Setting Up and Maintaining an Accounting Practice

Objectives
▪ Identify and be familiar with the major organizations that affect the public
accounting profession’s environment. (Overview of the International and
Philippine Accounting Profession – Part 1)

▪ Understand the auditing standards established by both Philippines and

international standard setters. (Preface to International and Philippine
Standards – Part 2)

▪ Discuss the Philippine Framework for Assurance Engagement and

Philippine Standards on Auditing. (Framework for AE and PSA – Part 3)

Overview of the International and

Philippine Accounting Profession

International Accounting Profession

International Scene – IFRS Foundation and IASB

The diagram below illustrates the organizational structure of the standard setting bodies.

International Scene (cont’d)

The Monitoring Board is a group of capital market authorities and provides formal link
between the Trustees and public authorities in order to enhance the public
accountability of the IFRS Foundation.

The International Financial Reporting Standards (IFRS) Foundation is a not-for-profit

international organization responsible for developing a single set of high-quality, global
accounting standards, known as IFRS Standards. IFRS Standards are set by the IFRS
Foundation’s standard-setting body, the IASB.

The International Accounting Standards Board (IASB) is the independent standard-

setting body of IFRS Foundation responsible for the development and publication of
IFRS and for approving Interpretations of IFRS as developed by the IFRS
Interpretations Committee.

International Scene (cont’d)

The Trustees of the IFRS Foundation are responsible for the governance and oversight
of the IASB, including the due process for the development of the accounting standards.

The IFRS Advisory Council provides advice and counsel to the Trustees and the Board,
whilst the Board also consults extensively with a range of other standing advisory bodies
and consultative groups.

The Accounting Standards Advisory Forum (ASAF) provides an advisory forum in

which members can constructively contribute towards the achievement of the IASB’s
goal of developing globally accepted high-quality accounting standards.

The IFRS Interpretations Committee is the interpretative body of the International

Accounting Standards Board, which reviews implementation issues.

International Scene – IFRS Foundation and IASB

The diagram below illustrates the international organizations that supports the
international accounting standards.

International Federation of Accountants (IFAC)

is the global organization for the accountancy profession dedicated to
serving the public interest by strengthening the profession and contributing
to the development of strong international economies.

IFAC is comprised of over 175 members and associates in more than 130
countries and jurisdictions, representing almost 3 million accountants in
public practice, education, government service, industry, and commerce.

IFAC has issued seven (7) Statements of Membership Obligations (SMOs),

which are meant to assists members like PICPA in ensuring high
quality performance by professional accountants.

SMO 1 includes the guidance on the design of the Quality Assurance Review,
(QAR), the review cycle, team composition and procedures, reporting,
corrective and disciplinary actions, consideration of public oversight and
review of implementation and effectiveness.

Independent Standard-Setting Boards

International Auditing and Assurance Standards Board (IAASB) sets high-

quality international standards for auditing, assurance, and quality
control that strengthen public confidence in the global profession.
 International Accounting Education Standards Board (IAESB) establishes
standards, in the area of professional accounting education, that prescribe
technical competence and professional skills, values, ethics, and attitudes.

International Ethics Standards Board for Accountants (IESBA) sets high-

quality, internationally appropriate ethics standards for professional
accountants, including auditor independence requirements.

International Public Sector Accounting Standards Board (IPSASB)

develops standards, guidance, and resources for use by public sector
entities around the world for preparation of general purpose financial
statements.

Public Interest Oversight Board (PIOB) oversees the standard-

setting activities of the following independent boards: the IAASB,
the IAESB, and the IESBA;

Public Interest Committee (PIC) provides assurance that the

IPSASB standard setting activities are in the public interest, by
providing recommendations on the terms of reference of the
IPSASB; arrangement and nominations of IPSASB members;
procedures and processes for formulation of the IPSASB strategy
and work plan and the development of International Public Sector
Accounting Standards.

Accounting Profession in the

Philippines
Philippine Scene
This diagram shows the structure within which international accounting and auditing
standards are adopted in the Philippines by the Financial Reporting Standards Council
(FRSC) and Auditing and Assurance Standards Council (AASC).

Adoption of International Financial Reporting Standards

In July 2005, the Philippines adopted the Philippine Financial Reporting
Standards(PFRS) which are fully converged with the International
Financial Reporting Standards(IFRS).

Philippine Regulatory Commission (PRC)

The PRC performs two important functions:
• conducts and administers licensure examinations to aspiring professionals,
and
• regulates and supervises the practice of the professions exercised in
partnership with the forty-three (43) Professional Regulatory Boards
(PRBs) in the fields of health, business, education, social sciences,
engineering and technology. The Board of Accountancy (BOA) is a leg of
PRC that regulates the accountancy profession in the Philippines.

Philippine Scene

Financial Reporting Standards Council (FRSC)

The FRSC was established by the Professional Regulatory Commission (PRC) to assist the
Board of Accountancy (BOA) in carrying out its power and function to promulgate
accounting standards in the Philippines. The FRSC’s main function is to establish
generally accepted accounting principles in the Philippines.

The FRSC monitors the technical activities of the IASB and invites comments on exposure
drafts of proposed IFRSs as these are issued by the IASB. When finalized, these are
adopted as Philippine Financial Reporting Standards (PFRSs). The FRSC similarly
monitors issuances of the International Financial Reporting Interpretations Committee
(IFRIC) of the IASB, which it adopts as Philippine Interpretations–IFRIC. PFRSs and
Philippine Interpretations–IFRIC approved for adoption are submitted to the BOA and
PRC for approval.

Philippine Scene

Financial Reporting Standards Council (FRSC) – (Cont’d)

The FRSC formed the Philippine Interpretations Committee (PIC) in August 2006 to assist
the FRSC in establishing and improving financial reporting standards in the Philippines.
The role of the PIC is principally to issue implementation guidance on PFRSs. The PIC
members are appointed by the FRSC and include accountants in public practice, the
academe and regulatory bodies and users of financial statements.

Philippine Interpretations Committee (PIC)

Assists FRSC in establishing and improving financial reporting standards in the Philippines.
The role is principally to issue implementation guidance on PFRSs.

Philippine Scene

Financial Reporting Standards Council (FRSC) – (Cont’d)

Members of FRSC Composed of fifteen (15) members with a chairman and fourteen (14)
representatives from:

Philippine Scene

Auditing and Assurance Standards Council (AASC)

The AASC was created by the PRC upon the recommendation of the BOA to assist the BOA
in the establishment and promulgation of auditing standards in the Philippines.

It is the stated policy of the AASC to make the International Standards and Practice
Statements issued by the International Auditing and Assurance Standards Board
(IAASB) the applicable standards and practice statements in the Philippines. In this
connection, to facilitate their implementation in the Philippines, the International
Standards and Practice Statements are made Philippine-specific and are described as
“Philippine standards and practice statements”.

Each final Philippine Standard and Practice Statement, as well as interpretations, if deemed
appropriate, shall be submitted to the PRC through the BOA for approval after which the
pronouncements shall be published in the Official Gazette. After publication, the AASC
pronouncement becomes operative from the effective date stated therein.

Members of AASC
AASC shall have 15 regular members with a term of three years, renewable for another
term, coming from the following:

Philippine Institute of Certified Public Accountants (PICPA)

The PICPA is the only accredited national professional organization of CPAs in the
Philippines. Its primary functions established for the benefit and welfare of the
CPAs, the advancement of their profession, and the attainment of other professional ends.

Council for Accreditation and Quality Control of Practicing CPA’s

Council for Accreditation and Quality Control of Practicing CPA’s

Securities and Exchange Commission (SEC)

– Accredits practitioners who audit publicly listed companies, companies with at least Php50
million worth of assets and companies with secondary licenses.

Bangko Sentral ng Pilipinas (BSP)

– Accredits practitioners who audit banks and other financial institutions

Insurance Commission (IC)

– Accredits practitioners who audit insurance companies

In addition, the Board of Accountancy (BOA) also accredits CPAs in public practice with
basic requirements
ETHICAL PRINCIPLES AND QUALITY
CONTROL STANDARDS
ETHICAL PRINCIPLES AND QUALITY CONTROL STANDARDS

Code of Ethics for Professional Accountants in the Philippines

- Establishes fundamental ethical principles for professional accountants

Philippine Standards on Quality Control (PSQCs)

- Establish standards and provide guidance on a firm’s system of quality
control.

Relationship of Accounting, Auditing and Ethical Standards

Relationship of Accounting, Auditing and Ethical Standards

• In acting in the public interest, a professional accountant should observe and comply
with the ethical requirements of the Code of Ethics for Professional Accountants. A
distinguishing mark of the accountancy profession is the acceptance of its responsibility
to the public.

• According to the Code of Ethics, the accountancy profession is to work to the highest
standards of professionalism, to attain the highest levels of performance and generally to
meet the public interest requirement.
• A quality audit is achieved when the auditor’s opinion on the financial statement can be
relied upon as it was based on sufficient appropriate audit evidence obtained by an
engagement team that exhibited appropriate values, ethics and attitudes.

• Any deviations from accounting, auditing and ethical standards would warrant a
modification of opinion.