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8/22/2019 Accountancy Code of Ethics in the Philippines
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PART A: GENERAL APPLICATION OF THE
CODE PART B: PROFESSIONAL ACCOUNTANTS
IN PUBLIC PRACTICE
PART C: PROFESSIONAL ACCOUNTANTSIN BUSINESS
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Introduction and Fundamental Principles
Integrity
Objectivity
Professional Competence and Due Care
Confidentiality
Professional Behavior
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Introduction
Professional Appointment
Conflicts of Interest
Second Opinions Fees and Other Types of Remuneration
Marketing Professional Services
Gifts and Hospitality Custody of Client Assets
Objectivity–All Services
Independence– Assurance Engagements
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The Code of Ethics (A, B, and C)
Part A establishes the fundamental principles of ethics for professional accountants and provides aconceptual framework for applying those principles.
Parts B and C illustrate how the conceptualframework is to be applied in specific situations.
• Part B applies to professional accountants in
public practice. • Part C applies to professional accountants inbusiness.
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Conceptual Framework Approach
A conceptual framework requires a professionalaccountant to identify, evaluate and address
threats to compliance with the fundamental
principles, rather than merely comply with a set of
specific rules which may be arbitrary.
If threats to ethics are not clearly insignificant, a
professional accountant should apply safeguards
to eliminate the threats or reduce them to anacceptable level.
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Threats and Safeguards
Compliance with the fundamental principles maypotentially be threatened by a broad range of circumstances. Many threats fall into the following
categories:
Self-interest threats
Self-review threats
Advocacy threats Familiarity threats
Intimidation threats
Continuation…
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Self-Interest Threat
A Self-interest threat occurs as a result of the
financial or other interests of a professional
accountant or of an immediate or close family member;
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Self Interest Threats Circumstances
A financial interest in a client or jointly holding a financialinterest with a client.
Undue dependence on total fees from a client.
Having a close business relationship with a client.
Concern about the possibility of losing a client.
Potential employment with a client. Contingent fees relating to an engagement.
A loan to or from a client or any of its directors or officers.
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Self-Review Threat
Self-Review Threat occurs occur when a previous
judgment needs to be re-evaluated by the
professional accountant responsible for that judgment.
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Self-Review Threats Circumstances
The discovery of a significant error during a re-evaluation of thework of the auditor.
Reporting on the operation of financial systems after beinginvolved in their design or implementation.
Having prepared the original data used to generate records thatare the subject matter of the engagement.
A member of the team being, or having recently been, a director or officer of that client.
A member of the team being, or having recently been, employed
by the client in a position to exert direct and significant influenceover the subject matter of the engagement.
Performing a service for a client that directly affects the subjectmatter of the engagement.
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Advocacy Threat
An Advocacy Threat occurs when a professionalaccountant promotes a position or opinion to thepoint that subsequent objectivity may be
compromised.
Examples of circumstances that create advocacythreats :
Selling, underwriting or otherwise dealing in financial
securities or shares of a client; Acting as an advocate on behalf of a client inlitigation or disputes with third parties.
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Familiarity Threat
Fam il iari ty Threat occurs when, by virtue of a close
relationship with a client, its directors, officers or employees, an auditor becomes too sympathetic to
the client’s interests.
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Familiarity Threats Circumstances
Immediate family member or close family member who is adirector, officer, or influential employee of the client;
A member of the team having a close family member who, as
an employee of the client, is in a position to exert direct andsignificant influence over the subject matter of theengagement;
A former partner of the firm being a director, officer of theclient or an employee in a position of significant influence;
Long association of a senior member of the team with theclient
Acceptance of gifts or hospitality, unless the value is clearlyinsignificant, from the client, its directors, officers or employees.
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Intimidation Threat
Int imidat ion Threat occur when a professional
accountant may be deterred from acting objectively by
threats, either actual or perceived.
Examples of circumstances:
Being threatened with dismissal or replacement in
relation to a client engagement.Being threatened with litigation.
Being pressured to reduce inappropriately the extent
of work performed in order to reduce fees.
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Safeguards
Safeguards that may eliminate or reduce such threats
to an acceptable level fall into three broad categories:
◦ Safeguards created by the profession, legislation or
regulation;
◦ Safeguards within the client; and
◦
Safeguards within the firm’s own systems andprocedures.
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Safeguards created by the profession, legislation or
regulation
Educational, training and experience requirementsfor entry into the profession.
Continuing professional developmentrequirements.
Corporate governance regulations.Professional standards.
Professional or regulatory monitoring anddisciplinary procedures
External review by a third party of the reports,returns, communications or information producedby a professional accountant.
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Safeguards within the Client
When the client’s management appoints the firm, persons
other than management ratify or approve the appointment;
The client has competent employees to make managerialdecisions;
Policies and procedures that emphasize the client’s
commitment to fair financial reporting;
A corporate governance structure, such as an auditcommittee, that provides appropriate oversight and
communications regarding a firm’s services.
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Safeguards in the work environment
leadership that stresses the importance of independence and the
expectation that members of the teams will act in the public
interest.
Policies and procedures to implement and monitor quality control
of the engagements;
Documented independence policies regarding the identification of
threats to independence, the evaluation of the significance of
these threats and the identification and application of safeguardsto eliminate or reduce the threats, other than those that are clearly
insignificant, to an acceptable level;
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Resolution of Ethical Conflicts
If the matter remains unresolved, the professionalaccountant should consult with other appropriate personswithin the firm
Where a matter involves a conflict with, or within, anorganization, consult with those charged with governanceof the organization, such as the board of directors or theaudit committee.
If a significant conflict cannot be resolved, obtainprofessional advice from the relevant professional bodyor legal advisors.
If, after exhausting all relevant possibilities, the ethicalconflict remains unresolved, a professional accountantshould, where possible, refuse to remain associated withthe matter creating the conflict.
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Professional Appointment
Client Acceptance - consider whether acceptance
would create any threats to compliance with the
fundamental principles
Engagement Acceptance - agree to provide only
those services that the accountant is competent to
perform.
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Changes in a Professional Appointment
Before accepting an appointment involving services
that were carried out by another, the proposed auditor
should:
◦ Request permission from the client to contact former
auditor directly;
◦ Contact existing auditor before beginning audit.
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Information from Existing Auditor
Once the client permission is obtained, the existingauditor should provide information honestly andunambiguously.
If the proposed auditor is unable to communicate withthe existing auditor, the proposed auditor should tryto obtain information about any possible threats byother means such as through inquiries of third partiesor background investigations on senior management.
The existing auditor is no longer required to provideinformation in writing or regarding reasons not to takean audit.
Back to part b
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Conflicts of Interest
A professional accountant in practice should takereasonable steps to identify circumstances that could
pose a conflict of interest. Such circumstances maygive rise to threats to compliance with thefundamental principles
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THREAT:
THREAT TO PROFESSIONAL DUE CARE AND COMPETENCE
- not based on the same set of facts that were made
available to the existing accountant or auditor
-based on inadequate evidence
SAFEGUARDS:
Seeking client permission to contact the existingaccountant, describing the limitations surrounding any
opinion in communications with the client and providingthe existing accountant with a copy of the opinion.
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“Fees charged for assurance engagements should be a fairreflection of the value of the work involved and should takeinto account, among others:
(a) the skill and knowledge required for the type of workinvolved;
(b) the level of training and experience of the personsnecessarily engaged on the work;
(c) the time necessarily occupied by each person engagedon the work; and
(d) the degree of responsibility and urgency that the workentails.”
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THREAT:
SELF-INTEREST THREAT TO PROFESSIONAL COMPETENCE
AND DUE CARE
- The fee is too low so that a proper service or audit cannot beconducted-Undue dependence on total fees from a single client
SAFEGUARDS:
-Making the client aware of the terms of the engagement and , in
particular, the basis on which fees are charged and which servicesare covered by the quoted fee.-Assigning appropriate time and qualified staff to the task
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THREAT:SELF-INTEREST THREAT TO OBJECTIVITY
The significance of such threats will depend on factorsincluding:-The nature of the engagement
-The range of possible fee amounts
-The basis for determining the fee-Whether the outcome or result of the transaction is tobe reviewed by an independent third party
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SAFEGUARDS:
-And Advance written agreement with the client as to the basis
of remuneration.
-Disclosure to intended users of the work performed by theprofessional accountant in public practice and the basis of
remuneration.
-Quality control policies and procedures.
-Review by an objective third party of the work performed by the professional accountant inpublic practice.
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THREAT:SELF-INTEREST THREATS TO OBJECTIVITY AND PROFESSIONAL
COMPETENCE AND DUE CARE-where the client continues as a client of another professionalaccountant in public practice but requires specialist services notoffered by the existing accountant.
SAFEGUARDS:-Disclosing to the client any arrangements to pay a referral fee to another
professional accountant for the work referred.-Disclosing to the client any arrangements to receive a referral fee for
referring the client to another professional accountant in publicpractice.-Obtaining advance agreement from the client for commission
arrangements in connection with the sale by a third party of goods orservices to the client.
Back to part b
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THREAT:
SELF-INTEREST THREAT TO COMPLIANCE WITHTHE PRINCIPLEOF PROFESSIONAL BEHAVIOR
- An exaggerated claim for services offered,qualifications possessed or experience gained
-Make disparaging references or unsubstantiated
comparisons to the work of others- Improper use of the CPA logo
Back to part b
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THREAT:
SELF-INTEREST THREATS TO OBJECTIVITY
- If the gift from a client is accepted- If the gift or hospitality becomes a form of bribery inreturn for favours (this is also a criminal offense)
SAFEGUARDS:
-A professional accountant in public practice shouldnot accept such an offer.
Back to part b
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THREAT:
SELF-INTEREST TO PROFESSIONAL BEHAVIOR AND MAY BE A SELF-INTEREST TO OBJECTIVITY ARISING FROM HOLDING CLIENTS ASSET
- The accountant intermingles client and firm monies
- The accountant has not complied with the law
regarding the holding of client assets
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SAFEGUARDS:
(a) Keep such assets separately from personal or firmassets; and
(b) Use such assets only for the purpose for which they
are intended; and
(c) At all times, be ready to account for those assets, andany income, dividends or gain
generated, to any persons entitled to such accounting;and
(d) Comply with all holding of and accounting for such
assets. Back to part b
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THREAT:THREAT TO OBJECTIVITY
Examples of potential threats include:- A close family friend is an employee of the client- The auditor went to school with the client managing director
SAFEGUARDS:-Withdrawing from the engagement team.
-Supervisory procedures.-Terminating the financial or business relationship giving rise tothe threat.-Discussing the issue with higher levels of management withinthe firm.
-Discussing the issue with those charged with governance of theclient.
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Requires : (a) Independence of mind – the states of mind that permits the
provision of an opinion without being affected by inf luences
that compromise professional judgment, allowing an individual
to act with integrity, and exercise objectivity and professional judgment
(b) Independence in appearance – the avoidance of facts and
circumstances that are so significant a reasonable and informed
third party, having knowledge of all relevant information, including any safeguards applied, would reasonably conclude a
firm’s, or a member of the assurance team’s, integrity,
objectivity or professional skepticism had been compromised.
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Network
A larger structure:(a) That is aimed at co-operation, and
(b) That is clearly aimed at profit or cost sharing or sharescommon ownership, control or management, commonquality control policies and procedures, commonbusiness strategy, the use of a common brand-name, or asignificant part of professional resources.
Network firm- A firm or entity that belongs to a network.
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When the audit client is a listed entity, auditclient will always
include its related entities.
o Those Charged with
Governance
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the member shall document the nature of the threatand the safeguards in place or applied that reduce thethreat to an acceptable level
the member shall document the nature of the threatand the rationale for the conclusion.
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The engagement period starts when the audit team
begins to perform audit services. The engagementperiod ends when the audit report is issued.
o Mergers and Acquisitions
• An entity becomes a related entity of an auditclient, the firm shall identify and evaluateprevious and current interests and relationships
with the related entity that, taking into accountavailable safeguards, could affect its independenceand therefore its ability to continue the auditengagement after the effective date of the merger
or acquisition.
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Assertion-based Assurance
Engagements- The members of the assurance team and the firmshall be independent of the assurance client (theparty responsible for the subject matter information,
and which may be responsible for the matter).
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-The members of the assurance team and the firmshall be independent of the assurance client.
• Reports that Include a Restriction on
Use and Distribution
(a) are knowledgeable as to the purpose, subject matter
information and limitations of the report
(b) explicitly agree to the application of the modifiedindependence requirements.
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The materiality of the subject matter information (orof the subject matter) for which the particularresponsible party is responsible
The degree of public interest associated with theengagement.
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The firm shall determine whether any threats toindependence are created by
Financial or business relationships with the assuranceclient during or after the period covered by the subjectmatter information but before accepting the assuranceengagement;
Previous services provided to the assurance client.
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PROFESSIONAL
ACCOUNTANTS
IN BUSINESS
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Section 300 Introduction
Section 310 Potential Conflicts
Section 320 Preparation and Reporting of
Information Section 330 Acting with Sufficient Expertise
Section 340 Financial Interests
Section 350 Inducements
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•PROFESSIONAL •RESPONSIBILITIES
•POSITION •
THREATS •SAFEGUARDS
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Person formally certified by aprofessional body of belonging to aspecific profession by virtue of having
completed a required course of studiesand/or practice.And whose competence can usually be
measured against an established set ofstandards.
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Prepare and report financial and otherinformation, which both their employing organizations and third parties may rely on.
Provide effective financial management andcompetent advice on a variety of business-related matters.
To further the legitimate aims of their
employing organization.
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POSITION
• salaried employee• a partner
• director (whether executive or non-
executive)• an owner manager
• a volunteer
• working for one or more employingorganization
• Senior position
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Senior Position
• A professional accountant in business often
holds a senior position within an
organization.
• The more senior the position, the greater will
be the ability and opportunity to influence
events, practices and attitudes.
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THREATS
• Self-interest
• Self-review
• Advocacy
• Familiarity
• Intimidation
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SAFEGUARDS
• Safeguards created by
the profession,
legislation or regulation
• Safeguards in the work
environment.
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Potential Conflicts
• A professional accountant in business has a
professional obligation to comply with the
fundamental principles. There may be times,
however, when their responsibilities to anemploying organization and the professional
obligations to comply with the fundamental
principles are in conflict.
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Potential Conflicts
• As a consequence of responsibilities to an
employing organization, a professional
accountant in business may be under pressure
to act or behave in ways that could directly orindirectly threaten compliance with the
fundamental principles. Such pressure may be
explicit or implicit; it may come from asupervisor, manager, director or another
individual within the employing organization.
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Pressure• Act contrary to law or regulation.
• Act contrary to technical or professional standards.
• Facilitate unethical or illegal earnings management strategies.
• Lie to, or otherwise intentionally mislead (including misleading by
remaining silent) others, in particular:
o The auditors of the employing organization; oro Regulators.
• Issue, or otherwise be associated with, a financial or non-financial report
that materially misrepresents the facts, including statements in
connection with, for example:
o The financial statements;
o Tax compliance;
o Legal compliance; or
o Reports required by securities regulators.
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SAFEGUARDS• Obtaining advice where appropriate
from within the employing
organization, an independent
professional advisor or a relevantprofessional body.
• The existence of a formal dispute
resolution process within theemploying organization.
• Seeking legal advice.Back to part c
Preparation and Reporting of
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Preparation and Reporting of
Information
• INFORMATION - include financial ormanagement information
o Describes clearly the true nature of business transactions,assets or liabilities;
o Classifies and records information in a timely and propermanner
o Represents the facts accurately and completely in allmaterial respects.
• A professional accountant in business should
PREPARE and/or PRESENT such informationo fairly
o honestly
o in accordance with relevant professional standards
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Acting With Sufficient Expertise
• Expert
- Professional who has acquired
knowledge and skills through studyand practice over the years, in a
particular field or subject, to the extent
that his or her opinion may be helpfulin fact finding, problem solving, or
understanding of a situation.
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Acting With Sufficient Expertise
• the Professional Accountant in business
– has, or can obtain, sufficient specific training or
experience;
– should not intentionally mislead an employer as tothe level of expertise or experience possessed;
– nor should a professional accountant in business
fail to seek appropriate expert advice and
assistance when required.
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Financial Interests
• is anything of monetary value, including, but not
limited to, salary, consulting fees, honoraria,
equity interests (e.g., stocks, stock options or
other ownership interests), interests in real orpersonal property, dividends, royalties, rent,
capital gains, intellectual property (e.g., patents,
copyrights and royalties from such rights.
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Financial Interests
• Professional accountants in business may havefinancial interests, or may know of financialinterests of immediate or close family members,that could, in certain circumstances, give rise tothreats to compliance with the fundamentalprinciples.
• Nevertheless a professional accountant in
business should neither manipulate informationnor use confidential information for personalgain.
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INDUCEMENT
• An advantage or benefit that precipitates a particular action on the part of an
individual.
• A professional accountant in business or animmediate or close family member may be
offered an inducement. Inducements may
take various forms, including gifts,hospitality, preferential treatment and
inappropriate appeals to friendship or
loyalty.
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Receiving Offers
• A professional accountant in business should assess the risk
associated with all such offers and consider whether the
following actions should be taken:
(a) Where such offers have been made, immediately inform
higher levels of management or those charged withgovernance of the employing organization;
(b) Inform third parties of the offer – for example, a professional
body or the employer of the individual who made the offer; a
professional accountant in business should, however, considerseeking legal advice before taking such a step; and
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Receiving Offers
(c) Advise immediate or close family members of relevant threats and safeguards where they arepotentially in positions that might result in offersof inducements, for example as a result of theiremployment situation; and
(d) Inform higher levels of management or thosecharged with governance of the employing
organization where immediate or close familymembers are employed by competitors orpotential suppliers of that organization.
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Making Offers
• A professional accountant in business may be in a
situation where the professional accountant in
business is expected to, or is under other pressure
to, offer inducements to subordinate the judgment
of another individual or organization, influence a
decision-making process or obtain confidential
information.
• However a professional accountant in businessshould not offer an inducement to improperly
influence professional judgment of a third party.
Back to part c
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