Professional Documents
Culture Documents
I. Review Questions
Activities which may not affect independence in fact, but which are likely to
affect independence in appearance are: (Notice that the first two are violations
of the Code of Ethics.)
3. In return for the faith placed in CPAs by the public, CPAs should continually
seek to demonstrate their dedication to professional excellence. The public
interest is defined as the community’s collective well-being. CPAs handle
ethical conflicts best by acting with integrity, objectivity, and due professional
care and by having a genuine interest in serving the public.
An ethical dilemma can be resolved using the six-step approach outlined below:
1. Obtain the relevant facts.
2. Identify the ethical issues from the facts.
3. Determine who is affected by the outcome of the dilemma and how
each person or group is affected.
4. Identify the alternatives available to the person who must resolve the
dilemma.
5. Identify the likely consequence of each alternative.
6. Decide the appropriate action.
Conscience might not be a sufficient guide for personal ethics decisions because
the individual’s undefinable mental processes may be based on caprice,
immaturity, ignorance, stubbornness, or misunderstanding. Conscience may fail
to show the consistency, clarity, practicability, impartiality, and adequacy
preferred in ethical standards and behavior. Exactly the same can be said about
professional ethics decisions because a nonhypocritical individual can no more
split his behavior between personal life and professional life than he can
voluntarily split his own personality.
10. The CPA firm’s independence would not be impaired as long as Gary Angeles
did not personally participate in the audit of this particular client. Once Gary
Code of Ethics for Professional Accountants in the Philippines 7-3
rises to the position in which he becomes a “managerial employee” of the CPA
firm, however, he must be transferred to an office which does not participate in
this audit if the firm is to remain independent.
11. Historically, compensation for CPAs serving as expert witnesses had to be based
on a standard per diem rate or a fixed sum. However, under certain situations,
such contingent fees are allowed only from clients for which the CPA does not
also provide to the client financial statement audits, reviews or certain
compilations, or prospective financial information examinations.
12. Sanchez may only refer certain clients to his wife or to another life insurance
agent who will share such a commission with his wife provided that he does not
perform assurance as well as nonassurance services.
1. d 8. a* 15. c 22. b
2. b 9. a* 16. d 23. d
3. d 10. a 17. a 24. c
4. a 11. a 18. c 25. c
5. a 12. a 19. a 26. b
6. c 13. a 20. a 27. d
7. a* 14. c 21. a
*7. A fee for audit clients which is dependent upon the results achieved by the CPA’s efforts
is a contingent fee and is prohibited for audit clients.
*9. The declaration requires the preparer to acknowledge that the return is “true, correct,
and complete...based on all information of which the preparer has any knowledge.”
e. Interpretation
Jack is still not independent, so long as the daughter is a dependent child.
The financial interest is considered direct.
f. Interpretation
Still not enough. The grandfather (either Jack’s father or his father-in-law)
is considered a nondependent close relative, but the appearance of
independence is impaired. The grandfather’s investment is material (50
percent) in relation to his net financial resources.
Case 2. a. Pee and Co. / United Furniture, Inc.: This is a judgment call. In this case,
the services can be considered temporary, mechanical in nature and
performed on a one-time emergency basis. For these reasons, the SEC
would probably not consider independence impaired.
b. Renson & Co. / Spectrum Corporation Laser Division: The SEC would
consider independence impaired because of the extent of the bookkeeping
services and the relative size of the Division. The only solution that might
work is to have another accounting firm audit the Laser Division financials
Code of Ethics for Professional Accountants in the Philippines 7-5
so that Renson & Co. can write a report “in reliance on the work of other
independent auditors.”
c. Reyes & Co. / Valley Bank: The SEC would consider independence
impaired because of the family relation of Annabelle, her connection with
Valley’s financial statements and the fact that Kris is a “member” (partner)
in the audit firm. (The PICPA would probably also consider independence
impaired because of the apparent closeness of the two sisters and the “audit
sensitivity” of Annabelle’s job).
d. Cruz & Reyes / Jonas Tomas / Starex Money Market Fund: Jonas is a
“member” since he is a manager and will provide audit services to SMMF.
Cruz & Reyes’ independence is impaired since Jonas holds a direct
financial interest.
Since Bella had an employment relationship with the client during part of the
period covered by the financial statements, her independence is impaired.
Case 5. Although her decision will not be popular with the audit staff, Tracy Ong should
thank the client but decline the offer, both for her and for the staff. She should
explain that an outsider who had knowledge of all of the relevant facts might
view the free use of a condominium as a sizable “gift” to the auditors, which
might influence their independent mental attitude. Thus, we believe that to
maintain an appearance of independence, the auditors should not accept this
offer.
Case 6. No. CPAs may refuse client access to their working papers for any valid
business purpose. Therefore, a CPA may require that fees be paid before
working papers including such adjusting entries and supporting analysis are
provided to the client.