UNIVERSITY OF THE EAST

COLLEGE OF BUSINESS ADMINISTRATION

DEPARTMENT OF ACCOUNTANCY, BUSINESS LAW AND TAXATION

Code of Professional Ethics for

CPAS in the Philippines

Prof. Jherome G. Ng, CPA, MBA, CEA

Ethics and Professional Behaviour
Refers to a system or code of
conduct based on moral duties and
Ethics obligations that indicate how an
individual should behave in society.

Refers to the conduct, aims, or

Professionalism qualities that characterize or mark a
profession or professional person.
 Theories of Ethical Behaviour
Recognizes that decision-making involves
trade-offs between the benefits and
Utilitarianism burdens of alternative actions and
focuses on the consequences and
individuals affected.

Assumes that individuals have certain

Rights-Based rights and other individuals have a duty to
respect those rights when making
Approach decisions.

Adherence to certain rules or duties by

Deontology which consequences do not matter
 Code of Professional Ethics for CPAs and
The Philippines
• IESBA issued revised Code of Ethics
• Clarifies ethical requirements for all professional accountants and
July 2009
strengthens independence requirements

January
• Issued the revised IESSBA Code
1, 2011

Septembe
• IESBA revised the definition of the term “those charged with governance”
r 2013

June
• IESBA released an exposure draft on NOCLAR
2015

Decembe
• BOA approved the Revised Code of Ethics for CPAs in the Philippines
r 18, 2015

• IFAC has announced availability of 2015 IESBA Handbook for Code of

February Ethics
25, 2016
 Code of Professional Ethics for CPAs and
The Philippines
• The 2016 edition of the Handbook was published by IESBA
• Addresses the professional accountants’ responsibilities when
they become aware of non-compliance or suspected non-
compliance with laws and regulations committed by the client or
employer
July 2016
• Effective July 15, 2017

• The 2018 edition of the handbook is completely rewritten under

a new structure and drafting convention that makes the Code
easier to navigate, use and enforce.
• Renamed the Renamed
• the International Code of Ethics for Professional Accountants
June 2019 (including International
• Independence Standards)
Substantive Additions and Revisions
IFAC Code of Ethics for Professional
Accountants
IFAC Code of Ethics for Professional
Accountants
A professional accountant in public practice: A professional
accountant, irrespective of functional
classification (e.g. audit, tax or consulting) in a firm that provides
professional services.

Professional services: Services requiring accountancy or related skills

performed by a professional accountant including accounting, auditing,
taxation, management consulting and financial management
services. Professional activities performed for clients.

A professional accountant in business: A professional accountant

working in areas such as commerce,
industry, service, the public sector, education, the not-for-profit
sector, or in regulatory or professional bodies, who might be
an employee, contractor, partner, director (executive or nonexecutive),
owner-manager or volunteer..
 IFAC Code Part 1: Complying with the Code,
Fundamental Principles and
Conceptual Framework

Part 1 of the Code encompasses compliance

with the code, fundamental principles for
professional accountants’ behaviour and the
conceptual framework for applying those
principles.
 Compliance with the Code
⚫ A distinguishing mark of the accountancy profession is its
acceptance of the responsibility to act in the public
interest.
⚫ A professional accountant shall comply with the Code.
“ What if a law precludes an accountant from complying with
certain parts of the Code? Which will prevail? A national
statutory or the Code or both?”
In such circumstances, those laws and regulations
prevail, and the accountant shall comply with all other
parts of the Code.
⚫ A professional accountant who identifies a breach of any other
provision of the Code shall evaluate the significance of the breach and
its impact on the accountant’s ability to comply with the fundamental
principles. The accountant shall also:
 Take whatever actions might be available, as soon as possible, to
address the consequences of the breach satisfactorily; and
 Determine whether to report the breach to the relevant parties.
 Fundamental Principles

Integrity Objectivity

Professional
Competence
& Due Care

Professional
Confidentiality Behaviour
Fundamental Principles
 Fundamental Principles
I) Integrity
⚫ A professional accountant should be straightforward and honest in all
professional and business relationships.

⚫ A professional accountant should not be associated with reports,

returns, communications or other information where they believe that
the information:
 Contains a materially false or misleading statement;
 Contains statements or information furnished recklessly; or
 Omits or obscures information required to be included where such
omission or obscurity would be misleading.

II) Objectivity
⚫ A professional accountant should not allow bias, conflict of interest or
undue influence of others to override professional or business
judgments.

⚫ Relationships that bias or unduly influence the professional judgment of

the professional accountant should be avoided.
 Fundamental Principles
III) Professional Competence and Due Care
⚫ The principle of professional competence and due care imposes the
following obligations on professional accountants:
 To maintain professional knowledge and skill at the level required to
ensure that clients or employers receive competent professional
service;
 To act diligently in accordance with applicable technical and
professional standards when providing professional services.

⚫ Continuing professional development develops and maintains the

capabilities that enable a professional accountant to perform
competently.

⚫ A professional accountant should take steps to ensure that those

working under the professional accountant’s authority in a professional
capacity have appropriate training and supervision.

⚫ Where appropriate, a professional accountant should make clients,

employers or other users of the professional services aware of
limitations inherent in the services to avoid the misinterpretation of an
expression of opinion as an assertion of fact.
 Fundamental Principles
IV) Confidentiality
⚫ The principle of confidentiality imposes an obligation on professional
accountants to refrain from:
 Disclosing outside the firm or employing organization confidential
information acquired as a result of professional and business
relationships without proper and specific authority or unless there is a
legal or professional right or duty to disclose; and
 Using confidential information acquired as a result of professional and
business relationships to their personal advantage or the advantage
of third parties.

⚫ A professional accountant should take all reasonable steps to ensure that

staff under the professional accountant’s control and persons from whom
advice and assistance is obtained respect the professional accountant’s
duty of confidentiality.

⚫ The need to comply with the principle of confidentiality continues even

after the end of relationships between a professional accountant and a
client or employer.
 Fundamental Principles
IV) Confidentiality (Disclosure of confidential
information)
⚫ The following are circumstances where professional accountants are
or may be required to disclose confidential information or when such
disclosure may be appropriate:
 Disclosure is permitted by law and is authorized by the client or
the employer;
 Disclosure is required by law, for example:
 There is a professional duty or right to disclose, when not
prohibited by law.

⚫ In deciding whether to disclose confidential information, professional

accountants should consider the following points:
 Whether the interests of all parties, including third parties whose
interests may be affected, could be harmed if the client or
employer consents to the disclosure of information by the
professional accountant;
 Whether all the relevant information is known and substantiated,
to the extent it is practicable;
 The type of communication that is expected and to whom it is
addressed.
 Fundamental Principles
V) Professional Behavior
⚫ The principle of professional behavior imposes an obligation on
professional accountants to comply with relevant laws and
regulations and avoid any action that may bring discredit to the
profession.

⚫ This includes actions which a reasonable and informed third party,

having knowledge of all relevant information, would conclude
negatively affects the good reputation of the profession.

⚫ In marketing and promoting themselves and their work, professional

accountants should not bring the profession into disrepute.
Professional accountants should be honest and truthful and should
not:
 Make exaggerated claims for the services they are able to offer,
the qualifications they possess, or experience they have gained;
or
 Make disparaging references or unsubstantiated comparisons to
the work of others.
Conceptual Framework Approach
 Conceptual Framework Approach
Threats are created by circumstances and relationships
that could compromise an accountant’s ability to comply
with the fundamental principles.
Safeguards are actions or other measures that may
eliminate threats or reduce them to an acceptable level.

Identify threats to compliance with the fundamental

Are the identified principles.
threats
“acceptable or
unacceptable?”

Evaluate the significance of the threats identified.

Address the threats by eliminating or reducing them to an

acceptable level.
Conceptual Framework Approach
Conceptual Framework Approach
Conceptual Framework Approach
 Identifying Threats
⚫ The professional accountant shall identify threats to compliance with the
fundamental principles.
⚫ Understanding of the facts and circumstances
⚫ The existence of certain conditions, policies and procedures established
by the profession, legislation, regulation, the firm, or the employing
organization that can enhance the accountant acting ethically might also
help identify threats to compliance with the fundamental principles such
as
 Corporate governance requirements.
 Educational, training and experience requirements for the profession.
 Effective complaint systems which enable the professional accountant and
the general public to draw attention to unethical behavior.
 An explicitly stated duty to report breaches of ethics requirements.
 Professional or regulatory monitoring and disciplinary procedures.
Categories of Threats
Categories of Threats

Acceptable
or not?

What is
acceptable?
 Reasonable and Informed Third Party
⚫ The reasonable and informed third party test is a
consideration by the professional accountant about
whether the same conclusions would likely be
reached by another party.
⚫ The reasonable and informed third party does not
need to be an accountant, but would possess the
relevant knowledge and experience to understand
and evaluate the appropriateness of the
accountant’s conclusions in an impartial manner.
 Addressing the Threats
⚫ Eliminating the circumstances, including interests or
relationships, that are creating the threats;
⚫ Applying safeguards, where available and capable
of being applied, to reduce the threats to an
acceptable level; or
⚫ Declining or ending the specific professional activity.
 Safeguards

Safeguards created by the

profession, legislation or regulation

Professional
accountants in
public practice
Safeguards in the work
environment
Professional
accountants in
Prohibitions: business
When safeguards are
not adequate
 Safeguards created by the profession,
legislation or regulation
• Educational, 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 a legally empowered third
party of the reports, returns, communications or
information produced by a professional
accountant.
 Safeguards within a client
• Appointment of auditors approved by other than
the management
• Competent staffs
• Internal control procedures
• Corporate governance structure
 Code Part 2:
Professional Accountants in Business
⚫ Professional accountants in business might be solely or
jointly responsible for the preparation and reporting of
financial and other information, on which both their
employing organizations and third parties might rely.
⚫ A professional accountant in business might be an
employee, contractor, partner, director (executive or non-
executive), owner manager, or volunteer of an employing
organization.
 Code Part 2:
Professional Accountants in Business
Circumstances that May Create Threats for Professional
Accountants in Business
Self-interest Threat
⚫ A professional accountant holding a financial interest in, or receiving a
loan or guarantee from, the employing organization.
⚫ A professional accountant participating in incentive compensation
arrangements offered by the employing organization.
⚫ A professional accountant having access to corporate assets for
personal use.
⚫ A professional accountant being offered a gift or special treatment from
a supplier of the employing organization.
 Code Part 2:
Professional Accountants in Business
Circumstances that May Create Threats for Professional
Accountants in Business
Self-review Threat
⚫ A professional accountant determining the appropriate accounting
treatment for a business combination after performing the feasibility
study supporting the purchase decision.

Advocacy Threat
⚫ A professional accountant having the opportunity to manipulate
information in a prospectus in order to obtain favorable financing.
 Code Part 2:
Professional Accountants in Business
Circumstances that May Create Threats for
Professional Accountants in Business
Familiarity Threat
⚫ Being responsible for the employing organization’s
financial reporting when an immediate or close family
member employed by the entity makes decisions that
affect the entity’s financial reporting.
⚫ Long association with business contacts influencing
business decisions.
⚫ Acceptance of a gift or preferential treatment, unless the
value is clearly insignificant.
 Code Part 2:
Professional Accountants in Business
Circumstances that May Create Threats for
Professional Accountants in Business
Intimidation Threat
⚫ Threat of dismissal or replacement over a disagreement
about:
 The application of an accounting principle.
 The way in which financial information is to be reported.
⚫ An individual attempting to influence the decision-making
process of the professional accountant, for example with
regard to the awarding of contracts or the application of
an accounting principle.
 Situations
Preparation and Acting with
Conflict of
Presentation of Sufficient
Interest
Information Expertise

Responding to
Inducements
Financial non-compliance
including Gifts
Interests with Laws and
and Hospitality
Regulations

Pressure to
Breach
Fundamental
Principles
 Conflict of Interest

➢A conflict of interest creates threats to compliance with

the principle of objectivity and might create threats to
compliance with the other fundamental principles.
➢A professional accountant undertakes a professional
activity related to a particular matter for two or more parties
whose interests with respect to that matter are in conflict; or
➢The interest of a professional accountant with respect to a
particular matter and the interests of a party for whom the
accountant undertakes a professional activity related to that
matter are in conflict.
Conflict of Interest
 Preparation and Presentation of Information

➢Preparing or presenting information might create a self-interest,

intimidation or other threats to compliance with one or more of the
fundamental principles.
➢When the professional accountant knows or has reason to believe that the
information with which the accountant is associated is misleading, the
accountant shall take appropriate actions to seek to resolve the matter.
➢Discussing concerns that the information is misleading with the
professional accountant’s superior and/or the appropriate level(s) of
management
➢Consulting the policies and procedures of the employing
organization (for example, an ethics or whistle-blowing policy)
regarding how to address such matters internally.
 Acting with Sufficient Expertise

➢Acting without sufficient expertise creates a self-

interest threat to compliance with the principle of
professional competence and due care.
➢The principle of professional competence and due care
requires that a professional accountant only undertake
significant tasks for which the accountant has, or can obtain,
sufficient training or experience.
Acting with Sufficient Expertise
Acting with Sufficient Expertise
 Financial Interests, Compensation and Incentives Linked to
Financial Reporting and Decision Making

➢Having a financial interest, or knowing of a financial interest held by an immediate

or close family member might create a self-interest threat to compliance with the
principles of objectivity or confidentiality.
 Inducements including Gifts and Hospitality
➢Offering or accepting inducements might create a self-interest,
familiarity or intimidation threat to compliance with the
fundamental principles, particularly the principles of integrity,
objectivity and professional behavior.
➢Forms of inducements:
➢Gifts
➢Hospitality
➢Entertainment
➢Political or charitable donations
➢Appeals to friendship and loyalty
➢Employment or other commercial opportunities
➢Preferential treatment, rights and priveleges
Inducements including Gifts and Hospitality
 Pressure to Breach the Fundamental Principles

➢Pressure exerted on, or by, a professional accountant might create

an intimidation or other threat to compliance with one or more of
the fundamental principles.
➢A professional accountant shall not:
➢Allow pressure from others to result in a breach of
compliance with the fundamental principles; or
➢Place pressure on others that the accountant knows, or has
reason to believe, would result in the other individuals
breaching the fundamental principles.
Pressure to Breach the Fundamental Principles
 Code Part 2:
Professional Accountants in Business
Addressing the Threats
⚫ Communicate with those charge with governance
⚫ In extreme situations, if the circumstances that created
the threats cannot be eliminated and safeguards are not
available or capable of being applied to reduce the threat
to an acceptable level, it might be appropriate for a
professional accountant to resign from the employing
organization.
 Code Part 2:
Professional Accountants in Business
Safeguards in the Work Environment
⚫ System of corporate oversight
⚫ Organization’s ethics and conduct program
⚫ Recruitment procedures emphasizing competent would
be employees
⚫ Strong internal controls
⚫ Appropriate disciplinary processes
⚫ Leadership that stresses ethical behavior
⚫ Timely communication of organization’s policies and
procedures
Code Part 3: Professional Accountants in
Public Practice

Part C Professional Accountants in Public

Practice illustrates how the conceptual
framework contained in Part 1 is to be applied in
specific situations by professional accountants in
public practice.
 Situations
Conflict of Professional Second
Interest Appointments Opinions

Fees and Other Inducements

Custody of
Types of including Gifts
Clients Assets
Remuneration and Hospitality

Responding to
Non-compliance
with Laws and
Regulations
 Examples of Circumstances and
Relationships That May Create Threats
 Examples of Circumstances and
Relationships That May Create Threats
Examples of Safeguards in Work
Environment
Examples of Safeguards in Work
Environment (continued)
Conflict of Interest
Conflict of Interest
 Professional Accountant in
Public Practice
Professional Appointment
Client Acceptance
➢Consider whether acceptance would create any threats
to fundamental principles compliance
➢Involvement in illegal activities, dishonesty

➢Competence to perform the engagement

➢Compliance with ethical requirements
 Professional Accountant in
Public Practice
Conflict of Interest
➢Identify circumstances that could pose conflict of
interest
➢When a professional accountant in public practice
competes directly with a client or has a joint venture or
similar arrangement with a major competitor of a client
➢Performs services for clients whose interests are in
conflict or the clients are in dispute with each other in
relation to the matter or transaction in question
 Professional Accountant in
Public Practice
Second Opinions
➢Situations where a professional accountant in public
practice is asked to provide a second opinion on the
application of standards to specific circumstances by or
on behalf of a company that is not an existing client
may give rise to threats to compliance with the
fundamental principles.
➢Second opinion is not based on the same facts that
were made available to the existing accountant, or is
based on inadequate evidences
 Professional Accountant in
Public Practice
Fees and Other Types of Remuneration
➢A professional accountant in public practice may quote
whatever fee deemed appropriate.
➢However, there may be threats to compliance arising
from the level of fees quoted.
➢If the fee is quoted so low that it may be difficult to
perform the engagement in accordance with applicable
technical and professional standards for that price
 Professional Accountant in
Public Practice
Gifts and Hospitality
➢A professional accountant in public practice, or an
immediate or close family member, may be offered gifts
and hospitality from a client
➢Such an offer ordinarily gives rise to threats
➢If a gift from a client is accepted
➢Possibility of such offers being made public
Gifts and Hospitality
 Part B: Professional Accountant in
Public Practice
Custody of Clients Assets
➢A professional accountant in public practice shall not
assume custody of client monies or other asset unless
permitted to do so by law. If permitted to do so:
➢Keep such assets separately from personal or firm assets;
➢Use such assets only for the purpose for which it was
intended;
➢At all times, be ready to account for those assets, and any
income from such; and
➢Comply with all relevant laws and regulations relevant to the
holding of and accounting for such assets
 Professional Accountant in
Public Practice
Marketing Professional Services
➢When a professional accountant solicits new worl
through advertising or other forms of marketing, there
may be a threat to compliance with the fundamental
principles
➢Should not bring the profession into disrepute when
marketing professional services
➢If services, achievements, or products are marketed
that is inconsistent with that principle
 Parts 4A and 4B: Independence –
Audit and Review Engagements
The state of mind that permits the expression of a
Independence conclusion without being affected by influences
that compromise professional judgement, thereby
of Mind
allowing an individual to act with integrity and
exercise objectivity and professional skepticism.

The avoidance of facts and circumstances that are

so significant that a reasonable and informed third
Independence party would be likely to conclude, weighing all the
in Appearance specific facts and circumstances, that a firm’s, or a
member of the audit team’s, integrity, objectivity or
professional scepticism has been compromised.
Independence and the Conceptual
Framework Approach
Identify threats to independence.

Evaluate the significance of the threats identified.

Apply safeguards, when necessary, to eliminate the

threats or reduce them to an acceptable level.

When the practitioner determines that appropriate

safeguards are not available or cannot be applied to
eliminate the threats or reduce them to an acceptable
level, he or she shall eliminate the circumstance or
relationship creating the threats, or decline or
terminate the audit engagement.
 Independence – Audit and Review
Engagements
• Firm includes network firm, except where otherwise stated.
• A network firm is a firm or entity that belongs to a network. A network is a
larger structure that is aimed at cooperation; and that is clearly aimed at profit
or cost sharing or shares common ownership, control or management,
common quality control policies and procedures, common business strategy,
the use of a common brand name, or a significant part of professional
resources.

• Public interest entities: Additional provisions for public interest entities.

• A public interest entity is a listed entity, and an entity defined by regulation or
legislation as a public interest entity or for which the audit is required by
regulation or legislation to be conducted in compliance with the same
independence requirements that apply to the audit or listed entities.

• Documentation: Conclusions regarding compliance with independence

requirements, and substance of any relevant discussions that support those
conclusions.
Provisions of Non-Assurance Services – Types of
Services and Circumstances
• Preparing accounting records and financial statements.
• Valuation services.
• Taxation services.
• Internal audit services.
• IT systems services.
• Litigation support services.
• Legal services.
• Recruiting services.
• Corporate finance services.
• Fees: Relative size of fees, overdue fees and contingent
fees.
• Compensation and evaluation policies.
• Gifts and hospitality.
• Actual or threatened litigation.
Part B: Examples of Safeguards Related to
Provision of Non-Assurance Services
Preparing Accounting Records and Financial
Statements
Originating or changing
journal entries, or
determining the account
Activities considered a classifications of
normal part of the audit transactions.
process that generally do
not threaten
independence. Technical assistance and
advice on accounting
issues that generally do not
threaten independence
Services related to the
preparation of accounting
records and financial Preparing or changing source
statements of a routine or documents or originating data, in
mechanical nature that electronic or other form,
may create self-review evidencing the occurrence of a
threats. transaction.
 Valuation Services
A valuation comprises the making of assumptions with regard to future
developments, the application of appropriate methodologies and
techniques, and the combination of both to compute a certain value, or
range of values, for an asset, a liability or for a business as a whole.
A self-review threat may be created when a firm performs a valuation
that is to be incorporated into the client’s financial statements.

The firm shall not provide a valuation service (or withdraw

from the audit engagement) if the valuation service has a
material effect on the financial statements and the valuation
involves a significant degree of subjectivity.
For public interest entity audit clients the firm shall not
provide valuation services to an audit client if the
valuations would have a material effect, separately or in the
aggregate, on the financial statements.
 Taxation Services
1. Tax return preparation.
2. Tax calculations for the For public interest entity audit
purpose of preparing clients the firm shall ordinary
the accounting entries. not prepare such tax
3. Tax planning and other calculations of entries that are
tax advisory services. material to the financial
4. Assistance in the statements.
resolution of tax
disputes.
A firm is not permitted to provide tax advice when the tax advice depends on
a particular accounting treatment or presentation in the financial statements,
and (a) the audit team has reasonable doubt as to the appropriateness of
the related accounting treatment or presentation under the relevant financial
reporting framework; and
(b) the outcome or consequences of the tax advice will have a material
effect on the financial statements.
 Internal Audit Services
Internal audit services involve
assisting the audit client in the
performance of its internal
audit activities.
In providing such services the
firm shall not assume
management responsibility.
Provision of internal audit
services creates a self-
review threat to
independence if the firm
uses the internal audit work
in the course of a
subsequent external audit.

For public interest entity audit clients the firm shall not provide
internal audit services that relate to a significant part of the internal
controls over financial reporting; financial accounting systems that
generate information that is, separately or in the aggregate,
significant to the client’s accounting records or financial
statements; or amounts or disclosures that are, separately or in
the aggregate, material to the financial statements.
 IT System Services
IT system services Provision of IT systems services
related to information may create a self-review threat to
technology (IT) systems independence when the system
include the design or generate information that affects
implementation of the accounting records or financial
hardware statements.
or software systems.

For public interest entity audit clients the firm shall not
provide services involving the design or implementation of
IT systems that form a significant part of the internal control
over financial reporting or generate information that is
significant to the client’s accounting records or financial
statements.
 Litigation Support Services
Litigation support services
include activities such as
acting as an expert witness,
calculating estimated Litigation support services to
damages or other amounts an audit client may create
that might become receivable may create a self-review
or payable as the result of
or advocacy threat.
litigation or other legal dispute,
and assistance with document
management and retrieval.

Where the result of a valuation for litigation support

will have a direct effect on the financial statements,
the requirements in the Code relating to valuation
services are applicable.
 Recruiting Services
Recruiting services include
Providing recruiting
services such as reviewing
the professional services to an audit
qualifications of applicants, client may create
interviewing candidates self-interest, familiarity
and providing advice on or intimidation threats.
their suitability for the post.

The significance of the threats will depend on factors

such as the nature of the requested assistance and
the role of the person to be recruited.
Safeguards shall be applied when necessary to
reduce the threats to an acceptable level.
 Corporate Finance Services
Corporate finance services
comprise a broad range of
services including assisting Providing corporate
in developing corporate
finance services to an
strategies, identifying
possible targets for the client audit client may create
to acquire, advising on services may create
disposal transactions, advocacy or self-review
assisting finance-raising threats.
transactions and providing
structuring advice.

Certain corporate finance services are not permitted,

such as services involving promoting, dealing in or
underwriting an audit client’s shares.
 Independence for
Other Assurance Engagements
An assurance engagement is an engagement in which a
practitioner expresses a conclusion designed to enhance the
degree of confidence of the intended users other than the
responsible party about the outcome of the evaluation or
measurement of a subject matter against criteria.

Many of the same circumstances and relationships discussed

previously related to independence requirements for audits and
reviews are also relevant for other assurance engagements.

Threats to independence typically arise more frequently and are

of greater significance when a non-assurance service is provided
to an audit client. Thus, the provision of non-assurance services
to audit clients is more restricted than to non-audit assurance
clients.
End of Presentation