THE ACT

Accounting as a Profession

 Practice of Public Accountancy – shall constitute in a person,

a.) Be it his/her individual capacity, or as a partner or as a staff member in accounting or audit firm;
b.) One skilled in the knowledge, science and practice of accounting, and as a qualified person to
render professional services as a certified public accountant, or offering or rendering, or both, to
more than one client on a fee basis or otherwise, services such as: (audit, preparation, verification,
design, installation of accounting systems, review, revision, represents client before government,
assistance in recording and presentation of financial data.)
 Practice in Commerce and Industry –
a.) Decision making – finance and taxation
b.) Represents his employer before government
c.) Must be a certified public accountant
 If the company’s paid-up capital is P5M, and/or an annual revenue is at least P10M – occupied only by a
duly registered CPA.
 Practice in Education/Academe –
a.) Involve teaching – accounting, auditing, management advisory services, accounting aspect of
finance, business law, taxation etc.
 Members of Integrated Bar of the Philippines may be allowed to teach business law and
taxation subjects.
 The position of the DEAN or Department Chairman that supervises the Bachelors of Science
in Accountancy – be a duly registered CPA
 Practice in the Government –
a.) Who hold or is appointed to, a position in an accounting professional group in the government or in
a government-owned and/or controlled,where decision making requires professional knowledge in
the accounting field. (Civil service eligibility as a Certified Public Accountant is a prerequisite)

Organizations that Affect Public Accounting

1. Regulatory Government
Professional Regulation Commission (PRC) - has the overall jurisdiction over the regulatory board of the
Phil. Among which is the BOA.
Board of Accountancy (BOA)
 Has legal power to administer the Accountancy Law
 Licensing agency of the government
 Only body that may issue and revoke CPA certificates and grant licenses to practice
 Compose of: The CHAIRMAN and 6 members - appointed by the President of Philippines
which shall hold office for a term of 3 years.
 NO PERSON SHALL SERVE IN THE BOARD FOR MORE THAN 12 YEARS

 Qualifications of BOARD members:

 Natural-born citizen and a resident of Phil.
 Duly registered CPA at least 10 years of work experience in any scope of practice in any scope of accountancy.
 Good moral and not convicted with crimes involving moral turpitude.
 Must not have pecuniary interest – directly/indirectly in any school, college etc. nor member of the faculty etc.
 Must not be a director or officer of the APO at the time of his appointment.

 No person who has served 2 successive complete terms shall be eligible for reappointment until the lapse of 1 year.
 Grounds for suspension/removal of members of the Board:
 Neglect of duty or incompetence
 Violation – ethics/professional standards
 Final judgement of crimes involving moral turpitude
 Manipulation or rigging of CPAs exam, disclosure of confidential information in the exam.

Councils formed to assist the BOA:

I. Education Technical Council (ETC) - assist BOA in continuously upgrading accounting

education in the Philippines.
II. Quality Review Committee (QRC) – created to conduct on oversight into the quality of
audits of financial statements through review of the quality controls measures instituted by
individual CPA’s, firms or partnerships.
III. Continuing Professional Education (CPE) – assist BOA in implementing its CPE program.
Securities and Exchange Commission (SEC) – regulates the registration and operations of corporations,
partnership and other forms of association in the Philippines.
Commission on Audit (COA) – Supreme Audit Institution in the Republic of the Philippines.
Bangko Sentral ng Pilipinas (BSP) – primary objective of this agency is to maintain price stability
conducive to a balanced and sustainable economic growth.
Bureau of Internal Revenue (BIR) – aims to raise revenues for the government through the effective and
efficient collection of taxes, provide quality service to taxpayers, and enforce tax laws in an impartial and
uniform manner.
Insurance Commission (IC) – its mandate is to regulate and supervise the insurance industry for the
promotion of national interest.

 Republic Act No. 9298 otherwise known as the Philippine Accountancy Act of 2004 and for Other Purposes”
bestows upon the Board the mandate to create an accounting standard setting body to be known as the Financial
Reporting Standards Council (FRSC) and an auditing standard setting body to be known as the Auditing and
Assurance Standards Council (AASC) to assist the Board in carrying out its powers and functions.

 FRSC shall be composed of fifteen (15) members with a Chairman who had been or presently a senior accounting
practitioner in any of the scope of accounting practice, and fourteen (14) representatives from the following:

a) Board of Accountancy (BOA) 1

b) Securities and Exchange Commission (SEC) 1
c) Bangko Sentral ng Pilipinas (BSP) 1
d) Bureau of Internal Revenue (BIR) 1
e) A major organization composed of preparers
and users of financial statements 1
f) Commission on Audit (COA)
g.) Insurance Commission 1
h) Accredited National Professional Organization of Certified Public Accountants (CPAs) 1
Public Practice 2
Commerce and Industry 2
Academe/Education 2
Government 2 8
Total 15
  Membership in the FRSC shall be through an appointment made by the Professional Regulation
Commission (Commission), upon the recommendation of the Board, in coordination with the Accredited
and Integrated Professional Organization of CPAs. The FRSC Chairman and Members shall have a term of
three (3) years, renewable for another term;
 WHEREAS, during the 17 March 2022 meeting, the Board unanimously agreed that the membership in the
FRSC be increased from fifteen (15) to sixteen (16) to include a representative from the Insurance
Commission (IC), amending for the purpose Section 9 (A) of Board Resolution No. 71 (s. 2004);
 NAME DESIGNATION AREA/SECTOR
1. Ferdinand George A. Florendo (Member Insurance Commission)
2. Gemma O. Cheng (Member Major organization composed of users and preparers of financial
statements)
3. Joselito G. Diga (Member Commerce and Industry)

 The Auditing and Assurance Standards Council (AASC) was created in December 2005, under the Philippine Accountancy
Act of 2004, by the Professional Regulation Commission upon the recommendation of the Board of Accountancy (BOA). The
AASC is tasked to assist the BOA to establish and promulgate auditing standards in the Philippines.
 Within 90 days from the effectivity of the IRR, create an accounting standard council – FRSC and AASC

The AASC shall have 18 regular members with a term of three years, renewable for another term, coming from the following:

No. of members
Chairman 1
Board of Accountancy (BOA) 1
Securities and Exchange Commission (SEC) 1
Bangko Sentral ng Pilipinas (BSP) 1
Commission on Audit (COA) 1
Association of CPAs in Public Practice 1
Philippine Institute of CPAs:
Public Practice 9
Commerce and Industry 1
Academe/Education 1
Government 1

Total 18

QUALITY REVIEW COMMITTEE (QRC)

 7 members = a chairman (who had been presently a senior accounting practitioner in the public accountancy) and
6 representatives;
BOA 1
Accredited National Professional Organization of CPAs:
Public practice 2
Commerce and Industry 1
Academe/Education 1
Government 1
6
Definition of Terms:

 Accredited National Professional Organization of Certified Public Accountants or APO – integrated national
professional org of CPAs accredited by the Board and Commission.
 ACT or RA No. 9298 – The Philippine Accountancy Act and its subsequent amendments.
 BOA – Professional Regulatory Board of Accountancy of the Philippines created under Republic Act No. 9298
 CPA – a person who holds a valid certificate of Registration and a valid Professional Identification card issued by the
Commission upon recommendation by the Board to those who have satisfactorily complied with all the legal and
procedural requirements for such issuance – passed the CPA exam.
 Certificate of Accreditation – a certificate under seal, issued by Commission upon recommendation by the Board –
for duly accreditation to practice public accountancy in Philippines.
 Certificate of Registration – a certificate under seal bearing a registration number, issued to an individual, by the
Commission, upon recommendation by the Board – those who passes CPA exam.
 Code of ethics for Professional Accountants – which contains the norms and principles governing the practice of
accountancy profession in the highest standards of ethical conduct.
 Commission or PRC – Professional Regulation Commission of Philippines created under Rep. Act No. 8981
 Firm – an organization engaged in the practice of public accountancy, consisting of a sole proprietor, either alone
or with one or more staff member(s).
 Individual CPA – a certified public accountant engaged in the practice of public accountancy under his/her name,
by himself/herself only or with one or more staff member(s).
 Implementing Rules and Regulations (IRR) – Republic Act No. 9298 / Accountancy Act of 2004
 Partnership – a professional partnership engaged in the practice of public accountancy which is formed in
accordance with Philippine laws, either as a general partnership or a limited liability partnership, and whether or
not it is registered as such with SEC.
 PICPA – integrated national professional org of CPAs accredited by Board and the Commission.
 Professional Identification Card – a card with validity of 3 years, bearing the registration number, date of issuance
with an expiry date, due for periodic renewal, duly signed by the Chairperson of the Commission issued by the PRC
to a registered CPA upon payment of the annual registration fees for 3 years.
 Quality Review – a study, appraisal, or review by the Board or its duly authorized representatives, of the quality of
audit of financial statements through a review of the quality control measures instituted by an Individual CPA, Firm
of Partnership of CPAs engaged in the practice of public accountancy to ascertain his/her/its compliance with
prescribed professional, ethical and technical standards of public practice.
 Sector – is the area of practice of accountancy namely public accountancy, commerce and industry,
academe/education and government.
 Staff member – a CPA employed by an individual CPA, Firm or partnership engaged in the practice of public
accountancy.
 Syllabi – documents showing the outline embodying topics and concepts etc.

PRACTICE OF ACCOUNTANCY

Prohibitions:
 No person shall practice accountancy in this country or use CPA title etc. unless is registered or have a valid
temporary permit issued by the Board and the Commission.
 Seal and Use of Seal – All licensed certified public accountants shall obtain and use a seal of a design prescribed by
the Board bearing the registrant’s name, registration number and title. The auditor’s reports shall be stamped with
said seal, indicating therein his/her current Professional Tax Receipt (PTR) number, date/place of payment when
filed with government authorities or when used professionally.

Accreditation to Practice Public Accountancy - minimum of 3 years meaningful experience in any areas of public
practice including taxation. Shall be renewed every 3 years.

Ownership of Working papers – privileged and property of CPA.

Foreign Reciprocity

PENAL AND FINAL PROVISIONS

 Who violates – fine of not less than 50k or by imprisonment for a period not exceeding 2 years or both.
 The Secretary of Justice or his duly designated representative shall act as a legal adviser to the Commission and
the Board and shall render legal assistance as may be in carrying out the provisions of this Act.

CONTINUING PROFESSIONAL DEVELOPMENT

 Required CPE Credit Units

 Renewal of PIC – 15 credit units (exempt – OFWs and newly licensed professionals for the first renewal
cycle)
 For accreditation (initial and renewal) – 120 credit units (minimum)
I. Technical competence – 30
II. Professional skills – 5
III. Professional Values, Ethics and Attitudes – 5
IV. Flexible CPD units – 80
o The required minimum units earned from the previous year/s shall be 20 credit units.
CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS IN PHILIPPINES

Requisites:
 First: that a profession is founded on an exclusive body of specialized knowledge achieved following a
course of advanced education, training and experience
 Second: that the members of a profession observe a moral obligation to the community ahead of self-
interest.
The CODE of ETHICS for Professional Accountants – developed by the International Federation of Accountants
(IFAC)
IESBA (International Ethics Standards Board for Accountants) – setting high-quality ethics standards for
accountants.
Reasonable and Informed Third Party Test – Weigh all the relevant facts and circumstances that the accountant
knows, or could reasonably be expected to know, at the time of the conclusions are made.

OVERVIEW OF THE CODE

 PART 1 – COMPLYING WITH THE CODE, FUNDAMENTAL PRINCIPLES AND CONCEPTUAL FRAMEWORK (ALL
PROFESSIONAL ACCOUNTANTS – SECTION 100 TO 199)
 PART 2 – PROFESSIONAL ACCOUNTANTS IN BUSINESS (ALSO APPLICABLE TO INDIVIDUAL ACCOUNTANTS IN
PUBLIC PRACTICE WHEN PERFORMING PROFESSIONAL ACTIVITIES PURSUANT TO THEIR RELATIONSHIP WITH THE
FIRM)
 PART 3 – PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE
 PART 4 – INTENTIONAL INDEPENDENCE STANDARDS
 PART 4A – INDEPENDENCE FOR AUDIT AND REVIEW ENGAGEMENTS
 PART 4B – INDEPENDENCE FOR ASSURANCE ENGAGEMENTS OTHER THAN AUDIT AND REVIEW
ENGAGEMENTS

PART 1 : FUNDAMENTAL ETHICAL PRINCIPLES

 Professional behavior – a professional accountant should comply with relevant laws and regulations and should
avoid any action that discredits the profession.
 Integrity - A professional accountant should be straightforward and honest in all professional and business
relationships.
- A professional accountant should not be associated with report, returns, communications or other
information that is believed to:
1. Contain a materially false or misleading statement;
2. Contain statements or information furnished recklessly; or
3. Omit or obscure required information where such omission or obscurity would be misleading.

 Confidentiality - A professional accountant should respect the confidentiality of information acquired as a result of
professional and business relationships. Such information should not be disclosed to third parties without proper
and specific authority unless there is legal or professional right or duty to disclose.
 Professional Competence and Due Care - A professional accountant has a continuing duty to maintain professional
knowledge and skill at the level required to ensure that a client or employer receives competent professional
service based on current developments in practice, legislation and techniques.
- When rendering professional services, a professional accountant should act diligently and in
accordance with applicable technical and professional standards.

- Professional competence may be divided into two phases:

o attainment of professional competence
o maintenance of professional competence.
- The attainment of professional competence requires the following:
1. Initially, a high standard of education
2. Specific education, training, and examination in professional relevant subjects
3. Whether prescribed or not, a period of work experience
- To maintain professional competence, a professional accountant should have continuing awareness
and an understanding of relevant technical professional and business developments.

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

PART 4 – INDEPENDENCE

• Independence of mind – The state of mind that permits the expression of a conclusion without being affected by
influences that compromise professional judgment, allowing an individual to act with integrity, and exercise
objectivity and professional skepticism.

• Independence in appearance – The avoidance of facts and circumstances that are so significant that a reasonable
and informed third party, having knowledge of all relevant information, including safeguards applied, would
reasonably conclude a firm’s, or a member of the assurance team’s integrity, objectivity or professional skepticism
has been compromised.

 NETWORK
- The Code of Ethics defines a network, as a larger structure that is:
 Aimed at cooperation, and
 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.
- The firm should communicate orally and in writing at least annually, all relationships and other
matters between the firm, network firms and the financial statement audit client that in the firm’s
professional judgment may be thought to bear on independence.

 PROFESSIONAL RESOURCES
According to Section 290.5 of the Code, professional resources include:
o Common systems that enable firms o exchange information such as client data, billing and time records;
o Partners and staff;
 o Technical departments to consult on technical or industry specific issues, transactions or events for
assurance engagements.
o Audit methodology or audit manuals; and
o Training courses and facilities.

 ENGAGEMENT PERIOD
The Code of Ethics provides that:
o 1. The engagement period starts when the assurance team begins to perform assurance services and ends
when the assurance report is issued, except when the assurance engagement is of a recurring nature.
o 2. If the engagement is expected to recur, the engagement period ends with the notification by either party
that the professional relationship has terminated or the issuance of the final assurance report, whichever is
later.
o 3. In the case of a financial statement audit, the engagement period includes the period covered by the
financial statements reported on by the firm.

 LOAN AND LOAN GUARANTEE

o According to the Code of Ethics, a loan, or a guarantee of a loan, from an assurance client, that is a bank or
a similar institution, to a member of the assurance team or his immediate family would not create a threat
to independence provided the loan, or guarantee, is made under normal lending procedures, terms and
requirements.
o Examples of such loans include credit card obligations which are normally available to other credit card
holders and fully secured car loans and housing loans which are not past due.

 DEPOSITS
o The Code of Ethics states that deposits made by, or brokerage accounts of, a firm or a member of the
assurance team with an assurance client that is a bank, broker or similar institution would not create a
threat to independence provided the deposit or account is held under normal commercial terms.

 CODE OF ETHICS: CONCEPTUAL FRAMEWORK

o Identify
o Evaluate
o Respond to threats to compliance with the fundamental ethical principles

 THREATS TO COMPLIANCE WITH THE FUNDAMENTAL PRINCIPLES

 Self-interest threat
 Self-review threat
 Advocacy threat
 Familiarity threat
 Intimidation threat

Self-interest threat - May occur as a result of the financial or other interests of a professional accountant or of an
immediate or close family member.
- As defined in the Code, an immediate family member is a spouse (or equivalent) or dependent while
a close family member is a parent, child or sibling, who is not an immediate family member.
 - The Code of Ethics gives the following examples of circumstances that may create self-interest threats
for a professional accountant in public practice:
1. A financial interest in a client or jointly holding a financial interest with a client. Financial interest is
defined in the Code as “an interest in an equity or other security, debenture, loan or other debt
instrument of an entity, including rights and obligations to acquire such an interest and derivatives
directly related to such interest”.
2. Undue dependence on total fees from a client.
3. Having a close business relationship with a client.
4. Concern about the possibility of losing a client
5. Potential employment with a client.
6. Contingent fees relating to an assurance engagement.
-As defined in the Code, a contingent fee is “a fee calculated on a predetermined basis relating to
the outcome or result of a transaction or the result of the work performed”.
-According to the Code of Ethics, a fee established by a court or other public authority is not a
contingent fee.

Self-review threat - may occur when a previous judgment needs to be reevaluated by the professional accountant
responsible for that judgment.
Examples of circumstances that may create self-review threats include, but are not limited to:
o The discovery of a significant error during a re-evaluation of the work of the professional accountant in
public practice.
o Reporting on the operation of financial systems after being involved in their design or implementation
o Having prepared the original data used to generate records that are the subject matter of the engagement.
o A member of the assurance team being, or having recently been , a director or officer of that client
o A member of the assurance team being, or having recently been, employed by the client in a position to
exert direct and significant influence over the subject matter of the engagement.
o Performing a service for a client that directly affects the subject matter of the assurance engagement.

Advocacy threat - ay occur when a professional accountant promotes a position or opinion to the point that
subsequent objectivity may be compromised.
-Examples of circumstances that may create advocacy threats include, but are not limited to:
o Promoting shares in a listed entity when that entity is a financial statement audit client.
o Acting as an advocate on behalf of an assurance client in litigation or disputes with third parties.

Familiarity Threat - May occur when, because of a close relationship, a professional accountant becomes too
sympathetic to the interests of others.
-Examples of circumstances that may create familiarity threats include, but are not limited to:
o A member of the engagement team having a close or immediate family relationship with a director or
officer of the client
o A member of the engagement team having a close or immediate family relationship with an employee of
the client who is in a position to exert direct and significant influence over the subject matter of the
engagement.
o A former partner of the firm being a director or officer of the client or an employee in a position to exert
direct and significant influence over the subject matter of the engagement.
o Accepting gifts or preferential treatment from a client, unless the value is clearly insignificant.
o Long association of senior personnel with the assurance client.
 Intimidation threat - May occur when a professional accountant may be deterred from acting objectively by
threats, actual or perceived.
-Examples of circumstances that may create intimidation threats include, but are not limited to:
o Being threatened with dismissal or replacement in relation to a client engagement.
o Being threatened with litigation.
o Being pressured to reduce inappropriately the extent of work performed in order to reduce fees.

 SAFEGUARDS
 If identified threats are other than clearly insignificant, a professional accountant should identify and apply
safeguards to eliminate or reduce such threats to an acceptable level.
 This will ensure that compliance with the fundamental principles is not compromised.
 Safeguards are categorized into:
o 1. Safeguards created by the profession, legislation, and regulation; and
 1. Educational, training and experience requirements for entry into the profession.
 2. Continuing professional development requirements.
 3. Corporate governance regulations.
 4. Professional standards
 5. Professional or regulatory monitoring and disciplinary procedures.
 6. External review by a legally empowered third party of the reports, returns, communications or
information produced by a professional accountant.

o 2. Safeguards in the work environment.

 Firm-wide safeguards

1. Leadership of the firm that stresses the importance of compliance with the fundamental principles

2. Leadership of the firm that establishes the expectation those members of an assurance team will act
in the public interest.

3. Policies and procedures to implement and monitor quality control of engagements.

4. Documented policies regarding the identification of threats to compliance with the fundamental
principles, the evaluation of the significance of these threats and the identification and the application
of safeguards to eliminate or reduce the threats, other than those that are clearly insignificant, to an
acceptable level.

5. For firms that perform assurance engagements, documented independence policies regarding the
identification of threats to independence, the evaluation of the significance of these threats and the
evaluation and application of safeguards to eliminate or reduce the threats, other than those that are
clearly insignificant, to an acceptable level.

6. Documented internal policies and procedures requiring compliance with the fundamental principles.
 7. Policies and procedures that will enable the identification of interests or relationships between the
firm or members of engagement teams and clients.

8. Policies and procedures to monitor and, if necessary, manage the reliance on revenue received from
a single client.

9. Using different partners and engagement teams with separate reporting lines for the provision of
non-assurance services to an assurance client.

10. Policies and procedures to prohibit individuals who are not members of an engagement team from
appropriately influencing the outcome of the engagement.

 Engagement specific safeguards

1. Involving an additional professional accountant to review the work done or otherwise advise as
necessary.
2. Consulting an independent third party, such as a committee of independent auditors, a
professional regulatory body or another professional accountant.
3. Discussing ethical issues with those charged with governance of the client.
4. Disclosing to those charged with governance of the client the nature of service provided and
extent of fees charged.
5. Involving another firm to perform or re-perform part of the engagement.
6. Rotating senior assurance team personnel.

 The Code provides that, depending on the engagement, a professional accountant in public practice may also be
able to rely on safeguards within the client’s systems and procedures.
 However, a professional accountant cannot rely solely on such safeguards to reduce threats to an acceptable level.

 If appropriate safeguards cannot be implemented, a professional accountant should:

o 1. Decline or discontinue the specific professional service involved; or
o 2. Where necessary, resign from the client (if in public practice) or the employing organization (if in
business).

 Ethical Conflict Resolution

 When initiating either a formal or informal conflict resolution process, a professional accountant should
consider the following:
o Relevant facts
o Ethical issues involved
o Fundamental principles related to the matter in question
o Established internal procedures
o Alternative courses of action

 Where a matter involves conflict with, or within, an organization, a professional accountant should also
consider consulting with those charged with governance of the organization, such as the board of directors
or the audit committee.
 If a significant conflict cannot be resolved, a professional accountant may wish to obtain professional
advice from the relevant professional body or legal advisors

 If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, a professional
accountant should, where possible, refuse to remain associated with the matter creating the conflict.