PROFESSIONAL PRACTICE

OF ACCOUNTANCY
LEARNING OBJECTIVES
1. Identify the attributes of the accountancy profession.
2. Explain the salient features of R.A. 9298 governing the practice of accountancy in
the Philippines.
3. Cite the regulatory agencies, professional organizations and standard-setting
bodies influencing the accountancy profession.
4. Explain the framework of Philippine Standards on Auditing and the system of
quality control.
5. Identify the pertinent provisions of the Code of Ethics for CPAs in the Philippines.
6. Discuss the auditor’s legal liabilities and corresponding defenses.
7. Describe the operation and management of a public accounting firm.
AUDPRIN / 2
ATTRIBUTES OF A PROFESSION
 Mastery of particular intellectual skill
 Acquired through education and training
 Adherence by members to common code of values and conduct
 Governed by code of ethics established by administrating
body
 Acceptance of duty to society as whole
 Usually in return for restrictions in use of title or granting of
a qualification
AUDPRIN / 3
ACCOUNTANCY PROFESSION ATTRIBUTES
• Obtain B.S. Accountancy degree
Mastery of particular • Pass CPA licensure examination
intellectual skill • Continue learning through work experience and continuing professional
development

Adherence to common
• Follow Code of Ethics for Professional Accountants
code of values and • Non-adherence subject to investigation of CPA’s conduct
conduct

Acceptance of duty to • Paramount concern is the public since CPA is viewed as guardian of public
society as a whole interest

AUDPRIN / 4
ACCOUNTANCY PROFESSION PREREQUISITES
 Hold B.S. Accountancy degree conferred by HEI duly
recognized/accredited by CHED or other government
office
 Qualify as professional accountant by passing the CPA
licensure examination
 Satisfy all other legal and regulatory requirements
before taking on the role of a professional accountant

AUDPRIN / 5
THE PROFESSIONAL ACCOUNTANT
 Practice of accountancy in the Philippines is exclusive domain of
professional accountants, or Certified Public Accountants (CPAs), who
 Passed CPA licensure examination given by Professional Regulatory Board of
Accountancy (BOA), under supervision of Professional Regulation Commission
(PRC)
 Have taken Oath of Profession before any member of BOA (or any government
official authorized by PRC or any person authorized by law to administer oaths)
 Hold Certificate of Registration signed by Chairperson of PRC and BOA
Chairman/members, and stamped with official seals of PRC and BOA
 Are issued Professional Identification Card bearing CPA’s name, signature and
photograph, registration number, date of issuance and expiry date, renewable
every 3 years

AUDPRIN / 6
THE PROFESSIONAL ACCOUNTANT
 core values and competencies

Knowledge Skills

Values

Professional Accountant
AUDPRIN / 7
CORE VALUES AND COMPETENCIES
Accounting
and Finance

General Knowledge Information

Technology

Organizational
and Business
AUDPRIN / 8
 CORE VALUES AND COMPETENCIES
Skills
 Intellectual Moral Values
Professional Ethics
 Analysis, problem solving, Discerning between
critical thinking morally right and  Integrity
 Interpersonal wrong  Objectivity & independence
 team player, patient  Professional competence &
 persuasive, confident due care
 Discreet, open-minded  Confidentiality
 Capable of hard work, able
to respond well to pressure  Professional behavior
 Communication
 Active listening; effective
oral/written communication AUDPRIN / 9
REGULATION OF THE
ACCOUNTANCY PROFESSION
R.A. 9298 (Philippine Accountancy Act of 2004) and IRR

Financial reporting standards and engagement standards established by recognized standard-

setting bodies

Adoption of Code of Ethics for CPAs in the Philippines

Self-regulation through a system of quality control

Sanctions/penalties against erring CPAs

AUDPRIN / 10
PHILIPPINE ACCOUNTANCY ACT OF 2004
(R.A. 9298) AND IRR
Professional
Regulatory
Board of Practice of
Objectives Accountancy Accountancy

Scope of Examination,
Practice Registration
and
Licensure

AUDPRIN / 11
OBJECTIVES

Examination for Supervision, control,

Standardization and registration of and regulation of
regulation of certified public the practice of
accounting education accountants accountancy in the
Philippines

AUDPRIN / 12
SCOPE OF PRACTICE
Public Accountancy Commerce and Industry
(public practice) (private practice)

SECTORS

Education/Academe Government

AUDPRIN / 13
 SCOPE OF PRACTICE
Public Accountancy
 in his individual capacity, or as
partner or staff member in
accounting or auditing firm
 holds out himself as one skilled in
knowledge, science and practice of
accounting, and as qualified person to
render professional service as CPA; or
offers or renders services, or both to
more than one client on a fee basis, or
otherwise
Commerce and Industry
 is involved in decision making requiring
professional knowledge in accounting,
as well as accounting aspects of
finance and taxation
 represents his employer before
government agencies on tax and other
matters related to accounting or when
such employment or position requires
that holder must be a CPA
AUDPRIN / 14
 SCOPE OF PRACTICE
Education/Academe
 in an educational institution and
involved in teaching of accounting,
auditing, management advisory
services, accounting aspect of finance,
business law, taxation and other
technically-related subjects
 occupies position of either dean or
department chairman or equivalent
that supervises BSA program
Government
 holds or is appointed to position in an
accounting professional group in
government or GOCC, including those
performing proprietary functions,
where decision making requires
professional knowledge in accounting
 where civil service eligibility as CPA is
prerequisite (CPA exam passer need
not take the Civil Service Examination)
AUDPRIN / 15
PUBLIC ACCOUNTANCY PRACTICE
Professional services include
• audit or verification of financial transactions and accounting records
• preparation, signing, or certification for clients of reports of audit,
balance sheet, and other financial, accounting and related
schedules, exhibits, statements or reports which are to be used for
publication or for credit purposes, or to be filed with a court or
government agency, or to be used for any other purpose
• design, installation, and revision of accounting system

AUDPRIN / 16
PUBLIC ACCOUNTANCY PRACTICE

Professional services …

preparation and/or review of representing clients before rendering professional

of income tax returns when government agencies on tax assistance in matters relating
related to accounting and and other matters related to to accounting procedures and
auditing procedures accounting the recording and presentation
of financial facts or data

AUDPRIN / 17
PROFESSIONAL REGULATORY
BOARD OF ACCOUNTANCY
 Composed of chairman and 6 members duly
appointed by the President of the Philippines, based
on following qualifications
◼ natural-born citizen; RP resident
◼ duly registered CPA; at least 10 years experience in
accountancy practice
◼ of good moral character; no conviction of any crime
involving moral turpitude
◼ no pecuniary interest, directly or indirectly, or membership
in faculty or administration in any educational institution Dr. Noe G. Quiñanola
conferring the academic degree or CPA examination Chairman, PRBOA
review classes at time of appointment
◼ Not a director or officer of APO at time of appointment
AUDPRIN / 18
 PROFESSIONAL REGULATORY
BOARD OF ACCOUNTANCY
 Under  Powers and functions
administrative  Supervise registration, licensure and practice of accountancy
supervision of PRC
 Issue/suspend/revoke/reinstate CPA’s Certificate of
 Term of office
Registration
 3 years, up to  Prescribe/adopt Code of Ethics for practice of accountancy
2 successive
terms  Adopt measures to enhance and maintain high professional,
ethical, accounting and auditing standards
 Eligible for
reappointment  Conduct oversight into quality of audit of financial statements
after 1 year  Prepare/adopt/issue/amend syllabi at subjects for
 Service not to examination and prepare licensure examination questions
exceed 12 years  Ensure that accountancy-related offerings of HEIs, review
centers, CPD providers are CHED/other government offices-
compliant
AUDPRIN / 19
CPA LICENSURE EXAMINATION
 Applicant’s qualifications
 Filipino citizen
 Of good moral character
 Holder of BSA degree from CHED-recognized HEI
 Not convicted of any criminal offense involving moral turpitude
 Scope of examination
 Subject coverage changed from 7 to 6 commencing May 2016 BLECPA
(BOA Res. 2015-262)
 Equal weight, equal number of examination hours but different total
number of questions

AUDPRIN / 20
REVISED SCOPE OF EXAMINATION
SUBJECT THEORETICAL PRACTICAL
Financial Accounting and Reporting 30% 70%
Advanced Financial Accounting and Reporting 30% 70%
Management Advisory Services 30% 70%
Auditing 50% 50%
Taxation 30% 70%
Regulatory Framework for Business Transaction 70% 30%

UPDATES ON SPECIAL CONCERNS (Globalization, Digital and Information Technology, Governance

and Ethics, Regulatory Requirements and Considerations, Effective Business Communication) to be
included in all subjects. AUDPRIN / 21
CPA LICENSURE EXAMINATION
 Required rating
 GA of 75%, with no grade lower than 65% in any subject
 Conditional credit for subjects passed, if grade is 75% or
higher in majority of subjects
◼ Take examination for remaining subjects within 2 years from
preceding examination
◼ If GA is <75% and rating in each subject reexamined is <65%,
examinee is considered “Failed” in entire examination
 2 Failed exams require completion of refresher course

AUDPRIN / 22
CERTIFICATE OF REGISTRATION/PRC ID
 issued to examinees who pass licensure examination or are admitted
without examination under reciprocity or other international agreements
 will not be issued to successful examinee on following grounds
 convicted by a court of competent jurisdiction of a criminal offense involving
moral turpitude
 guilty of immoral and dishonorable conduct
 unsound mind
 misrepresentation in the application for CPA examination
 details of registration certificate, professional tax receipt, relevant
accreditation required on documents that CPA signs, uses or issues in
connection with practice of profession

AUDPRIN / 23
PRACTICE OF ACCOUNTANCY
 Prohibition
No person shall practice accountancy in the
Philippines or use the title “Certified Public
Accountant” or “CPA” or display or use any title,
sign, card, advertisement, or other device to
indicate that such person practices or offers to
practice accountancy, or is a certified public
accountant, unless such person shall have received
from the Board a certificate of
registration/professional license and be issued a
professional identification card or a valid
temporary/special permit duly issued to him/her
by the Board and the Commission.
AUDPRIN / 24
PRACTICE OF ACCOUNTANCY
 Other requirements
◼ membership in accredited national professional organization
◼ accreditation to practice public accountancy, including partners and staff
members of firms, renewable every 3 years
◼ continuing professional development – 120 CPD credit units in compliance
period of 3 years, in following areas
◼ Competence Area A (Technical Competence)
◼ Competence Area B (Professional Skills)
◼ Competence Area C (Professional Values, Ethics, and Attitudes)
◼ use of seal bearing registrant’s name, registration number and title, to be
stamped on auditor’s reports

AUDPRIN / 25
PRACTICE OF ACCOUNTANCY
• only single practitioners and partnerships shall be
registered
• SEC shall not register any corporation organized for
public accountancy practice
Limitation on • certificate of accreditation shall be issued if registrant
public has acquired minimum 3 years meaningful experience in
any area of public practice, including taxation
accountancy

AUDPRIN / 26
PRACTICE OF ACCOUNTANCY
Ownership of working papers

• All working papers, schedules, and memoranda made by CPA

and his staff in the course of examination, including those
prepared and submitted by client, except reports submitted by
CPA to client, shall be treated confidential and privileged and
remain CPA’s property, unless otherwise agreed between CPA
and client in writing, or required to be subpoenaed in court, or
submitted to government regulatory or administrative body

AUDPRIN / 27
 PRACTICE OF ACCOUNTANCY
 Special/temporary permits maybe issued by BOA to foreign CPA, subject
to PRC approval and payment of prescribed fees
 Engaged as professor, lecturer or critic in fields essential to accountancy education in
the Philippines and engagement is confined to teaching only
 An internationally recognized expert or with specialization in any branch of
accountancy and his service is essential for advancement of accountancy in the
Philippines
 Called for consultation or for specific purpose which in judgment of BOA is essential
for country’s development, provided that
◼ practice is limited only for particular work that CPA is being engaged, and
◼ there is no Filipino CPA qualified for such consultation or specific purpose
* subject to reciprocity provision in international treaties or agreements with concerned foreign countries
AUDPRIN / 28
PROFESSION UPDATES

4 tracks in accountancy Revisions in CPA licensure Amendment of

education examination syllabi and Accountancy Law
subjects wef May 2016

Existing BSA leading to 3 new BS programs

qualification for taking of (Management Accounting,
CPA Licensure Accounting Information
examination Systems, Internal Audit) in
place starting 2018

AUDPRIN / 29
PROFESSION UPDATES
Accreditation of CPAs

Enhancement of Continuing Professional

Development

Implementation of Quality Assurance

Review

Association of South East Asian Nations • Provision of accountancy services, except for
signing off of independent auditor’s report and
Mutual Recognition Arrangement (ASEAN other accountancy services that requires domestic
MRA) licensing in ASEAN member states

AUDPRIN / 30
PROFESSION UPDATES
 Future of accounting profession
◼ Major changes/challenges
◼ Evolving smart and digital technology
◼ Continued globalization of reporting/disclosure standards
◼ New forms of regulation
◼ Volatile global political climate
◼ Other social and environmental issues
◼ Proposed Accountancy Act of 2021, amending certain provisions of R.A.
9298 to strengthen practice of accountancy in the Philippines
◼ Definition of practice of accountancy
◼ Scope of CPA licensure examination
◼ Reporting and disclosure of results of Board examinations
◼ Qualifications for securing CPA license

AUDPRIN / 31
ORGANIZATIONS INFLUENCING
THE PROFESSION
Regulatory Government Agencies Professional Organizations
 Professional Regulation  Philippine Institute of Certified
Commission (PRC) Public Accountants (PICPA)
 Professional Regulatory Board of
Accountancy (BOA)  Sectoral organizations – ACPAPP,
 Securities and Exchange nACPAE, ACPACI, GACPA
Commission (SEC)  Standard-setting bodies – IFAC,
 Bureau of Internal Revenue (BIR) IASB, IAASB, FRSC, AASC
 Other Agencies e.g. BSP, IC, CDA,
COA

AUDPRIN / 32
REGULATORY GOVERNMENT AGENCIES
Professional Regulation • regulation and licensing of various professions, including monitoring of
Commission (PRC) maintenance of professional standards and ethics

Professional Regulatory • Administration of Accountancy Law; including issuance and revocation of

Board of Accountancy (BOA) CPA certificates and granting of licenses to practice

Securities and Exchange • Regulation of registration and operations of corporations, partnerships and
Commission (SEC) other forms of associations, including specifying reporting requirements

Bureau of Internal Revenue • Enforcement of tax laws, rules and regulations

(BIR)

AUDPRIN / 33
REGULATORY GOVERNMENT AGENCIES
Commission on Audit • Audit of government units, including GOCCs, for compliance,
(COA) efficiency and economy

Bangko Sentral ng • Maintenance of price stability conducive to balanced and

Pilipinas (BSP) sustainable economic growth

• Regulation and supervision of the insurance industry for the

Insurance Commission (IC) promotion of national interest

Cooperative Development • Promotion of viability and growth of cooperatives as instruments

Authority (CDA) of equity, social justice and economic development

AUDPRIN / 34
PROFESSIONAL ORGANIZATIONS

Philippine • PRC-accredited integrated national professional

Institute of organization of all registered and licensed professional
accountants
Certified • Registered with SEC as non-profit organization; member of
IFAC

Public • Conducts seminars, conferences, technical sessions and

similar activities for professional development of members
• Updates members with technical and formal papers,
Accountants bulletins, statements and other pronouncements released by
standard-setting bodies
(PICPA)
AUDPRIN / 35
PROFESSIONAL ORGANIZATIONS

 Sectoral organizations
◼ Provide specific professional
development and other
requirements of CPAs in
particular sectors
◼ ACPAPP: Public practice
◼ nACPAE: Education/Academe
◼ ACPACI: Commerce and industry
◼ GACPA: Government

AUDPRIN / 36
STANDARD-SETTING BODIES
Promulgate  International Federation of Accountants
accounting and  global organization for accountancy
auditing profession
standards
 over 175 members and associates in more
which are
being used by
than 130 countries and jurisdictions,
CPAs in the representing almost 3 million professional
performance accountants
of their  established in 1977
services
AUDPRIN / 37
 STANDARD-SETTING BODIES
38

Foreign Local

 sets high-quality international standards for  formalizes auditing standard-setting

auditing, quality control, review, other function
assurance, and related services; facilitates
convergence of international and national  Financial Reporting Standards
standards Council

 develops international financial reporting

standards; promotes use and application of  formalizes accounting standard- setting
these standards function
AUDPRIN / 38
FINANCIAL REPORTING AND
ENGAGEMENT STANDARDS
• Philippine Accounting Standards (PASs), Philippine Financial
FRSC (formerly Reporting Standards (PFRSs), and Philippine Interpretations
ASC)

• Philippine Standards on Auditing (PSAs) and Philippine Auditing

Practice Statements (PAPSs)
AASC (formerly • Other standards and practice statements relating to quality control,
ASPC) review, other assurance engagements, related services

AUDPRIN / 39
ENGAGEMENT STANDARDS
relate to CPA’s
professional • Generally Accepted Auditing Standards
qualities, judgment (GAAS) – establish required level of
exercised by the CPA quality for performing FS audit and
in the performance which must be followed by CPAs when
of professional auditing financial statements
engagement and
CPA firm’s quality • Philippine Standards on Auditing (PSAs)
control policies and – clarify meaning of the GAAS
procedures

AUDPRIN / 40
GENERALLY ACCEPTED AUDITING
STANDARDS (GAAS)
GENERAL FIELD WORK REPORTING
(qualifications and (performance of (results)
conduct) the audit)
Whether statements
Adequate training Proper planning were prepared in
and proficiency and supervision accordance with GAAP
Circumstances when
Sufficient GAAP not consistently
Independence in understanding of followed
mental attitude internal control Adequacy of
informative disclosures
Due professional Sufficient
care competent Expression of opinion
evidence on financial statements
AUDPRIN / 41
PHILIPPINE STANDARDS ON AUDITING (PSAs)
 pronouncements mainly adopted by AASC from standards
and practice statements issued by International Auditing
and Assurance Standards Board (IAASB)
 Country-specific standards and practice statements are
developed to address specific auditing issues not covered
by IAASB pronouncements
 Issuances
 Effective 2014 or earlier: 36 PSAs and 1 PSQC
 Effective 2016: 1 PSA (on communicating KAM)

AUDPRIN / 42
Source: IAASB Handbook of …
Pronouncements Vol. 1
AUDPRIN / 43
PHILIPPINE STANDARDS ON AUDITING (PSAs)
 Grouped into six categories—General Principles, Risk
Assessment and Response, Audit Evidence, Using the Works of
Others, Conclusions and Reporting, and Specialized Areas
 Each PSA has a uniform content style
 Introduction
 Objective
 Definitions
 Requirements
 Application and other explanatory material

AUDPRIN / 44
FRAMEWORK OF PHILIPPINE STANDARDS
ON AUDITING (PSA 120)

PSAs contain Auditor Framework

basic principles departing from applies also to
and essential PSAs are to be PSA (under related services,
procedures to applied in audit exceptional i.e. review,
be interpreted of financial circumstances) agreed-upon
in context of statements and to more PSAs need only procedures, and
explanatory adapted as effectively be applied to compilation but
and other necessary to achieve material not to other
material that audit of other objective of matters. services e.g.
provide information and audit should be taxation,
guidance for to related prepared to consultancy, and
their services. justify the financial and
application. departure. accounting
advice.

AUDPRIN / 45
FRAMEWORK FOR AUDITING
AND RELATED SERVICES

AUDIT REVIEW AGREED-UPON COMPILATION

PROCEDURES

High but not Moderate

absolute assurance No assurance No assurance
assurance

Positive Negative Factual Identification

assurance on assurance on findings of of information
assertions assertions procedures compiled

AUDPRIN / 46
PHILIPPINE STANDARDS ON QUALITY
CONTROL (PSQC 1)
Purpose
• To establish standards and provide guidance on firm’s responsibilities for
system of quality control for audits, review and other assurance and related
services engagements
• Quality controls (QC) - policies and procedures adopted by CPAs to provide
reasonable assurance of conformance with professional standards in
performing audit and related services
To be read in conjunction with Code of Ethics

Applies to all firms

AUDPRIN / 47
PHILIPPINE STANDARDS ON QUALITY
CONTROL (PSQC 1)
 Elements of QC system
1. Leadership responsibilities for quality within the firm
2. Ethical requirements
3. Acceptance and continuance of client relationships
4. Human resources and assignment
5. Engagement performance
6. Monitoring
 QC policies and procedures should be documented and
communicated to firm’s personnel.
AUDPRIN / 48
ETHICS is about …
Relationships

Struggling to develop a well-informed conscience

Being true to the idea of who we are and what we stand for

Having the courage to explore difficult questions

Accepting the cost of doing what we think is right

Asking one simple question, “What ought I do?”

AUDPRIN / 49
CODE OF ETHICS FOR PROFESSIONAL
ACCOUNTANTS IN THE PHILIPPINES
 BOA Resolution No. 18, Series of 2018 adopted 2016 IESBA
Code of Ethics for Professional Accountants, subject to certain
changes to take into account Philippine regulatory
requirements and circumstances; renamed “The Code of Ethics
for Professional Accountants” effective March 23, 2018
 Revised and restructured code, The International Code of Ethics
for Professional Accountants (including International
Independence Standards) released by IESBA in 2018 wef June
2019
AUDPRIN / 50
2016 CODE OF ETHICS…
 Part A: General Application of the Code
 Establishes fundamental principles of professional ethics for
professional accountants and provides conceptual
framework for applying those principles
 Provides conceptual framework that professional
accountants should apply in order to identify, evaluate and
address threats to compliance with fundamental principles

AUDPRIN / 51
2016 CODE OF ETHICS …
 Parts B and C
 Describe how the conceptual framework applies in certain
situations
 Provide examples of safeguards that may be appropriate to
address threats to compliance with fundamental principles
 Describe situations where safeguards are not available to
address the threats
◼ Part B – Professional Accountants in Public Practice
◼ Part C – Professional Accountants in Business

AUDPRIN / 52
FUNDAMENTAL PRINCIPLES
 Integrity: straightforward and honest in all professional and business relationships
 Objectivity: not allow bias, conflict of interest or undue influence of others
 Professional Competence and Due Care: continuing duty to maintain professional
knowledge and skill at level required to ensure that client or employer receives
competent professional services based on current developments in practice, legislation
and techniques; act diligently and in accordance with applicable technical and
professional standards when providing professional services
 Confidentiality: respect confidentiality of information acquired as a result of professional
and business relationships and not disclose any such information to third parties without
proper and specific authority unless there is legal or professional right or duty to disclose;
not use such confidential information for personal or 3 rd party advantage
 Professional Behavior: comply with relevant laws and regulations and avoid any action
that discredits the profession
AUDPRIN / 53
THREATS TO FUNDAMENTAL PRINCIPLES
Business, occupation, activity or relationship that impairs or may impair PA’s
integrity, objectivity, independence or good reputation of the profession

Categories
• Self – interest: allowing financial or other interest to inappropriately influence judgment or
behavior
• Self-review: previous judgment is evaluated by PA responsible for said judgment
• Advocacy: promoting a position or opinion to point that objectivity is compromised
• Familiarity: becoming too sympathetic to interests or too accepting of the work of client
because of too long or close relationship
• Intimidation: being deterred from acting objectively due actual or perceived pressures
AUDPRIN / 54
SAFEGUARDS
Created by profession, legislation, or regulation
• Education, training and experience requirements for entry into the
profession
• Continuing professional development requirements
• Corporate governance regulations
• Professional standards
• Professional or regulatory monitoring and disciplinary procedures
• External review by legally empowered 3rd party

AUDPRIN / 55
SAFEGUARDS
In the work environment
• Firm-wide safeguards
• Documented policies and procedures that are communicated timely
• Disciplinary mechanism to promote compliance with policies and procedures
• Using different partners and engagement teams with separate reporting lines for provision
of non-assurance services
• Within client’s systems and procedures
• Requiring persons other than management to approve appointment of firm to perform
engagement
• Having competent employees with experience and seniority to make managerial decisions
• Having corporate governance structure that provides appropriate oversight and
communications

AUDPRIN / 56
2018 IESBA CODE: STRUCTURE

AUDPRIN / 57
2018 IESBA CODE: OVERARCHING
REQUIREMENTS/CONCEPTUAL FRAMEWORK

AUDPRIN
Source: https://www.slideshare.net/IFAC_Multimedia/overview-of-the-new-international-code-of-ethics / 58
2018 IESBA CODE: PHILIPPINE
IMPLEMENTATION

Source: http://www.picpa.org.ph/attachment/11262018164430512.pdf AUDPRIN / 59

AUDITOR’S LEGAL LIABILITY
 Though not infallible and not a guarantor of financial
statements’ accuracy, auditor is expected to discover material
and pervasive misstatements, if any, through exercise of due
professional care in the audit of financial statements (prudent
person concept)
 Source of responsibility: common law, statutory law
 Degree of wrongdoing – negligence, gross negligence, fraud,
 Lack of privileged communication
 Liability for acts of others

AUDPRIN / 60
AUDITOR’S LEGAL LIABILITY
 To clients
 Negligence/breach of contract
 To third parties
 Legal liability to all foreseeable users of financial
statements for losses caused by their reliance on
auditor’s opinion thereon
 As tax practitioner

AUDPRIN / 61
AUDITOR’S LEGAL LIABILITY
 Defenses against suits
 Lack of duty to perform service, performance of due professional care, absence
of causal connection, expiry of statute of limitations, contributory negligence
 Actions to minimize exposure to legal liability
 Thorough investigation of prospective clients
 Compliance with standards of auditing and code of ethics
 Establishing quality control system
 Use of engagement letters that clearly indicate scope of auditor’s services and
responsibilities
 Exercising extreme care in audit of financially distressed companies
 Conduct the audit with appropriate professional skepticism

AUDPRIN / 62
 OPERATION AND MANAGEMENT OF
PUBLIC ACCOUNTING PRACTICE
The Big Four 2019 worldwide revenue

Navarro Amper R.G. Manabat & Co

SGV & Co. Isla Lipana

AUDPRIN / 63
OPERATION AND MANAGEMENT OF
PUBLIC ACCOUNTING PRACTICE
 Individual CPAs, sole proprietors, partners, including staff members should register
and be accredited with PRC and BOA prior to start of public practice.
 Firm must also register the business and obtain necessary accreditation with other
relevant government regulatory agencies (e.g. BIR, SEC).
 Organization/hierarchy of personnel
 Junior (0 – 3 years) : performs detailed audit work
 Semi/Senior (3 -6 years) : performs more complex audit procedures; supervises associates;
prepares audit program, addresses minor accounting and auditing issues with client
 Supervisor/Manager (6 -10 years) : performs audit procedures and engagement
management, including drafting of the report for review by partner
 Partner (10+ years) : obtain and maintain relationship with clients, assumes overall
responsibility for audit engagement

AUDPRIN / 64
OPERATION AND MANAGEMENT OF
PUBLIC ACCOUNTING PRACTICE
 Professional fees – should be reflection of value of work involved and consider (a) skill and
knowledge required, (b) level of training and experience of engagement team, (c) time
required to complete engagement, (d) degree of responsibility and urgency that the work will
entail
 Billing arrangements – methods include flat or fixed fee, actual time charges, maximum fee
basis, retainer fee basis
 Other considerations
a. Place of business –convenience for clients and firm personnel is a major consideration
b. Technology tools – investment in IT tools will be a competitive edge
c. Human resources – sound policy on hiring, professional development and advancement
of employees
d. Sources of clients – mainly referrals from various parties e.g. members of civic and
community associations where CPA actively participates, existing clients, other CPAs
AUDPRIN / 65
FURTHER READINGS
 Philippine accounting profession
http://www.picpa.com.ph/attachment/13020181117
35724.pdf

 Revisions in CPA licensure examination

https://www.slideshare.net/fimportado/revisions-in-
the-philippine-cpa-board-examinations

 Continuing professional development

https://www.accelerapro.com/pages/cpd-law-and-
boa-accreditation

AUDPRIN / 66
FURTHER READINGS
 Quality Control
https://www.kacr.cz/file/4133/2016-
2017-iaasb-handbook-volume-1.pdf

 Code of ethics
https://www.prc.gov.ph/sites/default/files/
AccountancyCOE.pdf
http://www.picpa.org.ph/attachment/1126
2018164430512.pdf

AUDPRIN / 67
SELF-TEST QUESTIONS
1. Why is accountancy considered a profession?
2. Explain briefly the scope of practice of accountancy as indicated in R.A.
9298.
3. How is the accountancy profession being regulated?
4. May a foreign CPA practice accountancy in the Philippines? Explain your
answer.
5. Give an example under each of the following organizations that influence
the profession and describe each briefly:
a. Government regulatory agencies
b. Professional organizations
c. Standard-setting bodies
AUDPRIN / 68
SELF-TEST QUESTIONS
6. What would be the implication if an auditor did not follow the applicable
PSAs?
7. When can a professional accountant disclose confidential information?
8. What are the elements of a firm’s quality control system? Explain each
briefly.
9. Differentiate advertising from publicity? Why was advertising prohibited in
the past? Why is it allowed now?
10. What is due care? How does it affect auditor’s liability?
11. Why are corporations not allowed to practice public accountancy in the
Philippines?
12. What factors should be considered in determining audit fees?
AUDPRIN / 69
LEARNING ACTIVITY
You are a CPA auditing the financial statements of ABC, Inc., a
publicly-held company. During the course of your audit, you discovered
that ABC has been making illegal bribes to government officials to
obtain business, and you reported the matter to ABC’s senior
management and the board of directors.

Describe your appropriate response if management and the board -

a. take appropriate remedial action
b. fail to take appropriate remedial action

AUDPRIN / 70
SURVEY SAYS …
“It’s no longer enough to just be a
CPA. You have to reach beyond
past expectations of only technical
knowledge in order to succeed in
this new, global, technology-driven
environment. You must cultivate
your core competencies that
transcend the profession …”
“An analytical mind with
a touch of persistence
and the ability to follow
through are essential but
now becoming rare.”
AUDPRIN / 71