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PSA 210 [AMENDED BY PSA 700(REVISED)]TERMS OF AUDIT ENGAGEMENTS

1. The purpose of this standard is to establish standards and provide guidelines on:
a. Agreeing the terms of the engagement with the client; and
b. The auditors response to a request by a client to change the terms of an engagement to one that provides a
lower level of assurance.
2. Audit Engagement Letters
It is in the interest of both client and auditor that the auditor sends an engagement letter, preferably before the
commencement of the engagement, to help in avoiding misunderstandings with respect to the engagement.
Principal Contents
An engagement letter would generally include reference to:

The objective of the audit of financial statements.

Managements responsibility for the financial statements.

The financial reporting framework adopted by management in preparing the financial statements.

The scope of the audit, including reference to applicable legislation, regulations or pronouncements of
professional bodies to which the auditor adheres.

The form of any reports or other communication of results of the engagement.

The fact that because of the test nature and other inherent limitations of an audit, together with the
inherent limitations of any accounting and internal controls system, there is an unavoidable risk that even
some material misstatement may remain undiscovered.

Unrestricted access to whatever records, documentation and other information requested in connection
with the audit.
3. Acceptance of a Change in Engagement
1. An auditor who, before the completion of the engagement, is requested to change the engagement tone which
provides a lower level of assurance, should consider the appropriateness of doing so.
2. A request from the client for the auditor to change the engagement may result from:
a. A change in circumstances affecting the need for the service;
b. A misunderstanding as to the nature of an audit or related service originally requested; or
c. A restriction on the scope of the engagement, whether imposed by management or caused by circumstances.
(NOTE: A or B would ordinarily be a reasonable basis for requesting a change in the engagement)
3. A change would not be considered reasonable if it appeared that the change relates to information that is
incorrect, incomplete or otherwise unsatisfactory.
4. Before agreeing to change an audit engagement to a related service, an auditor would also consider any legal or
contractual implications of the change. 5. If the auditor concludes that there is reasonable justification to change
the engagement and if the audit work performed complies with the PSAs applicable to the change engagement, the
report issued would be that appropriate for the revised terms of the engagement.
6. In order to avoid confusing the reader, the report would not include reference to:
a. The original engagement; or
b. Any procedures that may have been performed by the original engagement, except where the engagement is
changed to undertake agreed-upon procedures.
7. Where the terms of the engagement are changed, the auditor and the client should agree in the new terms.
8. The auditor should not agree to a change of engagement where there is no reasonable justification for doing so.
9. If the auditor is unable to agree to a change of engagement and is not permitted to continue the original
engagement, the auditor should withdraw and consider whether there is any obligation, contractual or otherwise, to
report to other parties, such as the board of directors or shareholders, the circumstances necessitating the
withdrawal.
PSA 300 (Rev.) PLANNING AN AUDIT OF FINANCIAL STATEMENTS
1. Planning an audit involves:

establishing the overall audit strategy for the engagement and

developing an audit plan,

in order to reduce audit risk to an acceptably low level.


Preliminary Engagement Activities
2. The auditor should perform the following activities at the beginning of the current audit engagement:

Perform procedures regarding the continuance of the client relationship and the specific audit
engagement.

Evaluate compliance with ethical requirements, including independence.

Establish an understanding of the terms of the engagement.


Planning Activities
3. The auditor should establish the overall audit strategy for the audit. The overall audit strategy sets the scope,
timing and direction of the audit, and guides the development of the more detailed audit plan
4. The establishment of the overall audit strategy involves:

a.) Determining the characteristics of the engagement that define its scope;
b.) Ascertaining the reporting objectives of the engagement to plan the timing of the audit and the nature of the
communication required; and
c.) Considering the important factors that will determine the focus of the engagement teams efforts.
5. The auditor should develop an audit plan for the audit in order to reduce audit risk to an acceptably low level.
6. The audit plan is more detailed than the overall audit strategy and includes the nature, timing and extent of audit
procedures to be performed by engagement team members in order to obtain sufficient appropriate audit evidence
to reduce audit risk to an acceptably low level.
7. The audit plan includes:

A description of the nature, timing and extent of planned risk assessment procedures sufficient to assess
the risks of material misstatement as determined under PSA 315, Understanding the Entity and its
Environment and Assessing the Risks of Material Misstatement.;

A description of the nature, timing and extent of planned further audit procedures at the assertion level for
each material class of transactions, account balance, and disclosure, as determined under PSA 330, The
Auditors Procedures in Response to Assessed Risks,; and

Such other procedures required to be carried out for the engagement in order to comply with PSAs
Changes to Planning Decisions during the Course of the Audit
The overall audit strategy and the audit plan should be updated and changed as necessary during the course of the
audit.
Direction, Supervision and Review
1. The auditor should plan the nature, timing and extent of direction and supervision of engagement team members
and review their work.
2. The nature, timing and extent of the direction and supervision of engagement team members and review of their
work vary depending on many factors, including:

The size and complexity of the entity;

The area of audit;

The risks of material misstatement; and

The capabilities and competence of personnel performing the audit work.


3. The auditor plans the nature, timing and extent of direction and supervision of engagement team members
based on the assessed risk of material misstatement.
Documentation
The auditor should document the overall audit strategy and the audit plan, including any significant changes made
during the audit engagement.
Communications with Those Charged with Governance and Management
1. The auditor may discuss elements of planning with those charged with governance and the entitys
management.
2. Discussions with those charged with governance ordinarily include the overall audit strategy and timing of the
audit, including any limitations thereon, or any additional requirements.
3. When discussion of matters included in the overall audit strategy or audit plan occur, care is required in order not
to compromise the effectiveness of the audit.

Additional Considerations in Initial Audit Engagements


The auditor should perform the following activities prior to starting an initial audit:
1. Perform procedures regarding the acceptance of the client relationship and the specific audit engagement.
2. Communicate with the previous auditor, where there has been a change of auditors, in compliance with relevant
ethical requirements.
PSA 315 UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT AND ASSESSING THE RISKS OF
MATERIAL MISSTATEMENT
1. The auditor should obtain an understanding of the entity and its environment, including its internal control,
sufficient to identify and assess the risks of material misstatement of the financial statements whether due to fraud
or error, and sufficient to design and perform further audit procedures.
2. The auditor should perform the following risk assessment procedures to obtain an understanding of the entity
and its environment, including its internal control:
a.) Industry, regulatory, and other external factors, including the applicable financial reporting framework.
b.) Nature of the entity, including the entitys selection and application of accounting policies.
c.) Objectives and strategies and the related business risks that may result in a material misstatement of the
financial statements.
d.) Measurement and review of the entitys financial performance.
e.) Internal control.
INTERNAL CONTROL

1. Internal control is the process designed and effected by those charged with governance, management, and other
personnel to provide reasonable assurance about the achievement of the entitys objectives with regard to:

Reliability of financial reporting;

Effectiveness and efficiency of operations; and

Compliance with applicable laws and regulations.


2. The auditor uses the understanding of internal control to:

Identify types of potential misstatements;

Consider factors that affect the risks of material misstatement; and

Design the nature, timing and extent of further audit procedures.


3. Internal control consists of the following components:
1.) The control environment.
2.) The entitys risk assessment process.
3.) The information system, including the related business processes, relevant to financial reporting, and
communication.
4.) Control activities.
5.) Monitoring of controls.
The control environment includes the governance and management functions and the attitudes, awareness, and
actions of those charged with governance and management concerning the entitys internal control and its
importance in the entity.
Elements of control environment:
a) Communication of enforcement of integrity and ethical values.
b) Commitment to competence.
c) Participation by those charged with governance.
d) Managements philosophy and operating style.
e) Organizational structure.
f) Assignments of authority and responsibility.
g) Human resource policies and practices.
The auditor should obtain an understanding of the entitys risk assessment process, i.e., the entity process for
identifying business risks relevant to financial reporting objectives and deciding about actions to address those
risks, and the results thereof.
The auditor should obtain an understanding of the information system, including the related business processes,
relevant to financial reporting, including the following areas:

The classes of transactions in the entitys operations that is significant to the financial statements.

The procedures, within both IT and manual systems, by which those transactions are initiated, recorded,
processed and reported in the financial statements.

The related accounting records, whether electronic or manual, supporting information, and specific
accounts in the financial statements, in respect of initiating, recording, processing and reporting
transactions.

How the information system captures events and conditions, other than classes of transactions that are
significant to the financial statements.

The financial reporting process used to prepare the entitys financial statements, including significant
accounting estimates and disclosures.
Control activities are the policies and procedures to help ensure that management directives are carried out.
Examples of control activities include those relating to the following:

Authorization

Performance reviews.

Information processing.

Physical controls.

Segregation of duties.
Monitoring of controls involves assessing the design and operation of controls on a timely basis and taking the
necessary corrective actions modified for changes in conditions.

4. Obtaining an understanding of internal control involves:


a) Evaluating the design of a control; and
b) Determining whether it has been implemented.
ASSESSING THE RISKS OF MATERIAL MISSTATEMENT

1. The auditor should identify and assess the risks of material misstatement at the financial statements level, and at
the assertion level for classes of transactions, account balances, and disclosures.
2. The auditor:

Identifies risks throughout the process of obtaining an understanding of the entity and its environment,
including relevant controls that relate to the risks, and by considering the classes of transactions, account
balances, and disclosures in the financial statements;

Relates the identified risks to what can go wrong at the assertion level; Considers whether the risks are
of a magnitude that could result in a material misstatement of the financial statements; and

Considers the likelihood that the risks could result in a material misstatement of the financial statements.
PSA 320 AUDIT MATERIALITY
1. Materiality should be considered by the auditor when:

Determining the nature, timing and extent of audit procedures; and

Evaluating the effect of misstatements


2. There is an inverse relationship between materiality and the level of audit risk 3. In evaluating whether the
financial statements are prepared, in all material respects, in accordance with an applicable financial reporting
framework, the auditor should assess whether the aggregate of uncorrected misstatements that have been
identified during the audit is material.
4. If the auditor concludes that the aggregate of uncorrected misstatements may be material, the auditor needs to
consider:

Reducing audit risk by extending audit procedures; or

requesting management to adjust the financial statements for the misstatements identified
5. If management refuses to adjust the financial statements and the results of extended audit procedures do not
enable the auditor to conclude that the aggregate of uncorrected misstatements is not material, the auditor should
consider the appropriate modification to the auditors report.
6. If the auditor has identified a material misstatement resulting from error, the auditor should communicate the
misstatements to the appropriate level of management on a timely basis, and consider the need to report it to
those charged with governance.
PSA 230 (Revised) AUDIT DOCUMENTATION
1. The auditor should prepare, on a timely basis, audit documentation that provides:

a sufficient and appropriate record of the basis for the auditors report; and

evidence that the audit was performed in accordance with PSAs and applicable legal and regulatory
requirements
2. Audit documentation means the record of audit procedures performed, relevant audit evidence obtained, and
conclusions the auditor reached (terms such as working papers or work papers are also sometimes used).
3. experience auditor means an individual (whether internal or external to the firm) who has reasonable
understanding of

Audit processes;

PSAs and applicable legal and regulatory requirements

The business environment in which the entity operates; and

Auditing and financial reporting issues relevant to the entitys industry


4. Audit documentation may be recorded on paper or on electronic or other media
5. The auditor should prepare the audit documentation so as to enable an experiences auditor, having no precious
connection with the audit, to understand:

the nature, timing , and extent of the audit procedures performed to comply with PSAs and applicable legal
and regulatory requirements

the results of the audit procedures and the audit evidence obtained; and significant matters arising
during the audit and the conclusions reached thereon
6. In documenting the nature, timing and extent of audit procedures performed, the auditor should record the
identifying characteristics of the specific items or matters being tested
7. The auditor should document discussions of significant matters with management and others on a timely basis
8. where, in exceptional circumstances, the auditor judges it necessary to depart from a basic principle or an
essential procedure that is relevant in the circumstances of the audit, the auditor should document how the
alternative audit procedures performed achieved the objective of the audit, and, unless otherwise clear, the reasons
for the departure
9. The auditor should record:

who performed the audit work and the date such work was completed

who reviewed the audit work performed and the date and extent of such review
Assembly of the final audit file
10. The auditor should complete the assembly of the final audit file on a timely basis after the date of the auditors
report. As PSQC 1 indicates, 60 days after the date of the auditors report is ordinarily an appropriate time limit
within which to complete the assembly of the final audit file
CODE OF PROFESSIONAL ETHICS FOR CPAs
Code of Ethics for Professional Accountants in the Philippines

is based on the International Code of Ethics for professional accountants developed by the International
Federation of Accountants.
Is mandatory for all CPAs and is applicable to professional services performed in the Philippines on or after
January 1, 2004.
Is divided into three parts:
Part A - applies to all professional accountants unless otherwise specified Part B - applies only to those
professional accountants in public practice Part C - applies to employed professional accountants, and
may also apply, in appropriate circumstances, to accountants employed in public practice

CPAs should observe the following FUNDAMENTAL PRINCIPLES:


1. Integrity
2. Objectivity
3. Professional competence and due care
4. Confidentiality
5. Professional behavior
6. Technical standards
RULES APPLICABLE TO ALL PROFESSIONAL ACCOUNTANTS
1. INTEGRITY AND OBJECTIVITY
a. Integrity implies not merely honesty but fair dealing and truthfulness. The principle of objectivity imposes the
obligation on all professional accountants to be fair, intellectually honest, and free of conflicts of interest.
b. Professional accountants should neither accept nor offer gifts or entertainment which might reasonably be
believed to have a significant and improper influence on their professional judgment or those with whom they deal.
2. PROFESSIONAL COMPETENCE may be divided into two separate phases
a. Attainment of professional competence- requires initially a high standard of general education followed by
specific education, training, and examination in professionally relevant subjects and a period of work experience.
b. Maintenance of professional competence requires a continuing awareness of development in the accountancy
profession including relevant national and international pronouncements on accounting, auditing, and other
relevant regulations and statutory requirements
3. CONFIDENTIALITY
a. Professional accountants have an obligation to respect the confidentiality of information about a clients or
employers affairs acquired in the course of professional services.
b. The duty of confidentiality continues even after the end of the relationship between the professional accountant
and the client or employer.
4. TAX PRACTICE
a. The professional accountant should ensure that the client or the employer are aware of the limitations attaching
to tax advice and services so that they do not misinterpret an expression of opinion as an assertion of fact.
b. A professional accountant should not be associated with any return or communication in which there is reason to
believe that it:
1. Contains a false or misleading statement;
2. Contains statements or information furnished recklessly or without any real knowledge of whether they are true
or false; or
3. Omits or obscure information required to be submitted and such omission or obscurity would mislead the revenue
authorities.
c. When a professional accountant learns of a material error or omission in a tax return of a prior year, or the failure
to file a required tax return, he/she has a responsibility to:
1. Promptly advise the client or employer of the error or omission and recommend that disclosure be made to the
revenue authorities.
2. If the client or employer does not correct the error, he/she:
a. Should inform the client or the employer that it is possible to act for them in connection with that return or other
related information submitted to the authorities; and
b. Should consider whether continued association with the client or employer in any capacity is consistent with
professional responsibilities.
5. CROSS BORDER ACTIVITIES
When a professional accountant performs services in a country other than the home country and differences on
specific matters exist between ethical requirements of the two countries, the following provisions should be applied:
1. When the ethical requirements of the country in which the services are being performed are LESS STRICT than
the Philippine Code of Ethics, then our code should be applied.
2. When the ethical requirements of the country in which the services are being performed are STRICTER than our
code, then the ethical requirements in the country where services are being performed should be applied.
3. When the ethical requirements of the Philippines are mandatory for services performed outside the Philippines
and are stricter than that set out in (1) and (2) above, then the ethical requirements of the Philippines should be
applied.
6. PUBLICITY
In the marketing and promotion of themselves and their work, professional accountants should:
a. Not use means which brings the profession into disrepute.
b. Not make exaggerated claims for the services they are able to offer, the qualifications they possess, or
experience they have gained; and

c. Not denigrate the work of other accountants.


RULES APPLICABLE TO PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE
INDEPENDENCE
a. Independence requires:
1. Independence of mind The state of mind that permits the provision of an opinion without being affected by
influences that compromise professional judgment, allowing an individual to act with integrity, and exercise
objectivity and professional skepticism.
2. 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 firms, or a member of the assurance teams integrity, objectivity or professional skepticism
had been compromised.
b. Members of assurance teams, firms, and network firms should identify THREATS to independence, evaluate the
significance of those threats, and, if the threats are other than clearly insignificant, identify and apply SAFEGUARDS
to eliminate the threats or reduce them to acceptable level, such that independence of mind and independence in
appearance are not compromised. In situations when no safeguards are available to reduce the threat to an
acceptable level. The only possible actions are to:
1. Eliminate the activities or interest creating the threat; or
2. Refuse to accept or continue the assurance engagement.
INDEPENDENCE REQUIREMENTS IN ASSURANCE ENGAGEMENTS
a. For assurance engagements provided to an audit client, the member of the assurance team, the firm and
network firms are required to be independent of the client
b. For assurance engagements provided to clients that are not audit clients, when the report is not expressly
restricted for use by identified users, the members of the assurance team and firm are required to be independent
of the client
c. For assurance engagements provided to clients that are not audit clients, when the assurance report is expressly
restricted for use by identified users, the members of the assurance team are required to be independent of the
client. N addition, the firm should not have a material direct or indirect financial interest in the client
Network firm an entity under common control, ownership or management with the firm or any entity that a
reasonable and informed third party having knowledge of all relevant information would reasonably conclude as
being part of the firm nationally or internationally
Financial interest an interest in 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
Direct financial interest a financial interest:
1. Owned directly by and under the control of an individual or entity; or
2. Beneficially owned through a collective investment vehicle, estate, trust or other intermediary over which the
individual or entity has control Indirect financial interest a financial interest beneficially owned through a collective
investment vehicle, estate, trust or other intermediary over which the individual or entity has no control
THREATS TO INDEPENDENCE
1. SELF-INTEREST THREAT Occurs when a firm or a member of the assurance team could benefit from a financial
interest in, or other self-interest conflict with, an assurance client. Examples:
a. A direct financial interest or material indirect financial interest in an assurance client
b. A loan or guarantee to or from an assurance client or any of its directors or officers
c. Undue dependence on total fees from an assurance client
d. Concern about the possibility of losing the engagement
e. Having a close business relationship with an assurance client
f. Potential employment with an assurance client
g. Contingent fees relating to assurance engagements
2. SELF-REVIEW THREAT Occurs when:
a. Any product or judgment of a previous assurance engagement or non-assurance engagement needs to be
reevaluated in reaching conclusions on the assurance engagement or;
b. When a member of the assurance team was previously a director or officer of the assurance client, or was an
employee in a position to exert direct and significant influence over the subject matter of the assurance
engagement
3. ADVOCACY THREAT Occurs when a firm, or a member of the assurance team, promotes, or may be perceived to
promote, an assurance clients position or opinion to the point that objectivity may, or may be perceived to be
compromised
4. FAMILIARITY THREAT Occurs when, by virtue of a close relationship with an assurance client, its directors, officers
or employees, a firm or a member of the assurance team becomes too sympathetic to the clients interests.
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5. INTIMIDATION THREAT Occurs when a member of the assurance team may be deterred from acting objectively
and exercising professional skepticism by threats, actual or perceived, from the directors, officers or employees of
an assurance client
SAFEGUARDS

1. When the threats are identified, other than those that are clearly insignificant, appropriate safeguards should be
identified and applied to eliminate the threats or reduce them to an acceptable level. This decision should be
documented
2. When the safeguards are available are insufficient to eliminate the threats to independence or to reduce them to
an acceptable level, or when a firm chooses not to eliminate the activities or interest creating the threat, the only
course of action available will be the refusal to perform, or withdrawal from, the assurance engagement
CATEGORIES OF SAFEGUARDS
1. Safeguards created by the profession, legislation or regulation
2. Safeguards within the assurance client
3. Safeguards within the firms own systems and procedures
Safeguards created by the profession, legislation or regulation include:
a. Educational, training and experience requirements for entry into the profession
b. Continuing education requirements
c. Professional standards and monitoring and disciplinary processes
d. External review of a firms quality control systems; and
e. Legislation governing the independence requirements of the firm
Safeguards within the assurance client include the following:
a. When the assurance clients management appoints the firm, persons other than management ratify or approve
the appointment
b. The assurance client has competent employees to make managerial decisions c. Policies and procedures that
emphasize the assurance clients commitment to fair financial reporting
d. Internal procedures that ensure objective choices in commissioning non-assurance engagements; and
e. A corporate governance structure, such as an audit committee, that provides appropriate oversight and
communications regarding a firms services
Safeguards within the firms own systems and procedures may include FIRMWIDE safeguards such as
the following:
a. Firm leadership that stresses the importance of independence and the expectation that members of assurance
teams will act in the public interest
b. Policies and procedures to implement and monitor quality control of assurance engagements
c. Documented independence policies
d. Internal policies and procedures to monitor compliance with firm policies and procedures as they relate to
independence
e. Policies and procedures that will enable the identification of interests or relationships between the firm or
members of the assurance team and assurance client
f. Policies and procedures to monitor and, if necessary, mange the reliance on revenue received from a single
assurance client
g. Using different partners and teams with separate reporting lines for the provision of nonassurance service to an
assurance client
h. Policies and procedures to prohibit individuals who are not members of the assurance team from influencing the
outcome of the assurance engagement
i. Timely communication of a firms policies and procedures, and any changes thereto, to all partners and
professional staff, including appropriate training and education thereon
j. Designating a member of senior management as responsible for overseeing the adequate functioning of the
safeguarding system
k. Means of advising partners and professional staff of those assurance clients and related entities from which they
must be independent
l. A disciplinary mechanism to promote compliance with policies and procedures; and
m. Policies and procedures to empower staff to communicate to senior levels within the firm any issue of
independence and objectivity that concerns them; this includes informing staff of the procedures open to them
Safeguards within the firms own systems and procedures may include ENGAGEMENT SPECIFIC
safeguards such as the following:
a. Involving an additional professional accountant to review the work done or otherwise advise as necessary. This
individual could be someone from outside the firm or network firm, or someone with the firm or network firm who
was not otherwise associated with the assurance team
b. Consulting a third party, such as a committee of independent directors, a professional regulatory body or another
professional accountant
c. Rotation of senior personnel
d. Discussing independence issues with the audit committee or others charged with governance,
e. Disclosing to audit committee, or others charged with governance, the nature of services provided and extent of
fees charged
f. Policies and procedures to ensure members of the assurance team do not make, or assume responsibility for,
management decisions for the assurance client
g. Involving another firm to perform or re-perform part of the assurance engagement
h. Involving another firm to re-perform the non-assurance service to the extent necessary to enable to take
responsibility for that service; and

i. Removing an individual from the assurance team, when that individuals financial interest or relationships create a
threat to independence
ENGAGEMENT PERIOD
1. The members of the assurance team and the firm should be independent of the assurance client during the
period of the assurance engagement
2. The period of the engagement is expected to recur, the period of the assurance services and ends when the
assurance report is issued, except when the assurance engagements is of a recurring nature
3. If the assurance engagement s expected to recur, the period of the assurance engagement ends with the
notification by either party that the professional relationship has terminated or the issuance of the final assurance
report, whichever is later
4. In the case of an audit engagement, the engagement period includes the period covered by the financial
statements reported on by the firm
5. When an entity becomes an audit client during or after the period covered by the financial statements that the
firm will report on, the firm should consider whether any threats to independence may be created by:
a. Financial or business relationships with the audit client during or after the period covered by the financial
statements, but prior to the acceptance of the audit engagement; or
b. Previous services provided to the audit client
Similarly, in the case of an assurance engagement that is not an audit engagement, the firm should consider
whether any financial or business relationships or previous services may create threats to independence.

Republic of the Philippines


Congress of the Philippines
Metro Manila
Twelfth Congress
Third Regular Session

Begun and held in Metro Manila, on Monday, the twenty-eight day of July, two thousand three.
Republic Act No. 9298

May 13, 2004

AN ACT REGULATING THE PRACTICE OF ACCOUNTANCY IN THE PHILIPPINES, REPEALING FOR THE
PURPOSE PRESIDENTIAL DECREE NO. 692, OTHERWISE KNOWN AS THE REVISED ACCOUNTANCY
LAW, APPROPRIATING FUNDS THEREFOR AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
Section 1. Shorts Title. - This act shall be known as the "Philippine Accountancy Act of 2004"
Section 2. Declaration of Policy. - The State recognizes the importance of accountants in nation building
and development. Hence, it shall develop and nurture competent, virtuous, productive and well rounded
professional accountants whose standard of practice and service shall be excellent, qualitative, world class
and globally competitive though inviolable, honest, effective, and credible licensure examinations and though
regulatory measures, programs and activities that foster their professional growth and development.
Section 3. Objectives. - This Act shall provide and govern:
The standardization and regulation of accounting education;
The examination of registration of certified public accountants; and
The supervision, control, and regulation of the practice of accountancy in the Philippines.
Section 4. Scope of Practice. - The practice of accountancy shall include, but not limited to, the following:
(a) Practice of Public Accountancy - shall constitute a person, be it his/her individual capacity, or as a staff
member in an accounting or auditing firm, holding out himself/herself as 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 or more than one client on a fee basis or otherwise, services as
such as the audit or verification of financial transaction and accounting records; or the preparation, signing, or
certification for clients of reports of audit, balance sheet, and other financial, accounting and related
schedules, exhibits, statement of reports which are to be used for publication or for credit purposes, or to be
filed with a court or government agency, or to be used for any other purposes; or to design, installation, and
revision of accounting system; or the preparation of income tax returns when related to accounting
procedures; or when he/she represent clients before government agencies on tax and other matters relating
to accounting or render professional assistance in matters relating to accounting procedures and the
recording and presentation of financial facts or data.

(b) Practice in Commerce and Industry - shall constitute in a person involved in decision making requiring
professional knowledge in the science of accounting, or when such employment or position requires that the
holder thereof must be a certified public accountant.
(c) Practice in Education/Academe - shall constitute in a person in an educational institution which involve
teaching of accounting, auditing, management advisory services, fianc, business law, taxation and other
technically related subject: Provided, That members of the Integrated Bar of the Philippines may be allowed to
teach business law and taxation subjects.
(d) Practice in Government - shall constitute in a person who holds, or is appointed to, a position in an
accounting professional group in government or in an government-owned and/or controlled corporation,
including those performing proprietary functions, where decision making requires professional knowledge in
the science of accounting, or where a civil service eligibility as a certified public accountant is a prerequisite.
ARTICLE II
PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY
Section 5. The Professional Regulatory Board of Accountancy and its Composition. - The
Professional Regulatory Board of Accountancy, hereinafter referred to as Board, under the supervision and
administrative control of the Professional Regulation Commission, hereinafter referred to as the Commission,
shall be composed of a Chairman and six (6) members to be appointed by the President of the Philippines
from a list of three (3) recommendees for each position and ranked by the Commission from a list of five (5)
nominees for each position submitted by the accredited national professional organization of certified public
accountant. The Board shall elect a vice-chairman from among each members for a term of one (1) year. The
chairman shall preside in all meetings of the Boards and in the event of a vacancy in the office of the
chairman, the vice-chairman shall assume such duties and responsibilities until such time as a chairman is
appointed.
Section 6. Qualifications of a members of the Professional Regulatory Board. - A member of the
Board shall, at the time of his/her appointment, posses the following qualifications:
Must be a natural-born citizen and a resident of the Philippines;
Must be a duly registered Certified Public Accountant with at least ten (10) years of work experience in any
scope of practice of accountancy;
Must be a good moral character and must not have been convicted of crimes involving moral turpitude; and
Must not have any pecuniary interest, directly or indirectly, in any school, college, university or institution
conferring an academic degree necessary for admission to the practice of accountancy or where review
classes in preparation for the licensure examination are being offered or conducted, nor shall he/she be a
member of the faculty or administration thereof at a time of his/her appointment to the Board.
Section 7. Term of Office. - The Chairman and Members of the Board shall hold office for a term of three (3)
years. Any vacancy occurring within the term of a member shall be filled up for the unexpired portion of the
term only. No person who has served two (2) successive complete terms shall be eligible for reappointment
until the lapse of one (1) year. Appointment to fill up an expired term is not to be considered as a complete
term.
Section 8. Compensation and Allowances of the Board. - The chairman and the members of the Board
shall receive compensation and allowances comparable to that being received by the chairman and members
of existing regulatory boards under the Commission as provided for in the General Appropriate Act.
Section 9. Powers and Functions of the Board. - The Board shall exercise the following specific powers,

functions and responsibilities:


To prescribed and adopt the rules and regulations necessary for carrying out the provisions of this Act;
To supervise the registration, licensure and practice of accountancy in the Philippines;
To administer oaths in connection with the administration of this Act;
To issue, suspend, revoke, reinstate the Certificate of Registration for the practice of the accountancy
profession;
To adopt an official seal of the Board;
To prescribe and/or adopt a Code of Ethics for the practice of accountancy;
To monitor the conditions affecting the practice of accountancy and adopt such measures, including
promulgation of accounting and auditing standards, rules and regulations and best practices as may be
deemed proper for the enhancement and maintenance of high professional, ethical, accounting and auditing
standards: That domestic accounting and auditing standards rules and regulations shall include the
international accounting and auditing standards, and generally accepted best practices;
To conduct an oversight into the quality of audits of financial statements though a review of the quality
control measures instituted by auditors in order to ensure compliance with the accounting and auditing
standards and practices,
To investigate violations of this act and the rules and regulations promulgated hereunder and for the purpose,
to issue summons, subpoena and subpoena ad testificandum and subpoena duces tecum to violator or
witness thereof and compel their documents in connection therewith: Provided, That the Board upon approval
of the Commission may, subject to such rules and regulations that may be promulgated to implement this
section, delegate the fact-finding aspect of such investigations to the accredited national professional
organization of certified public accountant: Provided, further, That the Board and/or the Commission may
adopt their findings of fact as may be seems fit;\
The Board may, muto propio in its discretion, may such investigations as it deem necessary to determine
whether any person has violated any provisions of this law, any accounting or auditing standard or rules duly
promulgated by the Board as part of the rules governing the practice of accountancy;
To issue a cease or desist order to any person, associations, partnership or corporation engaged in violation of
any provision of this Act, any accounting or auditing standards or rules of duly promulgated by the Board as
part of the rules governing the practice of accountancy in the Philippines;
To punish for contempt of the Board, both direct and indirect, in accordance with the pertinent provision of
and penalties prescribed by the Rules of Court;
To prepare, adopt, issue or amend the syllabi of the subjects for examinations in consultation with the
academe, determine and prepare questions for the licensure examination which shall strictly be within the
scope of the syllabi of the subjects for examinations as well as administer, correct and release the result of
the licensure examinations;
To ensure the coordination with the Commission of the Higher Education (CHED) or other authorized
government offices that all higher educational instruction and offering of accountancy comply with the
policies, standards and requirements of the course prescribed by the CHED or other authorized government
offices in the areas of curriculum, faculty, library and facilities; and
To exercise such other powers as may be provided by law as well as those which may be implied from, or

which are necessary or incidental to the carrying out of, the express powers granted to the Board to achieve
the objectives and purposes of this Act.
The policies resolution, rules and regulations issued or promulgated by the Board shall be subject to review
and approval of the Commission. However, the Board's decisions, resolutions or orders rendered in the
administrative cases shall be subject to review only if on appeal.
Section 10. Administrative Supervisions of the Board, Custodian of its Records, Secretariat and
Support Services. - The Board shall be under the administrative supervision of the Commission. All records
of the Board, including applications for examination and administrative and other investigative cases
conduced by the Board shall be under the custody of the Commission. The Commission shall designate the
secretary of the Board and shall provide the secretariat and other support services to implement the
provisions of this Act.
Section 11. Grounds for Supervision or Removal of Members of the Board. - The President of the
Philippines, upon the recommendation of the Commission, after the giving the concerned member an
opportunity to defend himself in proper administrative investigation to be conducted by he Commission, may
suspend or remove any member of the following grounds:
Neglect of Duty or incompetence;
Violation or tolerance of any violation of this Act and it's implementation rules and regulations or the Certified
Public Accountant's Code of Ethics and the technical and professional standards of practice for certified public
accountant;
Final judgment of crimes involving moral turpitude; and
Manipulation or rigging of the certified public accountant's licensure examination results, disclosure of secret
and confidential information in the examination questions prior to the conduct of the said examination or
tampering of grades.
Section 12. Annual Report. - The Board shall, at the close of each calendar year, submit an annual report
to the President of the Philippines though the Commission giving the detailed account of its proceedings and
accomplishment during the year and making recommendations for the adoption of measures that will
upgrade and improve the conditions affecting the practice of accountancy in the Philippines.
ARTICLE III
EXAMINATION, REGISTRATION AND LICENSURE
Section 13. The Certified Public Accountant Examinations. - All applicants for registration for the
practice of accountancy shall be required to undergo a licensure examination to be given by the Board in such
places and dates as the Commission may be designate subject to compliance with the requirements
prescribed by the Commission in accordance with Republic Act No. 8981.
Section 14. Qualifications of Applicant for Examinations. - Any person applying for examination shall
establish the following requisites to the satisfaction of the Board that he/she:
is a Filipino citizen;
is of good moral character;
is a holder of the degree of Bachelor of Science in Accountancy conferred by the school, college, academy or
institute duly recognized and/or accredited by the CHED or other authorized government offices; and

has not been convicted of any criminal offence involving moral turpitude.
Section 15. Scope of Examination. - The licensure examination for certified public accountants shall cover,
but are not limited to, the following subjects:
Theory of Accounts
Business Law and Taxation
Management Services
Auditing Theory
Auditing Problems
Practical Accounting Problem I
Practical Accounting Problem II
The Board, subject to the approval of the Commission, may revise or exclude any of the subjects and their
syllabi, and add new ones as the need arises.
Section 16. Rating in the Licensure Examination. - To be qualified as having passed the licensure
examination for accountants, a candidate must obtain a general average of seventy five percent (75%), with
no grade lower than sixty-five percent (65%) in any given subject. In the event a candidate obtains the rating
of seventy-five percent (75%) and above in at least a majority of subjects as provided for in this Act, he/she
shall receive a conditional credit for the subjects passed: Provided, That a candidate shall take an
examination in the remaining subjects within two (2) years from preceding examination: Provided, further,
That if the candidate fails to obtain at least a general average of seventy-five percent (75%) and a rating of at
least sixty-five percent (65%) in each of the subjects reexamined, he/she shall be considered as failed in the
entire examination.
Section 17. Report of Rating. - The Board shall submit to the Commission the rating obtained by each
candidate within ten (10) calendar days after the examination, unless extended for just cause. Upon the
release of the results of the examination, the Commission shall send by mailing the rating received by each
examinee at his/her given address using the mailing envelop submitted during the examination.
Section 18. Failing Candidates to Take Refresher Course. - Any candidate who fails in two (2) complete
Certified Public Accountant Board Examinations shall be disqualified from taking another set of examinations
unless he/she submit evidence to the satisfaction of the Board that he/she enrolled in and completed at least
twenty-four (24) units of subject given in the licensure examination.
For purposes of this Act, the examination in which the candidate was conditioned together with the removal
examination on the subject in which he/she failed shall be counted as one compete examination.
Section 19. Oath. - All successful candidates in the examination shall required to take an oath of
professional before any member of the Board or before any government official authorized of the Commission
or any person authorized by law to administer oaths upon presentation of proof of his/her qualification, prior
to entering upon the practice of the profession.
Section 20. Issuance of Certificate of Registration and Professional Identification Card. - A
certificate of registration shall be issued to examinees who pass the licensure examination subject to
payment of fees prescribed by the Commission. The Certificate of Registration shall bear the signature of the
chairperson of the Commission and the chairman and members of the Board, stamped with the official seal of
the Commission and of the Board, indicating that the person named therein is entitled to the practice of the

profession with all the privileges appurtenant thereto. The said certificate shall remain in full force and effect
until withdrawn, suspended or revoked in accordance with this Act.
A Professional Identification Card bearing the registration number date of issuance, expiry date, duly signed
by the chairperson of the Commission, shall likewise be issued to every registrant renewable every three (3)
years.
Section 21. Roster of Certified Public Accountant. - A roster showing the names and place of business of
all registered certified public accountants shall be prepared and updated by the Board, and copies thereof
shall be made available to any party as may deemed necessary.
Section 22. Indication of Certificate of Registration, Identification Card and Professional Tax
Receipt. - The certified public Accountant shall be required to indicate his/her certificate of registration
number and date of issuance, the duration of validity, including the Professional Tax Receipt number on the
documents he/she signs, uses or issues in connection with the practice of his/her profession.
Section 23. Refusal to Issue Certificate of Registration and Professional Identification Card. - The
Board shall not register and issue a certificate of registration and professional identification Card to any
successful examinee convicted by the court of competent jurisdiction of a criminal offence involving moral
turpitude or guilty of immoral and dishonorable conduct to any person or unsound mind. In the event of
refusal to issue certificate for any reason, the Board shall give the applicant a written statement setting forth
the reasons for such action, which statement shall be incorporated in the record of the Board.
Section 24. Suspension and Revocation of Certificate of Registration and Professional
Identification Card and Cancellation of Special Permit. - The Board shall have the power, upon the
notice and hearing, to suspend or revoke the practitioner's certificate of registration and professional
identification card or suspend his/her from the practice of his/her profession or cancel his/her special permit
for any of the causes or ground mentioned under Section 23 of this Act or any of the provisions of this Act,
and its implementing rules and regulations, the certified Public Accountant's Code of Ethics and the technical
and professional standards of practice for certified public accountants.
Section 25. Reinstatement, Reissuance and Replacement of Revoked or Lost Certificates. - The
Board may, after the expiration of two (2) years from the date of revocation of a certificate of registration and
upon application and for reasons deemed proper and sufficient, reinstate the validity of a revoked certificate
of registration and in so doing, may, in its discretion, exempt the applicant from taking another examination.
A new certificate of registration to replace lost, destroyed, or mutilated certificate/license may be issued,
subject to the rules and promulgated by the Board and the Commission, upon the payment of the required
fees.
ARTICLE IV
PRACTICE OF ACCOUTANCY
Section 26. Prohibition in the Practice of Accountancy. - No person shall practice accountancy in this
country, or use the title "Certified Public Accountant", or use the abbreviated title "CPA" or display or use any
title, sign, card, advertisement or other device to indicate such person practices or offers to practice
accountancy, or is a certified public accountant, unless such person shall have received from the Board a
certificate of registration/Professional license and be issued a professional identification card or a valid
temporary/special permit duly issued to him/her by the Board and the Commission.
Section 27. Vested Rights. - Certified Public Accountants Registered When This Law is Passed. - All certified
public accountants registered at the time this law takes effect shall automatically be registered under the
provisions hereof, subject, however, to the provisions herein set forth as to future requirements. Certificate of
Registration/Professional license held by such persons in good standing shall have the same license force and

effect as though issued after the passage of this Act.


Section 28. Limitation of the Practice of Public Accountancy. - Single practitioners and partnerships for
the practice of public accountancy shall be registered certified public accountants in the Philippines: Provided,
That from the effectivity of this Act, a certificate of accreditation shall be issued to certified public accountant
in public practice only upon showing, in accordance with rules and regulations promulgated by the Board and
approved by the Commission, that such registrant has acquired a minimum of three (3) years meaningful
experience in any of the areas of public practice including taxation: Provide, further, that this requirement
shall not apply to those already granted a certificate of accreditation prior to the effectivity of this Act. The
Security and Exchange Commission shall not register any corporation organized for the practice of public
accountancy.
Section 29. Ownership of Working Papers. - All working papers, schedules and memoranda made by a
certified public accountant and his staff in the course of an examination, including those prepared and
submitted by the client, incident to or in the course of an examination, by such certified public accountant,
except reports submitted by a certified public accountant to a client shall be treated confidential and
privileged and remain the property of such certified public accountant in the absence of a written agreement
between the certified public accountant and the client, to the contrary, unless such documents are required to
be produced though subpoena issued by any court, tribunal, or government regulatory or administrative body.
Section 30. Accredited Professional Organization. - All registered certified public accountants whose
appear in the roster of certified public accountants shall be united and integrated though their membership in
a one and only registered and accredited national professional organization of registered and licensed
certified public accountants, which shall be registered with the Securities and Exchange Commission as a
nonprofit corporation and recognized by the Board subject to the approval by the Commission. The members
of the said integrated and accredited national professional organization shall receives benefits and privileges
appurtenant thereto upon payment of required fees and dues. Membership in the integrated organization
shall not be a bar to membership in any other association of certified public accountants.
Section 31. Accreditation to Practice Public Accountancy. - Certified public accountants, firms and
partnerships of certified public accountants, engaged in the practice of public accountancy, including partners
and staff members thereof, shall registered with the Commission and the Board, such registration to be
renewed every three (3) years: Provided, That subject to the approval of the Commission, the Board shall
promulgate rules and regulations for the implementation of registration requirements including the fees and
penalties for violation thereof.
Section 32. Continuing Professional Education (CPE) Program. - All certified public accountants shall
abide by the requirements, rules and regulations on continuing professional education to be promulgated by
the Board, subject to the approval of the Commission, in coordination with the accredited national
professional organization of certified public accountants or any duly accredited educational institutional. For
this purpose, a CPE Council is hereby created to implement the CPE program.
Section 33. Seal and Use of Seal. - All license 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 auditors
reports shall be stamped with the 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.
Section 34. Foreign Reciprocity. - Subject or citizen of foreign countries may be allowed to practice
accountancy in the Philippines in accordance with the provisions of existing laws, international treaty
obligations including mutual recognition agreement entered into by the Philippines government with other
countries. A person who is not a citizen of the Philippines shall not be allowed to practice accountancy in the
Philippines unless he/she can prove, in the manner provided by the Rules of Court that, specific provision of
law country of which he/she is a citizen, subject or national admits citizens of the Philippines to the practice of
the same profession without restriction.
Section 35. Coverage of Temporary/Special Permits. - Special/temporary permit may be issued by the
Board subject to the approval of the Commission and payment of the fees the latter has prescribed and

charged thereof to the following persons:


A foreign certified public accountant called for consultation or for specific purpose which, in the judgment of
the Board, is essential for the development of the country: Provided, That his/her practice shall be limited only
for the particular work that he/she is being engaged: Provided, further, That there is no Filipino certified public
accountant qualified for such consultation or specific purposes;
A foreign certified public accountant engaged as professor, lecturer or critic in fields essential to accountancy
education in the Philippines and his/her engagement is confined to teaching only; and
A foreign certified public accountant who is an internationally recognized expect or with specialization in any
branch of accountancy and his/her service is essential for the advancement of accountancy in the Philippines.
ARTICLE V
PENAL AND FIINAL PROVISIONS
Section 36. Penal Provision. - Any person who shall violate any of the provisions of this Act or any of its
implementing rules and regulations as promulgated by the Board subject to the approval of the Commission,
shall upon conviction, be punished by a fine of not less than Fifty Thousand Pesos (50,000.00) or by
imprisonment for a period not exceeding two (2) years or both.
Section 37. Implementing Rules and Regulations. - Within Ninety (90) days after the effectivity of this
Act, the Board, subject to the approval of the Commission and in coordination with the accredited national
professional organization of certified public accountants, shall adopt and promulgate such rules and
regulations to carry out the provisions of this Act and which shall be effective Fifteen (15) days following their
publication in the Official Gazette or in any of the major daily newspaper of general circulation.
Section 38. Interpretation of this Act. - Nothing in this Act shall be construed to effect or prevent the
practice or any other legally recognized profession.
Section 39. Enforcement of this Act. - It shall be primary duty of the Commission and the Board to
effectivity enforce the provisions of this Act. All duly constituted law enforcement agencies and officers of
national, provincial, city or municipal government or of any political subdivision thereof, shall upon the call or
request of the Commission or the Board, render assistance in enforcing the provisions of this Act and to
prosecute any person violating the provisions of the same. The Secretary of Justice or his duly designated
representative shall act as legal adviser to the Commission and the Board and shall render legal assistance as
may be necessary in carrying out the provisions of this Act.
Any person may bring before the Commission, Board of the aforementioned officers of the law, cases of illegal
practice or violations of this Act committed by any person or party.
The Board shall assist the Commission in filing the appropriate charges though the concerned prosecution
office in accordance with law and Rules of Court.
Section 40. Funding Provision. - The chairperson of the Professional Regulation Commission shall
immediately include the Commission's programs the implementation of this Act, the funding of which shall be
included in the annual General Appropriations Act.
Section 41. Transitory Provision. - The incumbent chairman and members of the Board shall continue to
serve in their respective positions under the terms for they have been appointed under Presidential Decree
No. 692, without the need of new appointments.
All graduates with Bachelors Degree, Major in Accounting shall be allowed to take the CPA Licensure
Examination within two (2) years from the effectivity of this Act under the rules and regulations to be

promulgated by the Board subject to the approval by the Commission.


Section 42. Separability Clause. - If any clause, provisions, paragraph or parts thereof shall be declared
unconstitutional or invalid, such judgment shall not affect, invalidate or impair any other part hereof, but shall
be merely confined to the clause, provisions, paragraph or part directly involved in the controversy in which
such judgment has been rendered.
Section 43. Repealing Clause. - Presidential Decree No. 692 is hereby repealed and all other laws, orders,
rules and regulations or resolutions or part/s thereof inconsistent with the provisions of this Act are hereby
repealed or modified accordingly.
Section 44. Effectivity. - This Act shall take effect after Fifteen (15) days following its publication in the
Official Gazette or in any major daily newspaper of general circulation.

Approved,

FRANKLIN
DRILON
President of
the Senate

JOSE
DE
VENECIA
JR.
Speaker of the
House
of
Representatives

This Act which is consolidation of Senate Bill No. 2748 and House Bill No. 6678 was finally passed by the
Senate and the House of the Representatives on February 6, 2004 and February 7, 2004, respectively.

OSCAR G. YABES
Secretary of Senate

ROBERTO P. NAZARENO
Secretary General
House of Represenatives

Approved: May 13, 2004


GLORIA MACAPAGAL-ARROYO
President of the Philippines