CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS IN THE PHILIPPINES

WHAT IS THE CODE?

• It is a 105-page document, 80% of which cover independence rules and interpretations; effectively
superseding the old code which was issued by the PRC & BOA in 1978.
• It is based on IFAC’s International Code of Ethics for Professional accountants (with minor
modifications).
• It demonstrates PICPA’s (as member of IFAC) commitment to IFAC’s broad objective of developing and
enhancing a coordinated worldwide accountancy profession with harmonized standard.
• The Code is mandatory for all CPAs and applicable to all professional services performed in the
Philippines.
• Failure to comply with Code may result in an investigation into the CPA’s conduct.
• Effectivity date – January 1, 2004.

MODIFICATIONS TO THE IFAC CODE TO CONSIDER PHILIPPINE REGULATORY REQUIREMENTS AND

CIRCUMSTANCES

INTRODUCTION, PARAGRAPH 16
• It is modified to list the sources of technical and professional standards in the Philippines as follows:
- Board of Accountancy/PRC;
- SEC;
- Auditing Standards and Practices Council;
- Accounting Standards Council; and
- Relevant legislation.
• Word “corporation” was deleted from Definitions.
- A corporate form for the professional practice of accountancy not allowed in the Philippines.
• Professional accountants: the phrase “who are CPAs and who hold valid certificate issued by the
Board of Accountancy” was added.
• The phrase “a sole proprietor” was added to Professional Accountants in public practice.
• Period of rotation of lead engagement partner was changed from 7 to 5 years.

PARAGRAPHS DELETED AND/OR MODIFIED

• Paragraph 10.10 – Commission was deleted.
- Payment and receipt of commissions are not permitted in the
Philippines.
• Advertising and solicitation
- Paragraph 14.1 was modified to read as “advertising and solicitation by individual
professional accountants in public practice are not permitted in the Philippines”;
- Paragraphs 14.2 and 14.3 were deleted since advertising and solicitation are not permitted in
the Philippines; and
- Paragraph 14.8 includes additional examples relating to anniversaries and websites wherein
publicity is acceptable.

CONTENTS OF THE CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS IN THE PHILIPPINES

INTRODUCTION
• It discusses the rationale for the adoption of the Code.
• It contains IFAC’s belief that the identity of the accountancy profession is characterized worldwide by –
 - Its endeavor to achieve a number of common objectives; and
- Its observance of certain fundamental principles for that purpose.
• It is intended to serve as a model on which to base national ethical guidance.
• It will be the basis on which the ethical requirements (code of ethics, detailed rules, guidelines,
standards of conducts) for professional accountants in each country should be founded.
• It discusses how IFAC’s role of –
- Providing guidance;
- Providing continuity of efforts; and
- Promoting harmonization
- saw the need to establish an international Code of Ethics for
Professional Accountants as basis in each member country.
• Unless a limitation is specifically stated, the objectives and fundamental principles are equally valid for
all professional accountants, whether they be in public practice, industry, commerce, the public sector
or education.
• Characteristics distinguishing a profession:
- Mastery of a particular intellectual skill, acquired by training and education;
- Adherence by its members to a common code of values and conduct established by its
administering body, including maintaining an outlook which is essentially objective; and
- Acceptance of a duty to society as a whole.
• To ensure the highest quality of performance and to maintain public confidence in the profession,
PICPA has adopted the IFAC Code of Ethics (with certain modifications).

THE PUBLIC INTEREST (PARAGRAPHS 9 TO 13)

• It discusses the accountancy profession’s responsibility to the public, which consists of
- Clients;
- Credit grantors;
- Governments;
- Employers;
- Employees;
- Investors;
- The business and financial community; and
- Others who rely on the objectivity and integrity of professional accountants.
• Independent auditors should help maintain the integrity and efficiency of financial statements.
• Financial executives contribute to the efficient and effective use of the organization’s resources.
• Internal auditors provide assurance about sound internal control system which enhances the reliability
of the external financial information of the employer.
• Tax experts help to establish confidence and efficiency, and the fair application of the tax system.
• Management consultants have a responsibility toward the public interest in advocating sound
management decision-making.

OBJECTIVES (PARAGRAPH 14)

• Code recognizes objectives of the accountancy profession:
- Work to highest standards of professionalism;
- Attain highest levels of performance; and
- Meet the public interest requirement.
• What are needed to meet these objectives?
- Credibility;
- Professionalism;
 - Quality of services; and
- Confidence.

FUNDAMENTAL PRINCIPLES (PARAGRAPHS 14-16)

• Integrity
• Objectivity
• Professional competence and due care
• Confidentiality
• Professional behavior
• Technical standards

Integrity - should be straightforward and honest in performing professional services.

Objectivity - should be fair and should not allow prejudice or bias, conflict of interest or influence of
others to override objectivity.
Confidentiality - respect the confidentiality of information acquired during the course of performing
professional services and should not use or disclose any such information without proper and specific
authority or unless there is a legal/prof. duty to disclose.
Professional behavior - act in a manner consistent with good reputation and refrain from any conduct
which might bring discredit to the profession.

THE CODE IS DIVIDED INTO THREE PARTS:

• Part A applies to all professional accountants unless otherwise specified;
• Part B applies to those in public practice; and
• Part C applies to employed professional accountants.

PART A – APPLICABLE TO ALL PROFESSIONAL ACCOUNTANTS

• Section 1 – Integrity and objectivity
• Section 2 – Resolution of ethical conflicts
• Section 3 – Professional competence
• Section 4 – Confidentiality
• Section 5 – Tax practice
• Section 6 – Cross border activities
• Section 7 – Publicity

INTEGRITY AND OBJECTIVITY:

*Professional accountants should be aware of pressures exerted on them that may impair their
objectivity.
*Relationships should be avoided which allow prejudice, bias, or influences of others to override
objectivity.
*They have an obligation to ensure that personnel engaged on professional services adhere to the
principle of objectivity.
*They should neither accept nor offer gifts or entertainment which might reasonably be believed to
have a significant and improper influence on their professional judgment or those with whom they deal.
*They should avoid circumstances which would bring their professional standing into disrepute.

TAX PRACTICE
*The CPA must put forward the best position in favor of a client, or an employer, provided the service is
rendered with professional competence, does not in any way impair integrity, objectivity, and consistent
with the law.
*Tax advice or opinions of material consequences given to a client or an employer should not hold out
to a client or an employer the assurance that the tax return prepared and the tax advice offered are
beyond challenge. Instead, the professional accountant should ensure that the client or the employer
are aware of the limitations attaching to tax advice and services so that they do not misinterpret an
expression of opinion as an assertion of fact and should be recorded, either in the form of a letter or in a
memorandum for the files.
*The CPA must not be associated with any return if:
- contains a false or misleading statement;
- contains information furnished recklessly or without any real knowledge of whether they are
true or false;
-omits or obscures info required to be submitted and such omission or obscurity would mislead
the revenue authorities.

NEW ACCOUNTANCY LAW RA 9298 – PD 692

• The new accountancy law RA 9298 reiterated the definition of the Practice of Accountancy as stated in
PD 692 except the last paragraph which included the other 3 sectors to be in the practice of
accountancy.
• RA 9298 separately defined the ff:
- Practice of Public accountancy
- Practice in Commerce and Industry
- Practice in Education / Academe
- Practice in Government

PART B – APPLICABLE TO ALL PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE

• Section 8 – Independence
- Members of assurance teams, firms and when applicable, network firms should be
independent of assurance clients;
- Conceptual approach to independence requires
• Independence of mind
• Independence in appearance
- Objective and structure (subsections 8.20 to 8.47) – discusses approach to handling
independence issues:
• Identifying threats to independence;
• Evaluating whether these threats are clearly insignificant; and
• In cases when threats are not clearly insignificant, identifying and applying appropriate safeguards to
eliminate or reduce threats to an acceptable level (this decision should be documented).

DEFINITIONS
• Audit client: When the audit client is a listed entity, audit client will always include its related entities.
• Audit Engagement: An assurance engagement to provide a high level of assurance that financial
statements are free of material misstatement, such as an engagement in accordance with Phil standards
on auditing. It includes a statutory audit which is an audit required by national legislation.
• Assurance team: Includes others who can directly influence the outcome of the assurance
engagement such as:
- Those who recommend compensation;
 - Those who provide direct supervisory, management or oversight of the assurance engagement
partner;
- Those providing technical or industry specific support;
- Those who provide quality control for the assurance engagement; and
- All those within a network firm who can directly influence the outcome of the audit.
• Firm covers
- A sole practitioner, partnership of professional accountants;
- An entity that controls such parties; and
- An entity controlled by such parties.
• Network firm:
- An entity under common control, ownership or management with the firm or any entity that a
reasonable and informed third party having knowledge of all relevant info; and
- Would reasonably conclude as being part of the firm nationally or internationally.
• Professional services: any service requiring accountancy or related skills performed by a professional
accountant including accounting, auditing, taxation, management consulting and financial management
services.
• Directors and officers: Those charged with the governance of an entity, regardless of their title.
• Publicity: Communication to the public of facts about the prof acct which are not designed for the
deliberate promotion of that professional accountant.
• Advertising: Communication to the public with a view to procuring professional business. (Sec 8
independence)

SUBSECTIONS 8.100 TO 8.211 OF THE CODE – INDEPENDENCE

• Provide specific examples describing circumstances and relationships that may create threats to
independence; and
• Illustrate via examples on how safeguards should be applied to fulfill requirement for the members of
the assurance team, the firm and network firm to be independent of an audit client.

APPROACH TO INDEPENDENCE
This section takes into account threats to independence, accepted safeguards and public interest. Firms
and members of the assurance teams have an obligation to identify and evaluate circumstances and
relationships that create threats to independence and to take appropriate action to eliminate these
threats or to reduce them to an acceptable level by the application of the safeguards.

THREATS TO INDEPENDENCE
• Self-interest threats
• Self-review threats
• Advocacy threat
• Familiarity threat
• Intimidation threat

SELF-INTEREST THREATS - EXAMPLES

• 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 on total fees from an assurance client;
• Concern about the possibility of losing the engagement;
• Having close business relationship with assurance client;
• Potential employment with an assurance client; and
• Contingent fees relating to assurance engagements.

SELF-REVIEW THREATS - EXAMPLES

• A member of the assurance team being, or having recently been, an employee of the assurance client
in a position to exert direct and significant influence over the subject matter of the assurance
engagement;
• Performing services for an assurance client that directly affect the subject matter of the assurance
engagement; and
• Preparation of original data used to generate financial statements or preparation of other records that
are the subject matter of the assurance engagement.

FAMILIARITY THREATS - EXAMPLES

• A member of the assurance team having an immediate family member or close family member who is:
- A director or officer of the assurance client; and
- An employee of the assurance client, and as such, is in a position to exert direct and significant
influence over the subject matter of the assurance.
• A former partner of the firm being a director, officer of the assurance client or an employee in a
position to exert direct and significant influence over the subject matter of the assurance engagement.
• Long association of a senior member of the assurance team with the assurance client.
• Acceptance of gifts or hospitality, unless the value is clearly insignificant, from the assurance client, or
from its directors/ officers/ employees.

INTIMIDATION THREATS - EXAMPLES

• Threat of replacement over a disagreement with the application of an accounting principle
• Pressure to reduce inappropriately the extent of work performed in order to reduce fees

SAFEGUARDS TO ELIMINATE THREATS OR REDUCE THEM TO ACCEPTABLE LEVEL

• Safeguards created by the profession, legislation, or regulation;
• Safeguards within the assurance client; and
• Safeguards within the firm’s own systems and procedures.

SAFEGUARDS CREATED BY THE PROFESSION, LEGISLATION OR REGULATION

• Educational, training and experience requirements for entry into profession;
• Continuing education requirements;
• Professional standards and monitoring disciplinary processes;
• External review of a firm’s quality control system; and
• Legislation governing the independence requirements of the firm.

SAFEGUARDS WITHIN THE ASSURANCE CLIENT

• When the assurance client’s management appoints the firm, persons other than management ratify or
approve the appointment;
• The assurance client has competent employees to make managerial decisions;
• Policies and procedures that emphasize the assurance client’s commitment to fair financial reporting;
• Internal procedures that ensure objective choices in commissioning non-assurance engagements; and
• Corporate governance structure.

SAFEGUARDS WITHIN THE FIRM’S OWN SYSTEMS AND PROCEDURES

• Removing individual from assurance team when his financial interest/relationship create threat to
independence;
• Involving another firm to re-perform the non-assurance service to the extent necessary to enable it to
take responsibility for that service;
• Involving another firm to perform or re-perform part of the assurance engagement; and
• Policies and procedures to ensure members of the team do not make, or assume responsibility for,
management decisions for the assurance client.

WHAT TO DO WHEN THERE ARE INADVERTENT VIOLATIONS OF INDEPENDENCE RULES?

Sec. 8.18 of the Code of Ethics: “…There may be occasions when a firm, a network firm or an individual
inadvertently violates this section. If such an inadvertent violation occurs, it would generally not
compromise independence with respect to an assurance client provided the firm has appropriate quality
control policies and procedures in place to promote independence and, once discovered, the violation is
corrected promptly and any necessary safeguards are applied.”

SECTION 9 – PROFESSIONAL COMPETENCE AND RESPONSIBILITIES REGARDING THE USE OF NON-

ACCOUNTANTS
• Use of experts such as lawyers, actuaries, engineers, geologists, valuers; and
• Ensure that requirements of ethical behavior are observed by the experts engaged by:
- Asking individuals to read the appropriate ethical code
- Requiring written confirmation of understanding of the ethical requirements; and
- Providing consultation when potential conflicts arise.

SECTION 10 – FEES
• Professional fees – fair reflection of the value of professional services performed, takes into account:
- Skill and knowledge required;
- Level of training and experience;
- Time spent by each person engaged; and
- Degree of responsibility performing services entails.
• Commissions – payment and receipt not allowed.

SECTION 11 – ACTIVITIES INCOMPATIBLE WITH THE PRACTICE OF PUBLIC ACCOUNTANCY

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

SECTION 12 – CLIENT MONIES

• Should not hold client’s monies if there is reason to believe that they were obtained from, or are to be
used for, illegal activities.
• If entrusted with monies belonging to others, should:
- Keep such monies separately from personal or firm monies;
- Use such monies only for the purpose for which they were intended; and
- Be ready at all times to account for those monies to any persons entitled to those monies.

SECTION 13 – RELATIONS WITH OTHER PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE

• Services or advice of professional accountant having special skills may be sought in one or other of the
following ways:
- By the client
 • After prior discussion and consultation with the existing accountant;
• Specific request or recommendation of the existing accountant; and
•Without reference to the existing accountant.
- By the existing accountant with due observance of the duty of confidentiality
• Superseding another professional accountant in public practice.
- Need to communicate with predecessor to inquire if there are any reasons not to accept the
appointment.
- Extent of discussion of the affairs of the client with the incoming accountant depends on:
•Whether the client’s permission to do so has been obtained; and
• The legal or ethical requirements relating to such disclosure.
- Incoming accountant should treat in the strictest confidence, and give due weight to, any
information provided by the exiting accountant.
• Why communicate with the predecessor auditor?
- To protect a professional accountant in public practice from accepting an appointment in
circumstances where all the pertinent facts are not known;
- To protect the minority proprietors of a business who may not be fully informed of the
circumstances in which the change is proposed; and
- To protect the interests of the exiting accountant when the propose change arises from, or is
an attempt to interfere with, the conscientious exercise of the exiting accountant's duty to act
as an independent professional.

SECTION 14 – ADVERTISING AND SOLICITATION

• Not permitted
• What is permissible?
- Publicity is acceptable provided:
• It has as its object the notification to the public or such sectors of the public are
concerned, of matters of fact in a manner that is not false, misleading or deceptive;
• It is in good taste;
• It is professionally dignified; and
• It avoids frequent repetition of, and any undue prominence being given to the name
of the CPA in public practice.
• Examples of publicity activities that are acceptable:
- Appointment and awards;
- Professional accountants seeking employment or professional business;
- Directories;
- Books, articles, interviews, lectures, radio and TV appearances;
- Training courses, seminars, etc.;
- Booklets and documents containing technical information;
- Staff recruitment;
- Brochures and firm directories
- Stationery and nameplates
- Newspaper announcements
- Inclusion of name of the CPA in a document issued to client
- Anniversaries
- Websites

PART C- APPLICABLE TO EMPLOYED PROFESSIONALS

• Relevant to professional accountants working in industry, commerce, the public sector, or education.
SECTION 15 – CONFLICT OF LOYALTIES
• Loyalty to employer or to the profession?
- Normal priority is to support his or her organization’s legitimate and ethical objectives and the
rules and procedures drawn up in support of them.
• What does an employed professional cannot legitimately be required to do?
- Break the law;
- Breach the rules and standards of their profession;
- Lie to or mislead those acting as auditors to the employer; and
- Put their name to or otherwise be associated with a statement which materially misrepresents
the facts.
-Employed professional accountants owe a duty of loyalty to their employer as well as to the
profession and there may be times when the two are in conflict. An employee’s normal priority
should be to support his or her organization’s legitimate and ethical objectives and the rules and
procedures drawn up in support of them.

Differences in view about the correct judgment on accounting or ethical matters should normally be
raised and resolved within the org, initially with the employee’s immediate superior and possibly
thereafter, where disagreement on ethical issue remains, with higher levels of management or non-
executive directors.

If employed accountants cannot resolve any material issue involving a conflict between their employers
and their professional requirements, they may, after exhausting all other relevant possibilities, have no
other recourse but to consider resignation.

SECTION 17 – PROFESSIONAL COMPETENCE

• When asked to undertake significant tasks for which he or she has not had sufficient specific training
or experience, he 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

• The professional accountant is expected to present financial information fully, honestly and
professionally and so that it will be understood in its context.
• Financial and non-financial information should be maintained in a manner that describes clearly the
true nature of business transactions, assets or liabilities, and classifies and records entries in a timely
and proper manner.

From the lecture of Atty. Eranio L. Punsalan, Chairman, Ethics Board, Philippine Institute of Certified Public Accountants; “The New Code of
Ethics for CPA’s”; 20 March 2007.