So, we’re now on to the last part of the Code of Ethics which in Part A contains the fundamental principles

with which accountants are expected to comply – PICOP. In the course of carrying out work, a CPA may
encounter situations that may not be in keeping with these fundamentals. Since it is not possible to
anticipate all situations, the Code provides a framework, which should guide the CPA in making decisions
or taking actions consistent with the fundamental principles. Framework which includes the process of
identifying threats and setting up safeguards.

Part C of the code provides five scenarios where the CPA may be faced with ethical dilemmas:

First, we have Section 310. This section of the codes talks about Potential Conflicts. Anong meron sa
potential conflicts? Potential conflicts in the sense that a CPA is in a situation of CHOOSING between doing
his responsibility as the accountant of his employing organization or his obligation to comply with the
fundamental principles as a professional accountant. Basically, responsibility versus obligations.
Sometimes, CPAs have a hard time balancing the objectives of his employing company and his faithfulness
with the fundamental principles.

Such circumstances usually happen because of intimidation threats from employers, like supervisors or
someone in the organization. The supervisor might pressure the accountant to do something that goes
against the law. For example, do something contrary to law, or contrary to professional standards. The
supervisor might even ask you to lie about something.

Situational example is accountant ka sa McDonalds, sasabihin sa’yo na maging accountant sa Jollibee

without Jollibee knowing. And if you won’t do it, there would be consequences, either sa salary mo, sa
position mo, or sa job mo. For you, as a CPA, does that seem right? When such situations happen na you’re
in a conflict, there’s a threat, you should evaluate and try to minimize the threat and apply safeguards,
like consulting advices or seeking legal counsel, and there are organizations that have committes for
handling ethical dilemmas.

Second, we have Section 320. Preparation and Reporting of Information

As the accountant, you’re responsible of preparing FS, you’re responsible of the records, documents, and
journals. A CPA shall present information fairly, honestly, and in accordance with professional standards
so that the information will be understood in its context. Disclose what should be disclosed, report what
should be reported. Complete dapat, for the users to understand and explain all the details of
transactions.

Self-interest and intimidation threats might exist that will lead to noncompliance with the fundamental
principles, usually coming from external pressure or possibility of personal gain. Self-interest in the sense
that you are willing to sacrifice the quality of your work for your personal gain. Self-interest usually
involves fees, na when your supervisor pressures you to do mislead information in exchange for higher
fees or consequence na pag hindi mo gawin delayed yung salary mo, sometimes CPAs don’t have any
other choice but to comply.

But as future CPAs, when such threats to fundamental principles happen, again, apply safeguards like
consultation with superiors in the employing organization, the audit committee, or those charged with
governance of the organization or with a relevant professional body. When it is not possible to reduce or
eliminate the threat at an acceptable level, the CPA in business shall refuse to be or to remain associated
from such information. If kelangang ireport outside the organization, a CPA may consider obtaining legal
advice or to just resign,

Usually na problems associated in preparing and reporting information is when the CPA cooks the books
for the firm. Cook the books meaning misleading and misstatements to make the financial performance
of the firm look good for investors and creditors. Pero diba, as CPAs, we uphold the principle of integrity,
being honest and straightforward. Like sa ENRON.

Third, we have section 330. Acting with sufficient expertise.

As discussed in Part A, the fundamental principle of professional competence and due care requires that
a professional accountant in business only undertake significant tasks for which the professional
accountant in business has, or can obtain, sufficient specific training or experience. As a profession where
standards keep on changing and evolving, it requires continuous training.

A CPA in business shall not intentionally mislead an employer as to the level of expertise or experience
possessed, nor shall a professional accountant in business fail to seek appropriate expert advise and
assistance when required.

Kung hindi mo naman kaya, wag mong gawin. Don’t tell your employer you can do tasks na alam mo
namang wala sa expertise mo. Or if you can obtain expertise through training and seminars, make sure
you have the appropriate time for performing relevant duties. If you have insufficient experience, training,
resources, for the proper performance of the duties, you shall apply safeguards like obtaining additional
advice (for example accountant ka ng isang hospital and surely there are things there na hindi moa lam,
you should obtain advice or training for that), consult with your superiors, independent experts, or a
relevant professional body.

WAG MAHIHIYANG MAGTANONG.

Fourth, we have here section 340. Financial Interests

CPAs in business may have financial interests, including those arising from compensation or incentive
arrangements, or yung family or kakilala mo yung may financial interests. Financial interest is a threat to
what fundamental principle? Usually objectivity and confidentiality. As accountant, you handle the
finances of the company. You handle the financial information of the company and you can have your job
as your opportunity to gain financially. For example, na sasabihin saa’yo na there’s this certain
performance criteria that need to be met, and as someone who holds the influence to the decision, you
will be asked to manipulate the information kasi if you will do that may financial gain ka, may bonus ka,
or may increase sa salary mo. Or if yung kaibigan mo na investor sa company nyo, and as an accountant
you know the financial standing of the company, sasabihin mo sa friend mo na “palakihan mo yung
investment mo kasi malaki yung market share ng company ngayon, tataas returns mo” or pwedeng ma-
warn mo sha in advance na baka malugi sha sa investment nya. So, you’re using confidential information
for the gain of your friend. Or if your supervisor tells you na ‘Next month pwede kang mapromote, kaya
galingan mo sa trabaho.” Gagandahan mo yung report, gagandahan mo yung financial performance kasi
nga may nagniningning na promotion na naghihintay sa’yo. Financial interest - mga mukhang pera, diba.

But a CPA shall not manipulate or use confidential information for personal or financial gain. May integrity
tayong pinaglalaban. So, as safeguard to these threats, we should consult with the superior or those
assigned with governance, and we should disclose all of the relevant interests to those charged with the
governance of the organization. We also need to be updated with ethical issues around insider trading
which affects confidentiality.

LASTLY, SECTION 5. INDUCEMENTS.

Inducements – ano yung inducements. It is broadly defined as an object situation, or action used to
influence – though not necessarily with improper intent – the actions of the inducement’s recipient (or
another person, such as a business associate or family member). So pwedeng ikaw na CPA or yung family
mo yung makatanggap ng inducement. Inducement may come in the form of gifts, hospitability,
preferential treatment, inappropriate appeals to friendship, or loyalty. CPAs shoyld view inducements
neutrally because they can influence either good or bad behaviour. CPAs should not view them inherently
negative. You have to evaluate the nature, the intent, and the value of the inducement received.

Inducements may create self-interest, familiarity, or intimidation threats to compliance with the
fundamental principles.

So, for example, accountant ka ng Toyota , tas binigyan ka ng gulong lang ng sasakyan. You should evaluate
the situation. Gulong lang naman natanggap mo, baka out of hospitality lang. Pero if Land Cruiser na
binigay sa’yo, ibang usapan na yan. You should be alert of how it will influence you as the accountant.
There might be instances rin na palagi kang nililibre ng dinner, or binigyan ka ng VIP ticket sa concert ni
Ed Sheeran, you should think of the possibility na pwedeng ma-use yan against sa’yo, maybe not now but
in the future. You should consider relevant factors like the timing of the inducement. Baka nung binigyan
ka ng concert ticket is around the time rin for tax payment ng firm. Or whether the inducement is
embedded in custom or cultural practicem or the role or position of the individuals involved, baka yung
security guard lang naman nagbigay sa’yo nyan. Pag galing sa higher position, ibang usapan nay an.
And hindi lang ikaw ang pwedeng makareceive ng inducement, pwede rin yung family members mo. There
are certain cases na binibigyan ng scholarships yung anak mo in exchange of something unethical sa
trabaho.

To counter such threats, there are suggested safeguards. Disclose to ensure transparency (discuss the
matter with the audit committee or BOD), or transferring responsibility for decision-making or other
actions to a party unaffected by the inducement, donate the inducement. Or refuse to offer or accept the
inducement.

Kasi, it’s either ikaw yung bibigyan or ikaw yung bibigay ng offer to influence a relevant party’s judgement
or decision.

To sum up, CPAs usually have hard times in balancing the need to maintain its faithfulness to accounting
standards with its clients’ desire to maximize profits. Sometimes, their jobs are on the line. Mawawalan
ng trabaho pag di mo ginawa to or ito. But you see, consequences of going against the orders of your
superior will only go to the extent of firing you, losing your job. But consequences of going against the
Code of Ethics will go to the extent of losing your hard-earned license. Lose the job or lose the license.

As CPAs, we have the responsibility of uncovering, recording, and proclaiming the truth. With this
responsibility comes a rule which is the Code of Ethics. Code of Ethics that guides CPAs in making the right
decisions. It is the Code of Ethics that defines what it means to be a CPA. So that concludes our report
with Code of Ethics as part of the CPA’s Responsibilities. Pero hindi jan po nagtatapos ang report ko.

Along with our responsibilities in abiding with this Code of Ethics and the professional standards, CPAs, or
Auditors in specific also have liabilities when such responsibilities are not fulfilled. Auditors have
responsibilities under the law to fulfil expressed or implied contracts. And when such responsibilities are
not provided bythe auditor, auditors can face litigations, mga kaso.

Pag mabankrupt ang isang company, sino yung affected? Investors, shareholders, creditors. Saan at
kanino nila kukunin or hahanapin yung pera nila? Usually, sa auditors. Auditors or accountants as a whole
are considered deep pockets. Mga taong pwedeng magbayad sa loss in case iorder ng court.

Auditors can be held liable under what basis? May legal basis tayo jan. They can be held liable in either
under common law (those laws coming from court decisions) or statutory laws (laws coming from
legislative, or the Constitution for example). And I’ve talked about responsibilities kanina. Responsibilities
that when an auditor fails to do so, will be held liable. So we have legal concepts that may arise to auditor’s
liabilities.

We have here, Liability for Acts of Others. In a CPA firm, partners are jointly liable for civil actions against
a partner. They are liable for the work of others. Gaya ng sabi ko kanina, when investors and creditors
suffer losses, auditors yung pwede nilang pagbugtungan ng galit, sue them for the loss they’ve
experienced. When ordered by the court, they can go against the auditors to pay back the damages.
Hence, an auditor will also take part in paying back the obligations.

Lack of Privileged Communication

Between auditors and clients, there is no privileged communication. What does it mean by privileged
communication? Privileged communication is a right or privilege of a client not to disclose anything
discussed between him and the professional. Gaya ng attorney-client, the client can choose not to disclose
any of the information shared between them. Yung pari at yung nangompisal. Sa kanila lang yun. But for
accountants, for auditors, yes there is confidentiality but information is not privileged. When the court
orders to view the audit reports or any communication between the auditor and the client, it can be
disclosed. Courts can order the information between the auditor and the client be disclosed. So if
someone sues the company you are auditing for fraud, the court can order the auditor to disclose his audit
reports and be submitted as evidence.

Due Care or the Prudent Person Concept

Auditors must follow the notion of professional due care. The auditor must be diligent in applying
technical standards and must document each stage of the audit process thoroughly. There should be
diligence and care in the work. An auditor is not expected to perfect but is expected to conduct the audit
with due care.

When an auditor fails to fulfil his responsibilities, he will be liable to face consequences either. When the
auditor fails to perform with due care, he can be sued under the common law for ordinary negligence,
gross negligence, or for fraud.

Definitions of the three.

So who can sue an auditor? Clients and Third Parties can sue auditors. Clients, they can sue them for
breach of contract, for example. The third parties can sue them for failing to discover a misstatement for
example. Or even the gov’t can sue auditors for issuing incorrect audit report.