Mindanao State University

College of Business Administration and Accountancy

DEPARTMENT OF ACCOUNTANCY
Marawi City

ESTABLISHING AND MAINTAINING AN ACCOUNTING PRACTICE

Accounting 152

PRACTICE OF PUBLIC ACCOUNTANCY D. At least 1 year as audit

RA 9298 provides that the following forms of organization assistant.
are allowed for the practice of public accountancy: E. At least 2 years as auditor in
A. Single practitioners (individual CPAs) or sole Public Practice
charge of audit engagement
proprietorships (firms). covering full audit functions of
B. Partnerships which could be general partnerships or significant clients.
limited liability partnerships.
F. Significant involvement in
A sole proprietor or partnership of CPAs engaged in public
general accounting, tax
accountancy is known as a CPA firm or an audit firm. The
administration and budgeting.
corporation form of organization in the practice of public
Government G. Significant involvement in
accountancy is not allowed in the Philippines. The SEC shall
internal auditing and liaison
not register any corporation organized for the practice of
with COA or any other related
public accountancy.
functions.
CPA firms vary in size and form, from individual CPAs with
few or no staff members to large multi-national auditing H. Teaching for at least 3
firms with branches in many parts of the world though the trimesters or 2 semesters
limited liability partnership (LLP) form of organization has subjects in either financial
been adopted by most of the large audit firms. This is accounting, business law and
because LLPs afford some protection for the personal assets taxation, auditing problems,
of the individual partners which other forms do not provide. auditing theory, management
Academe
The largest CPA firms, in terms of number of personnel and services and financial
in terms of revenues, have operations in various parts of the management provided that
world known as territories. These firms usually have affiliations the accumulated teaching
or correspondent firms in each country. experience on these subjects
shall not be less than 3 school
Biggest Audit Firms in the Philippines years.
Network Firms Correspondent Firm in the A certificate of accreditation is a certificate under seal,
Philippines issued by the PRC upon the recommendation by the BOA
Sycip Gorres Velayo and attesting that individual CPAs, including the staff members
Ernst and Young, LLP
Company thereof, firms, including the sole proprietors and the staff
PriceWaterhouseCoopers, members thereof and partnerships of CPAs including the
Isla Lipana and Company partners and the staff members thereof, are duly
LLP
accredited to practice public accountancy in the
Klynveld Peat Marwick Manabat Sanagustin and Philippines.
Goerdeler (KPMG), LLP Company
❖ RULES AND REGULATIONS FOR THE ACCREDITATION OF
Navarro Amper and CPAs FOR THE PRACTICE OF PUBLIC ACCOUNTANCY
Deloitte Touche Tohmatsu
Company
Annex B of the IRR to RA 9298 provides guidance on the
Reyes Tacandong and requirements for accreditation of CPAs for the practice of
Mazars
Company public accountancy. The following are the relevant
Punongbayan and provisions of said Annex:
Grant Thornton, LLP A. The registration for accreditation shall be valid for a
Araullo
period of 3 years and may be renewed every 3
BDO Alba Romeo and years on or before September 30 on the year of
BDO International
Company expiry upon compliance of the requirements
provided in the IRR. The registration of applicants
ACCREDITATION TO PRACTICE PUBLIC ACCOUNTANCY approved during any month of the year shall expire
Single practitioners, firms and partnerships must first obtain a on December 31 on the third year following its
certificate of accreditation from the BOA before it can be approval.
allowed to practice public accountancy. A minimum of 3
For example, the application of registration of Ron
years meaningful experience in any of the areas of public
and Company CPAs was approved on July 31,
practice including taxation is required before such a
2012. Consequently:
certificate can be obtained. What constitutes meaningful
▪ The registration shall expire on December
experience is enumerated below.
31, 2014.
Sector Meaningful experience ▪ The firm shall apply for renewal on or before
September 30, 2014.
A. Significant involvement in ▪ The renewal shall be for the for the 3 year
general accounting, tax period beginning January 1, 2015.
administration and budgeting. ▪ The next renewal shall be on or before
B. Significant involvement in September 30, 2017.
internal auditing and liaison ▪ The second renewal shall be for the next 3
Commerce and with external auditors. year period beginning January 1, 2018.
industry C. Significant involvement in B. Individual CPAs, firms and partnerships shall not
representing his employer commence public practice until a valid Certificate
before government agencies of Registration has been issued to them.
on tax and matters related to
C. The application for registration shall be
accounting or any other
accomplished in the form prescribed by the BOA,
related functions.
in triplicate and duly signed by applicant CPA.

Prepared by: Mohammad Muariff S. Balang, CPA, Second Semester, AY 2013-2014 Page|1 of 7
Rules on Names
D. In the case of an Individual CPAs, he shall do
business under his registered name with the BOA
and the PRC and as printed in his CPA certificate.
For example:
Juan dela Cruz, CPA.
E. In the case of firms, they shall do business under
their respective duly registered and authorized firm
name appearing in the registration documents
issued by the Department of Trade and Industry or
any other proper government offices and such firm
name shall include the real name of the sole
proprietor as printed in his CPA certificate or other
similar Firm names. For example:
Juan dela Cruz and Associates
F. In the case of partnerships, they shall do business
under their respective partnership names as
indicated in their current Articles of Partnership and
certificates of registration issued by the SEC if
registered or under the partnership names as
indicated in their current Articles of Partnership if
unregistered or other similar partnership names. For
example:
Sycip Gorres Velayo and Company
G. A CPA shall practice only under a name allowed
by Philippine laws and shall not include any
fictitious name, indicates specialization or is
misleading as to the type of organization.
H. A partner surviving the death or withdrawal of all
the other partners in a partnership may continue to
practice under the partnership name for a period
of not more than 2 years after becoming a sole
proprietor, meaning, that on or before reaching
the end of the 2 year period, the resulting sole
proprietor if he continues to practice under a
proprietorship form of organization, shall change
the old partnership name to an Individual CPA or
firm name.
Limitations for Foreign CPAs
I. Under no circumstances shall the correspondent
relationship, membership or business dealings with
foreign CPAs be a scheme for the foreign CPAs to
engage in the practice of public accountancy in
the Philippines who/which under the present laws
are limited to Filipino CPAs, except the authorized
foreign CPAs under Sections 34 and 35 of RA 9298.
J. The Individual CPA, firm or partnership of CPAs duly
registered under the IRR shall not have as its owner,
sole proprietor, partner or any staff thereof, any
foreign CPA unless he qualifies to practice in the
Philippines under Sections 34 and 35 RA 9298 or
other relevant laws and bilateral or multilateral
agreement or treaties.
First-time Registrants and Quality Review
K. In the case of first time registrants, the application
of registration shall be accompanied with a sworn
statement by the individual CPA, sole proprietor of
firm and managing partner of the partnership
stating that the individual CPA, sole proprietor of
the firm and all the partners of the Partnership
has/have at least 3 years of meaningful experience
in any of the areas of public practice including
taxation as defined by the IRR including an
attachment containing a detailed description of
such work experience.
L. If the individual CPA, firm or partnership had
undergone quality assurance review by the BOA or
its duly authorized representatives, a certified copy
of the report of such review shall be attached to
the application for registration.
Authentication and Accreditation
M. The BOA shall duly authenticate all applications for
registration received in proper form, and after
having passed upon such applications, shall
Prepared by: Mohammad Muariff S. Balang, CPA, Second Semester, AY 2013-2014
recommend to the PRC the approval or denial
thereof not later than 60 days after the receipt of
the aforesaid applications in proper form.
N. The PRC shall upon favorable recommendation of
the BOA, issue to the applicant the corresponding
Certificate of Registration to practice public
accountancy. Unless sooner revoked, cancelled or
withdrawn, said Certificate of Registration shall be
valid for 3 years shall be renewable every 3 years
upon payment of the required fees.
Death or Disability of an Individual CPA and Dissolution or
Liquidation of a Firm or Partnership of CPAs
O. The death or disability of an individual CPA or the
dissolution and liquidation of a firm or partnership of
CPAs shall be reported to the Board by any
designated staff member of the individual CPA, the
sole practitioner (or any designated staff member
of the firm in case of the unavailability of the sole
practitioner) or managing partner of the partnership
(or any designated partner in case of the
unavailability of the managing partner) not later
than 30 days from the date of such death,
dissolution or liquidation. The report shall be made
in the form of an affidavit in the case of an
individual CPA or a firm or by furnishing the BOA
with a certified copy of the dissolution or liquidation
papers filed with the SEC in the case of a
partnership. Failure to notify the Board of such
death, dissolution or liquidation shall subject the
designated staff member of an individual CPA, sole
proprietor or designated staff member of the firm or
managing partner or designated partner of the
partnership to penalties.
Fees and Penalties
P. Application for initial registration, renewal and
request for reinstatement, shall be subject to the
fee of P1,000 or to such an amount as the
Commission may prescribe.
Q. Subject to review by the Commission and
depending on the gravity of the offense, the BOA
shall suspend or revoke the CPA Certificate,
Certificate of Registration and professional
identification card of an Individual CPA, sole
proprietor, partner or staff member as the case
maybe who commits any act that is violative of the
Code of Ethics for Professional Accountants,
Philippine Accountancy Act of 2004, the IRR to RA
9298, the circulars, rules, regulations or resolutions of
the BOA, PRC, SEC or any other regulatory agency
or any act that does not comply with the
professional, ethical and technical standards
required of the practice of public accountancy,
provided, that if the act or acts committed
constitute a criminal offense punishable under RA
9298 and its IRR or other existing penal laws, the
party or parties responsible shall be proceeded
against criminally, independent of any action
herein provided.
Violations shall include, but shall not be limited to
the following acts by Individual CPAs, including
staff members thereof, firms, including the sole
proprietors and staff members thereof and
partnerships of CPAs including the partners and
staff members thereof:
▪ Engaging in public accounting practice
without first registering with the BOA and
PRC.
▪ Continuing to engage in the practice of
public accountancy after the expiration of
the registration.
▪ Continuing to engage in the practice of
public accountancy after suspension,
revocation, or withdrawal of the
registration.
▪ Giving any false information, data,
statistics, reports or other statement which
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 tend to mislead, obstruct, or obscure the ▪ Performing vouching and
registration of an individual CPA, firm or tracing procedures.
partnership of CPAs. Associates ▪ Preparing schedules and
▪ Giving any misrepresentation to the effect (0 to 3 years) analyses of accounts.
that registration was secured when in truth ▪ Observing the physical
and in fact, it was not secured. count of inventories.
▪ Failure or refusal to undergo quality review. ▪ Mailing confirmation
▪ Failure to comply with the requirements on requests and summarizing
the accomplishment of the application for the results of confirmation
registration, including submission of required procedures.
documents. ▪ Quality control on audit
OTHER CONSIDERATIONS IN ESTABLISHING A CPA FIRM deliverables.
Aside from obtaining the necessary permits and Performs more complex audit
accreditation to be able to practice public accountancy, procedures and:
there are some other important considerations for the CPA. ▪ Usually draft and finalize the
A. Location and Work Environment audit program.
Most of the large CPA firms are centered in the ▪ Supervise associates and
Makati business district. The CPA will have a perform review procedures
business advantage in maintaining an office in on their work.
centers of Philippine business. A major factor in ▪ Address minor accounting
deciding on the location is convenience, that is, Senior and auditing issues with
the accessibility of the CPA, the staff and the associates clients and audit associates.
clients of the CPA. (3 to 6 years) ▪ Directly responsible to the
manager or the partner
B. Technological Requirements
▪ Assemble working papers.
While the CPA firm would need relatively simple ▪ Take charge of field work.
office equipment, primarily word processing and ▪ Prepare the original draft of
printing equipment and photocopy machines, audit report and audited
investing on IT will help the CPA gain an advantage financial statements subject
over its competitors, particularly in the areas of to review and approval by
efficiency, effectiveness and risk management. the partner or manager.
Equipment should be periodically inspected and
repaired or replaced as necessary. Disaster Perform audit procedures and
recovery plans and backup facilities would reduce engagement management such
concerns about possible data loss. as:
▪ Preparing the overall audit
C. Human Resources
plan.
The firm has to have a good policy on hiring, ▪ Performing administrative
professional development and advancement of its work for several concurrent
employees. The success of a CPA firm depends engagements.
largely on the competence and performance of its ▪ Settling major accounting or
employees. CPA firm personnel should be trained Managers
auditing issues.
with a combination of education and work (6 to 10
▪ Acting as a liaison between
experience. The following are the training methods years)
partners and other team
for personnel in CPA firms: members.
▪ In house trainings – includes workshops on ▪ Directly supervising senior
topics such as audit procedures, audit associates.
report writing and responsibilities for fraud ▪ Reviewing working papers.
and error. ▪ Drafting the audit report for
▪ On the job training – under the guidance of review by the partner.
a more experienced auditor, newer audit ▪ Taking charge of training
staff are given the chances to apply audit programs.
concepts, perform increasingly complex
audit procedures and develop skills in Owners of the audit firm. They
communication and critical thinking. determine the operating policies
▪ External training programs – includes of the firm. In addition, partners:
attendance at training programs and ▪ Establish and maintain
modules sponsored by PICPA and other relationship with clients.
professional organizations such as the ▪ Discuss with clients the
ACPAPP. objective and scope of the
D. Hierarchy or Personnel audit.
▪ Assume overall responsibility
The hierarchy of personnel in CPA firms has evolved for each engagement.
through the years but generally, each firm has four ▪ Attend client’s meetings to
major positions as follows: associate or junior answer questions that may
associate, senior associate, manager and sole Partners
arise in connection with the
proprietor or partner. (10+ years)
audit engagement or the
Position Nature of Work audit report.
▪ Have the final say on
Perform detailed audit work such accounting or auditing
as: issues encountered in an
▪ Checking computations and engagement.
footings. ▪ Sign the audit reports and
▪ Checking short and long firm correspondence.
extensions. ▪ Approve the billings for fees
▪ Tracing postings to the to be given to clients.
ledgers. ▪ Plan and review all phases
▪ Preparing reconciliations. of the audit.

Prepared by: Mohammad Muariff S. Balang, CPA, Second Semester, AY 2013-2014 Page|3 of 7
ADVERTISING AND PROMOTION FOR THE PRACTICE OF
ACCOUNTANCY IN THE PHILIPPINES (BOA Resolution No. 126,
Series of 2008)
Though they have a responsibility to serve the public, CPA
firms also seek to earn profit for the sole proprietor and
partners of the partnership. This is also necessary to ensure
the continuity of the CPA firm. To maximize earnings, CPA
firms need not only provide quality service but also have as
many clients as possible.
Generally, the CPA’s usual source of clients are referrals
from various parties such as members of civic and
community associations where the CPA actively
participates, existing clients who received satisfactory
service, other CPAs by active involvement in professional
organizations and other sources such as law firms. Aside
from referrals, CPAs may resort to the following:
A. Advertising – the communication to the public of
information as to the services or skills provided by
professional accountants in public practice with a
view to procuring professional business.
B. Publicity – the communication to the public of
facts about a professional accountant which are
not designed for the deliberate promotion of that
professional accountant.
Solicitation, which refers to approaching a potential client
for the purpose of offering professional services, is not
allowed in the Philippines. Prior to the issuance of the BOA
Resolution No. 126, Series of 2008, advertising is also not
The following examples are illustrative of circumstances in
allowed in the country. Reasons for its prohibition include:
which publicity is acceptable and the matters to be
A. Advertising can lead to undue competition
considered in connection herewith is subject always to the
between and among practitioners and thus may
overriding requirements mentioned in the preceding rules:
cause a decline in the quality of service.
B. Advertising would encourage a more commercial
approach within the profession thus reducing
client’s trust in CPAs and also increasing the
likelihood of CPAs neglecting their ethical duties.
C. The cost of advertising would outweigh any savings
which might result from competition and it would
be borne ultimately by clients.
D. Small or new practitioners would be unlikely to
have the financial resources to match the
advertising of larger or more established practices.
The rationale behind the prohibition of advertising is to lend
dignity to the profession which, unlike ordinary services and
merchandise, should not be peddled in the marketplace
through touting and self-laudatory means.
However, recently, due to the expansion of services
provided by the professional accountants and the inclusion
of a provision in the revised Code of Ethics, advertising is
now allowed to the extent that this provides the public with
necessary information about the sole practitioners or
professional partnerships and the services they offer to their
clients.
Relevant rules and regulations pertaining to advertising and
promotion for the practice of accountancy in the
Philippines follow:
A. Generally, advertising in any medium are
acceptable provided:
▪ It has as its object the notification to the
public or such sectors of the public as are
concerned, of matters of fact in a manner
that is not false, misleading or deceptive.
▪ It is in good taste.
▪ It is professionally dignified.
▪ It avoids frequent repetition of, and any
undue prominence being given to the
name of the professional accountant in
public practice
However, the following shall not be allowed:
▪ Discrediting, disparaging or attacking other
firms or CPA practitioners.
▪ Self-laudatory statements.
▪ Referring to, using or citing actual or
purported testimonials by third parties.
▪ Publishing and comparing fees with other
CPAs or CPA firms or comparing those
Prepared by: Mohammad Muariff S. Balang, CPA, Second Semester, AY 2013-2014
services with those provided by another
firm or CPA practitioner.
▪ Giving too much emphasis on competitive
differences.
▪ Using words or phrases which are hard to
define and even more difficult to
substantiate objectively.
▪ Publishing services in billboard (tarpaulin,
streamers, etc.) advertisements.
B. The use of the name of an international
accounting firm affiliation or correspondence other
than a notation that it is a member or
correspondent firm of that foreign firm shall not be
allowed so as to imply that the foreign firm is
practicing in the Philippines.
C. No firm or CPA practitioner shall identify the name
of a client or items of a client’s business in
advertising, public relations or marketing material
produced to promote his practice provided that
the client gives its written consent.
D. No firm or CPA practitioner shall use the term
“accredited” or any similar words or phrases
calculated to convey the same meaning if the
claimed accreditation (BOA, SEC, BSP or IC) has
expired.
E. All advertisements must have proper review and
approval in writing by the risk management partner
and managing partner or their equivalents.
A. Appointments and Awards
It is in the interests of the public and the
accountancy profession that any appointment or
other activity of a professional accountant in a
matter of national or local importance, or the
award of any distinction to a professional
accountant, should receive publicity and that
membership of the professional body should be
mentioned. However, the professional accountant
should not make use of any of the aforementioned
appointments or activities for personal professional
advantage.
B. Professional Accountants Seeking Employment or
Professional Business
A professional accountant may inform interested
parties through any medium that a partnership or
salaried employment of an accountancy nature is
being sought. The professional accountant should
not, however, publicize for subcontract work in a
manner which could be interpreted as seeking to
procure professional business. Publicity seeking
subcontract work may be acceptable if placed
only in the professional press and provided that
neither the accountant’s name, address or
telephone number appears in the publicity. A
professional accountant may write a letter or make
a direct approach to another professional
accountant when seeking employment or
professional business.
C. Directories
A professional accountant may be listed in a
directory. Entries should be limited to name,
address, telephone number, professional
description and any other information necessary to
enable the user of the directory to make contact
with the person or organization to which the entry
relates.
D. Books, Articles, Interviews, Lectures, Radio and
Television Appearances
Professional accountants who author books or
articles on professional subjects, may state their
name and professional qualifications and give the
name of their organization but shall not give any
Page|4 of 7
 information as to the services that firm provides.
Similar provisions are applicable to participation by
a professional accountant in a lecture, interview or
a radio or television program on a professional
J.
subject. What professional accountants write or
say, however, should not be promotional of
themselves or their firm but should be an objective
professional view of the topic under consideration.
Professional accountants are responsible for using
their best endeavors to ensure that what ultimately
goes before the public complies with these
requirements.
E. Training Courses, Seminars and Similar Events
A professional accountant may invite clients, staff
or other professional accountants to attend
training courses or seminars conducted for the
assistance of staff. Other persons should not be
invited to attend such training courses or seminars
K.
except in response to an unsolicited request. The
requirement should in no way prevent professional
accountants from providing training services to
other professional bodies, associations or
educational institutions which run courses for their
members or the public. However, undue
prominence should not be given to the name of a
professional accountant in any booklets or
documents issued in connection therewith.
F. Booklets and Documents Containing Technical
Information
L.
Booklets and other documents bearing the name
of a professional accountant and giving technical
information for the assistance of staff or clients may
be issued to such persons or to other professional
accountants. Other persons should not be issued
with such booklets or documents except in
response to an unsolicited request.
G. Staff Recruitment
Genuine vacancies for staff may be
communicated to the public through any medium
in which comparable staff vacancies normally
appear. The fact that a job specification necessarily
gives some detail as to one or more of the services
provided to clients by the professional accountant
in public practice is acceptable but it should not
contain any promotional element. There should not
be any suggestion that the services offered are
superior to those offered by other professional
accountants in public practice as a consequence
of size, associations, or for any other reason.
In publications such as those specifically directed
to schools and other places of education to inform
students and graduates of career opportunities in
the profession, services offered to the public may
be described in a business-like way.
More latitude may also be permissible in a section
of a newspaper devoted to staff vacancies than
would be allowed if the vacancy appeared in a
prominent position elsewhere in a newspaper on
the grounds that it would be most unlikely that a
potential client would use such media to select a
professional adviser.
M. Anniversaries
H. Publicity on Behalf of Clients
A professional accountant in public practice may
publicize on behalf of clients, primarily for staff.
However, the professional accountant in public
practice should ensure that the emphasis in the
publicity is directed towards the objectives to be
achieved for the client.
I. Brochures and Firm Directories
A professional accountant in public practice may
issue to clients or, in response to an unsolicited
request, to a non-client:
▪ A factual and objectively worded of the
services provided.
Prepared by: Mohammad Muariff S. Balang, CPA, Second Semester, AY 2013-2014
▪ A directory setting out names of partners,
office addresses and names and address
of associated firms and correspondents.
Stationery and Nameplates
Stationery of professional accountants in public
practice should be of an acceptable professional
standard and comply with the requirements of the
law and of the member body concerned as to
names of partners, principals and others who
participate in the practice, use of professional
descriptions and designatory letters, cities or
countries where the practice is represented,
logotypes and the likes. The designation of any
services provided by the practice as being
specialist nature should not be permitted. Similar
provisions, where applicable, should apply to
nameplates.
Newspaper Announcements
Appropriate newspapers or magazines may be
used to inform the public of the establishment of a
new practice, of changes in the composition of a
partnership of professional accountants in public
practice, or of any alteration in the address of a
practice. Such announcements should be limited
to a bare statement of facts and consideration
given to the appropriateness of the area of
distribution of the newspaper or magazine and
number of insertions.
Inclusion of the Name of the Professional
Accountant in Public Practice in a Document
Issued by a Client
When a client proposes to publish a report by a
professional accountant in public practice dealing
with the client’s existing business affairs or in
connection with the establishment of a new
business venture, the professional accountant in
public practice should take steps to ensure that the
context in which the report is published is not such
as might result in the public being misled as to the
nature and meaning of the report. In these
circumstances, the professional accountant in
public practice should advise the client that
permission should first be obtained before
publication of the document.
Similar consideration should be given to other
documents proposed to be issued by a client
containing the name of a professional accountant
in public practice acting in an independent
professional capacity. This does not preclude the
inclusion of the name of a professional accountant
in public practice in the annual report of a client.
When professional accountants in their private
capacity are associated with, or hold in, an
organization, the organization may use their name
and professional status on stationery and other
documents. The professional accountant in public
practice should ensure that this information is not
used in such a way as might lead the public to
believe that there is a connection with organization
in an independent professional capacity.
A professional accountant’s press and other media
releases or announcements or newspaper
supplements, or other similar publications, or other
commemorative media, or the holding of media
covered events undertaken only to commemorate
their anniversaries in public practice by informing
the public of their achievements or
accomplishments in contributing towards nation
building and in international understanding,
goodwill, or relationship or enhancing the image or
standards of the accounting profession do not
violate the rules on advertising and solicitation
provided that such announcements or undertakings
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 contains only factual matters without detailed
listing of services. Such undertaking should be done
only every five years of celebration.
N. Websites
A professional accountant may develop and
maintain a web site in the internet in such suitable
length and style which may also include
announcements, press releases, publications and
such other necessary and factual information like
firm’s name, partners or principals’ name and brief
description of their educational attainment, brief
listing of services, postal address, telephone, fax
and e-mail addresses. Such web site should not
contain self-laudatory statements designed to
solicit clients.
FEES AND BILLING CLIENTS
When entering negotiations regarding professional services,
a CPA may quote whatever fee deemed to be
appropriate. The fact that a CPA may quote a lower fee
than another is not in itself unethical. What is unethical is if
the fees are too excessive or too low. In addition, there
would be a risk of a perception that the quality of work
could be impaired if fees are quoted too low.
Fees charged for assurance engagements should be a fair
reflection of the value of the work involved and should take
into account, among others:
A. The skills and knowledge required for the type of
work involved.
B. The level of training and experience of the persons
necessarily engaged on the work.
C. The time necessarily occupied by each person
engaged on the work.
D. The degree of responsibility and urgency that the
work entails.
Other factors to be considered are those influenced by
legal, social and economic conditions in the Philippines.
Methods of Billing Clients
The commonly used methods by CPA firms in determining
professional fees to be charged to its clients are the
following:
A. Per diem basis – the charges are based on the
actual time spent at a rate depending on the
experience and expertise of the members of the
engagement team This is also known as actual time
charges basis.
B. Flat or fixed fee basis – the client is billed a lump-
sum but all-inclusive, pre-arranged amount for the
entire engagement.
C. Maximum fee basis – a combination of fixed fee
and per diem basis. The billing is similar to per diem
basis subject to a maximum limit as agreed
between the practitioner and the client.
D. Retainer fee basis – the client pays a uniform or
fixed monthly charge, plus additional fee annually,
payable upon submission of the audit report.
E. Out-of-pocket expenses – reimbursable expenses,
in addition to the professional fees, that are
chargeable to the client, such as traveling
expenses and supplies.
Billing arrangements should be clearly defined, preferably in
writing, before the start of the engagement to help in
avoiding misunderstanding with respect to fees.
Contingent Fees
An assurance engagement should not be performed for a
fee that is contingent on the result of the assurance work or
on items that are the subject matter of the assurance
engagement. A contingent fee is one that is calculated on
a predetermined basis relating to the outcome or result of a
transaction or the result of the work performed. Contingent
fees are an unacceptable billing arrangement because it
impairs the independence and objectivity of a professional
accountant. Examples of contingent fees include:
A. Fee based on a percentage of audited net
income.
Prepared by: Mohammad Muariff S. Balang, CPA, Second Semester, AY 2013-2014
B. Fee based upon percentage of the acquisition
price of another company.
C. Fee based on the amount of taxes saved.
D. Tax preparation where the fee will be based on
whether the CPA signs the tax return prepared.
E. Fee based on amount of insurance settlement.
F. Fee is charged if loan is obtained or approved by
the bank.
G. No fee will be charged unless specific finding or
result is obtained.
The following fees are not considered to be contingent fees:
A. If fixed by a court or other public authority.
B. If determined based on the results of judicial or
government agency proceedings.
C. If authorized by statute.
D. If approved by a member body as generally
accepted practice for certain professional services.
Some reasons why the above are not considered
contingent fees:
A. Fees fixed by courts and other public authority,
although may be uncertain in nature at that
moment, are not known and cannot be influenced
by the auditor and the client.
B. Fees based on determination by taxing authorities
are a matter of judicial proceedings which do not
involve third parties.
SARBANES-OXLEY ACT OF 2002
Also known as the “Public Company Accounting Reform
and Investor Protection Act” and SOX, the Sarbanes-Oxley
Act of 2002 is a US federal law that set new or enhanced
standards for all US public company boards, management
and public accounting firms. The bill was enacted as a
reaction to a number of major corporate and accounting
scandals including those affecting Enron, Tyco International,
Adelphia, Peregrine Systems and WorldCom. These
scandals, which cost investors billions of dollars when the
share prices of affected companies collapsed, shook
public confidence in the US’ securities markets.
Significant provisions and major elements of the law include
the following:
A. Creation of an oversight board – the Public
Company Accounting Oversight Board (PCAOB)
was created to oversee the audit of public
companies. This board sets standards and rules for
audit reports. All accounting firms that audit public
companies must register with the oversight board. It
also inspects, investigates and enforces
compliance from these registered firms.
B. Auditor independence – auditors now have a list of
non-audit services they cannot perform during an
audit. SOX also imposes a one year waiting period
for audit firm employees who leave and
accounting firm to become an executive of a
former client. In addition, the former firm must wait
one year before performing any audit services for
the new employer.
C. Corporate responsibility – senior executives must
now take individual responsibility for the accuracy
and completeness of corporate financial reports.
The chief executive officer and chief financial
officer are required to certify and approve the
integrity of their company’s financial reports
quarterly.
D. Greater financial disclosures – transactions and
relationships that are off balance sheet but that
may affect financial status now must be disclosed.
Personal loans from a corporation to its executives
are now largely prohibited. Annual reports must
include a report stating that management is
responsible for the internal control structure and
procedures for financial reporting.
E. Conflict of interest disclosures for analysts – conflict
of interest disclosures now need to be made by
research analysts who make public appearances
or offer research reports. These disclosures need to
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 contain certain information about the company
that is subject of the appearance or report. The
analyst has to report whether he holds any
securities in the company or received corporate
compensation. Brokers and dealers have to
disclose if the public company is a client.
F. Corporate and criminal fraud accountability –
altering, destroying, concealing or falsifying records
or documents with the intent to influence a federal
investigation or bankruptcy case is subject to fines
and up to 20 years imprisonment. New audit
Prepared by: Mohammad Muariff S. Balang, CPA, Second Semester, AY 2013-2014
workpapers must be retained for five years. Any
person who knowingly defrauds shareholders of
publicly traded companies is subject to fines or
imprisonment.
G. Corporate tax returns – the chief executive officer
should sign the company’s tax return.
H. Lawyer’s responsibilities – there are now minimum
standards of professional conduct for lawyers
representing public companies before the US SEC.
These include a rule requiring a lawyer to report
securities violation to the chief executive officer.
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