Unit 2 Regulation of The Practice of Public Accountancy and Within The Accounting Firm

Introduction to Auditing Page 1 of 136
“Not intended for publication. For classroom instruction purposes only”.

Unit 2 – Regulation of the Practice of Public Accountancy

and Within the Accounting Firm
“A distinguishing mark or the accounting profession is the acceptance of its

responsibility to the public. As professionals, the accountants' responsibility
is not exclusively to protect the interest of their clients or employers. Instead,
the interest of the pubic must always be their paramount concern.”
Learning Outcomes
At the end of the unit, you will be able
 Familiarize with the law governing the practice of accountancy in the Philippines.
 Know the Philippine Standards on Quality Control (PSQC) 1 for firms that
perform audits and review of historical financial information and other assurance
and related services engagements.
 Understand the need to adopt Philippine Standards on Auditing (PSAs) which are
based on International Standards on Auditing adopted by the International
Federation of Accountancy (IFAC).
Pretest
Directions: Read the following sentences. Write the letter “T” if the statement is True and
“F” if the statement is False. Write your answer on the space before the number. You may
view this test at our google class.
_______1. Republic Act no. 9298 is also known as the Philippine Accountancy Act of
2004.
_______2. When professional accountant in public practice solicits new work through
advertising or other forms of marketing, a self-interest threat to compliance with the
principle of professional behavior may be created.
_______3. The engagement partner should review all audit documentation.
_______4. The Code of Ethics requires independence for all assurance engagements.
_______5. A CPA would be ethically bound to refrain from disclosing any confidential
client information when a major shareholder of a client company seeks accounting
information from the CPA after management declined to disclose the requested
information.
_______6. The auditor must be independent of the audit client unless the lack of
independence does not influence his or her professional judgement.

_______7. The CPA’s independence would not be considered to be impaired when the
CPA has been retained as the auditor of a restaurant where the CPA dines frequently.
_______8. When identified threats are not at an acceptable level, a CPA may rely solely
on safeguards that his/ her client has implemented.
_______9. Due professional care requires auditors to plan and perform their duties with
the skill and care that is commonly expected of accounting profession.
_______10. The CPA’s independence would not be considered to be impaired when the
CPA has been retained as the auditor of a brokerage firm in which the CPA’s brother is
the controller.
Content
THE CODE OF PROFESSIONAL ETHICS
In today's modern environment, many segments of society are increasingly dependent for
decision-making on information for which they have no control. They turn to professional
accountants for assistance in assessing the reliability of some of this information. Every
failure by an accountant comply with professional standards makes it difficult for the
profession to maintain the reputation for integrity, objectivity, and competence that it has
acquired over its many years of service to the public.
In order to maintain trust and confidence in the accountancy profession, professional

accountants must adhere to standards of ethical conduct: standards of conduct that
embody and demonstrate integrity, objectivity, and concern for the public (rather than self-
interest).
The Philippine Institute of Certified Public Accountants (PICPA) being a member of the
International Federations of Accountants (IFAC) is obliged and committed to support the
work of IFAC. The Code of Ethics for Professional Accountants in the Philippines is based
on the IFAC Code of Ethics for Professional Accountants.
The Code of Ethics for Professional Accountants in the Philippines is divided into four
parts. Part 1 establishes fundamental principles of professional ethics and provides a
conceptual framework that professional accountants shall apply. Part 2, 3 and 4 describe
how the conceptual framework applies in certain situations and provide examples of
safeguards that address threats to compliance with fundamental principles. Part 2 applies
to professional accountants in business while Part 3 and 4 to professional accountants in
public practice. This module will not cover Part 2 but will focus the discussion only on
those provisions that are relevant to CPA's in Public Practice.
COMPLYING WITH THE CODE
A professional accountant's responsibility is not exclusively to satisfy the needs of an

individual client or employing organization. Although it is true that accountants have
responsibilities to their clients or employers, the interest of the public should always be
their paramount concern. Compliance with the Code of Ethics enables the professional
accountants to meet their responsibility to act in the public interest. In circumstances
where laws or regulations preclude professional accountants from complying with certain

parts of the Code, those laws and regulations prevail. The professional accountant,
however, is required to comply with all other parts of the Code.
FUNDAMENTAL PRINCIPLE
In acting in the public interest, professional accountants have to observe a prerequisite or

fundamental principle.
 Integrity
A professional accountant should be straightforward and honest in professional and

business relationships. Integrity implies not merely honesty but it requires being brave
enough to fight for what you believe in. Not telling lies is honesty, but a man of integrity
will always be willing to speak out and ask difficult questions when the circumstances
warrant Therefore, if the CPA believes that the financial statements are materially
misleading, the CPA is not acting with integrity if he remains silent or disclaims an opinion
on the financial statements. The principle of integrity requires the CPA to stand up for what
he believes is true. A professional accountant should not be associated with information
where he believes that the information contains incorrect, incomplete or misleading
statements
 Objectivity
The principle of objectivity imposes the obligation on all professional accountants to be

fair, intellectually honest and free of conflicts of interest. A professional accountant should
be fair and should not allow prejudice or bias, conflict of interest or influence of others to
override objectivity. CPAs in pubic practice may render audit, tax, and management
advisory services. other may prepare financial statements, perform internal Services, and
serve in financial and management capacities industry, education, and government
Regardless of service or capacity, CPA’s should maintain objectivity, and avoid any
subordination of their judgment when rendering professional services
 Professional Competence and due Care
A professional accountant should not undertake any engagement or accept an

employment which he cannot reasonably expect to discharge with professional
competence. A professional accountant should continually strive to improve his
knowledge and skills 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.
Professional competence is divided into two separate phases

 Attainment of professional competence through formal education, professional
examination and a period of experience.
 Maintenance of professional competence by being aware of all the
developments affecting the profession and adopting a program to ensure quality
in the performance of professional services.
Moreover, the professional accountant should apply knowledge, skill and experience with
due professional care. Due care encompasses the responsibility to perform professional
services in accordance with technical and professional standards, carefully, thoroughly

and on a timely basis. A professional accountant should take steps to ensure that those
working under the professional accountant's authority in a professional capacity have
appropriate training and supervision
 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 profession
right or duty to disclose.
Confidentiality is not only a matter of disclosure of information. Accountants who acquire

information in the course of performing services shall neither use nor appear to use that
information for personal advantage or for the advantage of a third party.
However, confidential information may be disclosed under the following circumstances:
 Disclosure is permitted by the client or employer,

 Disclosure is required by law such as compliance with a subpoena issued by a
court in the course of legal proceedings, and
 There is a professional duty or right to disclose confidential information. For
example, the professional accountant may disclose confidential information to
defend himself if sued by his client or employer. In addition, a professional
accountant may also disclose confidential information to comply with the quality
assurance review or any investigation conducted by the Board of Accountancy
(BOA).
A professional accountant shall continue to comply with the principle of confidentiality even
after the end of the relationship between the accountant and a client or employing
organization. When changing employment or acquiring a new client, the accountant is
entitled to use prior experience but shall not use or disclose any confidential information
acquired or received as a result of a professional or business relationship.
 Professional Behavior
A professional accountant should comply with relevant laws and regulations and refrain
from any conduct which might bring discredit to the profession. Some laws or regulations
might have provisions that differ from or go beyond those set out in the Code of Ethics.
The professional accountant needs to be aware of those differences and comply with the
more stringent provisions unless prohibited by law or regulation.
A professional accountant should not bring the profession into disrepute when undertaking
marketing or promotional activities. A professional accountant should not:
 Exaggerated claims for the services offered by, or the qualifications or experience
of, the accountant, or
 Disparaging references or unsubstantiated comparisons to the work of others.
CONCEPTUAL FRAMEWORK

It is impossible to define every situation that creates threats to compliance with

fundamental principles. Consequently, the code establishes a conceptual framework
approach that requires a professional accountant to
 Identify threats to compliance with fundamental principles

 Evaluate the significance of threats identified, and
 Apply safeguards, when necessary, to eliminate the threats or reduce them to an
acceptable level.
This approach is aimed at assisting the professional accountants in complying with ethical
requirements and meeting their responsibility to act in the public interest.
THREATS TO COMPLIANCE WITH FUNDAMENTAL PRINCIPLES
The circumstances in which the professional accountants operate may create threats to
compliance with fundamental principles. These threats may fall into self-interest, self-
review, advocacy, familiarity or intimidation threat.
 Self-Interest Threat is the threat that a financial or other interest will inappropriately
influence the professional accountant's judgment behavior. Examples of
circumstances that may create self-interest threats include:
 A direct financial interest or material indirect financial interest in client.

 A loan or guarantee to or from a client or any of its director officers,
 Undue dependence on total fees from a particular client,
 Concern about the possibility of losing the engagement
 Having a close business relationship with a client;
 Potential employment with a client, and
 Contingent fees relating to an engagement
 Self-Review Threats is the threat that a professional accountant will no objectively

evaluate the results of the previous judgment made or service performed in forming a
conclusion about the subject matter of the engagement. Examples of circumstances
that may create self-review threats include
 A member or the engagement team being, or having recently been, a director

or officer of the client,
 A member or the engagement team being, or having "recently been, an
employee of the client in a position to exert direct and significant influence over
the subject matter of the engagement,
 Performing services for a client that directly affect the subject matter of the
engagement,
 Preparation of original data used to generate financial statements or
preparation of other records that are the subject matter of another
engagement,
 Reporting on the operation of financial systems after being involved in their
design or implementation, and
 The discovery of a significant error during re-evaluation of the work of the
professional accountant in public practice.

 Advocacy Threat is the threat that a professional accountant will promote a client's or
employer’s position to the point that the professional accountant's objectivity is
compromised. Examples of circumstances that may create advocacy threats include:
 Dealing in, or being a promoter of, share or other securities in a client, and
 Acting as an advocate on behalf of client in resolving disputes with third parties
 Familiarity Threat is the threat that a professional accountant promotes a client's or

employer’s position to the point that the professional accountant's objectivity is
compromised. Examples of circumstances that may create familiarity threats include
 A member of the engagement team having an immediate family member or

close family member who is a director or officer of the client,
 A member of the engagement team having an immediate family member or
close family member who, as an employee of the assurance client, is in a
position to exert direct and significant influence over the subject matter of the
engagement,
 A former partner of the firm being a director, officer of the client or an employee
in a position to exert direct and significant influence over the subject matter of
the engagement,
 Long association of a senior member of the engagement team with the client,
and
 Acceptance of gifts or preferential treatment, unless the value is clearly
insignificant, from a client, its directors, officers or employees
 Intimidation Threat is the threat that the professional accountant will be deterred from
acting objectively because of actual or perceived pressures, including attempts to
exercise undue influence over the professional accountant. Examples of
circumstances that may create intimidation threats include
 Being threatened with litigation,

 Being threatened with dismissal or replacement over a disagreement with the
application of an accounting principle, and
 Being pressured to reduce inappropriately the extent of work performed in
order to reduce fees.
SAFEGUARDS
A professional accountant shall evaluate any threats to compliance with the fundamental
principles. both quantitative and qualitative factors must be considered in evaluating the
significance of a threat. Once a significant threat has been identified and evaluated,
appropriate safeguards should be considered and applied as necessary.
Safeguards are actions or other measures that may eliminate threats or reduce them to
an acceptable level. The nature of the safeguards to be applied will vary depending upon
the circumstances. Consideration should always be given to what a reasonable and
informed third party having knowledge of all relevant information including safeguards
applied, would reasonably conclude to be unacceptable. The consideration will be affected
by matters such as the significance of the threat, the nature of the engagement and the
structure of the firm.

Safeguards fall into two broad categories:
 Safeguards created by the profession, legislation or regulation; and

 Safeguards in the work environment.
The firm and the members of the assurance team should select appropriate safeguards
to eliminate or reduce threats, other than those that are clearly significant, to an acceptable
level
 Safeguards created by the profession, legislation or regulation include the following:
(a) Educational, training and experience requirements tor entry into the profession,
(b) Continuing education requirements,
(c) Corporate governance regulations,
(d) Professional standards and monitoring and disciplinary processes; and
(e) External review of a firm's quality control system.
 Safeguards in the work environment consist of firm-wide safeguards and engagement

specific safeguards. wide safeguards
 Firm-wide safeguards in the work environment may include
 Leadership of the firm that stresses the importance compliance with the
fundamental principles,
 Leadership of the firm that establishes the expectation that members of an
assurance team will act in the public interest;
 Policies and procedures to implement and monitor quality control of
engagements,
 Documented policies regarding the identification of threats to compliance
with the fundamental principles, the evaluation of the significance of these
threats and the identification and the application of safeguards to eliminate
or reduce the threats, other than those that are clearly insignificant, to an
acceptable level,
 For firms that perform assurance engagements, documented
independence policies regarding the identification of threats to
independence, the evaluation of the significance of these threats and the
evaluation and application of safeguards to eliminate or reduce the threats,
other than those that are clearly insignificant, of to an acceptable level,
 Documented internal policies and procedures requiring compliance with
the fundamental principles,
 Policies and procedures that will enable the identification of interests or
relationships between the firm or members engagement teams and clients,
 Policies and procedures to monitor and, if necessary, manage reliance on
revenue received from a single client,
 Usage of different partners and engagement teams with separate reporting
lines for the provision of non-assurance services to an assurance client,
 Policies and procedures to prohibit individuals who are not members of an
engagement team from inappropriately influencing the outcome of the
engagement,

 Timely communication of a firm's policies and procedures, including any

changes to them, to all partners and professional staff, and appropriate
training and education on such policies and procedures,
 Designing a member of senior management to be responsible for
overseeing the adequate functioning of the firms quality control system,
 Advising partners and professional staff of those assurance clients and
related entities from which they must be independent,
 A disciplinary mechanism to promote compliance with policies and
procedures, and
 Published policies and procedures to encourage and empower staff to
communicate to senior levels within the firm any issue relating to
compliance with the fundamental principles that concerns them.
 Engagement specific safeguards may include:
 Involving an additional professional accountant to review the work done or

otherwise advise as necessary
 Consulting an independent third party, such as a committee of independent
directors, a professional regulatory body or another professional
accountant,
 Discussing ethical issues with those charged with governance of the client;
 Disclosing to those charged with governance of the client the nature of
services provided and extent of fees charged;
 Involving another firm to perform or reperform part of the engagement, and
 Rotating senior assurance team personnel.
In addition to the above safeguards, professional accountants in public may also

be able to rely on safeguards that the client has implemented. Safeguards within
the client's systems and procedure may include:
 When a client appoints a firm in public practice to perform an engagement,

persons other than management ratify or approve the appointment,
 The client has competent employees with experience and seniority to make
managerial decisions,
 The client has implemented internal procedures that ensure objective
choices in commissioning non-assurance engagements, and
 The client has a corporate governance structure that provides appropriate
oversight and communications regarding the firm's services.
Although these safeguards could also reduce the threat to compliance with fundamental
principles, it is not possible for professional accountant to rely solely on these safeguards
to reduce threats to an acceptable level. In certain situations, no safeguards are available
to eliminate or reduce the threat to an acceptable level. Hence, the only possible actions
would be to eliminate the activities or interest creating the threat, or to refuse to accept or
continue the engagement.
PROFESSIONAL ACCOUNTANTS IN PUBLIC PRACTICE
Part 3 of the Code of Ethics for Professional Accountants sets out requirements and
application material for professional accountants in public practice when applying the
conceptual framework. It does not describe all of the facts and circumstances, including

professional activities, interests and relationships, that could be encountered by

professional accountants in public practice, which create or might create threats to
compliance with the fundamental principles. Therefore, the professional accountants in
public practice should be alert to such facts and circumstances in applying conceptual
framework.
CONFLICIS OF INTEREST
A professional accountant in public practice should take reasonable steps to identify

circumstances that could pose a conflict of interest. For example, a threat to objectivity
may be created when a professional accountant in public practice competes directly with
a client or has a joint venture or similar arrangement with a major competitor of a client. A
threat to objectivity or confidentiality may also be created when a professional
accountant in public practice performs services for clients whose interests are in conflict
or the clients are in dispute with each other in relation to the matter or transaction in
question.
Depending upon the circumstances giving rise to the conflict, safeguards should ordinarily
include the professional accountant in public practice
 Notifying the client of the firm's business interest or activities that may represent a
conflict of interest, and obtaining their consent to act in such circumstances, or
 Notifying all known relevant parties that the professional accountant in public
practice is acting for two or more parties in respect of a matter where their
respective interests are in conflict, and obtaining their consent to so act, or
 Notifying the client that the professional accountant in public practice does not act
exclusively for any one client in the provision of proposed services (for example,
in a particular market sector or with respect to a specific service) and obtaining
their consent to so act
Additional safeguards that should also be considered include:
 The use of separate engagement teams;

 Procedures to prevent access to information (e.g., strict physical separation of
such teams, confidential and secure data filing);
 Clear guidelines for members of the engagement team on issues of security and
confidentiality;
 The use of confidentiality agreements signed by employees’ partners of the firm,
and
 Regular review of the application of safeguards by a senior individual not involved
with relevant client engagements.
 Professional Appointment
Client Acceptance
Before accepting a new client relationship, a professional accountant in public practice

should consider whether acceptance would create any threats to compliance with the
fundamental principles. Potential threats to integrity and professional behavior may
be created if the client is involved in illegal activities or if the client’s owners or
management lack integrity

Appropriate safeguards may include obtaining knowledge and understanding of the

client, its owners, managers and those responsible for its governance and business
activities or securing the client’s commitment to improve corporate governance practices
or internal controls.
Engagement Acceptance
A professional accountant in public practice should agree to provide only those services
that he is competent to perform. A self-interest threat to competence and due care
principle is created if the engagement team does not possess, or cannot acquire,
competence necessary to properly carry out the engagement. Appropriate safeguards
may include
 Acquiring an appropriate understanding of the nature client's business, the

complexity of its operations, the specific requirements of the engagement and the
purpose, nature and scope of the work to be performed;
 Acquiring knowledge of relevant industries or subject matters,
 Possessing or obtaining experience with relevant regulatory or reporting
requirements,
 Assigning sufficient staff with the necessary competencies,
 Using experts where necessary,
 Agreeing on a realistic time frame for the performance of the engagement, and
 Complying with quality control policies and procedures designed to provide
reasonable assurance that specific engagements are accepted only when they can
be performed competently.
Change in a Professional Appointment
A professional accountant in public practice who is asked to replace another professional

accountant in pubic practice, or who is considering rendering for an engagement currently
held by another professional accountant in public practice, should determine whether
there are any reasons, professional or other, for not accepting the engagement, such as
circumstances that threaten compliance with the fundamental principles. For example,
there may be a threat to professional competence and due care if a professional
accountant in public practice accepts the engagement before knowing all the pertinent
facts. Appropriate safeguards may include:
 Discussing the client’s affairs fully and freely with the existing accountant provide
known information on
 Asking the existing accountant to provide information on any facts or
circumstances, that, in the existing accountant's opinion, the proposed accountant
should be aware of before deciding whether to accept the engagement, and
 When replying to requests to submit tenders, stating in the tender that, before
accepting the engagement, contact with the existing accountant will be requested
so that inquiries may be made as to whether there are any professional or other
reasons why the appointment should not be accepted.
A professional accountant in public practice will ordinarily need to obtain the client's
permission, preferably in writing to initiate discussion with an existing accountant. If the
proposed accountant is unable to communicate with the existing accountant, the proposed

accountant should try to obtain information about any possible threats by other means
such as through inquires of third parties or background investigations on senior
management or those charged with governance of the client.
 Second Opinions
A professional accountant in public practice who is asked to provide a second opinion on

the application of accounting, auditing, reporting or other standards or principles to specific
circumstances or transactions by or on behalf of a company or an entity that is not an
existing client may give rise to threats to compliance with the fundamental principles. For
example, there may be a threat to professional competence and due care in
circumstances where the second opinion is not based on the same set of facts that were
made available to the existing accountant, based on inadequate evidence. The
significance of the threat will depend on the circumstances of the request and all the other
available facts assumptions relevant to the expression of a professional judgment.
Appropriate safeguards may include seeking client permission to contact the existing
accountant, describing the limitations surrounding any opinion in communications with
the client and providing the existing accountant with a copy of the opinion. If the company
or entity seeking the opinion will not permit communication with the existing accountant, a
professional accountant in public practice should consider whether, taking all the
circumstances into account, It is appropriate to provide the opinion sought.
 Fees and Other Types of Remuneration
Professional fees
Professional fees should be a fair reflection of the value of the professional services
performed tor the client, taking into account
 The skill and knowledge required for the type of professional services involved,
 The level of training and experience of the persons necessarily engaged in
performing the professional services,
 The time necessarily occupied by each person engaged in performing the
professional services, and
 The degree of responsibility that performing those services entails.
The fact that one professional accountant in public practice may quote a fee lower than
another is not in itself unethical. Nevertheless, there may be a self-interest threat to
professional competence and due care created if the fee quoted is so low that it may be
difficult to perform the engagement in accordance with applicable technical and
professional standards tor that price.
Appropriate safeguards which may be adopted include:
 Making the client aware of the terms of the engagement and, in particular, the basis
on which fees are charged and which services are covered by the quoted fee,
 Assigning appropriate time and qualitied staff to-the task;
 Adjusting the level of fees or the scope of the engagement; and
 Having an appropriate reviewer review the work performed

Contingent Fees
Contingent fees may give rise to a self-interest threat to objectivity.
The significance of such threats will depend on factors including

 The nature of the engagement,
 The range of possible fee amounts,
 The basis for determining the fee, and
 Whether the outcome or result of the transaction is to be reviewed by an
independent third party
Appropriate safeguards may include

 An advance written agreement with the client as to the basis of remuneration,
 Disclosure to intended users of the work performed by the professional accountant
in public practice and the basis or remuneration,
 Quality control policies and procedures, and
 Review by an objective third party of the work performed by the professional
accountant in public practice.
Referral Fee or Commission
In certain circumstances, a professional accountant in pubic practice may receive a

referral fee or commission relating to a client. For example, where the professional
accountant in public practice not does provide the specific service required, a fee may be
received for referring a continuing client to another professional accountant in public
practice or other expert. A professional accountant in public practice may receive a
commission from a third party (e.g., a Software vendor) in connection with the sale of
goods or services to a client. Accepting such a referral fee or commission may give rise
to self- interest threats to objectivity and professional competence and due care.
A professional accountant in public practice may, in certain circumstances, also pay a

referral fee to obtain a client. For example, where the client continues as a client of a
professional accountant in public practice but requires specialized services not offered by
the existing accountant. The payment of such a referral fee may also create a self-interest
threat to objectivity and professional competence and due care.
A professional accountant in public practice should not pay or receive a referral tee or
commission, unless the professional accountant in public practice has established
safeguards to eliminate the threats or reduce them to an acceptable level. Such
safeguards may include:
 Disclosing to the client any arrangements to pay a referral fee to another

professional accountant for the work referred,
 Disclosing to the client any arrangements to receive a referral fee for referring the
client to another professional accountant in public practice, and
 Obtaining advance agreement from the client for commission arrangements in
connection with the sale by a third party of goods or services to the client.
A professional accountant in public practice may purchase all or part of another firm on
the basis that payments will be made to individuals formerly owning the firm or to their

heirs or estates. Such payments are not regarded as commissions or referral fees for
the payment purpose of this rule.
 Marketing Professional Services
When a professional accountant in public practice solicits new work through advertising
or other forms of marketing, a self-interest threat to professional behavior is created if
services, achievements or product are marketed in a way that is inconsistent with the
principle.
Generally, any form of advertisement is allowed as long as the information stated in the
advertisement can be substantiated and it does not bring the profession into dispute. The
Code prohibits the accountant from:
 Making exaggerated claims for service offers, qualifications possessed or

experience gained; or
 Making disparaging references to unsubstantiated comparison to the work of
another
 Gifts and Hospitality
A professional accountant in public practice, or an immediate or close family member, may

be offered gifts and undue hospitality from a client. Such an offer ordinarily gives rise to
the threats to compliance with the fundamental principles. For example, self-interest
threats to objectively may be created if a gift from a client is accepted; intimidation
threats to objectively may result from the possibility of such offers being made public.
Appropriate safeguards should be considered and applied as necessary to eliminate them

or reduce them to an acceptable level. These may include:
 Being transparent with senior management of the firm or client about offering r
accepting an inducement.
 Registering the inducement in long monitored by senior management of the firm
or another individual responsible for the firm’s ethics compliance or maintained by
the client.
 Having an appropriate reviewer, who is not otherwise involved in providing the
professional service, review any work performed or decisions made by the
professional accountant with respect to the client from which the accountant
accepted the inducement.
 Donating the inducement to charity after receipt and appropriately disclosing the
donation, for example, to a member of senior management of the firm or the
individual who offered the inducement.
 Reimbursing the cost of the inducement, such as hospitality received.
 As soon as possible, returning the inducement, such as gift, after it was initially
accepted.
When the threat cannot be eliminated or reduced to an acceptable level through the
application of safeguards, a professional accountant in public practice should not accept
such an offer.
 Custody of Client’s Assets

A professional accountant in public practice should not assume custody of client monies
or other assets unless permitted to do so by law and, if so, in compliance with any
additional legal duties imposed on a professional accountant in public practice holding
such assets.
The holding of client assets creates self-interest threat to professional behavior and
may be a self-interest threat to objectivity. to safeguard against such threats, a
professional accountant in public practice entrusted with money (or other assets)
belonging to others should:
 Keep such assets separately from personal or firms’ assets

 Use such assets only for the purpose for which they are intended
 At all times, be ready to account for those assets, and any income, dividends or
gains generated, to any persons entitled to such accounting and
 Make appropriate inquiries of the source of such assets comply with all relevant
laws and regulations relevant to the holding of and accounting for such assets.
 Responding to Non-Compliance with Laws and Regulations
A self-interest or intimidation threat to compliance with the principles of integrity and

professional behavior is created when a professional accountant becomes aware of non-
compliance or suspected noncompliance with laws and regulations. If the professional
accountant identifies or suspects that non-compliance has occurred or might occur, the
accountant should discuss the matter with the appropriate level of management and,
where appropriate those charged with governance. The purpose of the discussion is to
clarity the professional accountant’s understanding of the facts and circumstances
relevant to the matter and its potential consequences. The accountant should ensure that
the management has taken the appropriate and timely actions in order to:
 Rectify, remediate or mitigate the consequences of the noncompliance,

 Deter the commission of the non-compliance where it has not yet occurred, or
 Disclose the matter to an appropriate authority where required law or regulation or
where considered necessary in the public interest.
The professional accountant should assess the appropriateness of response or

management and, where applicable, those charged governance. based on the actions
taken by the client, the professional accountant should determine if further actions are
needed in the public interest. The professional accountant may consider
 Disclosing the matter to an appropriate authority even there is no legal or

regulatory requirement to do so, or
 Withdrawing from the engagement and the professional relationship where
permitted by law or regulation.
The determination of whether to make such a disclosure to an appropriate authority

depends in particular on the nature and extent of the actual or potential harm that is or
might be caused by the matter to investors, creditors, employees or the general public.
For example, the professional accountant might determine that disclosure of the matter to
an appropriate authority is an appropriate course of action it

 The entity is engaged in bribery (for example, of local or foreign government

officials for purposes of securing large contracts)
 The entity is regulated and the matter is of such significance as to threaten its
license to operate.
 The entity is listed on a securities exchange and the matter might result in adverse
consequences to the fair and orderly market in the entity’s securities or pose a
systemic risk to the financial markets.
 It is likely that the entity would sell products that are harmful to public health or
safety.
 The entity is promoting a scheme to its clients to assist them in evading taxes
INDEPENDENCE
Independence in auditing means taking an unbiased viewpoint in the performance of the

examination and in the preparation of the report. Independence is an essential element of
the CPA profession. If the assurance engagement is to enhance the credibility of an
information, it is important that users of this information perceive the professional
accountant as being objective and impartial. The professional accountant’s report on the
financial statements will be of little or no value to the financial statement readers if are
aware that the professional CPAS is not independent with respect to the client.
There are two phases of independence, the independence of mind and the independence
in appearance. Independence of mind is the auditor's perception of his own
independence. A state of mind that permits the expression of a conclusion without being
affected by intumesces that compromise professional judgment, allowing an individual to
act with integrity and exercise objectivity and professional skepticism.
Independence in appearance, on the other hand, refers to the public's perception of the
professional accountant's independence. 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.
The Code of Ethics does not only require the professional accountants to maintain
independence in mental attitude, but it also requires professional accountants to avoid
circumstances which would cause the pubic to doubt their independence.
 Engagement Period
The members of the assurance team and the firm should be independent of the
assurance client during the period of the assurance engagement. The period of the
engagement starts when the assurance team begins to perform assurance services
and ends when the assurance report is issued, except when the assurance
engagement is of a recurring nature. lf the assurance engagement is 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 comes later. In the case of a financial statement audit
engagement, engagement period includes the period covered by the financial
statements reported on by the firm.
 Independence Requirement

Not all services provided "by professional accountants will require independence.
Independence is required only whenever the professional accountant provides
assurance services. For the purpose of applying the principle of independence,
assurance services can be classified three namely: audit and review services, non-
audit assurance service and non- audit assurance services with restrictions as to the
distribution of the report
 For financial statement audit or review engagements, the members of the

assurance team, the firm and network firms are required to be independent of
the audit client.
 For non- audit assurance engagements, where the distribution of the report is
not restricted, the members of the assurance team and the firm must be
independent of the assurance client.
 For non-audit assurance engagements, where the distribution of the report is
restricted to specified users, the members of the assurance team must be
independent of the assurance client. In addition, the firm should not have any
material financial interest in an assurance client.
The table below summarizes the independence requirements of the different types of
assurance engagements.
Members of Firm Network firm

assurance team
Audit or Review Required Required Required
Non-audit Assurance Required Required Not Required
Non-audit Assurance with Required Not Required Not Required

restrictions
The independence requirements for audit and review engagements are the same. Hence,
any reference made to audit of financial statements in the succeeding section about
independence is also applicable to review of financial statements conducted by a
professional accountant.
 Independence Interpretations and Rulings
It is impossible to describe all situations that could impair the CPA's independence. The
following independence interpretations and rulings, however, may serve as guidelines to
professional accountants:
Financial interest
In evaluating the significance of threat created by a financial interest it is important to

determine materiality of the financial interest and the type of financial interest.
When evaluating the type of financial interest, consideration should be given to the fact
that financial interests range from those where the CPA has no control over the investment

vehicle of financial interest held to those where the CPA has control over financial interest
or is able to influence investment decisions. When control exists, the financial interest
should be considered direct. Conversely, when the professional accountant has no control
over the financial interest, the financial interest is considered indirect.
Any direct financial interest in an assurance client, whether material or immaterial,

impairs the CPA's independence. But in the case of an indirect financial interest, the
interest must be material in order to impair the CPA's independence
Loans and guarantees
A loan from, or a guarantee thereof by, an assurance client that is a financial institution
will not impair the CPA's Independence provided the loan is:
 immaterial to both the firm and assurance client, or

 made under normal lending procedures, terms and requirements of the financial
institution.
A loan to or from an assurance client that is not a financial institution or a guarantee of

assurance client's borrowing will normally impair the CPA’s independence unless the
amount of the loan or guarantee is immaterial to the firm and assurance client.
Close Business Relationships
A close business relationship between a firm or a member of the assurance team and the
a5surance client or its management, will involve a commercial or common financial
interest and may create self-interest and intimidation threats. Examples of close business
relationships are:
 Having a material financial interest in a joint venture with the assurance client
 Arrangements to combine one or more services or products of the firm with one or
more services or products of the assurance client
 Distribution or marketing arrangements under which the firm acts as a distributor
or marketer of the assurance client's products or services, or the assurance client
acts as the distributor or marketer of the products or services of the firm.
Close business relationship is considered an indirect financial interest and therefore

would impair the professional accountant's independence unless such financial interest is
immaterial and the relationship is clearly insignificant.
Family and personal relationships
lt is impracticable to describe in detail the significance of threats that family and personal
relationships may create. In evaluating the significance of threats created by family and
personal relationships, the CPA should consider the closeness of the relationship and the
role of the family member within the assurance client.
A self-interest, familiarity or intimidation threat is created when an immediate family

member of an assurance team member is an employee in a position to exert significant
influence over the subject of the assurance engagement. Safeguards to eliminate these
threats or reduce them to an acceptable level include:

 Removing the individual from the assurance team, or

 Structuring the responsibilities of the assurance team so that the team member
does not deal with matters that are within the responsibility of the immediate family
member.
Recent service with an assurance client
Independence is impaired if, during the period covered by the assurance report, a member
of the assurance team had served as a director, an officer or an employee of the
assurance client in a position to influence the subject matter of the assurance
engagement. Hence, a professional accountant cannot issue an assurance report
covering any period during which the he was employed in a management capacity. To do
so would violate the basic concept that one cannot act independently in evaluating his or
her own work.
Serving as an officer or director on the Board of Assurance Clients
Independence of the CPA is impaired if a partner or employee of a firm serves as an officer

or a director on the board of an assurance client. However, serving as an honorary
member on the board of a non-stock non-profit organization that is an assurance client,
will not impair the CPA's independence provided that the membership is purely honorary
and the partner or employee of the firm does not participate in the management or
operations of the assurance client.
Entering Employment with a Client
A self-interest threat is created when an assurance team member participates in the

assurance engagement while knowing that he or she will, or might, join the client at some
time in the future. A firm should have policies and procedures that require assurance team
members to notify the firm when entering employment negotiations with an assurance
client Examples of actions that might eliminate this threat or reduce it to an acceptable
level are:
 removing the individual from the assurance team, or

 having an apropriate reviewer review any significant judgments made by that
individual while on the team.
If an individual who was a key audit partner with respect to an audit client that is a public
interest entity joins the client as a director or officer or an employee in a position to exert
significant influence over preparation of the client’s accounting records or the financial
statements on which the firm will express an opinion, independence is compromised
unless, subsequent to the individual ceasing to be a key audit partner
 The audit client has issued audited financial statements covering a period of not
less than twelve months, and
 The individual was not an audit team member with respect to the audit of those
financial statements
Similarly, if an individual who was the Senior or Managing Partner of the firm joins an audit
client that is a public interest entity as a director or officer, independence is

compromised, unless twelve months have passed since the individual was the Senior or
Managing Partner of the firm.
Long association with assurance clients
Using the same personnel and/ or lead engagement partner on an assurance engagement
for a long period of time may create familiarity threat. Nevertheless, this threat can be
reduced to an acceptable level by employing adequate safeguards such as rotating the
personnel and independent quality. reviews.
If a firm concludes that the level of the threat can only be addressed by rotating the
personnel, the firm should determine an appropriate period during which the individual will
not :
 Be a member of the engagement team for the audit engagement

 Provide quality control for the audit engagement, or
 Exert direct influence on the outcome of the audit engagement.
For audits of a public interest entities, an individual cannot act in any of the following roles
for a period of more than seven cumulative years (the "time-on” period)
 The engagement partners
 The quality control reviewer, or
 Any other key audit partner role.
In addition to the "time-on” period requirement, the Code of Ethics also requires a
professional accountant to serve a cooling-off period of at least five years, three years or
two years depending on the individual's role on an audit engagement
Time-on Period Cooling-off Period

Engagement Partner 7 years 5 years
Quality Control Review 7 years 3 years
Other Key Audit Partner role 7 years 2 years
The Code of Ethics sets out stringent restrictions during the cooling off period, which
prevents the partner from:
 Being involved in the audit engagement including quality control review,

 Consulting with the engagement team on matters affecting the audit engagement
 Leading or coordinating the professional services provided by the firm to the audit
client, or overseeing the relationship of the firm with the audit client, or
 Providing non- assurance services to the audit client that would result in frequent
interaction with senior management
Provision of Accounting and Bookkeeping Services to an Audit Client
Providing an audit client with accounting and bookkeeping services such as preparing
accounting records and financial statements creates self-review threat if the firm
subsequently audits the financial statements. Accordingly, a professional accountant
should not provide accounting and bookkeeping services to an audit client.

On the other hand, accounting and bookkeeping services that are routine or mechanical
in nature can be provided to an audit client so long as:
 the audit client is not a public interest entity, and

 any self-review threat created is reduced to an acceptable level.
Examples of these services that require little to no professional judgment include:
 Preparing payroll calculations or reports based on client originated data for

approval and payment by the client.
 Recording recurring transactions for which amounts are easily determinable from
source documents or originating data, such as a utility bill where the client has
determined or approved the appropriate account classification.
 Calculating depreciation on fixed assets when the client determines the accounting
policy and estimates of useful life and residual values.
 Posting transactions coded by the client to the general ledger.
 Posting client-approved entries to the trial balance.
 Preparing financial statements based on information in the client-approved trial
balance and preparing related notes based on client-approved records.
Provision of Technical Assistance to an Audit Client
In some instances, an audit client might request technical assistance on matters relating
to financial statements and regulatory reporting. For example the client may request in
transitioning from one financial reporting framework to another. Such services do not
usually create threats provided the professional accountant does not assume
management responsibility for the client.
In addition, the auditor and the client management may have discussions about
 The application of accounting standards or policies and financial statement

disclosure requirements.
 The appropriateness of financial and accounting control and the methods used in
determining the stated amounts of assets and liabilities.
 Proposing adjusting journal entries.
These activities are considered to be a normal part of the audit process and do not usually
create threats as long as the client is responsible for making decisions in the preparation
of accounting records and financial statements.
Provision of Valuation Services to an Audit Client
A valuation comprises the making of assumptions with regard to future developments, the
application of appropriate methodologies and techniques, and the combination of both to
compute a certain value, or range of values, for an asset, a liability or for a business as a
whole.
A CPA firm shall not provide a valuation service to an audit client if the valuation service
would have a material effect, individually or in the aggregate, on the financial statements
on which the firm will express an opinion.

Provision of Administrative Services to an Assurance Client
Administrative services involve assisting clients with their routine or mechanical tasks
within the normal course of operations. services require little to no professional judgment
and are clerical nature. Examples of administrative services include:
 Word processing services.

 Preparing administrative or statutory forms for client approval.
 Submitting such forms as instructed by the client.
 Monitoring statutory filing dates, and advising an audit client those dates.
Providing administrative services to an assurance client does not normally create a threat
to compliance with the fundamental principles.
Preparation of Tax Return to an Audit Client
Tax return preparation services involve:

 Assisting clients with their tax reporting obligations by drafting and compiling
information, including the amount of tax due (usually on standardized forms)
required to be submitted to the tax authorities.
 Advising on the tax return treatment of past transactions and responding on behalf
of the audit client to the tax authorities requests for additional information and
analysis (for example, providing explanations of and technical support for the
approach being taken).
Provision of taxation preparation services does not impair the CPA’s independence as
long as the management takes responsibility for the returns including any judgments
made.
Current and Deferred Tax
Preparing calculations of current and deferred tax liabilities (or assets) an audit client for
the purpose of preparing accounting entries will be subsequently audited by the firm
creates a self-review threat. A professional accountant may be allowed to provide this
service to an audit client, provided
 The client is not a public interest entity, and

 Appropriate safeguards are in placed to reduce the threat to an acceptable level,
such as using different personnel or having appropriate reviewer to review the
audit worked or the service performed
Assisting in the Resolution of Tax Dispute
An advocacy threat is created when the professional accountant represents the audit client
in a resolution of a tax dispute. Accordingly, a professional accountant should not
represent an audit client before a court in the resolution of a tax matter when the amounts
involved are material to the financial statements in which the professional accountant will
express an opinion,
Provision of legal services to assurance clients

When providing legal services to an assurance client, it is important to make a distinction

between advocacy services and advisory services. Acting as an advocate of an audit client
in the resolution of a dispute or litigation where the amount involved is material to the
financial statements of an audit client will impair the CPA's independence Hence, the firm
should not perform this type of service to an audit client.
On the other hand, legal services to support an audit client in execution of the transaction
(e.g. legal advice, contract support, due diligence and restructuring) will not impair the
CPA’s independence provided adequate safeguards are employed.
In addition, independence is usually impaired when a CPA provides corporate finance

services to an assurance client. Hence, services such as promoting or underwriting the
client's securities or consummating business transactions in behalf of the client are not
compatible with providing assurance services.
Recruiting Senior Management
The recruitment or a senior management for an assurance client will normally impair the
CPA's independence, especially if the firm makes the ultimate hiring decisions. On the
contrary, the firm could perform consulting services such as reviewing the qualifications
of the applicants and provide advice on their suitability for the post.
Fes- Relative Size
When the total fees generated from an assurance client represent a large proportion of
the total fees of that firm, the dependence on that client and concern about losing the client
create a self-interest or intimidation threat. Increasing the client base in the firm reduces
dependence on a particular client.
Where an audit client is a public interest entity and, for two consecutive years, the total
fees from the client and its related entities represent more than 15% of the total fees
received by the firm expressing the opinion on the financial statements of the client, the
firm is required to:
 Disclose to those charged with governance of the audit client the fact that the total
of such fees represents more than 15% of the total fees received by the firm, and
 Discuss whether either a pre-issuance or post-issuance review might be a

safeguard to address the threat created by the total tees received by the firm from
the client, and if so, apply it
 Pre-issuance Review- Prior to the audit opinion being issued on the second
year's financial statements, a professional accountant, who is not a member
of the firm expressing the opinion on the financial statements, performs an
engagement quality control review of that engagement or a professional body
preforms a review of that engagement that is equivalent to an engagement
quality control review, or
 Post-issuance Review- After the audit opinion on the second year's financial
statements has been issued, and before the audit opinion being issued on the
third year’s financial statements, a professional accountant, who is not a

member of the firm expressing the opinion on the financial statements, or a

professional body performs review of the second year's audit that is equivalent
to an engagement quality control review.
Fees-overdue
The CPA's independence is impaired if, at the time of issuing the assurance report, the
prior year's professional fees due from the client remain unpaid. Hence, the payment of
such fees should be required before the assurance report is issued.
Contingent fees
Contingent fees charged by a firm with respect to an assurance engagement will impair
the CPA's independence. Thus, a professional accountant should not provide assurance
services under an arrangement whereby no fees will be charged unless specific findings
are attained. Fees are not to be regarded as contingent it these are:
 Fixed by a court or other public authority, or

 Determined based on the results judicial or government agency proceedings.
Compensation and Evaluation Policy
A self-interest threat is created when an audit team member for particular audit client is
evaluated on or compensated for selling non- assurance services to that audit client. The
level of the self-interest threat will depend on:
 What proportion of the compensation or evaluation is based on the sale of such

services;
 The role of the individual on the audit team, and
 Whether the sale of such non-assurance services influences promotion decisions.
Accordingly, a firm should not evaluate or compensate a key audit partner based on that
partner's success in selling non- assurance services to the partner's audit client. This
requirement does not, however, preclude normal profit-sharing arrangements between
partners of a firm.
Gifts and hospitality
Accepting gifts and hospitality from an assurance client creates a self-interest, familiarity
or intimidation threat. A professional accountant should not accept gifts and hospitality
from an assurance client, unless the value is trivial and inconsequential.
Actual or threatened litigation
Litigation involving the firm and the client may create self-interest and intimidation threats.
The relationship between the CPA and the client must be characterized by honesty,
truthfulness and full disclosure. Such a relationship may not exist when litigation places
the CPA and the client's management in an adversarial position. Hence, CPA in litigation
with a client must evaluate the situation to nine whether the significance of litigation affects
the client's confidence in the auditor's independence

REPUBLIC ACT No. 9298: The Philippine Accountancy Act of 2004
ARTICLE I
TITLE, DECLARATION OF POLICY, OBJECTIVE
AND SCOPE OF PRACTICE
SECTION 1. Short Title. – This Act shall be known as the “Philippine

Accountancy Act of 2004”.
SEC. 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
standards of practice and service shall be excellent, qualitative, world class and globally
competitive through inviolable, honest, effective, and credible licensure examinations
and through regulatory measures, programs and activities that foster their professional
growth and development.
SEC. 3. Objectives. – This Act shall provide for and govern:
(a) The standardization and regulation of accounting education;

(b) The examination for registration of certified public accountants; and
(c) The supervision, control, and regulation of the practice of accountancy in
the Philippines.
SEC. 4. Scope of Practice. – The practice of accountancy shall include, but not
limited to, the following:
(a) Practice of Public Accountancy - shall constitute in a person, be it his/her individual

capacity, or as a partner 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, to more than one client
on a fee basis or otherwise, services 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, statements or 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 purpose; or the design, installation, and revision of
accounting system; or the preparation of income tax returns when related to
accounting procedures; or when he/she represents clients before government
agencies on tax and other matters related to accounting or renders 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, finance, business law, taxation, and other technically related subjects:
Provided, that members of the Integrated Bar of the Philippines may be allowed to
teach business law and taxation subjects.
(d) Practice in the Government- shall constitute in a person who holds, or is appointed
to, a position in an accounting professional group in government or in a
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
SEC. 5. The Professional Regulatory Board of Accountancy and its

Composition. – The Professional Regulatory Board of Accountancy, hereinafter referred
to as the 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 accountants. The Board shall elect a vice-chairman from
among its members for a term one (1) year. The chairman shall preside in all meetings of
the Board 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.
SEC. 6. Qualifications of Members of the Professional Regulatory Board. –

A member of the Board shall, at the time of his/her appointment, possess the following
qualifications:
(a) Must be a natural-born citizen and a resident of the Philippines;

(b) Must be a duly registered Certified Public Accountant with a least ten (10) years of
work experience in any scope of practice of accountancy.
(c) Must be of good moral character and must not have been convicted of crimes
involving moral turpitude; and
(d) 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 the time of his/her appointment
to the Board.
SEC. 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 unexpired term is not to be considered as a complete term.

SEC. 8. Compensation and Allowances of the Board. – The chairman and

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 Appropriations Act.
SEC. 9. Powers and Functions of the Board. – The Board shall exercise the
following specific powers, functions and responsibilities:
(a) To prescribe and adopt the rules and regulations necessary for carrying out the
provisions of this Act;
(b) To supervise the registration, licensure and practice of accountancy in the
Philippines;
(c) To administer oaths in connection with the administration of this Act;
(d) To issue, suspend, revoke, or reinstate the Certificate of Registration for the
practice of the accountancy profession;
(e) To adopt an official seal of the Board;
(f) To prescribe and/or adopt a Code of Ethics for the practice of accountancy;
(g) 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:
Provided, That domestic accounting and auditing standards, rules and regulations
shall include the international accounting and auditing standards, and generally
accepted best practices;
(h) To conduct an oversight into the quality of audits of financial statements through a
review of the quality control measures instituted by auditors in order to ensure
compliance with the accounting and auditing standards and practices;
(i) To investigate violations of this act and the rules and regulations promulgated
hereunder and for this purpose, to issue summons, subpoena and subpoena ad
testificandum and subpoena duces tecum to violators or witness thereof and
compel their attendance to such investigation or hearings and the production of
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 factfinding aspect of such investigations to
the accredited national professional organization of certified public accountants:
Provided, Further, That the Board and/or the Commission may adopt their findings
of fact as it may seems fit;
(j) The Board may, motu propio in its discretion, make such investigations as it deems
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;
(k) To issue a cease or desist order to any person, association, partnership or
corporation engaged in violation of any provision of this Act, any accounting or
auditing standards or rules duly promulgated by the Board as part of the rules
governing the practice of accountancy in the Philippines;
(l) To punish for contempt of the Board, both direct and indirect, in accordance with
the pertinent provisions of and penalties prescribed by the Rules of Court;

(m) 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 results of the
licensure examinations;
(n) To ensure, in coordination with the Commission on 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 CHED or other authorized government offices in the
areas of curriculum, faculty, library and facilities; and
(o) 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 administrative cases shall be subject to review
only if on appeal.
SEC. 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 conducted 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.
SEC. 11. Grounds for Suspension or Removal of Members of the Board. –

The President of the Philippines, upon the recommendation of the Commission, after
giving the concerned member an opportunity to defend himself in a proper administrative
investigation to be conducted by the Commission, may suspend or remove any member
on the following grounds:
(a) Neglect of duty or incompetence;

(b) Violation or tolerance of any violation of this Act and its implementing rules
and regulations or the Certified Public Accountant’s Code of Ethics and the
technical and professional standards of practice for certified public accountants;
(c) Final judgment of crimes involving moral turpitude; and
(d) 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.
SEC. 12. Annual Report. – The Board shall, at the close of each calendar year,
submit an annual report to the President of the Philippines through the Commission giving
a detailed account of its proceedings and accomplishments 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
SEC. 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
designate subject to compliance with the requirements prescribed by the Commission in
accordance with Republic Act No. 8981.
SEC. 14. Qualifications of Applicants for Examinations. – Any person applying

for examination shall establish the following requisites to the satisfaction of the Board that
he/she:
(a) is a Filipino citizen;

(b) is of good moral character;
(c) is a holder of the degree of Bachelor of Science in Accountancy conferred by a
school, college, academy or institute duly recognized and/or accredited by the
CHED or other authorized government offices; and
(d) has not been convicted of any criminal offense involving moral turpitude.
SEC. 15. Scope of Examination. – The licensure examination for certified public
accountants shall cover, but are not limited to, the following subjects:
(a) Theory of Accounts

(b) Business Law and Taxation
(c) Management Services
(d) Auditing Theory
(e) Auditing Problems
(f) Practical Accounting Problems I
(g) Practical Accounting Problems 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.
SEC. 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 seventyfive percent (75%), with no grades 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 years from the 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 sixtyfive percent (65%) in each of the subjects
reexamined, he/she shall be considered as failed in the entire examination.

SEC. 17. Report of Ratings. – The Board shall submit to the Commission the
ratings 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 envelope submitted during the examination.
SEC. 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 submits 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 complete examination.
SEC. 19. Oath. - All successful candidates in the examination shall be required to
take an oath of profession before any member of the Board or before any government
official authorized by 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.
SEC. 20. Issuance of Certificates 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.
SEC. 21. Roster of Certified Public Accountants. – 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 be
deemed necessary.
SEC. 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.

SEC. 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 a court of
competent jurisdiction of a criminal offense involving moral turpitude or guilty of immoral
and dishonorable conduct or to any person of 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.
SEC. 24. Suspension and Revocation of Certificates of Registration and

Professional Identification Card and Cancellation of Special Permit. - The Board shall
have the power, upon due notice and hearing, to suspend or revoke the practitioner’s
certificate of registration and professional identification card or suspend him/her from the
practice of his/her profession or cancel his/her special permit for any of the causes or
grounds mentioned under Section 23 of this Act or for any unprofessional or unethical
conduct, malpractice, violation of 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.
SEC. 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 promulgated by the Board and the Commission, upon payment
of the required fees.
ARTICLE IV
PRACTICE OF ACCOUNTANCY
SEC. 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.
SEC. 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. Certificates of
registration/professional license held by such persons in good standing shall have the
same force and effect as though issued after the passage of this Act.

SEC. 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 accountants 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: Provided, further, That this requirement shall not apply to those already granted
a certificate of accreditation prior to the effectivity of this Act. The Securities and Exchange
Commission shall not register any corporation organized for the practice of public
accountancy.
SEC. 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 through subpoena issued by any court,
tribunal, or government regulatory or administrative body.
SEC. 30. Accredited Professional Organization.- All registered certified public

accountants whose names appear in the roster of certified public accountants shall be
united and integrated through 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 in the said integrated and accredited national professional
organization shall receive 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.
SEC. 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 register
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.
SEC. 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 institutions. For this
purpose, a CPE Council is hereby created to implement the CPE program.
SEC. 33. Seal and Use of Seal. - All licensed certified public accountants shall
obtain and use a seal of a design prescribed by the Board bearing the registrant’s name,
registration number and title. The auditor’s reports shall be stamped with said seal,
indicating therein his/her current Professional Tax Receipt (PTR) number, date/place of
payment when filed with government authorities or when used professionally.
SEC. 34. Foreign Reciprocity. – Subjects or citizens 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 agreements
entered into by the Philippine 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, by specific
provision of law, the 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.
SEC. 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) A foreign certified public accountant called for consultation or for a 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;
(b) 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
(c) A foreign certified public accountant who is an internationally recognized expert 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 FINAL PROVISIONS
SEC. 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 (P 50,000.00) or by imprisonment for a period not
exceeding two (2) years or both.
SEC. 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 major daily newspaper of general circulation.
SEC. 38. Interpretation of this Act. - Nothing in this Act shall be construed to
effect or prevent the practice of any other legally recognized profession.
SEC. 39. Enforcement of the Act. - It shall be the primary duty of the Commission
and the Board to effectively 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 or 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 through
the concerned prosecution office in accordance with law and rules of court.
SEC. 40. Funding Provision. - The chairperson of the Professional Regulation

Commission shall immediately include in the Commission’s programs the implementation
of this Act, the funding of which shall be included in the annual General Appropriations
Act.
SEC. 41. Transitory Provision. - The incumbent chairman and members of the
Board shall continue to serve in their respective positions under the terms for which they
have been appointed under Presidential Decree No. 692, without the need of new
appointments.
All graduates with a 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.
SEC. 42. Separability Clause. - If any clause, provision, paragraph or part 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, provision,
paragraph or part directly involved in the controversy in which such judgment has been
rendered.
SEC. 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.

SEC. 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.
RULES AND REGULATIONS IMPLEMENTING REPUBLIC ACT NO. 9298

OTHERWISE KNOWN AS THE PHILIPPINE ACCOUNTANCY ACT OF 2004
AND FOR OTHER PURPOSES
RULE I
TITLE, DECLARATION OF POLICY, OBJECTIVE

AND SCOPE OF PRACTICE
SECTION 1 - Short Title. – This Rules and Regulations shall be known as THE
RULES AND REGULATIONS IMPLEMENTING REPUBLIC ACT NO. 9298 otherwise
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
standards of practice and service shall be excellent, qualitative, world class and globally
competitive through
a. Inviolable, honest, effective, and credible licensure examinations and
b. regulatory measures, programs and activities that foster their professional growth
and development.
This Rules and Regulations shall be interpreted, construed, and carried out in the light of
the above Declaration of Policy, which embodies the legislative intent in enacting the law.
SECTION 3 – Objectives. – This Act shall provide for and govern:
a. The standardization and regulation of accounting education;
b. The examination for registration of certified public accountants; and
c. 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 in a person,
i. be it his/her individual capacity, or as a partner or as a staff member in an

accounting or auditing firm;
ii. 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, to

more than one client on a fee basis or otherwise, services such as:
 the audit or verification of financial transactions 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, statements or reports which are to be used by stockholders or for
publication or for credit purposes, or to be filed with a court or government
agency, or to be used for any other purpose; or
 the design, installation, review and revision of accounting systems and
controls; or the preparation and/or review of income tax returns when related
to accounting and auditing procedures; or
 when he/she represents his/her clients before government agencies on tax
and other matters related to accounting; or
 renders 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,
i. involved in decision making requiring professional knowledge in the

science of accounting, as well as the accounting aspects of finance and
taxation, or
ii. when he/she represents his/her employer before government agencies on
tax and other matters related to accounting; or
iii. when such employment or position requires that the holder thereof must be
a certified public accountant.
In this connection, any position in any business or company in the private

sector which requires supervising the recording of financial transactions,
preparation of financial statements, coordinating with the external auditors for
the audit of such financial statements and other related functions shall be
occupied only by a duly registered CPA. Provided, That the business or
company where the above position exists has a paid -up capital of at least Five
Million Pesos (P5,000,000.00) and/or an annual revenue of at least Ten Million
Pesos (P10,000,000.00). Provided Further, That this provision shall apply only
to persons to be employed after the effectivity of this Rules and Regulations,
Provided, Finally, That this provision shall not result to deprivation of the
employment of incumbents to the position.
c. Practice in Education/Academe - shall constitute in a person,
i. in an educational institution which involve teaching of accounting, auditing,

management advisory services, accounting aspect of finance, business law,
taxation, and other technically related subjects.
Provided, That members of the Integrated Bar of the Philippines may be

allowed to teach business law and taxation subjects; Provided, Further, That
the position of either the dean or the department chairman or its equivalent that

supervises the Bachelors of Science in Accountancy program of an

educational institution is deemed to be in practice of accountancy in the
academe / education and therefore must be occupied only by a duly registered
CPA.
d. Practice in the Government - shall constitute in a person,
i. who holds, or is appointed to, a position in an accounting professional

group in government or in a government-owned and/or controlled
corporation, including those performing proprietary functions, where
decision making requires professional knowledge in the science of
accounting, or
ii. where a civil service eligibility as a certified public accountant is a
prerequisite.
SECTION 4 (A) - Definition of Terms. – As used in these rules and regulations,

the following terms shall be understood to mean as follows:
a. Accredited National Professional Organization of Certified Public Accountants or
APO – the integrated national professional organization of Certified Public
Accountants accredited by the Board and the Commission;
b. Act or RA No. 9298 – The Philippine Accountancy Act of 2004 and its subsequent
amendments;
c. Board or BOA – the Professional Regulatory Board of Accountancy of the
Philippines created under Republic Act No. 9298;
d. Certified Public Accountant or CPA – a person who holds a valid Certificate of
Registration and a valid Professional Identification Card issued by the Commission
upon recommendation by the Board to those who have satisfactorily complied with
all the legal and procedural requirements for such issuance, including in
appropriate cases, having passed the CPA licensure examination.
e. Certificate of Accreditation – a certificate under seal, issued by the Commission
upon the recommendation by the Board pursuant to this revised rules and
regulation, attesting that Individual CPAs, including the staff members thereof,
Firms, including the sole proprietors and the staff members thereof and
Partnerships of CPAs including the partners and the staff members thereof, are
duly accredited to practice public accountancy in the Philippines.
f. Certificate of Registration – a certificate under seal bearing a registration number,
issued to an individual, by the Commission, upon recommendation by the Board,
signifying that the individual has complied with all the legal and procedural
requirements for such issuance including, in appropriate cases, having
successfully passed the CPA licensure examination.
g. Code of Ethics for Professional Accountants – the code of ethics approved by the
Commission in December, 2003 per its PRC Resolution No. 83, Series of 2003
and its subsequent amendments which contains the norms and principles
governing the practice of the accountancy profession in the highest standards of
ethical conduct.
h. Commission or PRC – the Professional Regulation Commission of the Philippines
created under Republic Act No. 8981.
i. Firm – an organization engaged in the practice of public accountancy, consisting
of a sole proprietor, either alone or with one or more staff member(s).

j. Individual CPA – a certified public accountant engaged in the practice of public

accountancy under his/her name, by himself/herself only or with one or more staff
member(s).
k. Implementing Rules and Regulations or IRR – rules and regulations implementing
Republic Act No. 9298 otherwise known as the Philippine Accountancy Act of
2004.
l. Partnership – a professional partnership engaged in the practice of public
accountancy which is formed in accordance with Philippine laws, either as a
general partnership or a limited liability partnership, and whether or not it is
registered as such with the Securities and Exchange Commission (SEC).
m. Philippine Institute of Certified Public Accountant or PICPA – the integrated
national professional organization of Certified Public Accountants accredited by
the Board and the Commission per PRC Accreditation No. 15 dated October 2,
1975.
n. Professional Identification Card – a card with validity of three (3) years, bearing the
registration number, date of issuance with an expiry date, due for periodic renewal,
duly signed by the Chairperson of the Commission issued by the PRC to a
registered CPA upon payment of the annual registration fees for three (3) years.
o. Quality Review –- a study, appraisal, or review by the Board or its duly authorized
representatives, of the quality of audit of financial statements through a review of
the quality control measures instituted by an Individual CPA, Firm or Partnership
of CPAs engaged in the practice of public accountancy to ascertain his/her/its
compliance with prescribed professional, ethical and technical standards of public
practice.
p. Sector – is the area of practice of accountancy namely public accountancy,
commerce and industry, academe/education and government.
q. Staff member – a CPA employed by an Individual CPA, Firm or Partnership
engaged in the practice of public accountancy as defined in Sec. 1(a) herein, below
the rank of the Individual CPA, sole proprietor or partner as the case maybe.
r. Syllabi – documents showing the outline embodying topics and concepts of major
subjects prescribed in specific course of study to serve as the basis for test
questions in the CPA licensure examinations.
RULE II
PROFESSIONAL REGULATORY BOARD OF ACCOUNTANCY
SECTION 5 - The Professional Regulatory Board of Accountancy and its

Composition. – The Board 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 APO. The Board shall elect a vice-chairman from among its
members for a term of one (1) year. The chairman shall preside in all meetings of the
Board 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.
The four (4) sectors in the practice of accountancy shall as much as possible be
equitably represented in the Board. The Commission in consultation with the Board shall
select three (3) nominees from those recommended by the APO and submit such list to
the President for consideration.

SECTION 5 (A) - Time of submission of nomination to the Board by the APO.

– The APO shall submit its nominations with complete documentation to the Commission
not later than (60) days prior to the expiry of the term of an incumbent chairman or
member. There should be adequate documentation to show the qualification and primary
field of professional activity of the nominee to enable the Commission to determine the
competence of the nominee and the sector where he/she belongs. If the APO fails to
submit its own nominee(s) to the Commission with the required documentations within the
period provided herein, the Commission in consultation with the Board shall submit to the
President a list of three (3) nominees for each vacant position.
SECTION 6 - Qualifications of Members of the Professional Regulatory Board
of Accountancy. –A member of the Board shall, at the time of his/her appointment,
possess the following qualifications:
a. Must be a natural-born citizen and a resident of the Philippines;
b. Must be a duly registered Certified Public Accountant with at least ten (10) years
of work experience in any scope of practice of accountancy. He/shall be nominated
to represent a sector from which he/she has considerable and meaningful
professional experience.
c. Must be of good moral character and must not have been convicted of crimes
involving moral turpitude;
d. 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 the time of his/her appointment
to the Board;
e. Must not be a Director or Officer of the APO at the time of his appointment;
Provided, That if the Chairman or any member of the Board is still in active practice
of public accountancy or connected with any office in commerce and industry or in the
government, he/she must go on leave during the pendency of any case involving
himself/herself, his firm, partnership, company or government office, or inhibit
himself/herself completely in all the stages of the proceedings thereof.
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
successive complete terms as chairman or member shall be eligible for reappointment as
chairman or member until the lapse of one year. Appointment to fill up an unexpired term
is not to be considered as a complete term. Provided, That, no person shall serve in the
Board for more than twelve (12) years.
SECTION 8 - Compensation and Allowances of the Board. – The chairman and
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 Appropriations Act.

SECTION 9 - Powers and Functions of the Board. – The Board shall act as a
collegial body and shall exercise the following specific powers, functions and
responsibilities:
a. To prescribe and adopt the rules and regulations necessary for carrying out
the provisions of this Act;
b. To supervise the registration, licensure and practice of accountancy in the
Philippines;
c. To administer oaths in connection with the administration of this Act;
d. To issue, suspend, revoke, or reinstate the Certificate of Registration for the
practice of the accountancy profession;
e. To adopt an official seal of the Board;
f. To prescribe and/or adopt a Code of Ethics for the practice of accountancy;
g. 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; Provided, That domestic accounting and auditing
standards, rules and regulations shall include the international accounting and
auditing standards, and generally accepted best practices;
h. To conduct an oversight into the quality of audits of financial statements
through a review of the quality control measures instituted by auditors in order
to ensure compliance with the accounting and auditing standards and
practices;
i. To investigate violations of this act and the rules and regulations promulgated
hereunder and for this purpose, to issue summons, subpoena and subpoena
ad testificandum and subpoena duces tecum to violators or witness thereof
and compel their attendance to such investigation or hearings and the
production of 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 accountants; Provided Further, That the Board
and/or the Commission may adopt their findings of fact as it may deem fit;
j. The Board may, motu propio in its discretion, make such investigations as it
deems 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;
k. To issue a cease or desist order to any person, association, partnership or
corporation engaged in violation of any provision of RA No. 9298, any
accounting or auditing standards or rules duly promulgated by the Board as
part of the rules governing the practice of accountancy in the Philippines;
l. To punish for contempt of the Board, both direct and indirect, in accordance
with the pertinent provisions of and penalties prescribed by the Rules of Court;
m. 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
results of the licensure examinations; Provided, That the Board may, upon prior

approval by the Commission, engage the services of expert test writers, who
shall propose test questions for the CPA Licensure Examinations. Provided,
Further, That the Board does not delegate its power and function to determine
and prepare test questions for the CPA Licensure Examinations. Provided,
Finally, That the Board and the Commission shall institute adequate controls
over the processing and safekeeping of such test questions to ensure the full
integrity of the CPA Licensure Examinations;
n. To ensure, in coordination with the Commission on Higher Education (CHED)
or other authorized government offices, that all higher educational instruction
and offering of accountancy, including accounting review centers and/or CPE
providers offering accounting seminars, comply with the policies, standards
and requirements of the course prescribed by CHED or other authorized
government offices or CPE Council as the case may be in the areas of
curriculum, faculty, library and facilities; Provided, That for the
orderly implementation of this provision, the Board and the Commission may
enter into a Memorandum of Agreement with CHED;
o. 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 RA No. 9298.
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 administrative cases shall be subject to review
only if on appeal.
SECTION 9 (A) - Accounting and Auditing Standard Setting Council. –The
Commission upon the recommendation of the Board shall within ninety (90) days from the
effectivity of this IRR, create an accounting standard setting body to be known as the
Financial Reporting Standards Council (FRSC) and an auditing standard setting body to
8 be known as the Auditing and Assurance Standards
Council (AASC) to assist the Board in carrying out its powers and functions provided in
Rule II, Section 7 (g) hereof;
The FRSC shall be composed of fifteen (15) members with a Chairman, who had
been or presently a senior accounting practitioner in any of the scope of accounting
practice and fourteen (14) representatives from the following:
a. Board of Accountancy 1
b. Securities and Exchange Commission 1
c. Bangko Sentral ng Pilipinas 1
d. Bureau of Internal Revenue 1
e. A major organization composed of preparers
and users of financial statements 1
f. Commission on Audit 1
g. Accredited National Professional
Organization of CPAs
Public Practice 2

Commerce and Industry 2

Academe/Education 2
Government 2 8
-------
Total 14
====
The AASC shall be composed of fifteen (15) members with a Chairman, who had
been or presently a senior practitioner in public accountancy and fourteen (14)
representatives from the following:
b. Securities and Exchange Commission 1
c. Bangko Sentral ng Pilipinas 1
d. Commission on Audit 1
e. An association or organization of CPAs in
active public practice of accountancy 1
f. Accredited National Professional
Public Practice 6
Academe/Education 1
Government 1 9
------ ------
Total 14
====
The APO shall equitably distribute the representation of the Public Practice sector
in the AASC among the big, medium and small practitioners.
The Chairman and members of the FRSC and AASC shall be appointed by the
Commission upon the recommendation of the Board in coordination with the APO. The
FRSC and the AASC shall make an annual review of the composition of their respective
councils and may recommend to the Board and the Commission a more suitable
representation thereto as they may deem fit. The Chairman and the members of the FRSC
and AASC shall have a term of three (3) years renewable for another term. Provided, That
any existing accounting and auditing standards setting council shall continue to function
as such until the creation of the FRSC and the AASC as provided herein. Provided,
Further, that any member of any existing accounting and auditing standard setting council
shall not be disqualified from being appointed to the FRSC or AASC as the case maybe
for the terms provided herein.
SECTION 9 (B) - Education Technical Council. – The Commission upon the
recommendation of the Board shall within sixty (60) days from the effectivity of this IRR
create an Education Technical Council (ETC) to assist the Board in carrying out its powers
and functions provided in Rule II, Section 7 (n) hereof and to further assist the Board in
the attainment of the objective of continuously upgrading the accountancy education in
the Philippines to make the Filipino CPAs globally competitive.

The ETC shall be composed of seven (7) members with a Chairman, who had
been or presently a senior accounting practitioner in the academe/education and six (6)
representatives from the following:
b. Accredited National Professional 41
Organization of CPAs Public Practice 41
Academe/Education 2
Government 1 5
------
Total 6
====
The APO shall equitably distribute the representation of the Academe/Education

sector among the private and public schools offering the degree of Bachelors of Science
in Accountancy.
The Chairman and members of the ETC shall be appointed by the Commission
upon the recommendation of the Board in coordination with the APO. The ETC shall make
an annual review of the composition of the council and may recommend to the Board and
the Commission a more suitable representation thereto as it may deem fit. The Chairman
and the members of the ETC shall have a term of three (3) years renewable for another
term.
The ETC shall have the following functions:
a. determine a minimum standard curriculum for the study of accountancy to be
implemented in all schools offering accountancy as an undergraduate degree;
b. establish teaching standards, including the qualifications of members of the faculty
of schools and colleges of accountancy;
c. monitor the progress of the program on the study of accountancy and undertaking
measures for the attainment of a high quality of accountancy education in the
country;
d. evaluate periodically the performance of educational institutions offering
accountancy education.
The ETC shall render a report of its findings and recommendations on the foregoing
activities to the Board. The Board shall review such report and if found to be meritorious,
it shall forward the same to the Commission which shall make proper representation with
the CHED for its appropriate consideration.
SECTION 10 - Administrative Supervision 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, examination questions, answer sheets, and other records

and documents pertaining to the CPA licensure examinations, and administrative and
other investigative cases conducted 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 RA
No. 9298.
SECTION 11 - Grounds for Suspension or Removal of Members of the Board.

– The President of the Philippines, upon the recommendation of the Commission, after
giving the concerned member an opportunity to defend himself in a proper administrative
investigation to be conducted by the Commission, may suspend or remove any member
on the following grounds:
a. Neglect of duty or incompetence;
b. Violation or tolerance of any violation of this Act and its implementing rules and
regulations or the Certified Public Accountant ’s Code of Ethics and the technical
and professional standards of practice for certified public accountants;
c. Final judgment of crimes involving moral turpitude; and
d. 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.
The Commission in the conduct of the investigation shall be guided by the provisions
of Republic Act No. 8981, otherwise known as the PRC Modernization Act of 2000, its
implementing rules and regulations and their respective amendments.
SECTION 12 - Annual Report. – The Board shall, at the close of each calendar
year, submit an annual report to the President of the Philippines through the Commission
giving a detailed account of its proceedings and accomplishments 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.
RULE 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
designate subject to compliance with the requirements prescribed by the Commission in
accordance with Republic Act No. 8981. The places/venues and dates of examinations
shall be included in the Schedule of Professional Licensure Examinations for the year
issued by the Commission.
SECTION 14 - Qualifications of Applicants for Examinations. – Any person
applying for examination shall establish the following requisites to the satisfaction of the
Board that he/she:
a. is a Filipino citizen;
b. is of good moral character;

c. is a holder of the degree of Bachelor of Science in Accountancy conferred by a

school, college, academy or institute duly recognized and/or accredited by the
CHED or other authorized government offices;
d. has not been convicted of any criminal offense involving moral turpitude.
The following documents shall be submitted in support of the above requirements:

a. Certificate of Live Birth in National Statistics Office (NSO) Security Paper;
b. Marriage Contract in NSO Security Paper for married female applicants;
c. College diploma with indication therein of date of graduation and Special Order
Number unless it is not required;
d. Baccalaureate Transcript of Records with indication therein of date of graduation
and Special Order Number unless it is not required;
e. National Bureau of Investigation (NBI) Clearance;
f. Other documents that the Board may require.
The Board shall not renew a Professional Identification Card, or shall suspend, or revoke,
any Certificate of Registration obtained by false swearing or by any misrepresentation
made in applying for registration or examination and shall not renew nor grant registration
to any applicant whose application contains such false evidence or information.
SECTION 15 - Scope of Examination. – The licensure examination for certified
public accountants shall cover, but are not limited to, the following subjects:
a. Theory of Accounts
b. Business Law and Taxation
c. Management Services
d. Auditing Theory
e. Auditing Problems
f. Practical Accounting Problems I
g. Practical Accounting Problems 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. Provided, That the
change shall not be more often than every three (3) years.
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 seventyfive percent (75%), with no grades lower than sixty- five percent (65%)
in any given subject. In the event a candidate obtains the rating of seventyfive 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 years from the 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. Provided, That
the Board may adopt its own internal procedures on the implementation of this provision.

SECTION 17 - Report of Ratings. – The Board shall submit to the Commission

the ratings 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 envelope submitted during the examination. Provided, That the
report of rating may be distributed to the successful examinees during their mass oath
taking as new registered CPAs.
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 submits evidence to
the satisfaction of the Board that he/she enrolled in and completed at least twenty- four
(24) units of subjects given in the licensure examination. Provided, That such refresher
course shall be offered only by an educational institution granting a degree of Bachelor of
Science in Accountancy. Provided Further, That the candidates shall have the option of
taking the aforesaid subjects in the regular course offering or in a special refresher course
duly accredited by the Board.
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 complete examination.
SECTION 19 - Oath. – All successful candidates in the examination shall be

required to take an oath of profession before any member of the Board or before any
government official authorized by 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. An oath shall also be required for CPAs admitted in the
practice of accountancy without examination under reciprocity or other international
agreements.
SECTION 20 - Issuance of Certificates of Registration and Professional

Identification Card. – A Certificate of Registration shall be issued to examinees who pass
the licensure examination, or are admitted without examination under reciprocity or other
international agreements 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 RA No. 9298.
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. Provided, That the registrant has paid the prescribed fee for

the annual registration for three (3) years; Provided, Further, That the reissuance or
renewal of the said card shall be subject to payment of the annual registration fees for
another and every after three (3) years thereafter.
SECTION 21 - Roster of Certified Public Accountants. – 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 be deemed necessary. 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 preparation of this roster to the APO; Provided,
Further, That the Board and/or the Commission may adopt the APO’s report as it may
deem fit; Provided, Finally, That posting of the roster at the internet shall be deemed
compliance with this requirement.
SECTION 22 - Indication of Certificate of Registration Identification Card and

Professional Tax Receipt. – The certified public accountant shall be required to indicate
the numbers of his/her Certificate of Registration and Professional Identification Card with
its date of issuance and the duration of validity, including the Professional Tax Receipt
Number which the City/Municipal Treasurer shall issue to the registered CPA upon
presentation of his/her current professional identification card, 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 a court of
competent jurisdiction of a criminal offense involving moral turpitude or guilty of immoral
and dishonorable conduct or to any person of 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: Provided, That the Board shall not register either, any person who
has falsely sworn or misrepresented himself/herself in his/her application for examination:
Provided, Further, That registration shall not be refused and a name shall not be removed
from the roster of CPAs on conviction for a political offense or for an offense which shall
not, in the opinion of the Board, either from the nature of the offense or from the
circumstances of the case , disqualify a person from practicing accountancy under RA No.
9298. Provided, Finally, That the Board in the written statement shall state the period for
the deferment of the registration if the offense or act committed does not call for indefinite
period and/or perpetual deprivation of the chance to register.
SECTION 24 - Suspension and Revocation of Certificates of Registration and

Professional Identification Card and Cancellation of Special Permit. – The Board
shall have the power, upon due notice and hearing, to suspend or revoke the practitioner’s
Certificate of Registration and Professional Identification Card or suspend him/her from
the practice of his/her profession or cancel his/her special permit for any of the causes or
grounds mentioned under Section 23 of this Act or for any unprofessional or unethical

conduct, malpractice, violation of any of the provisions of RA No. 9298 , 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.
Provided, That the Board shall periodically examine the grounds for the
suspension/revocation of the Certificate of Registration and Professional Identification
Card and update these as necessary. The Board shall regularly recommend to the
Commission an updated list of these grounds and provide the specific penalty for each of
them. Provided, Further, That the rules on administrative investigation issued by the
Commission shall govern the hearing or investigation of the case, subject to applicable
provisions of RA No. 8981, RA No. 9298 and the Rules of Court. Provided, Finally, That
the suspension/revocation of the Certificate of Registration and Professional Identification
Card of the offending CPA under this provision shall not prejudice his/her prosecution for
criminal liabilities and meted the penalties provided in Section 36 Article V of RA No. 9298,
or under the Revised Penal Code.
SECTION 25 - Refusal to Issue Certificate of Registration and Professional

Identification Card. – 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, and after being convinced of applicant’s remorse and rehabilitation,
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
may be issued, subject to the rules promulgated by the Board and the Commission, upon
payment of the required fees. Provided, That the Board shall issue a resolution, subject to
the approval by the Commission in granting a petition for reinstatement to the practice of
accountancy.
RULE IV
PRACTICE OF ACCOUNTANCY
SECTION 26 - Prohibition in the Practice of Accountancy. – No person shall

practice accountancy in this country, or use the title “Certified Public Accountant”, 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 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. Certificates of Registration held
by such persons in good standing shall have the same force and effect as though issued
after the passage of this Act.

SECTION 28 - Limitation of the Practice of Public Accountancy. – Single

practitioners and partners of partnership organized for the practice of public accountancy
shall be registered certified public accountants in the Philippines; Provided, That from the
effectivity of RA No. 9298, a Certificate of Accreditation shall be issued to certified public
accountants 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; Provided, Further, That this requirement shall not apply to
those already granted a certificate of accreditation prior to the effectivity of RA No. 9298.
Provided, Finally, That partnership engaged in the practice of public accountancy may be
carried on in the form of a general partnership (GP) or a limited liability partnership (LLP)
organized in accordance with Philippines laws. The Securities and Exchange Commission
shall not register any corporation organized for the practice of public accountancy.
SECTION 28 (A) - Meaningful Experience. – A meaningful experience shall be

considered as satisfactory compliance with the requirements of Section 28 of RA No. 9298
if it is earned in
a. commerce and industry and shall include significant involvement in general

accounting, budgeting, tax administration, internal auditing, liaison with
external auditors, representing his/her employer before government agencies
on tax and matters related to accounting or any other related functions; or
b. academe/education and shall include teaching for at least three (3)
trimesters or two (2) semesters subjects in either financial accounting,
business law and tax, auditing problems, auditing theory, financial
management and management services. Provided, That the accumulated
teaching experience on these subjects shall not be less than three (3) school
years; or
c. government and shall include significant involvement in general
accounting, budgeting, tax administration, internal auditing, liaison with the
Commission on Audit or any other related functions; and
d. public practice and shall include at least one year as audit assistant and at
least two years as auditor in charge of audit engagement covering full audit
functions of significant clients.
Provided, That if the Board finds such experience inadequate to the minimum
requirements for the public practice of accountancy in the course of its evaluation of
his/her application for accreditation to practice public accountancy, the registrant shall be
required to make up such inadequacy from competent sources. Provided, Further, That
such meaningful experience shall be certified under oath by the employer where such
meaningful experience was obtained.
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 through subpoena issued by any court,
tribunal, or government regulatory or administrative body in accordance with Philippine
laws.
SECTION 30 - Accredited Professional Organization. – All registered certified

public accountants whose names appear in the roster of certified public accountants shall
be united and integrated through 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 in the said integrated and accredited national professional
organization shall receive 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.
The rules and regulations covering the accreditation of an Accredited National

Professional Organization of CPAs, renewal of Certificate of Accreditation and its
Suspension/Cancellation are stated in the attached sheets as Annex ‘A ” and made an
integral part hereof.
SECTION 31 - Accreditation to Practice Public Accountancy. – Individual

certified public accountants, firms and partnerships of certified public accountants
engaged in the practice of public accountancy, including the partners and staff members
thereof, shall register with the Commission and the Board, such registration to be renewed
every three years, Provided, That subject to the approval of the Commission, the Board
shall promulgate rules and regulations for the implementation of the registration
requirements including the fees and penalties for violation thereof.
The rules and regulations covering the accreditation of individual CPAs, firms and
partnerships for the practice of public accountancy, renewal of Certificate of Accreditation
and its Suspension/Cancellation are stated in the attached sheets as Annex “B” and made
an integral part hereof.
SECTION 32 - Continuing Professional Education (CPE) Program. – All

certified public accountants who are considered in the practice of accountancy for the four
(4) sectors as defined in Rule I, Section 4 hereof 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 and shall be offered by any duly

accredited organization or educational institution. For this purpose, a CPE Council is

hereby created to implement the CPE program.
The rules and regulations covering the accreditation of CPE provider and the
programs thereof, renewal of Certificate of Accreditation and its Suspension/Cancellation
are stated in the attached sheets as Annex “C ” and made an integral part hereof.
SECTION 33 - Seal and Use of Seal. – All registered certified public accountants
shall obtain and use a seal of a design prescribed by the Board bearing the registrant’s
name, registration number and title. The auditor’s reports shall be stamped with said seal,
indicating therein his/her current Professional Tax Receipt (PTR) number, date/place of
payment when filed with government authorities or when used professionally.
SECTION 34 - Foreign Reciprocity. – Subjects or citizens 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
agreements entered into by the Philippine 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, by
specific provision of law, the 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.
Provided, That a foreign CPA or its equivalent, who desires to practice

accountancy in the Philippines through this reciprocity provision shall initiate the
establishment of reciprocity between his country/state and the Philippines by
presenting/submitting a letter or any document signed and under official seal by the
appropriate official of his country/state requesting the Chairman of the Board to allow the
foreign applicant to practice accountancy in the Philippines, that by express provision of
the law of his country/state, Filipino CPAs are allowed to practice accountancy in his
country/state on terms of strict and absolute equality with the citizens or subjects of said
country or state including the unconditional recognition of prerequisite degrees issued by
institutions of higher learning duly recognized or established by the Government of the
Republic of the Philippines attaching/appending thereto an authentic or authenticated
official copy of said law officially translated in the English language. Provided, Further,
That if the letter/document and the copy of the law submitted by the applicant is
satisfactory to the Board, the foreign applicant shall be allowed to practice accountancy in
the Philippines by requiring him to file an application and by submitting the following
documents that shall accompany the application:
a. The original or certified copy of any official documents issued by the Bureau of
Immigration and Deportation allowing the applicant to enter and reside in the
Philippines; persons:
b. Present his passport for examination and for photocopying of pertinent information
about himself/herself;

c. Original or authenticated copy of transcript of records or equivalent document of

the course for licensure examination issued by the institution of higher learning
where he/she studied, duly authorized or accredited by his/her country/state;
d. Certificate of Registration or its equivalent stating that the foreign applicant is duly
registered or licensed CPA or its equivalent in his/her country/state;
e. Other documents which may be required to be submitted by the Board;
Provided Finally, That if the foreign applicant desires to practice public

accountancy in the Philippines he/she has to apply for accreditation to do so under the
rules and regulations provided in Annex “B ” and made an integral part hereof.
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. A foreign certified public accountant called for consultation or for a 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;
b. 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
c. A foreign certified public accountant who is an internationally recognized expert
or with specialization in any branch of accountancy and his/her service is essential
for the advancement of accountancy in the Philippines.
The procedures/documents for the registration and/or issuance of

temporary/special permits to a foreign CPA or its equivalent are as follows:
a. A visa and work permit issued by appropriate government agencies;
b. Within thirty (30) calendar days after his/her commission/appointment date, the
commissioning party shall secure an employment permit from the Department of
Labor and Employment. Thereafter, the commissioning party shall secure the
Temporary/Special Permit from the Board subject to the approval by the
Commission;
c. In the absence of any bilateral agreement, the foreign national shall submit
documentary proof or evidence allowing Filipino CPAs to practice the profession
in their home country without any limitation; profession.
d. Sworn statement of the details of foreign applicant area of specialization which
must be consistent with his/her expertise; and
e. Upon issuance of the Temporary/Special permit, the foreign national may become
a member of the APO subject to the rules and procedures of its membership.
RULE V
PENAL AND FINAL PROVISIONS
SECTION 36 - Penal Provision. – Any person who shall violate any of the
provisions of RA No. 9298 or this 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 (P50,000.00) 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 RA No. 9298, the Board, subject to the approval of the Commission
and in coordination with the APO, shall adopt and promulgate such rules and regulations
to carry out the provisions of RA No. 9298 and which shall be effective fifteen (15) days
following their publication in the Official Gazette or in any major daily newspaper of general
circulation.
SECTION 38 - Interpretation of RA No. 9298 and its Implementing Rules and
Regulations. – Nothing in the RA No. 9298 and this Implementing Rules and Regulations
shall be construed to effect or prevent the practice of any other legally recognized
profession.
SECTION 39 - Enforcement of RA No. 9298 and its Implementing Rules

and Regulations. – It shall be the primary duty of the Commission and the Board
to effectively enforce the provisions of RA No. 9298 and this Implementing Rules
and Regulations. 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 RA No. 9298 and this Implementing Rules
and Regulations 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 RA No. 9298 and this Implementing
Rules and Regulations.
Any person may bring before the Commission, Board or the aforementioned
officers of the law, cases of illegal practice or violations of RA No. 9298 and this
Implementing Rules and Regulations committed by any person or party.
The Board shall assist the Commission in filing the appropriate charges through
the concerned prosecution office in accordance with law and rules of court. Provided, That
for the orderly implementation of this provision, the Commission and the Board may enter
into a Memorandum of Agreement with each law enforcement agency and/or the
Department of Justice providing for the procedures to be followed for the call or request
for assistance. Provided, Further, That in the enforcement, implementation, and
administration of the provision of RA No. 9298 and its IRR, the Rules and Regulations
governing the regulation and practice of Professionals and the Rules and Regulations
implementing the provisions of Republic Act No. 8981 shall be applicable thereto, insofar
as the latter are not inconsistent with the former.
SECTION 40 - Funding Provision. – The chairperson of the Professional
Regulation Commission shall immediately include in the Commission ’s programs the
implementation of RA No. 9298 and this Implementing Rules and Regulations the funding
of which shall be included in the annual General Appropriations Act. Provided, That the

amount necessary to carry out the initial implementation of RA No. 9298 shall be charged
against the current year ’s appropriation of the Commission. Thereafter, sums as maybe
necessary for the continued implementation of RA No. 9298 shall be included in the
succeeding General Appropriations Act (GAA).
SECTION 41 - Transitory Provision. – The incumbent chairman and members of
the Board shall continue to serve in their respective positions under the terms for which
they have been appointed under Presidential Decree No. 692, without the need of new
appointments. Provided, That the incumbent chairman and members of the Board shall
not be disqualified for appointment in the Board for the terms allowed under RA No. 9298.
Provided, Further, That such Board members shall undergo the process of nomination
under Executive Order No. 496 Series of 1991.
All graduates with a Bachelor’s Degree, major in Accounting shall be allowed to
take the CPA Licensure Examination within two (2) years from the effectivity of RA No.
9298 (or until May, 2006) 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, provision, paragraph or part
of RA No. 9298 and this Implementing Rules and Regulations 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, provision, paragraph or part directly
involved in the controversy in which such judgment has been rendered.
SECTION 43 - Repealing Clause. – Any rule and regulation or resolution or part/s

thereof inconsistent with the provisions of this Implementing Rules and Regulations are
hereby repealed or modified accordingly.
SECTION 44 - Effectivity. – This Implementing Rules and Regulations shall take
effect after fifteen (15) days following its full and complete publication in the Official
Gazette or in any major daily newspaper of general circulation.
Promulgated in the City of Manila this ___ day of September, 2004.
EUGENE T. MATEO
Chairman
JOHN S. BALA
Vice-Chairman
SOLITA V. DELANTAR FROILAN G. AMPIL

Member Member

ESTELITA C. AGUIRRE MA. ELENITA B. CABRERA

Member Member
LUCILA C. TARRIELA
Member
ATTESTED
CARLOS G. ALMELOR
Secretary
Professional Regulatory Boards
Approved as the Implementing Rules and Regulations of Republic Act No. 9298
otherwise known as the Philippine Accountancy Act of 2004, this _____day of
September, 2004.
ANTONIETA FORTUNA-IBE
Chairperson
AVELINA DE LA REA LEONOR T. ROSERO

Commissioner Commissioner
ANNEX “A“
RULES AND REGULATIONS IMPLEMENTING SECTION 30, ARTICLE IV OF

REPUBLIC ACT NO. 9298 OTHERWISE KNOWN AS THE PHILIPPINE
ACCOUNTANCY ACT OF 2004 COVERING THE ACCREDITATION OF AN
ACCREDITED NATIONAL PROFESSIONAL ORGANIZATION OF CPAs, RENEWAL
OF CERTIFICATE OF ACCREDITATION AND ITS SUSPENSION/CANCELLATION.
1. STATUS OF THE PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC

ACCOUNTANTS (PICPA) – The PICPA which was recognized by the
Commission, as the APO on October 2, 1975 per Accreditation No. 15, shall
continue to enjoy its accreditation with the same number subject to compliance
with the requirements prescribed herein.
2. CONDITIONS FOR THE CONTINUITY OF THE ACCREDITATION OF PICPA. – In

order to maintain its recognition as the APO by the Commission, it must meet the
following requirements:

a. It is established for the benefit and welfare of the CPAs, the advancement of their
profession, and the attainment of other professional ends;
b. Its membership is open to all registered CPAs without discrimination;
c. Its membership shall include CPAs in all sectors namely, public practice,
commerce and industry, academe/education and government;
d. It shall have a creditable plan to enlist into active membership within three (3)
years, at least a majority of the CPAs in the practice of accountancy as defined in
Section 4, Rule I of this IRR;
e. It shall have adequate chapters/regions in major areas in the Philippines to
effectively attend to the needs of its members. Its national directors shall be elected
in accordance with the provision of the Corporation Code of the Philippines and
they should be representative of the sectors in the regions, consistent with the
emphasis in RA No. 9298 on sectoral practice of accountancy. There should only
be one (1) director coming from a firm/company and their affiliates. A director can
only represent a sector in a region if he/she has been a member in good standing
in such sector in the region for at least two (2) years at the time of his/her
nomination;
There shall only be fifteen (15) national directors, unless there is a valid reason to
have additional representation. The fifteen (15) national directors shall be
apportioned according to sectors in the four geographic areas (eg. National Capital
Region, Luzon, Visayas and Mindanao) based on the ratio of latest available
number of members in good standing from those areas;
The PICPA shall adopt rules and regulations to implement this distribution of its
national directors including the rotation of its president by sectors in each of the
regions and accordingly amend its Articles of Incorporation and By-laws not later
than ninety (90) days after the effectivity of this rules and regulations;
f. It shall be judicious and prudent in the management of its financial resources and
for this purpose its chapter/region/national office and their respective foundation
shall keep proper books of accounts and submit audited annual financial
statements thereof. The national office shall consolidate these financial statements
on annual basis for submission to the Board and the Commission in accordance
with the applicable accounting procedures;
g. It shall have a full time career Executive Director who shall implement the policies
promulgated by the PICPA Board of Directors and shall have direct supervision
over the PICPA Secretariat;
h. It is duly registered as a non-stock corporation or association by the Securities and
Exchange Commission (SEC). It shall coordinate with the Board and the
Commission any amendment to its articles of incorporation and by- laws or any
execution of a new articles of incorporation and by- laws before filing them for
registration at the SEC; and
i. It has paid the prescribed accreditation fee.
In support of the above requirements, PICPA shall submit the following documents within
ninety (90) days from the approval of this rules and regulations:

a. A notarized petition signed by the PICPA President stating, among others, that the
organization was established for the benefit and for the advancement of the
profession;
b. List of its national directors and officers and a suitable organization chart (with job
description of each officer) showing the working relationship of each director and
officer;
c. List of chapters and their respective members indicating their respective Certificate
of Registration and dates of registration and their Professional Identification Card
Numbers, dates of issuance and expiry;
d. List of regions and their respective officers and the chapters and officers within
each region;
e. Original copy of the latest certificate of registration issued by the Securities and
Exchange Commission (SEC) and the certification of registration of their
foundations;
f. Certified true copy by SEC of the PICPA ’s current Articles of Incorporation and
By- laws;
g. SEC certification of current registration and compliance with SEC rules; and
h. Latest audited consolidated financial statements of the national office and the
regions and chapters and their respective foundations. If the consolidated financial
statements cannot be audited for any reason, the separate audited financial
statements of the national office, regions and chapters and their respective
foundations shall be submitted.
After PICPA satisfactorily meets the requirements for the continuity of its accreditation,
the Commission upon recommendation by the Board shall issue a Resolution
approving its reaccreditation and directing the issuance of the Certificate of
Accreditation thereto upon payment of the prescribed accreditation fee.
3. RENEWAL OF CERTIFICATE OF ACCREDITATION. – The PICPA shall renew

its Certificate of Accreditation once every three years (3) years after the date of the
Resolution granting the petition for re-accreditation and the issuance of the said
certificate upon submission of the requirements enumerated Paragraph 2 hereof,
a report on significant achievements as a corporate body in attaining the objectives
of the organization, in the enhancement of the welfare of its members and the
stature/prestige of the profession to be signed by Board Directors/Trustee and a
proof of payment of the prescribed renewal fee.
4. CANCELLATION OF ACCREDITATION. – The PICPA certificate of accreditation shall

be cancelled or suspended by the Commission upon recommendation by the Board after
due hearing under any of the following grounds/causes:
a. It has ceased to possess any of the qualifications for accreditation.
b. It no longer serves the best interest of the CPAs.
c. It did not achieve its plan provided in paragraph 2 to enlist into active
membership within three (3) years, majority of the CPAs in the practice of
accountancy as defined in the Section 4, Rule I hereof or even if it achieves
such plan but fails to sustain it over time such that its membership no longer
represents a significant portion of the aforesaid CPAs in the practice of
accountancy.

d. It has committed acts inimical to its members and to the profession.

e. It has not renewed its certificate of accreditation after a lapse of an
unreasonable period for the date of its scheduled renewal.
f. It has not submitted the required audited financial statements provided in
Paragraph 2 thereof.
5. EFFECT OF NON- RENEWAL, CANCELLATION OR SUSPENSION

OF ACCREDITATION.
– If PICPA’s certificate of accreditation has been cancelled or not renewed or

whose accreditation has been suspended, it cannot represent the accountancy
profession during the period of suspension, cancellation or non-renewal of
certificate.
ANNEX “B”

ACCOUNTANCY ACT OF 2004 COVERING THE ACCREDITATION OF INDIVIDUAL
CPAs, FIRMS AND PARTNERSHIPS OF CPAs ENGAGED IN THE PRACTICE OF
PUBLIC ACCOUNTANCY
1. REGISTRATION
i. Within ninety (90) days from the effective date of this revised rules and
regulations, Individual CPAs, including staff members thereof, Firms, including the
sole proprietors and staff members thereof and Partnerships of CPAs including
the partners and staff members thereof who/which are not yet registered under
the rules and regulations prescribed by Board Resolution No. 38, Series of 1990,
as amended by Board Resolution No. 69 Series of 2002 shall register with the
Board and the Commission in the manner provided for in Paragraph 1 (c) hereof.
On the other hand, Individual CPAs, Firms and Partnership with current and valid
registration under the said rules and regulation need to submit only the additional
requirements provided in this revised rules and regulations within ninety (90) days
from the effective date thereof. The registration shall be valid for a period of three
(3) years and may be renewed every three (3) years on or before September 30
on the year of expiry upon compliance of the requirements provided in this revised
rules and regulations. The registration of applicants approved during any month
of the year shall expire on December 31 on the third year following its approval
(i.e. if the application of registration of ABC and Company CPAs was approved on
July 31, 2002, the registration shall expire on December 31, 2004 and therefore it
shall file for renewal on or before September 30, 2004 for the three year period
beginning January 1, 2005 and shall apply on or before September 30, 2007 for
the next three (3) year period beginning January 1, 2008 and so forth).
ii. Individual CPAs, including staff members thereof, Firms, including the sole
proprietors and staff members thereof and Partnerships of CPAs including the

partners and staff members thereof organized after the effective date of this
revised rules and regulations shall register with the Board and the Commission in
the manner provided for in Paragraph 1 (c) hereof, and shall not commence the
practice of public accountancy until a valid Certificate of Registration has been
issued in accordance with Paragraph 1 (g) hereof.
iii. The application for registration shall be accomplished in the form prescribed by
the Board, in triplicate, and duly signed by the applicant Individual CPA, sole
proprietor of the applicant Firm or authorized partner of the applicant Partnership.
The application for registration shall contain such information as maybe required
by the Board including, but not limited to, the following matters:
i. Name of the Individual CPA, Firm or Partnership. In the case of an Individual

CPA, he/she shall do business under his registered name with the Board and
the Commission and as printed in his/her CPA cert (i.e.“Juan de la
Cruz,CPA.”) In the case of Firms, they shall do business under their
respective duly registered and authorized Firm name appearing in the
registration documents issued by the Department of Trade and Industry (DTI)
or any other proper government office(s) and such Firm name shall include
the real
name of the sole proprietor as printed in his CPA certificate (i.e. “Juan de la
Cruz and Associates”) or other similar Firm names. In the case of registered
Partnerships, they shall do business under their respective Partnership
names as indicated in their current Articles of Partnership and certificates of
registration issued by the Securities and Exchange Commission (SEC) or
under the Partnership names as indicated in their current Articles of
Partnership in case of unregistered partnerships (e.i. "Cruz, Isidro,
Martin,and Company") or other similar Partnership names.
A CPA shall practice only under an individual, firm or partnership name
allowed in accordance with Philippine laws and shall not include any fictitious
name, indicates specialization or is misleading as to the type of organization
(proprietorship or partnership). A partner surviving the death or withdrawal of
all the other partners in a Partnership may continue to practice under the
Partnership name for a period of not more than two (2) years after becoming
a sole proprietor. (This means that on or before reaching the end of the two
(2) year period, the resulting sole proprietor if he/she continues to practice
under a proprietorship form of organization, shall change the old Partnership
name to an Individual CPA or Firm name subject to the provision of the first
paragraph hereof).
Name (s) individual CPA, sole proprietor or partners together with a copy of
his/her/their professional identification card(s) issued by the Board and the
Commission.
ii. Certified copy of the certificate of registration issued by the SEC together
with the certified copy of the current Articles of Partnership for registered
partnership, or the certified copy of the Articles of Partnership for

unregistered partnership or certified copy of the certificate of registration of

Firm name with the DTI or other proper government agencies.
iii. Complete business and postal address, telephone and/or facsimile numbers,
e- mail address, website of principal office including branch(es), sub-offices,
if any.
iv. Certified copies of all business permits issued by the local and/or national
government.
v. Certified copy of the document showing the correspondent relationship,

membership or business dealings with foreign CPA firm(s), if any, including
complete business and postal address, telephone and/or facsimile numbers,
e- mail address and website thereof. The documents shall be comprehensive
in scope to describe the nature of the correspondent relationship,
membership or business dealings and to indicate the specific terms and
conditions thereof including the specific obligation and rights of the foreign
CPA over the Filipino CPA and vice-versa. Under no circumstances shall the
correspondent relationship, membership or business dealings with foreign
CPAs be a scheme for the foreign CPAs to engage in the practice of public
accountancy in the Philippines who/which under the present laws are limited
to Filipino CPAs (except the authorized foreign CPAs under Sections 34 and
35 of RA No. 9298 duly registered with the Board and the Commission). The
Individual CPA, sole proprietor of the Firm and managing partner of the
Partnership as the case maybe shall attach to the application for registration
a sworn statement stating that:
 the copy of the aforesaid document showing the correspondent

relationship, membership, or business dealings with the foreign CPA is
the faithful reproduction of its original copy,
 the foreign CPA is not directly or indirectly (through the Filipino CPA)
engaged in the practice of public accountancy in the Philippines, except
the authorized foreign CPAs under Sections 34 and 35 of RA No. 9298
and any proof of meaningful participation in, and effectiveness of such
training.
 the rights and obligations of the parties in specific terms.
vi. Name(s) of staff member(s) who are CPAs together with a copy of
his/her/their CPA Certificate(s) and professional identification card(s) issued
by the Board and the Commission.
vii. Change(s) if any, in the organization, structure and/or management of the

Individual CPA, Firm or Partnership from the last registration.
viii. Certified copy of the Code of Good Governance of the Individual CPAs, Firms
or Partnerships if there is any. If there is no such code, the individual CPA,
sole proprietorship or the partnership shall adopt the Code of Good
Governance of Professionals issued by the Commission.

ix. Copy of the internal quality review procedures being implemented to ensure
compliance with the professional, ethical and technical standards required of
the practice of public accountancy. If the Individual CPA, Firm or Partnership
had undergone quality assurance review by the Board or its duly authorized
representatives, or in any manner pursuant to Paragraphs 3 (a), (b) and (c)
hereof, a certified copy of the report of such review shall be attached to the
application for registration.
x. Sworn statement by the Individual CPA, sole proprietor of the Firm and
managing partner of the Partnership stating that the Individual CPA and staff
member(s) thereof, the sole proprietor and staff member(s) of the Firm , and
all the partners and staff member (s) of the Partnership as the case maybe,
(a) had a meaningful participation in their respective internal quality review
process and (b) had undergone adequate and effective training (from
organizations duly accredited by the Board or by its duly authorized
representatives), on all the current accounting and auditing standards, code
of ethics, laws and their implementing rules and regulations, circulars,
memoranda, their respective code of good governance and other related
documents that are required in the practice of public accountancy to ensure
professional, ethical and technical standards, supported with certified copies
of certificate (s) of attendance or any proof of meaningful participation in, and
proof of adequacy and effectiveness of such training.
xi. In the case of an Individual CPA and Firm or Partnership of CPAs registering
for the first time, the application of registration shall be accompanied with a
sworn statement by the Individual CPA, sole proprietor of the Firm and
managing partner of the Partnership stating that the Individual CPA, sole
proprietor of the Firm, and all the partners of the Partnership has (have) at
least three (3) years of meaningful experience in any of the areas of public
practice including taxation as defined in Section 4 Rule 4 of the IRR and
attach to the sworn statement , a detailed description of such work
experience of the individual CPA, sole proprietor of the Firm and all the
partners of the Partnership.
xii. Sworn statement by the Individual CPA, sole proprietor of the Firm and
managing partner of the Partnership stating that the Individual CPA and all
his/her staff member(s), sole proprietor and all the staff member(s) of the
Firm , and all partners and staff member (s) of the Partnership (a) are all of
good moral character and (b) he/she or they had not been found guilty by a
competent court and/or administrative body of any case involving moral
turpitude and /or unethical practices and that neither anyone of them is a
defendant in any case of similar nature pending before any competent court
and/or administrative agencies supported by a certificate of clearance issued
by the proper court, administrative or law enforcement agencies for the
individual CPA, sole proprietor, and the partners/principals of the partnership
as the case maybe.
If the Individual CPA or any of his/her staff member(s), or the sole proprietor
or any of the staff member(s) of the Firm, or any of the partners or staff

member(s) of the Partnership is a defendant in a case of such nature, the

applicant Individual CPA, Firm or Partnership shall attach to the application
for registration, a sworn statement by the Individual CPA, sole proprietor of
the Firm or managing partner of the Partnership stating that the aforesaid
defendant(s) has a valid and material defense and specify them as such
accordingly in the sworn statement for the information and consideration by
the Board and the Commission.
iv. Any change with respect to the matter enumerated in Paragraph 1 (c) (vii) should
be reported in writing to the Board, copy furnished the Commission, within sixty
(60) days from such change. Renewals of Certificates of Registration shall
indicate the changes that have taken place since the last registration.
v. The Board shall duly authenticate all applications for registration received in
proper form, and after having passed upon such applications, shall recommend
to the Commission the approval or denial thereof not later than sixty (60) days
after the receipt of the aforesaid applications in proper from (i.e. with complete
and proper documentary requirements).
vi. The Individual CPA, Firm or Partnership of CPAs duly registered under these
revised rules and regulations shall not have as its owner, sole proprietor, partner
or any staff thereof, any foreign CPA unless he/she qualifies to practice in the
Philippines under Sections 34 and 35 Article IV of RA No. 9298, and/or other
relevant laws and bilateral and/or multilateral agreement or treaties.
vii. The Commission shall upon favorable recommendation of the Board, issue to the
applicant the corresponding Certificate of Registration to practice public
accountancy. Unless sooner revoked, cancelled or withdrawn, said Certificate of
Registration shall be valid for three (3) years and subject to the provisions of
Paragraph 1 (a) to (g) hereof, shall be renewable every three (3) years upon
payment of the fees in accordance with Paragraph 5 (a) hereof.
2. VOLUNTARY WITHDRAWAL OF REGISTRATION/REINSTATEMENT
a. The Individual CPAs, including staff members thereof, sole proprietors and
staff members thereof and Partnerships of CPAs including the partners and
staff members thereof, duly registered to engage in the practice of public
accountancy may voluntarily withdraw their registration by filing with the Board
a petition in writing stating the reason(s) therefore. The petition should be duly
authenticated and signed by the Individual CPA or any of his/her staff member,
the sole proprietor or any of the staff members thereof or all the partners of the
Partnership, or any of them or any of the staff member(s) thereof who are
requesting for the voluntary withdrawal of registration.
b. At the expense of the petitioners, the Board shall publish or cause the
publication of the request for withdrawal of registration once in a newspaper of
general circulation in the principal place of business of the Individual CPA, Firm
or Partnership. If there is no opposition to the petition, the Board shall
recommend approval thereof to the Commission. Upon approval, the
petitioner’s name shall be removed from the roll of Individual CPAs, Firms and

Partnerships of duly registered practitioners of public accountancy and the

petitioner shall be notified in writing of the withdrawal of the registration.
c. Upon receipt from the Board of the written notice of the withdrawal of
registration, the petitioner shall cease to engage in the practice of public
accountancy.
d. The Commission shall publish the list of Individual CPAs, including staff
members thereof, Firms, including the sole proprietors and staff members
thereof or Partnerships of CPAs including the partners and staff members
thereof, whose registration has been cancelled or withdrawn and shall furnish
copies of the list to the pertinent government regulatory agencies.
e. The Individual CPAs, including any of the staff members thereof, Firms,
including the sole proprietors and any of the staff members thereof or
Partnerships of CPAs including any of the partners and staff members thereof,
that had voluntarily withdrawn their registration, may register anew by filing an
application in accordance with Paragraph 1 (a) to (g) hereof.
3. QUALITY REVIEW
a. The Board shall require as a condition to registration or any renewal thereof for
the Individual CPAs, Firms or Partnerships of CPAs to undergo quality review
in such manner as the Board may specify, provided, however, that any such
requirement shall include reasonable provisions for compliance by a registrant
showing that he/she/it has undergone a satisfactory quality review performed
for other purposes which is substantially equivalent to quality review and shall
be made applicable to all Individual CPAs, Firms or Partnerships.
b. There is hereby created a Quality Review Committee (QRC) to conduct an
oversight into the quality of audit of financial statements through a review of
the quality control measures instituted by Individual CPAs, Firms or
Partnerships in order to ensure compliance with accounting and auditing
standards and practices, pursuant to Section 9 (h), Rule II.
The QRC shall be composed of seven (7) members with a chairman, who had been or
presently a senior practitioner in public accountancy and six (6) representatives from the
following:
b. Accredited National Professional
Public Practice 2
Academe/Education 1
Government 1 5
------ ------
Total 6
====
The Chairman and members of the QRC shall be appointed by the Commission
upon the recommendation of the Board in coordination with the APO. The QRC
shall make an annual review of the composition of the council and may recommend

to the Board and the Commission a more suitable representation thereto as it may
deem fit. The Chairman and the members of the QRC shall have a term of three
(3) years renewable for another term.
c. The QRC shall have the following functions:

i. Conduct quality review on applicants for registration to practice public
accountancy and render a report which shall be attached to the application
for registration;
ii. Recommend to the Board the revocation of the Certificate of Registration
and the professional identification card of an Individual CPA, including any
of his/her staff members, Firms, including the sole proprietors and any of
his/her staff members and Partnerships of CPAs including the partners and
staff members thereof who has not observed the quality control measures
and who has not complied with the standards of quality prescribed for the
practice of public accountancy. In the event that the QRC cannot
accomplish the aforesaid functions for any reason whatsoever, the Board
or its duly authorized representatives may conduct the required quality
review.
4. DEATH OR DISABILITY OF AN INDIVIDUAL CPA AND DISSOLUTION OR

LIQUIDATION OF A FIRM OR PARTNERSHIP OF CPAS. – The death or disability
of an Individual CPA and/or the dissolution and liquidation of a Firm or Partnership of
CPAs shall be reported to the Board by any designated staff member of the Individual
CPA, the sole practitioner (or any designated staff member of the Firm in case of the
unavailability of the sole practitioner) or managing partner of the Partnership (or any
designated partner in case of the unavailability of the managing partner) not later than
thirty (30) days from the date of such death, dissolution or liquidation. The report shall
be made in the form of an affidavit (in the case of an Individual CPA or a Firm), or by
furnishing the Board with a certified copy of the dissolution or liquidation papers filed
with the SEC in the case of a Partnership. Failure to notify the Board of such death,
dissolution or liquidation shall subject the designated staff member of an Individual
CPA, sole proprietor or designated staff member of the Firm or managing partner or
designated partner of the Partnership to the penalties provided herein.
5. FEES AND PENALTIES
a. Application for initial registration, renewal and request for reinstatement, shall be
subject to the fee of One Thousand Pesos (P1,000.00) or to such an amount as
the Commission may prescribe.
b. Subject to review by the Commission and depending on the gravity of the

offense(s), the Board shall suspend or revoke the CPA Certificate, Certificate of
Registration and professional identification card of an Individual CPA, sole
proprietor, partner or staff member as the case maybe who commits any act that
is violative of the Code of Ethics for Professional Accountants, Philippine
Accountancy Act of 2004, these revised implementing rules and regulations, the
circulars, rules, regulations or resolutions of the Board, Commission, SEC or any

other regulatory agency(ies) or any act that does not comply with the professional,
ethical and technical standards required of the practice of public accountancy,
provided, that if the act or acts committed constitute(s) a criminal offense
punishable under RA No. 9298 and its IRR, and/or other existing penal laws, the
party or parties responsible shall be proceeded against criminally, independent of
any action herein provided.
c. Violations of these revised implementing rules and regulations shall include, but
shall not be limited to the following acts by Individual CPAs, including staff
members thereof, Firms, including the sole proprietors and staff members thereof
and Partnerships of CPAs including the partners and staff members thereof:
i. Engaging in public accounting practice without first registering with

the Board and the Commission;
ii. Continuing to engage in the practice of public accountancy after the
expiration of the registration;
iii. Continuing to engage in the practice of public accountancy after
suspension, revocation, or withdrawal of the registration;
iv. Giving any false information, data, statistics, reports or other
statement which tend to mislead, obstruct, or obscure the registration
of a Individual CPA, Firm or Partnership of CPAs under these revised
rules and regulations;
v. Giving any misrepresentation to the effect that registration was
secured when in truth and in fact, it was not secured;
vi. Failure or refusal to undergo quality review specified in Paragraphs 3
(a), (b) and (c) hereof; and
vii. Failure to comply with the requirements provided under Paragraph 1
(c), hereof.
6. REMISSION OF FINES OR LIFTING OF SANCTIONS IMPOSED. – Subject to the

approval of the Commission, the Board may, for justifiable reasons, lift the sanctions
imposed on Individual CPAs, and/or any staff member thereof, Firms including their
sole proprietors and/or any staff members thereof or Partnerships including their
partners and/or any staff members thereof; and
ANNEX “C”

ACCOUNTANCY ACT OF 2004 COVERING THE CONTINUING PROFESSIONAL
EDUCATION (CPE) PROGRAMS FOR CPAs IN THE PRACTICE OF ACCOUNTANCY
1. CPE OBJECTIVES, DEFINITION, NATURE, AND RATIONALE
a. Objectives – The CPE program shall have these objectives:

i. To provide and ensure the continuous education of a registered

professional with the latest trends in the profession brought about
by modernization and scientific and technological advancements;
ii. To raise and maintain the professional’s capability for delivering
professional services;
iii. To attain and maintain the highest standards and quality in the
practice of his profession;
iv. To make the professional globally competitive; and
v. To promote the general welfare of the public.
b. Definition – Continuing Professional Education (CPE) refers to the

inculcation, assimilation and acquisition of knowledge, skills, proficiency
and ethical and moral values, after the initial registration of a professional
that raise and enhance the professional’s technical skills and competence.
c. Nature – The CPE program consists of properly planned and structured
activities, the implementation of which requires the participation of a
determinant group of professionals to meet the requirements of voluntarily
maintaining and improving the professional standards and ethics of the
profession.
d. Rationale – Voluntary compliance with the CPE program is an effective
and credible means of ensuring competence, integrity and global
competitiveness of professionals in order to allow them to continue the
practice of their profession.
2. THE PRC CPE COUNCIL: CREATION, COMPOSITION, TERMS OF OFFICE,

FUNCTIONS, MEETINGS
i. Creation – The Board, upon approval by the PRC, shall create a Council within
thirty (30) days from the effectivity of this resolution. This shall be known as the
PRC CPE Council which shall assist the Board in implementing its CPE program.
ii. Composition – the PRC CPE Council shall be composed of a chairperson and
two (2) members. The chairperson of CPE Council shall be chosen from among
the members of the Board by the members themselves. The first member shall
be the president or, in his/her absence or incapacity, any officer chosen by the
Board of Directors of PICPA. The second member shall
be the president or, in his/her absence or incapacity, any officer of the
organization of deans or department heads of schools, colleges or universities
offering the degree requiring licensure examination. In the absence of such
organization, the second member shall be chosen and appointed by the PRC
Chairperson from at least three (3) recommendees of the Board concerned. Said
recommendees shall be well-known academicians.
iii. Terms of Office – The term of office of the chairperson of the PRC CPE Council
shall be coterminous with his/her incumbency in the PRC. The first member shall
have a term of office coterminous with his/her incumbency as officer of the
PICPA; the second member shall have a term of office co-terminus with his/her
incumbency as officer of the organization of deans or heads of departments. The
chairperson, first member and second member shall continue to function as such

in the PRC CPE Council until the appointment or election of their respective
successors in the Board, PICPA or organization.
iv. Exercise of Powers and Functions – The PRC CPE Council shall, upon a
majority vote, exercise powers and functions which shall include but shall not be
limited to the following:
i. Accept, evaluate and approve applications for accreditation of CPE

providers
ii. Accept, evaluate and approve applications for accreditation of CPE
programs, activities or sources as to their relevance to the profession
and determine the number of CPE credit units to be earned on the
basis of the contents of the program, activity or source submitted by
the CPE providers.
iii. Accept, evaluate and approve applications for exemptions from CPE
requirements.
iv. Monitor the implementation by the CPE providers of their programs,
activities or sources.
v. Assess periodically and upgrade criteria for accreditation of CPE
providers and CPE programs, activities or sources.
vi. Perform such other related functions that may be incidental to
implementation of the CPE programs or policies.
v. Functions of the PRC CPE Council Chairperson. – The PRC CPE Council
Chairperson shall have the following functions:
i. To preside over the meetings of the PRC CPE Council.

ii. To direct or supervise the activities of the PRC CPE Council.
iii. To submit minutes of regular and special meetings within 30 days
from date of said meetings.
iv. To submit annual reports
v. To issue certificate of registration to CPE providers found by the
Council to be qualified in accordance with this Guidelines as well
as certificate of accreditation of programs, activities and sources.
vi. Secretariat – The Chairperson
i. Ensure that the sessions, meetings or proceedings of the PRC CPE

Council are recorded;
ii. Prepare the minutes of all the meetings and proceedings of the PRC
CPE Council;
iii. Receive applications for accreditation of CPE providers, programs,
activities or sources;
iv. Submit to the PRC CPE Council applications for accreditation of
aspiring CPE providers and CPE programs, activities or sources;
v. Release Certificates of Accreditation to CPE providers and programs,
activities or sources; and
vi. Assist the PRC CPE Council by providing relevant statistical data on
the renewal of professional licenses and other related matters.

The Secretary, shall exercise general supervision and control over the PRC CPE
Council Staff, who shall be selected by the Chairperson of the PRC from among
the existing personnel of the PRC. The PRC CPE Council Staff shall have,
among others, the following functions:
i. Release CPE Certifications of credit units earned to the professionals;
ii. Keep all records, paper and other documents relative to the evaluation,
approval and accreditation of CPE programs, activities or sources; and
iii. Maintain records of accredited CPE providers, on-going, continuing or
completed CPE programs, activities or sources, the list of participants and
other relevant data.
vii. Meetings – The PRC CPE Council shall hold regular meetings once a month on
dates to be fixed by said Council. Special meetings may be called by a
Chairperson or upon written request of at least a member of the PRC CPE
Council.
viii. Involvement of PICPA – The PRC CPE Council, if the need arises, may delegate
to the PICPA the processing of the application, keeping of all records for CPE
providers and their respective programs and credit units earned by each CPA
who avail of the CPE programs and related functions. For this purpose, the
PICPA may create a counterpart CPE Council to be known as PICPA CPE
Council and may ask for reimbursement of reasonable processing fees directly
from the applicants apart from the accreditation fee that the such applicants pay
directly to the Commission. The PICPA CPE Council shall keep a separate books
of accounts of its expenses and amounts collected from the applicants and make
a monthly report thereof to the Commission through the Board. Any excess
collection shall be used exclusively as working capital of the PICPA for the CPE
activities.
3. CRITERIA FOR ACCREDITATION OF PROVIDERS, PROGRAMS,

ACTIVITIES OR SOURCES; EQUIVALENT CREDIT UNITS; CREDIT
REQUIREMENTS; EXEMPTIONS AND OTHER MATTERS
a. Criteria for Accreditation – In order to merit accreditation, the following criteria

shall be complied with:
For CPE Provider
i. Must be a duly registered organization, firm, institution or agency, or a

professional of good standing and has never been convicted of a crime;
ii. Shall have an established mechanism and updated instructional materials
to carry out the CPE programs and activities;
iii. Must have adequate, modern and updated instructional materials to carry
out the CPE programs and activities;
iv. Shall have instructors, lecturers, trainors and resource speakers with good
moral character, technical competence, facilitation skills and are holders
of current CPA licenses.

For CPE programs, activities or sources
i. The scope shall be beyond the basic preparation for admission to the
practice of the profession. The contents shall be relevant/related, but not
limited, to the practice of the profession.
ii. The programs, activities or sources shall enhance the competence of the
professional by upgrading and updating knowledge and skills for the
practice of the profession as brought about by modernization and scientific
and technical advancements in the profession.
b. Programs, Activities and Sources for Accreditation and Equivalent Credit

Units – Any provider may submit to the PRC CPE Council programs, activities or
sources to be approved and accredited for CPE units. The provider shall be
notified of the disapproval of his CPE programs, activities or sources without prior
approval and accreditation from the Council.
As used in these guidelines the following terms shall mean:
i. Seminars shall refer to the gathering of professionals which shall include,
among others, workshops, technical lectures or subject matter meetings,
non-degree training courses and scientific meetings.
ii. Conventions shall refer to a gathering of professionals which shall
include, among others, conferences, symposia or assemblies for round
table discussions.
iii. Masteral Degree shall refer to a graduate degree in accountancy,
business or related field from a recognized school, college or university.
iv. Doctoral Degree shall refer to a post graduate degree in accountancy,
business or related field from a recognized school, college or university.
v. Authorship shall refer to the ownership of intellectual property which
includes technical or professional books, instructional materials and the
like. Credits earned must be claimed within one (1) year from the date of
publication.
vi. Self-Directed Learning Package shall refer to learning which uses
course manuals or accredited learning modules. Accredited Learning
modules include self-instructional materials or programs which may be in
the form of printed manual, audio and video cassette tapes, films
computer-assisted learning (CAL), study kits, learning aids and modules
or the use of the information highway. These should include among others
clearly defined objectives, adequate content and an evaluation
component for each module.
vii. Post Graduate/In-Service Training shall mean training or specialization
at the post graduate level for a minimum period of one (1) week.
viii. Resource Speaker shall refer to a professional who acts as discussion
leader or lecturer in a convention or seminar or similar gathering.
ix. Peer Reviewer shall refer to a professional who acts as an evaluator of a
research paper, conference paper or journal article before it is presented
or published.
x. CPE Provider shall refer to a natural person or a juridical entity which
includes among others, accredited or non-accredited professional
organization, firm, partnership, corporation or institution which offers,

organizes or arranges CPE programs, activities or sources for

implementation and administration.
xi. CPE Programs, Activities or Sources shall refer to the regime of CPE
which enhance the competence of the CPAs by upgrading and updating
knowledge and skills for the profession as brought about modernization
and scientific and technical advancements in the profession. The scope
shall be beyond the basic preparation for admission to the practice of the
profession. The content shall be related but not limited to the practice of
the profession.
4. MATRIX FOR CPE PROGRAMS, ACTIVITIES OR SOURCES
SUPPORTING
PROGRAMS CREDIT UNITS
DOCUMENT
1 SEMINARS/CONVENTION
1.1 PARTICIPANT 1 CU PER HOUR CERTIFICATE OF

ATTENDANCE WITH
NUMBER OF HOURS,
SEMINAR
PROGRAM CERTIFIED
LIST OF PARTICIPANTS
1.2 RESOURCE SPEAKER 5 CU PER HOUR PHOTOCOPY OF PLAQUE
CERTIFICATION AND
COPY OF PAPER,
PROGRAM INVITATION
1.3 PANELIST/REACTOR 3 CU PER HOUR CERTIFICATION FROM
SPONSORING
ORGANIZATION AND
COPY OF PROGRAM
1.4 2 CU PER HOUR CERTIFICATION FROM
FACILITATOR/MODERATOR SPONSORING
ORGANIZATION AND
COPY OF PROGRAM
2 PREPARATION
(Residential and Distance
Mode)
2.1 MASTER’S DEGREE 1 CU PER ACADEMIC UNIVERSITY
UNIT CERTIFICATION
30 CU ADDITIONAL DIPLOMA AND

UPON TRANSCRIPT OF
COMPLETION OF RECORDS
DEGREE
2.2 DOCTORAL DEGREE 2 CU PER UNIVERSITY
ACADEMIC UNIT 45 CERTIFICATION
CU ADDITIONAL
UPON

COMPLETION OF DIPLOMA AND

DEGREE TRANSCRIPT OF
RECRODS
3 SELF-DIRECTED
LEARNING PACKAGES
3.1 MODULE 10 CU PER COPY OF DULY-
COMPLETE SET OF ACCOMPLISHED MODULE
MODULES AND EVALUATION
3.2 TECHNICAL PAPER / 1 CU/PROFESSIONAL / COPY OF DULY-
PROFESSIONAL TECHNICAL ARTICLE ACCOMPLISHED ARTICLE
JOURNAL ARTICLE AND EVALUATION
4 AUTHORSHIP
4.1 RESEARCHING / 10 CREDIT UNITS DULY CERTIFIED/
INNOVATIVE PROGRAMS / PUBLISHED TECHNICAL
CREATIVE PROJECTS REPORT/PAPER
4.2 BOOK / MONOGRAPH (25-50 Pp) (51-100 Pp) (100 OR MORE Pp) PUBLISHED BOOK WITH
SINGLE AUTHOR 20 CU 30 CU 40 CU PROOF OF COPYRIGHT
2 AUTHORS 10 CU 20 CU 30 CU
3 OR MORE 5 CU 10 CU 20 CU
4.3 EDITOR ½ OF THE CU OF PUBLISHED BOOK WITH
AUTHORSHIP PROOF OF AUTHORSHIP
CATEGORY
(1-3 Pp) (4-6 Pp) (7 OR MORE Pp)
4.4 ARTICLE PROOF OF PUBLICATION
SINGLE 4 CU 6 CU 8 CU OF ARTICLE
AUTHOR 3 CU 4 CU 6 CU
2 AUTHORS 2 CU 3 CU 4 CU
3 OR MORE
4.5 PROFESSIONAL 5 CU PER ISSUE COPY OF PUBLISHED
JOURNAL EDITOR JOURNAL
4.6 PEER REVIEWER 2 CU ARTICLE DULY CERTIFIED COPY
OF
PUBLISHED
ARTICLE/BOOK
5 INVENTIONS 10-30 CREDIT UNITS PER CERTIFIED COPY OF
INVENTION PATENT CERTIFICATE
6 POSTGRADUATE / IN- 0.25 CU PER HOUR CERTIFICATE OF
SECURE TRAINING (MAXIMUM OF 40 CU / TRAINING AND TRAINING
TRAINING) DESCRIPTION
7 STUDY / OBSERVATION 2 CU / DAY CERTIFICATION FROM
(MAXIMUM OF 30 SPONSORING
CU / TOUR INSTITUTION
8 PROFESSIONAL CHAIRS 10 CU / CHAIR / YEAR CERTIFICATION OF
GRANT OR APPOINTMENT
PAPER

SUCH OTHER ACTIVITIES/

PROGRAMS / SOURCES TO
BE
RECOMMENDED BY THE
COUNCIL AND APPROVED
BY THE COMMISSION, such _5 CREDIT UNITS PER MUNITES OF MEETING;
as: PRESENTATION CERTIFICATION FROM
Meetings of standard – _2 CREDIT UNITS PER COUNCIL SECRETARY
setting bodies for the MEETING
Accountancy Profession
(FRSC and AASC):
Researcher/Discussant
Participant
5. CPE Credit Units
The total CPE credit units for registered accounting professionals shall be sixty
(60) credit units for three (3) years, provided that a minimum of fifteen (15) credit units
shall be earned in each year. Any excess credit units in one year may be carried over to
the succeeding years within the three-year period. Excess credit units earned shall not be
carried over to the next three-year period except credit units earned for doctoral and
master’s degrees. One credit hour of CPE program, activity or source shall be equivalent
to one (1) credit unit.
6. Procedures
The PICPA CPE Council shall observe the following procedures for the accreditation of
CPE providers and CPE programs, activities, or sources:
a. Procedure for accreditation of CPE provider:
i. Any person seeking to offer an organized or arranged program, activity or

source shall accomplish and submit to the PICPA CPE Council an
application form.
ii. An application shall include, but shall not limited to the following
information:
- Full name, address and telephone number of the applicant-

provider.
- Relevant educational background
- Profession, principal area of professional work and number of years
in the practice of profession.
- PRC License Number and date of expiration.
- Current employment
iii. Applicant-provider shall submit a valid NBI clearance.

In case of juridical entity:

i. Any agency, organization, institution, association or similar juridical entity
seeking to offer an organized program, activity or source shall accomplish
and submit to the PICPA CPE Council an application form.
ii. An application shall include, but shall not be limited to the following
information and documents:
- Full name, address and telephone/fax number/s and e-mail

address.
- Securities and Exchange Commission (SEC) original registration
papers.
- List of officers with their PRC License Numbers and expiry date if
officer is a member of a regulated profession.
- Plans for CPE programs or activities for the year applied.
- Proof of past CPE activities or programs conducted/arranged
(immediate past year) for applicants renewing accreditation.
All applicants shall submit to the PICPA CPE Council the following:
i. Mechanism for measuring the quality of the program, activity or source
being offered.
ii. Criteria for selecting and evaluating speakers, resource persons or
lecturers.
b. Procedures for Accreditation of a CPE Program, Activity or Source:
i. A CPE provider seeking accreditation of an organized or arranged CPE

program, activity or source shall submit said program, activity or source
(in triplicate) to the PICPA CPE Council for its evaluation and
recommendation for approval to the PRC CPE Council. The program,
activity, or source shall cover a period not to exceed three (3) years.
ii. The application for accreditation of a CPE Program, activity or source

shall include the following information and documents:
- Title/s of program/s, activity/ies or source/s.

- Name of CPE provider, address, phone and fax numbers.
- Date and venue of the Administration of the program.
- Objectives.
- Targeted audience or participants.
- Contents and number of hours
- Resource speakers, lecturers, discussion leaders, panelist, reactors,
moderators, and facilitators, including their qualifications and current
PRC license if they are members of the regulated profession.
- Actual program and schedule.
- Seminar or convention fee to be collected.

- Evaluation to be used which could either be any of the following

modes or systems:
 evaluation of seminar by participant.
 evaluation of participants by CPE providers; tests.
 other methods of evaluation.
iii. If the PRC CPE Council concerned finds the CPE program, activity or
source to be relevant to the profession and to be in accordance with these
guidelines, said PRC CPE Council shall issue a certificate of accreditation
within thirty (30) days from receipt of the application.
c. Post-Accreditation Requirements.
Upon the completion of an accredited CPE program, activity or source, the CPE
provider shall submit a report to the PRC CPE Council within 15 days from the
last day of the offering. The report shall include, but shall not be limited to the
following information:
i. Name of CPE provider.
ii. Name or description of CPE program, activity or source.
iii. Accreditation number and date of issuance of accreditation.
iv. Certified list of participants indicating names and PRC professional
license identification cards, and expiry dates, resource speakers,
lecturers, discussion leaders, panelist, moderators, or facilitators who
took part or participated in the CPE program, activity or source.
v. Date and time of start and completion of the holding of the CPE program,
activity or source.
vi. Venue/Location of the holding of the program.
vii. Summary of evaluation results of participants
viii. Name of Secretariat representative who monitored the CPE program or
activity.
7. Exemption from CPE Requirements; Procedures
a. Permanent Exemption
A registered professional shall be permanently exempted from CPE

requirements upon reaching the age of 65 years old. To avail of this exemption,
the professional must:
i. Submit an application for exemption which should include the following data:
- Full name, residence address and phone number of applicant
- PRC License Number
- Employment history
• Position
• Name of employer
• Address of employer

ii. Submit an authentic or authenticated copy of birth certificate. If birth

certificates is not available, submit any of the following: Voter’s ID or
Driver’s License.
b. Temporary Exemption
A registered professional who is working or practicing his/her profession or

furthering his/her studies abroad shall be temporarily exempted from compliance
with CPE requirement during the period of his/her stay abroad, provided that
he/she has been out of the country for at least two years immediately prior to the
date of renewal.
Any professional availing of this temporary exemption must:
i. Submit an application for temporary exemption, to include the following data:

- Full name, residence address and phone number of applicant;
- PRC License Number;
- Degree obtained; college or university attended; year graduated;
- Principal area of professional work;
- If employed:
• Position
• Name of employer
• Address of employer
• Certificate of employment
- If furthering studies abroad, certificate of enrollment from college or
university where presently enrolled.
ii. Submit original, or authenticated copy of passport, photocopy of inside front

cover, page 2, and the page/s containing visa of country, indicating date of
arrival/departure.
A permanent exempt registered professional shall be allowed to renew

his/her License without complying with the CPE requirements upon his/her
accomplishment and submission of the necessary papers as previously
mentioned and upon payment of the annual registration fee for three (3)
years for as long as he/she continues to be out of the country.
8. Sanctions
a. Registered CPAs
Unless otherwise exempted, registered CPAs in the practice of accountancy who

have not completed the CPE requirements provided herein shall not be allowed
to renew their professional licenses. Those who failed to renew their professional
licenses for a period of five (5) continuous years from initial registration, or from
last renewal date shall be declared delinquent and shall, after due notice,
through the website and publication in the newsletters of PICPA or any
newspaper of general circulation, be dropped from the roster of CPAs.

b. CPE Provider
Accreditation shall be withdrawn from the CPE Provider who:
i. Is found not to comply with the implementing rules and regulations for CPE,
or
ii. Has committed substantial deviation from the approved program, or
iii. Has submitted false reports, or
iv. Has committed such other acts that the PRC CPE Council finds to be in
violation of the intent of the program.
c. PRC Employees
Any employee of the PRC who causes, abets or helps in the renewal of the
license of a professional without complying with CPE requirements shall be
considered to have violated office and/or civil service rules and regulations and
shall be proceeded against administratively, and, if found guilty, shall be meted
out the penalties provided for by the said laws and rules and regulations.
THE PROFESSIONAL STANDARDS
When auditing financial statements, an auditor assumes certain professional

responsibilities. Auditor's opinion must be based on an examination conducted in
accordance with professional standards. Failure to comply with these standards exposes
the auditor to risks such as loss of public respect or even assessment of legal damages.
Standards are established to measure the quality of performance of individuals and

organizations. Standards relating to the accounting profession concern themselves with
CPAs professional qualities, the Judgment exercised by the CPAs in the performance of
their professional engagement, and the CPA firm's quality control policies and procedures.
The Board of Accountancy promulgated ten generally accepted auditing8 standards

(GAAS) that establish required level of quality for performing financial statement audits.
These standards must be followed by CPAs when auditing financial statements.
Philippine Standards on Auditing (PSAs) are issued to clarify the meaning of these ten
GAAS. Auditing procedures are the means used by the auditors in attaining the quality
required by the standards.
Generally Accepted Auditing Standards (GAAS)
GAAS represent measures of the quality of the auditor's performance These standards
should be looked at as a minimum standard of performance that auditors should follow.
These ten GAAS are grouped into general, fieldwork and reporting standards.

General Standards
 The examination is t be performed by person or persons having adequate technical

training and proficiency as an auditor.
 In all matters relating to an engagement. An independence in metal attitude is to

be maintained by the auditor.
 Due professional care is to be exercised in the performance of the audit and in the
preparation of the report.
Standards of Fieldwork
 The work is to be adequately planned and assistants, if any, are to be properly

supervised.
 There is to be a proper study and evaluation of existing internal control as a basis

for relance thereon and for the determination of the resultant extent of the tests to
which auditing procedures are to be restricted.
 Sufficient competent evidential matter is to be obtained through inspection,

observation, inquiries and confirmations to afford a reasonable basis tor an opinion
regarding the financial statements under examination.
Standards of Reporting
 The report shall state whether the financial statements are presented in
accordance with generally accepted accounting principles.

 The report shall identity those circumstances in which principles have not been
consistently observed in the current period in relation to the preceding period.
 Informative disclosures are to be regarded as reasonably adequate unless

otherwise stated in the report.
 The report shall either contain an expression of opinion regarding the financial
statements, taken as a whole, or an assertion to the effect that an opinion cannot
be expressed. When an overall opinion cannot be expressed, the reasons
therefore should be stated. In all cases, where an auditor's name is associated
with the financial statements, the report should contain a clear-cut indication of the
character of the auditor's examination if any and the degree of responsibility he is
taking
Scope of this PSQC
This Philippine Standard on Quality Control (PSQC) deals with a firm’s responsibilities for
its system of quality control for audits and reviews of financial statements, and other
assurance and related services engagements. This PSQC is to be read in conjunction with
relevant ethical requirements.
Other pronouncements of the Auditing and Assurance Standards Council (AASC) set out
additional standards and guidance on the responsibilities of firm personnel regarding
quality control procedures for specific types of engagements. PSA 220 (Redrafted), for
example, deals with quality control procedures for audits of financial statements.
A system of quality control consists of policies designed to achieve the objective set out
in paragraph 11 and the procedures necessary to implement and monitor compliance with
those policies.
Authority of this PSQC
This PSQC applies to all firms of professional accountants in respect of audits and reviews
of financial statements, and other assurance and related services engagements. The
nature and extent of the policies and procedures developed by an individual firm to comply
with this PSQC will depend on various factors such as the size and operating
characteristics of the firm, and whether it is part of a network.
This PSQC contains the objective of the firm in following the PSQC, and requirements
designed to enable the firm to meet that stated objective. In addition, it contains related
guidance in the form of application and other explanatory material, as discussed further in
paragraph 8, and introductory material that provides context relevant to a proper
understanding of the PSQC, and definitions.
The objective provides the context in which the requirements of this PSQC are set, and is
intended to assist the firm in:
 Understanding what needs to be accomplished; and
 Deciding whether more needs to be done to achieve the objective.

The requirements of this PSQC are expressed using “shall.”
Where necessary, the application and other explanatory material provides further
explanation of the requirements and guidance for carrying them out. In particular, it may:
• Explain more precisely what a requirement means or is intended to cover.
• Include examples of policies and procedures that may be appropriate in the

circumstances.
While such guidance does not in itself impose a requirement, it is relevant to the proper
application of the requirements. The application and other explanatory material may also
provide background information on matters addressed in this PSQC. Where appropriate,
additional considerations specific to public sector audit organizations or smaller firms are
included within the application and other explanatory material. These additional
considerations assist in the application of the requirements in this PSQC. They do not,
however, limit or reduce the responsibility of the firm to apply and comply with the
requirements in this PSQC.
This PSQC includes, under the heading “Definitions,” a description of the meanings
attributed to certain terms for purposes of this PSQC. These are provided to assist in the
consistent application and interpretation of this PSQC, and are not intended to override
definitions that may be established for other purposes, whether in law, regulation or
otherwise. The Glossary of Terms relating to Philippine Standards issued by the AASC
includes the terms defined in this PSQC. It also includes descriptions of other terms found
in this PSQC to assist in common and consistent interpretation-. Systems of quality control
in compliance with this PSQC are required to be established by December 15, 2009.

Objective
The objective of the firm is to establish and maintain a system of quality control to provide
it with reasonable assurance that:
(a) The firm and its personnel comply with professional standards and regulatory and
legal requirements; and
(b) Reports issued by the firm or engagement partners are appropriate in the
circumstances.
Definitions
In this PSQC, the following terms have the meanings attributed below:
(a) Date of report – The date selected by the practitioner to date the report.
(b) Engagement documentation – The record of work performed, results obtained,

and conclusions the practitioner reached (terms such as “working papers” or
“workpapers” are sometimes used).

(c) Engagement partner– The partner or other person in the firm who is
responsible for the engagement and its performance, and for the report that is
issued on behalf of the firm, and who, where required, has the appropriate
authority from a professional, legal or regulatory body.
(d) Engagement quality control review – A process designed to provide an

objective evaluation, on or before the date of the report, of the significant
judgments the engagement team made and the conclusions it reached in
formulating the report. The engagement quality control review process is for
audits of financial statements of listed entities, and those other engagements,
if any, for which the firm has determined an engagement quality control review
is required.
(e) Engagement quality control reviewer – A partner, other person in the firm,
suitably qualified external person, or a team made up of such individuals, none
of whom is part of the engagement team, with sufficient and appropriate
experience and authority to objectively evaluate the significant judgments the
engagement team made and the conclusions it reached in formulating the
report.
(f) Engagement team –All partners and staff performing the engagement, and any
individuals engaged by the firm or a network firm who perform procedures on
the engagement. This excludes external experts engaged by the firm or a
network firm.
(g) Firm – A sole practitioner, partnership or other entity of professional

accountants.
(h) Inspection – In relation to completed engagements, procedures designed to

provide evidence of compliance by engagement teams with the firm’s quality
control policies and procedures.
(i) Listed entity – An entity whose shares, stock or debt are quoted or listed on a
recognized stock exchange, or are marketed under the regulations of a
recognized stock exchange or other equivalent body.
(j) Monitoring – A process comprising an ongoing consideration and evaluation

of the firm’s system of quality control, including a periodic inspection of a
selection of completed engagements, designed to provide the firm with
reasonable assurance that its system of quality control is operating effectively.
(k) Network firm – A firm or entity that belongs to a network.
(l) Network – A larger structure:
(i) That is aimed at cooperation, and
(ii) That is clearly aimed at profit or cost-sharing or shares common

ownership, control or management, common quality control policies and

procedures, common business strategy, the use of a common brand

name, or a significant part of professional resources.
(m) Partner – Any individual with authority to bind the firm with respect to the
performance of a professional services engagement.
(n) Personnel – Partners and staff.
(o) Professional standards – AASC Engagement Standards, as defined in the

AASC’s Preface to the Philippine Standards on Quality Control, Auditing,
Review, Other Assurance and Related Services, and relevant ethical
requirements.
(p) Reasonable assurance – In the context of this PSQC, a high, but not absolute,
level of assurance.
(q) Relevant ethical requirements – Ethical requirements to which the

engagement team and engagement quality control reviewer are subject, which
ordinarily comprise Parts A and B of the Code of Ethics for Professional
Accountants in the Philippines (Philippine Ethics Code) together with national
requirements that are more restrictive.
(r) Staff – Professionals, other than partners, including any experts the firm
employs.
(s) Suitably qualified external person – An individual outside the firm with the
competence and capabilities to act as an engagement partner, for example a
partner of another firm, or an employee (with appropriate experience) of either
a professional accountancy body whose members may perform audits and
reviews of historical financial information, or other assurance or related
services engagements, or of an organization that provides relevant quality
control services.
Applying, and Complying with, Relevant Requirements
Personnel within the firm responsible for establishing and maintaining the firm’s system of
quality control shall have an understanding of the entire text of this PSQC, including its
application and other explanatory material, to understand its objective and to apply its
requirements properly.
The firm shall comply with each requirement of this PSQC unless, in the circumstances of
the firm, the requirement is not relevant to the services provided in respect of audits and
reviews of financial statements, and other assurance and related services engagements.
This PSQC does not call for compliance with requirements that are not relevant, for
example, in the circumstances of a sole practitioner with no staff. Requirements in this
PSQC such as those for policies and procedures for the assignment of appropriate
personnel to the engagement team, for review responsibilities, and for the annual

communication of the results of monitoring to engagement partners within the firm are not
relevant in the absence of staff.
The requirements are designed to enable the firm to achieve the objective stated in this
PSQC. The proper application of the requirements is therefore expected to provide a
sufficient basis for the achievement of the objective. However, because circumstances
vary widely and all such circumstances cannot be anticipated, the firm shall consider
whether there are particular matters or circumstances that require the firm to establish
policies and procedures in addition to those required by this PSQC to meet the stated
objective.
Elements of a System of Quality Control
The firm shall establish and maintain a system of quality control that includes policies and
procedures that address each of the following elements:
(a) Leadership responsibilities for quality within the firm.
(b) Relevant ethical requirements.
(c) Acceptance and continuance of client relationships and specific engagements.
(d) Human resources.
(e) Engagement performance.
(f) Monitoring.
The firm shall document its policies and procedures and communicate them to the firm’s
personnel. In general, communication of quality control policies and procedures to firm
personnel includes a description of the quality control policies and procedures and the
objectives they are designed to achieve, and the message that each individual has a
personal responsibility for quality and is expected to comply with these policies and
procedures. Encouraging firm personnel to communicate their views or concerns on
quality control matters recognizes the importance of obtaining feedback on the firm’s
system of quality control. Documentation and communication of policies and procedures
for smaller firms may be less formal and extensive than for larger firms.
Leadership Responsibilities for Quality within the Firm
The firm shall establish policies and procedures designed to promote an internal culture
recognizing that quality is essential in performing engagements. Such policies and
procedures shall require the firm’s chief executive officer (or equivalent) or, if appropriate,
the firm’s managing board of partners (or equivalent) to assume ultimate responsibility for
the firm’s system of quality control.
The firm’s leadership and the examples it sets significantly influence the internal culture
of the firm. The promotion of a quality-oriented internal culture depends on clear,
consistent and frequent actions and messages from all levels of the firm’s management
that emphasize the firm’s quality control policies and procedures, and the requirement to:

(a) Perform work that complies with professional standards and regulatory and legal
requirements; and
(b) Issue reports that are appropriate in the circumstances.
Such actions and messages encourage a culture that recognizes and rewards high quality
work. These actions and messages may be communicated by, but are not limited to,
training seminars, meetings, formal or informal dialogue, mission statements, newsletters,
or briefing memoranda. They may be incorporated in the firm’s internal documentation
and training materials, and in partner and staff appraisal procedures such that they will
support and reinforce the firm’s view on the importance of quality and how, practically, it
is to be achieved.
Of particular importance in promoting an internal culture based on quality is the need for
the firm’s leadership to recognize that the firm’s business strategy is subject to the
overriding requirement for the firm to achieve quality in all the engagements that the firm
performs. Promoting such an internal culture includes:
(a) Establishment of policies and procedures that address performance evaluation,

compensation, and promotion (including incentive systems) with regard to its
personnel, in order to demonstrate the firm’s overriding commitment to quality;
(b) Assignment of management responsibilities so that commercial considerations

do not override the quality of work performed; and
(c) Provision of sufficient resources for the development, documentation and support
of its quality control policies and procedures.
The firm shall establish policies and procedures such that any person or persons assigned
operational responsibility for the firm’s system of quality control by the firm’s chief
executive officer or managing board of partners has sufficient and appropriate experience
and ability, and the necessary authority, to assume that responsibility.
Sufficient and appropriate experience and ability enables the person or persons
responsible for the firm’s system of quality control to identify and understand quality control
issues and to develop appropriate policies and procedures. Necessary authority enables
the person or persons to implement those policies and procedures.
Relevant Ethical Requirements
The firm shall establish policies and procedures designed to provide it with reasonable
assurance that the firm and its personnel comply with relevant ethical requirements.
The Philippine Ethics Code establishes the fundamental principles of professional ethics,
which include:
(a) Integrity;
(b) Objectivity;
(c) Professional competence and due care;
(d) Confidentiality; and
(e) Professional behavior.

Part B of the Philippine Ethics Code illustrates how the conceptual framework is to be
applied in specific situations. It provides examples of safeguards that may be appropriate
to address threats to compliance with the fundamental principles and also provides
examples of situations where safeguards are not available to address the threats.
The fundamental principles are reinforced in particular by:
• The leadership of the firm;
• Education and training;
• Monitoring; and
• A process for dealing with non-compliance.
Independence
assurance that the firm, its personnel and, where applicable, others subject to
independence requirements (including network firm personnel) maintain independence
where required by relevant ethical requirements. Such policies and procedures shall
enable the firm to:
(a) Communicate its independence requirements to its personnel and, where

applicable, others subject to them; and
(b) Identify and evaluate circumstances and relationships that create threats to
independence, and to take appropriate action to eliminate those threats or
reduce them to an acceptable level by applying safeguards, or, if considered
appropriate, to withdraw from the engagement, where withdrawal is permitted
by law or regulation.
The definitions of “firm,” network” or “network firm” in relevant ethical

requirements may differ from those set out in this PSA. For example, the
Philippine Ethics Code defines the “firm” as:
(a) A sole practitioner or partnership of professional accountants;

(b) An entity that controls such parties through ownership,
management or other means; and
(c) An entity controlled by such parties through ownership, management or
other means.
The Philippine Ethics Code also provides guidance in relation to the terms
“network” and “network firm.”
In complying with the requirements, the definitions used in the relevant ethical
requirements apply in so far as is necessary to interpret those ethical
requirements.

Such policies and procedures shall require:
(a) Engagement partners to provide the firm with relevant information about client
engagements, including the scope of services, to enable the firm to evaluate
the overall impact, if any, on independence requirements;
(b) Personnel to promptly notify the firm of circumstances and relationships that
create a threat to independence so that appropriate action can be taken; and
(c) The accumulation and communication of relevant information to appropriate

personnel so that:
(i) The firm and its personnel can readily determine whether they satisfy
independence requirements;
(ii) The firm can maintain and update its records relating to independence;
and
(iii) The firm can take appropriate action regarding identified threats to
independence that are not at an acceptable level.
assurance that it is notified of breaches of independence requirements, and to enable it to
take appropriate actions to resolve such situations. The policies and procedures shall
include requirements for:
(a) Personnel to promptly notify the firm of independence breaches of which they
become aware;
(b) The firm to promptly communicate identified breaches of these policies and
procedures to:
(i) The engagement partner who, with the firm, needs to address the breach;
and
(ii) Other relevant personnel in the firm and, where appropriate, the network,
and those subject to the independence requirements who need to take
appropriate action; and
(c) Prompt communication to the firm, if necessary, by the engagement partner

and the other individuals referred to in subparagraph (b)(ii) of the actions taken
to resolve the matter, so that the firm can determine whether it should take
further action.
At least annually, the firm shall obtain written confirmation of compliance with its policies
and procedures on independence from all firm personnel required to be independent by
relevant ethical requirements.
Written confirmation may be in paper or electronic form. By obtaining confirmation and

taking appropriate action on information indicating noncompliance, the firm

demonstrates the importance that it attaches to independence and makes the issue
current for, and visible to, its personnel.
The firm shall establish policies and procedures:
(a) Setting out criteria for determining the need for safeguards to reduce the
familiarity threat to an acceptable level when using the same senior personnel
on an assurance engagement over a long period of time; and
(b) Requiring, for audits of financial statements of listed entities, the rotation of the
engagement partner and the individuals responsible for engagement quality
control review, and where applicable, others subject to rotation requirements,
after a specified period in compliance with relevant ethical requirements.
The Philippine Ethics Code discusses the familiarity threat that may be created by using
the same senior personnel on an assurance engagement over a long period of time and
the safeguards that might be appropriate to address such threats.
Determining appropriate criteria to address familiarity threat may include matters such as:
• The nature of the engagement, including the extent to which it involves a

matter of public interest; and
• The length of service of the senior personnel on the engagement.
Examples of safeguards include rotating the senior personnel or requiring an

engagement quality control review.
The Philippine Ethics Code recognizes that the familiarity threat is particularly relevant in
the context of financial statement audits of listed entities. For these audits, the Philippine
Ethics Code requires the rotation of the key audit partner after a pre-defined period,
normally no more than five years, and provides related standards and guidance.
Considerations specific to public sector audit organizations
Statutory measures may provide safeguards for the independence of public sector
auditors. However, threats to independence may still exist regardless of any statutory
measures designed to protect it. Therefore, in establishing the policies and procedures
the public sector auditor may have regard to the public sector mandate and address any
threats to independence in that context.
Listed entities as are not common in the public sector. However, there may be other public
sector entities that are significant due to size, complexity or public interest aspects, and
which consequently have a wide range of stakeholders. Therefore, there may be instances
when a firm determines, based on its quality control policies and procedures, that a public
sector entity is significant for the purposes of expanded quality control procedures.
In the public sector, legislation may establish the appointments and terms of office of the
auditor with engagement partner responsibility. As a result, it may not be possible to
comply strictly with the engagement partner rotation requirements envisaged for listed
entities. Nonetheless, for public sector entities considered significant, it may be in the

public interest for public sector audit organizations to establish policies and procedures to
promote compliance with the spirit of rotation of engagement partner responsibility.
Acceptance and Continuance of Client Relationships and Specific Engagements
The firm shall establish policies and procedures for the acceptance and continuance of
client relationships and specific engagements, designed to provide the firm with
reasonable assurance that it will only undertake or continue relationships and
engagements where the firm:
(a) Is competent to perform the engagement and has the capabilities, including
time and resources, to do so;
Consideration of whether the firm has the competence, capabilities, and

resources to undertake a new engagement from a new or an existing client
involves reviewing the specific requirements of the engagement and the
existing partner and staff profiles at all relevant levels, and including whether:
• Firm personnel have knowledge of relevant industries or subject
matters;
• Firm personnel have experience with relevant regulatory or reporting

requirements, or the ability to gain the necessary skills and knowledge
effectively;
• The firm has sufficient personnel with the necessary competence and
capabilities;
• Experts are available, if needed;
• Individuals meeting the criteria and eligibility requirements to perform

engagement quality control review are available, where applicable; and
• The firm is able to complete the engagement within the reporting
deadline.
(b) Can comply with relevant ethical requirements; and
(c) Has considered the integrity of the client, and does not have information that
would lead it to conclude that the client lacks integrity.
With regard to the integrity of a client, matters to consider include, for

example:
• The identity and business reputation of the client’s principal owners,
key management, and those charged with its governance.
• The nature of the client’s operations, including its business practices.
• Information concerning the attitude of the client’s principal owners, key

management and those charged with its governance towards such

matters as aggressive interpretation of accounting standards and the

internal control environment.
• Whether the client is aggressively concerned with maintaining the

firm’s fees as low as possible.
• Indications of an inappropriate limitation in the scope of work.
• Indications that the client might be involved in money laundering or

other criminal activities.
• The reasons for the proposed appointment of the firm and non-
reappointment of the previous firm.
• The identity and business reputation of related parties.
The extent of knowledge a firm will have regarding the integrity of a client will
generally grow within the context of an ongoing relationship with that client.
Sources of information on such matters obtained by the firm may include the
following:
• Communications with existing or previous providers of professional
accountancy services to the client in accordance with relevant ethical
requirements, and discussions with other third parties.
• Inquiry of other firm personnel or third parties such as bankers, legal

counsel and industry peers.
• Background searches of relevant databases.
Such policies and procedures shall require:
(a) The firm to obtain such information as it considers necessary in the

circumstances before accepting an engagement with a new client, when
deciding whether to continue an existing engagement, and when considering
acceptance of a new engagement with an existing client.
Deciding whether to continue a client relationship includes consideration of

significant matters that have arisen during the current or previous
engagements, and their implications for continuing the relationship. For
example, a client may have started to expand its business operations into an
area where the firm does not possess the necessary expertise.
(b) If a potential conflict of interest is identified in accepting an engagement from

a new or an existing client, the firm to determine whether it is appropriate to
accept the engagement.
(c) If issues have been identified, and the firm decides to accept or continue the
client relationship or a specific engagement, the firm to document how the
issues were resolved.

The firm shall establish policies and procedures on continuing an engagement and the
client relationship, addressing the circumstances where the firm obtains information that
would have caused it to decline the engagement had that information been available
earlier. Such policies and procedures shall include consideration of:
(a) The professional and legal responsibilities that apply to the circumstances,
including whether there is a requirement for the firm to report to the person or
persons who made the appointment or, in some cases, to regulatory
authorities; and
(b) The possibility of withdrawing from the engagement or from both the
engagement and the client relationship.
Policies and procedures on withdrawal from an engagement or from both the

engagement and the client relationship address issues that include the
following:
• Discussing with the appropriate level of the client’s management and

those charged with its governance the appropriate action that the firm
might take based on the relevant facts and circumstances.
• If the firm determines that it is appropriate to withdraw, discussing with

the appropriate level of the client’s management and those charged
with its governance withdrawal from the engagement or from both the
engagement and the client relationship, and the reasons for the
withdrawal.
• Considering whether there is a professional, regulatory or legal

requirement for the firm to remain in place, or for the firm to report the
withdrawal from the engagement, or from both the engagement and
the client relationship, together with the reasons for the withdrawal, to
regulatory authorities.
• Documenting significant matters, consultations, conclusions and the

basis for the conclusions.
In the public sector, auditors may be appointed in accordance with statutory

procedures. Accordingly, certain of the requirements and considerations
regarding the acceptance and continuance of client relationships and specific
engagements and may not be relevant. Nonetheless, establishing policies and
procedures as described may provide valuable information to public sector
auditors in performing risk assessments and in carrying out reporting
responsibilities.
Human Resources
assurance that it has sufficient personnel with the competence, capabilities, and
commitment to ethical principles necessary to:

(a) Perform engagements in accordance with professional standards and regulatory

and legal requirements; and
(b) Enable the firm or engagement partners to issue reports that are appropriate in the
circumstances.
Personnel issues relevant to the firm’s policies and procedures related to

human resources include, for example:
• Recruitment.
• Performance evaluation.
• Capabilities, including time to perform assignments.
• Competence.
• Career development.
• Promotion.
• Compensation.
• The estimation of personnel needs.
Effective recruitment processes and procedures help the firm select individuals
of integrity who have the capacity to develop the competence and capabilities
necessary to perform the firm’s work and possess the appropriate
characteristics to enable them to perform competently.
Competence can be developed through a variety of methods, including the
following:
• Professional education.
• Continuing professional development, including training.
• Work experience.
• Coaching by more experienced staff, for example, other members of
the engagement team.
• Independence education for personnel who are required to be
independent.
The continuing competence of the firm’s personnel depends to a significant

extent on an appropriate level of continuing professional development so that
personnel maintain their knowledge and capabilities. Effective policies and
procedures emphasize the need for continuing training for all levels of firm
personnel, and provide the necessary training resources and assistance to
enable personnel to develop and maintain the required competence and
capabilities.
The firm may use a suitably qualified external person, for example, when
internal technical and training resources are unavailable.
Performance evaluation, compensation and promotion procedures give due
recognition and reward to the development and maintenance of competence
and commitment to ethical principles. Steps a firm may take in developing and
maintaining competence and commitment to ethical principles include:

• Making personnel aware of the firm’s expectations regarding

performance and ethical principles;
• Providing personnel with evaluation of, and counseling on,

performance, progress and career development; and
• Helping personnel understand that advancement to positions of greater

responsibility depends, among other things, upon performance quality
and adherence to ethical principles, and that failure to comply with the
firm’s policies and procedures may result in disciplinary action.
The size and circumstances of the firm will influence the structure of the firm’s
performance evaluation process. Smaller firms, in particular, may employ less
formal methods of evaluating the performance of their personnel.
Assignment of Engagement Teams
The firm shall assign responsibility for each engagement to an engagement partner and
shall establish policies and procedures requiring that:
(a) The identity and role of the engagement partner are communicated to key
members of client management and those charged with governance;
(b) The engagement partner has the appropriate competence, capabilities, and
authority to perform the role; and
(c) The responsibilities of the engagement partner are clearly defined and
communicated to that partner.
Policies and procedures may include systems to monitor the workload and
availability of engagement partners so as to enable these individuals to have
sufficient time to adequately discharge their responsibilities.
The firm shall also establish policies and procedures to assign appropriate personnel with
the necessary competence, and capabilities to:
(a) Perform engagements in accordance with professional standards and

regulatory and legal requirements; and
(b) Enable the firm or engagement partners to issue reports that are appropriate
in the circumstances.
The firm’s assignment of engagement teams and the determination of the

level of supervision required, include for example, consideration of the
engagement team’s:
• Understanding of, and practical experience with, engagements of a
similar nature and complexity through appropriate training and
participation;

• Understanding of professional standards and regulatory and legal

requirements;
• Technical knowledge and expertise, including knowledge of relevant

information technology;
• Knowledge of relevant industries in which the clients operate;
• Ability to apply professional judgment; and
• Understanding of the firm’s quality control policies and procedures.
Engagement Performance
assurance that engagements are performed in accordance with professional standards
and regulatory and legal requirements, and that the firm or the engagement partner issue
reports that are appropriate in the circumstances. Such policies and procedures shall
include:
(a) Matters relevant to promoting consistency in the quality of engagement

performance;
The firm promotes consistency in the quality of engagement performance

through its policies and procedures. This is often accomplished through
written or electronic manuals, software tools or other forms of standardized
documentation, and industry or subject matter-specific guidance materials.
Matters addressed may include:
• How engagement teams are briefed on the engagement to obtain an
understanding of the objectives of their work.
• Processes for complying with applicable engagement standards.
• Processes of engagement supervision, staff training and coaching.
• Methods of reviewing the work performed, the significant judgments

made and the form of report being issued.
• Appropriate documentation of the work performed and of the timing

and extent of the review.
• Processes to keep all policies and procedures current.
Appropriate teamwork and training assist less experienced members of the

engagement team to clearly understand the objectives of the assigned work.
(b) Supervision responsibilities; and

Engagement supervision includes the following:

• Tracking the progress of the engagement;
• Considering the competence and capabilities of individual members of

the engagement team, whether they have sufficient time to carry out
their work, whether they understand their instructions and whether the
work is being carried out in accordance with the planned approach to
the engagement;
• Addressing significant matters arising during the engagement,

considering their significance and modifying the planned approach
appropriately; and
• Identifying matters for consultation or consideration by more

experienced engagement team members during the engagement.
(c) Review responsibilities.
A review consists of consideration of whether:

• The work has been performed in accordance with professional
standards and regulatory and legal requirements;
• Significant matters have been raised for further consideration;
• Appropriate consultations have taken place and the resulting

conclusions have been documented and implemented;
• There is a need to revise the nature, timing and extent of work

performed;
• The work performed supports the conclusions reached and is

appropriately documented;
• The evidence obtained is sufficient and appropriate to support the

report; and
• The objectives of the engagement procedures have been achieved.
The firm’s review responsibility policies and procedures shall be determined on the basis
that work of less experienced team members is reviewed by more experienced
engagement team members.
Consultation
assurance that:
(a) Appropriate consultation takes place on difficult or contentious matters;

(b) Sufficient resources are available to enable appropriate consultation to take

place;
(c) The nature and scope of, and conclusions resulting from, such consultations
are documented and are agreed by both the individual seeking consultation
and the individual consulted; and
(d) Conclusions resulting from consultations are implemented.
Consultation includes discussion at the appropriate professional level, with

individuals within or outside the firm who have specialized expertise.
Consultation uses appropriate research resources as well as the collective
experience and technical expertise of the firm. Consultation helps to promote
quality and improves the application of professional judgment. Appropriate
recognition of consultation in the firm’s policies and procedures helps to
promote a culture in which consultation is recognized as a strength and
encourages personnel to consult on difficult or contentious matters.
Effective consultation on significant technical, ethical and other matters within
the firm, or where applicable, outside the firm can be achieved when those
consulted:
• Are given all the relevant facts that will enable them to provide informed
advice; and
• Have appropriate knowledge, seniority and experience, and when

conclusions resulting from consultations are appropriately documented
and implemented.
Documentation of consultations with other professionals that involve difficult

or contentious matters that is sufficiently complete and detailed contributes
to an understanding of:
• The issue on which consultation was sought; and
• The results of the consultation, including any decisions taken, the basis
for those decisions and how they were implemented.
A firm needing to consult externally, for example, a firm without appropriate

internal resources, may take advantage of advisory services provided by:
• Other firms;
• Professional and regulatory bodies; or
• Commercial organizations that provide relevant quality control services.
Before contracting for such services, consideration of the competence and

capabilities of the external provider helps the firm to determine whether the
external provider is suitably qualified for that purpose.

Engagement Quality Control Review
The firm shall establish policies and procedures requiring, for appropriate engagements,
an engagement quality control review that provides an objective evaluation of the
significant judgments made by the engagement team and the conclusions reached in
formulating the report. Such policies and procedures shall:
(a) Require an engagement quality control review for all audits of financial
statements of listed entities;
(b) Set out criteria against which all other audits and reviews of historical financial
information and other assurance and related services engagements shall be
evaluated to determine whether an engagement quality control review should
be performed; and
Criteria for determining which engagements other than audits of financial

statements of listed entities are to be subject to an engagement quality control
review may include, for example:
• The nature of the engagement, including the extent to which it involves
a matter of public interest.
• The identification of unusual circumstances or risks in an engagement

or class of engagements.
• Whether laws or regulations require an engagement quality control

review.
(c) Require an engagement quality control review for all engagements, if any,
meeting the criteria established in compliance with subparagraph (b).
The firm shall establish policies and procedures setting out the nature, timing and extent
of an engagement quality control review. Such policies and procedures shall require that
the engagement report not be dated until the completion of the engagement quality control
review.
The engagement report is not dated until the completion of the engagement quality control
review. However, documentation of the engagement quality control review may be
completed after the date of the report.
Conducting the engagement quality control review in a timely manner at appropriate
stages during the engagement allows significant matters to be promptly resolved to the
engagement quality control reviewer’s satisfaction on or before the date of the report.
The firm shall establish policies and procedures to require the engagement quality control
review to include:
(a) Discussion of significant matters with the engagement partner;
(b) Review of the financial statements or other subject matter information and the
proposed report;

(c) Review of selected engagement documentation relating to significant

judgments the engagement team made and the conclusions it reached; and
(d) Evaluation of the conclusions reached in formulating the report and

consideration of whether the proposed report is appropriate.
The extent of the engagement quality control review may depend, among other
things, on the complexity of the engagement, whether the entity is a listed
entity, and the risk that the report might not be appropriate in the
circumstances. The performance of an engagement quality control review does
not reduce the responsibilities of the engagement partner.
For audits of financial statements of listed entities, the firm shall establish policies and
procedures to require the engagement quality control review to also include consideration
of the following:
(a) The engagement team’s evaluation of the firm’s independence in relation to

the specific engagement;
(b) Whether appropriate consultation has taken place on matters involving
differences of opinion or other difficult or contentious matters, and the
conclusions arising from those consultations; and
(c) Whether documentation selected for review reflects the work performed in
relation to the significant judgments made and supports the conclusions
reached.
Other matters relevant to evaluating the significant judgments made by the

engagement team that may be considered in an engagement quality control
review of an audit of financial statements of a listed entity include:
• Significant risks identified during the engagement and the responses to
those risks.
• Judgments made, particularly with respect to materiality and significant

risks.
• The significance and disposition of corrected and uncorrected

misstatements identified during the engagement.
• The matters to be communicated to management and those charged

with governance and, where applicable, other parties such as regulatory
bodies.
These other matters, depending on the circumstances, may also be applicable

for engagement quality control reviews for audits of the financial statements of
other entities as well as reviews of financial statements and other assurance
and related services engagements.

Although not referred to as listed entities, certain public sector entities may be
of sufficient significance to warrant performance of an engagement quality
control review.
Criteria for the Eligibility of Engagement Quality Control Reviewers
The firm shall establish policies and procedures to address the appointment of
engagement quality control reviewers and establish their eligibility through:
(a) The technical qualifications required to perform the role, including the
necessary experience and authority; and
What constitutes sufficient and appropriate technical expertise, experience and

authority depends on the circumstances of the engagement. For example, the
engagement quality control reviewer for an audit of the financial statements of
a listed entity is likely to be an individual with sufficient and appropriate
experience and authority to act as an audit engagement partner on audits of
financial statements of listed entities.
(b) The degree to which an engagement quality control reviewer can be consulted
on the engagement without compromising the reviewer’s objectivity.
The engagement partner may consult the engagement quality control reviewer
during the engagement, for example, to establish that a judgment made by the
engagement partner will be acceptable to the engagement quality control
reviewer. Such consultation avoids identification of differences of opinion at a
late stage of the engagement and need not compromise the engagement
quality control reviewer’s eligibility to perform the role. Where the nature and
extent of the consultations become significant the reviewer’s objectivity may be
compromised unless care is taken by both the engagement team and the
reviewer to maintain the reviewer’s objectivity. Where this is not possible,
another individual within the firm or a suitably qualified external person may be
appointed to take on the role of either the engagement quality control reviewer
or the person to be consulted on the engagement.
The firm shall establish policies and procedures designed to maintain the objectivity of the
engagement quality control reviewer.
The firm is required to establish policies and procedures designed to maintain objectivity
of the engagement quality control reviewer. Accordingly, such policies and procedures
provide that the engagement quality control reviewer:
• Where practicable, is not selected by the engagement partner;
• Does not otherwise participate in the engagement during the period of review;
• Does not make decisions for the engagement team; and
• Is not subject to other considerations that would threaten the reviewer’s

objectivity.

Considerations specific to smaller firms

It may not be practicable, in the case of firms with few partners, for the engagement partner
not to be involved in selecting the engagement quality control reviewer. Suitably qualified
external persons may be contracted where sole practitioners or small firms identify
engagements requiring engagement quality control reviews. Alternatively, some sole
practitioners or small firms may wish to use other firms to facilitate engagement quality
control reviews. Where the firm contracts suitably qualified external persons, the
requirements in the Criteria for the Eligibility of Engagement Quality Control Reviewers
and guidance in Retention of Engagement Documentation and Monitoring the Firm’s
Quality Control Policies and Procedures apply.

In the public sector, a statutorily appointed auditor (for example, an Auditor General, or
other suitably qualified person appointed on behalf of the Auditor General) may act in a
role equivalent to that of engagement partner with overall responsibility for public sector
audits. In such circumstances, where applicable, the selection of the engagement quality
control reviewer includes consideration of the need for independence from the audited
entity and the ability of the engagement quality control reviewer to provide an objective
evaluation.
The firm’s policies and procedures shall provide for the replacement of the engagement
quality control reviewer where the reviewer’s ability to perform an objective review may be
impaired.
Documentation of the Engagement Quality Control Review

The firm shall establish policies and procedures on documentation of the engagement
quality control review which require documentation that:
(a) The procedures required by the firm’s policies on engagement quality control
review have been performed;
(b) The engagement quality control review has been completed on or before the
date of the report; and
(c) The reviewer is not aware of any unresolved matters that would cause the
reviewer to believe that the significant judgments the engagement team made
and the conclusions it reached were not appropriate.
Differences of Opinion
The firm shall establish policies and procedures for dealing with and resolving differences
of opinion within the engagement team, with those consulted and, where applicable,
between the engagement partner and the engagement quality control reviewer.
Effective procedures encourage identification of differences of opinion at an early stage,

provide clear guidelines as to the successive steps to be taken thereafter, and require
documentation regarding the resolution of the differences and the implementation of the
conclusions reached. Procedures to resolve such differences may include consulting with

another practitioner or firm, or a professional or regulatory body. Such policies and

procedures shall require that:
(a) Conclusions reached be documented and implemented; and
(b) The report not be dated until the matter is resolved.
Engagement Documentation
Completion of the Assembly of Final Engagement Files

The firm shall establish policies and procedures for engagement teams to complete the
assembly of final engagement files on a timely basis after the engagement reports have
been finalized.
Law or regulation may prescribe the time limits by which the assembly of final engagement
files for specific types of engagement is to be completed. Where no such time limits are
prescribed in law or regulation, paragraph 45 requires the firm to establish time limits that
reflect the need to complete the assembly of final engagement files on a timely basis. In
the case of an audit, for example, such a time limit would ordinarily not be more than 60
days after the date of the auditor’s report.
Where two or more different reports are issued in respect of the same subject matter
information of an entity, the firm’s policies and procedures relating to time limits for the
assembly of final engagement files address each report as if it were for a separate
engagement. This may, for example, be the case when the firm issues an auditor’s report
on a component’s financial information for group consolidation purposes and, at a
subsequent date, an auditor’s report on the same financial information for statutory
purposes.
Documentation
The firm shall establish policies and procedures designed to maintain the confidentiality,
safe custody, integrity, accessibility and retrievability of engagement documentation.
Relevant ethical requirements establish an obligation for the firm’s personnel to observe
at all times the confidentiality of information contained in engagement documentation,
unless specific client authority has been given to disclose information, or there is a legal
or professional duty to do so. Specific laws or regulations may impose additional
obligations on the firm’s personnel to maintain client confidentiality, particularly where data
of a personal nature are concerned.
Whether engagement documentation is in paper, electronic or other media, the integrity,
accessibility or retrievability of the underlying data may be compromised if the
documentation could be altered, added to or deleted without the firm’s knowledge, or if it
could be permanently lost or damaged. Accordingly, controls that the firm designs and
implements to avoid unauthorized alteration or loss of engagement documentation may
include those that:
• Enable the determination of when and by whom engagement documentation
was created, changed or reviewed;

• Protect the integrity of the information at all stages of the engagement,

especially when the information is shared within the engagement team or
transmitted to other parties via the Internet;
• Prevent unauthorized changes to the engagement documentation; and
• Allow access to the engagement documentation by the engagement team and

other authorized parties as necessary to properly discharge their
responsibilities.
Controls that the firm designs and implements to maintain the confidentiality, safe custody,
integrity, accessibility and retrievability of engagement documentation may include the
following:
• The use of a password among engagement team members to restrict access
to electronic engagement documentation to authorized users.
• Appropriate back-up routines for electronic engagement documentation at

appropriate stages during the engagement.
• Procedures for properly distributing engagement documentation to the team

members at the start of the engagement, processing it during engagement,
and collating it at the end of engagement.
• Procedures for restricting access to, and enabling proper distribution and
confidential storage of, hardcopy engagement documentation.
For practical reasons, original paper documentation may be electronically scanned for
inclusion in engagement files. In such cases, the firm’s procedures designed to maintain
the integrity, accessibility, and retrievability of the documentation may include requiring
the engagement teams to:
• Generate scanned copies that reflect the entire content of the original paper
documentation, including manual signatures, cross-references and
annotations;
• Integrate the scanned copies into the engagement files, including indexing and
signing off on the scanned copies as necessary; and
• Enable the scanned copies to be retrieved and printed as necessary.
There may be legal, regulatory or other reasons for a firm to retain original paper
documentation that has been scanned.
Retention of Engagement Documentation
The firm shall establish policies and procedures for the retention of engagement
documentation for a period sufficient to meet the needs of the firm or as required by law
or regulation.

The needs of the firm for retention of engagement documentation, and the period of such
retention, will vary with the nature of the engagement and the firm’s circumstances, for
example, whether the engagement documentation is needed to provide a record of
matters of continuing significance to future engagements. The retention period may also
depend on other factors, such as whether local law or regulation prescribes specific
retention periods for certain types of engagements, or whether there are generally
accepted retention periods in the jurisdiction in the absence of specific legal or regulatory
requirements.
In the specific case of audit engagements, the retention period would ordinarily be no
shorter than seven years from the date of the auditor’s report, or, if later, the date of the
group auditor’s report.
Procedures that the firm adopts for retention of engagement documentation include those
that enable the requirements of paragraph 47 to be met during the retention period, for
example to:
• Enable the retrieval of, and access to, the engagement documentation during
the retention period, particularly in the case of electronic documentation since
the underlying technology may be upgraded or changed over time;
• Provide, where necessary, a record of changes made to engagement

documentation after the engagement files have been completed; and
• Enable authorized external parties to access and review specific

engagement documentation for quality control or other purposes.
Ownership of engagement documentation

Unless otherwise specified by law or regulation, engagement documentation is the
property of the firm. The firm may, at its discretion, make portions of, or extracts from,
engagement documentation available to clients, provided such disclosure does not
undermine the validity of the work performed, or, in the case of assurance engagements,
the independence of the firm or its personnel.
Monitoring
Monitoring the Firm’s Quality Control Policies and Procedures
The firm shall establish a monitoring process designed to provide it with reasonable
assurance that the policies and procedures relating to the system of quality control are
relevant, adequate, and operating effectively. This process shall:
(a) Include an ongoing consideration and evaluation of the firm’s system of quality
control including, on a cyclical basis, inspection of at least one completed
engagement for each engagement partner;
(b) Require responsibility for the monitoring process to be assigned to a partner or

partners or other persons with sufficient and appropriate experience and authority
in the firm to assume that responsibility; and

(c) Require that those performing the engagement or the engagement quality control
review are not involved in inspecting the engagements.
The purpose of monitoring compliance with quality control policies and

procedures is to provide an evaluation of:
• Adherence to professional standards and regulatory and legal
requirements;
• Whether the system of quality control has been appropriately designed

and effectively implemented; and
• Whether the firm’s quality control policies and procedures have been
appropriately applied, so that reports that are issued by the firm or
engagement partners are appropriate in the circumstances.
Ongoing consideration and evaluation of the system of quality control include

matters such as the following:
• Analysis of:
o New developments in professional standards and regulatory and
legal requirements, and how they are reflected in the firm’s policies
and procedures where appropriate;
o Written confirmation of compliance with policies and procedures on
independence;
o Continuing professional development, including training; and o
Decisions related to acceptance and continuance of client
relationships and specific engagements.
• Determination of corrective actions to be taken and improvements to be
made in the system, including the provision of feedback into the firm’s
policies and procedures relating to education and training.
• Communication to appropriate firm personnel of weaknesses identified in
the system, in the level of understanding of the system, or compliance
with it.
• Follow-up by appropriate firm personnel so that necessary modifications
are promptly made to the quality control policies and procedures.
Inspection cycle policies and procedures may, for example, specify a cycle
that spans three years. The manner in which the inspection cycle is organized,
including the timing of selection of individual engagements, depends on many
factors, such as the following:
• The size of the firm.
• The number and geographical location of offices.
• The results of previous monitoring procedures.

• The degree of authority both personnel and offices have (for example,
whether individual offices are authorized to conduct their own inspections
or whether only the head office may conduct them).
• The nature and complexity of the firm’s practice and organization.
• The risks associated with the firm’s clients and specific engagements.
The inspection process includes the selection of individual engagements,

some of which may be selected without prior notification to the engagement
team. In determining the scope of the inspections, the firm may take into
account the scope or conclusions of an independent external inspection
program. However, an independent external inspection program does not act
as a substitute for the firm’s own internal monitoring program.
In the case of small firms, monitoring procedures may need to be performed
by individuals who are responsible for design and implementation of the firm’s
quality control policies and procedures, or who may be involved in performing
the engagement quality control review. A firm with a limited number of persons
may choose to use a suitably qualified external person or another firm to carry
out engagement inspections and other monitoring procedures. Alternatively,
the firm may establish arrangements to share resources with other appropriate
organizations to facilitate monitoring activities.
Evaluating, Communicating and Remedying Identified Deficiencies
The firm shall evaluate the effect of deficiencies noted as a result of the monitoring process
and determine whether they are either:
(a) Instances that do not necessarily indicate that the firm’s system of quality
control is insufficient to provide it with reasonable assurance that it complies
with professional standards and regulatory and legal requirements, and that
the reports issued by the firm or engagement partners are appropriate in the
circumstances; or
(b) Systemic, repetitive or other significant deficiencies that require prompt

corrective action.
The firm shall communicate to relevant engagement partners and other appropriate
personnel deficiencies noted as a result of the monitoring process and recommendations
for appropriate remedial action.
The reporting of identified deficiencies to individuals other than the relevant engagement
partners need not include an identification of the specific engagements concerned,
although there may be cases where such identification may be necessary for the proper
discharge of the responsibilities of the individuals other than the engagement partners.
Recommendations for appropriate remedial actions for deficiencies noted shall include
one or more of the following:
(a) Taking appropriate remedial action in relation to an individual engagement or

member of personnel;

(b) The communication of the findings to those responsible for training and
professional development;
(c) Changes to the quality control policies and procedures; and
(d) Disciplinary action against those who fail to comply with the policies and
procedures of the firm, especially those who do so repeatedly.
The firm shall establish policies and procedures to address cases where the results of the
monitoring procedures indicate that a report may be inappropriate or that procedures were
omitted during the performance of the engagement. Such policies and procedures shall
require the firm to determine what further action is appropriate to comply with relevant
professional standards and regulatory and legal requirements and to consider whether to
obtain legal advice.
The firm shall communicate at least annually the results of the monitoring of its system of
quality control to engagement partners and other appropriate individuals within the firm,
including the firm’s chief executive officer or, if appropriate, its managing board of partners.
This communication shall be sufficient to enable the firm and these individuals to take
prompt and appropriate action where necessary in accordance with their defined roles and
responsibilities. Information communicated shall include the following:
(a) A description of the monitoring procedures performed.
(b) The conclusions drawn from the monitoring procedures.
(c) Where relevant, a description of systemic, repetitive or other significant

deficiencies and of the actions taken to resolve or amend those deficiencies.
Some firms operate as part of a network and, for consistency, may implement some of
their monitoring procedures on a network basis. Where firms within a network operate
under common monitoring policies and procedures designed to comply with this PSQC,
and these firms place reliance on such a monitoring system, the firm’s policies and
procedures shall require that:
(a) At least annually, the network communicates the overall scope, extent and results
of the monitoring process to appropriate individuals within the network firms; and
(b) The network communicates promptly any identified deficiencies in the system of
quality control to appropriate individuals within the relevant network firm or firms
so that the necessary action can be taken,
In order that engagement partners in the network firms can rely on the results of
the monitoring process implemented within the network, unless the firms or the
network advise otherwise.
Complaints and Allegations
assurance that it deals appropriately with:

(a) Complaints and allegations that the work performed by the firm fails to comply with
professional standards and regulatory and legal requirements; and
(b) Allegations of non-compliance with the firm’s system of quality control.
As part of this process, the firm shall establish clearly defined channels for firm
personnel to raise any concerns in a manner that enables them to come forward
without fear of reprisals.
Complaints and allegations (which do not include those that are clearly frivolous)
may originate from within or outside the firm. They may be made by firm personnel,
clients or other third parties. They may be received by engagement team members
or other firm personnel.
If during the investigations into complaints and allegations, deficiencies in the design or
operation of the firm’s quality control policies and procedures or noncompliance with the
firm’s system of quality control by an individual or individuals are identified, the firm shall
take appropriate actions as set out in recommendations for appropriate remedial actions
for deficiencies
Policies and procedures established for the investigation of complaints and allegations
may include for example, that the partner supervising the investigation:
• Has sufficient and appropriate experience;
• Has authority within the firm; and
• Is otherwise not involved in the engagement.
The partner supervising the investigation may involve legal counsel as necessary.
It may not be practicable, in the case of firms with few partners, for the partner supervising
the investigation not to be involved in the engagement. These small firms and sole
practitioners may use the services of a suitably qualified external person or another firm
to carry out the investigation into complaints and allegations.
Documentation of the System of Quality Control
The firm shall establish policies and procedures requiring appropriate documentation to
provide evidence of the operation of each element of its system of quality control.
The form and content of documentation evidencing the operation of each of the elements
of the system of quality control is a matter of judgment and depends on a number of
factors, including the following:
• The size of the firm and the number of offices.
• The nature and complexity of the firm’s practice and organization.
For example, large firms may use electronic databases to document matters
such as independence confirmations, performance evaluations and the results of
monitoring inspections.

Appropriate documentation relating to monitoring includes, for example:
• Monitoring procedures, including the procedure for selecting completed

engagements to be inspected.
• A record of the evaluation of:
o Adherence to professional standards and regulatory and legal
requirements;
o Whether the system of quality control has been appropriately designed and
effectively implemented; and
o Whether the firm’s quality control policies and procedures have been
appropriately applied, so that reports that are issued by the firm or
engagement partners are appropriate in the circumstances.
• Identification of the deficiencies noted, an evaluation of their effect, and the
basis for determining whether and what further action is necessary.
Smaller firms may use more informal methods in the documentation of their systems of
quality control such as manual notes, checklists and forms.
The firm shall establish policies and procedures that require retention of documentation
for a period of time sufficient to permit those performing monitoring procedures to evaluate
the firm’s compliance with its system of quality control, or for a longer period if required by
law or regulation. The firm shall establish policies and procedures requiring documentation
of complaints and allegations and the responses to them.
Framework of Philippine Standards on Auditing
The Auditing Standards and Practices Council has been authorized to issue Philippine
Standards on Auditing (PSAs). The purpose of this document is to describe the framework
within which PSAs are issued in relation to the services which may be performed by
auditors.
For ease of reference, except where indicated, the term “auditor” is used throughout the
PSAs when describing both auditing and related services which may be performed. Such
reference is not intended to imply that a person performing related services need be the
auditor of the entity's financial statements.
Financial Reporting Framework
Financial statements are ordinarily prepared and presented annually and are directed
toward the common information needs of a wide range of users. Many of those users rely
on the financial statements as their major source of information because they do not have
the power to obtain additional information to meet their specific information needs. Thus,
financial statements need to be prepared in accordance with one, or a combination of:
a. accounting standards generally accepted in the Philippines;

b. International Accounting Standards; and
c. another authoritative and comprehensive financial reporting framework which has

been designed for use in financial reporting and is identified in the financial
statements.
Framework for Auditing and Related Services
This Framework distinguishes audits from related services. Related services comprise
reviews, agreed-upon procedures and compilations. As illustrated in the diagram below,
audits and reviews are designed to enable the auditor to provide high and moderate levels
of assurance respectively, such terms being used to indicate their comparative ranking.
Engagements to undertake agreed-upon procedures and compilations are not intended to
enable the auditor to express assurance.
The Framework does not apply to other services provided by auditors such as taxation,
consultancy, and financial and accounting advice.
Levels of Assurance
Assurance in the context of this Framework refers to the auditor's satisfaction as to the
reliability of an assertion being made by one party for use by another party. To provide
such assurance, the auditor assesses the evidence collected as a result of procedures
conducted and expresses a conclusion. The degree of satisfaction achieved and,
therefore, the level of assurance which may be provided is determined by the procedures
performed and their results.
In an audit engagement, the auditor provides a high, but not absolute, level of assurance
that the information subject to audit is free of material misstatement. This is expressed
positively in the audit report as reasonable assurance.

In a review engagement, the auditor provides a moderate level of assurance that the
information subject to review is free of material misstatement. This is expressed in the
form of negative assurance.
For agreed-upon procedures, as the auditor simply provides a report of the factual
findings, no assurance is expressed. Instead, users of the report assess for themselves
the procedures and findings reported by the auditor and draw their own conclusions from
the auditor's work.
In a compilation engagement, although the users of the compiled information derive some
benefit from the accountant's1 involvement, no assurance is expressed in the report.
Audit
The objective of an audit of financial statements is to enable the auditor to express an

opinion whether the financial statements are prepared, in all material respects, in
accordance with an identified financial reporting framework. The phrase used to express
the auditor's opinion is “present fairly, in all material respects.” A similar objective applies
to the audit of financial or other information prepared in accordance with appropriate
criteria. In forming the audit opinion, the auditor obtains sufficient appropriate audit
evidence to be able to draw conclusions on which to base that opinion.
The auditor's opinion enhances the credibility of financial statements by providing a high,
but not absolute, level of assurance. Absolute assurance in auditing is not attainable as a
result of such factors as the need for judgment, the use of testing, the inherent limitations
of any accounting and internal control systems and the fact that most of the evidence
available to the auditor is persuasive, rather than conclusive, in nature.
Related Services
Reviews
The objective of a review of financial statements is to enable an auditor to state whether,

on the basis of procedures which do not provide all the evidence that would be required
in an audit, anything has come to the auditor's attention that causes the auditor to believe
that the financial statements are not prepared, in all material respects, in accordance with
an identified financial reporting framework. A similar objective applies to the review of
financial or other information prepared in accordance with appropriate criteria.
A review comprises inquiry and analytical procedures which are designed to review the
reliability of an assertion that is the responsibility of one party for use by another party.
While a review involves the application of audit skills and techniques and the gathering of
evidence, it does not ordinarily involve an assessment of accounting and internal control
systems, tests of records and of responses to inquiries by obtaining corroborating
evidence through inspection, observation, confirmation and computation, which are
procedures ordinarily performed during an audit.
Although the auditor attempts to become aware of all significant matters, the procedures
of a review make the achievement of this objective less likely than in an audit engagement,
thus the level of assurance provided in a review report is correspondingly less than that
given in an audit report.

Agreed-upon Procedures
In an engagement to perform agreed-upon procedures, an auditor is engaged to carry out

those procedures of an audit nature to which the auditor and the entity and any appropriate
third parties have agreed and to report on factual findings. The recipients of the report
must form their own conclusions from the report by the auditor. The report is restricted to
those parties that have agreed to the procedures to be performed since others, unaware
of the reasons for the procedures, may misinterpret the results.
Compilations
In a compilation engagement, the accountant is engaged to use accounting expertise as

opposed to auditing expertise to collect, classify and summarize financial information. This
ordinarily entails reducing detailed data to a manageable and understandable form without
a requirement to test the assertions underlying that information. The procedures employed
are not designed and do not enable the accountant to express any assurance on the
financial information. However, users of the compiled financial information derive some
benefit as a result of the accountant's involvement because the service has been
performed with due professional skill and care.
Auditor Association with Financial Information
An auditor is associated with financial information when the auditor attaches a report to
that information or consents to the use of the auditor's name in a professional connection.
If the auditor is not associated in this manner, third parties can assume no responsibility
of the auditor. If the auditor learns that an entity is inappropriately using the auditor's name
in association with financial information, the auditor would require management to cease
doing so and consider what further steps, if any, need to be taken, such as informing any
known third-party users of the information of the inappropriate use of the auditor's name
in connection with the information. The auditor may also believe it necessary to take other
action, for example, to seek legal advice.
Glossary of Terms Used in the PSAs
Access controls—Procedures designed to restrict access to on-line terminal devices,

programs and data. Access controls consist of “user authentication” and “user
authorization.” “User authentication” typically attempts to identify a user through unique
logon identifications, passwords, access cards or biometric data. “User authorization”
consists of access rules to determine the computer resources each user may access.
Specifically, such procedures are designed to prevent or detect:
(a) Unauthorized access to on-line terminal devices, programs and data;
(b) Entry of unauthorized transactions;
(c) Unauthorized changes to data files;
(d) The use of computer programs by unauthorized personnel; and
(e) The use of computer programs that have not been authorized.

Accounting estimate—An accounting estimate is an approximation of the amount of an

item in the absence of a precise means of measurement.
Accounting system—An accounting system is the series of tasks and records of an entity
by which transactions are processed as a means of maintaining financial records. Such
systems identify, assemble, analyze, calculate, classify, record, summarize and report
transactions and other events.
Adverse opinion— (see Modified auditor’s report)
Agreed-upon procedures engagement—In an engagement to perform agreed-upon

procedures, an auditor is engaged to carry out those procedures of an audit nature to
which the auditor and the entity and any appropriate third parties have agreed and to
report on factual findings. The recipients of the report must form their own conclusions
from the report by the auditor. The report is restricted to those parties that have agreed to
the procedures to be performed since others, unaware of the reasons for the procedures
may misinterpret the results.
Analytical procedures—Analytical procedures consist of the analysis of significant ratios

and trends including the resulting investigation of fluctuations and relationships that are
inconsistent with other relevant information or deviate from predictable amounts.
Annual report—An entity ordinarily issues on an annual basis a document which includes
its financial statements together with the audit report thereon. This document is frequently
referred to as the “annual report.”
Anomalous error— (see Audit sampling)
Application controls in computer information systems—The specific controls over the

relevant accounting applications maintained by the computer. The purpose of application
controls is to establish specific control procedures over the accounting applications in
order to provide reasonable assurance that all transactions are authorized and recorded,
and are processed completely, accurately and on a timely basis.
Appropriateness—Appropriateness is the measure of the quality of audit evidence and its

relevance to a particular assertion and its reliability.
Assertions—Assertions are representations by management, explicit or otherwise, that

are embodied in the financial statements. (see Financial statements assertions)
Assistants—Assistants are personnel involved in an individual audit other than the auditor.
Assurance— (see Reasonable assurance)
Attendance—Attendance consists of being present during all or part of a process being

performed by others; for example, attending physical inventory taking will enable the
auditor to inspect inventory, to observe compliance of management’s procedures to count
quantities and record such counts and to test-count quantities.

Audit—The objective of an audit of financial statements is to enable the auditor to express

an opinion whether the financial statements are prepared, in all material respects, in
accordance with an identified financial reporting framework. The phrase used to express
the auditor’s opinion is “present fairly, in all material respects. A similar objective applies
to the audit of financial or other information prepared in accordance with appropriate
criteria.
Audit evidence—Audit evidence is the information obtained by the auditor in arriving at the
conclusions on which the audit opinion is based. Audit evidence will comprise source
documents and accounting records underlying the financial statements and corroborating
information from other sources.
Audit firm—Audit firm is either a firm or entity providing audit services, including where
appropriate its partners, or a sole practitioner. Audit opinion— (see Opinion)
Audit program—An audit program sets out the nature, timing and extent of planned audit
procedures required to implement the overall audit plan. The audit program serves as a
set of instructions to assistants involved in the audit and as a means to control the proper
execution of the work.
Audit risk—Audit risk is the risk that the auditor gives an inappropriate audit opinion when
the financial statements are materially misstated. Audit risk has three components:
inherent risk, control risk and detection risk.
Control risk—Control risk is the risk that a misstatement that could occur in an
account balance or class of transactions and that could be material, individually or
when aggregated with misstatements in other balances or classes, will not be
prevented or detected and corrected on a timely basis by the accounting and internal
control systems.
Detection risk—Detection risk is the risk that an auditor’s substantive procedures will
not detect a misstatement that exists in an account balance or class of transactions
that could be material, individually or when aggregated with misstatements in other
balances or classes.
Inherent risk—Inherent risk is the susceptibility of an account balance or class of

transactions to misstatement that could be material, individually or when aggregated
with misstatements in other balances of classes, assuming that there were no related
internal controls.
Audit sampling—Audit sampling (sampling) involves the application of audit procedures to

less than 100% of items within an account balance or class of transactions such that all
sampling units have a chance of selection. This will enable the auditor to obtain and
evaluate audit evidence about some characteristic of the items selected in order to form
or assist in forming a conclusion concerning the population from which the sample is
drawn. Audit sampling can use either a statistical or a non-statistical approach.
Anomalous error—Anomalous error means an error that arises from an isolated

event that has not recurred other than on specifically identifiable occasions and is
therefore not representative of errors in the population.

Expected error—The error that the auditor expects to be present in the population.
Non-sampling risk—Non-sampling risk arises from factors that cause the auditor to
reach an erroneous conclusion for any reason not related to the size of the sample.
For example, most audit evidence is persuasive rather than conclusive, the auditor
might use inappropriate procedures, or the auditor might misinterpret evidence and
fail to recognize an error.
Population—Population means the entire set of data from which a sample is selected
and about which the auditor wishes to draw conclusions. A population may be
divided into strata, or sub-populations, with each stratum being examined
separately. The term population is used to include the term stratum.
Sampling risk—Sampling risk arises from the possibility that the auditor’s conclusion,
based on a sample may be different from the conclusion reached if the entire
population were subjected to the same audit procedure.
Sampling unit—Sampling unit means the individual items constituting a population,

for example checks listed on deposit slips, credit entries on bank statements, sales
invoices or debtors’ balances, or a monetary unit.
Statistical sampling—Statistical sampling means any approach to sampling that has

the following characteristics:
(a) Random selection of a sample; and
(b) Use of probability theory to evaluate sample results, including measurement

of sampling risk.
A sampling approach that does not have characteristics (a) and (b) is considered
non-statistical sampling.
Stratification—Stratification is the process of dividing a population into

subpopulations, each of which is a group of sampling units which have similar
characteristics (often monetary value).
Tolerable error—Tolerable error means the maximum error in a population that the
auditor is willing to accept.
Auditor—The auditor is the person with final responsibility for the audit. This term is also
used to refer to an audit firm. (For ease of reference, the term “auditor” is used throughout
the PSAs when describing both auditing and related services which may be performed.
Such reference is not intended to imply that a person performing related services need
necessarily be the auditor of the entity’s financial statements.)
Continuing auditor—The continuing auditor is the auditor who audited and reported
on the prior period’s financial statements and continues as the auditor for the current
period.

External auditor—Where appropriate the terms “external auditor” and “external

audit” are used to distinguish the external auditor from an internal auditor and to
distinguish the external audit from the activities of internal auditing. Incoming
auditor—The incoming auditor is a current period’s auditor who did not audit the prior
period’s financial statements.
Other auditor—The other auditor is an auditor, other than the principal auditor, with
responsibility for reporting on the financial information of a component which is
included in the financial statements audited by the principal auditor. Other auditors
include affiliated firms, whether using the same name or not, and correspondents,
as well as unrelated auditors.
Personnel—Personnel includes all partners and professional staff engaged in the

audit practice of the firm.
Predecessor auditor—The auditor who was previously the auditor of an entity and
who has been replaced by an incoming auditor.
Principal auditor—The principal auditor is the auditor with responsibility for reporting
on the financial statements of an entity when those financial statements include
financial information of one or more components audited by another auditor.
Auditor’s association—An auditor is associated with financial information when the auditor
attaches a report to that information or consents to the use of the auditor’s name in a
professional connection.
Comparatives—Comparatives in financial statements, may present amounts (such as

financial position, results of operations, cash flows) and appropriate disclosures of an
entity for more than one period, depending on the framework. The frameworks and
methods of presentation are as follows:
(a) Corresponding figures where amounts and other disclosures for the preceding
period are included as part of the current period financial statements, and are
intended to be read in relation to the amounts and other disclosures relating to the
current period (referred to as “current period figures”). These corresponding figures
are not presented as complete financial statements capable of standing alone, but
are an integral part of the current period financial statements intended to be read
only in relationship to the current period figures; and
(b) Comparative financial statements where amounts and other disclosures for the
preceding period are included for comparison with the financial statements of the
current period, but do not form part of the current period financial statements.
Compilation engagement—In a compilation engagement, the accountant is engaged to

use accounting expertise as opposed to auditing expertise to collect, classify and
summarize financial information.
Component—Component is a division, branch, subsidiary, joint venture, associated

company or other entity whose financial information is included in financial statements
audited by the principal auditor.

Comprehensive basis of accounting—A comprehensive basis of accounting comprises a

set of criteria used in preparing financial statements which applies to all material items
and which has substantial support.
Computation—Computation consists of checking the arithmetical accuracy of source

documents and accounting records or of performing independent calculations.
Computer-assisted audit techniques—Applications of auditing procedures using the

computer as an audit tool are known as Computer Assisted Audit Techniques (CAATs).
Computer information systems—A computer information systems (CIS) environment

exists when a computer of any type or size is involved in the processing by the entity of
financial information of significance to the audit, whether that computer is operated by the
entity or by a third party.
Confirmation— (see External confirmation)
Continuing auditor— (see Auditor)
Control environment—The control environment comprises the overall attitude, awareness

and actions of directors and management regarding the internal control system and its
importance in the entity.
Control procedures—Control procedures are those policies and procedures in addition to

the control environment which management has established to achieve the entity’s
specific objectives.
Control risk— (see Audit risk)
Corporate Governance— (see Governance)
Database—A collection of data that is shared and used by a number of different users for
different purposes.
Detection risk— (see Audit risk) Disclaimer of opinion—(see Modified auditor’s report)
Documentation—Documentation is the material (working papers) prepared by and for, or

obtained and retained by the auditor in connection with the performance of the audit.
Electronic Data Interchange (EDI)—The electronic transmission of documents between

organizations in a machine-readable form. Emphasis of matter paragraph(s)—(see
Modified auditor’s report)
Encryption (cryptography)—The process of transforming programs and information into a

form that cannot be understood without access to specific decoding algorithms
(cryptographic keys). For example, the confidential personal data in a payroll system may
be encrypted against unauthorized disclosure or modification. Encryption can provide an
effective control for protecting confidential or sensitive programs and information from
unauthorized access or modification. However, effective security depends upon proper
controls over access to the cryptographic keys.

Engagement letter—An engagement letter documents and confirms the auditor’s

acceptance of the appointment, the objective and scope of the audit, the extent of the
auditor’s responsibilities to the client and the form of any reports.
Environmental matters—Environmental matters are defined as:
(a) Initiatives to prevent, abate, or remedy damage to the environment, or to deal

with conservation of renewable and non-renewable resources (such initiatives may
be required by environmental laws and regulations or by contract, or they may be
undertaken voluntarily);
(b) Consequences of violating environmental laws and regulations;
(c) Consequences of environmental damage done to others or to natural resources;

and
(d) Consequences of vicarious liability imposed by law (for example, liability for
damages caused by previous owners).
Environmental performance report—An environmental performance report is a report,
separate from the financial statements, in which an entity provides third parties with
qualitative information on the entity’s commitments towards the environmental aspects of
the business, its policies and targets in that field, its achievement in managing the
relationship between its business processes and environmental risk, and quantitative
information on its environmental performance.
Environmental risk—In certain circumstances, factors relevant to the assessment of

inherent risk for the development of the overall audit plan may include the risk of material
misstatement of the financial statements due to environmental matters.
Error—An error is an unintentional mistake in financial statements.
Expected error— (see Audit sampling)
Expert—An expert is a person or firm possessing special skill, knowledge and experience
in a particular field other than accounting and auditing.
External audit/auditor— (see Auditor)
External confirmation—External confirmation is the process of obtaining and evaluating

audit evidence through a direct communication from a third party in response to a request
for information about a particular item affecting assertions made by management in the
financial statements.
Fair Value—The amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arm’s length transaction.
Financial statements—The balance sheets, income statements or profit and loss

accounts, statements showing either all changes in equity or changes in equity other than
those arising from capital transactions with owners and distributions to owners, cash flow
statements, notes and other statements and explanatory material which are identified as
being part of the financial statements.

Summarized financial statements—An entity may prepare financial statements

summarizing its annual audited financial statements for the purpose of informing
user groups interested in the highlights only of the entity’s financial performance
and position.
Financial statement assertions—Financial statement assertions are assertions by

management, explicit or otherwise, that are embodied in the financial statements and can
be categorized as follows:
(a) Existence: an asset or a liability exists at a given date;
(b) Rights and obligations: an asset or a liability pertains to the entity at a given
date;
(c) Occurrence: a transaction or event took place which pertains to the entity during
the period;
(d) Completeness: there are no unrecorded assets, liabilities, transactions or
events, or undisclosed items;
(e) Valuation: an asset or liability is recorded at an appropriate carrying value;
(f) Measurement: a transaction or event is recorded at the proper amount and

revenue or expense is allocated to the proper period; and
(g) Presentation and disclosure: an item is disclosed, classified, and described in

accordance with the applicable financial reporting framework.
Firewall—A combination of hardware and software that protects a WAN, LAN or PC from
unauthorized access through the Internet and from the introduction of unauthorized or
harmful software, data or other material in electronic form.
Forecast—A forecast is prospective financial information prepared on the basis of

assumptions as to future events which management expects to take place and the actions
management expects to take as of the date the information is prepared (best-estimate
assumptions).
Fraud—The term “fraud” refers to an intentional act by one or more individuals among
management, employees, or third parties, which results in a misrepresentation of financial
statements.
General controls in computer information systems—The establishment of a framework of

overall control over the computer information systems activities to provide a reasonable
level of assurance that the overall objectives of internal control are achieved.
Going concern assumption—Under the going concern assumption, an entity is ordinarily

viewed as continuing in business for the foreseeable future with neither the intention nor
the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant
to laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the

entity will be able to realize its assets and discharge its liabilities in the normal course of
business.
Governance—The term “governance” describes the role of persons entrusted with the
supervision, control and direction of an entity. Those charged with governance ordinarily
are accountable for ensuring that the entity achieves its objectives, financial reporting, and
reporting to interested parties. Those charged with governance include management only
when it performs such functions.
Government business enterprises—Government business enterprises are businesses

which operate within the public sector ordinarily to meet a political or social interest
objective. They are ordinarily required to operate commercially, that is, to make profits or
to recoup, through user charges a substantial proportion of their operating costs.
Incoming auditor— (see Auditor)
Inherent risk— (see Audit risk)
Inquiry—Inquiry consists of seeking information of knowledgeable persons inside or

outside the entity.
Inspection—Inspection consists of examining records, documents, or tangible assets.
Interim financial information or statements—Financial information (which may be less than

full financial statements as defined above) issued at interim dates (usually half yearly or
quarterly) in respect of a financial period.
Internal auditing—Internal auditing is an appraisal activity established within an entity as

a service to the entity. Its functions include, amongst other things, examining, evaluating
and monitoring the adequacy and effectiveness of the accounting and internal control
systems.
Internal control system—An internal control system consists of all the policies and
procedures (internal controls) adopted by the management of an entity to assist in
achieving management’s objective of ensuring, as far as practicable, the orderly and
efficient conduct of its business, including adherence to management policies, the
safeguarding of assets, the prevention and detection of fraud and error, the accuracy and
completeness of the accounting records, and the timely preparation of reliable financial
information. The internal control system extends beyond these matters which relate
directly to the functions of the accounting system.
IT environment—The policies and procedures that the entity implements and the IT
infrastructure (hardware, operating systems, etc) and application software that it uses to
support business operations and achieve business strategies.
Knowledge of the business—The auditor’s general knowledge of the economy and the
industry within which the entity operates and a more particular knowledge of how the entity
operates.
Limitation on scope—A limitation on the scope of the auditor’s work may sometimes be
imposed by the entity (for example, when the terms of the engagement specify that the

auditor will not carry out an audit procedure that the auditor believes is necessary). A
scope limitation may be imposed by circumstances (for example, when the timing of the
auditor’s appointment is such that the auditor is unable to observe the counting of physical
inventories). It may also arise when, in the opinion of the auditor, the entity’s accounting
records are inadequate or when the auditor is unable to carry out an audit procedure
believed desirable.
Local Area Network (LAN)—A communications network that serves users within a
confined geographical area. LANs were developed to facilitate the exchange and sharing
of resources within an organization, including data, software, storage, printers and
telecommunications equipment. They allow for decentralized computing. The basic
components of a LAN are transmission media and software, user terminals and shared
peripherals.
Management—Management comprises officers and others who also perform senior

managerial functions. Management includes directors and the audit committee only in
those instances when they perform such functions.
Management representations—Representations made by management to the auditor

during the course of an audit, either unsolicited or in response to specific inquiries.
Material inconsistency—A material inconsistency exists when other information

contradicts information contained in the audited financial statements. A material
inconsistency may raise doubt about the audit conclusions drawn from audit evidence
previously obtained and, possibly, about the basis for the auditor’s opinion on the financial
statements.
Material misstatement of fact—A material misstatement of fact in other information exists

when such information, not related to matters appearing in the audited financial
statements, is incorrectly stated or presented.
Material weaknesses—The weaknesses in internal control that could have a material

effect on the financial statements.
Materiality—Information is material if its omission or misstatement could influence the

economic decisions of users taken on the basis of the financial statements. Materiality
depends on the size of the item or error judged in the particular circumstances of its
omission or misstatement. Thus, materiality provides a threshold or cutoff point rather than
being a primary qualitative characteristic which information must have if it is to be useful.
Misstatement—A mistake in financial information which would arise from errors and fraud.
Modified auditor’s report—An auditor’s report is considered to be modified if either an

emphasis of matter paragraph(s) is added to the report or if the opinion is other than
unqualified:
Matters That Do Not Affect the Auditor’s Opinion
Emphasis of matter paragraph(s)—An auditor’s report may be modified by adding

an emphasis of matter paragraph(s) to highlight a matter affecting the financial

statements which is included in a note to the financial statements that more

extensively discusses the matter. The addition of such an emphasis of matter
paragraph(s) does not affect the auditor’s opinion. The auditor may also modify the
auditor’s report by using an emphasis of matter paragraph(s) to report matters other
than those affecting the financial statements.
Matters That Do Affect The Auditor’s Opinion
Qualified opinion—A qualified opinion is expressed when the auditor concludes that
an unqualified opinion cannot be expressed but that the effect of any disagreement
with management, or limitation on scope is not so material and pervasive as to
require an adverse opinion or a disclaimer of opinion.
Disclaimer of opinion—A disclaimer of opinion is expressed when the possible effect

of a limitation on scope is so material and pervasive that the auditor has not been
able to obtain sufficient appropriate audit evidence and accordingly is unable to
express an opinion on the financial statements.
Adverse opinion—An adverse opinion is expressed when the effect of a
disagreement is so material and pervasive to the financial statements that the auditor
concludes that a qualification of the report is not adequate to disclose the misleading
or incomplete nature of the financial statements.
National standards (auditing)—A set of auditing standards defined by the Auditing

Standards and Practices Council or by law or regulations or an authoritative body at the
country level, the application of which is mandatory in conducting an audit or related
services and which should be complied with in the conduct of an audit or related services.
Noncompliance—The term “noncompliance” is used to refer to acts of omission or

commission by the entity being audited, either intentional or unintentional, which are
contrary to the prevailing laws or regulations.
Non-sampling risk— (see Audit sampling)
Observation—Observation consists of looking at a process or procedure being performed

by others, for example, the observation by the auditor of the counting of inventories by the
entity’s personnel or the performance of internal control procedures that leave no audit
trail.
Opening balances—Opening balances are those account balances which exist at the
beginning of the period. Opening balances are based upon the closing balances of the
prior period and reflect the effects of transactions of prior periods and accounting policies
applied in the prior period.
Opinion—The auditor’s report contains a clear written expression of opinion on the

financial statements as a whole. An unqualified opinion is expressed when the auditor
concludes that the financial statements are presented fairly, in all material respects, in
accordance with the identified financial reporting framework. (See Modified auditor’s
report)
Other auditor— (see Auditor)

PCs or personal computers (also referred to as microcomputers)—Economical yet

powerful self-contained general-purpose computers consisting typically of a monitor
(visual display unit), a case containing the computer electronics and a keyboard (and
mouse). These features may be combined in portable computers [laptops]. Programs and
data may be stored internally on a hard disk or on removable storage media such as CDs
or floppy disks. PCs may be connected to on-line networks, printers and other devices
such as scanners and modems.
Personnel— (see Auditor) Planning—Planning involves developing a general strategy and

a detailed approach for the expected nature, timing and extent of the audit.
Population— (see Audit sampling) Post balance sheet events— (see Subsequent events)
Predecessor auditor— (see Auditor) Principal auditor— (see Auditor)
Programming controls—Procedures designed to prevent or detect improper changes to

computer programs that are accessed through on-line terminal devices. Access may be
restricted by controls such as the use of separate operational and program development
libraries and the use of specialized program library software. It is important for on-line
changes to programs to be adequately documented, controlled and monitored.
Projection—A projection is prospective financial information prepared on the basis of:
(a) Hypothetical assumptions about future events and management actions which are
not necessarily expected to take place, such as when some entities are in a start-up
phase or are considering a major change in the nature of operations; or
(b) A mixture of best-estimate and hypothetical assumptions.
Prospective financial information—Prospective financial information is financial

information based on assumptions about events that may occur in the future and possible
actions by an entity. Prospective financial information can be in the form of a forecast, a
projection or a combination of both. (See Forecast and Projection)
Public sector—The term “public sector” refers to national governments, regional (for
example, provincial, territorial) governments, local (for example, city, town) governments
and related governmental entities (for example, agencies, boards, commissions and
enterprises).
Qualified opinion— (see Modified auditor’s report) Quality controls—The policies and
procedures adopted by a firm to provide reasonable assurance that all audits done by the
firm are being carried out in accordance with the Objective and General Principles
Governing an Audit of Financial Statements, as set out in Philippine Standard on Auditing
220 “Quality Control for Audit Work.”
Reasonable assurance—In an audit engagement, the auditor provides a high, but not
absolute, level of assurance, expressed positively in the audit report as reasonable
assurance, that the information subject to audit is free of material misstatement.

Related parties—Related parties and related party transaction are defined in Statement
of Financial Accounting Standards 24/International Accounting Standard 24 (SFAS 24/IAS
24) as:
Related party—Parties are considered to be related if one party has the ability to
control the other party or exercise significant influence over the other party in making
financial and operating decisions.
Related party transaction—A transfer of resources or obligations between related

parties, regardless of whether a price is charged.
Related services—Related services comprise reviews, agreed-upon procedures and

compilations.
Review engagement—The objective of a review engagement is to enable an auditor to

state whether, on the basis of procedures which do not provide all the evidence that would
be required in an audit, anything has come to the auditor’s attention that causes the auditor
to believe that the financial statements are not prepared, in all material respects, in
accordance with an identified financial reporting framework.
Sampling risk— (see Audit sampling)
Sampling unit— (see Audit sampling)
Scope of an Audit—The term “scope of an audit” refers to the audit procedures deemed
necessary in the circumstances to achieve the objective of the audit.
Scope of a Review—The term “scope of a review” refers to the review procedures deemed
necessary in the circumstances to achieve the objective of the review.
Scope limitation— (see Limitation on scope) Segment information—Information in the

financial statements regarding distinguishable components or industry and geographical
aspects of an entity.
Service organization—A client may use a service organization such as one that executes
transactions and maintains related accountability or records transactions and processes
related data (e.g., a computer information systems service organization).
Significance—Significance is related to materiality of the financial statement assertion

affected.
Small entity—A small entity is any entity in which:
(a) There is concentration of ownership and management in a small number of

individuals (often a single individual); and
(b) One or more of the following are also found:
(i) Few sources of income;

(ii) Unsophisticated record-keeping; and
(iii) Limited internal controls together with the potential for management override
of controls.

Small entities will ordinarily display characteristic (a), and one or more of the
characteristics included under (b).
Special purpose auditor’s report—A report issued in connection with the independent audit
of financial information other than an auditor’s report on financial statements, including:
(a) Financial statements prepared in accordance with a comprehensive basis of

accounting other than Philippine Financial Reporting Standards;
(b) Specified accounts, elements of accounts, or items in a financial statement;
(c) Compliance with contractual agreements; and
(d) Summarized financial statements.
Statistical sampling—(see Audit sampling)
Stratification—(see Audit sampling)
Subsequent events—SFAS 10/IAS 10 identifies two types of events both favorable and
unfavorable occurring after period end:
(a) Those that provide further evidence of conditions that existed at period end; and
(b) Those that are indicative of conditions that arose subsequent to period end.
Substantive procedures—Substantive procedures are tests performed to obtain audit

evidence to detect material misstatements in the financial statements, and are of two
types:
(a) Tests of details of transactions and balances; and
(b) Analytical procedures.
Sufficiency—Sufficiency is the measure of the quantity of audit evidence.
Summarized financial statements—(see Financial statements)
Supreme Audit Institution—The public body of a State which, however designated,

constituted or organized, exercises by virtue of law, the highest public auditing function of
that State.
Tests of control—Tests of control are performed to obtain audit evidence about the
effectiveness of the:
(a) Design of the accounting and internal control systems, that is, whether they are
suitably designed to prevent or detect and correct material misstatements; and
(b) Operation of the internal controls throughout the period.

Tolerable error—(see Audit sampling)
Transaction logs—Reports that are designed to create an audit trail for each on-line
transaction. Such reports often document the source of a transaction (terminal, time and
user) as well as the transaction’s details.
Uncertainty— An uncertainty is a matter whose outcome depends on future actions or

events not under the direct control of the entity but that may affect the financial statements.
Unqualified opinion—(see Opinion)
Walk-through test—A walk-through test involves tracing a few transactions through the
accounting system.
Wide area network (WAN)—A communications network that transmits information across
an expanded area such as between plant sites, cities and nations. WANs allow for on-line
access to applications from remote terminals. Several LANs can be interconnected in a
WAN.
Working papers—Working papers are a record of the auditor’s planning; nature, timing
and extent of the auditing procedures performed; and results of such procedures and the
conclusions drawn from the evidence obtained. Working papers may be in the form of data
stored on paper, film, electronic media or other media.
Scope of this PSA
This Philippine Standard on Auditing (PSA) deals with the specific responsibilities of the
auditor regarding quality control procedures for an audit of financial statements. It also
addresses, where applicable, the responsibilities of the engagement quality control
reviewer. This PSA is to be read in conjunction with relevant ethical requirements. System
of Quality Control and Role of Engagement Teams
Quality control systems, policies and procedures are the responsibility of the audit firm.
Under PSQC 1 (Redrafted), the firm has an obligation to establish and maintain a system
of quality control to provide it with reasonable assurance that: (a) The firm and its
personnel comply with professional standards and regulatory and legal requirements; and
(b) The reports issued by the firm or engagement partners are appropriate in the
circumstances.1 This PSA is premised on the basis that the firm is subject to PSQC 1
(Redrafted) or to national requirements that are at least as demanding. (Ref: Para. A1)
PSQC 1 (Redrafted), or national requirements that are at least as demanding, deals with
the firm’s responsibilities to establish and maintain its system of quality control for audit
engagements. The system of quality control includes policies and procedures that address
each of the following elements:
 Leadership responsibilities for quality within the firm;

 Relevant ethical requirements;
 Acceptance and continuance of client relationships and specific engagements;
 Human resources;
 Engagement performance; and
 Monitoring.

National requirements that deal with the firm’s responsibilities to establish and maintain a
system of quality control are at least as demanding as PSQC 1 (Redrafted) when they
address all the elements referred to in this paragraph and impose obligations on the firm
that achieve the aims of the requirements set out in PSQC 1 (Redrafted).
Within the context of the firm’s system of quality control, engagement teams have a
responsibility to implement quality control procedures that are applicable to the audit
engagement and provide the firm with relevant information to enable the functioning of
that part of the firm’s system of quality control relating to independence.
Engagement teams are entitled to rely on the firm’s system of quality control, unless
information provided by the firm or other parties suggests otherwise. (Ref: Para. A2)
Unless information provided by the firm or other parties suggest otherwise, the
engagement team may rely on the firm’s system of quality control in relation to, for
example:
 Competence of personnel through their recruitment and formal training.

 Independence through the accumulation and communication of relevant
independence information.
 Maintenance of client relationships through acceptance and continuance systems.
 Adherence to regulatory and legal requirements through the monitoring process.
Effective Date
This PSA is effective for audits of financial statements for periods beginning on or after
December 15, 2009.
Objective
The objective of the auditor is to implement quality control procedures at the engagement
level that provide the auditor with reasonable assurance that:
(a) The audit complies with professional standards and regulatory and legal requirements;
and
(b) The auditor’s report issued is appropriate in the circumstances.
Definitions
For purposes of the PSAs, the following terms have the meanings attributed below:
a. Engagement partner– The partner or other person in the firm who is responsible
for the audit engagement and its performance, and for the auditor’s report that is
issued on behalf of the firm, and who, where required, has the appropriate authority
from a professional, legal or regulatory body.
b. Engagement quality control review – A process designed to provide an objective

evaluation, on or before the date of the auditor’s report, of the significant judgments
the engagement team made and the conclusions it reached in formulating the
auditor’s report. The engagement quality control review process is only for audits
of financial statements of listed entities and those other audit engagements, if any,

for which the firm has determined an engagement quality control review is
required.
c. Engagement quality control reviewer – A partner, other person in the firm, suitably
qualified external person, or a team made up of such individuals, none of whom is
part of the engagement team, with sufficient and appropriate experience and
authority to objectively evaluate the significant judgments the engagement team
made and the conclusions it reached in formulating the auditor’s report.
d. Engagement team – All partners and staff performing the engagement, and any
individuals engaged by the firm or a network firm who perform audit procedures on
the engagement. This excludes an auditor’s external expert engaged by the firm
or a network firm.
e. Firm – A sole practitioner, partnership, or other entity of professional accountants.
f. Inspection – In relation to completed audit engagements, procedures designed to

provide evidence of compliance by engagement teams with the firm’s quality
control policies and procedures.
g. Listed entity – An entity whose shares, stock or debt are quoted or listed on a
recognized stock exchange, or are marketed under the regulations of a recognized
stock exchange or other equivalent body.
h. Monitoring – A process comprising an ongoing consideration and evaluation of the

firm’s system of quality control, including a periodic inspection of a selection of
completed engagements, designed to provide the firm with reasonable assurance
that its system of quality control is operating effectively.
i. Network firm – A firm or entity that belongs to a network.
j. Network – A larger structure: (i) That is aimed at cooperation, and (ii) That is clearly
aimed at profit or cost-sharing or shares common ownership, control or
management, common quality control policies and procedures, common business
strategy, the use of a common brand name, or a significant part of professional
resources.
k. Partner – Any individual with authority to bind the firm with respect to the
performance of a professional services engagement.
l. Personnel – Partners and staff.
m. Professional standards – Philippine Standards on Auditing (PSAs) and relevant

ethical requirements.
n. Relevant ethical requirements – Ethical requirements to which the engagement

team and engagement quality control reviewer are subject, which ordinarily
comprise Parts A and B of the Code of Ethics for Professional Accountants in the
Philippines (Philippine Ethics Code) related to an audit of financial statements
together with national requirements that are more restrictive.

o. Staff – Professionals, other than partners, including any experts the firm employs.
p. Suitably qualified external person – An individual outside the firm with the
competence and capabilities to act as an engagement partner, for example a
partner of another firm, or an employee (with appropriate experience) of either a
professional accountancy body whose members may perform audits of historical
financial information or of an organization that provides relevant quality control
services.
Requirements Leadership Responsibilities for Quality on Audits
The engagement partner shall take responsibility for the overall quality on each audit
engagement to which that partner is assigned.
The actions of the engagement partner and appropriate messages to the other members
of the engagement team, in taking responsibility for the overall quality on each audit
engagement, emphasize:
a. The importance to audit quality of:
(i) Performing work that complies with professional standards and regulatory
and legal requirements;
(ii) Complying with the firm’s quality control policies and procedures as
applicable;
(iii) Issuing auditor’s reports that are appropriate in the circumstances; and
(iv) The engagement team’s ability to raise concerns without fear of reprisals;
and
b. The fact that quality is essential in performing audit engagements.
Relevant Ethical Requirements
Throughout the audit engagement, the engagement partner shall remain alert, through
observation and making inquiries as necessary, for evidence of noncompliance with
relevant ethical requirements by members of the engagement team. (Ref: Para. A4-A5)
The Philippine Ethics Code establishes the fundamental principles of professional ethics,
which include:
a. Integrity;
b. Objectivity;
c. Professional competence and due care;
d. Confidentiality; and
e. Professional behavior.

If matters come to the engagement partner’s attention through the firm’s system of quality
control or otherwise that indicate that members of the engagement team have not
complied with relevant ethical requirements, the engagement partner, in consultation with
others in the firm, shall determine the appropriate action.
The definitions of “firm,” “network” or “network firm” in relevant ethical requirements may
differ from those set out in this PSA. For example, the Philippine Ethics Code defines the
“firm” as:
a. A sole practitioner or partnership of professional accountants;
b. An entity that controls such parties through ownership, management or other

means; and
c. An entity controlled by such parties through ownership, management or other

means. The Philippine Ethics Code also provides guidance in relation to the term’s
“network” and “network firm.” In complying with the requirements, the definitions
used in the relevant ethical requirements apply in so far as is necessary to interpret
those ethical requirements.
Independence
The engagement partner shall form a conclusion on compliance with independence

requirements that apply to the audit engagement. In doing so, the engagement partner
shall:
a. Obtain relevant information from the firm and, where applicable, network firms, to
identify and evaluate circumstances and relationships that create threats to
independence;
b. Evaluate information on identified breaches, if any, of the firm’s independence

policies and procedures to determine whether they create a threat to
independence for the audit engagement; and
c. Take appropriate action to eliminate such threats or reduce them to an acceptable

level by applying safeguards, or, if considered appropriate, to withdraw from the
audit engagement, where withdrawal is permitted by law or regulation. The
engagement partner shall promptly report to the firm any inability to resolve the
matter for appropriate action.
The engagement partner may identify a threat to independence regarding the audit
engagement that safeguards may not be able to eliminate or reduce to an
acceptable level. In that case, the engagement partner reports to the relevant
person(s) within the firm to determine appropriate action, which may include
eliminating the activity or interest that creates the threat, or withdrawing from the
audit engagement, where withdrawal is legally permitted. Considerations Specific
to Public Sector Entities
Statutory measures may provide safeguards for the independence of public sector
auditors. However, public sector auditors or audit firms carrying out public sector
audits on behalf of the statutory auditor may, depending on the terms of the

mandate in a particular jurisdiction, need to adapt their approach in order to

promote compliance with the spirit of paragraph 11. This may include, where the
public sector auditor’s mandate does not permit withdrawal from the engagement,
disclosure through a public report, of circumstances that have arisen that would, if
they were in the private sector, lead the auditor to withdraw.
Acceptance and Continuance of Client Relationships and Audit Engagements
The engagement partner shall be satisfied that appropriate procedures regarding the
acceptance and continuance of client relationships and audit engagements have been
followed, and shall determine that conclusions reached in this regard are appropriate.
PSQC 1 (Redrafted) requires the firm to obtain information considered necessary in the
circumstances before accepting an engagement with a new client, when deciding whether
to continue an existing engagement, and when considering acceptance of a new
engagement with an existing client.
Information such as the following assists the engagement partner in determining whether
the conclusions reached regarding the acceptance and continuance of client relationships
and audit engagements are appropriate:
 The integrity of the principal owners, key management and those charged with
governance of the entity;
 Whether the engagement team is competent to perform the audit engagement and
has the necessary capabilities, including time and resources;
 Whether the firm and the engagement team can comply with relevant ethical
requirements; and
 Significant matters that have arisen during the current or previous audit
engagement, and their implications for continuing the relationship.
If the engagement partner obtains information that would have caused the firm to decline
the audit engagement had that information been available earlier, the engagement partner
shall communicate that information promptly to the firm, so that the firm and the
engagement partner can take the necessary action.
In the public sector, auditors may be appointed in accordance with statutory procedures.
Accordingly, certain of the requirements and considerations regarding the acceptance and
continuance of client relationships and audit engagements as set out in paragraphs 12,
13 and A8 may not be relevant. Nonetheless, information gathered as a result of the
process described may be valuable to public sector auditors in performing risk
assessments and in carrying out reporting responsibilities.
Assignment of Engagement Teams
The engagement partner shall be satisfied that the engagement team, and any auditor’s
experts who are not part of the engagement team, collectively have the appropriate
competence and capabilities to:

a. Perform the audit engagement in accordance with professional standards and

regulatory and legal requirements; and
b. Enable an auditor’s report that is appropriate in the circumstances to be issued.
An engagement team also includes a member using expertise in a specialized area of

accounting or auditing, whether engaged or employed by the firm, if any, who performs
audit procedures on the engagement.
When considering the appropriate competence and capabilities expected of the

engagement team as a whole, the engagement partner may take into consideration such
matters as the team’s:
 Understanding of, and practical experience with, audit engagements of a similar

nature and complexity through appropriate training and participation.
 Understanding of professional standards and regulatory and legal requirements.
 Technical expertise, including expertise with relevant information technology and

specialized areas of accounting or auditing.
 Knowledge of relevant industries in which the client operates.
 Ability to apply professional judgment.
 Understanding of the firm’s quality control policies and procedures.
In the public sector, additional appropriate competence may include skills that are
necessary to discharge the terms of the audit mandate in a particular jurisdiction. Such
competence may include an understanding of the applicable reporting arrangements,
including reporting to the legislature or other governing body or in the public interest. The
wider scope of a public sector audit may include, for example, some aspects of
performance auditing or a comprehensive assessment of compliance with legislative
authorities and preventing and detecting fraud and corruption.
Engagement Performance Direction, Supervision and Performance
The engagement partner shall take responsibility for:
a. The direction, supervision and performance of the audit engagement in compliance

with professional standards and regulatory and legal requirements; and
Direction of the engagement team involves informing the members of the

engagement team of matters such as:
 Their responsibilities, including the need to comply with relevant ethical

requirements, and to plan and perform an audit with professional
skepticism as required by PSA 200 (Revised and Redrafted).
 Responsibilities of respective partners where more than one partner is

involved in the conduct of an audit engagement.

 The objectives of the work to be performed.
 The nature of the entity’s business.
 Risk-related issues.
 Problems that may arise.

 The detailed approach to the performance of the engagement.
Discussion among members of the engagement team allows less experienced

team members to raise questions with more experienced team members so that
appropriate communication can occur within the engagement team.
Appropriate teamwork and training assist less experienced members of the

engagement team to clearly understand the objectives of the assigned work.
Supervision includes matters such as:
 Tracking the progress of the audit engagement.
 Considering the competence and capabilities of individual members of the

engagement team, including whether they have sufficient time to carry out
their work, whether they understand their instructions, and whether the
work is being carried out in accordance with the planned approach to the
audit engagement.
 Addressing significant matters arising during the audit engagement,

considering their significance and modifying the planned approach
appropriately.
 Identifying matters for consultation or consideration by more experienced

engagement team members during the audit engagement.
b. The auditor’s report being appropriate in the circumstances.
Reviews
The engagement partner shall take responsibility for reviews being performed in
accordance with the firm’s review policies and procedures.
Under PSQC 1 (Redrafted), the firm’s review responsibility policies and procedures
are determined on the basis that work of less experienced team members is
reviewed by more experienced team members.
A review consists of consideration whether, for example:
 The work has been performed in accordance with professional standards

and regulatory and legal requirements;

 Significant matters have been raised for further consideration;
 Appropriate consultations have taken place and the resulting conclusions

have been documented and implemented;
 There is a need to revise the nature, timing and extent of work performed;
 The work performed supports the conclusions reached and is appropriately

documented;
 The evidence obtained is sufficient and appropriate to support the auditor’s

report; and
 The objectives of the engagement procedures have been achieved.
On or before the date of the auditor’s report, the engagement partner shall, through a
review of the audit documentation and discussion with the engagement team, be satisfied
that sufficient appropriate audit evidence has been obtained to support the conclusions
reached and for the auditor’s report to be issued.
Timely reviews of the following by the engagement partner at appropriate stages during
the engagement allow significant matters to be resolved on a timely basis to the
engagement partner’s satisfaction on or before the date of the auditor’s report:
 Critical areas of judgment, especially those relating to difficult or contentious

matters identified during the course of the engagement;
 Significant risks; and
 Other areas the engagement partner considers important.
The engagement partner need not review all audit documentation, but may do so.
However, as required by PSA 230 (Redrafted), the partner documents the extent and
timing of the reviews.
An engagement partner taking over an audit during the engagement may apply the review
procedures as described in paragraphs A18 to review the work performed to the date of a
change in order to assume the responsibilities of an engagement partner.
Where a member of the engagement team with expertise in a specialized area of

accounting or auditing is used, direction, supervision and review of that engagement team
member’s work may include matters such as:
 Agreeing with that member the nature, scope and objectives of that member’s
work; and the respective roles of, and the nature, timing and extent of
communication between that member and other members of the engagement
team.

 Evaluating the adequacy of that member’s work including the relevance and
reasonableness of that member’s findings or conclusions and their consistency
with other audit evidence.
Consultation
The engagement partner shall:
a. Take responsibility for the engagement team undertaking appropriate consultation

on difficult or contentious matters;
b. Be satisfied that members of the engagement team have undertaken appropriate

consultation during the course of the engagement, both within the engagement
team and between the engagement team and others at the appropriate level within
or outside the firm;
c. Be satisfied that the nature and scope of, and conclusions resulting from, such
consultations are agreed with the party consulted; and
d. Determine that conclusions resulting from such consultations have been

implemented.
 Effective consultation on significant technical, ethical, and other matters

within the firm or, where applicable, outside the firm can be achieved when
those consulted: Are given all the relevant facts that will enable them to
provide informed advice; and
 Have appropriate knowledge, seniority and experience.
It may be appropriate for the engagement team to consult outside the firm, for
example, where the firm lacks appropriate internal resources. They may take
advantage of advisory services provided by other firms, professional and regulatory
bodies, or commercial organizations that provide relevant quality control services.
Engagement Quality Control Review
For audits of financial statements of listed entities, and those other audit engagements, if
any, for which the firm has determined that an engagement quality control review is
required, the engagement partner shall:
a. Determine that an engagement quality control reviewer has been appointed;
b. Discuss significant matters arising during the audit engagement, including those
identified during the engagement quality control review, with the engagement
quality control reviewer; and
c. Not date the auditor’s report until the completion of the engagement quality control
review.
PSA 700 (Redrafted) requires the auditor’s report to be dated no earlier than the
date on which the auditor has obtained sufficient appropriate evidence on which to

base the auditor’s opinion on the financial statements. In cases of an audit of

financial statements of listed entities or when an engagement meets the criteria for
an engagement quality control review, such a review assists the auditor in
determining whether sufficient appropriate evidence has been obtained.
Conducting the engagement quality control review in a timely manner at

appropriate stages during the engagement allows significant matters to be
promptly resolved to the engagement quality control reviewer’s satisfaction on or
before the date of the auditor’s report.
Completion of the engagement quality control review means the completion by the
engagement quality control reviewer of the above requirement, and where
applicable, compliance with above. Documentation of the engagement quality
control review may be completed after the date of the auditor’s report as part of
the assembly of the final audit file. PSA 230 (Redrafted) establishes requirements
and provides guidance in this regard.
The engagement quality control reviewer shall perform an objective evaluation of the
significant judgments made by the engagement team, and the conclusions reached in
formulating the auditor’s report. This evaluation shall involve:
a. Discussion of significant matters with the engagement partner;
b. Review of the financial statements and the proposed auditor’s report;
c. Review of selected audit documentation relating to the significant judgments the

engagement team made and the conclusions it reached; and
d. Evaluation of the conclusions reached in formulating the auditor’s report and

consideration of whether the proposed auditor’s report is appropriate.
Remaining alert for changes in circumstances allows the engagement partner to

identify situations in which an engagement quality control review is necessary,
even though at the start of the engagement, such a review was not required. The
extent of the engagement quality control review may depend, among other things,
on the complexity of the audit engagement, whether the entity is a listed entity, and
the risk that the auditor’s report might not be appropriate in the circumstances. The
performance of an engagement quality control review does not reduce the
responsibilities of the engagement partner for the audit engagement and its
performance.
For audits of financial statements of listed entities, the engagement quality control
reviewer, on performing an engagement quality control review, shall also consider the
following:
a. The engagement team’s evaluation of the firm’s independence in relation to the

audit engagement;
b. Whether appropriate consultation has taken place on matters involving differences

of opinion or other difficult or contentious matters, and the conclusions arising from
those consultations; and

c. Whether audit documentation selected for review reflects the work performed in
relation to the significant judgments made and supports the conclusions reached.
Other matters relevant to evaluating the significant judgments made by the

engagement team that may be considered in an engagement quality control review
of a listed entity include:
 Significant risks identified during the engagement in accordance with PSA

315 (Redrafted), and the responses to those risks in accordance with PSA
330 (Redrafted), including the engagement team’s assessment of, and
response to, the risk of fraud in accordance with PSA 240 (Redrafted).
 Judgments made, particularly with respect to materiality and significant

risks.
 The significance and disposition of corrected and uncorrected

misstatements identified during the audit.
 The matters to be communicated to management and those charged with

governance and, where applicable, other parties such as regulatory bodies.
These other matters, depending on the circumstances, may also be
applicable for engagement quality control reviews for audits of financial
statements of other entities.
Considerations Specific to Smaller Entities
In addition to the audits of financial statements of listed entities, an engagement

quality control review is required for audit engagements that meet the criteria
established by the firm that subjects engagements to an engagement quality
control review. In some cases, none of the firm’s audit engagements may meet the
criteria that would subject them to such a review.
Considerations Specific to Public Sector Entities
In the public sector, a statutorily appointed auditor (for example, an Auditor

General, or other suitably qualified person appointed on behalf of the Auditor
General), may act in a role equivalent to that of engagement partner with overall
responsibility for public sector audits. In such circumstances, where applicable, the
selection of the engagement quality control reviewer includes consideration of the
need for independence from the audited entity and the ability of the engagement
quality control reviewer to provide an objective evaluation.
Listed entities are not common in the public sector. However, there may be other
public sector entities that are significant due to size, complexity or public interest
aspects, and which consequently have a wide range of stakeholders. Examples
include state owned corporations and public utilities. Ongoing transformations
within the public sector may also give rise to new types of significant entities. There
are no fixed objective criteria on which the determination of significance is based.
Nonetheless, public sector auditors evaluate which entities may be of sufficient
significance to warrant performance of an engagement quality control review.

Differences of Opinion
If differences of opinion arise within the engagement team, with those consulted or, where
applicable, between the engagement partner and the engagement quality control
reviewer, the engagement team shall follow the firm’s policies and procedures for dealing
with and resolving differences of opinion.
Monitoring
An effective system of quality control includes a monitoring process designed to provide

the firm with reasonable assurance that its policies and procedures relating to the system
of quality control are relevant, adequate, and operating effectively. The engagement
partner shall consider the results of the firm’s monitoring process as evidenced in the latest
information circulated by the firm and, if applicable, other network firms and whether
deficiencies noted in that information may affect the audit engagement.
PSQC 1 (Redrafted) requires the firm to establish a monitoring process designed to

provide it with reasonable assurance that the policies and procedures relating to the
system of quality control is relevant, adequate and operating effectively. In considering
deficiencies that may affect the audit engagement, the engagement partner may have
regard to measures the firm took to rectify the situation that the engagement partner
considers are sufficient in the context of that audit. A deficiency in the firm’s system of
quality control does not necessarily indicate that a particular audit engagement was not
performed in accordance with professional standards and regulatory and legal
requirements, or that the auditor’s report was not appropriate.
Documentation
The auditor shall document:
a. Issues identified with respect to compliance with relevant ethical requirements and
how they were resolved.
b. Conclusions on compliance with independence requirements that apply to the

audit engagement, and any relevant discussions with the firm that support these
conclusions.
c. Conclusions reached regarding the acceptance and continuance of client

relationships and audit engagements.
d. The nature and scope of, and conclusions resulting from, consultations undertaken
during the course of the audit engagement.
Documentation of consultations with other professionals that involve difficult or

contentious matters that is sufficiently complete and detailed contributes to an
understanding of:
 The issue on which consultation was sought; and

 The results of the consultation, including any decisions taken, the basis for
those decisions and how they were implemented.
The engagement quality control reviewer shall document, for the audit engagement
reviewed, that:
a. The procedures required by the firm’s policies on engagement quality control

review have been performed;
b. The engagement quality control review has been completed on or before the date
of the auditor’s report; and
c. The reviewer is not aware of any unresolved matters that would cause the reviewer
to believe that the significant judgments the engagement team made and the
conclusions they reached were not appropriate.

Unit 2 Regulation of The Practice of Public Accountancy and Within The Accounting Firm

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Unit 2 Regulation of The Practice of Public Accountancy and Within The Accounting Firm

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Introduction to Auditing Page 1 of 136

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