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Overview

• Part 1 - Changes from the 2016 edition IESBA Code of Ethics to the
International Code of Ethics for 2018 edition

Professional Accountants
• Part 2 – the International Code of Ethics for Professional Accountants,
Including International Independence Standards including International Independence Standards, 2018 edition
2018 Edition
• Part 3 – Implementation in the Philippines
November 22, 2018

About the New Code

Why embrace The Code of Ethics? Institute of Solidarity in Asia (ISA) Awards

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About the New Code

• Renamed to: The International Code of Ethics for Professional
Accountants (including International Independence Standards)

Strengthened
Strengthened long
Enhanced and more Enhanced safeguards provisions on
association provisions
prominently featured provisions aligned to preparing and
(Rotation of Audit
conceptual framework threats presenting
Partners)
information

Changes from the 2016 edition IESBA New provisions

Applicability of
relevant PAIB
Strengthened
addressing pressure to NOCLAR provisions regarding
Code of Ethics to the 2018 edition breach the FPs
provisions to PAPPs
clarified
inducements

Part 1
New guidance relating
to professional
judgment and
professional
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About the New Code About the New Code

Overview of the Code
• Commerce, industry or service
• The public sector
• Education
• The not-for-profit sector
• Regulatory or professional bodies
Complying with the Code
• As professionals, all CPAs should comply with the Code
• In case of conflict between the provisions of the Code and of laws and
regulations, the latter shall prevail
• Breaches of the Code
• PA should:
• Take action as soon as possible; and
• Determine whether to report the breach to relevant parties

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About the New Code About the New Code

Complying with the Code Overarching Requirements
Requirements Application Material
•Imposes an
obligation to comply
Fundamental
shall with the specific
Independence
provision
Principles
•Conditional wording •Helps PA to understand
how to apply the
•Exception to conceptual framework to
requirement or to
may take a particular
a particular set of
circumstances and to
action specific requirements
The
•Possibility of a matter Conceptual
might arising, an event
occurring or a course of
Framework
action being taken

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Fundamental Principles

Integrity

• Standard behavior expected of a PA

Objectivity

Fundamental Principles and Professional

• PA should comply with each fundamental
principles
Conceptual Framework
Competence
and Due Care

Part 2
Confidentiality

Professional
11
Behavior 12

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Fundamental Principles Fundamental Principles

straightforward
Integrity
and honest • PAs shall not be associated with Integrity

information that:
• PAs, shall not undertake a
• Are materially false Free from bias,
professional activity if a circumstance
conflict of interest
Objectivity
• Provided recklessly and undue
Objectivity or relationship unduly influences the
influence accountant’s professional judgment
• Omits required data that regarding the activity.
Professional
Competence
obscures the information Professional
Competence
and Due Care and Due Care
• PAs, must take steps to disassociate
from information stated above.
Confidentiality Confidentiality

Professional Professional
Behavior 13
Behavior 14

Fundamental Principles Fundamental Principles

Integrity Integrity
• Alert to possibility of inadvertent disclosure
• Maintain confidentiality within the firm and
• Those working under the PAs
those disclosed by current and prospective
supervision must be competent to
clients
Objectivity do the work Objectivity
• Not disclose any information acquired through
professional relationships unless there is legal
Professional Professional knowledge • PAs must inform the users of Professional or professional duty to do so even when such
Competence and skill and Diligence professional services of the
Competence
and Due Care and Due Care relationships have ended
in the Practice
limitations inherent in the service
• Ensure that personnel under the PAs
Respect supervision also maintains confidentiality
Confidentiality confidentiality Confidentiality
of information

Professional Professional
Behavior 15
Behavior 16

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Fundamental Principles About the New Code

The Enhanced Conceptual Framework
Integrity
• What is it?
• Avoid conduct that may Use the
discredit the profession reasonable and • Dedicated provisions that apply to
informed third all PAs, in all circumstances,
Objectivity party test
Exercise when dealing with ethics and
• In Marketing, PAs must be professional independence issues
honest and shall not make: Addressing Identifying judgment
Professional
Competence
Threats Threats • Why have a conceptual framework?
and Due Care • Exaggerated claims
• Because establishing an
• Disparaging references
exhaustive list of facts and
Confidentiality Evaluating circumstances that might trigger
Threats ethics and independence issues is
impracticable
Professional Comply with laws
Behavior Remain alert for new
and regulations 17
information and changes in facts
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and circumstances

General General

Conceptual Framework Conceptual Framework

• Consulting with the following in case of conflicts in complying with
the Fundamental Principles • PAs are encouraged to Document the following in
• Others within the firm or employing organization case of conflicts:
• TCGW • Substance of the issue;
• A professional body • Details of any discussions;
• A Regulatory body • Decisions made; and
• Legal Counsel • Rationale of the decisions made.

• CAVEAT: Such consultation does not relieve the Accountant from

responsibility to exercise Professional Judgment to resolve the
conflict

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PAIB
Applying the Conceptual Framework

• Professional accountant in business

• Employee
• Contractor

Professional Accountants in Business • Partner

• Director (executive or non-executive)
(PAIB) • Owner – manager
Part 3 • Volunteer of an employing organization

• Applies also to an individual who is a PAPP when performing professional

activities pursuant to the accountant’s relationship with the firm.
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PAIB
PAIB
Applying the Conceptual Framework Applying the Conceptual Framework

• For example: • Senior PAs are expected to

encourage and promote ethics-
• When selecting vendor for the firm when an immediate family member of the based culture in the
PA might benefit financially from the contract organization. Examples include
• Preparing or presenting financial information for the PA’s client or firm • Ethics education and
(section 220 will apply)
training program
• Being offered an inducement such as being regularly offered complimentary
• Ethics and whistle-blowing
tickets to attend sporting events by a supplier of the firm (section 250 will
policies
apply)
• Facing pressure from an engagement partner to report chargeable hours • Policies and procedures
inaccurately for a client engagement (section 270 will apply) designed to prevent non-
compliance with laws and
regulations
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Conceptual Framework PAIB – Applying the Conceptual Framework

Identifying Threats
Threats to compliance with the fundamental principles
• Holding financial interest in, or
Self-interest
threats receiving a loan or guarantee form,
Self-interest
the employing organization
threats
• Participating in incentive
Intimidation Self-review compensation arrangements
Intimidation Self-review threats threats offered by the employing
threats threats THREATS organization
THREATS • Having access to corporate assets
for personal use

Familiarity Advocacy • Being offered a gift or special

Familiarity Advocacy threats threats treatment from a supplier of the
threats threats employing organization

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PAIB – Applying the Conceptual Framework PAIB – Applying the Conceptual Framework
Identifying Threats Identifying Threats
• Determining the appropriate
Self-interest Self-interest
threats treatment for a business threats
combination after performing the
feasibility study supporting the • Having the opportunity to
purchase decision manipulate information in a
Intimidation Self-review Intimidation Self-review prospectus in order to obtain
threats threats • Having prepared the original data threats threats favorable financing
THREATS used to generate records that are THREATS
the subject matter of the assurance
engagements

Familiarity Advocacy Familiarity Advocacy

threats threats threats threats

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PAIB – Applying the Conceptual Framework PAIB – Applying the Conceptual Framework
Identifying Threats Identifying Threats
• A PA or immediate or close family
• Being responsible for the financial member facing the threat of dismissal
Self-interest Self-interest or replacement over:
threats reporting of the employing threats
organization when an immediate • a disagreement about the
or close family member employed application of an accounting
by the organization makes principle or way a financial
Intimidation Self-review decision that affect the financial Intimidation Self-review
information is to be reported
threats threats threats threats
reporting of the organization
THREATS THREATS • An individual attempting to
• Having long association with influence the decision-making
individuals influencing business process of the PA (e.g. with regard to
decisions the awarding of contracts or
Familiarity Advocacy Familiarity Advocacy application of an accounting
threats threats threats threats principle)

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PAIB – Applying the Conceptual Framework PAIB – Applying the Conceptual Framework
Evaluating Threats Evaluating Threats
Level of Threat Impacts The Working Environment and Employing Organization Level of Threat Impacts The Working Environment and Employing Organization

Examples: Examples:

• Leadership stresses Ethical Behavior to be observed. • Leadership stresses Ethical Behavior to be observed.
• Employees are empowered and encouraged to communicate ethics • Employees are empowered and encouraged to communicate ethics
issues issues
• Quality of employee performance is monitored Threat at acceptable level – • Quality of employee performance is monitored PA must resign when:
using the third party test would • Threats cannot be eliminated
• Internal controls for systems of oversight are strong • Internal controls for systems of oversight are strong
likely conclude that the PA • Safeguards are not available
• Recruiting high caliber and competent personnel complies with fundamental • Recruiting high caliber and competent personnel
• Timely communication of policies and procedures principles • Timely communication of policies and procedures
• Ethics and code conduct policies • Ethics and code conduct policies

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PAIB PAIB
Preparation and Presentation of Information Preparation and Presentation of Information
Intended not to misled Use of discretion should NOT:
Prepared and Exercise professional
nor to influence
presented in judgment to represent • Be used with the intention of misleading others; or
contractual or
accordance with facts accurately and
regulatory outcomes • To influence contractual or regulatory outcomes inappropriately.
relevant framework completely
inappropriately

Describe clearly the Not omit anything with

Classify and record
true nature of the intention or rendering
information on a
business transactions the information
timely manner
and activities misleading

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Other Substantive Revisions – PAIBs

Other Substantive Revisions – PAIBs
Preparation and Presentation of Information Pressure to Breach Fundamental Principles
• More comprehensive provisions addressing PAIBs’ responsibilities when • Prohibition on allowing pressure from others to result in a breach of
preparing or presenting information fundamental principles
• Prohibition on exercising discretion when preparing or presenting • Prohibition on placing pressure on others that would lead them to breach
information with intent to mislead or inappropriately influence contractual fundamental principles
or regulatory outcomes • Guidance to assist in navigating situations involving pressure
• Enhanced guidance to assist PAs in disassociating from misleading
• Practical examples to illustrate different situations in which pressure might
information
arise

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PAIB PAIB
Preparation and Presentation of Information Preparation and Presentation of Information

Addressing information that is or might be misleading Addressing information that is or might be misleading
If all options have been
exhausted and still the
Discuss the Request to have
information isKnow the internal
misleading:
Discuss the concern Request to have the Know the internal Consult with legal Consult with legal
counsel, auditors concern with the information policies and
Disassociate counsel, auditors
corrected or with the information
with appropriate information corrected policies and
procedures to or professional appropriate level procedures to
level of management or inform users of or professional
or TCWG information address the matter body if necessary of management or resign
inform users from
of the address
organization
the
body if necessary
or TCWG information matter

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Other Substantive Revisions – PAIBs and PAPPs Other Substantive Revisions – PAIBs and PAPPs
Inducements, including Gifts and Hospitality Inducements, including Gifts and Hospitality
PAs are expected to comply
• Clarification about appropriate boundaries for offering and with laws and regulations
accepting of inducements • that prohibit
Clarification the offeringboundaries
about appropriate or for offering and accepting of
accepting of inducements
inducements
• Prohibitions on offering or accepting inducements with intent to such as those related to
• Prohibitions on offering or accepting inducements with intent to improperly
improperly influence behavior bribery and corruption
influence behavior
• Application of CF when no actual or perceived intent to • Application of CF when no actual or perceived intent to improperly influence
The Code is requiring us to
improperly influence behavior behavior
apply an intent test where
• PAIB and PAPP provisions strengthened • PAIB and PAPP provisions strengthened inducements are not
• prohibited
Conforming changes to independence provisions regarding giftsby law or
and
• Conforming changes to independence provisions regarding gifts hospitality regulation, but apply the
and hospitality conceptual framework in all
circumstances
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PAIB PAIB
Responding to Non-Compliance With Responding to Non-Compliance With
Laws and Regulations Laws and Regulations
Responsibility of All Professional Accountants Responsibility of Senior PAIB (i.e. Directors, Officers and etc)
• Accountants shall consider protocols and procedures under the entity • Obtaining an understanding of the matter

• Take steps on a timely basis to determine the nature of the matter and • Nature of non-compliance;
the potential harm of non-compliance with the users of information. • Application of relevant laws and regulations; and
• Assessment of potential consequences to stakeholders

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PAIB PAIB
Responding to Non-Compliance With Responding to Non-Compliance
Laws and Regulations With Laws and Regulations
• Documentation
Addressing NOCLAR
• The matter
• The results of discussions with the accountant’s
superiors, if any, and those TCWG and other parties
• How’s the accountant’s superiors, if any, and those
Comply with
applicable laws Seek to deter the charged with governance have responded to the
Communicate the Have the consequences commission of the non-
matter with
and regulations
of non-compliance
Reduce the risk of matter.
governing the re-occurrence; compliance if it has not
TCWG; reporting of non- rectified; yet occurred. • Those courses of action the accountant considered,
compliance
the judgments made and the decisions that were
taken.

.
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Other Substantive Revisions Effective Date

Professional Judgment and Professional Skepticism
• New guidance
• For all PAs to emphasize the importance of obtaining an
understanding of facts and circumstances when exercising
professional judgment
• For auditors and assurance practitioners that explains how
compliance with the fundamental principles supports the
exercise of professional skepticism
• 2018 Code (including safeguards-related changes)
• Parts 1, 2 and 3 : effective as of June 15, 2019
• Part 4B : Audits and reviews of financial statements for periods beginning on or
after June 15, 2019
• Part 4B: For assurance engagements with respect to subject matter covering
periods: periods beginning on or after June 15, 2019; otherwise effective as of June
15, 2019
• NOCLAR
• Disclosure of instances of non-compliance with laws and regulations (NOCLAR) to
the appropriate authority shall be implemented with the issuance of the pertinent
rules and guidelines by the appropriate authorities

• Long Association – refer to discussion on Long Association

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Independence – Audit and Review

Engagements
INDEPENDENCE : Objectivity and Integrity

Independence in appearance
Independence of
• avoidance of facts and circumstances
mind
Professional Accountants in Public that are so significant that a reasonable
and informed third party would be

Practice (PAIPP)
likely to conclude that
• State of mind that permits
a firm’s, or an audit team
the expression of a
member’s, integrity,
conclusion without being
Part 4 objectivity or professional
affected by influences that
skepticism has been
compromise professional
compromised
judgment
• Act with integrity, and exercise
objectivity and professional
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Independence – Audit and Review Engagements Independence – Audit and Review Engagements
Long Association of Personnel (including Long Association of Personnel (including
partner rotation) with an Audit Client - PIE partner rotation) with an Audit Client - PIE
Audit Clients that are Public Interest Entities (PIE) Audit Clients that are Public Interest Entities (PIE)
• An individual shall not act in any of the following roles, or a combination of • An individual shall not act in any of the following roles, or a combination of
such roles, for more than 7 cumulative years such roles, for more than 7 cumulative years
• Engagement partner • Engagement partner
• Individual appointed as responsible for the engagement quality control • Individual appointed as responsible for the engagement quality control
review review
• Any other key audit partner role • Any other key audit partner role

e.g. audit partners responsible for SERVICE AT A PRIOR FIRM

significant subsidiaries or divisions
The length of the relationship shall include time while the individual was a
key audit partner on that engagement at a prior firm
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Independence – Audit and Review Engagements Independence – Audit and Review Engagements
Long Association of Personnel (including Long Association of Personnel (including
partner rotation) with an Audit Client partner rotation) with an Audit Client - PIE
Examples of safeguards and actions to eliminate the threats or reduce
it to an acceptable level
Exception to the 7 year rotation
• Rotating the individual off the audit team
• Changing the role of the individual or the nature and extent of the tasks the
individual performs
Unforeseen events A firm has only a few
• Have an appropriate reviewer who was not an audit team member review the
work of the individual. people with the necessary
• Regular independent internal or external quality reviews - permitted to serve an knowledge and experience
additional year as a to serve as a key audit
key audit partner partner

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Independence – Audit and Review Engagements Other Substantive Revisions

Long Association of Personnel (including Long Association
partner rotation) with an Audit Client - PIE
Role Time-on period Cooling-off period Rotation and cooling-off period
Engagement partner 7 5 established by regulators:

Individual responsible for the 7 3 2016 Code SEC BSP IC CDA

engagement quality control 7-year time on: all KAPs Time-on 5 5 5 5
review
2-year cooling-off: all KAPs Cooling-off 2 2 2 2

Other key audit partners 7 2

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Other Substantive Revisions – Long Association Independence – Audit and Review Engagements
Restrictions on Activities During Cooling-off Long Association of Personnel (including
partner rotation) with an Audit Client - PIE
• Continuing prohibition on consulting with engagement team or client
regarding technical or industry-specific issues, transactions or events An audit client becomes a PIE
• take into account the length of time an individual has served the audit client as
• New restrictions: a key audit partner (KAP) before the client becomes a public interest entity

• Acting as “client relationship” partner

No. of yrs. served as KAP before
• Undertaking any other role or activity (including providing NAS) that would
client becomes PIE
result in individual having significant or frequent interaction with senior
management or TCWG, or directly influencing outcome of audit ≥ 5 cumulative years
≤ 6 cumulative years
No. of yrs. the individual may
continue to serve before rotation
7 years less the number
of years already served
2 more years

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Independence – Audit and Review Engagements Independence – Audit and Review Engagements
Long Association of Personnel (including Long Association of Personnel (including
partner rotation) with an Audit Client - PIE partner rotation) with an Audit Client - PIE
Shorter Cooling-off Period Established by Law or Regulation
• Where a legislative or regulatory body has established a cooling-off period for Transition Provision for Shorter Cooling-off Period Established by
an engagement partner of less than 5 consecutive years, the higher of that Law or Regulation
period or 3 years may be substituted for the cooling-off period of 5 consecutive • 3 years may be substituted for the cooling-off period of 5 consecutive years
years
• This transition covers audits with periods beginning on or after December
• Provided time-on period does not exceed 7 years
15, 2018 to audits with periods beginning prior to December 15, 2023

Shorter cooling-off period established by

PH regulators

SEC BSP IC
2 2 2
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Independence – Audit and Review Engagements Independence – Audit and Review Engagements
Long Association of Personnel (including Long Association of Personnel (including
partner rotation) with an Audit Client - PIE partner rotation) with an Audit Client - PIE
Transition Provision – Examples (applicable to engagement partners only) Transition Provision – Examples (applicable to engagement partners only)
Example 1 Example 2

Audit of FS beginning January 1 and ending December 31 Audit of FS beginning January 1 and ending December 31
Transition Period Transition Period

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 CO 1 CO 2 CO 3 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 CO 1 CO 2 CO 3 CO 4 CO 5 Reinstated
as EP

• 3 years may be substituted for the cooling-off period of 5 consecutive years for EP • Applying the 7 cumulative years for audits of financial statements for periods
since the time-on period did not exceed 7 years beginning on or after December 15, 2018, cooling off period starts in 2023.
• The 3 years cooling-off period can be applied to audits of FS with periods beginning • However, the 3 years may be substituted cooling-off period shall have effect
prior to December 15, 2023. only for audits of FS for periods beginning prior to December 15, 2023. Thus,
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on December 15, 2023 and thereafter, the 5 year cooling off period should be 60

applied.

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Independence – Audit and Review Engagements Independence – Audit and Review Engagements
Long Association of Personnel (including Long Association of Personnel (including
partner rotation) with an Audit Client - PIE partner rotation) with an Audit Client - PIE
Transition Provision – Examples (applicable to engagement partners only) Transition Provision – Examples (applicable to engagement partners only)
Example 3 Example 4

Audit of FS beginning January 1 and ending December 31 Audit of FS beginning December 1 and ending November 30
Transition Period Transition Period

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Yr 4 Yr 5 CO CO CO Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 5 consecutive years Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 CO 1 CO 2 CO 3 Reinstated as EP

1 2 3 cooling-off shall be
applied

• 3 years cooling-off period apply to audits with periods beginning on or after
December 15, 2018, hence cooling-off of 3 consecutive years shall be completed
before EP is reinstated in 2021.
• The next cooling-off period will be for 5 consecutive years.
• 3 years cooling-off period is applicable up to FS ending November 30, 2024, the
last year for the transition, since the beginning period is December 1, 2023
which prior to the required transition provision (effective only for audits of FS
for periods beginning prior to December 15, 2023)
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Independence – Audit and Review Engagements Implementation of the 2018 Code

Long Association of Personnel (including
partner rotation) with an Audit Client - PIE IFAC
PICPA Board
Transition Provision – Examples (applicable to engagement partners only) Final
pronouncements in To endorse to
Example 5 BOA the Note: Deferral of
April 2018 the external
Published the Code adoption of
reporting of
on August 14, 2018 2018 Code
Audit of FS beginning December 1 and ending November 30 NOCLAR
Transition Period
Effective June
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 15, 2019, with
PICPA Ethics long
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 CO CO CO CO CO Reinstated as EP association
Committee BOA
1 2 3 4 5 transition
To recommend to provisions
• 5 years cooling-off shall be applied for audit of FS beginning December 1, 2024 and PICPA Board Adopt as Code of
ending November 30, 2025 onwards approval to Ethics for Professional
endorse adoption Accountants in the PH
of the Code
SEC revised SRC Rule 68 will include reference to the Code of Ethics for
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Professional Accountants in the PH particularly on rotation provisions
BSP will als refer to the revised Code of Ethics

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About the New Code Code of Ethics for Professional Accountants in the Philippines
Why embrace The Code of Ethics? COMMITMENT
TO SOCIETY –
PROMOTE
“A distinguishing mark of the accountancy profession is PARTICIPATE IN
“Do something today that our futureFAIRNESS
NATION BUILDING
self will AND
be proud of.” HONESTY IN
its acceptance of the responsibility to act in the PROMOTE THE
public interest. A professional accountant’s We are blessed with opportunities to PROFESSION
COMPLIANCE
WITH LAWS
“make a
difference”.
responsibility is not exclusively to satisfy the needs of AND AND MORE…
REGULATIONS
an individual client or employing organization. Let us choose to do the right thing…
Promote
Therefore, the Code contains requirements and
application material to enable professional
Excellence NOW. PROTECT THE
PUBLIC
and INTEREST
accountants to meet their responsibility to act in the Integrity PROACTIVE IN
public interest.” SHAPING
GOVERNMENT
- IESBA Code, 100.1 A1 POLICIES
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FY2018-2019
PICPA Ethics Commitee
Gina Detera (PwC Philippines/Isla Lipana & Co.)
Lucy Lim-Chan (Ernest & Young / SGV & Co.)
Avis B. Manlapaz (Deloitte Philippines / Navarro Amper & Co.)
Clark Joseph C. Babor (BDO Roxas Cruz Tagle and Co.)
George V. Villaruz (Villaruz Villaruz & Co.)
Gladeys Jill A. Santos-Cua (JSC & Co., CPAs)
Ma. Isabel E. Comedia (Punongbayan & Araullo)
Ma. Gracia Casals-Diaz (KPMG / RG Manabat & Co)
Peter Tumanda (Reyes Diano Tumanda & Co., CPAs)
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