THE CODE OF

PROFESSIONAL ETHICS
THE CODE OF PROFESSIONAL ETHICS

Applies to employed professional

A C
Applies to all professional accountants, and may also apply,
accountants unless otherwise in appropriate circumstances, to
specified. accountants employed in public
practice.

B
Applies only to those
professional accountants in
public practice.

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 01 INTEGRITY

FUNDAMENTAL 02 OBJECTIVITY
PRINCIPLES

03
PROFESSIONAL
COMPETENCE AND DUE
CARE

PROFESSIONAL BEHAVIOR 05 04 CONFIDENTIALITY

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 INTEGRITY
A professional accountant
should be straightforward and honest in
performing professional services.

OBJECTIVITY
A professional accountant should be fair
and should not allow prejudice or bias,
conflict of interest or influence of others
to override objectivity.

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 PROFESSIONAL COMPETENCE
AND DUE CARE

A professional accountant should perform

professional services with due care, competence
and diligence and has a continuing duty to maintain
professional knowledge and skill at a level required
to ensure that a client or employer receives the
advantage of competent professional service based
on up-to-date developments in practice, legislation
and techniques.

2 PHASES:
Attainment of Professional Competence
Maintenance of Professional Competence

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 CONFIDENTIALITY

A professional accountant should respect

the confidentiality of information
acquired during the course of performing
professional services and should not use
or disclose any such information without
proper and specific authority or unless
there is a legal or professional right or
duty to disclose.

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 Disclosure is permitted by the
client

Disclosure is required by law such

CONFIDENTIALITY
Confidential Information may be disclosed under the
following circumstances:
as compliance with subpoena
issued by a court in the course of
legal proceedings
There is a professional duty or
right to disclose confidential
information

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 PROFESSIONAL
BEHAVIOR
A professional accountant
should act in a manner consistent with
the good reputation of the profession
and refrain from any conduct which
might bring discredit to the profession.

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CONCEPTUAL FRAMEWORK APPROACH

Apply safeguards, when

Identify threats to necessary, to eliminate
Evaluate the significance
compliance with the threats or reduce
of threats identified; and
fundamental principles them to an acceptable
level

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 Self-Interest Threat Familiarity Threat

Self-Review Threat

THREATS TO Intimidation Threat

INDEPENDENCE
Advocacy Threat

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 THREATS TO INDEPENDENCE

Self-Interest Self-Review Advocacy Threat Familiarity Intimidation

Threat Threat Threat Threat

occurs when a firm or a is the threat that a is the threat that a occurs when, by virtue occurs when a member
member of the professional accountant professional accountant of a close relationship of the assurance team
assurance team could will not objectively will promote an with an assurance client, may be deterred from
benefit from a financial evaluate the results of assurance client’s its directors, officers or acting objectively and
interest in, or other the previous judgment position or opinion to the employees, a firm or a exercising professional
self-interest conflict made or service point that professional member of the skepticism by threats,
with, an assurance performed in forming a accountant’s objectivity assurance team actual or perceived, from
client. conclusion about the may, or may be perceived becomes too the directors, officers or
subject matter of the to be compromised. sympathetic to the employees of an
engagement. client’s interests. assurance client.
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 Safeguards created by the profession,
legislation or regulation

Safeguards within the assurance client

SAFEGUARDS
Safeguards are actions or other measures Safeguards within the firm’s own
that may eliminate threats or reduce them to systems and procedures.
an acceptable level. This decision should be
documented. The nature of the safeguards Firm-wide Safeguards
to be applied will vary depending upon the Entity-Specific Safeguards
circumstances.

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 Educational, training and
01 experience requirements for
entry into the profession
Safeguards created by the
profession, legislation or 02
regulation Continuing education
requirements

03
Professional standards and
monitoring and disciplinary
processes

Legislation governing the

independence requirements 05 04 External review of a firm’s
of the firm quality control system
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01
Safeguards within the
Assurance Client
A corporate governance structure, such
as an audit committee, that
05
provides appropriate oversight and
communications regarding a firm’s
services
When the assurance client’s
management appoints the firm, persons
other than management ratify or
approve the appointment
02
The assurance client has
competent employees to make
managerial decisions
03
Policies and procedures that
emphasize the assurance client’s
commitment to fair financial
reporting
04
Internal procedures that ensure
objective choices in commissioning
non-assurance engagements
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 Firm leadership that stresses the

01
importance of independence and the
expectation that members of assurance
teams will act in the public interest

Firm-Wide Safeguards 02
Policies and procedures to
implement and monitor quality
control of assurance engagements

Documented independence policies
regarding the identification of threats
to independence, the evaluation of
the significance of these threats and
05
the identification and application of
safeguards to eliminate or reduce the
threats, other than those that are
04
clearly insignificant, to an acceptable
level
03
Internal policies and procedures to
monitor compliance with firm
policies and procedures as they
relate to independence
Policies and procedures that will enable
the identification of interests or
relationships between the firm or
members of the assurance team and
assurance clients 15
 Consulting a third party, such as a
01 committee of independent directors, a
professional regulatory body or another
professional accountant
Entity-Specific
Safeguards 02
Rotation of senior personnel

03
Involving an additional professional Discussing independence issues
accountant to review the work done or with the audit committee or
otherwise advise as necessary. This others charged with governance
individual could be
someone from outside the firm or network
firm, or someone within the 04
firm or network firm who was not otherwise
associated with the assurance team 16
 SAFEGUARDS

When the safeguards available, such as

those described above, 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.

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Professional Accountants in Public Practice

PROFESSIONAL APPOINTMENT
Client Acceptance Engagement Acceptance Changes in a Professional Appointment
Potential threats to A self-interest threat to competence and Threat to professional competence and
integrity and due care due care
professional Appropriate safeguards include: Appropriate safeguards include:
behavior • Acquiring understanding of the client • Discussing client’s affairs with
and relevant industries existing accountants
Appropriate • Obtaining experience with • Asking existing accountant to provide
safeguards includes regulatory or reporting requirements known information before deciding
obtaining • Assigning sufficient staff and using whether to accept the engagement
knowledge and experts when necessary • Contact with the existing accountant
understanding of • Agreeing on realistic time will be requested so that inquiries
the client • Complying with quality control may be made
Professional Accountants in Public Practice

CONFLICT OF INTEREST
Threats to objectivity or Appropriate Appropriate safeguards include:
confidentiality may be safeguards include: • Use of separate engagement
created when: • Notifying the teams
• Accountant competes client obtaining • Procedures to prevent access to
directly with a client their consent to information
or has a similar act in such • Clear guideline on issues of
arrangement with circumstances security and confidentiality
major competitor • Notifying all • Use of confidentiality
• Accountant have known relevant agreements signed by employees
conflict of interest parties and and partners of the firm
with client in relation obtaining their • Regular review of the application
to matter in question consent to so act of safeguards by senior individual
Professional Accountants in Public Practice

SECOND OPINION
Threats to professional Appropriate
competence and due safeguards include:
care • Seeking client
• Happens when the permission to
second opinion is contact existing
not based on the accountant
same facts or
based on
inadequate
evidence
 01 Professional fees should be a fair
Fees and Other Types of reflection of the value of service,
taking into account:

Remuneration • Skill and knowledge

required
• The level of training and

PROFESSIONAL FEES
experience
• The time necessarily
occupied by each person
• Degree of responsibility

03
02
Appropriate safeguards include:
• Making the client aware of the
terms of engagement Self-interest threat to professional
• Assigning appropriate time competence and due care
and qualified staff

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 Fees and Other Types of
Remuneration
CONTINGENT FEES
02
Appropriate safeguards include:
• Advance written agreement as
to basis of remuneration
• Disclosures to intended users
of the work performed and
basis of remuneration
• Quality control policies and
procedures
• Review by an objective third
part of the work performed
01
Contingent fees may give rise to a
self-interest threat to objectivity.
The significance of such threats
will depend on factors including:
• Nature of the engagement
• Range of possible fee
amounts
• Basis for determining the fee
• Whether the result of
transaction is to be reviewed
by an independent third
party
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 Fees and Other Types of
Remuneration
REFERRAL FEE OR
COMMISSION
03
Appropriate safeguards include:
• Disclosing to the client any
arrangements to pay a referral
fee
• Disclosing to the client any
arrangements to receive a
referral fee
• Obtaining advance agreement
from the client for commission
arrangements
01 Self-interest threat to objectivity
and professional competence and
due care.
02
A professional accountant in
public practice should not pay or
receive a referral fee or
commission unless the
professional accountant in public
practice has established
safeguards to eliminate or reduce
the threat to acceptable level
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Professional Accountants in Public Practice

MARKETING GIFTS AND CUSTODY OF CLIENT OBJECTIVITY – ALL

PROFESSIONAL SERVICES HOSPITALITY ASSETS SERVICES
• Self-interest threat to • Self-interest threat to • Self-interest threat to • Familiarity-threat to
professional behavior objectivity professional behavior objectivity
• Professional accountant • Professional accountant and objectivity • Professional accountant
should be honest and should not accept such • Professional accountant is required to be
truthful (i.e. should not an offer when the should keep assets independent and should
make exaggerated claims threats cannot be separately, use only for evaluate the significance
and disparaging eliminated or reduced to such purpose, be of threat to eliminate or
references) an acceptable level accountable, and comply reduce them through
• Any form of with all relevant laws appropriate safeguards
advertisement is allowed and regulations
 INDEPENDENCE
Taking an unbiased viewpoint in the
performance of the examination and
preparation of the report

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Two Phases Of Independence
Independence Of
Mind
A state of mind that permits the
expression of a conclusion without
being affected by influences that
compromise professional judgment.
Independence In
Appearance
It is the avoidance of facts and
circumstances that are so significant
that a reasonable and informed third
person would reasonably conclude that
the firm’s integrity , objectivity, and
professional skepticism had been
compromised.
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Independence Requirement
Assurance engagements are divided into three:
Financial Statement Audit
-the members of the assurance team, the
firm, and the network firms must be
independent of the client
Non-audit Assurance Engagements
If distribution of report is not restricted;
members of the assurance team and the
firm must be independent of the client
Non-audit Assurance Engagements
If distribution of report is restricted;
members of the assurance team and the
firm must be independent of the client
and they should not have any material
financial interest in the client
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 Financial Interest
Independence When control exists,
financial interest is direct

Interpretations and and vice versa

Rulings Loans and Guarantees

Loan from or guarantee by

an assurance client that is a
financial Institution will not
Close Business Relationships impair CPA’s Independence

Close Business Relationship can Loan from or guarantee by

be considered indirect financial an assurance client that is
interest and therefore would not a financial Institution will
impair the professional normally impair CPA’s
accountant’s independence Independence
unless immaterial

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 Family and Personal Relationships
Independence Impaired if a member of an assurance
team who has an immediate family

Interpretations and member who is in position to

influence the subject matter

Rulings
Past employment with an
assurance client
Serving as an officer or Impaired if a member of an
director on the Board of assurance team had served
Assurance Clients the assurance client in a
position to influence the
Impaired unless serve as subject matter of assurance
honorary member of the board engagement.
and does not participate in the
management or operations of the
client.

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 Long association with assurance clients
Independence Using the same senior personnel and/
or lead engagement partner for a long
Interpretations and period may create familiarity threat.

Rulings

Provision of taxation services Provision of accounting and

to assurance clients bookkeeping services to
It will not impair CPA’s assurance clients
Independence.
It should not be provided to
an audit client that is a
public interest entity.

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 Provision of legal services to assurance

Independence
clients
Acting as an advocate of the client in
resolution of a dispute where amount

Interpretations and is material will impair independence.

Rulings
Legal services to support an audit
client in the execution of transaction
will not impair independence

Providing corporate finance services

impairs independence

Fees- Overdue
It will impair CPA’s Independence
if at the issuance report date, Recruiting Senior Management
prior year professional fees are It will normally impair
unpaid. independence specially if
the firm makes the ultimate
hiring decision.

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 Contingent Fees
Independence It will impair the CPA’s independence
except if fixed by court or public

Interpretations and authority or determined based on the

results of judicial or government

Rulings
agency proceedings.

Actual or threatened litigation

Gifts and Hospitality
CPA in litigation with a client
A professional accountant’s
must evaluate the situation to
acceptance of more than a
determine whether the
token gift from an assurance
significance of litigation affects
client impairs
the client’s confidence in the
independence.
auditor’s independence.

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THANK YOU!

Reported by:
Maica V. Pacia
Hazelle Ivy C. Macatangay
Erjohn O. Papa
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