsibilities of a professional accountant
with the requirements of integrity, objectivity and, in the case of to
* See Definitions.
clients, third parties, other members of the accountancy profession,
16 staff, employers, and the general public.
professional accountants in public practice*, independence (see
Section 8 below). In addition, they should conform with the technical
and professional standards of the following;

Board of Accountancy
Commission (PRC); (BOA)/Professional
Regulation
Securities and Exchange Commission (SEC)
Auditing Standards and Practices Council (ASPC);
Accounting Standards Council (ASC);
Relevant legislation.
THE CODE
17.
The objectives as well as the fundamental principles are of a general nature and
are
Thenot intended
code set out to be used
below to solveinto
is divided a professional
three parts: accountant’s ethical problems
in a specific case. However, the code provides some guidance as to the
application in practice of the objectives and the fundamental principles with
regard to a number of typical situations occurring in the accountancy profession.

Part A applies to all professional accountants unless otherwise


specified.
Part B applies only to those professional accountants in public practice.
Part C applies to employed professional accountants*, and may also
18. apply, in appropriate circumstances, to accountants employed in public
* See Definitions.
practice.

17
PART A – APPLICABLE TO ALL PROFESSIONAL
ACCOUNTANTS
SECTION 1
Integrity and Objectivity
1.1
Integrity implies not merely honesty but fair dealing and truthfulness. The
principle of objectivity
Professional accountantsimposes
serve inthe obligation
many oncapacities
different all professional accountants to
and should
be fair, intellectually
demonstrate their honest and
objectivity in free of conflicts
varying of interest.
circumstances.Professional
In selecting the situations and practices to be specifically dealt within ethics
accountants
requirements inrelating
public practice undertake
to objectivity, assurance
adequate engagements,
consideration shouldand be render tax
given to
(a)
and other management
the following factors: advisory services. Other professional accountants
prepare financial statements
Professional as a subordinate
accountants are exposed of others, perform
to situations internal
which involveauditing
the
services, andIt isserve
possibility inoffinancial
impracticable to management
pressures beingand
define capacities
exerted all in
on them.
prescribe industry,
These
such commerce,
pressures
situations may
where
the public impair
sectorpossible
these and
theireducation.
objectivity.
pressures They also
exist. educate and train
Reasonableness thoseprevail
should who aspire
in to
admission Relationships
establishing
should
into the profession.
standards
be avoided
Regardless
for ofwhich
identifying
allow
service prejudice,
or capacity,
relationships that
bias or
professional
are likely to, or
accountants influences
should ofaccountants
others to override
haveofanobjectivity.
appear to,protect
Professional impair the integrity
a professional their professional
obligation
accountant's to services,
ensure
objectivity. and
that personnel
maintain objectivity
engaged oninProfessional
their judgment.
Professional accountants services adhereaccept
should neither to the nor
principle of objectivity.
offer gifts or
1.2 entertainment which might reasonably be believed to have a significant
and improper influence on their professional judgment or those with
1.3
(b)
(c)
(d)
(e)
18
whom they deal. Professional accountants should avoid circumstances
which would bring their professional standing into disrepute. 19
SECTION 2
Resolution of Ethical Conflicts
2.1
From time to time, professional accountants encounter situations which give rise
to conflicts
It is of interest.
recognized, however,Such thatconflicts
there canmaybearise in a wide
particular variety
factors which of occur
ways,when
ranging from the relatively trivial dilemma to the extreme
the responsibilities of a professional accountant may conflict with internalcase of fraud andor
similar
externalillegal activities.It
demands of one typeis not
or possible
another. to attempt to itemize a
Hence:
comprehensive
Therecheck
may be listthe
of danger
potentialof cases where
pressure fromconflicts of interest
an overbearing might
supervisor,
occur. Themanager,
professional accountant
director should
* or partner; be
or constantly
when there conscious
are family
A professional accountant may be asked to act contrary to technical of
or and be
personal
alert to factors which
relationships
and/or give
which
professional risestandards.
to conflicts
can give riseoftointerest. It should
the possibility of be noted that
pressures an
being
A question
honest difference
exerted of
upon ofthem.
divided
opinion loyalty
between
Indeed, as between or
arelationships
professional the professional
accountant
interests accountant's
and another
which could
party is notsuperior
in itselfand
adversely
Conflict an thearise
required
ethical
influence,
could issue.
impair
when professional
However,
or threaten
misleading thestandards
afacts andofcircumstances
professional
information isconduct could
accountant's
published of
which
occur.
each case need investigation
integrity should be by the parties
discouraged. concerned.
may be to the advantage of the employer or client and which may or
2.2
may not benefit the professional accountant as a result of such
publication.

2.3
In applying standards of ethical conduct, professional accountants may
encounter
* See Definitions. problems in identifying unethical behavior or in resolving an ethical
conflict. When faced with significant ethical issues, professional accountants
20 should follow the established policies of the employing organization to seek a
resolution of such conflict. If those policies do not resolve the ethical conflict,
the following should be considered:
Review the conflict problem with the immediate superior. If the
problem is nor resolved
Seek counseling and advicewithon thea immediate
confidentialsuperior
basis withandantheindependent
professional
advisor or accountant
the applicable determines
professional to accountancy
go to the nextbodyhigheror managerial
regulatory
If the ethical
level, theobtainconflict superior
immediate still exists after be
should fully exhausting
notified of the all levels
decision. of
If it
body to
internal an understanding of possible courses of action.
appears review,
that the the professional
superior is involvedaccountant as a lastproblem,
in the conflict resort may the have no
other recourse
professional on significant
accountant shouldmatters (e.g.,
raise the fraud)
issue withthan
the to resign
next andlevel
higher to
submit an information
of management. When memorandum
the immediatetosuperioran appropriate representative
is the Chief Executive of
2.4 that organization.
Officer (or equivalent), the next higher reviewing level may be the
Executive
Furthermore, Committee,
Philippine local laws,Trustees, partners’
regulations Management
or professional Committee.
standards may
require certain serious
Any professional mattersintoa be
accountant reported
senior to an
position external
should body as
endeavor toan
ensure that
enforcement or regulatory
policies are established authority (e.g. BOA/PRC,organization
SEC)
Confidential counselingwithin his orshould
and advice her employing
be available to professionalto seek
resolution of conflicts.
accountants who experience ethical conflicts.
2.5
2.6
21
SECTION 3
Professional Competence
3.1
Professional accountants should not portray themselves as having expertise or
experience
Professionalthey do not possess.
competence may be divided into two separate phases:
(a)
Attainment of professional competence
The attainment of professional competence requires initially a high
(b) standard of general education followed by specific education, training
and examination in professionally relevant subjects, and whether
Maintenance
prescribed or of professional
not, a period ofcompetence
work experience.* This should be the
normal pattern of development for a professional accountant.
(i)
The maintenance of professional competence requires a
continuing awareness
A professional of development
accountant should adoptinathe accountancy
program designed to
profession including
ensure quality controlrelevant national andof
in the performance international
professional
3.2 pronouncements onwith
accounting, auditing and and
other relevant
services consistent appropriate national international
(ii) regulations and statutory requirements.
pronouncements.
*

PRC-BOA Resolution #69


22
SECTION 4
Confidentiality
4.1
Professional accountants have an obligation to respect the confidentiality of
information
Confidentiality about a client’s
should always or be
employer’s
observed affairs acquired inaccountant
by a professional the course unless
of
professional services.
specific authority The
has been duty
given oftoconfidentiality
disclose to continues
information even
or there after the
is a legal end
Professional
of accountants
the relationship between havethean obligation
professional ensure that
accountant andstaff
the under their or
client or
professional
control duty
and persons to disclose.
employer.
Confidentiality is notfrom
onlywhom
a matter advice and assistance
of disclosure are obtained
of information. respect
It also the
requires
principle
that a of confidentiality
professional accountant acquiring information in the course of performing
A professional accountant has access to much confidential information about a
professional
client’s services neither
or employer’s affairs uses
notand nor appeardisclosed
otherwise to use that information for personal
It is in the
advantage interest
or for theofadvantage
the public of a the profession
third party. thattothe
theprofession’s
public. Therefore,
the professional
standards relating accountant should be
to confidentiality berelied upon
defined, andnot to makegiven
guidance unauthorized
onis the
It should be
disclosures torecognized,
other however,
persons. This doesthat confidentiality
not apply of information
to disclosure of such partnature
of
and extent
statute of
or law, the
and duty of confidentiality
therefore, detailed and
ethical the circumstances
requirements may in which
be determined
information
The following
disclosure in order
are properly
examples
of information ofto discharge
the points the
which professional
should be accountant’s
considered
acquired during the course of providing professional in
by Philippine
responsibility
determining law.
according to or
therequired.
profession’s standards.
services
(a) shallwhether
be confidential
permitted information may be disclosed:
When disclosure is authorized. When authorization to disclose is given
4.2 by the client or the employer, the interests of all the parties including
4.3
4.4
4.5
4.6
4.7
4.8
23
those third parties whose interests might be affected should be
(b) considered.
When disclosure is required by law. Examples of when a professional
accountant
(i) is required by law to disclose confidential information are:
To produce documents or to give evidence in the course of
legal
To proceedings;
disclose and
to the appropriate public authorities infringements
(ii) of the law which come to light.
(c)
When there is a professional duty or right to disclose:
(i)
To comply with technical standards and ethics requirements;
such disclosure
To protect is not contrary
the professional to thisofsection;
interests a professional
accountant
To comply in legal
with theproceedings;
quality review of a member body or
professional body; and or investigation by a member body or
To respond to an inquiry
(ii) regulatory body.
(iii)
(iv)
4.9
When the professional accountant has determined that confidential information
can be disclosed, the following points should be considered:
Whether or not all the relevant facts are known and substantiated, to the
extent it is of
What type practicable to do so;iswhen
communications the situation
expected involves in
and the addressee;
unsubstantiated
particular, the fact or opinion,
professional professional
accountant should judgment
be should
satisfied be
theused
thatlegal
Whether
in or not the
determining the type
professional accountant
of disclosure wouldifincur
toaddressed
be made, any; any
parties to whom the communication is are appropriate
liability having made a communication and the consequences thereof.
recipients and have the responsibility to act on it; and

In all such situations, the professional accountants should consider the need to
24 consult legal counsel and/or the professional regulatory body.
SECTION 5
Tax Practice
5.1
A professional accountant rendering professional tax services is entitled to put
forward the bestaccountant
A professional position inshould
favor not
of ahold
client,
outortoana employer,
client or anprovided
employerthe the
service is
assurance rendered
that the with professional
tax return prepared competence,
and the does
tax advice not in
offeredany way
are impair
beyond
A professional
integrity and accountant
objectivity, who undertakes
and is in the or assists
opinion ofshould in the preparation
the professional of a tax
challenge.
return shouldInstead,
advisethe professional
the client or theaccountant
employer that the ensure that accountant
responsibility the for
client
the or
consistent
Taxemployer
the with
advice orare the law.
opinions
aware Doubt
of may
material
ofprimarily be resolved
consequence
the limitations in
attaching favor
given of the
to aadvice client
client and
to employer.
tax or the
or anservices
employer so
content
employer
should of
bedo the
if return
there
recorded, rests
is reasonable
either in with
thesupport
form offorthe
theclient or
position.
a letter or in memorandum The for the files.
that
A they
professional
professional not misinterpret
accountant
accountant an
should
should expression
takenotthe
be of opinion
associated
necessary with
steps astoany
anensure
assertion
returnthat
orof
thefact.
tax
communication
return is properlyinprepared
(a) which there is reason
on the basis of tothe
believe that it: received.
information
(b)
Contains a false or misleading statement;
Contains statements or information furnished recklessly or without any
real
Omitsknowledge of whether
or obscures theyrequired
information are true to
or be
false; or
submitted and such
5.2 omission or obscurity would mislead the revenue authorities.
5.3
5.4
5.5
(c)
5.6
A professional accountant may prepare tax returns involving the use of estimates
if such use is generally acceptable or if it is impractical under the circumstances 25
to obtain exact data. When estimates are used, they should be presented as such
in a manner so as to avoid the implication of greater accuracy than exists. The
professional accountant should be satisfied that estimated amounts are
reasonable under the circumstances.
5.7
In preparing a tax return, a professional accountant ordinarily may rely on
information furnished
In addition, the by theaccountant:
professional client or employer provided that the information
appears reasonable. Although the examination or review of documents or other
(a)
evidence in support of the information is not required, the professional
accountantShould
shouldmake
encourage,
use of when appropriate,
the client’s returnssuch supporting
for prior data to be
years whenever
provided. feasible;
Is required to make reasonable inquiries when the information
presented appears
Is encouraged to bereference
to make incorrect to
orthe
incomplete;
books andand
records of the
(b) business operations.
(c)
5.8
When a professional accountant learns of a material error or omission in a tax
return
(a) of a prior year (with which the professional accountant may or may not
have been associated), or of the failure to file a required tax return, the
Promptly
professional advise
accountant hasthe client or employer
a responsibility to: of the error or omission and
recommend that
If the client or thedisclosure
employerbe made
does nottocorrect
the revenue authorities.
the error, the professional
Normally, the professional accountant is not obligated to inform the
accountant:
(i)
revenue authorities, nor may this be done without permission.
Should inform the client or the employer that it is not possible
(b) to act for them in connection with that return or other related
information submitted to the authorities; and
(c)
Should consider whether continued association with the client
or employer
A professional in any capacity
accountant is consistent
may inform withauthorities
the revenue professional
that there
responsibilities.
is no longer any association with the return or other information
(ii)
If the professional accountant concludes that a professional relationship
(d) with the client or employer can be continued, all reasonable steps
26 should be taken to ensure that the error is not repeated in subsequent
tax returns.
involved and that acting for the client or employer has ceased. In these
circumstances, the professional accountant should advise the client or 27
employer of the position before informing the authorities and should
give no further information to the authorities without the consent of the
client or employer unless required to do so by law.
SECTION 6
Cross Border Activities
6.1
When considering the application of ethical requirements in cross border
activities, a number
A professional of situations
accountant qualifyingmay inarise.
one Whether
country may a professional accountant
reside in another
is a member
countrya or of the profession
may be temporarily in one
visitingcountry only
thatservices or is also
countryintoaperform a member of the
professional
When professional
profession inallthe accountant
country wherethe performs
the services areaccountant
performedcountryshouldother
notthan the
affect
services.
home In
country circumstances,
and differences on professional
specific matters exist should
between carry
ethical out the
manner
(a) of
professional dealing with each situation.
requirementsservices
of the twoin accordance
countries, the with the relevant
following technical
provisions standards
should and
be applied:
ethical requirements. The particular
When the ethical requirementstechnical
of the standards
country which
in which should be
the services are
followed areWhennot performed
being dealt
the within
ethical arethis
lesssection. In the
strict than
requirements of allthis
other respects,
Code,
country inthen however,
this
which Code ofthe
services Ethics
are
professionalof accountant
the performed
being should
Philippines be guided
should be than by theCode,
applied. ethicalthen
requirements set out
below. When the ethical are stricter
requirements ofthis
the home country theare
ethical
mandatory for
requirements
services performedin the outside
countrythat where services
country andare
arebeing performed
stricter should
that set out in
6.2 be
(a) applied.
and (b) above, then the ethical requirements of the home country
6.3 should be applied. (In the case of cross border advertising and
(b) solicitation see also section 14 paragraph 14.4 and 14.5 below.)
(c)
28
SECTION 7
Publicity*
7.1
In the marketing and promotion of themselves and their work, professional
accountants
(a) should:
(b)
Not use means which brings the profession into disrepute;
Not make exaggerated claims for the services they are able to offer, the
3qualifications they possess, or experience they have gained; and
Not denigrate the work of other accountants.
(c)
* See Definitions.

29
PART B – APPLICABLE TO PROFESSIONAL ACCOUNTANTS
IN PUBLIC8PRACTICE
SECTION
Independence
8.1
It is in the public interest and, therefore, required by this Code, that members of
assurance
Assurance teams*, firms
engagements and, when
are intended to enhance thenetwork
applicable, credibilityfirms * be independent
of information
of assurance
about a subject clients
matter by*.evaluating whether the subject matter conforms in all
Paragraphs 8.3 through 8.6 are taken from the Philippine Standards on
material
Assurance respects with suitable
Engagements criteria.the
and describe Thenature
Philippine Standards engagement.
of an assurance on Assurance
8.3 Engagements issued
These paragraphs areby the Philippine
presented here onlyAuditing Standards
to describe and Practices
the nature Council
of an assurance
describe
Whether the objectives and elements of assurance engagements
engagement. To obtain a full understanding of the objectives and elementsupon
a particular engagement is an assurance engagement to
will provide
depend either
of an
a(a)
high oritaengagement,
whether
assurance moderate
exhibits alllevel
the ofnecessary
assurance.
following
it is to The
referPhilippine
elements: to the fullAuditing Standards
text contained in theand
Practice Council
Philippine has also issued specific standards for certain assurance
engagements.AStandards
three
For party
on relationship
example,
Assurance Engagements.
Philippineinvolving:
Standards on Auditing provide specific
standards for
(i) audit (high level assurance) and review (moderate level assurance)
of financial statements.
(ii)
(iii)
(b)
(c)
(d)
* See Definitions.

8.2
A professional accountant;
A responsible party; and
An intended user;
A subject matter;
Suitable criteria;
An engagement process; and
30
(e)
A conclusion.
The responsible party and the intended user will often be from separate
8.4 organizations but need not be. A responsible party and an intended user may
both be within the same organization. For example, a governing body may seek
There is a about
assurance broad information
range of engagements to aprovide
provided by a high
component ofor moderate
that level of
organization. The
assurance.
relationshipSuch engagements
between may include:
the responsible party and the intended user needs to be
viewed within the context of a specific engagement.

Engagements to report on a broad range of subject matters covering


financial
Attest andand non-financial
direct information;
reporting engagements;
Engagements to report internally and externally; and
8.5
Engagements in the private and public sector.
The subject matter of an assurance engagement may take many forms, such as
the following:

Data (for example, historical or prospective financial information,


statistical
Systems and information,
processes performance
(for example,indicators);
internal controls); or
Behavior (for example, corporate governance, compliance with
8.6 regulation, human resource practices).
Not all engagements performed by professional accountants are assurance
engagements.Other engagements frequently performed by professional
accountants that are not assurance engagements include:

Agreed-upon procedures;
Compilation of financial or other information;
Preparation of tax returns when no conclusion is expressed, and tax
consulting;
Management consulting; and
Other advisory services.
31
8.7
This section of the Code (this section) provides a framework, built on principles,
for identifying,
A Conceptual Approach evaluating and responding to threats to independence. The
to Independence
framework establishes principles that members of assurance teams, firms and
8.8 network firms should use to identify threats to independence, evaluate the
significance ofrequires:
Independence those threats, and, if the threats are other than clearly
insignificant,
(a) identify and apply safeguards to eliminate the threats or reduce
them to an acceptable level. Judgment is needed to determine which safeguards
Independence
are to be applied. of mind: may eliminate the threat while others may
Some safeguards
reduce theThethreat to an
state acceptable
of mind level. This
that permits section requires
the provision members
of an opinion of
without
assurance being
teams,affected
firms and by network
influencesfirms
thattocompromise
apply the principles to the
professional judgment,
(b)
particular circumstances under consideration.
allowing an individual The examples
to act with integrity, presented
and exercise are
objectivity and
intended toIndependence in appearance:
illustrate theskepticism.
professional application of the principles in this section and are not
intended toThebe,avoidance
nor shouldofthey beand
facts interpreted as, an exhaustive
circumstances list of all that a
that are so significant
circumstances that may
reasonable andcreate threats
informed to independence.
third party, having Consequently,
knowledge of allit relevant
is not
8.9 sufficient for a memberincluding
of an assurance team,applied,
a firm or a network firm merely to
information, safeguards would reasonably conclude
The use with
comply ofathe word
the
firm’s, or“independence”
examples of theon
presented,
a member its own
rather, theymay
assurance create
should
team’s, misunderstandings.
apply the principles
integrity, objectivityinor
32 Standing alone,
this section to thetheparticular
professional word may leadhadobservers
circumstances
skepticism beenthey to suppose
face.
compromised. that a person exercising
professional judgment ought to be free from all economic, financial and other
relationships. This is impossible, as every member of society has relationships
with others. Therefore, the significance of economic, financial and other
relationships should also be evaluated in the light of what a reasonable and
informed third party having knowledge of all relevant information would
8.10 reasonably conclude to be unacceptable.
Many different circumstances, or combination of circumstances, may be
relevant
This sectionand is accordingly,
based on such it is aimpossible
conceptualtoapproach,
define every one situation
that takesthat
intocreates
account
threats to
threats to independence,
independence and specify
accepted the appropriate
safeguards and the mitigating
public actionUnder
interest. that should
this
This
be section
taken. In provides
addition, a framework
the nature of of principles
assurance that
engagements members of assurance
may differtoand
approach,
teams, firms
firms and and members of assurance teams have an obligation identify
consequently
The
and principles
evaluate in network
different
this section
circumstances
firms
threats should
may
apply
and exist,use
to all to identify
requiring
assurance
relationships the threats
engagements. to independence,
application of
to The different
nature of
evaluate
safeguards.
the threatsthetoAsignificance
conceptual
independence of thosethe
framework
and threats,
that and,that
if
requires
applicable
create
the
firms
safeguards
threats
threats
and are
members
necessary
independence
other than
to of
eliminate
8.11 and to
clearly take appropriate
insignificant, action
identify to eliminate
andacceptable
apply these
safeguards threats or to
to eliminate reduce them
theonthreats tooran
assurance
the threats
acceptable teams
or
level to identify,
reduce
by them
the toevaluate
an
application of and address threats
level differ
safeguards. In to independence,
depending
addition to the rather
identifying
8.12 reduce
than them comply
merely toof anthe
acceptable
with a setlevel, such that
ofengagement;
specific independence and is, and
of arbitrary,
mind engagement
characteristics
evaluating
independence relationships
in
individual
appearance between
are the
not firm,rules which
whether
network
compromised.
mayassurance
the
firms, be
members of the
8.13 therefore,
is an audit
assurance in
teamtheandpublic
engagement the interest. * or another
assurance type of engagement;
client, consideration should be andgiven
in thetocase of an
assurance engagementbetween
whether relationships
* See Definitions. that is not an audit engagement,
individuals outside of thethe purpose,team
assurance subjectand the
matter
assuranceandclient
intended createusers of the
threats to report. A firm should, therefore, evaluate the
independence.
relevant circumstances, the nature or the assurance engagement and the threats 33
to independence in deciding whether it is appropriate to accept or continue an
engagement, as well as the nature of the safeguards required and whether a
particular individual should be a member of the assurance team.
8.14
Audit engagements provide assurance to a wide range of potential users;
consequently,
In the case of an in addition
assurancetoreport
independence of mind,
to a non-audit independence
assurance in appearance
client expressly
is of particular
restricted for usesignificance.
by identified Accordingly,
users, the for audit
users of the clients
report *, the members of the
are considered to be
Accordingly:
assurance team,as thetofirm and network firms are required to be independent of the
knowledgeable the purpose, subject matter and limitations of the report
audit
throughclient.
theirSimilar considerations
participation in the case
in establishing of assurance
the nature and theengagements
scope of the firm’s
provided
instructionsto non-audit
to deliver
For assurance assurance
the services,
engagements clients
provided require
including thethe
to an members
criteria
audit of the
by which
client, the assurance
the
members subject
of the
team and the
matterassurance
are to firm
be to be
evaluated.
team, theindependent
This
firm and of
knowledge
networkthe non-audit
and
firms enhanced
are assurance
ability
required to client.
of
be theInfirm
the to
independent
case Forthese
of assurance engagements
engagements, providedshould
consideration to clients that are
be report
given to not
anyaudit
threatsclients,
that the
communicate
of
whenthe the about
client;
report safeguards
is notmay with all
expressly users offor
restricted the use increase
byare
identified the
users, the
firm has
For reason
assurance
effectiveness of to believe
engagements
safeguards to beprovided
created
independence by
toinnetwork
clients firm
that
appearance.These interests
not audit and
clients,
members
relationships.
when the of the assurance
assurance report team
is and therestricted
expressly firm are required
for use to identified
by be independent
users,
8.15 circumstances
of the client; mayand be taken into account by the firm in evaluating the threats to
independence and considering the applicable safeguards necessary to eliminate
8.16
the threats or reduce them to an acceptable level. At a minimum, it will be
necessary to apply the provisions of this section in evaluating the independence
of members of the assurance team and their immediate and close family*.
Further, if the firm had a material financial interest*, whether direct or indirect,
* See Definitions.
in the assurance client, the self-interest threat created would be so significant no
34 safeguard could reduce the threat to an acceptable level. Limited consideration
of any threats created by network firm interests and relationships may be
sufficient.
the members of the assurance team are required to be independent of the
Theseclient. In addition,
independence the firm should
requirements a material direct
not haveengagements
for assurance or indirect
are illustrated as
financial interest* in the client.
follows: Type of Assurance Engagement
Client
Audit
Non-audit-not
restricted use Non-audit
Audit client restricted use
Assurance team, firm and network firms
Assurance team
Non-audit and firm have no
Assurance material financial
Assurance team interest
client and firm
8.17
The threats and safeguards identified in this section are generally discussed in
the
Thecontext of interests
evaluation of threatsor to
relationships
independence between the firm, network
and subsequent firms, be
action should a
member of the assurance team and the assurance client. In the case
supported by evidence obtained before accepting the engagement and while it is of a listed
8.18 audit
beingclient, the firm
performed. Theand any network
obligation to makefirms arean
such required to consider
evaluation and takethe interests
action
and
* See Definitions. relationships
arises when a firm, that involve that
a network firmclient's relatedofentities.
or a member Ideally team
the assurance thoseknows,
entitiesor
and
couldthereasonably
interests and relationships
be expected should
to know, of be identified inor
circumstances advance. For allthat
relationships other 35
assurance clients, when
might compromise the assurance
independence. There team
may hasbereason to believe
occasions when that a related
the firm, a
entity* of
network such
firm an individual
or an assurance client is relevant
inadvertently to thethis
violates evaluation
section.of
If the
suchfirm's
an
independence of the client,
inadvertent violation occurs,the assurance
it would team should
generally consider that
not compromise related entity
independence
when evaluating
with respect to anindependence
assurance client,and provided
applying theappropriate
firm has safeguards.
appropriate quality
control policies and procedures in place to promote independence and, once
8.19 discovered, the violation is corrected promptly and any necessary safeguards are
applied.
Throughout this section, reference is made to significant and clearly
insignificant
Objective threats of
and Structure in the
thisevaluation
Sectionof independence. In considering the
significance of any particular matter, qualitative as well as quantitative factors
8.20 should be taken into account. A matter should be considered clearly
insignificant
The objectiveonly if itsection
of this is deemed
is totoassist
be both trivial
firms and inconsequential.
and members of assurance teams
in:
(a)
(b)
(c)
Identifying threats to independence;
Evaluating whether these threats are clearly insignificant; and
In cases when the threats are not clearly insignificant, identifying and
In situationsapplying
when noappropriate
safeguardssafeguards to eliminate
are available to reduceorthe
reduce
threatthe
to threats
an to an
8.21 acceptableacceptable level.possible actions are to eliminate the activities or
level, the only
interest creating the threat, or to refuse to accept or continue the assurance
This section outlines the threats to independence (paragraphs 8.28 through 8.33).
engagement.
It then threats
When analyzesto safeguards
independence capable of eliminating
that are these threats are
not clearly insignificant or reducing them
identified,
to
andanthe
acceptable levelto(paragraphs
firm decides 8.34 through
accept or continue 8.47). It engagement,
the assurance concludes with thesome
8.22 examples of how this conceptual approach to independence is to be applied to
36 specific circumstances and relationships. The examples discuss threats to
independence that may be created by specific circumstances and relationships
(paragraphs 8.100 onwards). Professional judgment is used to determine the
appropriate safeguards to eliminate threats to independence or to reduce them to
an acceptable level. In certain examples, the threats to independence are so
significant the only possible actions are to eliminate the activities or interest
creating the threat, or to refuse to accept or continue the assurance engagement.
In other examples, the threat can be eliminated or reduced to an acceptable level
by the application of safeguards. The examples are not intended to be all-
inclusive.
decision should be documented.The documentation should include a
8.23 description of the threats identified and the safeguards applied to eliminate or
reduce the threats to an acceptable level.
The evaluation of the significance of any threats to independence and the
Nationalsafeguards
Perspectives necessary to reduce any threats to an acceptable level, takes into
account the public interest. Certain entities may be of significant public interest
8.24 because, as a result of their business, their size or their corporate status, they
have section
This a wide range of stakeholders.
establishes a conceptual Examples
framework of such entities mightrequirements
for independence include
listed
for companies,
assurance credit
engagements. institutions, insurance
Accordingly, no companies,
Certain examples in this section indicate how the principles are to be allowed
member body and
or pension
firm is funds.to
applied to
Because
apply lessofstringent
the strong public interest
standards in the
than those financial
stated in thisstatements
section. Thisof listed
Codeentities,
does
listed
When entity
aparagraphs
firm 4* audit engagements. Where there is no differentiation between
conducts an assurance engagement in in
accordance with
certain
not apply less in this
stringent section deal
standards than with
those additional
stated matters
the IFAC that arethe
relevant to
listed entity
Philippine audit engagements and other audit engagements, theCode.
examples that
the audit
Firms, ofStandards
networklisted
firms on
entities.
and Assurance
members Engagements,
Consideration
of should be
assurance orgiven
teams with specific
to
should standards
thebeapplication
aware offor
ofallthose
relate to
assurance listed entity
engagements audit engagements
issued by should
theinPhilippine be considered to apply to
the principles
differences set out in this
between/among section
the relation
definitions of toAuditing
the audit Standards
relationships of and to
listedapplicable
under entities
8.25 audit engagements.
Practices Council
other audit
existing laws, rulessuch
clients that as
andmay anbeaudit orandreview
of significant
regulations of financial
public
the definitions statements
interest.
provided in and
herein
8.26 accordance
comply withwith Philippine
the more Standards
stringent on Auditing, the members of the
requirements.
8.27 assurance team and the firm should comply with this section unless they are
prohibited from complying with certain parts of this section by law or
* See Definitions.
regulation. In such cases, the members of the assurance team and the firm
should comply with all other parts of this section. 37
Threats to Independence
8.28
8.29
Independence is potentially affected by self-interest, self-review, advocacy,
familiarity andThreat”
“Self-Interest intimidation
occursthreats.
when a firm or a member of the assurance team
could benefit
Examples from a financial
of circumstances interest
that in, or this
may create other self-interest
threat include,conflict with, an
but are not
assurance
limited to: client.
(a)
A direct financial interest or material indirect financial interest in an
assurance client;
A loan or guarantee to or from an assurance client or any of its
directors or officers
Undue dependence 5*;
on total fees from an assurance client;
Concern about the possibility of losing the engagement;
Having a close business relationship with an assurance client;
Potential employment with an assurance client; and
Contingent fees relating to assurance engagements.
(b)
(c)
(d)
(e)
(f)
(g)
8.30
“Self-Review Threats” occurs when (1) any product or judgment of a previous
assurance
Examples engagement or non-assurance
of circumstances engagement
that may create this threatneeds to be
include, butre-evaluated
are not in
reaching
limited conclusions on the assurance engagement or (2) when a member of the
to:
(a)
assurance team was previously a director or officer of the assurance client, or
was an employee
A member in aof
position to exertteam
the assurance directbeing,
and significant influencebeen,
or having recently over athe
subject matter
A of the
director
member or assurance
officer engagement.
of the assurance
of the assurance client;or having recently been, an
team being,
(b) employee of the assurance client in a position to exert direct and
* See Definitions.

38
significant influence over the subject matter of the assurance
(c) engagement;
Performing services for an assurance client that directly affect the
subject matter
Preparation of of the assurance
original data usedengagement;
to generate and
financial statements or
(d) preparation of other records that are the subject matter of the assurance
engagement.
8.31
“Advocacy Threat” occurs when a firm, or a member of the assurance team,
promotes,
Examples of or circumstances
may be perceivedthattomay
promote,
create an
thisassurance client’s
threat include, position
but are notor
opinion
limited to the point that objectivity may, or may be perceived to be,
to:
(a)
compromised. Such may be the case if a firm or a member of the assurance
team wereDealing
to subordinate their ajudgment
in, or being promotertoof,
that of the
share client.securities in an
or other
assurance
Acting client;
as an and on behalf of an assurance client in litigation or in
advocate
(b) resolving disputes with third parties.
8.32
“Familiarity Threat” occurs when, by virtue of a close relationship with an
assurance
Examples client, its directors,
of circumstances officers
that or employees,
may create this threata include,
firm or abut
member
are notof the
assurance
limited to: team becomes too sympathetic to the client’s interests.
(a)
A member of the assurance team having an immediate family*
member
A member or of
close
the family member
assurance team who is aandirector
having or officer
immediate familyofmember
the
assurance client;member who, as an employee of the assurance client, is
or close family
(b)
in a position to exert direct and significant influence over the subject
* See Definitions.
matter of the assurance engagement;
39
(c)
A former partner of the firm being a director, officer of the assurance
client or an employee
Long association in a position
of a senior member to of
exert
thedirect and significant
assurance team with the
influence
assurance over theand
client; subject matter of the assurance engagement;
Acceptance of gifts or hospitality, unless the value is clearly
(d) insignificant, from the assurance client, its directors, officers or
employees.
(e)
8.33
“Intimidation Threat” occurs when a member of the assurance team may be
deterred
Examplesfrom acting objectively
of circumstances and exercising
that may create this professional skepticism
threat include, by
but are not
threats, to:
limited actual or perceived, from the directors, officers or employees of an
(a)
assurance client.
Threat of replacement over a disagreement with the application of an
accounting
Pressure to principle; and
reduce inappropriately the extent of work performed in
(b) order to reduce fees.
Safeguards
8.34
The firm and members of the assurance team have a responsibility to remain
independent
When threatsby aretaking into account
identified, the those
other than context inare
that which theyinsignificant,
clearly practice, the
threats to independence
appropriate safeguards and thebesafeguards
should identified available
and to eliminate
applied to thethe
eliminate threats or
threats
Safeguards
reduce them fall intoacceptable
to an three broad categories:
level.
or reduce them to an acceptable level. This decision should be documented.
(a)
The nature of the safeguards to be applied will vary depending upon the
circumstances. Consideration
Safeguards should
created by always be given
the profession, to what
legislation a reasonable and
or regulation;
8.35 informed third party having knowledge of all relevant information, including
safeguards applied, would reasonable conclude to be unacceptable. The
8.36 consideration will be affected by matters such as the significance of the threat,
40 the nature of the assurance engagement, the intended users of the assurance
report and the structure of the firm.
(b)
(c)
Safeguards within the assurance client; and
Safeguards within the firm’s own systems and procedures.
The firm and the members of the assurance team should select appropriate
8.37 safeguards to eliminate or reduce threats to independence, other than those that
are clearly insignificant, to an acceptable level.
Safeguards created by the profession, legislation or regulation, include the
following:
(a)
Educational, training and experience requirements for entry into the
profession;
Continuing education requirements;
Professional standards and monitoring and disciplinary processes;
External review of a firm’s quality control system; and
Legislation governing the independence requirements of the firm.
(b)
(c)
(d)
(e)
8.38
Safeguards within the assurance client, include the following:
(a)
When the assurance client’s management appoints the firm, persons
other than management
The assurance client hasratify or approve
competent the appointment;
employees to make managerial
decisions;
Policies and procedures that emphasize the assurance client’s
commitment to fair financial
Internal procedures reporting;
that ensure objective choices in commissioning
non-assurance engagements;
A corporate governance and such as an audit committee, that
structure,
(b) provides appropriate oversight and communications regarding a firm’s
services.
(c)
(d)
(e)
8.39
Audit committees can have an important corporate governance role when they
are independent of client management and can assist the Board of Directors in 41
satisfying themselves that a firm is independent in carrying out its audit role.
There should be regular communications between the firm and the audit
8.40 committee (or other governance body if there is no audit committee) of listed
entities regarding relationships and other matters that might, in the firm’s
Firms should
opinion, establish
reasonably be policies
thought and procedures
to bear relating to independence
on independence.
communications
Safeguards withinwith the audit
firm’scommittees,
own systems orandothers charged may
procedures with include
governance.
firm-In
the case
wide of the audit
safeguards such ofaslisted
the entities, the firm should communicate orally and in
following:
(a)
writing at least annually, all relationships and other matters between the firm,
network firms
Firmand the auditthat
leadership client that in
stresses thethe firm’s professional
importance judgment
of independence andmay
the
reasonablyexpectation
be thought to
that bear on
members independence.
of assurance Matters
teams to be
will communicated
act
Policies and procedures to implement and monitor quality control of in the public
will vary ininterest;
each circumstance
assurance engagements; and should be decided by the firm, but should
Documented
generally address independence
the relevant matters policies
set out inregarding the identification of
this section.
threats
Internaltopolicies
independence, the evaluation
and procedures of the
to monitor significance
compliance of firm
with these
threats and
policies and the identification
procedures as andrelate
they application
to of safeguards to eliminate
independence;
Policies
or reduceandtheprocedures
threats, otherthatthan
willthose
enablethattheare
identification of interests
clearly insignificant, to or
relationships
an acceptable
Policies between
level; thetofirm
and procedures or members
monitor of the assurance
and, if necessary, manageteam the and
assurance
reliance onclients;
revenue received from awithsingle assurance client;lines for the
Using different partners and teams separate reporting
8.41 provision of non-assurance services to an assurance client;
(b)
(c)
(d)
(e)
(f)
(g)
42
(h)
Policies and procedures to prohibit individuals who are not members of
the assurance
Timely team fromofinfluencing
communication the outcome
a firm’s policies of the assurance
and procedures, and any
engagement;
changes thereto, to all partners and professional staff, including
Designating a member of senior management as responsible for
appropriate the
overseeing training and functioning
adequate education thereon;
of the safeguarding
Means of advising partners and professional staff of thosesystem;
assurance
clients
A and related
disciplinary entities from
mechanism which compliance
to promote they must bewith
independent;
policies and
procedures; and
Policies and procedures to empower staff to communicate to senior
(i) levels within the firm any issue of independence and objectivity that
concerns them; this includes informing staff of the procedures open to
(j) them.
(k)
(l)
(m)
8.42
Safeguards within the firm’s own systems and procedures may include
engagement
(a) specific safeguards such as the following:
Involving an additional professional accountant to review the work
done or otherwise
Consulting a third advise as necessary.
party, such This individual
as a committee could be
of independent directors,
someone
aRotation from regulatory
professional outside thebody
firm or
or another
networkprofessional
firm, or someone within the
accountant;
of senior
firm or network personnel;
firm who was not otherwise associated with the
assurance team;
Discussing independence issues with the audit committee or others
charged with
Disclosing to governance;
the audit committee, or others charged with governance,
the nature
Policies of procedures
and services provided andmembers
to ensure extent ofoffees
the charged;
assurance team do
(b) not make, or assume responsibility for, management decisions for the
assurance client;
(c)
(d)
(e)
(f)
43
(g)
Involving another firm to perform or re-perform part of the assurance
engagement;
Involving another firm to re-perform the non-assurance service to the
extent necessary
Removing to enable
an individual it tothe
from take responsibility
assurance team, for thatthat
when service; and
(h) individual’s financial interest or relationships create a threat to
independence.
(i)
8.43
When the safeguards available, such as those described above, are insufficient to
eliminate
Engagement the threats to independence or to reduce them to an acceptable level, or
Period
when a firm chooses not to eliminate the activities or interest creating the threat,
8.44 the only course of action available will be the refusal to perform, or withdrawal
from,members
The the assurance
of theengagement.
assurance team and the firm should be independent of the
assurance client during the period ofthe
In the case of an audit engagement, theengagement
assurance engagement.
period includesThethe period of
period
the engagement
covered by the starts when
financial the assurance
statements reportedteamon begins
by the to perform
firm. When assurance
an entity
services and ends when the assurance report is issued, except when the
becomes an audit client during or after the period covered by the financial
assurance engagement
statementsFinancial iswill
of areport
or business
that the firm recurring nature.
relationships
on, the Ifshould
with
firm the
theassurance
audit engagement
client
consider during any
whether is
or after
expected
threats to totherecur, the
period
independence
Previous period
covered of
bythe
theassurance
mayprovided
services be financial
createdto by: engagement
statements,
the audit client. butends with
prior to the
the
notificationacceptance
by either party
of thethat theengagement;
audit professionalorrelationship has terminated or
8.45 the issuance of the final assurance report, whichever is later.

Similarly, in the case of an assurance engagement that is not an audit
8.46 engagement, the firm should consider whether any financial or business
relationships or previous services may create threats to independence.
If non-assurance services were provided to the audit client during or after the
44 period covered by the financial statements but before the commencement of
professional services in connection with the audit and those services would be
prohibited during the period of the audit engagement, consideration should be
given to the threats to independence, if any, arising from those services. If the
Discussing
threat is other independence
than clearly issues
insignificant, related toshould
safeguards the provision of the non-
be considered and
applied as assurance
necessary services
Obtaining the auditwith
to reduce the those
threat
client’s charged with governance
to an acceptable
acknowledgement level.
of of the
Such client,
safeguards
responsibility for the
such asof
might include:
results the audit committee;services;
Precludingthe non-assurance
personnel who provided the non-assurance services from
participating
Engaging in thefirm
another audittoengagement; and of the non-assurance
review the results
 services or having another firm re-perform the non-assurance services
to the extent necessary to enable it to take responsibility for those
 services.

8.47
Non-assurance services provided to a non-listed audit client will not impair the
firm’s independence when the client becomes a listed entity provided:

The previous non-assurance services were permissible under this
section for non-listed
The services audit clients;
will be terminated within a reasonable period of time of
the client
The becoming
firm has a listedappropriate
implemented entity, if they are impermissible
safeguards under
to eliminate any this
section forindependence
threats to listed audit clients;
arisingand
from the previous services or reduce

them to an acceptable level.
Effective Date
8.48
This section is applicable to assurance engagements performed on or after
January 1, 2004. Earlier application is encouraged. 45
Application of Principles to Specific Situations
Index
Subject
Introduction...................................................................................................
Financial Interests ......................................................................................... Paragraph
Provisions Applicable to all Assurance Clients ...........................
Provisions Applicable to Audit Clients ........................................ 8.100
Provisions Applicable to Non-Audit Assurance Clients ............. 8.102
8.150
Loans and Guarantees................................................................................... 8.104
8.151
8.203
8.111
Close Business Relationships with Assurance Clients............................... 8.155
8.205
46
Family and Personal Relationships ............................................................. 8.120
8.163
8.206
8.124
Employment with Assurance Clients .......................................................... 8.166
8.207
Recent Service with Assurance Clients....................................................... 8.130
8.167
8.210
8.133
Serving as an Officer or Director on the Board of Assurance Clients ...... 8.168
8.211
Long Association of Senior Personnel with Assurance Clients 8.140
8.170
General Provisions......................................................................... 8.143
8.171
Audit Clients that are Listed Entities............................................ 8.146
8.177
Provision of Non-Assurance Services to Assurance Clients ..................... 8.178
Preparing Accounting Records and Financial Statements .......... 8.184
General Provisions.......................................................... 8.189
Audit Clients that are not Listed Entities ...................... 8.190
Audit Clients that are Listed Entities............................. 8.193
Emergency Situations..................................................... 8.200
Valuation Services ......................................................................... 8.201
Provision of Taxation Services to Audit Clients .........................
Provision of Internal Audit Services to Audit Clients.................
Provision of IT Systems Services to Audit Clients .....................
Temporary Staff Assignments to Audit Clients...........................
Provision of Litigation Support Services to Audit Clients..........
Provision of Legal Services to Audit Clients...............................
Recruiting Senior Management ....................................................
Corporate Finance and Similar Activities ....................................
Fees and Pricing
Fees – Relative Size.......................................................................
Fees – Overdue ..............................................................................
Pricing.............................................................................................
Contingent Fees .............................................................................
Gifts and Hospitality.....................................................................................
Actual or Threatened Litigation...................................................................
Introduction
8.100
The following examples describe specific circumstances and relationships that
may
Somecreate
of thethreats
examples to independence.
deal with auditThe examples
clients whiledescribe
others dealthe with
potential threats
assurance
createdthat
clients andare the not
safeguards
audit that may
clients. The be appropriate
examples to eliminate
illustrate how the threats
safeguards or
should
8.101 reduce them
be applied toto an acceptable
fulfill level infor
the requirement each
thecircumstance.
members of the The examples
assurance are not
team, the
Financialall-inclusive.
Interests
firm and network In practice,
firms tothe be firm, networkoffirms
independent and client,
an audit the members
and forofthethe
8.102 assurance of
members teamthe will be required
assurance team andto assess
the firmthe to
implications
be independentof similar, but
of an assurance
different,
client that circumstances
is not an audit and relationships
client. The examplesand todo determine
not include whether safeguards,
assurance reports
A financialthe
including interest in an in
safeguards assurance
paragraphsclient
8.37may create8.42
through a self-interest threat.toIn
to a non-audit
evaluating the assurance
significance client
of expressly
the threat, restricted
and the for usecan
appropriate
be applied
bysafeguards
identified users.
to 8.48
be to
satisfactorily
When
As evaluating
stated in address
paragraph the
the type threats
8.15 offor to independence.
financial
such Paragraphs
interest, consideration
engagements, members 8.1
should
of thethrough
be given
assurance
applied
of
the this
fact to
thateliminate
section provide
financial the threat or
conceptual
interests reduce
rangeguidance
from it those
totoanassist
acceptable
wherein this
the level,
process.it is has
individual necessary
no
8.103 team
to and their
examine the immediate andfinancial
close family are This
required to beanindependent of
of the
control
assurance over thenature
client. Further,
of the
investment thevehicle
firm orinterest.
thenot
should financial includes
have ainterest
material held evaluation
(e.g., ainterest,
financial mutual
the
fund, role
unitof the
trust person holding
or similar the financial
intermediary interest, the materiality of the
vehicle) to those where the individual has 47
indirect orinterest
financialover indirect,andinthethetype
assurance client.
of financial
control the financial interest (e.g., as ainterest
trustee)(direct or indirect).
or is able to influence
investment decisions.In evaluating the significance of any threat to
independence, it is important to consider the degree of control or influence that
can be exercised over the intermediary, the financial interest held, or its
investment strategy. When control exists, the financial interest should be
considered direct. Conversely, when the holder of the financial interest has no
ability to exercise such control, the financial interest should be considered
indirect.
Provisions Applicable to all Assurance Clients
8.104
If a member of the assurance team, or their immediate family member, has a
direct
 financial interest, or a material indirect financial interest, in the assurance
client, the self-interest threat created would be so significant the only safeguards
available to eliminate the threat or reduce it to an acceptable level would be to:
Dispose of the direct financial interest prior to the individual becoming
aDispose
memberofofthetheindirect
assurance team;interest in total or dispose of a
financial
sufficient
Remove the amount
memberof itofsothe
that the remaining
assurance interest
team from the is no longer
assurance
material prior to the individual becoming a member of the assurance
engagement.
 team; or
8.105
If a member of the assurance team, or their immediate family member receives,
by
 way of, for example, an inheritance, gift or, as a result of a merger, a direct
financial interest or a material indirect financial interest in the assurance client, a
self-interest threat would be created. The following safeguards should be
applied to Disposing
eliminate the threat
of the or reduce
financial it to at
interest anthe
acceptable level: date; or
earliest practical
Removing the member of the assurance team from the assurance
During theengagement.
period prior to disposal of the financial interest or the removal of the
individual
 from the assurance team, consideration should be given to whether
additional safeguards are necessary to reduce the threat to an acceptable level.
Such safeguards might include:
Discussing the matter with those charged with governance, such as the
audit committee;
Involving or
an additional professional accountant to review the work
48 done, or otherwise advise as necessary.
8.106
When a member of the assurance team knows that his or her close family
member
 has a direct financial interest or a material indirect financial interest in
the assurance client, a self-interest threat may be created. In evaluating the
significance of any threat, consideration should be given to the nature of the
relationship between the member of the assurance team and the close family
member and Thethe materiality
close of the financial
family member interest.
disposing of all Once the significance
or a sufficient portion of
of the
the threat has been
financial evaluated,
interest at safeguards
the earliest should be
practical considered
date; and applied as
necessary.Discussing the matter
Such safeguards mightwith those charged with governance, such as the
include:
audit committee;
Involving an additional professional accountant who did not take part
in the assurance
Removing engagement
the individual fromtothe
review the work
assurance done by the member of
engagement.
the assurance team with the close family relationship or otherwise
 advise as necessary; or
8.107
When a firm or a member of the assurance team holds a direct financial interest
or
 a material indirect financial interest in the assurance client as a trustee, a self-
interest threat may be crated by the possible influence of the trust over the
assurance The member
client. of the assurance
Accordingly, team, an
such an interest immediate
should only befamily member of
held when:
the
Themember of thebyassurance
interest held the trust team,
in the and the firm
assurance are not
client beneficiaries
is not material to of
the trust;
the trust;
The trust is not able to exercise significant influence over the assurance
client; and of the assurance team or the firm does not have significant
The member
 influence over any investment decision involving a financial interest in
the assurance client.


8.108
Consideration should be given to whether a self-interest threat may be created
by the financial interests of individuals outside of the assurance team and their 49
immediate and close family members. Such individuals would include:



Partners, and their immediate family members, who are not members of
the assurance
Partners team;
and managerial employees who provide non-assurance
services to the
Individuals whoassurance client;
have a close and relationship with a member of
personal
the assurance team.
Whether the interests held by such individuals may create a self-interest threat
will
 depend upon factors such as:

The firm’s organizational, operating and reporting structure; and
The nature of the relationship between the individual and the member
of the assurance
The significance team.
of the threat should be evaluated and, if the threat is other than
clearly
 insignificant, safeguards should be considered and applied as necessary
to reduce the threat to an acceptable level. Such safeguards might include:


Where appropriate, policies to restrict people from holding such
interests;
Discussing the matter with those charged with governance, such as the
audit committee;
Involving or
an additional professional accountant who did not take part
8.109 in the assurance engagement to review the work done or otherwise
advise as necessary.
An inadvertent violation of this section as it relates to a financial interest in an
assurance client would not impair the independence of the firm, the network
(a)
firm or a member of the assurance team when:
The firm, and the network firm, has established policies and procedures
that
The require allthe
firm, and professionals
network firm, to report promptly
promptly notifiesto the
the professional
firm any that
breaches
the resulting
financial from
interest the purchase,
should be inheritance
disposed of; and or other acquisition of
The disposal occurs at the earliest practical
a financial interest in the assurance client; date after identification of
(b) the issue, or the professional is removed from the assurance team.
(c)
50
8.110
When an inadvertent violation of this section relating to a financial interest in an
assurance
 client has occurred, the firm should consider whether any safeguards
should be applied. Such safeguards might include:
Involving an additional professional accountant who did not take part
in the assurance
Excluding engagement
the individual fromtoany
review the workdecision-making
substantive done by the member of
the assurance team; or
concerning the assurance engagement.

Provisions Applicable to Audit Clients
8.111
If a firm, or a network firm, has a direct financial interest in an audit client of the
firm,
If a firm,the self-interest
or a networkthreatfirm, created would be
has a material so significant
indirect financialno safeguard
interest in ancould
audit
reduce
client the
of the threat
firm, to an acceptable
a self-interest level.
threat Consequently,
is also disposal
created.interest
The only of the
action financial
If a
interestfirm, or
would a network
be the onlyfirm, has
action a material
appropriate financial
to permit thewould in an entity
firm tobeperform that has
appropriate
aengagement.
controlling tointerest
permit theanfirm
in auditto client,
perform thethe engagement
self-interest threat created the the
forwould firm,
be
If the
or the retirement
networkno benefit
firm, plan
either to of a firm,oforthe
dispose network
indirect firm, has ina financial
or tointerest
so
in significant
an audit client, safeguard could
a self-interest reduce
threat maythebe threat tointerest
created.
total level.
anAccordingly,
acceptable the
dispose
The
of other
If
onlya sufficient
partners,
actions amount ofto
including
appropriate it permit
so that
partners the remaining
who
the firmdotonot interest
perform
perform isengagement
no longer
assurance
the material.
engagements,
would be
significance
or their of
immediate any such
family, threat created
the office
infirm, should
* in
be
which ofevaluated
thethelead and, if the
engagement threat ispartner *
8.112 for
other the firm, or
thaninclearly the network
insignificant, either to dispose financial interest in
practices
total or to connection
dispose of a with thesafeguard
sufficient audit
amountholdof
should
aitdirect
so
befinancial
that
considered
the remaining
and applied
interest or a isasno
interest
8.113 necessary
material to eliminate
indirect the interest
financial threat orinreduce it to client,
that audit an acceptable level. threat
the self-interest
longer material.
8.114 created would be so significant no safeguard could reduce the threat to an
8.115
* See Definitions.

51
acceptable level. Accordingly, such partners or their immediate family should
8.116 not hold any such financial interests in such an audit client.
The office in which the lead engagement partner practices in connection with the
audit
If other is not necessarily
partners the officeemployees
and managerial to which that whopartner
providedis assigned.
non-assuranceAccordingly,
when thetolead
services the engagement
audit client, partner
except is located
those whose in involvement
a different office is from that of the
clearly
A
other financial
members interest in assurance
an audit client that is held should
by an immediate to family
insignificant,
member oraoftheir
of (a)the
the
partnerimmediate
located
team,
family,
in
judgment
holdina direct
theconnection
office which
be usedinterest
financial
the
determine
lead engagement or a in
which
A
material office
self-interest
indirect partner
threat may
financial practices
be created
interest in
in if
thethe firm,
audit with
or the
client, that
the audit.
network firm,
self-interest or a
threat
partner practices in connection withanthe audit, inor an
(b)entity
a partner or managerial
member
created
employee
of the be
would assurance
so team has
significant no interest
safeguard could reduce and
the an audit
threat to client,
an or
director, who
aacceptable officer
level.
provides non-assurance
or controlling
Accordingly, owner
such
servicesalso
thereof
personnel or
to the
hasaudit
their
client, is not
an investment
immediate familyin that
should
considered
entity. to create an
Independence is unacceptable
not compromised threatwith
provided
respectit is the
to received as a result
audit client if theof
not
their hold any such financial
employment interests in rights
such an or audit client.
respective interestsrights
of the(e.g.,
firm,pension
the network firm, share options)ofand,
or member the where
assurance
necessary, appropriate
team, and Dispose
the auditof safeguards
client, are applied
or director, officer orto controlling
reduce any owner threat to thereof are
independence to an the interest;
acceptable level.
both immaterial and the audit client cannot exercise significant influence over
the entity. Dispose of a sufficient
If an interest is material, amount of the
to either the interest
firm, thesonetwork
that thefirm remaining
or the
audit client,interest
and theis no longer
audit
Withdraw from the audit.clientmaterial;
can or
exercise significant influence over the
entity, no safeguards are available to reduce the threat to an acceptable level,
8.117
and the firm, the network firm, should either dispose of the interest or decline
8.118 the audit engagement. Any member of the assurance team with such a material
8.119 interest should either:
52
Provisions Applicable to Non-Audit Assurance Clients
8.120
If a firm has a direct financial interest in an assurance client that is not an audit
client, thehas
If a firm self-interest
a material threat
indirectcreated would
financial be soinsignificant
interest no safeguard
an assurance client thatcould
is
reduce
not an the threat
audit toaanself-interest
client, acceptablethreat
level. isConsequently,
also created. disposal
The only of the financial
action
If a firm
interest has
would a material
be the only financial
action interest in
appropriate an entity that has
to permit thewould a controlling
firm tobeperform the
appropriate
interest antoassurance
permit theclient
firm to perform theaudit
engagement for the firm
to a in
engagement.
When
either restricted
dispose ofuse
the report
indirect
that
for anisassurance
interest
not an
in total or
client, thethat
engagement
to dispose
self-interest
of isa not threat
an audit
sufficient
created
engagementwould is be so significant no safeguard could reduce the threat to an
8.121 amount
acceptable soissued,
of itlevel.that
Thethe
exceptions
onlyremaining
action
tointerest
the provisions
is no in paragraphs 8.104 through
to longer
permit material.
8.108 and 8.120 through 8.122 areappropriate
set out in 8.15. the firm to perform the
8.122 engagement would be for the firm either to dispose of the financial interest in
8.123 total or to dispose of a sufficient amount of it so that the remaining interest is no
longer material.
Loans and Guarantees
8.124
A loan from, or a guarantee thereof by, an assurance client that is a bank or a
similar institution,
A loan from, to the firmthereof
or a guarantee wouldby,
notancreate a threat
assurance to independence
client that is a bank or a
provided the loan istomade
similar institution, underof
a member normal lending procedures,
the assurance team or theirterms and family
immediate
8.125 requirements
would not create a threat to independence provided the loan is made under client.
and the loan is immaterial to both the firm and the assurance
If the loan
normal is material
lending to the terms
procedures, assurance client or the firm,
and requirements. it may of
Examples besuch
possible,
loans 53
through the application
include home mortgages, ofbank
safeguards, to reduce
overdrafts, the self-interest
car loans threat
and credit card created to
balances.
an acceptable level. Such safeguards might include involving an additional
professional accountant from outside the firm, or network firm, to review the
work performed.
8.126
Similarly, deposits made by, or brokerage accounts of, a firm or a member of the
assurance
If the firm,team
or a with
member an assurance client that
of the assurance team,is amakes
bank, abroker
loan tooransimilar
assurance
institution
client, that would
is not anot create
bank or a threatinstitution,
similar to independence
or provided
guarantees thean
such deposit or
assurance
Similarly,
account is if the
held firm
under or a member
normal of
commercialthe assurance
terms. team accepts a loan from, or
client's
has borrowing,
borrowing the self-interest
guaranteed by,8.124 threat created
an assurance client would be
that isto
not soa bank
significant no
orguarantees
similar
The examples
safeguard could in paragraphs
reduce the threat tothrough 8.128
an acceptable relate
level, loans
unless andloan
the or
institution,
between the the self-interest threat created would be so significant no safeguard
8.127 guarantee
could reduceis firm
the
and antoassurance
immaterial
threatbeto anboth the client. orInthe
firm level,
acceptable
themember
case of ofanthe
audit engagement,
assurance team
the
andprovisions
the assurance should
client. applied to the firm, allunless
networkthe firms
loan or guarantee
and the auditis
8.128 immaterial
client. to both the firm or the member of the assurance team and the
8.129 assurance client.

Close Business Relationship with Assurance Clients


8.130
A close business relationship between a firm or a member of the assurance team
and the assurance
(a) Having client
a material or its management,
financial or between
interest in a joint venturethewithfirm,
theaassurance
network firm
andclient
an audit
or a client, will involve
controlling owner, a commercial
director, oror
officer common
other financial who
individual interest and
(b)
may Arrangements to combine
create self-interest one or morethreats.
and intimidation services
The orfollowing
products of arethe firm with
examples of
performs
one senior managerial
or more services functions
or products for that client;
of the assurance client
such
(c) relationships:
Distribution or marketing arrangements under which theand to acts
firm market
as athe
package with
distributor reference of
or marketer to the
bothassurance
parties; and
client’s products or services, or the
54
assurance client acts as the distributor or marketer of the products or
services of the firm.
In the case of an audit client, unless the financial interest is immaterial and the
relationship is clearly insignificant to the firm, the network firm and the audit
client, no safeguards could reduce the threat to an acceptable level. In the case
of an assurance client that is not an audit client, unless the financial interest is
immaterial and the relationship is clearly insignificant to the firm and the
assurance Terminate
client, no safeguards
the businesscould reduce the threat to an acceptable level.
relationship;
Consequently, in both these circumstances, the only possible courses of action
are to: Reduce the magnitude of the relationship so that the financial interest is
immaterial and the the
Refuse to perform relationship
assuranceisengagement.
clearly insignificant; or
Unless any such financial interest is immaterial and the relationship is clearly
8.131 insignificant to the member of the assurance team, the only appropriate
safeguard would be to remove the individual from the assurance team.
In the case of an audit client, business relationships involving an interest held by
the firm, a network firm or a member of the assurance team or their immediate
family in a closely held entity when the audit client or a director or officer of the
audit client, or any group thereof, also has an interest in that entity, do not create
threats to independence provided:
The relationship is clearly insignificant to the firm, the network firm
and
The the auditheld
interest client;
is immaterial to the investor, or group of investors;
and
The interest does not give the investor, or group of investors, the ability
8.132 to control the closely held entity.
The purchase of goods and services from an assurance client by the firm (or
from
 an audit client by a network firm) or a member of the assurance team
would not generally create a threat to independence providing the transaction is
Eliminating
in the normal course oforbusiness
reducingand
theonmagnitude of the transaction;
an arm’s length basis. However, such
transactions may be of a nature or magnitude so as to create a self-interest threat. 55
If the threat created is other than clearly insignificant, safeguards should be
considered and applied as necessary to reduce the threat to an acceptable level.
Such safeguards might include:


Removing the individual from the assurance team; or
Discussing the issue with those charged with governance, such as the
audit Relationships
Family and Personal committee.
8.133
Family and personal relationships between a member of the assurance team and
aWhendirector, an officer family
an immediate or certain employees,
member depending
of a member of theonassurance
their role,teamof theis a
assurance
director, anclient, may
officer or create
an self-interest,
employee of the familiarity
assurance or intimidation
client in a position threats. It is
to exert
When a close family
impracticable to member
attempt to of a member
describe in detailofthe
thesignificance
assurance team of is athreats
the director,
that an
direct and
officer, or significant
an employee influence
of theTheover the subject
assurance client in matter of thetoassurance
a position exert direct and
such relationship
engagement, may
or was in create.
such significance will depend upon a number of
significant
factors influence
including the over thea subject
individual’s
positionmatter
duringofany
responsibilities theperiod covered
assurance by the
engagement,
engagement,
threats to the threats
independence to independence
may be created. The onlyonbethe
can significance assurance
reduced
of the anengagement,
to threats
acceptable
will
the
levelcloseness
byon of thethe
removing relationship
individual and
from thethe
role of the family
assurance team. member
The or other
closeness
depend
individual factors
The
within such
position
the as:
the closeclient.
assurance familyConsequently,
member holdsthere withisthea andof the
client;spectrum
wide
relationship is such that no other safeguard could reduce the threat to
of circumstances
independence The to
rolethat
an of will needlevel.
to be If
the professional
acceptable evaluated
on and of
the assurance
application safeguards
team.
this to be is
safeguard applied to
not used,
reduce the threat to an acceptable level.
the only course of action is to withdraw from the assurance engagement. For
8.134
example, in the case of an audit of financial statement, if the spouse of a
8.135
member of the assurance team is an employee in a position to exert direct and
56 significant influence on the preparation of the audit client’s accounting records
or financial statements, the threat to independence could only be reduced to an
acceptable level by removing the individual from the assurance team.
The significance of the threat should be evaluated and, if the threat is other than
clearly insignificant, safeguards should be considered and applied as necessary
to reduce the threat to an acceptable level. Such safeguards might include:

Removing the individual from the assurance team;
Where possible, structuring the responsibilities of the assurance team
so that the
Policies andprofessional
proceduresdoes not dealstaff
to empower withtomatters that are to
communicate within the
senior
responsibility of the
levels within the firmclose familyofmember;
any issue or
independence and objectivity that

concerns them.
8.136
In addition, self-interest, familiarity or intimidation threats may be created when
aConsideration
person who isshould
other be
than an immediate
given to whetherorself-interest,
close familyfamiliarity
member ofora member of
the assurance
intimidation team
threats has a
may ofclose
be this relationship
created with
by aaspersonal the member
or family of the assurance
relationship between
An
team inadvertent
and or violation
is aemployee
director, an the
officer section
or it relates
an employee of to
thefamily and personal
assurance client in a
arelationships
partner would notofimpairfirm
thewho is not
independence a member
of a of
firm the
or assurance
a member team
of the
position
(a)
and a to exert
director, an direct and
officer or significant
an employee influence
of the over the
assurance subject
client matter
in a of
positiontheto
assurance
assurance team when: Therefore, members of the assurance team are
engagement.
exert directThe
andfirm
significant influencepolicies
has established over theand subject matterthat
procedures of the assurance
require all
responsible
engagement. for identifying
Therefore,
professionals to any such
partners
report and persons toand
employees
promptly theoffor consulting
the
firm are in
firmbreaches
any accordance
responsible
resultingforfrom
8.137 with firm procedures. The evaluation of the significance of any threat created
identifying any such relationships and for consulting in accordance with firm
8.138 and the safeguards
procedures. appropriate
The evaluation to eliminate
of the significancethe of
threat
any or reduce
threat it to and
created an the
acceptable
safeguards level will include
appropriate considering
to eliminate matters
the threat such asit the
or reduce to ancloseness
acceptable of the
level 57
relationship
will include and the role matters
considering of the individual
such as the within the assurance
closeness client.
of the relationship, the
interaction of the firm professional with the assurance team, the position held
within the firm, and the role of the individual within the assurance client.
changes in the employment status of their immediate or close family
(b) members or other personal relationships that create threats to
independence;
Either the responsibilities of the assurance team are re-structured so
that the professional
Additional doestonot
care is given deal with
reviewing thematters
work ofthat
theare within the
professional.
responsibility of the person with whom he or she is related or has a
(c) personal relationship, or, if this is not possible, the firm promptly
8.139 removes the professional from the assurance engagement; and
When an inadvertent violation of this section relating to family and personal
relationships
 has occurred, the firm should consider whether any safeguards
should be applied. Such safeguards might include:
Involving an additional professional accountant who did not take part
in the assurance
Excluding engagement
the individual fromtoany
review the workdecision-making
substantive done by the member of
the assurance team; or
concerning the assurance engagement.

Employment with Assurance Clients
8.140
A firm or a member of the assurance team’s independence may be threatened if
aIf director,
a member anofofficer or an employee
the assurance of the or
team, partner assurance client inofa the
former partner position to exert
firm has
direct and significant influence over the subject matter of the assurance
joined the assurance client, the significance of the self-interest, familiarity or
engagement
intimidation has beencreated
threats a member of the assurance
will depend upon the team or partner
following factors:of the firm.
Such circumstances may create self-interest, familiarity and intimidation threats
particularlyThewhen significant
position connections
the individual remainatbetween
has taken the individual
the assurance client; and his
or her former firm. Similarly, a member of the assurance team’s independence
The amount
may be threatened when ofan
anyindividual
involvement the individual
participate will haveengagement
in the assurance with the
8.141 knowing, or assurance team; to believe, that he or she is to, or may, join the
having reason
assurance client some time in the future.
58
The length of time that has passed since the individual was a member
of
Thethe assurance
former teamoforthe
position firm; and within the assurance team or firm.
individual
The significance of the threat should be evaluated and, if the threat is other than
clearly insignificant, safeguards should be considered and applied as necessary
to reduce the threat to an acceptable level. Such safeguards might include:

Considering the appropriateness or necessity of modifying the


assurance
Assigning plan for the assurance
an assurance engagement
team to the ; assurance engagement
subsequent
that is of sufficient
Involving experience
an additional in relation
professional to the individual
accountant who was notwho has
a member
joined the assurance
of the assurance client;
team toofreview the workengagement.
done or otherwise advise as
Quality control review the assurance
necessary; or

In all cases, all of the following safeguards are necessary to reduce the threat to
an acceptable level:
The individual concerned is not entitled to any benefits or payments
from the firm unless
The individual these
does not are made
continue in accordance
to participate with fixed
or appear pre-
to participate
determined
in the firm’sarrangements. In addition,activities.
business or professional any amount owed to the
individual should not be of such significance to threaten the firm’s
8.142 independence; and
A self-interest threat is created when a member of the assurance team
participates in the assurance engagement while knowing, or having reason to
believe, that he or she is to, or may, join the assurance client some time in the
Policies
future. This and be
threat can procedures to an
reduced to require the individual
acceptable level by to
thenotify the firm
application of all
when
of the following
Removalentering
of theserious
safeguards: employment
individual from the negotiations with the assurance
assurance engagement.
client; and
59
In addition, consideration should be given to performing an independent review
of any significant
Recent Service judgments Clients
with Assurance made by that individual while on the engagement.
8.143
To have a former officer, director or employee of the assurance client serve as a
member
If, duringofthetheperiod
assurance
coveredteambymaythe create
assuranceself-interest, self-review
report, a member andassurance
of the
familiarity
team threats.
hadtoserved This would
as an officer or be particularly true when a member of the
If, prior
assurance the period
team has tocovered
report bydirector
on, for
of the report,
theexample,
assurance assurance client, or
a member
subject influence
matter
had
orofshe
he over
been an
thehad
employee
assurance in
teama position to
had served exert
as direct
an officerand significant
or director of the assurance the subject
client, orwith
prepared
matter or
of an elements
theemployee of the financial
assuranceinengagement, statements
the threat he or
created she had valued while
would be soinfluence
significant
had
the been
assurance client. a position to exert direct and significant over
no safeguard
the couldofreduce
subject matter the threatengagement,
the assurance to an acceptable level.
this may Consequently,
create such
self-interest,
individuals
self-review should not be assigned
and familiarity threats. to
Forthe assurance
example, team.
such threats would be created
if a decision made or work performed by the individual
The position the individual held with the assurance in the client;
prior period, while
employed by the assurance client, is to be evaluated in the current period as part
Theassurance
of the current length of time that has The
engagement. passed since the individual
significance leftwill
of the threats the
depend upon assurance
factors client;
such and
as:
The role the individual plays on the assurance team.
8.144
8.145
The significance of the threat should be evaluated and, if the threat is other than
clearly insignificant, safeguard should be considered and applied as necessary to
reduce the threat to an acceptable level. Such safeguards might include:
Involving an additional professional accountant to review the work
60 done by the individual as part of the assurance team or otherwise advise
as necessary; or
Discussing the issue with those charged with governance, such as the
audit committee.
Serving as an Officer or Director on the Board of Assurance Clients
8.146
If a partner or employee of the firm serves as an officer or as a director on the
boardposition
The of an assurance
of Company client, the self-review
Secretary and self-interest
has different implicationsthreats created
in different
would be so significant
jurisdictions. The duties no
may safeguard
range could
from reduce the threats
administrative duties tosuch
an acceptable
as
If a partner
level. In the or employee
case of the
of an audit firm or a network
engagement, firmor
if aofpartner serves as Company
employee of aregisters,
network
personnel
Secretary management
for an audit and the
client, themaintenance
self-review company records and
firm
Routine
to were
duties todiverse
serve as
administrative
as asan officer
services
ensuring or
to
thatas
support
the a and
a director onadvocacy
company
company the board threats
of an
secretarial
complies with
created
function
regulations
would
audit client,
oror
generally
the threats
advisory be
worksoinsignificant,
created would
relation be
to no
so safeguard
significant
company could
no reduce
safeguard
secretarial the threat
could
administration to an the
reduce
matters acceptable
isthreats
8.147 providing
level. When advice on corporate governance matters. Generally, this position is
to an to
generally
seen notthe
acceptable
imply
practice
perceived
a close toisimpair
level.degree specifically
Consequently, ifpermitted
suchwith
independence,
of association
under local
an individual
provided
the entity
law,to
were
client
and may
professional
accept
management
create such
self-
8.148 rules
areview or
position,
makes practice,
all the the duties
onlydecisions.
course and functions undertaken should be
of action is to refuse to perform, or to withdrawlimited to those
of andrelevant
a routine advocacy
and formal threats.
administrative nature as such as the preparation of
8.149 from the assurance engagement.
minutes and maintenance of statutory returns.
Long Association of Senior Personnel with Assurance Clients
General Provisions
8.150
Using the same senior personnel on an assurance engagement over a long period
of time may create a familiarity threat. The significance of the threat will 61
depend upon factors such as:
The length of time that the individual has been a member of the
assurance
The role ofteam;
the individual on the assurance team;
The structure of the firm; and
The nature of the assurance engagement.
The significance of the threat should be evaluated and, if the threat is other than
clearly insignificant, safeguards should be considered and applied to reduce the
threat to an acceptable level. Such safeguards might include:

Rotating the senior personnel off the assurance team;


Involving an additional professional accountant who was not a member
of the assurance
Independent teamquality
internal to review the work done by the senior personnel
reviews.
or otherwise advise as necessary; or

Audit Clients that Are Listed Entities


8.151
Using the same lead engagement partner on an audit over a prolonged period
may
(a) create a familiarity threat. This threat is particularly relevant in the context
of the audit of listed entities and safeguards should be applied in such situations
The lead
to reduce such threatengagement partnerlevel.
to an acceptable should be rotated for
Accordingly after
thea audit
pre-defined
of listed
period,
entities: A normally
partner rotatingnoafter
more than five (5)period
a pre-defined years;should
and not resume the lead
(b) engagement partner role until a further period of time, normally two
years, has elapsed.
8.152
When audit client becomes a listed entity the length of time the lead engagement
partner haslead
While the served the audit partner
engagement client inshould
that capacity should
be rotated afterbesuch
considered in
a pre-defined
determining when the partner should rotated. However, the partner may
period, some degree of flexibility over timing of rotation may be necessary in
8.153 continue to serve as theExamples
lead engagement partner for twoinclude:
additional years before
certain circumstances. of such circumstances
62 rotating off the engagement.
Situations when the lead engagement partner’s continuity is especially
important
Situations to the audit
when, due toclient, for of
the size example,
the firm,when thereiswill
rotation not be major or
possible
changes
does not to the auditanclient’s
constitute structure
appropriate that would otherwise coincide
safeguard.
with the rotation of the lead engagement partner; and
In all such circumstances when the lead engagement partner is not rotated after
8.154 such a pre-defined period, equivalent safeguards should be applied to reduce any
threats to an acceptable level.
When a firm has only a few audit partners with the necessary knowledge and
Provisionexperience to serve as lead
of Non-Assurance engagement
Services partner on anClients
to Assurance audit client that is a listed
entity, rotation of the lead partner may not be an appropriate safeguard. In
8.155 these circumstances, the firm should apply other safeguards to reduce the threat
to an acceptable
Firms level. Such
have traditionally safeguards
provided to theirwould include
assurance involving
clients a rangean of
additional
non-
professional
assurance
The following accountant
services
activities who
that are was not otherwise
consistent
would their associated
withcreate
generally with the assurance
skills and expertise.
self-interest Assurance
or self-review
team
threatstovalue
clients review
that are the
theso work done
benefits
significant or otherwise
that that
derive
onlyfrom adviseof
having
avoidance asthe
necessary.
these firms, who
activity This
or individual
have a good
refusal to
8.156 could be someone
understanding from
of the outsidebring
business, the firm
theirorknowledge
someone within the firm
and skills who
to bear in was
other
not otherwise associated with the assurance team.
areas. Furthermore, the provision of such non-assurance services will often 63
result in the assurance team obtaining information regarding the assurance
client’s business and operations that is helpful in relation to the assurance
engagement. The greater the knowledge of the assurance client's business, the
better the assurance team will understand the assurance client’s procedures and
controls, and the business and financial risks that it faces. The provision of non-
assurance services may, however, create threats to the independence of the firm,
a network firm or the members of the assurance team, particularly with respect
to perceived threats to independence. Consequently, it is necessary to evaluate
the significance of any threat created by the provision of such services. In some
cases, it may be possible to eliminate or reduce the threat created by application
of safeguards. In other cases, no safeguards are available to reduce the threat to
an acceptable level.
perform the assurance engagement would reduce the threats to an acceptable
level:
Authorizing, executing or consummating a transaction, or otherwise
exercising
Determiningauthority on behalf of the assurance
which recommendation of the firmclient,
should orbe
having the
authority to doand
implemented; so;
Reporting, in a management role, to those charged with governance.

8.157
The examples set out in paragraphs 8.163 through 8.202 are addressed in the
context of the provision
The following activities of
maynon-assurance services toor
also create self-review anself-interest
assurance client. The
threats:
potential threats to independence will most frequently arise when a non-
assurance service is provided to an audit client. The financial statements of an
entity provide financial information about a broad range of transactions and
events that have affected the entity. The subject matter of other assurance
services, however, may be limited in nature. Threats to independence, however,
Having
may also arise whencustody
a firmofprovides
an assurance client’s assets;
a non-assurance service related to the
subject matter of a non-audit
Supervising assurance
assurance engagement.In
client employees in thesuch cases,
performance of their
consideration should
normal be given
recurring to the significance
activities; and of the firm’s involvement with
Preparing source documents or originating data, in electronic or other
the subject matter of the non-audit assurance engagement, whether any self-
8.158 form, evidencing the occurrence of a transaction (for example, purchase
review threats are created and whether any threats to independence could be
orders, payroll time records, and customer orders).
reduced to an acceptable
The significance level created
of any threat by application
should ofbe safeguards,
evaluated and,or whether the non-
if the threat is
assurance
other than engagement should besafeguards
clearly insignificant, declined. When
shouldthe be non-assurance
considered andservice
appliedisas
64 not relatedtotoeliminate
the subject
necessary thematter
threatoforthe non-audit
reduce it to anassurance
acceptableengagement,
level. Suchthe
threats to independence
safeguards might include:will generally be clearly insignificant.
Making arrangements so that personnel providing such services do not
participate
Involving anin additional
the assurance engagement;
professional accountant to advise on the
potential impactsafeguards
Other relevant of the activities
set outon
in the independence
national of the firm and
regulations.
the assurance team; or

8.159
New developments in business, the evolution of financial markets, rapid changes
in
Theinformation technology,may
following safeguards and be
theparticularly
consequences for management
relevant in reducing andto ancontrol,
make it impossible
acceptable to draw
level threats up an
created byall-inclusive
the provisionlistofofnon-assurance
all situations services
when to
providing
assurance non-assurance
clients: services to an assurance client might create threats to
independence and of
Policies andthe different safeguards
procedures to prohibit that might eliminate
professional these
staff from threats
making
or reduce them to
managementan acceptable
decisions level.
for In
the general,
assurance however,
client, ora firm may
assuming
Discussing independence issues related to the provision of non- provide
services beyond the assurance
responsibility
assurance engagement
for such
services decisions; provided
withany threats to such
independence
have been Policies
reduced within the with those client
assurance
to an acceptable
charged
level. regarding governance,
the oversight as the
audit committee;
responsibility for provision of non-assurance services by the firm;
Involving an additional professional accountant to advise on the
potential
Involvingimpact of the non-assurance
an additional engagement
professional accountant on theofindependence
outside the firm to
of the member
provide assurance of the assurance
on a discrete team and the firm;
Obtaining the assurance client’saspect of the assurance
acknowledgement engagement; for
of responsibility
the results of
Disclosing to the work
those performed
charged by the firm; such as the audit
with governance,
committee, the nature and extent of fees charged; or 65
8.160
8.161
Making arrangements so that personnel providing non-assurance
Before theservices do not
firm accepts anparticipate
engagement in the assurance
to provide engagement. service to an
a non-assurance
assurance client, consideration should be given
The provision of certain non-assurance services to audit clients to whether the provision
may create of such
athreats
service would create a threat to independence. In situations
to independence so significant that no safeguard could eliminate the when a threat
8.162 created
threat orisreduce
other than
it to clearly insignificant,
an acceptable the non-assurance
level. However, the provisionengagement
of such should
Preparingbe declined
to aunless
Accounting
services appropriate
Records
related and
entity, divisionsafeguards
Financial canStatements
or discrete be appliedstatement
financial to eliminateitem theofthreat
such
8.163 or reduce it to an acceptable level.
clients may be permissible when any threats to the firm’s independence have
been reduced
Assisting to anclient
an audit acceptable levelsuch
in matters by arrangements
as preparing for that related
accounting entity,
records or
division
financial or discrete financial
statements may createstatement
a item tothreat
self-review be audited
when by
the another
financial firm or
It is
when the responsibility
another of client management to ensure that accounting records
statements
are kept and arefirm re-performs
subsequently the non-assurance
audited areby
service to the extent necessary
the firm.although
to enable it tofinancial statements
take responsibility for prepared,
that service. they may request the
firm to provide assistance. If firm, or network firm, personnel providing such
assistance Determining
make management or changing
decisions,journal
the entries, or the
self-review classifications
threat created could for not
be reducedaccounts or transactions
to an acceptable
Authorizing level by
or approving ortransactions;
other
any accounting
safeguards. records without
andConsequently, obtaining
personnel
should notthe make approval
Preparing
of the audit
suchsource
decisions.
documents
clients; of such managerial decisions include
Examples or originating data (including decisions on
the following:
evaluation assumptions), or making changes to such documents or data.
8.164

8.165
The audit process involves extensive dialogue between the firm and
66 management of the audit client. During this process, management requests and
receives significant input regarding such matters as accounting principles and
General financial
Provisionsstatement disclosure, the appropriateness of controls and the methods
used in determining the stated amounts of assets and liabilities. Technical
8.166 assistance of this nature and advice on accounting principles for audit clients are
an appropriate
The examples in means to promote
paragraphs 8.167the fair presentation
through 8.170 indicateof the financial
that self-review
statements.
threats may The
be provision of firm
such isadvice doesinnotthegenerally threaten the firm’s
Audit Clients that arecreated if the
not Listed Entitiesinvolved preparation of accounting
independence.
records Similarly,
or financial the audit
statements andprocess may involve
those financial assisting
statements are an audit client
subsequently
8.167 in resolving
the account
subject matter of reconciliation
an audit engagement problems, analyzing
of the firm. Thisandnotion
accumulating
may be
information
equally
The firm, or for
applicable regulatory
a networkin situations
firm, reporting,
maywhen assisting
the subject
provide in matter
an audit the preparation
client of of aconsolidated
theisassurance
that not listed entity
financial
engagement
with statements
is not
accounting and (including
financial
bookkeeping theservices,
translation
statements. of localapayroll
For including
example, statutory
self-reviewaccounts of to
threat
services, awould
comply
be with
created
routine or group
if the firm
mechanical accounting
developed policies and self-review
and prepared
nature, provided any theprospective
transition to a created
different
financial
threat isreporting
information
reduced
framework
and such level.
to ansubsequently
acceptable asprovided
International
Examples Accounting
assurance
of suchon this Standards),
include:drafting
prospective
services financialdisclosure
information.
items, proposing
Consequently, theadjusting
Recording firm journal
should
transactions entries
evaluate
for theand
which theproviding
significance assistance
of
audit client any and advice
has self-review
determined or in
the preparation
threat created byofthe
approved local statutory
provision
the of accounts
appropriate such ofclassification;
services.
account subsidiary entities. These
If the self-review threatservices
is other
are Posting coded transactions to the audit client’s general ledger;
thanconsidered to be a normal
clearly insignificant, part of the
safeguards audit
should beprocess
consideredand doandnot, underas
applied
circumstances,
necessary threaten
to reduce independence.
the threat to an acceptable level. 67
Preparing financial statements based on information in the trial balance;
and
Posting audit client approved entries to the trial balance.
The significance of any threat created should be evaluated and, if the threat is
other than clearly insignificant, safeguards should be considered and applied as
necessary to reduce the threat to an acceptable level. Such safeguards might
include:
Making arrangements so such services are not performed by a member
of the assurance
Implementing team; and procedures to prohibit the individual
policies
providing
Requiring such services
the source from
data for making any managerial
the accounting entries todecisions on by
be originated
behalf of the audit
the audit client; client;
Requiring the underlying assumptions to be originated and approved by
the
Obtaining audit or
audit client; client approval for any proposed journal entries or
other changes affecting the financial statements.

Audit Clients that are Listed Entities


8.168
The provision of accounting and bookkeeping services, including payroll
services and the
The provision ofpreparation
accounting ofandfinancial statements
bookkeeping or financial
services information
of a routine or
which formsnature
mechanical the basis of the financial
to divisions statements
or subsidiaries on which
of listed auditthe auditwould
clients reportnot
is be
8.169 provided, on behalf of an audit client that is atolisted entity, mayprovided
impair the
seen as impairing independence with respect the audit client that the
68 independence of the firm
following conditions or network firm, or at least give the appearance of
are met:
impairing independence. Accordingly, no safeguard other than the prohibition
of such services, except in emergency situations and when the services fall
within the statutory audit mandate, could reduce the threat created to an
acceptable level. Therefore, a firm or a network firm should not, with the
limited exceptions below, provide such services to listed entities which are
audit clients.
The services do not involve the exercise of judgment;
The divisions or subsidiaries for which the service is provided are
collectively immaterial
The fees to the to the audit
firm, or network client,
firm, fromorsuch
the services
services are
provided are
collectively immaterial to the division
collectively clearly insignificant. or subsidiary; and

If such services are provided, all of the following safeguards should be applied:

The firm, or network firm, should not assume any managerial role nor
make any managerial
The listed audit client decisions;
should accept responsibility for the results of the
work; and providing the services should not participate in the audit.
Personnel
Emergency Situations
8.170
The provision of accounting and bookkeeping services to audit clients in
emergency or other unusual situations, when it is impractical for the audit client
to make other arrangements, would not be considered to pose an unacceptable
threat to independence provided:

The firm, or network firm, does not assume any managerial role or
makeaudit
The any client
managerial decisions;
accepts responsibility for the results of the work; and
Personnel providing the services are not members of the assurance
team.
Valuation Services
8.171
A valuation comprises the making of assumptions with regard to future
developments,
A the application
self-review threat of certain
may be created whenmethodologies and techniques,
a firm or network firms performsand athe
combination
valuation for ofanboth
auditinclient
orderthat
to compute a certain value,
is to be incorporated intoorthe
range of values,
client’s for
financial
8.172 an asset, a liability or for a business as a whole.
statements.
69
8.173
If the valuation services involves the valuation of matters material to the
financial
Performingstatements
valuationand the valuation
services that are involves a significant
neither separately, nordegree
in the of
aggregate,
subjectivity, thefinancial
material to the self-review threat created
statements, or thatcould
do notnot be reduced
involve to an acceptable
a significant degree of
level by the application
subjectivity, may create of any safeguard.
a self-review Accordingly,
threat that could besuch valuation
reduced to anservices
should notInvolving
acceptable be provided
level or, alternatively,
an application
by the additional the only
professional
of safeguards. course
accountant ofwho
action
Such safeguards waswould
not abe
might to
member
withdraw
include: from
of thethe
Confirming audit
assuranceengagement.
with team to review
the audit clientthe work
their done or otherwise
understanding advise as
of the underlying
necessary;
assumptions
Obtaining theofaudit
the valuation and the methodology
client’s acknowledgement to be used and
of responsibility for the
obtaining
results of approval
the work for their use;
performed by the firm; and
Making arrangements so that personnel providing such services do not
8.174 participate in the audit engagement.

In determining whether the above safeguards would be effective, consideration


should be given to the following matters:
The extent of the audit client’s knowledge, experience and ability to
evaluate
The thetoissues
degree whichconcerned, and
established the extent of their
methodologies involvement in
and professional
determining
guidelines areand approving
applied when significant
performing matters
a of judgment;
particular valuation service;
For valuations involving standard or established methodologies, the
degree of subjectivity inherent in the item concerned;
The reliability and extent of the underlying data;
The degree of dependence on future events of a nature which could
create significant
The extent volatility
and clarity of theinherent in theinamounts
disclosures involved;
the financial and
statements.

70
8.175
When a firm, or a network firm, performs a valuation service for an audit client
for
Whenthethe
purposes of making
firm performs a filing orthat
a valuation return
formsto apart
taxofauthority, computing
the subject matter ofanan
amount
assuranceof engagement
tax due by the assurance
that is not an client,
audit or for the purpose
engagement, the of tax
firm planning,
should consider
8.176 this would not create a significant threat to independence because such
any self-review threats. If the threat is other than clearly insignificant,
Provisionvaluations
of Taxation
safeguards are generally
Services
should subject toand
to Audit
be considered external review,
Clients
applied for example,
as necessary by a tax
to eliminate the threat
8.177 authority.
or reduce it to an acceptable level.
The firm may be asked to provide taxation services to an audit client. Taxation
Provisionservices comprise
of Internal a broad
Audit range oftoservices,
Services Audit including
Clients compliance, planning,
provision of formal taxation opinions and assistance in the resolution of tax
8.178 disputes. Such assignments are generally not seen to create threats to
independence.
A self-review threat may be created when a firm, or network firm, provides
internal audit
Services services
involving to an auditofclient.
an extension Internal audit
the procedures services
required may comprise
to conduct an auditan
extension
in accordanceof the firm’s
with audit service
Philippine Standardsbeyond
on requirements
Auditing would ofnot
generally
be acceptedto
considered
When
auditingthestandards,
firm, or aassistance
network firm,
in the provides assistance
performance in the performance
ofprovided
a client’s internal auditof a
impair
client’s independence with respect to an audit client that the firm’s or
8.179 activitiesinternal
network firm’s
audit activities
or outsourcing
personnel ofdothe
not
or undertakes
activities.
act or appear
the outsourcing
In evaluating
to act in any
a
of some
threats
capacity to of the to a
equivalent
activities,
independence,any self-review
theclient
nature threat created may be reduced to an acceptable
of the service will need to be considered. For this level
8.180 member
by of audit
ensuring that there management.
purpose, internal auditisservices
a clear doseparation between
not include the management
operational andservices
internal audit control
of the internal
unrelated to theaudit by audit
internal client management
accounting and thesystems
controls, financial internaloraudit activities
financial 71
themselves.
statements.
8.181
Performing a significant portion of the audit client’s internal audit activities may
create a self-review
Safeguards threat,
that should and a firm,
be applied in allorcircumstances
network firm,toshould
reduceconsider the
any threats
threats
created and
to anproceed withlevel
acceptable caution before
include taking on
ensuring such activities. Appropriate
that:
(a)
safeguards should be put in place, and the firm, or network firm, should, in
particular, The
ensure that
audit the audit
client client acknowledges
is responsible for internal its responsibilities
audit activities andfor
establishing,
The maintaining
acknowledges and
audit clientits monitoring
responsibility
designates the
for system
a competent of internal
establishing,
employee, controls.and
maintaining
preferably within
monitoring
senior the
management,systemto of
be internal controls;
responsible for internal audit activities;
The audit client, the audit committee or supervisory body approves the
scope, riskclient
The audit and frequency of internal
is responsible audit work;
for evaluating and determining which
recommendations of the firm
The audit client evaluates the should be implemented;
adequacy of the internal audit procedures
performed and the findings resulting
The findings and recommendations resultingfrom thefrom
performance of those
the internal audit
procedures by, among other things, obtaining and acting
activities are reported appropriately to the audit committee or on reports
8.182 from the firm; and
supervisory body.
(b)
(c)
(d)
(e)
(f)
8.183
Consideration should also be given to whether such non-assurance services
Provisionshould
of ITbe provided Services
Systems only by personnel
to AuditnotClients
involved in the audit engagement and
with different reporting lines within the firm.
8.184
The provision of services by a firm or network firm to an audit client that
72 involve the design and implementation of financial information technology
systems that are used to generate information forming part of a client's financial
statements may create a self-review threat.
8.185
The self-review threat is likely to be too significant to allow the provision of
such
(a) services to an audit client unless appropriate safeguards are put in place
ensuring that:
The audit client acknowledges its responsibility for establishing and
monitoring a system
The audit client of internal
designates controls;employee, preferably within
a competent
senior
The management,
audit client makes with
allthe responsibility
management to make
decisions allrespect
with management
to the
decisions
design and with respect to theprocess;
implementation design and implementation of the
The audit or
hardware client evaluates
software the adequacy and results of the design and
system;
implementation
The audit client of the system; for
is responsible andthe operation of the system (hardware
(b) of software) and the data used or generated by the system.
(c)
(d)
(e)
8.186
Consideration should also be given to whether such non-assurance services
should be provided
The provision only by
of services bypersonnel
a firm or not involved
network firmintothe
an audit
audit engagement
client which and
with different
involve reporting
either the lines
design or within the firm.
The provision of services in the implementation
connection with theofassessment,
financial information
design and
technology systems
implementation of that areaccounting
internal used to generate
controlsinformation
and risk forming partcontrols
management of a
8.187 client’s financial statements
are not considered to create amay also
threat tocreate a self-review
independence threat.
provided thatThe
firm or
8.188 significance
network firmofpersonnel
the threat,
doifnot
any, shouldmanagement
perform be evaluated functions.
and, if the threat is other
than clearly insignificant, safeguards should be considered and applied as
Temporary Staff Assignments to Audit Clients
necessary to eliminate the threat or reduce it to an acceptable level.
8.189
The lending of staff by a firm, or network firm, to an audit client may create a
self-review threat when the individual is in a position to influence the 73
preparation of a client’s accounts or financial statements. In practice, such
assistance may be given (particularly in emergency situations) but only on the
understanding that the firm's or network firm's personnel will not be involved in:
(a) Making management decisions;
(b) Approving or signing agreements or other similar documents; or
(c) Exercising discretionary authority to commit the client.
Each situation should be carefully analyzed to identify whether any threats are
created and whether appropriate safeguards should be implemented. Safeguards
that should be applied in all circumstances to reduce any threats to an acceptable
The staff providing the assistance should not be given audit
level include:
responsibility forshould
The audit client any function or activity
acknowledge that they performed
its responsibility or and
for directing
supervised
supervisingduring their temporary
the activities staff
of firm, or assignment;
network and
firm, personnel.
Provision of Litigation Support Services to Audit Clients
8.190
Litigation support services may include such activities as acting as an expert
witness, calculating
A self-review threat estimated damages
may be created when or the
other amountssupport
litigation that might become
services
receivable
provided tooranpayable as theinclude
audit client result of
thelitigation
estimationor of
other
the legal dispute,
possible and and
outcome
assistance with the
thereby affects document
amounts management
or disclosuresandtoretrieval in relation
be reflected in the to a dispute or
financial
litigation.
statements. The significance of any threat created will depend upon factors such
as:
The materiality of the amounts involved;
The degree of subjectivity inherent in the matter concerned; and
The nature of the engagement.
8.191
The firm, or network firm, should evaluate the significance of any threat created
and, if the threat is other than clearly insignificant, safeguards should be
considered and applied as necessary to eliminate the threat or reduce it to an
acceptablePolicies and safeguards
level. Such procedures might
to prohibit individuals assisting the audit client
include:
74 from making managerial decisions on behalf of the client;
8.192
Using professionals who are not members of the assurance team to
perform the service;
The involvement or
of others, such as independent experts.
If the role undertaken by the firm or network firm involved making managerial
Provisiondecisions
of Legal on Services
behalf of the toaudit
Audit client, the threats created could not be reduced
Clients
to an acceptable level by the application of any safeguard. Therefore, the firm
8.193 or network firm should not perform this type of service for an audit client.
Legal services are defined as any services for which the person providing the
services
Threats tomust either be admitted
independence need to tobe practice
considered before the Courts
depending of the
on the jurisdiction
nature of the
in which
service such services
to be provided, are to be
whetherto provided,
theanservice or have
provider the required
is separate legal
from training
thethat to
The provision
practice law. of
Legallegal services audit client which involve matters
assurance
would team and services
theto encompass
materiality of anya wide
matter and diversified
inthe
relation range
to the of areas
entities'
There isnot
including
financial
be expected
both corporate
astatement.
distinction The
havecommercial
and
between a material
advocacy
safeguards set
effect
services
and
out in
on
advice.
paragraph
financial
to Legal
clients, such
services
8.160 may
statements
asbe
tocontract
supportare
not
an considered
support,
audit litigation,
client to the
in create
mergers an unacceptable
executionand acquisition
of a threat
transaction to
advice independence.
and
(e.g., support,
contract and
support, the legal
appropriate in reducing any threats to independence to an acceptable level. In
provision
advice, of assistance
legal
circumstances due
when tothreat
diligence
thethe client's internal legalmay
andtorestructuring)
independence departments.
create
cannot The provision
beself-review
reduced an theof
to threats;
legal
however, Members
services by athe
safeguards of
firm, assurance
mayoravailable
benetwork
available team
firm, are
tois
to reduceannot involved
entity
these that isinanto
threats providing
audit
ansuch client
acceptablemay
acceptable level,
service; only
andwould action to decline to provide services
8.194 create
level. both
Such self-review
a service and
or withdraw from the audit engagement.advocacy
not generallythreats.
impair independence, provided that:
8.195
8.196
75
In relation to the advice provided, the audit client makes the ultimate
8.197 decision or, in relation to the transactions, the service involves the
execution of what has been decided by the audit client.
Acting for an audit client in the resolution of a dispute or litigation in such
circumstances
When a firm iswhen
askedthe amounts
to act involved are
in an advocacy rolematerial in relation
for an audit client toin the
the
financial statements of the audit client would create advocacy
resolution of a dispute or litigation in circumstances when the amounts and self-review
involved
threats
are not so significant
material to theno safeguard
financial could reduce
statements of thethe threat
audit to antheacceptable
client, level.
firm should
Therefore, the firm should not perform this type of service for an audit
evaluate the significance of any advocacy and self-review threats created and, if client.
the threat is other than
Policies and clearly insignificant,
procedures to prohibitsafeguards
individualsshould be considered
assisting and
the audit client
applied as from
necessary
Using makingto eliminate
managerial
professionals whothedecisions
threat
are oronreduce
not members it to
behalf
of thean
of theacceptable
client; or
assurance level.
team to
Such safeguards
performmight include:
the service.
8.198
8.199
The appointment of a partner or an employee of the firm or network firm as
General
Recruiting SeniorCounsel for legal affairs to an audit client would create self-review and
Management
advocacy threats that are so significant no safeguards could reduce the threats to
8.200 an acceptable level. The position of General Counsel is generally a senior
management
The position
recruitment withmanagement
of senior broad responsibility for the legal
for an assurance affairs
client, suchofasathose in a
company
position toand consequently,
affect the subject no
of member of theengagement,
the assurance firm or network
mayfirm should
create current or
accept self-interest,
future such an appointment forand
familiarity an audit client. threats. The significance of the
intimidation
threat will depend upon factors such as:
The role of the person to be recruited; and
The nature of the assistance sought.
The firm could generally provide such services as reviewing the professional
76 qualifications of a number of applicants and provide advice on their suitability
for the post. In addition, the firm could generally produce a short-list of
candidates for interview,
The significance provided
of the threat createdit has beenbedrawn
should up using
evaluated and,criteria specified
if the threat is
by thethan
other assurance
clearly client.
insignificant, safeguards should be considered and applied as
Corporate Finance and Similar Activities
necessary to reduce the threat to an acceptable level. In all cases, the firm
8.201 should not make management decisions and the decision as to whom to hire
should
The be left to
provision of the client. finance services, advice or assistance to an assurance
corporate
client may
Other createfinance
corporate advocacy and self-review
services may createthreats.
advocacy In the case of certain
or self-review threats;
corporate finance services,
however, safeguards may bethe independence
available to reducethreats
thesecreated
threatswould be so
to an acceptable
significant no safeguards
level. Examples could beinclude
of such services appliedassisting
to reduce the threats
a client to an acceptable
in developing
level. For strategies,
corporate example, promoting,
assisting indealing in, ororunderwriting
identifying introducing of an assurance
a client to possible
client's
sources shares is not
of capital compatible
that with providing
meet the client assurance
specifications services.
or criteria, and Moreover,
providing
committing the assurance
structuringPolicies
advice and client atoclient
assisting the terms of a transaction
in analyzing or consummating
the accounting effects of a
transaction on and
behalf ofprocedures
the client to prohibit
would create individuals
a threat toassisting the
independence assurance
so
proposed transactions.
client from Safeguards
making that should be considered include:
significantUsing
no safeguard couldmanagerial
professionals reduce
who notdecisions
arethe threat on
to an
members behalf
acceptable
of of the client;
level.
the assurance In the
team to
case of an provide
audit client
the the provision
services; and of those corporate finance services referred
Ensuring the firm does not commit the assurance client to the terms of
to above by a firm or a network firm would create a threat to independence so
8.202 any transaction or consummate a transaction on behalf of the client.
significant no safeguard could reduce the threat to an acceptable level.
77
Fees and Pricing
Fees-Relative Size
8.203
When the total fees generated by an assurance client represent a large proportion
of a firm’s total fees, the dependence on that client or client group and concern
about the possibility of losing the client may create a self-interest threat. The
significance of the threat will depend upon factors such as:
the structure of the firm; and
Whether the firm is well established or newly created.
The significance of the threat should be evaluated and, if the threat is other than
clearly insignificant, safeguards should be considered and applied as necessary
to reduce the threat to an acceptable level. Such safeguards might include:

8.204
Discussing the extent and nature of fees charged with the audit
committee,
Taking stepsortoothers
reducecharged with governance;
dependency on the client;
External quality control reviews; and
Consulting a third party, such as a regulatory body or another
professional
A self-interest accountant.
threat may also be created when the fees generated by the
assurance client represent a large proportion of the revenue of an individual
partner. The significance of the threat should be evaluated and, if the threat is
other than clearly insignificant, safeguards should be considered and applied as
necessary Policies
to reduceand
theprocedures
threat to antoacceptable level.
monitor and Such safeguards
implement might of
quality control
include: assurance engagements; and
Involving an additional professional accountant who was not a member
Fees - Overdue of the assurance team to review the work done or otherwise advise as
necessary.
8.205
A self-interest threat may be created if fees due from an assurance client for
78 professional services remain unpaid for a long time, especially if a significant
part is not paid before the issue of the assurance report for the following year.
Generally, the payment of such fees should be required before the report is
issued. The following safeguards may be applicable:

Discussing the level of outstanding fees with the audit committee, or


others charged
Involving with governance;
an additional andaccountant who did not take part
professional
in the assurance
The firm should engagement
also consider to provide
whether the overdueadvice or review
fees might the work
be regarded as
being performed.
equivalent to a loan to the client and whether, because of the significance
Pricing
of the overdue fees, it is appropriate for the firm to be re-appointed.
8.206
When a firm obtains an assurance engagement at a significantly lower fee level
than that charged by the predecessor firm, or quoted by other firms, the self-
interest threat created will not be reduced to an acceptable level unless:

Contingent Fees
8.207
Contingent fees are fees calculated on a predetermined basis relating to the
outcome or result
A contingent of a transaction
fee charged by a firmorinthe resultofofan
respect theassurance
work preformed. For the
engagement
purposes
creates of this section,
self-interest fees
and advocacyare not regarded as being contingent if a court or
A contingent
other public fee charged
authority has by a firmthreats
established
that of
in them.
respect cannot be reduced to
a non-assurance an acceptable
service
level by the
provided toTheapplication
an firm
assurance of any safeguard. Accordingly, a firm should not enter
into anyIffee is ableclient
arrangement to an
for
may also create
demonstrate
assurance that self-interesttime
appropriate
engagement
andand
under which
advocacy
qualified staff
threats. the
are amount
assigned oftothe
the fee forand
task; a non-assurance engagement wasthe amount
agreed to,
of contemplated,
or the fee is
Allcontingent
duringon
applicable the resultstandards,
assurance
an assurance ofengagement
the assuranceandwork
guidelineswasandor on items
quality
contingent thatthe
control
on are
8.208 the subjectprocedures
matter of theareassurance engagement.
being complied with.
8.209
79
result of that assurance engagement, the threats could not be reduced to an
acceptable level by the application of any safeguard. Accordingly, the only
acceptable action is not to accept such arrangements. For other types of
contingent fee arrangements, the significance of the threats created will depend
on factors such as:

The range of possible fee amounts;


The degree of variability;
The basis on which the fee is to be determined;
Whether the outcome or result of the transaction is to be reviewed by
an independent
The effect of thethird party;
event and
or transaction on the assurance engagement.
The significance of the threats should be evaluated and, if the threats are other
than clearly insignificant, safeguards should be considered and applied as
necessary to reduce the threats to an acceptable level. Such safeguards might
include:

Disclosing to the audit committee, or others charged with governance,


the extent
Review or of nature and extent
determination of theoffinal
feesfee
charged;
by an unrelated third party; or
Quality and control policies and procedures.
Gifts and Hospitality
8.210
Accepting gifts or hospitality from an assurance client may create self-interest
Actual orand familiarity threats.
Threatened When a firm or a member of the assurance team accepts
Litigation
gifts or hospitality, unless the value is clearly insignificant, the threats to
8.211 independence cannot be reduced to an acceptable level by the application of any
safeguard.
When Consequently,
litigation a firm
takes place, or a member
or appears likely, of the assurance
between the firmteam
or a should
membernot
of
80 accept
the such gifts
assurance or and
team hospitality.
the assurance client, a self-interest or intimidation threat
may be created. The relationship between client management and the members
of the assurance team must be characterized by complete candor and full
disclosure regarding all aspects of a client’s business operations. The firm and
the client’s management may be placed in adversarial positions by litigation,
affecting management’s willingness to make complete disclosures and the firm
may face a self-interest threat. The significance of the threat created will depend
upon such The
factors as:
materiality of the litigation;
The nature of the assurance engagement; and
Whether the litigation relates to a prior assurance engagement.
Once the significance of the threat has been evaluated, the following safeguards
should be applied, if necessary, to reduce the threats to an acceptable level:

Disclosing to the audit committee, or others charged with governance,


the extent
If the and nature
litigation of the
involves litigation;
a member of the assurance team, removing
that individual
Involving from the professional
an additional assurance team; or
accountant in the firm who was
not a member of the assurance team to review the work
If such safeguards do not reduce the threat to an appropriate level, done or
the only
otherwise advise as necessary.
appropriate action is to withdraw from, or refuse to accept, the assurance 81
engagement.
SECTION 9
Professional Competence and Responsibilities Regarding the Use of Non-
Accountants
9.1
Professional accountants in public practice should refrain from agreeing to
perform professional
In such situations, services
although thewhich they areaccountant
professional not competent to carry
is relying on out
the unless
competent
technical advice
competenceand assistance
of the are
expert, who obtained
the knowledge so as to enable
of the ethicalthem to
requirements
When using
satisfactorilythe services
perform of services.
such experts If a are not professional
professional accountantaccountants,
does not the
cannot be automatically
professional accountant assumed.
must take Since
steps the
to ultimate
see that responsibility
such experts for the have
the competence to
The degree ofservice
professional perform
supervision
rests a specific
and the
with part
the professionalof the
amount of guidance professional
accountant,that the be needed of
are
service,aware
technical
willprofessional will
ethical
advice
depend requirements.
may
uponbe sought
the Primary
from
individuals attention
experts
involved such should
and as other
the be paidoftothetheengagement.
professional
nature fundamental
accountants,
accountantinshould
principles see that
paragraph 16 thethe
of requirements
Introduction oftoethical
this behavior
Code. Theseareprinciples
followed.
lawyers, actuaries,
Examples engineers,
of such guidance andgeologists,
supervision valuers.
might include:
would extend to any assignment in which such experts would participate.

9.5
Asking individuals to read the appropriate ethical codes;
Requiring written confirmation of understanding of the ethical
requirements; and
Providing consultation when potential conflicts arise.
9.2
9.3
9.4
The professional accountant should also be alert to specific independence
82 requirements or other risks unique to the engagement. Such situations will
require special attention and guidance/supervision to see that ethical
requirements are met. For example, Section 8 of this Code requires all
professionals participating in the assurance engagement to be independent of the
assurance client.
9.6
If at any time the professional accountant is not satisfied that proper ethical
behavior can be respected or assured, the engagement should not be accepted; 83
or, if the engagement has commenced, it should be terminated.
SECTION 10
Fees and Commissions
10.1
Professional accountants in public practice who undertake professional services
for a client,
Professional Fees assume the responsibility to perform such services with integrity and
objectivity and in accordance with the appropriate technical standards. That
10.2 responsibility is discharged by applying the professional skill and knowledge
which professional
Professional accountants
fees should be a fairinreflection
public practice
of the have
valueacquired through training
of the professional
and experience.
services
(a) For
performed the
for services
the client, rendered,
taking the
into professional
account: accountant in
public practice* is entitled to remuneration.
(b)
The skill and knowledge required for the type of professional services
involved;
The level of training and experience of the persons necessarily engaged
in
Theperforming the professional
time necessarily occupied services;
by each person engaged in performing
the professional services; andthat performing those services entails.
The degree of responsibility
(c)
(d)
10.3
Professional fees should normally be computed on the basis of appropriate rates
per hour or per accountant
A professional day for the in
time of each
public person
practice engaged
should in performing
not make a representation
professional
that specific services. These
professional rates should
services in be based
current or on the
future fundamental
periods premise
will be performed
10.4 that the organization and conduct of the professional accountant in public
for either a stated fee, estimated fee, or fee range if it is likely at the time of the
practice
* See Definitions. and thethat
representation services provided
such fees will betosubstantially
clients are well planned,
increased controlled
and and
the prospective
84 managed. They
client is not should
advised take likelihood.
of that into account the factors set out in paragraph 10.2
and are influenced by the legal, social and economic conditions in the
Philippines. It is for each professional accountant in public practice to
determine the appropriate rates.
10.5
When performing professional services for a client, it may be necessary or
expedient to charge
It is not improper fora apre-arranged
professionalfee, in whichinevent
accountant public thepractice
professional
to charge a
accountant
client a lowerin public
fee thanpractice
has should estimate
previously been a fee taking
charged for into account
similar services,the
10.6 matters
providedreferred
the fee to
hasinbeen
paragraphs 10.2inthrough
calculated 10.4.with the factors referred to in
accordance
Commentary
paragraphs 10.2 through 10.4.
The fact that a professional accountant in public practice secures work by
quoting a fee lower
Accordingly, than another
when deciding on aisfee
nottoimproper.
be quotedHowever,
to a clientprofessional
for the performance
accountants
of professionalin public
services,practice who obtain
a professional work at fees
accountant shouldsignificantly
be satisfiedlower
that,than
as a
those charged
result an existing accountant *, or quoted by others, should be aware
of the feebyquoted:
that there is
Thea risk of a of
quality perception
work willthat
notthe
be quality
impairedofandwork could
that due be impaired.
care will be
applied
The client to comply
will not with all professional
be misled standards
as to the precise scopeandofquality control
services that a
procedures in the performance of those services, and
quoted fee is intended to cover and the basis on which future fees will
be charged.
10.7
As stated in paragraph 8.208:
An assurance engagement should not be performed for a fee that is contingent
onthe result of the assurance work or on items that are the subject matter of the
* See Definitions.
assurance engagement. Paragraph 8.209 provides guidance on threats that may
be created if a non-assurance engagement is provide to an assurance client for a 85
contingent fee, and the safeguards that may reduce the threats to an acceptable
level.
Commentary
Fees should not be regarded as being contingent if fixed by a court or other
10.8 public authority. Fees charged on a percentage or similar basis, except when
authorized by statute or approved by a member body as generally accepted
The foregoing
practice paragraphs
for certain relate services,
professional to fees asshould
distinctbefrom reimbursement
regarded as contingentof fees.
expenses.
It is in the Out-of-pocket expenses,
best interests of both the in particular
client and thetraveling expenses,
professional attributable
accountant in
directly to the professional
public practice that the basisservices
on whichperformed
fees are for a particular
computed client
and any would
billing
10.9 normally be charged to that client preferably
in additionintowriting,
the professional
arrangements are clearly defined, before thefees.
Commissions
commencement of the engagement to help in avoiding misunderstandings with
10.10 respect to fees. (For further guidance, refer to Philippine Standard on Auditing
10.11 210, “Terms of Audit Engagements.”)

(Deleted not applicable in the Philippines )


A professional accountant in public practice should not pay a commission to
obtain
Paymenta client nor should
and receipt a commission
of referral be accepted
fees between for referral
professional of a client
accountants to a
in public
third party.
practice whenA professional
no services accountant
are performedin public
by the practice
referringshould not accept
accountant are a
A professional
commission foraccountant
the referralinofpublic practiceormay
thepurpose
products enter of
services into an arrangement for
others.
regarded as commissions
the purchase of the wholefor the
or part of paragraph
of an accounting 10.11.
practice requiring payments
10.12
to individuals formerly engaged in the practice or payments to their heirs or
10.13 estates. Such payments are not regarded as commissions.
86
SECTION 11
Activities Incompatible with the Practice of Public Accountancy
11.1
A professional accountant in public practice should not concurrently engage in
any
The business,
renderingoccupation or activity
of two or more which
types of impairs or
professional might impair
services integrity,
concurrently does
objectivity
not by or independence,
itself impairengagement or the good
integrity, objectivity reputation
orbusiness, of the
independence. profession and
The simultaneous in another occupation or activity
therefore would be incompatible with the rendering of professional services.
11.2 unrelated to professional services which has the effect of not allowing the
professional accountant in public practice properly to conduct a professional
11.3 practice in accordance with the fundamental ethical principles of the
accountancy profession should be regarded as inconsistent with the practice of 87
public accountancy.
SECTION 12
Clients’ Monies
12.1
The professional accountants in public practice should not hold client’s; monies
if
A there is reason
professional to believeinthat
accountant theypractice
public were obtained from,
entrusted withormonies
are to be used for,to
belonging
illegal activities.
others should:
(a)
(b)
(c)
Keep such monies separately from personal or firm monies;
Use such monies only for the purpose for which they are intended; and
At all times, be ready to account for those monies to any persons
12.2 entitled to such accounting.
12.3
A professional accountant in public practice should maintain one or more bank
accounts for clients’
Clients’ monies monies.
received by aSuch bank accounts
professional may in
accountant include general client
publica practice should
account
be deposited* into which
without the monies
delay to of
the the a
credit number of
of aaccount clients
client account,may
or - ifpaid.
be in theofform
Monies may only be drawn from client on the instructions the of
documents
client. of title to money and documents of title which can be converted into
Fees
money due from
- be a client may
safeguarded be drawn
against from client’s
unauthorized use. monies provided the client,
after beingfrom
Payments notified of the
a client amount
account of such
shall fees, has
not exceed theagreed to standing
balance such withdrawal.
to the
credit
When of the client.
it seems likely that the client’s monies remain on client account for a
significant
All interestperiod
earnedofontime, the monies
clients’ professional accountant
should in to
be credited public practice
the client should,
account.
with the concurrence of the client, place such monies in an interest bearing
12.4 account within a reasonable time.
12.5
12.6
12.7
12.8
12.9
* See Definitions.

88
12.10
Professional accountants in public practice should keep such books of account
as will enable them, at any time, to establish clearly their dealings with clients’ 89
monies in general and the monies of each individual client in particular. A
statement of account should be provided to the client at least once a year.
SECTION 13
Relations with Other Professional Accountants in Public Practice
Accepting New Assignments
13.1
The extension of the operations of a business undertaking frequently results in
the formation
Referral of branches
of business may also or subsidiary
arise in thecompanies
area of special at locations
serviceswhere an
or special
existing
tasks. The accountant
scope of the * does not practice. In these circumstances, the client or the
services offered by professional accountants
Professional
existing accountants
accountant, in public practice should only
mayundertake such public
in
a receiving services
practice
which continues
they can toinexpand
expect
consultation
to complete
with
and thewithdepth theof client,
knowledge
professional
request
which is
competence. needed to
An existing
accountant
serve the accountant
public * practicing
often without
calls at
for a particular
those locations
special skills. skill
to may,
perform
Since it ishowever, beItreluctant
such professional
impracticable
is essential
for to
services
any
therefore
refer
as for the
a clientoftothe
necessary profession
another
complete in general
professional
thein and in
accountant
assignment. the interests
in public of their
practice clients
who mayor that
one
The professional
wishes
professional accountant
client
accountants should
inofpublicpublic
be practice
paramount
practice to
in acquire
the
be encouraged choice special
of expertise
professional
to obtain advice when
possess
experiencethatinskill, because
alladvice
fields of theskills
fear of losing existing business toa the other
advisers,
appropriate
The whether
services
professional from
or or notof
those
accountant who
in aaccountancy,
specialare competent
professional
public
aresome
practice.
professional
involved.
to provide
accountant
As a result, publicaccountants
Accordingly,
in it.
clients practice
may be
in public
professional
having
deprived
practice
accountant
special have
skills decided
inmay
public that it is
be practice
sought neither
inshould
one or notappropriate
attempt
other of the nor desirable
tofollowing
restrict anytoway
inways: develop
the
13.2 of the benefit
within
client’stheir
freedom of advice
firms ofthe which
complete
choice they
range
in obtaining areofentitled toskills
specialadvice,
special receive.
which
and when mayappropriate,
be required.
13.3 should encourage client to do so.
13.4
13.5
13.6
* See Definitions.

90
(a)
By the client:
(i)
After prior discussion and consultation with the existing
accountant;
On the specific request or recommendation of the existing
accountant;
Without and to the existing accountant; or
reference
(ii)
(iii)
(b)
By the existing accountant with due observance of the duty of
13.7 confidentiality.
When a professional accountant in public practice is asked to provide services or
advice, inquiries
The receiving should beshould
accountant made limit
as to the
whether the provided
services prospective client
to the has an
specific
existing
assignment accountant.
received In
by cases where
referral from there
the is an existing
existing accountant
accountant or the who
clientwill
unless
A receiving
continue to accountant
provide who is asked
professional by the
services, client
the to undertake
procedures set out aninassignment
paragraphs of
aotherwise
type
13.8 -
requested
which
13.14
Circumstances is clearly
should
by distinct
be
sometimes
the client.
observed.
arise from
If
when
The
the
receiving
that being
appointment
the client
accountant
carried will
insists out also
by
result
that the the
in
has the duty to
existing
another
existing
take reasonable
accountant or steps
from to initially
that support the existing
received accountant’sfrom current relationship
professional
accountant
with accountant
should
the client and not beininformed.
should public
not express thisby
practice
In any referral
being
case, superseded,
the of
criticism receivingthethe
existing
procedures
accountant
the professional set
should
13.8 accountant
out in
decide or
whether from
paragraphs the
13.15
the client,
-
client’s 13.26 should
should
reasons areregard
be this
followed.
valid. In as
the a separate
absence ofrequest
special toservices
provide
13.9 of the existing
services accountant
or advice. Before without
accepting giving
any the latter an opportunity
appointments of this nature, to provide
the all
circumstances,
relevant a mere
information. disinclination by the client for communication with the
13.10 receiving accountant should advice the client
existing accountant would not be a satisfactory reason. of the professional obligation to
communicate with the existing accountant and should immediately do so
preferably in writing, advising of the approach made by the client and the 91
general nature of the request as well as seeking all relevant information, if any,
necessary to perform the assignment.
13.11
The receiving accountant should:
(a)
Comply with the instructions received from the existing accountant or
the clientinsofar
Ensure, to the as
extent that they dotonot
it is practicable doconflict
so, that with relevantaccountant
the existing legal or
other requirements; and
is kept informed of the general nature of the professional services being
(b)
performed.
13.12
When there are two or more other professional accountants in public practice
performing professional
When appropriate, services
the existing for the client
accountant, concerned,
in addition it may instructions
to issuing be appropriate
to notify only
concerning the relevant
referred professional
business, should accountant
maintain in public
contact with practice
the depending
receiving
When
on the the opinion
specific of a professional
services being accountant, other than the existing
performed.
accountants and cooperate with them in all reasonable requests
accountant, is sought on the application of accounting, auditing, reporting or for assistance.
13.13
other standards or principles to specific circumstances or transactions, the
13.14 professional accountant should be alert to the possibility of the opinion creating
undueAnother
Superseding pressure on the judgment and
Professional objectivity in
Accountant of Public
the accountant.
Practice An opinion
13.15 given without full and proper facts can cause difficulty to the receiving
accountant if the opinion is challenged or the receiving accountant is
The proprietors
subsequently of a business
appointed by thehave an indisputable
company. rightthe
Accordingly, to choose their
professional
92 professional advisers
accountant should and
seek to to change to
minimize theothers
risk ofshould
givingthey so desire. While
inappropriate guidanceit isby
essential
ensuring that
that the
he orlegitimate interests
she has access of the
to all proprietors
relevant are protected,
information. it is also
When there is a
important
request forthat a professional
an opinion accountant
in the above in public practice
circumstances, there is who is asked tofor
a requirement
replace another professional
communication accountant
with the existing in public
accountant. It is practice
important hasthat
thethe
opportunity
existing to
accountant, with the permission of the client, provide the receiving accountant
with all requested relevant information about the client. With the permission of
the client, the receiving accountant should also provide a copy of the final report
to the existing accountant. If the client does not agree to these communications,
then the engagement should ordinarily not be performed.
ascertain if there are any professional reasons why the appointment should not
13.16 be accepted. This cannot effectively be done without direct communication with
the existing accountant. In the absence of a specific request, the existing
Communication
accountant should enables a professional
not volunteer accountant
information about in
thepublic practice
client's affairs.to ascertain
whether thetocircumstances
The extent in which
which an existing a change
accountant canindiscuss
appointment is proposed
the affairs are
of the client
such the
with thatproposed
the appointment can properly
professional be accepted
accountant in public and also depends
practice whether there
on: is a
(a)
wish to undertake the engagement. In addition, such communication helps to
preserve the harmonious relationships which should exist between all
(b)
13.18 professional accountants in public practice on whom clients rely for professional
advice and assistance.
Whether the client’s permission to do so has been obtained; and/or
The legal or ethical requirements relating to such disclosure.
13.17
The proposed professional accountant in public practice should treat in the
strictest confidence,
The information and give
provided dueexisting
by the weight to, any information
accountant provided
may indicate, for by the
example,
existing
that the accountant.
ostensible reasons given by the client for the change are not in
Communication between the parties therefore serves:
accordance with the facts. It may disclose that the proposal to make a change in
(a)
professional accountants in public practice was made because the existing
accountants Tostood their
protect ground and properly
a professional accountant carried out the
in public dutiesfrom
practice as accepting
professionalan accountants
To appointment ininpublic
protect the interests practice
circumstances
of despite opposition
whereaccountant
the existing all or evasion
the pertinent
when facts
the on not
are an
proposed
occasion on which
known. important differences of principles or practice have arisen
change arises from, or is an attempt to interfere with, the conscientious
13.19 with the client.
To protect
exercise of the
theminority proprietors ofduty
existing accountant's a business
to act aswho may not be fully
an independent
13.20 informed of the circumstances in which the change is proposed.
professional.
(b)
(c)
93
13.21
Before accepting an appointment involving recurring professional services
hitherto
(a) carried out by another professional accountant in public practice, the
proposed professional accountant in public practice should:
Ascertain if the prospective client has advised the existing accountant
of
Whenthe proposed change
satisfied with the and has
reply given permission,
received preferably
from prospective in request
client, writing,
to discuss
permission the client’s affairs
to permission,
communicate fully and freely with the proposed
On receipt of
professional askwith
the the existing
existing accountant.
accountant, If such in
preferably
permission
writing: isaccountant
refused or in thepublic practice.
permission referred to in (a) above is not
(i)
given, the proposed professional accountant in public practice should,
in the absence of exceptional
To provide informationcircumstances of which there
on any professional is full
reasons which
knowledge, Toand
should unlessallthere
be known
provide is satisfaction
thebefore deciding
necessary aswhether
details to
to necessary
to facts
or not
be able by
to accept
come to a the
other means, decline theand,
appointment
decision. appointment.
if there are such matters; and
(b)
(c)
(ii)
13.22
The existing accountant, on receipt of the communication referred to in
paragraph
(a) 13.21 (c) should forthwith:
Reply, preferably in writing, advising whether there are any
professional reasons
If there are any such why the or
reasons proposed professional
other matters which accountant
should be in
public practice
disclosed, should
ensure that notclient
the accepthas
thegiven
appointment.
permission to give details of
On receipt of permission from the client, disclose all information
this information
needed to the proposed
by the proposed professional
professional accountant
accountant in publicinpractice
public to be
(b) practice. If permission is not granted, the existing accountant should
able to decide whether or not to accept the appointment, and discuss
(c) report that fact to the proposed professional accountant in public
94 practice.
freely with the proposed professional accountant in public practice all
13.23 matters relevant to the appointment of which the latter should be aware.
If the proposed professional accountant in public practice does not receive,
within
The facta reasonable
that there may time,beafees
replyowing
from to
thetheexisting accountant
existing accountant and
is there
not a is no
reason to believe
professional reason that
whythere are any
another exceptionalaccountant
professional circumstancesin surrounding
public practice the
The existing
proposed accountant
change, the should professional
proposed promptly transfer to the in
accountant new professional
public practice should
should
accountantnot accept the appointment.
Certain toincommunicate
public practice
endeavororganizations, eitherwithallthe
books
because ofand
existing papers of
accountant
legislative thebyclient
somewhich
requirements other are or may
means.
or otherwise, If
be
callheld
unable after
for to the achange
obtain
submissions in appointment
satisfactory
or tenders, outcome hasthis
in
e.g., competitivebeen effected
way, and should
theinproposed
bids, relation advise the
professional
to professional
13.24 client accordingly,
accountant
services offered by unless
in public the should
practice
accountants professional aaccountant
send practice.
in public further In in public
letter,
replystatingpractice hasisaan
that there
to a public
13.25 legal right tothat
assumption
advertisement withhold
orthere isthem.
no professional
an unsolicited request toreason
makewhy the appointment
a submission or submitshould not
a tender,
13.26 abeprofessional
accepted and that therein
accountant is public
an intention
practiceto do so. if the appointment may
should,
result in the replacement of another professional accountant in public practice, 95
state in the submission or tender that before acceptance, the opportunity to
contact the other professional accountant in public practice is required so that
inquiries may be made as to whether there are any professional reasons why the
appointment should not be accepted. If the submission or tender is successful,
the existing accountants should then be contacted.
SECTION 14
Advertising and Solicitation
14.1
Advertising and solicitation by individual professional accountants in public
practice
Deleted. are
Notnot permitted
applicable inin
thethe Philippines.
Philippines.
Deleted. Not applicable in the Philippines.
A professional accountant in public practice in the Philippines, where
advertising
In situationsiswhere
prohibited should not
professional advertiseininpublic
accountants a newspaper
practiceorinmagazine
their
published
internationalin across
country where advertising is the
permitted.
It is clearly desirable that the public should be aware of theofrange
border activities violate provisions paragraph 14.4,
of services
contact should
available from atake place between
professional the member
accountant. body inthere
Accordingly the country in whichtothe
is no objection a
14.2 violation takescommunicating
place and the member body of thetohome country
member body such information the public on of
an the
institutional
14.3 professional
basis, i.e., in accountant
the name ofinthe
public practice
member body.to ensure that the member body in the
14.4 home country is made aware of such violation.

14.5
14.6
Publicity by Professional Accountants in Public Practice in a Non-Advertising
Environment
14.7
Publicity by individual professional accountants in public practice is acceptable
provided:
(a) It has as its object the notification to the public or such sectors of the public
(b)asIt are
is inconcerned,
good taste;of matters of fact in a manner that is not false,
misleading or deceptive;
(c) It is professionally dignified; and
(d) It avoids frequent repetition of, and any undue prominence being given to
96 the name of the professional accountant in public practice.
14.8
The examples which follow are illustrative of circumstances in which publicity
is acceptable and the
Appointments and matters
Awards to be considered in connection therewith subject
always to the overriding requirements mentioned in the preceding paragraph.
It is in the interests of the public and the accountancy profession that any
appointment
Professional or other activity of Seeking
Accountants a professional accountant inora matter
Employment of national
Professional Business
or local importance, or the award of any distinction to a professional
A professional accountant may inform interested parties
accountant, should receive publicity and that membership of the professional through any medium
that
body a should
partnership
Directories or salariedHowever,
be mentioned. employment of an accountancy
the professional natureshould
accountant is being
not
sought.
make useTheof professional
any of the accountant should
aforementioned not, however,
appointments or publicize
activities for
for personal
A professional
subcontract workaccountant
in a manner maywhich
be listed in abedirectory
could interpreted provided neither
as seeking the
to procure
professional
directory advantage.
itself nor the entry could reasonably be regarded asTelevision
a promotional
professional
Books, business.
Articles, Publicity
Interviews, seeking subcontract
Lectures, Radio workandmay be acceptable if
Appearances
advertisement
placed for
the those
only inaccountants listed therein.
professional press andEntries should
provided thatbeonlimitedthe
neither to accountant’s
name,
Professional
address, telephone who
number, number author
professionalbooks or articles
description professional
and any A other subjects,
information
name,
may stateaddress
their or telephone
name anduser
professional appears in the publicity.
qualifications professional
necessary
accountant tomay
enable
write thea letteroforthe directory
make a direct make and
toapproach givewith
contact
to
the
another
name
the of their
person
professionalor 97
organization
organization but shall not
to which give
entryany
the employment information as to the services that
relates. firm
accountant when seeking or professional business.
provides. Similar provisions are applicable to participation by a professional
accountant in a lecture, interview or a radio or television program on a
professional subject. What professional accountants write or say, however,
should not be promotional of themselves or their firm but should be an
objective professional view of the topic under consideration. Professional
accountants are responsible for using their best endeavors to ensure that what
ultimately
Training goes before Seminars,
Courses, the public complies
etc. with these requirements.
A professional accountant may invite clients, staff or other professional
accountants
Booklets and to attend training courses
Documents or seminars
Containing conducted
Technical for the assistance
Information
of staff. Other persons should not be invited to attend such training courses or
Booklets
seminars and
exceptother documents
in response to bearing the name
an unsolicited of a professional
request. The requirement accountant
should
and
in nogiving
Other way technical
prevent
persons information
professional
should not be issued forwith
the assistance
accountants suchfrom of staff
providing
booklets or clientsservices
training
or documents may
exceptbe in
to
issued to to
such
other professional
response an persons or toassociations
bodies,
unsolicited other professional
request. accountants.
or educational institutions which run
Staff Recruitment
courses for their members or the public. However, undue prominence should
Genuine vacancies
not be given for staff
to the name of amay be communicated
professional accountant to the public
in any through
booklets or any
medium
documents
In in which
issued
publications suchcomparable
in as
connection staff vacancies
therewith.
those specifically normally
directed appear.
to schools andThe factplaces
other that aof
job specification
education to informnecessarily
students gives
and some detail
graduates of as to one
career or more ofinthe
opportunities services
the
More latitude
provided may also
to services
clients by beprofessional
the permissible accountant
in a sectionin ofpublic
a newspaper
practice devoted
is to
profession,
staff vacancies than offered
would toallowed
be the public mayvacancy
be described
ifpromotional
the appearedin ainbusiness
a prominent
98 acceptable
likeway. but it should not contain any element. There should not
position elsewherethat
be any suggestion in athe
newspaper
services on the grounds
offered that ittowould
are superior those be most by
offered unlikely
other
that a potential
professional client would
accountants use such
in public mediaastoaselect
practice a professional
consequence of size,adviser.
associations, or for any other reason.
Publicity on Behalf of Clients
A professional accountant in public practice may publicize on behalf of clients,
primarily
Brochures for staff. However,
and Firm the professional accountant in public practice
Directories
should ensure that the emphasis in the publicity is directed towards the
A professional
objectives to beaccountant in public
achieved for practice may issue to clients or, in response
the client.
to
(a)an unsolicited request, to a non-client:
(b)
A factual and objectively worded of the services provided; and
A directory setting out names of partners, office addresses and names
Stationery andandaddress of associated firms and correspondents.
Nameplates
Stationery of professional accountants in public practice should be of an
acceptable professional
Newspaper standard and comply with the requirements of the law
Announcements
and of the member body concerned as to names of partners, principals and
Appropriate newspapers
others who participate in or
themagazines mayofbeprofessional
practice, use used to inform the public
descriptions andof the
establishment
designatory of
Inclusion of a new
letters,
the practice,
cities
Name or of of changes
countries
the whereinthethe
Professional composition
practice of ain
partnership
is represented,
Accountant Public Practice in a
of professional
logotypes, accountants
etc.Issued
The designationinClient
public
of any practice,
services or of any alteration in the as
Document
When
addressa of
client proposes
a practice.
by
to a
Such publish a report
announcements by a provided
should
by the
professional
be limited
practice
accountant
to a bare in public
statement
being specialist
practice dealing nature should
with the client’snot be permitted.
existing Similar
business affairs provisions,
or inarea where
connection with
of facts and
applicable, consideration
shouldof apply given to
to business the
nameplates. appropriateness of the of distribution 99
thethe
of establishment
newspaper or a new
magazine venture,
and number ofthe professional accountant in
insertions.
public practice should take steps to ensure that the context in which the report is
published is not such as might result in the public being misled as to the nature
and meaning of the report. In these circumstances, the professional accountant
in publicconsideration
Similar practice should advise
should be the
givenclient that permission
to other documents should
proposed first
tobe
be issued
obtained
by before publication of the document.
When professional accountants in their private capacity are associated practice
a client containing the name of a professional accountant in public with, or
acting
hold in,inan
anorganization,
independent the professional
organization capacity.
may useThis does
their not preclude
name the
and professional
Anniversaries
inclusion
status on stationery and other documents. The professional accountant inthepublic
of the name of a professional accountant in public practice in
annual
A
practice report
professional
should ofaccountant’s
a client.
ensure press
that this and other is
information media releases
not used or announcements
in such a way as might or
newspaper
lead the public
Websites supplements,
to believeor other
that theresimilar publications,
is a connection withororganization
other commemorative
in an
media, or theprofessional
independent holding of media covered events undertaken only to commemorate
capacity.
A professional
their anniversaries accountant
in publicmay develop
practice and maintain
by informing theapublic
web site in the Internet
of their
100 in such suitable
achievements orlength and style which
accomplishments may also include
in contributing towardsannouncements,
nation buildingpressand in
releases, publications
international and such
understanding, other necessary
goodwill, and factual
or relationship information
or enhancing like or
the image
firm’s name,
standards partners/principals’
of the accounting profession name do andnot
brief description
violate the rulesofon
their educational
advertising
attainment,
and solicitationbriefprovided
listing ofthat
services, postal address, or
such announcements telephone, fax and
undertakings e-mailonly
contains
addresses. Suchwithout
factual matters web sitedetailed
should listing
not contain self-laudatory
of services. statementsshould
Such undertaking designed
be
to solicit
done onlyclients.
every five years of celebration.
PART C- APPLICABLE TO EMPLOYED PROFESSIONAL
ACCOUNTANTS
The following sections contain guidance which is particularly relevant to
professional accountants working in industry, commerce, the public sector or
SECTION 15 Professional accountants employed in public practice should be
education.
Conflict of Loyalties
aware they may find that the principles set out below are also of application to
15.1 their particular circumstances. If professional accountants employed in practice
are in doubtprofessional
Employed as to the applicability
accountantsofowe
anyaparticular guidance,
duty of loyalty theyemployer
to their should seek
as
assistance
well as to from
the their professional
profession and there body.
may be times when the two are in conflict.
(a)
An employee’s normal priority should be to support his or her organization’s
(b)
legitimate and ethical objectives and the rules and procedures drawn up in
support of them. However, an employee cannot legitimately be required to:
(c)
Break the law;
Breach the rules and standards of their profession;
Lie to or mislead (including misleading by keeping silent) those acting
as
Putauditors to the
their name to employer; or be associated with a statement which
or otherwise
(d) materially misrepresents the facts.
15.2
Differences in view about the correct judgment on accounting or ethical matters
should normally
If employed be raisedcannot
accountants and resolved
resolve within the employee’s
any material organization,
issue involving a conflict
initially
between with
theirthe employee’s
employers and immediate superiorrequirements,
their professional and possiblythey
thereafter, where
may, after
15.3 disagreement about a significant ethical issue remains, with higher levels of
exhausting all other relevant possibilities, have no other recourse but to consider
management or non executive directors.
resignation. Employees should state their reasons for doing so to the employer 101
but their duty of confidentiality normally precludes them from communicating
the issue to others (unless legally or professionally required to do so).
15.4
For further guidance as to the considerations involved, see Section 2 -
102 Resolution of Ethical Conflicts.
SECTION 16
Support for Professional Colleagues
16.1
A professional accountant, particularly one having authority over others, should
give due weight for the need for them to develop and hold their own judgment in 103
accounting matters and should deal with difference of opinion in a professional
way.
SECTION 17
Professional Competence
17.1 A professional accountant employed in industry, commerce, the public sector or
104education may be asked to undertake significant tasks for which he or she has not
had sufficient specific training or experience. When undertaking such work the
professional accountant should not mislead the employer as to the degree of
expertise or experience he or she possesses, and where appropriate, expert advice
and assistance should be sought.
SECTION 18
Presentation of Information
18.1
A professional accountant is expected to present financial information fully,
honestly
Financialand
andprofessionally
non-financial and so that itshould
information will bebeunderstood
maintainedininitsa context.
manner that
18.2 describes clearly the true nature of business transactions, assets or liabilities,
and classifies and records entries in a timely and proper manner; and
professional accountants should do everything that is within their powers to 105
ensure that this is the case.

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